13th Apr, 2017

Hang Seng Index Performance Index Performance

Abs chg % Change Kong Close 1-Day 1-Day 1-Mth 3-Mth 24,313.50 225.04 0.93 2.03 6.00 HSCI 3,345.47 26.90 0.81 1.93 7.56 HSCCI (Red Chips) 4,014.17 34.31 0.86 2.69 7.22 HSCEI (H-Shares) 10,208.31 42.33 0.42 -0.49 4.30 Mkt T/O ($ Mn) 71,839.02 -4,968.85 -6.47 4.74 13.57

Oversea DJIA 20,591.86 -59.44 -0.29 -1.39 3.55 NASDAQ 5,836.16 -30.61 -0.52 -0.67 4.70 Shanghai SE Composite 3,273.83 -15.14 -0.46 1.14 5.17 Crude Oil Futures (US$) 52.94 -0.17 -0.32 9.38 1.09 Gold Futures (US$) 1,288.70 10.60 0.83 7.11 7.73 Baltic Dry Index 1,282.00 20.00 1.58 16.65 40.88 USD / Euro 1.0662 0.0060 0.57 0.03 0.24 Yen / USD 108.910 -0.7000 0.64 5.37 5.38

HSCEI HSI 20-Day MA 10,383.80 24,285.21

50-Day MA 10,269.55 23,941.09 Source: Bloomberg 9-Day RSI 39.41 54.67

Market Outlook Eric Yuen - [email protected] Hang Seng Index closed up 0.9% at 24,313. Market turnover decreased to $71.8 billion. Heavily weighted (700) and AIA Group (1299) surged 2.7% and 1.1% respectively. HSBC (5) and Mobile (941) added 0.6%-0.8%. Automobile (175) jumped 3.7%, the most in Hang Seng Index. China Merchants Port (144), Belle Int’l (1880) and AAC Technologies (2018) increased 1.7%-2.5%. Gaming operator (1928) and Galaxy Entertainment (27) soared 1.0%-1.4%. Local banking and property stocks were mixed. Hang Seng (11) climbed 1.0% while BOC We expect Hang Seng (2388) retreated 0.3%. CK Property (1113), Link REIT (823) and Wharf (4) rose 1.6%- 1.8%. Pacific (19) tumbled 1.6% making it the worst performing index stock. Index to reach 25,000 HSCEI advanced 0.4% led by pharmaceutical and banking shares. Sinopharm (1099), in near term. BYD Company (1211) and Anhui Conch (914) climbed 1.3%, 1.2% and 0.9% respectively. Nine Chinese in HSCEI grew an average 0.6% among which ICBC (1398) and (3328) added 0.8%-1.0%. Railway, insurance and securities stocks showed mixed performance. GF Securities (1776) and China Galaxy Securities (6881) went up 1.3%-1.4%. Haitong Securities (6837), New China Life (1336) and CPIC (2601) plunged 0.3%-0.9%. China Railway Construction (1186) and China Railway Group (390) slid 0.7% and 1.3% respectively. We expect Hang Seng Index to reach 25,000 in near term led by H shares.

Industry / Corporate News Jason Lam - [email protected]

Geely Auto (175) reported in-line sales volume for March 2017 – Maintain BUY Maintain BUY • Achieved in-line sales volume for March and 27.9% of the company's annual sales target for 2017 Risk Level: Medium • Young product line-up alongside with a strong model cycle in 2017 and 2018 • Valuation looks attractive after the recent retreat in share price Time Horizon: Medium

Since our BUY recommendation on Geely Auto (175, $12.28, “Geely”) dated March 27, its share price retreated 14.8% and underperformed the Hang Seng Index by 11.9%. We believe the sell-off was mainly driven by profit-taking pressure of short-term investors rather than a change in fundamentals. We believe Geely’s growth story is still intact and reiterate our positive view on its long-term outlook given 1) satisfactory sales volume in 1Q17; 2) a young product line-up with strong model cycle in 2017 and 2018, alongside with an improving product mix; and 3) attractive valuation after the recent retreat in share price. Geely announced auto sales results for March 2017 on April 7 with total sales volume up 74.2% yoy to 86,952 units. Sales volume of new models launched in 2016 and SUVs increased sharply year-on-year, accounting for 53.7% and 44.3% of total sales volume in March respectively. In 1Q17, the company recorded a total sales volume of 278,581 units (+94.4% yoy) and achieved 27.9% of its annual sales target of 1.0mn units for 2017. On a sequential basis, the company’s sales volume has declined for three straight months primarily due to stagnant sales of Geely’s Vision sedan (down 14.2% yoy in March) and capacity constraints. Along with addition of new capacities over the remaining of 2017, we expect company’s sales performance to further improve. We are confident that Geely will achieve its sales target for 2017 despite potential headwinds faced in the Chinese PV market. Geely has a relatively young product line-up compared with its main domestic brand competitors (4 of the company’s major sales-driving models were launched in 2016 and contributed approx. 51.6% of Geely’s sales volume in 1Q17), alongside with a strong model cycle in 2017 and 2018. Management stated that the four new models are still in short supply (particularly with the Boyue and Vision SUV) due to capacity constraints. After further ramp up of new production facilities in Baoji, Shanxi, Linhai and Jinzhong, we expect sales of these models to pick up and continue to serve as Geely’s most significant source of sales growth in 2017. On the other hand, Geely will launch model upgrades on all of its existing models in 2017 including 2 new compact SUVs, several new HEV and PHEV models, and 1 new SUV under its premium brand “Lynk & Co”. At least 6 new models (with 3 models under “Lynk & Co”) will be put on the market in 2018. We strongly believe that upcoming new models will be well-received by customers and become key earnings drivers in 2018, given the established client-base of the predecessors for the sedan models and positive feedbacks received from global media regarding the upcoming CX-11 (SUV) manufactured under the CMA platform co-developed with Volvo (to be formally introduced in April during the Shanghai Auto Show). We forecast Geely’s sales volume to reach 1.09mn units in 2017, which is 9% higher than management guidance. Our revenue projection is RMB85.6bn (+59.4% yoy) for 2017 and RMB109.0bn (+27.3% yoy) for 2018, primarily driven by sales volume growth and higher ASP. We keep our earnings forecast unchanged at RMB7.9bn (+54.0% yoy) for 2017 and RMB10.4bn (+32.6% yoy) for 2018. Traded at 12.2x 2017 P/E, current valuation of Geely looks attractive. We therefore maintain our BUY recommendation with an unchanged 6-month price target of $13.62, based on 13.5x 2017 P/E or equivalent to 1.5 standard deviations above its 3-year forward P/E average.

Recent Recommendations

Stock Pick Rating Recommendation Highlights Target Price Reiterate BUY amid satisfactory annual results with upbeat gross margin expansion Shenzhou Int’l (2313) BUY • 2016 earnings up 25% on the back of 16% sales growth and 2ppts of gross margin improvement $60.5 • Expect margin expansion to continue amid ramp up of Vietnam plant and higher level of automation • US market only accounted for 10% of sales, thus limited impact if US imposes import tariffs Reported in-line earnings results – Maintain BUY CCCC (1800) BUY • Management targets to achieve new contracts value of RMB900bn in 2017, up 23% yoy $12.0 • Overseas expansion and increasing participation in PPP projects will be key earnings growth drivers In-line 2016 earnings results - Maintain BUY Great Wall Motor (2333) BUY • Earnings results for 2016 were largely in-line with our expectations $10.32 • Strong model cycle to support revenue growth, drive ASP and margin improvements • Undemanding valuation with attractive forward dividend yield Reiterate BUY as new acquisition will likely to supplement its organic growth Johnson Electric (179) BUY • Latest acquisition is value-accretive and likely to boost FY18 earnings by 7% $29.04 • JE has production facilities all around the world, less impacted by trade protectionism of US • Trading at 9.6x FY18 PER which is below its average forward PER in past 5 years Unreasonably cheap valuation if excluding net cash per share – Maintain BUY CMEC (1829) BUY • China's decision to set up Xiongan New Area in Hebei is positive to infrastructure contractors $6.80 • Backlog rose 18.2% in 2016 or equivalent to 5x the company's revenue in contracting • Abundant net cash of $3.43 per share with attractive dividend yield of 3.9%. Reiterate BUY amid strong turnaround in 1Q17 earnings Maanshan Iron & Steel BUY • Gross margin enhancement in 2016 was mainly driven by ramp up of auto plate products $3.53 (323) • Profitability of long products will see strong improvement amid resilience price trend • Re-rating on steel counters to continue amid better earnings stability Expect further improvement in same store sales in 1Q17 - Maintain BUY Luk Fook (590) BUY • Mainland tourist arrivals to Hong Kong grew 1.1% yoy in 2M17 and 7.3% yoy in the first half of Mar $28.5 • Same store sales in China grew 5% yoy in 4Q16, a positive growth for the first time since 3Q15 • Aggressive expansion of China's retail network in 4Q16 is likely to boost earnings growth in FY18 Reiterate BUY as paper price in China seems stabilized after last month’s fall Nine Dragons Paper BUY • Paper price corrected sharply in March, but paper mills start to raise price since last week $11.4 (2689) • Re-rating to continue as earnings will be less impacted by forex fluctuation in FY17 • Valuation is not demanding in our view Leading market position and excellent track record – Maintain BUY Wisdom Education (6068) BUY • Largest private education service provider in South China with a long operating history $2.40 • New schools in Weifang, Guang'an and Yunfu will be revenue growth drivers in FY17 and FY18 • Cheap valuation at FY17 PER of 15.5x with a 3-year earnings CAGR of 21.5% Reiterate BUY on strong 1Q17 shipment growth (2382) BUY • 1Q17 shipment for HLS, HCM and VLS showed a robust increase of 79%, 94% and 42% yoy $66.2 • Increased penetration rate of dual camera features bode well for company's ASP and gross margin • A valuation premium is justified in view of an EPS CAGR of 44% from 2016-2018

Technical Ideas

Shenzhen Investment (604, $3.71) TP: $4.08 BUY Risk: Low Time Horizon: Short

• Investment Limited, through its subsidiaries, develops and invests in properties, sells commercial and industrial goods, and provides transportation services.

• Counter rose 7.8% yesterday, surpassing its critical resistance at $3.69 and SMA20, indicating the counter’s further upside potential ahead.

• BUY. Short-term target at $4.08. Cut loss at $3.43.

Consensus 2017 PBR: 0.8x Consensus target price: $4.51

Source: Bloomberg, Mason Securities

Swire Properties (1972, $25.35) TP: $27.89 BUY Risk: Low Time Horizon: Short

• Swire Properties Limited develops and manages commercial, retail, and residential properties. The Company's investment portfolio includes office and retail premises, and serviced apartments and other residential accommodation.

• Counter advanced 3.3% yesterday, surpassing its resistance at $24.86 and reached its 52-week high, indicating its strong uptrend momentum ahead.

• BUY. Short-term target at $27.89. Cut loss at $23.22.

Consensus 2017 PBR: 0.7x Consensus target price: $26.21

Source: Bloomberg, Mason Securities

Disclosures

Investment Rating System Ratings Description Mason Securities Limited’s investment rating system is Buy Expected positive return of > 10 % Investment Ratings divided into investment ratings, risk rating and Hold Expected return range of ~ ±10 % Sell Expected negative return > 10% investment time horizon. The rating scale is subject to High (H) 90-day volatility of > 50% change upon periodic review of market by research Risk Ratings Medium (M) 90-day volatility of > 30-50% department. Assigned ratings are based on company Low (L) 90-day volatility of < 30% and sector historical performance and analysts’ Investment Time Long (L) 6 – 12 Months intrinsic valuation of the stock Horizon Medium (M) 3 – 6 Months Short (S) Less than 1 Month

Note: 90-day volatility is measured from the security’s standard deviation of day to day logarithmic historical price changes. The 90-day price volatility equals the annualized standard deviation of the relative price change for the 90 most recent trading days closing price, expressed as a percentage

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