China / Hong Kong Market Focus DBS Equity Picks (Information in this document has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Therefore, investment products mentioned in this document may not be suitable for all investors) Refer to important disclosures at the end of this report DBS Group Research . Equity 6 Aug 2019 ANALYST Continued trade war tensions and rising Dennis LAM +852 36684177 [email protected] social unrest Byron LAM +852 36684169 [email protected] DBS Equity Picks at a glance Add Ke y fa c ts China Mengniu (2319 HK) into "Blue Chip"; Link REIT (823 HK) Inception Date 22 Jun 2018 T WRR (%) 0.97% into "Dividend"; and Xiabuxiabu (520 HK) and China Gas (384 Start Value (HK$) 1,000,000 TWRR Ann (%) 0.87% HK) into "Growth" Current Value (HK$) 1,009,717 Total Div. Recd' (HK$) 37,319 Cash lev el 5,691 Remove Ca te gorie s CNOOC (883 HK) and Sino Land (83 HK) from "Blue Chip"; BLUE CHIP DIVIDEND GROWTH Brilliance China (1114 HK), Tingyi (322 HK), Shimao Property (813 HK) from the "Growth" Provides steady growth over a Provides steady income stream Provides capital growth over 12 longer time period months The rising unrest in Hong Kong has further diminished the already DBS Equity Picks Constituents low risk appetite in the market. The Fed’s less dovish stance, Entry Last UGL* Div coupled with recent hiccups in trade negotiations, means risk # of Price Price No. of (CD) paid appetite will continue to stay low. Stock Entry Date shares (HK$) (HK$) day s % (HK$) CHINA MOBILE 28-May-19 1,180 70.5 63.15 70 -10.4% 0.00 As such, we continue to focus on sectors which are least impacted MENGNIU DAIRY 2-Aug-19 2,900 31 30.15 4 -2.7% 0.00 by the trade war, HK unrest, and sectors which offer secular HKEX 8-Jul-19 330 274.2 247.8 29 -9.6% 0.00 TENCENT 22-Mar-19 230 365 340.6 137 -6.7% 1.00 growth. We keep our telco picks within defensive names like HKBN LTD 28-May-19 6,580 12.62 14.4 70 14.1% 0.00 China Mobile (941 HK), SUNeVision (1686 HK), HKBN (1310 HK) FORTUNE REIT 28-May-19 8,120 10.44 9.91 70 -5.1% 0.00 as well as Fortune REIT (778 HK) and Link REIT (823 HK). For LINK REIT 5-Aug-19 930 90.65 90.65 1 0.0% 0.00 sectors with secular growth that are not impacted by the trade XIABUXIABU 2-Aug-19 8,230 10.9 10.5 4 -3.7% 0.00 war, we maintain our preference on China Education Group (839 COUNTRY GARDEN S 2-May-19 5,730 14.94 17.5 96 17.1% 0.08 CHINA EDUCATION 28-May-19 6,660 12.48 11.18 70 -10.4% 0.00 HK), Country Garden Services (6098 HK) and Tencent (700 HK). SUNEVISION HLDGS 28-May-19 12,640 6.57 5.21 70 -20.7% 0.00 CHINA GAS HOLDIN 2-Aug-19 2,820 31.8 31.4 4 -1.3% 0.00 We maintain our preference on HKEx (388 HK) for the potential A v erage 52 -3.3% secondary listing of US-listed Chinese names, as well as increasing *Unrealized gain/loss northbound trading. The China-US tensions will undoubtedly help Cha nge s ove r the pa st month HKEx gain future listing market share. Return CD Stock Date # of shares Price ($) (%) We have added China Gas (384 HK) for its good gas volume A ddition growth from new customers and rural coal-to-gas initiative. LINK REIT 5 Aug 930 90.65 0.0% Xiabuxiabu (520 HK) has been included for its steady growth MENGNIU DAIRY 2 Aug 2,900 31 -2.7% through its store expansion and product optimisation. We XIABUXIABU 2 Aug 8,230 10.9 -3.7% replaced our F&B pick Tingyi (322 HK) with Mengniu (2319 HK) CHINA GAS HOLDIN 2 Aug 2,820 31.8 -1.3% for its stable volume growth and potential margin enhancement. Remov al CNOOC 2 Aug 6,730 12.68 5.2% SINO LAND 2 Aug 6,400 12.34 -4.9% BRILLIANCE CHINA 2 Aug 10,140 8.23 -7.1% TINGYI 2 Aug 6,540 11.48 -9.1% SHIMAO PROPERTY 2 Aug 4,300 19.64 -5.8% DBS Equity Picks Performance Since Inception One Year sa - CS / AH China/Hong Kong Market Focus DBS Equity Picks Blue Chips Tencent (700 HK) Mobile games to rekindle momentum in FY19F, driven by strong gross billings of Price Chart key game, Honour of Kings, and its new games such as Prefect World; Positive on HK$ Relative Index Sector: Technology online advertising, with ramp up of ad fill rate of WeChat’s Moments and ad 500.0 350 loads of Mini Program 450.0 300 400.0 350.0 250 300.0 200 Risk Factor : Lack of new hit monetisable games 250.0 200.0 150 Price: HK$340.60 12-mth TP: HK$466.00 Upside: 36.8% 150.0 100 100.0 Date added to list: 22-Mar-19 Price when added HK$365.00 50.0 50 Days passed 137 Dividend received HK$1.00 0.0 0 % gain/(loss) -6.7% % chg relative to HSI: 3.5% Aug-15Apr-16Dec-16Aug-17Apr-18Dec-18Aug-19 Tencent Holdings (LHS) Relative HSI (RHS) China Mengniu (2319 HK) Solid outlook driven by core SKUs and margin enhancement from better product- Price Chart mix and lower A&P spending; We expect UHT milk and UHT yogurt to remain the HK$ Relative Index Sector: Food & Beverage key drivers, while the company will continue to invest in milk powder and ice- 35.0 200 cream; Delivering 24% y-o-y earnings growth in FY19F, and another 20% growth 30.0 180 in FY20F. 160 25.0 140 20.0 120 Risk Factor : Demand slowdown, raw material cost fluctuation 100 Price: HK$30.15 12-mth TP: HK$34.30 Upside: 13.8% 15.0 80 10.0 60 Date added to list: 2-Aug-19 Price when added HK$31.00 40 Days passed 4 Dividend received HK$0.00 5.0 20 % gain/(loss) -2.7% % chg relative to HSI: 0.1% 0.0 0 Aug-15Apr-16 Dec-16Aug-17Apr-18 Dec-18Aug-19 China Mengniu Dairy (LHS) China Mobile Anticipate the company to adopt SOE reform or employee incentive scheme. Price Chart (941 HK) Mobile service revenue growth to be driven by sub growth partly offset by ARPU HK$ Relative Index Sector: China Telecom pressure. BUY for its attractive valuation and potential upside from adopting 120.0 120 reform or employee incentive scheme 100.0 100 80.0 80 Risk Factor : Industry restructuring & policy risks 60.0 60 Price: HK$63.15 12-mth TP: HK$94.70 Upside: 50.0% 40.0 40 Date added to list: 28-May-19 Price when added HK$70.50 20.0 20 Days passed 70 Dividend received HK$0.00 0.0 0 Aug-15Apr-16Dec-16Aug-17Apr-18Dec-18Aug-19 % gain/(loss) -10.4% % chg relative to HSI: -5.9% China Mobile (LHS) Relative HSI (RHS) HK Exchange & Clearing We believe trend of US-listed Chinese companies to secondary list in HK, due to Price Chart (388 HK) the recent new listing regime and the escalation of the Sino-US trade war; We HK$ Relative Index Sector: Financials expect Northbound trading to benefit substantially from MSCI China A-share 350.0 140 inclusion; The increasing number of derivative products would also boost HKEx’s 300.0 120 earnings 250.0 100 200.0 80 Risk Factor : Lower than expected market sentiment 150.0 60 Price: HK$247.80 12-mth TP: HK$329.00 Upside: 32.8% 100.0 40 Date added to list: 8-Jul-19 Price when added HK$274.20 50.0 20 Days passed 29 Dividend received HK$0.00 0.0 0 Aug-15Apr-16Dec-16Aug-17Apr-18Dec-18Aug-19 % gain/(loss) -9.6% % chg relative to HSI: -1.9% HONG KONG EXS.& CLEAR. (LHS) Relative HSI (RHS) Page 2 China/Hong Kong Market Focus DBS Equity Picks Dividend Fortune REIT (778 HK) With > 60% of rental income derived from tenants selling consumer staples, Price Chart Fortune REIT’s income should be resilient across economic cycles; A higher HK$ Relative Index Sector: Real Estate valuation can be justified given healthy reversionary growth and rental uplift 12.0 140 Investment Trust following the asset enhancement at Fortune Kingswood; Fortune REIT offers 10.0 120 distribution yield of 4.9-5.1% for FY19-20. 8.0 100 80 6.0 Risk Factor : Faster-than-expected interest rate hike 60 Price: HK$9.91 12-mth TP: HK$11.80 Upside: 19.1% 4.0 40 Date added to list: 8-Jul-19 Price when added HK$11.06 2.0 20 Days passed 29 Dividend received HK$0.00 0.0 0 Aug-15Apr-16 Dec-16Aug-17Apr-18 Dec-18Aug-19 % gain/(loss) -10.4% % chg relative to HSI: -2.7% Fortune Rlst.Inv. (Hkg) Tst. (LHS) Relative HSI (RHS) HKBN The company is the second largest residential broadband operator in Hong Kong Price Chart (1310 HK) and will be the second largest fixed-line operator in the enterprise market after HK$ Relative Index Sector: HK Telecoms the acquisition of WTT.