Yum Cha 飲茶. May 2, 2014 CHART OF THE DAY PMI STABLE, BUT PROPERTY SECTOR MAY NEED BOOST TALKING POINTS

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1 Yum Cha 飲茶 May 2, 2014 CHART OF THE DAY PMI STABLE, BUT PROPERTY SECTOR MAY NEED BOOST INDICES Closing DoD% Hang Seng Index 22,134.0 (1.4) HSCEI 9,779.7 (1.0) Shanghai COMP 2, Shenzhen COMP 1, Gold 1,292.8 (0.2) BDIY (1.2) Crude Oil, WTI(US$/BBL) (0.9) Crude Oil, BRENT(US$/BBL) (0.6) HIBOR, 3-M 0.4 (0.4) SHIBOR, 3-M 5.5 (0.1) RMB/USD DIARY NOTES FOR THIS WEEK Apr 27 Industrial Profits (Mar) Apr 28 Leading Index (Mar) May 1 Manufacturing PMI (Apr) May 3 Non-manufacturing PMI (Apr) Source: Bloomberg Construction of housing has a bearing on industries such as cement, steel and glass, while sales of completed residential property affect mortgage lending, furniture, white goods, etc. One of Premier Li Keqiang s targets, to maintain growth sufficient to create enough jobs to support new entrants into the labour market, estimated at 10m a year, is in focus in the latest PMI data, with the employment sub-index at 48.3, showing that expected job opportunities are contracting. The housing market is an important labour pool, from construction through to fit-out and through the impact on ancillary industries. The risk in the slowdown in housing is that sentiment enters a downward spiral, and to avoid that it is highly likely that the government will introduce measures soon to lift or ease home purchase restrictions, as the target of these controls, speculation, has effectively been resolved, at least for now. TALKING POINTS It would be tempting to point to the stable official purchasing managers index (PMI) for April (up slightly at 50.4 vs in March) and claim that the worst is over, but that would be a miscalculation. The new export order measure is contracting (49.1 vs. 50.1), and the impact of weaker property prices and slowing new housing starts is not yet reflected in the PMI data. Within the official PMI the index for small enterprises has weakened to below 49, although medium-sized enterprises are showing improved expectations, so the signals are mixed. Generally, the key indicator for the coming year will be property, as its impact is widespread. Analyst: John Mulcahy, Managing Director WELLING [0382.HK, NOT-RATED] - We met Welling s deputy financial controller to learn more about the company s operations. Management s internal target for 2014 is 20% volume growth for key products, while earnings growth will be similar to 2013 thanks to ongoing efforts in improving its product mix and cost control. Welling is trading at a trailing PER of 8.8x FY13, which seems undemanding considering its +20% CAGR EPS growth, and this may also be sustainable in 2014 (i.e. 7.3x PER forward). Nevertheless, top A-share listed home appliance manufacturers are trading in a range of 6.8x to 8.8x forward PER with similar growth outlook to Welling. We do not expect the above catalysts are sufficient yet for Welling to command a premium valuation over its downstream players owning reputable brands. SHANSHUI CEMENT [0691.HK, HOLD] - The major operating arm of Shanshui Cement reported a net loss of RMB232m in Q1 2014, even worse than the net loss of RMB176m in Q Although we don t want to over-exaggerate the implications as Q1 volume usually represents less than 15% of the annual total because of seasonality, gross profit per tonne of merely RMB18 is not encouraging. We understand the company raised average selling price (ASP) by about RMB10-20/tonne in March but it seems that the full-year results are unlikely to be much better than our forecast, i.e. 6% EPS growth in 2014E, unless we see a much greater increase in average selling price (ASP). We maintain our HOLD rating and the target price of HK$3.30, based on 6.8x 2014E EPS, by applying a 25% discount to the latest average forward PER since

2 Welling [382.HK] - VISIT NOTE Beyond the Shadow of Midea We met Welling s Deputy Financial Controller to learn more about the company s operations, below are some highlights from our findings: May 2, 2014 China Industrial Sector Global leader in air-conditioner and washing machine motors. Welling is a leading global manufacturer of motors for air-conditioners (AC) and washing machines (WM), commanding market share of 31% and 26% in AC and WM motors. Midea, which is Welling s parent company and also its largest customer, contributed 40% of turnover, Welling had a solid year in 2013 with revenue and net profit +14% and +24% year-on-year (YoY) respectively. Management s internal target for 2014 is 20% volume growth for key products, while earnings growth will be similar to 2013 thanks to ongoing efforts in improving its product mix and cost control. Growth drivers intact. Brushless DC, the motor for inverter AC, which enables electricity savings of 30%, and which has margins 50% higher than motors for normal ACs, will continue to be the key growth driver, as energy saving remains a major focus in China. On WM motors, a shift from fading wave-wheel motor into series motor with higher average selling price (ASP) will offset sluggish overall volume growth. On the other hand, Welling is expanding its customer base in electrical tool motors, which currently account for 17% of sales. Although the actual contribution will not be meaningful in the near term, we believe this is a positive move. Not only will it broaden the product line-up from large motors to micro motors, but the new addition, especially with Welling motors used in a recognized household brand, should strengthen Welling s presence in household motors. Equally exposed to domestic and global economies. On paper, exports only account for 31% of Welling s total sales (rest to domestic) so Welling should be regarded as a proxy for Shenzhen-listed Midea and the China property market. However, we argue the actual exposure to exports is much higher than this, as many domestic brands export part of their end-products. Assuming another 35% of motor sales to Midea and 10% of motor sales to other domestic brands will eventually go to overseas customers in end-product form, the actual export exposure could become 48% of total sales. We consider Welling more an industrial stock geared to both the China economy and the global market. Strong Q1 earnings from home appliances. Major home appliances generated decent first-quarter (Q1) earnings with air-conditioners being the key growth driver. Although AC exports were slow (-3.3% YoY according to chinaiol.com), we are confident that Welling is still on track to deliver on its guidance. Reasonable valuation, but in line with sector. Welling is trading at a trailing PER of 8.8x FY13, which seems undemanding considering its +20% CAGR EPS growth, and this may also be sustainable in 2014 (i.e. 7.3x PER forward). However, top A-share listed home appliance manufacturers are trading in a range of 6.8x to 8.8x forward PER with a similar growth outlook to Welling. We do not expect the above catalysts are sufficient yet for Welling to command a premium valuation over its downstream players owning reputable brands. Historical dividend yield is 3.5% FY13, while the management believes there is room to gradually increase the payout ratio. Spike in cash balance of HK$1.8bn as of end appears to be a timing issue on changes in working capital, and management indicates the average level is around HK$800m similar to FY2012. Not Rated Close: HK$2.43 (April 30, 2014) Price Performance (HK$) (HK$ million) Turnover (RHS) Price (LHS) Market Cap US$894m Shares Outstanding 2,8253m Auditor PWC Free Float 31% 52W range M average daily T/O US$0.81m Major Shareholding Midea (68.9%) Value Partners (6.0%) Source: Company, Bloomberg John Mulcahy Head of Research (852) johnmul@chinastock.com.hk 2

3 Company description. Welling is a motor manufacturer in air-conditioners (AC) and washing machines (WM). It also produces motors for micro tools, specifically smaller household appliances. Welling sells its motors to customers worldwide, including Midea, Haier, Hisense, Mitsubishi Electric, LG, Indesit, Electrolux, Whirlpool etc. Midea provides strong support for Welling, directing 80%- 90% of its AC and WM motor orders to its subsidiary. Welling has four manufacturing plants in China, with Shunde the biggest plant, situated next to Midea s plant. Management expects production capacity to be ramped up to 200m motors by end-2014, up from 160m, with 62% of capacity belonging to AC motors and 18% to WM motors. The most direct competitor is Zhongshan Broad- Ocean Motor [ CH], which is listed in Shenzhen with annual turnover of RMB3.3bn. Key risks: 1) customer concentration risk; 2) margin pressure on brushless DC if price on inverter AC drops; 3) slowdown in China property market. Figure 1: Turnover Breakdown by Products Figure 2: Turnover Geographical Breakdown Others 17% Export 31% Washing Motors 27% Air- Conditioning Motors 56% Domestic 69% Source: Company Source: Company Figure 3: Peers Comparison Company Ticker Price Market cap PER (x) PBR (x) Dividend yield (%) Revenue Growth (% yoy) EPS Growth (%yoy) E 2015E E 2015E E 2015E E 2015E WELLING HOLDING 382 HK equity n.a. n.a n.a. n.a n.a. n.a n.a. n.a. ZHONGSHAN BROA-A CH equity , n.a. n.a HISENSE KELON -H 921 HK equity , n.a MIDEA GROUP CO-A CH equity ,635 n.a QINGDAO HAIER-A CH equity , GREE ELECTRIC-A CH equity , n.a. n.a DONGYUE GROUP 189 HK equity (3.8) (35.3) JOHNSON ELECTRIC 179 HK equity , (3.8) Average Source: Bloomberg Figure 4: Domestic Home Appliances First Quarter Result Snapshot (Welling is a supplier to Midea, Haier, and Hisense) 1Q14 Revenue (yoy%) 1Q14 Net Profit (yoy%) Company Ticker Overall Overall MIDEA GROUP CO-A CH equity +22.0% +54.0% QINGDAO HAIER-A CH equity +8.9% +20.3% HISENSE KELON -H 921 HK equity +20.6% +8.4% GREE ELECTRIC-A CH equity +11.6% +68.9% Source: WIND 3

4 Key Financials Income Statement (HKDm) FY2011 FY2012 FY2013 Cash Flow Statement (HKDm) FY2011 FY2012 FY2013 Revenue 10,490 7,788 8,882 Net Income Growth yoy% 45.0% (25.8%) 14.1% Depreciation & Amort Cost Of Goods Sold 9,288 6,564 7,460 Other Amortization Gross Profit 1,202 1,224 1,422 (Gain) Loss From Sale Of Assets Gross Margin % 11.5% 15.7% 16.0% (Income) Loss on Equity Invest. (19) (17) (22) Selling General & Admin Exp Stock-Based Compensation Other Operating Expense/(Income) (21) (47) (45) Net Cash From Discontinued Ops. (3) - - Operating Income Other Operating Activities (12) OP Margin % 7.4% 9.9% 10.7% Change in Acc. Receivable 157 (487) 217 Interest and Invest. Income (39) (6) (14) Change In Inventories 1,353 (100) (180) Currency Exchange Gains (Loss) (14) 10 6 Change in Acc. Payable (489) (26) 321 Income/(Loss) from Affiliates Change in Other Net Op Assets (1,030) 10 (17) Gain (Loss) On Sale Of Assets (5) (6) (11) Cash from Ops ,285 Income Tax Expense Capital Expenditure (379) (278) (204) Net Income Sale of Property, Plant, and Equipme Net Income Margin % 5.8% 8.2% 8.9% Cash Acquisitions (68) - - Sale (Purchase) of Intangible assets (6) (16) (16) Balance Sheet (HKDm) FY2011 FY2012 FY2013 Invest. in Marketable & Eq Securt. (60) - - Other Investing Activities 26 (42) 24 ASSETS Cash from Investing (430) (305) (155) Short Term Investments Debt Issuance (Repaid) (47) 102 (62) Accounts Receivable 2,056 1,704 1,631 Issuance of Common Stock Other Receivables Common Dividends Paid (113) (113) (136) Other Receivables 345 1,071 1,087 Other Financing Activities Inventory Cash from Financing (116) 43 (152) Prepaid Exp Foreign Exchange Rate Adj. 31 (0) 21 Other Current Assets Net Change in Cash 168 (32) 999 Total Current Assets 4,386 4,881 5,838 Net Property, Plant & Equipment 1,138 1,243 1,212 Ratios FY2011 FY2012 FY2013 Long-term Investments Goodw ill Profitability Other Intangibles Return on Assets % 7.8% 7.4% 8.1% Deferred Tax Assets, LT Return on Equity % 26.2% 22.6% 22.7% Deferred Charges, LT Return on Common Equity % 26.9% 23.1% 22.9% Other Long-Term Assets Total Long Term Assets 1,776 1,958 2,053 Margin Analysis Total Assets 6,162 6,839 7,892 Gross Margin % 11.5% 15.7% 16.0% SG&A Margin % 4.3% 6.4% 5.8% LIABILITIES & EQUITY Net Income Margin % 5.8% 8.2% 8.8% Accounts Payable 2,637 2,610 3,082 Accrued Exp Asset Turnover Curr. Port. of LT Debt Total Asset Turnover 1.7x 1.2x 1.2x Curr. Income Taxes Payable Fixed Asset Turnover 10.4x 6.5x 7.2x Other Current Liabilities Accounts Receivable Turnover 6.3x 4.1x 5.3x Total Current Liabilities 3,419 3,489 3,829 Inventory Turnover 7.3x 10.0x 9.4x Long-Term Debt Unearned Revenue, Non-Current Liquidity Def. Tax Liability, Non-Curr Current Ratio 1.3x 1.4x 1.5x Total Liabilities 3,610 3,736 4,017 Quick Ratio 0.9x 0.8x 1.0x Common Stock 1,411 1,411 1,425 Net Debt to Equity Net Cash Net Cash Net Cash Additional Paid In Capital 3,523 3,523 3,531 Retained Earnings 625 1,153 1,802 Grow th Over Prior Year Comprehensive Inc. and Other (3,064) (3,038) (2,945) Total Revenue 45.0% (25.8%) 14.1% Total Equity 2,552 3,103 3,875 Gross Profit 27.8% 1.8% 16.2% Total Liabilities And Equity 6,162 6,839 7,892 Net Income 14.1% 5.4% 22.7% Payout Ratio % 18.6% 17.6% 17.4% Source: Capital IQ 4

5 May 2, 2014 Shanshui Cement [0691.HK] Q1 Review: Still Not Much to Get Excited The major operating arm of Shanshui Cement reported a net loss of RMB232m in Q1 2014, even worse than the net loss of RMB176m in Q Although we don t want to over-exaggerate the implications, as Q1 volume usually represents less than 15% of the annual total due to seasonality, gross profit per tonne of merely RMB18 is not encouraging. We understand the company raised average selling price (ASP) by about RMB10-20/tonne in March but it seems that the full-year results are unlikely to be much better than our forecast, i.e. 6% EPS growth in 2014E, unless we see a much greater increase in ASP. We maintain our HOLD rating and the target price of HK$3.30, based on 6.8x 2014E EPS, by applying a 25% discount to the latest average forward PER since China Cement Sector HOLD Close: HK$2.99 (April 30, 2013) Target Price: HK$3.30 (10%) Investment Highlights Net loss in Q widened due to margin squeeze. The major operating arm of Shanshui Cement recorded 16% revenue growth year-on-year (YoY) in Q but gross profit margin narrowed from 14.2% in Q to 7.1% in Q Gross profit per tonne was only RMB18 due to the ASP decline of RMB10/tonne on YoY basis to RMB240. Meanwhile, sales volume of cement and clinker rose 20% YoY to 8.69m tonnes. We are not surprised to see a net loss in Q1 as the utilization rate in Shandong and northeast China is usually very low in winter but a widening of the net loss is still disappointing. According to the company, the higher cost in Q was partly due to transportation cost to deliver more cement for infrastructure projects (Note: Transportation costs for other customers are usually more likely to be borne by themselves.). A slightly higher contribution from exports also affected transportation cost. Cheap valuation but no strong reason to turn positive. Shanshui Cement s valuation looks cheap at 0.65x 2014E PBR but earnings outlook remains lacklustre based on our projection of 6% profit growth this year. Unless investors are betting on its potential to be acquired, we believe it s better to wait and see until we observe more cement price hikes in Shandong. Recap of major operating arm. The revenue of this operating arm usually accounted for >99% of Shanshui Cement s total revenue while the net profit of the listco is usually slightly lower due to headquarter expenses and offshore finance costs. As operating subsidiary issued debt in mainland China, it releases quarterly financial statements. Price Performance (HK$) (HK$ million) Apr13 Jun13 Aug13 Oct13 Dec13 Feb14 Apr14 Turnover (RHS) Price (LHS) Market Cap US$1,086m Shares Outstanding 2,815.9m Auditor KPMG Free Float 70.0% 52W range HK$ M average daily T/O US$3.9m Zhang Caikui (30.0%) Major Shareholder Sources: Company, Bloomberg Wong Chi Man Senior Analyst (852) Y/E Dec E 2015E Turnover (RMB m) 16,862 16,161 16,535 18,065 19,358 Recurring net profit (RMB m) 2,258 1, ,053 1,105 Net margin (%) Recurring EPS (RMB) Change (%) 119 (33) (34) 6 5 PER (x) PBR (x) EV/EBITDA (x) cmwong@chinastock.com.hk John Mulcahy Head of Research (852) johnmul@chinastock.com.hk Sources: Company, CGIHK Research 5

6 Key financials Shanshui Cement (00691.HK) Income Statement (RMB'000, except for per share amount) E Year ended 31 Dec 1H 2H 1H 2H 1H 2H 1H 2H E 2015E Cement 6,460,786 7,663,214 5,978,280 7,283,720 5,756,370 7,592,550 6,012,500 8,485,620 9,275,000 14,124,000 13,262,000 13,348,920 14,498,120 15,479,233 Clinker 956, , , , , , ,155 1,089,379 1,941,000 1,887,000 1,904,000 1,800,283 1,933,534 2,028,492 Concrete and others 414, , , , , , ,500 1,010, , , ,981 1,386,001 1,633,500 1,850,400 Revenue 7,832,210 9,029,746 7,378,034 8,782,947 7,068,664 9,466,540 7,480,155 10,584,999 11,854,068 16,861,956 16,160,981 16,535,204 18,065,154 19,358,126 COGS (5,362,692) (6,420,139) (5,542,163) (6,507,502) (5,467,030) (7,238,937) (5,781,918) (8,149,127) (9,303,966) (11,782,831) (12,049,665) (12,705,967) (13,931,045) (14,933,122) Gross profit 2,469,518 2,609,607 1,835,871 2,275,445 1,601,634 2,227,603 1,698,237 2,435,872 2,550,102 5,079,125 4,111,316 3,829,237 4,134,109 4,425,003 Operating expenses (497,523) (907,623) (463,195) (837,752) (708,378) (861,619) (755,496) (1,005,575) (903,786) (1,405,146) (1,300,947) (1,569,997) (1,761,071) (1,919,498) Operating profit 1,971,995 1,701,984 1,372,676 1,437, ,256 1,365, ,741 1,430,297 1,646,316 3,673,979 2,810,369 2,259,240 2,373,039 2,505,505 Other gains and losses 62, ,118 85, , ,625 88, , , , , , , , ,298 EBIT 2,034,667 1,831,102 1,458,404 1,578,633 1,027,881 1,454,245 1,047,464 1,557,317 1,788,002 3,865,769 3,037,037 2,482,126 2,604,781 2,737,803 Net finance costs (224,400) (361,347) (423,595) (457,975) (453,729) (473,432) (502,913) (565,403) (356,301) (585,747) (881,570) (927,161) (1,068,316) (1,146,939) Profits from associates and JCEs 3,300 13,790 18,042 13,057 13,699 10,677 15,000 15,000 (218) 17,090 31,099 24,376 30,000 30,000 Non-recurrent items (61,712) 18,601 (17,580) 36,003 (7,963) 42, (68,278) (43,111) 18,423 34, Income before tax 1,751,855 1,502,146 1,035,271 1,169, ,888 1,034, ,551 1,006,915 1,363,205 3,254,001 2,204,989 1,613,894 1,566,465 1,620,864 Income tax expense (476,850) (465,497) (276,891) (324,335) (219,539) (319,643) (167,865) (302,074) (358,288) (942,347) (601,226) (539,182) (469,940) (470,051) Minority interests (37,984) (48,380) (30,680) (54,554) (12,714) (45,291) (15,667) (28,194) (25,789) (86,364) (85,234) (58,005) (43,861) (46,033) Net income 1,237, , , , , , , , ,128 2,225,290 1,518,529 1,016,707 1,052,665 1,104,781 Recurring net income 1,283, , , , , , , ,647 1,030,337 2,257,623 1,504, ,972 1,052,665 1,104,781 EPS (RMB) Recurring EPS (RMB) DPS (HK$) Depreciation and amortization 399, , , , , , , , , ,348 1,038,323 1,149,668 1,361,982 1,555,320 EBITDA 2,437,106 2,303,101 1,951,339 2,155,120 1,564,711 2,091,459 1,688,975 2,307,788 2,516,732 4,740,207 4,106,459 3,656,170 3,996,763 4,323,123 Cement and clinker ASP (RMB/tonne) Cement and clinker volume ('000 tonnes) 25,900 29,043 25,206 31,652 27,178 35,462 28,379 38,906 49,162 54,943 56,858 62,640 67,285 71,038 Gross profit per tonne (RMB) Growth Rates: Revenue 66% 27% -6% -3% -4% 8% 6% 12% 36% 42% -4% 2% 9% 7% EBIT 187% 70% -28% -14% -30% -8% 2% 7% 43% 116% -21% -18% 5% 5% EBITDA 133% 57% -20% -6% -20% -3% 8% 10% 38% 88% -13% -11% 9% 8% Core net income 219% 55% -42% -22% -52% -16% 7% 6% 47% 119% -33% -34% 6% 5% Recurring EPS 219% 55% -42% -22% -52% -16% 7% 6% 46% 119% -33% -34% 6% 5% Margins and Ratios: Gross margin 31.5% 28.9% 24.9% 25.9% 22.7% 23.5% 22.7% 23.0% 21.5% 30.1% 25.4% 23.2% 22.9% 22.9% Net margin 16.9% 11.3% 10.5% 9.3% 5.2% 7.2% 5.2% 6.7% 8.9% 13.9% 9.8% 6.4% 6.1% 5.9% EBIT margin 26.0% 20.3% 19.8% 18.0% 14.5% 15.4% 14.0% 14.7% 15.1% 22.9% 18.8% 15.0% 14.4% 14.1% EBITDA margin 31.1% 25.5% 26.4% 24.5% 22.1% 22.1% 22.6% 21.8% 21.2% 28.1% 25.4% 22.1% 22.1% 22.3% Effective tax rate 26% 31% 26% 29% 37% 32% 30% 30% 25% 29% 27% 34% 30% 29% Sources: Company data, CGIHK Research estimates 6

7 Key financials Shanshui Cement (00691.HK) Balance Sheet (RMB'000, except for per share amount) Statement of Cash Flow As at 31 Dec E 2015E Year ended 31 Dec E 2015E Inventories 1,137,756 1,924,389 1,794,287 1,966,096 2,200,000 2,300,000 Profit before tax 1,363,205 3,254,001 2,204,989 1,613,894 1,566,465 1,620,864 Trade receivables 403, , ,232 1,051,543 1,150,000 1,200,000 Depreciation & Amortization 693, ,931 1,016,086 1,165,638 1,361,982 1,555,320 Bills receivable 614,472 1,117,960 1,153,590 1,047,473 1,100,000 1,200,000 Change in w orking capital 1,111,554 (2,249,603) (51,807) 10,112 (262,201) - Others 927,342 1,646,512 1,682,390 1,901,604 1,995,635 2,085,635 Others / adjustments (1,378,908) (264,066) (1,239,180) (864,893) (514,058) (750,051) Bank balances and cash 1,144,840 3,008,332 1,083,220 1,277,369 1,000,000 1,000,000 Net operating cash flow 1,789,127 1,549,263 1,930,088 1,924,751 2,152,189 2,426,134 Total current assets 4,227,960 8,289,757 6,307,719 7,244,085 7,445,635 7,785,635 Capex (2,030,840) (2,275,016) (3,051,532) (3,495,953) (2,100,000) (2,000,000) PPE, net 11,280,448 12,786,820 16,011,443 18,945,634 19,312,507 19,727,186 Others (895,975) (1,095,667) (1,288,400) (39,581) - - Prepaid lease payments 1,734,794 1,922,627 2,359,490 2,458,855 2,500,000 2,600,000 Net investing cash flow (2,926,815) (3,370,683) (4,339,932) (4,395,283) (2,100,000) (2,000,000) Others 1,707,124 2,082,469 3,354,725 3,587,822 3,928,647 4,168,647 Total non-current assets 14,722,366 16,791,916 21,725,658 24,992,311 25,741,154 26,495,833 Change in debt 436,500 (730,600) (405,609) 2,460,739 3,842,184 (215,601) Dividends (238,294) (338,160) (551,914) (531,428) (205,609) (210,533) Total assets 18,950,326 25,081,673 28,033,377 32,236,396 33,186,789 34,281,468 Others 1,200,057 4,755,709 1,442, ,194 (3,966,133) - Net financing cash flow 1,398,263 3,686, ,264 2,665,505 (329,558) (426,134) Trade payables 1,953,935 2,290,501 2,591,924 3,179,446 3,300,000 3,500,000 Other payables 2,471,491 2,111,602 1,703,342 1,847,898 1,950,000 2,100,000 Increase / Decrease in cash 258,710 1,863,492 (1,925,112) 194,149 (277,369) - Bank and other borrowings 1,684,500 3,167,200 1,887,309 2,909,685 3,200,000 3,200,000 Net cash/(debt) (6,253,908) (8,457,127) (12,383,131) (15,212,454) (15,307,794) (15,092,193) Others 371, ,179 1,338,541 4,110, , ,844 Total current liabilities 6,481,641 8,081,482 7,521,116 12,047,157 8,612,844 8,982,844 Finance Ratios Bank and other borrowings 4,260,000 2,046,700 2,920,982 2,963,980 6,515,849 6,300,248 Others 2,059,680 6,786,818 8,194,777 7,258,533 7,200,453 7,200, E 2015E Total non-current liabilities 6,319,680 8,833,518 11,115,759 10,222,513 13,716,302 13,500,701 Valuation PE(x) Total liabilities 12,801,321 16,915,000 18,636,875 22,269,670 22,329,146 22,483,545 EPS grow th (%) Yield (%) Shareholders' equity 5,687,525 7,709,037 8,650,849 9,245,952 10,093,008 10,987,255 PEG (x) Minority interests 461, , , , , ,668 EV/EBITDA (x) PB(x) Operational Revenue grow th (%) Gross margin (%) Net profit margin (%) Days receivables Days payables Days inventories Sources: Company data, CGIHK Research estimates Current ratio (x) Quick ratio (x) Asset/Equity (x) Net debt/equity (%) EBITDA interest coverage (x) Core ROE (%)

8 07/ / / / / / / / / / / / / / / / / / / / / / / /2014 Figure 1: Shanshui Cement Rolling Forward PER Range Figure 2: Shanshui Cement Rolling Forward PBR Range P/B trend (x) -1 Standard deviation Average 1 Standard deviation Rolling forward PER (x) Average (x) -1 Standard deviation +1 Standard deviation Sources: Bloomberg, CGIHK Research 0.5 Sources: Bloomberg, CGIHK Research Figure 3: Shanshui Cement EV/EBITDA Range EV/EBITDA (x) Average (x) -1 Standard deviation +1 Standard deviation Sources: Bloomberg, CGIHK Research 8

9 Figure 4: Cement Prices around Shandong (RMB/Tonne, April 25) Figure 5: Cement Prices in Shandong (RMB/Tonne) 450 Jinan, Shandong Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Sources: Digital Cement, CGIHK Research Figure 6: Cement Prices in Liaoning (RMB/Tonne) Sources: Digital Cement, CGIHK Research Figure 7: Shanshui s Revenue Breakdown (2013) Shenyang, Liaoning Northeast 27% Shanxi 5% Xinjiang 2% 350 Shandong 66% Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Sources: Digital Cement, CGIHK Research Sources: Company, CGIHK Research Figure 8: Peer Valuation PER (x) PBR (x) EV/EBITDA(x) Net debt/equity (%) Company Ticker Rating Price (HK$) Market cap (US$m) E 2015E E 2015E E 2015E 2014E Anhui Conch 914 HK Equity BUY , CNBM 3323 HK Equity BUY , BBMG 2009 HK Equity BUY , CR Cement 1313 HK Equity BUY , Shanshui Cement 691 HK Equity HOLD , Simple average Weighted average Source: CGIHK Research estimates Figure 9: Peer Comparison EPS Growth (%) E PEG(x) ROE (%) Dividend yield (%) Company Ticker 2014E 2015E CAGR (%) 2014E E 2015E E 2015E Anhui Conch 914 HK Equity CNBM 3323 HK Equity CR Cement 1313 HK Equity BBMG 2009 HK Equity Shanshui Cement 691 HK Equity Simple average Weighted average Source: CGIHK Research estimates 9

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