Yum Cha 飲茶. January 27, 2017 RESEARCH NOTES

Transcription

1 Yum Cha 飲茶 INDICES Closing DoD% Hang Seng Index HSCEI Shanghai COMP Shenzhen COMP Gold (1.) BDIY 84. (2.6) Crude Oil, WTI(US$/BBL) Crude Oil, BRENT(US$/BBL) HIBOR, 3-M 1..1 SHIBOR, 3-M RMB/USD 6.9. DATA RELEASES DUE THIS WEEK Source: Bloomberg RESEARCH NOTES January 27, 217 XINYI GLASS [868.HK; HK$6.95; BUY] - Shares of Xinyi Glass (XYG) rebounded from the tough in mid-nov 216 and in our view, the negative factors have been factored in. Despite concerns about downstream demand, the float glass price has held up well, with the average price in key cities in China down only 1% from end-dec 216 to 23 Jan 217. We maintain the view that XYG is one of the major beneficiaries of supply-side reform in China, given that the Chinese government is likely to release capacity closure targets for other energy-intensive industries, such as cement, paper, non-ferrous metals and glass. In terms of share-price performance, XYG was a laggard compared with other HK-listed building materials and commodities names during the recent rally. XYG is now trading at an 8.2x 216 PER and an estimated yield of 6.%. With its undemanding valuation, we maintain our BUY call with a target price of HK$8.69 (based on a 1.5x 216E PER, lower than its historical average and the average of its listed peers). FORTUNE REIT [778.HK; HK$8.99; NOT RATED] - Fortune REIT achieved 5% growth in DPU in 216, largely in line with market expectations and our forecast. We expect about 3% DPU growth in 217 on the back of slower rental growth, implying a dividend yield of ~5.6%. The latest market consensus for the 1-year US treasury yield at end-217 is 2.81%, translating into a yield gap of 2.79%. Compared with the 6 -year average yield gap of 3.53% and the Company s 6-year average dividend yield of 5.6%, the current price does not look very appealing, in our view. 1

2 Xinyi Glass [868.HK] A laggard during recent rally. Maintain BUY. Shares of Xinyi Glass (XYG) rebounded from the tough in mid-nov 216 and in our view, the negative factors have been factored in, including (a) concern about downstream demand from property developers in response to tightening policies released by the Chinese government; (b) a peak in the float glass price; (c) a potential natural gas price hike; and (d) profit-taking. Despite concerns about downstream demand, the float glass price has held up well, with the average price in key cities in China down only 1% from end-dec 216 to 23 Jan 217. The YTD average float glass price in key cities has increased 23.5% YoY. The resilience of the float glass price is due to better downstream demand, which is attributable partly to stable construction activity. We maintain the view that XYG is one of the major beneficiaries of supply-side reform in China, given that the Chinese government is likely to release capacity closure targets for other energy-intensive industries, such as cement, paper, non-ferrous metals and glass. In terms of share-price performance, XYG was a laggard compared with other HK-listed building materials and commodities names during the recent rally. We share the view that the float glass upcycle will last longer, given the Chinese government s supply side reforms and the construction cycle. XYG is now trading at an 8.2x 216 PER and an estimated yield of 6.%. With its undemanding valuation, we maintain our BUY call with a target price of HK$8.69 (based on a 1.5x 216E PER, lower than its historical average and the average of its listed peers). Investment Highlights Float glass price holding up well. Despite concern about downstream demand, the float glass price has held up well, with the average float glass price in key cities in China down only 1% from end-dec 216 to RMB1,428.7/tonne on 23 Jan 217. The current float glass price in key cities still represents a YoY increase of 23.5%. We also note that the number of float glass lines commencing production increased from 348 at beginning of 216 to 356 at end-dec 216, but the utilization rate improved from 63.2% to 66.3%, another indication that downstream demand is solid. We maintain the view that the resilience of the float glass price is due to better downstream demand, which is attributable partly to stable construction activity. We are entering the low season (around Chinese New Year) of construction activity so we might see the float glass price come down in the near term. At this stage, however, we don t see a major reason for a sharp fall in the float glass price in the near term, as the Glass Industry Confidence Index has held up well since end-216. Supply-side reform remains a hot investment theme. The share prices of commodity-related names have performed well, given the upcoming release of the Chinese government s 217 targets for capacity closure for the steel and coal industries in the near term. The news flow also suggests that the Chinese government will extend the measures to other industries, including cement, glass, aluminum and shipping. On average, the share prices of listed commodity names, in the cement, paper, steel and coal industries were up 19.8% on a one-month basis. However, XYG is a laggard; its share price was up only 13.% during the same period. We believe that XYG will be a major beneficiary of supply-side reform, given its cost advantage over its peers and its nationwide coverage. XYG s share-price underperformance is not justified. Increase in energy costs manageable. There is concern about potential margin pressure, given the increase in the price of natural gas and soda ash. We share XYG management s view that XYG will enjoy favourable pricing from gas suppliers. The float glass industry has entered the low season, so the impact of a potential natural gas price hike on XYG will be manageable, as it will be temporary and it shouldn t have a significant impact on XYG s production costs in 217 on a full-year basis. Soda ash prices have also gone up significantly since Nov 216 due to temporary capacity closure. The increase in the soda ash price is an industry-wide issue, so we expect XYG to pass on the increase to its customers. Also, XYG management highlighted that the Company can import soda ash from overseas at a lower price, which gives the Company a cost advantage over its peers. Other growth areas. XYG is trying to capture the growth potential of China s growing aftermarket automobile glass segment by offering direct sales to customers. The aftermarket automobile glass segment is now dominated by XYG and Fuyao Glass [366.HK], both of which are presently focusing on the wholesale market. Key Financials (in HKDm) E 217E Revenue 9, , , , ,571.5 Change (YoY %) Gross Profit 3,137. 2, , , ,171.8 Gross Margin % Net Profit 3, , , , ,626.2 Net Margin % EPS (Basic) Change (YoY %) (61.3) DPS $.24 $.15 $.265 $.418 $.461 China Construction Sector - Mark Po, CFA Senior Analyst (852) markpo@chinastock.com.hk Wong Chi Man, CFA Head of Research (852) Building Materials BUY Close: HK$6.95 (Jan 26, 217) Target Price: HK$8.69 (+25.%) Share Price Performance (HK$) Market Cap Shares Outstanding Auditor cmwong@chinastock.com.hk US$3,487m 3,554.9m Pricewaterhouse- Coopers Free Float 45.2% 52W range 3M average daily T/O Major Shareholder January 27, 217 Jan16 Mar16 May16 Jul16 Sep16 Nov16 Turnover (RHS) Price (LHS) Source: Bloomberg, CGIS Research (HK$ million) HK$ US$9.7m Mr Lee Yin Yee (2.3%) ROE (%) Dividend Yield (%) PER (x) PBR (x) FCF Yield (%) 1.2% -.67% 3.84% 6.34% 7.94% Capex (m) (3,752.3) (1,729.) (1,967.) (1,7.) (1,5.) Free cash flow per share.1 (.) Net Gearing (%) Source: Bloomberg, CGIS Research 2

3 Figure 1: Key assumptions for XYG F 217F Turnover (HKDm) Automobile glass 3,77.8 3, , , ,62.1 4,357.7 Construction glass 1, , , , , ,285.9 Float glass 3,78.6 4, , ,22.2 6, ,927.9 Total 8,433. 9, , , , ,571.5 YoY Change (%) Automobile glass Construction glass Float glass Total Volume Automobile (piece) 12,11. 12, , , ,631.3 Construction(sqm) 16, ,38. 2, , ,448.4 Float glass (tonne) 2,927. 3,51. 3, , ,657. YoY Change (%) Automobile (piece) Construction(sqm) Float glass (tonne) ASP Automobile (HKD/piece) Construction (HKD per sqm) Float glass (HKD per tone) 1, , ,32.2 1, ,487.6 YoY Change (%) Automobile (HKD/piece) 2.7. Construction (HKD per sqm).1 (4.) 2. Float glass (HKD per tone) (12.6) (3.) Gross margin (%) Automobile glass Construction glass Float glass Blended Net margin (%) Cost (HKDm) S,G&A (1,56.7) (1,25.9) (1,638.) (1,614.5) (1,887.) (2,52.9) Financial Expenses (57.3) (59.7) (38.1) (5.2) (45.4) (62.7) YoY Change (%) S,G&A (1.4) Financial Expenses 4.2 (36.2) 32. (9.5) 37.9 CAPEX (HKDm) 1, , ,729. 1,967. 1,7. 1,5. Net Gearing (%) Source: Company, CGIS Research 3

4 Figure 2: Earnings projection Income Statement (HKDm) FY213 FY214 FY215 FY216F FY217F Cash Flow Statement (HKDm) FY213 FY214 FY215 FY216F FY217F Revenue 9,936 1,861 11,46 13,394 14,571 Net Income 3,282 1,227 1,796 2,692 2,98 Growth yoy% 17.8% 9.3% 5.5% 16.9% 8.8% Depreciation & Amort Gross Profit 3,137 2,733 3,133 4,746 5,172 Change in Working Capital 19 (296) 456 (14) (2) Growth yoy% 4.9% (12.9%) 14.6% 51.5% 9.% Cash from Ops. 4,82 1,546 3,18 3,41 3,642 Selling General & Admin Exp. (1,251) (1,638) (1,615) (1,887) (2,53) Capital Expenditure (3,752) (1,729) (1,967) (1,7) (1,5) Others Operating Expenses/Items Sale of Property, Plant, and Equipment Operating Income 2,212 1,274 1,733 3,111 3,392 Change in Investing Acitivities Growth yoy% n.a. (42.4%) 36.1% 79.5% 9.1% Cash from Investing (3,673) (1,676) (1,927) (1,617) (1,435) Interest Expense (59.7) (38.1) (5.2) (45.4) (62.7) Net increase in bank borrowings Interest and Invest. Income Income/(Loss) from Affiliates Issuance of Common Stock Other Non-Operating Inc. (Exp.) Common Dividends Paid (945) (59) (1,43) (1,62) (1,791) Impairment of Goodwill Special Dividend Paid Gain (Loss) On Sale Of Invest. 1, Other Financing Activities (264) Gain (Loss) On Sale Of Assets Cash from Financing (7) 282 (1,27) (1,552) (1,791) Income Tax Expense (381) (228) (266) (482) (54) Minority Int. in Earnings () (1) (2) (192) (268) Net Change in Cash Net Income Growth yoy% 196.4% (61.3%) 54.8% 55.4% 1.5% Balance Sheet (HKDm) FY213 FY214 FY215 FY216F FY217F Ratios FY213 FY214 FY215 FY216F FY217F ASSETS Profitability Cash And Equivalents 1, ,298 1,498 1,915 Return on Assets % 19.7% 6.7% 9.9% 14.5% 14.5% Receivables 2,255 2,487 2,381 2,473 2,688 Return on Capital % 11.6% 5.9% 7.9% 12.3% 11.8% Inventory 1,232 1,478 1,223 1,27 1,38 Return on Equity % 31.8% 11.1% 16.9% 24.% 23.3% Other Current Assets Total Current Assets 4,537 4,85 4,995 5,334 6,76 Margin Analysis Net Property, Plant & Equipment 11,849 12,581 13,177 14,548 15,117 Gross Margin % 31.6% 25.2% 27.3% 35.4% 35.5% Long-term Investments SG&A Margin % 12.6% 15.1% 14.1% 14.1% 14.1% Other Intangibles EBIT Margin % 22.3% 11.7% 15.1% 23.2% 23.3% Deferred Tax Assets, LT EBITDA Margin % 28.4% 17.4% 21.8% 29.6% 29.7% Other Long-Term Assets 3,265 3,649 3,249 4,41 5,24 Net Income Margin % 35.4% 12.6% 18.4% 24.5% 24.9% Goodwill Accounts Receivable Long-Term Asset Turnover Total Long Term Assets 15,114 16,229 16,426 18,589 2,142 Total Asset Turnover.5x.5x.5x.6x.6x Total Assets 19,651 21,34 21,422 23,924 26,218 Fixed Asset Turnover.7x.7x.7x.7x.7x Accounts Receivable Turnover 4.5x 4.6x 4.7x 5.5x 5.6x LIABILITIES & EQUITY Inventory Turnover 8.1x 7.3x 9.4x 1.5x 1.6x Accounts Payable 1,744 1,978 2,112 2,194 2,384 Accrued Exp Liquidity Short-term Borrowings 2,116 2,529 2,514 2,529 2,529 Current Ratio 1.1x 1.x 1.x 1.1x 1.2x Curr. Port. of LT Debt Quick Ratio.8x.7x.7x.8x.9x Curr. Income Taxes Payable Avg. Days Sales Out Unearned Revenue, Current Avg. Days Inventory Out Other Current Liabilities Avg. Days Payable Out Total Current Liabilities 4,79 4,81 4,959 5,56 5,246 Avg. Cash Conversion Cycle Long-Term Debt 3,24 3,483 3,514 3,832 3,832 Net Debt to Equity 34% 42% 37% 33% 27% Def. Tax Liability, Non-Curr Other Non-Current Liabilities Growth Over Prior Year Total Liabilities 7,442 8,699 8,696 9,11 9,31 Total Revenue 17.8% 9.3% 5.5% 16.9% 8.8% Common Stock 7,1 5,94 4,277 5,933 7,768 Net Income 196.4% (61.3%) 54.8% 55.4% 1.5% Additional Paid In Capital Payout Ratio % 26.8% 43.3% 49.4% 49.4% 49.4% Retained Earnings 5,18 6,393 8,442 8,681 8,681 Treasury Stock Comprehensive Inc. and Other Minority Interest Total Equity 12,29 12,335 12,726 14,814 16,917 Total Liabilities And Equity 19,651 21,34 21,422 23,924 26,218 4

5 Oct-9 Feb-1 May-1 Aug-1 Nov-1 Mar-11 Jun-11 Sep-11 Dec-11 Apr-12 Jul-12 Oct-12 Jan-13 May-13 Aug-13 Nov-13 Mar-14 Jun-14 Sep-14 Dec-14 Apr-15 Jul-15 Oct-15 Jan-16 May-16 Aug-16 Nov-16 Figure 3: XYG s PER trend HKD x 19x 14x 9x 4x Sources: Bloomberg, CGIS Research estimates Figure 4: Average float glass price in Key Cities in China RMB/tonne /14 5/14 9/14 1/15 5/15 9/15 1/16 5/16 9/16 1/17 Sources: WIND, CGIS Research 5

6 Figure 5: Peer comparison Ticker Company PE EV/EBITDA P/B ROE ROA Div yield Share Price Performance Price Market Cap 216F 217F 218F 216F 217F 218F F F F F 1M 3M 6M 12M Lcy US$m x x x x x x x x % % % % % % % % % % 868 HK Xinyi Glass Holdings Ltd HK Xinyi Solar Holdings Ltd HK Xinyi Automobile Glass Hong n.a. n.a. n.a. n.a. n.a. n.a. 1.6 n.a n.a n.a.. n.a n.a. 33 HK China Glass Holdings Ltd n.a. n.a. n.a. n.a. n.a. n.a..7 n.a. -2. n.a n.a.. n.a HK Luoyang Glass Company Ltd-H n.a. n.a. n.a. n.a. n.a. n.a. 5.8 n.a. 29. n.a n.a.. n.a HK Fuyao Glass Industry Group-H HK Flat Glass Group Co Ltd-H Average CH Fuyao Glass Industry Group-A n.a CH Csg Holding Co Ltd- A n.a. n.a. n.a. n.a CH Zhuzhou Kibing Group Co Lt-A n.a. n.a CH Avic Sanxin Co Ltd-A n.a n.a. n.a. n.a n.a. n.a. n.a CH Shanghai Yaohua Pilkington-A n.a. n.a. n.a. n.a. n.a. n.a. 2.7 n.a n.a n.a. n.a. n.a CH Luoyang Glass Company Ltd-A n.a n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a n.a. n.a. n.a. n.a. n.a. n.a. n.a. Average n.a TT Taiwan Glass Ind Corp n.a. 22. n.a. n.a. n.a. n.a n.a n.a. n.a. n.a SISE TI Turk Sise Ve Cam Fabrikalari n.a TRKCM TI Trakya Cam Sanayii As n.a APOG US Apogee Enterprises Inc n.a n.a JP Asahi Glass Co Ltd n.a JP Nippon Electric Glass Co Ltd n.a JP Central Glass Co Ltd n.a. n.a JP Nippon Sheet Glass Co Ltd n.a SGO FP Compagnie De Saint Gobain n.a PPG US Ppg Industries Inc GLW US Corning Inc Average HK Anhui Conch Cement Co Ltd-H n.a HK China National Building Ma-H HK China Resources Cement n.a HK Bbmg Corp-H n.a HK Asia Cement China Holdings n.a Average HK China Lesso Group Holdings L n.a HK Jiangxi Copper Co Ltd-H n.a HK Aluminum Corp Of China Ltd-H n.a HK China Shenhua Energy Co-H HK China Coal Energy Co-H HK Yanzhou Coal Mining Co-H n.a. n.a HK Angang Steel Co Ltd-H n.a. n.a HK Maanshan Iron & Steel-H n.a HK Nine Dragons Paper Holdings n.a HK Lee & Man Paper Manufacturin n.a HK Shandong Chenming Paper-H n.a. n.a. n.a. n.a. n.a. n.a. 1. n.a. 6.6 n.a. 2.6 n.a. n.a. n.a Average Sources: Bloomberg, Company, CGIS Research estimates for covered stocks; 6

7 COMPANY / INDUSTRY NEWS FORTUNE REIT [778.HK; HK$8.99; NOT RATED] 216 RESULTS IN LINE; WAITING FOR A BETTER ENTRY POINT Analyst: Wong Chi Man, CFA (cmwong@chinastock.com.hk; Tel: ) January 27, 217 Summary: Fortune REIT achieved 5% growth in DPU in 216, largely in line with market expectations and our forecast. We expect about 3% DPU growth in 217 on the back of slower rental growth, implying a dividend yield of ~5.6%. The latest market consensus for the 1-year US treasury yield at end-217 is 2.81%, translating into a yield gap of 2.79%. Compared with the 6-year average yield gap of 3.53% and the Company s 6-year average dividend yield of 5.6%, the current price does not look very appealing, in our view. Achieved 5% revenue growth in 216. Total revenue in 216 was HK$1,975m. The growth was driven by positive rental reversions (14%) and completed AEIs (asset-enhancement initiatives) at Belvedere Square. Passing rent was HK$41.8/ft, up 4.5% YoY. Stable occupancy rate vs. 1H16. The occupancy rate was 96.7% at end-216, little changed from 96.4% in 1H16. It was down slightly from 98.8% in 215. The mild decline was due to AEIs at Provident Square (North Point), which saw their occupancy rate drop from 91.7% at end-215 to 84.6% at end-216 (but improved from 54.2% at end-1h16). The non-renewal of an anchor tenant at Hampton Loft (Tai Kok Tsui) also lowered the occupancy rate. Relatively stable 217 expected. Management believes it is not easy to find acquisition targets at a reasonable price in the current market environment. The Company aims to achieve 1%- 15% rental reversions this year. We believe it is more likely to be closer to the low-end of the range based on the current economic environment in Hong Kong. A potential growth driver is the AEIs for Fortune Kingswood (Tin Shui Wai), which represents 18.9% of its total portfolio. But we believe the benefits are more likely to be reflected in 218. Overall, we expect about 3% growth in DPU in 217. No refinancing needs in 217. The Company has total loans of HK$1.86bn, and the next round of refinancing needs will be in 218, involving HK$1.7bn. Currently about 67% of its outstanding debt is hedged against interest rate volatility. FORTUNE REIT (778.HK; NOT-RATED) (HK$) Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Turnover (RHS) Price (LHS) Market Cap: US$2,24m; Free Float: 71.9% HK$ E Revenue (m) 1,656 1,882 1,975 2,7 EBIT (m) 1,53 1,176 1,281 1,357 Net profit (m) 3,931 2,486 1, Net margin (%) DPU Dividend yield (%) PBR (x) Source: Bloomberg (HK$ million) Company background. Fortune REIT, which was listed on the main board in 21, focuses on Hong Kong retail properties targeting the middle income group. As at end-216, it had a property portfolio of 3.2m sq.ft. GFA and 2,713 car park spaces. CK Property (1113.HK) owns a 27.86% stake in the REIT. Risks. (i) A sharp rise in the yield of US treasuries; (ii) US rate hikes at a relatively fast pace; (iii) weakness in the US dollar; and (iv) a much weaker-than-expected overall Hong Kong retail market Rising US treasury yield a major concern. The latest market consensus for the 1-year US treasury yield at end-217 is 2.81%, translating into a yield gap of 2.79% based on a 217E dividend yield of ~5.6%. If the pace of US rate hike is faster than expected, the yield cap may continue to narrow and end up much lower than the 6-year average yield gap of 3.53%. 7

8 COMPANY / INDUSTRY NEWS FORTUNE REIT [778.HK; HK$8.99; NOT RATED] 216 RESULTS IN LINE; WAITING FOR A BETTER ENTRY POINT Analyst: Wong Chi Man, CFA (cmwong@chinastock.com.hk; Tel: ) Figure 1: 216 results highlights Sources: Company, CGIS Research Figure 2: Dividend yield range of Fortune REIT /7/211 4/7/212 4/7/213 4/7/214 4/7/215 4/7/216 Dividend yield of Fortune REIT (%) Average (%) Figure 3: Yield gap compared with 1-year US treasuries /7/211 4/7/212 4/7/213 4/7/214 4/7/215 4/7/216 Difference between dividend yield of Fortune REIT and 1-year US treasuries (%) Average (%) Sources: Bloomberg, CGIS Research Figure 4: Peer valuations Sources: Bloomberg, CGIS Research 215 dividend 216E dividend Company name Last price Market cap (HK$) (HK$m) yield (%) yield (%) PBR (x) 823 HK Equity Link REIT , HK Equity Champion REIT , HK Equity Fortune Real Estate Investment Trust , HK Equity Sunlight Real Estate Investment Trust , HK Equity Prosperity REIT , HK Equity Yuexiu Real Estate Investment Trust , HK Equity Hui Xian Real Estate Investment Trust , Sources: Bloomberg, CGIS Research 8

9 Disclaimer This research report is not directed at, or intended for distribution to or used by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject China Galaxy International Securities (Hong Kong) Co., Limited ( Galaxy International Securities ) and/or its group companies to any registration or licensing requirement within such jurisdiction. This report (including any information attached) is issued by Galaxy International Securities, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to the institutional clients from the information sources believed to be reliable, but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness. This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company(ies) referred to herein. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. The recipient of this report should understand and comprehend the investment objectives and its related risks, and where necessary consult their own independent financial advisers prior to any investment decision. Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published views or investment decisions of China Galaxy International Financial Holdings Limited and any of its subsidiaries ( China Galaxy International ), directors, officers, agents and employees ( the Relevant Parties ). All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. China Galaxy International and/or the Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer. Disclosure of Interests China Galaxy Securities (6881.hk) is the direct and/or indirect holding company of the group of companies under China Galaxy International. China Galaxy International may have financial interests in relation to the subjected company(ies) the securities in respect of which are reviewed in this report, and such interests aggregate to an amount may equal to or more than 1 % of the subjected company(ies) market capitalization. One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) mentioned in this report. China Galaxy International and the Relevant Parties may, to the extent permitted by law, from time to time participate or invest in financing transactions with the securities of the company(ies) mentioned in this report, perform services for or solicit business from such company(ies), and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. China Galaxy International may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or investment services in relation to the investment concerned or a related investment or investment banking services to the company(ies) mentioned in this report. Furthermore, China Galaxy International may have received compensation for investment banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking investment banking mandate from the subject company(ies). Analyst Certification The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report. Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 3 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong-listed companies covered in this report; and (4) have any financial interests in the Hong Kong-listed companies covered in this report. Explanation on Equity Ratings BUY SELL HOLD : : share price will increase by >2% within 12 months in absolute terms share price will decrease by >2% within 12 months in absolute terms : no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL Copyright Reserved No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited. China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459 Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: