Yum Cha 飲茶. June 1, 2016 RESEARCH NOTES SNIPPETS

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1 Yum Cha 飲茶 INDICES Closing DoD% Hang Seng Index 20, HSCEI 8, Shanghai COMP 2, Shenzhen COMP 1, Gold 1, BDIY Crude Oil, WTI(US$/BBL) 49.1 (0.5) Crude Oil, BRENT(US$/BBL) 49.9 (0.9) HIBOR, 3-M SHIBOR, 3-M RMB/USD DATA RELEASES DUE THIS WEEK June 2 Caixin China PMI Services June 2 Caixin China PMI Composite Source: Bloomberg RESEARCH NOTES June 1, 2016 RENEWABLE ENERGY - The NDRC and NEA jointly announced the details of the guaranteed dispatch of wind and solar power yesterday, which we think is the most important policy this year to ease the grid-curtailment pressure. The circular clearly states the execution details and the minimum utilization hours for the grid-curtailment regions that are protected. Renewable energy operators will benefit from the policy, and we estimate Huaneng Renewables [0958 HK; BUY] will benefit most based on our sensitively analysis. CHINA WATER AFFAIRS [0855.HK; HK$4.04; BUY] - China Water Affairs (CWA) announced that it aims to introduce strategic investors for its wastewater treatment operations, which will hasten the development process and unlock the value of its underlying assets. CWA s disposal of its stake in China City Infrastructure Group (CCIG) [2349.HK] is on track. The proceeds from the disposal will be reinvested in its water supply operations. The outlook for CWA remains positive given (a) a water tariff hike and volume growth, (b) the development of new business, (c) the accelerated disposal of non-core assets, and (d) the search for new business partners. The Company has bought back about 8.2m shares at an average price of HK$3.90 since late Apr Share price catalysts include potential merger and acquisition activity, the disposal of non-core assets, potential new business partners, and increasing analyst coverage. At 12.4x FY16 PER, CWA s valuation is substantially lower than the industry average. We maintain a BUY rating with a target price of HK$5.0 based on 18x FY16E PER, which is higher than its historical average. BBMG [2009.HK; HK$2.46; BUY] - BBMG announced that it will acquire a 55% stake in Jidong Development for a consideration of RMB5.225bn. Based on a simplified sum-of-the-parts valuation, we believe the price is fair. It is one step closer to strengthening cement price discipline in the Beijing-Tianjin-Hebei area as BBMG and Jidong will control 57% of the production capacity in the region after the restructuring. Since the proforma financial statements are not available at the moment, our earnings forecasts remain unchanged at this stage. We reiterate our BUY rating with a sum-of-the-parts price target of HK$3.58 (0.82x 2016E PBR and 11.4x 2016E PER, bonus shares adjusted), which includes the attributable asset value of Jidong Development. SNIPPETS RQFII UPDATE - Based on latest data released by the SAFE yesterday, BlackRock (Singapore) was granted an RQFII quota of RMB20bn on May 30. This is a relatively large amount compared with the total RQFII quota of RMB501.8bn. It seems that the Chinese authorities are trying their best to increase the chance of A-shares to be included in the MSCI Emerging Markets Index during the review in mid-june. The aim of the approval of a large quota is to show the improving market access of the A- share market, in our view. Although market views remain mixed regarding the review results in mid-june, we believe the MSCI will at least announce a much clearer timetable or roadmap for the inclusion of A-shares after the authorities launched several key policies in the past few months to address market concerns: e.g. a more transparent trading suspension mechanism and clarification of share ownership. Therefore, we don t expect market sentiment to turn very negative if there is no decision on the inclusion during the review. 1

2 Wind power June 1, 2016 Sector update Details on the guaranteed dispatch of renewable power finalized; Huaneng Renewables to benefit most The NDRC and NEA jointly announced the details of the guaranteed dispatch of wind and solar power yesterday, which we think is the most important policy this year to ease the grid-curtailment pressure. The circular clearly states the execution details and the minimum utilization hours for the grid-curtailment regions that are protected. Renewable energy operators will benefit from the policy, and we estimate Huaneng Renewables [0958 HK; BUY] will benefit most based on our sensitively analysis. Protective power dispatch will be guaranteed by the grid companies. According to the circular (source: the guaranteed wind utilization ranges from 1800 to 1900 hours, while the guaranteed solar utilization is hours (figure 1). The guaranteed utilization hours are determined by the capacity of the power system and calculated by reasonable project returns. The provinces will have to adjust the power dispatch this year based on the guaranteed hours. For the regions in which the guaranteed utilization hours are not achieved, no new wind and projects will be allowed to start construction. The guaranteed hours will be subject to change in future. Power generation exceeding the guaranteed hours will participate in the market transactions. Tariffs are to be agreed between the renewable power operators and the power sales companies (or end users). The subsidy for the renewable power operators will be based on the difference between the renewable energy on-grid tariff and the local coal-fired power on-grid tariff. Decent earnings upside based on our sensitivity test. Assuming the guaranteed utilization hours are fully executed this year, Huaneng Reneawables, China Longyuan [0916 HK; BUY] and China Suntien [0956 HK; BUY] will see 13%, 10% and 8% earnings upside, respectively, from our current forecasts for 2016E. While Datang Renewable [1798 HK; HOLD] will see 67% potential earnings upside, this is largely due to the low base effect (and ROE will remain at 4%, well below Huaneng Renewables s 12% and Longyuan s 9%). Wayne Fung, CFA Analyst (852) waynefung@chinastock.com.hk Wong Chi Man, CFA Head of Research (852) cmwong@chinastock.com.hk 2

3 Figure 1: Guaranteed utilization hours Wind power Region Guaranteed utilization hours Zone-I Autonomous region of Inner Mongolia (Except Chifeng city, Tongliao city, Xinganmeng, Hulunbeier city) 2000 Urumqi city, Autonomous region of Yilihashake, Kelamayi city, Shihezi city of Xinjiang Uyghur Autonomous Region 1900 Zone-II Chifeng city, Tongliao city, Xinganmeng, Hulunbeier city of Autonomous region of Inner Mongolia 1900 Zhangjiaokou city of Hebei province 2000 Jiayuguan city and Jiuquan city of Gansu province 1800 Zone-III Gansu Province (Except Zhangye city, Jiayuguan city and Jiuquan city) 1800 Xinjiang Uyghur Autonomous Region (Except Urumqi city, Autonomous region of Yilihashake, Kelamayi city, Shihezi city) 1800 Baichang city, Songyuan city of Jilin province 1800 Jixi city, Shuangyashan city, Qitaihe city, Suihua city, Qichun city, Daxinganling district of Heilongjiang province 1900 Ningxia Hui Autonomous region 1850 Zone-IV Other regions in Heilongjiang province 1850 Other regions in Jilin province 1800 Liaoning province 1850 Xinzhou city, Shuozhou city, Datong city of Shanxi province 1900 Solar power Region Guaranteed utilization hours Zone-I Ningxia province 1500 Haixi of Qinghai province 1500 Jiayuguan, Wuwei, Zhangye, Jiuquan, Dunhuang, Jinchang of Gansu province 1500 Hami, Tacheng, Aertai, Kelamayi of Xinjiang province 1500 Inner Mongolia (other than Chifeng, Tongliao, Xinganmeng, Hulunbeier) 1500 Zone-II Regions other than the zone-i areas in Qinghai 1450 Regions other than the zone-i areas in Gansu 1400 Regions other than the zone-i areas in Xinjiang 1350 Chifeng, Tongliao, Xinganmeng, Hulunbeier in Inner Mongolia 1400 Heilongjiang province 1300 Jilin province 1300 Liaoning province 1300 Chengde, Zhangjiakou, Tangshan, Qinhuangdao of Hebei province 1400 Xinzhou city, Shuozhou city, Datong city of Shanxi province 1400 Yulin, Yanan of Shaanxi province 1300 Sources: NDRC, CGIS Research 3

4 June 01, 2016 China Water Affairs [0855.HK] Unlocking the value of underlying assets. Maintain BUY China Water Affairs (CWA) announced that it aims to introduce strategic investors for its wastewater treatment operations, which will hasten the development process and unlock the value of its underlying assets. CWA s disposal of its stake in China City Infrastructure Group (CCIG) [2349.HK] is on track. The proceeds from the disposal will be reinvested in its water supply operations. The outlook for CWA remains positive given (a) a water tariff hike and volume growth, (b) the development of new business, (c) the accelerated disposal of non-core assets, and (d) the search for new business partners. The Company has bought back about 8.2m shares at an average price of HK$3.90 since late Apr Share price catalysts include potential merger and acquisition activity, the disposal of non-core assets, potential new business partners, and increasing analyst coverage. At 12.4x FY16 PER, CWA s valuation is substantially lower than the industry average. We maintain a BUY rating with a target price of HK$5.0 based on 18x FY16E PER, which is higher than its historical average. Water Utilities BUY Close: HK$4.04 (May 31, 2016) Target Price: HK$5.0 (+24.7%) Share Price Performance Investment Highlights (HK$) 5 (HK$ million) 60 Unlocking value in wastewater treatment. CWA announced that the Company entered into a term sheet with Asia Climate Partners LP (ACP) in relation to the proposed subscription of new shares in the Company s wastewater treatment and EPC operations. ACP is a joint venture of the Asian Development Bank, ORIX Corporation and Robeco Institutional Asset Management B.V., targeting mid-market, growth-oriented private equity opportunities in the clean energy, resource efficiency and environmental industries in Asia. CWA aims to finalize the transaction details within a month. We estimate the wastewater treatment operations will account for about 12.7% of total turnover in FY16. CWA s wastewater treatment segment has operating capacity of about 800,000 tonnes. According to management, with the current system, this capacity can be expanded to over 1m tonnes. We believe CWA will sell its stake in its wastewater treatment operations at least at par with CWA s current valuation of 12.4x, which is higher than the average of its listed peers of 10.6x 2016 PER. The introduction of shareholders at the subsidiary level will hasten the development process and unlock the value of CWA s underlying assets. Disposal of CCIG is on track. CWA announced, in late Mar 2016, that the Company entered into an agreement to dispose of 592.9m shares (29% stake) in China City Infrastructure Group (CCIG) [2349.HK] for a consideration of HK$474.3m or HK$0.8 per CCIG share. The consideration will be paid by the buyer as follows: (a) HK$94.9m (20% of the total consideration) within three business days after the agreement is signed, and (b) the balance upon completion of the transaction. The first installment of HK$94.9m has been received. We share the view that the disposal loss will have negative effect on CWA s profit and loss account in FY17, but the disposal loss is non-cash in nature. CWA will reinvest Key Financials (in HKDm) Y/E March 31 FY13 FY14 FY15 FY16E FY17E Revenue 2, , , , ,133.9 Change (YoY %) Gross Profit , , , ,051.9 Gross Margin % Net Profit Net Margin % EPS (Basic) Change (YoY %) (9.3) Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 Turnover (RHS) Price (LHS) Market Cap Shares Outstanding Auditor Mark Po, CFA Senior Analyst (852) markpo@chinastock.com.hk Wong Chi Man, CFA Head of Research (852) cmwong@chinastock.com.hk US$790m 1,519.9m BDO Limited Free Float 49.3% 52W range 3M average daily T/O Major Shareholding HK$ US$1.2m Chairman, Mr Duan Chuan-lian (30.13%) 0 DPS $0.050 $0.050 $0.070 $0.081 $0.093 ROE (%) Dividend Yield (%) PER (x) n.a PBR (x) FCF Yield (%) 3.04% -6.46% -3.10% 6.35% 11.64% Capex (m) (861.4) (927.8) (1,000.0) (1,000.0) (1,000.0) Free cash flow per share 0.1 (0.3) (0.1) Net Gearing (%) Sources: Company, CGIS Research estimates 4

5 Figure 1: Earnings projection Income Statement (HKDm) FY13 FY14 FY15 FY16E FY17E Cash Flow Statement (HKDm) FY13 FY14 FY15 FY16E FY17E Y/E March 31 Y/E March 31 Revenue 2,251 2,747 2,859 3,523 4,134 Net Income ,081 1,367 Growth yoy% 18.6% 22.0% 4.1% 23.3% 17.3% Depreciation & Amort Gross Profit 970 1,147 1,352 1,738 2,052 Change in Working Capital 200 (443) (317) (6) 12 Growth yoy% 16.1% 18.3% 17.9% 28.5% 18.0% Cash from Ops. 1, ,391 1,729 Selling General & Admin Exp. (447) (536) (587) (724) (816) Capital Expenditure (861) (928) (1,000) (1,000) (1,000) Others Operating Expenses/Items Sale of Property, Plant, and Equipment Operating Income ,199 1,468 Change in Investing Acitivities (130) (300) (381) (68) (301) Growth yoy% n.a. n.a. 22.7% 32.2% 22.4% Cash from Investing (991) (1,228) (1,381) (1,068) (1,301) Interest Expense (86.5) (106.9) (117.4) (180.7) (221.2) Net increase in bank borrowings 260 1, ,549 1,199 Interest and Invest. Income Income/(Loss) from Affiliates Issuance of Common Stock Other Non-Operating Inc. (Exp.) Common Dividends Paid (73) (71) (87) (111) (133) Impairment of Goodwill Special Dividend Paid Gain (Loss) On Sale Of Invest Other Financing Activities (169) (153) (153) (130) (104) Gain (Loss) On Sale Of Assets Cash from Financing 19 1, , Income Tax Expense (239) (230) (317) (387) (462) Minority Int. in Earnings (240) (276) (333) (406) (484) Net Change in Cash (87) 1,631 1,390 Net Income Growth yoy% (9.3%) (1.6%) 31.8% 33.8% 19.2% Balance Sheet (HKDm) FY13 FY14 FY15 FY16E FY17E Ratios FY13 FY14 FY15 FY16E FY17E Y/E March 31 Y/E March 31 ASSETS Profitability Cash And Equivalents 918 1,590 1,501 3,129 4,516 Return on Assets % 2.6% 2.2% 2.6% 3.0% 3.1% Receivables 1,201 1,312 1,581 1,949 2,286 Return on Capital % 2.6% 3.7% 3.6% 5.0% 6.2% Inventory Return on Equity % 8.6% 8.1% 10.0% 12.1% 13.0% Other Current Assets 1,624 1,778 2,303 2,064 1,966 Total Current Assets 3,934 4,929 5,686 7,513 9,204 Margin Analysis Net Property, Plant & Equipment 4,745 5,425 5,995 6,679 7,330 Gross Margin % 43.1% 41.8% 47.3% 49.3% 49.6% Long-term Investments SG&A Margin % 19.9% 19.5% 20.5% 20.5% 19.7% Other Intangibles EBIT Margin % 28.2% 28.1% 33.8% 37.1% 41.0% Deferred Tax Assets, LT EBITDA Margin % 39.0% 38.6% 43.7% 46.1% 49.5% Other Long-Term Assets 2,971 3,153 3,421 3,794 4,134 Net Income Margin % 12.7% 10.2% 13.0% 14.1% 14.3% Goodwill Accounts Receivable Long-Term Asset Turnover Total Long Term Assets 7,716 8,578 9,416 10,474 11,464 Total Asset Turnover 0.2x 0.2x 0.2x 0.2x 0.2x Total Assets 11,650 13,507 15,102 17,987 20,668 Fixed Asset Turnover 0.3x 0.3x 0.3x 0.3x 0.4x Accounts Receivable Turnover 2.0x 2.2x 2.0x 2.0x 2.0x LIABILITIES & EQUITY Inventory Turnover 11.8x 11.0x 9.5x 9.5x 9.5x Accounts Payable 2,328 2,050 2,135 2,631 3,087 Accrued Exp Liquidity Short-term Borrowings 653 1,299 2,347 2,893 3,394 Current Ratio 1.0x 1.2x 1.1x 1.2x 1.3x Curr. Port. of LT Debt Quick Ratio 0.4x 0.6x 0.5x 0.7x 0.8x 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 3,792 3,972 5,214 6,267 7,267 Avg. Cash Conversion Cycle Long-Term Debt 2,097 3,373 3,024 4,028 4,726 Net Debt to Equity 54% 87% 99% 88% 76% Def. Tax Liability, Non-Curr Other Non-Current Liabilities Growth Over Prior Year Total Liabilities 6,456 7,811 8,666 10,760 12,498 Total Revenue 18.6% 22.0% 4.1% 23.3% 17.3% Common Stock Net Income (9.3%) (1.6%) 31.8% 33.8% 19.2% Additional Paid In Capital Payout Ratio % 23.8% 26.2% 25.3% 26.7% 24.7% Retained Earnings 3,369 3,516 3,909 4,294 4,753 Treasury Stock Comprehensive Inc. and Other Minority Interest 1, , , , ,402.5 Total Equity 5,194 5,696 6,436 7,227 8,170 Total Liabilities And Equity 11,650 13,507 15,102 17,987 20,668 5

6 Figure 2: Peer comparison Ticker Company PE EV/EBITDA P/B ROE ROA Div yield Price Market Cap 2016F 2017F 2018F 2016F 2017F 2018F F F F F Lcy US$m x x x x x x x x % % % % % % 855 HK China Water Affairs Group n.a n.a HK Guangdong Investment Ltd HK China Everbright Intl Ltd HK Beijing Enterprises Water Gr HK Tianjin Capital Environ-H n.a n.a n.a HK Sound Global Ltd n.a HK Ct Environmental Group Ltd HK Kangda International Environ CH Chengdu Xingrong Investmen-A n.a CH Beijing Originwater Techno-A n.a CH Jiangxi Hongcheng Waterwor-A n.a n.a CH Wuhan Sanzhen Industry Ho-A n.a. n.a. n.a. n.a. n.a. n.a. 1.6 n.a n.a. n.a. n.a CH Beijing Capital Co Ltd-A n.a CH Chongqing Water Group-A n.a. n.a. 3.9 VIE FP Veolia Environnement n.a. 3.9 SEV FP Suez Environnement Co n.a. 4.3 MWC PM Manila Water Company n.a. 3.1 Average Sources: Bloomberg, Company, CGIS Research estimates for covered stocks, China Water Affairs Group s financial year ended in Mar 6

7 June 1, 2016 BBMG Corporation [2009.HK] Details of the Restructuring with Jidong Announced; Maintain BUY BBMG announced that it will acquire a 55% stake in Jidong Development for a consideration of RMB5.225bn. Based on a simplified sum-of-the-parts valuation, we believe the price is fair. It is one step closer to strengthening cement price discipline in the Beijing- Tianjin-Hebei area as BBMG and Jidong will control 57% of the production capacity in the region after the restructuring. Since the proforma financial statements are not available at the moment, our earnings forecasts remain unchanged at this stage. We reiterate our BUY rating with a sum-of-the-parts price target of HK$3.58 (0.82x 2016E PBR and 11.4x 2016E PER, which includes the attributable asset value of Jidong Development. Investment Highlights Structure of the deal. BBMG will inject RMB4.75bn cash into Jidong Development. In addition, BBMG will acquire 10% of the existing shares of Jidong Development for a consideration of RMB475m. Therefore, BBMG will spend a total of RMB5.225bn to get 55% of the enlarged share capital of Jidong Development, and Tangshan SASAC will own the balance. The transaction is subject to shareholders approval in an EGM. Fairly valued considering the holding company discount. After the restructuring, the major assets of Jidong Development will include RMB4.75bn cash (injected by BBMG) + RMB1.023bn cash + a 30% stake in Jidong Cement ( CH) and a 41.52% stake (to be reduced to 30%) in Jidong Equipment ( CH). Based on a simplified sum-of-the-parts valuation, the fair value of a 100% stake of Jidong Development is RMB11.28bn. Therefore, the consideration paid by BBMG implies a 16% discount to fair value. However, if we assume a 30% holding company discount for the listed assets, the valuation discount paid by BBMG is close to zero. Execution of better coordination to be the key. Before the transaction, BBMG and Jidong Cement control respectively 28.88% and 28.08% of cement capacity in the Beijing-Tianjin-Hebei region. Once the restructuring is completed, the two companies will control a total market share of 56.96%. Currently, we project BBMG s blended ASP (cement and clinker) to drop from RMB178/tonne in 2015 to RMB172/tonne in 2016E because of a very low base in Q If the ASP is higher than our expectation by RMB10/tonne thanks to better coordination, we will see 11% upside to our 2016E EPS (without considering the contribution from Jidong Cement). Risk. Jidong Cement recorded a loss of RMB1.7bn in The risk should be manageable, as BBMG will share only 16.5% of the profit/loss (55% x 30%), but its own cement business will enjoy the full benefit of better coordination on pricing. Y/E Dec E 2017E Turnover (RMB m) 43,204 39,452 38,747 43,025 47,092 Recurring net profit (RMB m) 2,954 1,942 1,873 2,922 3,247 Net margin (%) Recurring EPS (RMB) % Change 38 (41) (14) PER (x) PBR (x) Sources: Company, CGIS Research China Cement Sector BUY Close: HK$2.46 (May 31, 2016) Target Price: HK$3.58 (+45.5%) Price Performance (HK$) (HK$ million) Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Turnover (RHS) Price (LHS) Source: Bloomberg Market Cap US$5,799m Shares Outstanding 10,677.7m Auditor Ernst & Young Free Float 48.26% 52W range HK$ M average daily T/O US$9.1m Major Shareholder BBMG Group (44.9%) Sources: Company, Bloomberg Wong Chi Man Head of Research (852) cmwong@chinastock.com.hk Livy Lyu Research Assistant (852) livylyu@chinastock.com.hk 7

8 Figure 1: Regional breakdown of BBMG s land reserve (end-2015) Figure 2: Cement prices in north China (RMB/tonne) Hefei, Haikou and other cities, 22% Beijing, Shanghai and other first-tier cities, 20% North China Tianjin, Nanjing and other second-tier cities, 58% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sources: Company, CGIS Research Sources: Digital Cement, CGIS Research Figure 3: SOTP valuation RMB m Note Cement and other building materials 15, x PBR Investment properties 16,893 30% valuation discount; 7% cap rate Property development 31,976 30% valuation discount Net debt (32,389) Minority interests (4,044) Key assets of Jidong Development Cash 5,773 30% stake in Jidong Cement ( CH) 3,087 30% holding company discount 41.52% stake in Jidong Equipment ( CH) (note: to be reduced to 30%) % holding company discount Sub-total 9,627 55% owned by BBMG 5,295 Equity value 33,268 Price Target (HK$) 3.58 Source: CGIS Research 8

9 Key financials BBMG (02009.HK) Income Statement (RMB'000, except for per share amount) E Year ended 31 Dec 1H 2H 1H 2H 1H 2H E 2017E Revenue 19,819,694 19,632,371 17,050,142 21,696,757 19,449,350 23,575,493 43,203,573 39,452,065 38,746,899 43,024,843 47,091,699 COGS (15,481,691) (15,791,129) (13,107,106) (17,418,935) (15,504,431) (18,245,153) (34,799,884) (31,272,820) (30,526,041) (33,749,583) (37,155,219) Gross profit 4,338,003 3,841,241 3,943,036 4,277,822 3,944,919 5,330,340 8,403,690 8,179,244 8,220,858 9,275,259 9,936,480 Operating expenses (2,140,412) (2,267,761) (2,169,871) (2,350,098) (2,236,675) (2,322,186) (4,377,555) (4,408,173) (4,519,969) (4,558,861) (4,786,115) Operating profit 2,197,591 1,573,481 1,773,165 1,927,724 1,708,244 3,008,154 4,026,135 3,771,071 3,700,889 4,716,398 5,150,365 Other income and expenses 296, , , , , , , , , , ,150 EBIT 2,493,973 1,988,737 1,986,706 2,382,444 1,910,517 3,420,725 4,688,344 4,482,710 4,369,150 5,331,243 5,729,515 Net finance costs (593,340) (616,097) (684,185) (651,361) (676,583) (676,583) (1,017,497) (1,209,437) (1,335,546) (1,353,166) (1,329,845) Profits from JCEs and associates 1,781 (30,231) (12,637) (5,057) (10,000) (5,000) (34,334) (28,450) (17,694) (15,000) 4,000 Non-recurrent items 184, , ,813 (68,068) , , , Income before tax 2,086,662 1,716,683 1,524,697 1,657,957 1,223,934 2,739,142 3,993,753 3,803,345 3,182,654 3,963,077 4,403,670 Income tax expense (569,862) (524,511) (503,095) (728,492) (330,462) (766,960) (750,566) (1,094,373) (1,231,587) (1,097,422) (1,188,991) Minority interests (136,151) (150,099) 26,142 40,244 26,804 29,583 (27,974) (286,250) 66,386 56,387 32,147 Net income 1,380,649 1,042,073 1,047, , ,276 2,001,765 3,215,213 2,422,722 2,017,453 2,922,041 3,246,826 Recurring net income 1,180, , ,300 1,020, ,276 2,001,765 2,953,706 1,941,667 1,873,061 2,922,041 3,246,826 EPS (RMB) Recurring EPS (RMB) DPS (HK$) Depreciation and amortization 606, , , , , ,551 1,100,637 1,213,646 1,395,886 1,502,927 1,604,141 EBITDA 3,100,001 2,596,355 2,642,772 3,122,263 2,616,893 4,217,277 5,788,981 5,696,356 5,765,035 6,834,170 7,333,655 Cement and clinker ASP (RMB/tonne) Cement and clinker vol. ('000 tonnes) 18,350 22,200 17,100 22,160 20,236 23,581 38,900 40,550 39,260 43,817 46,868 Cement and clinker gross profit (RMB/tonne) Booked GFA ('000 sq.m) ,177 1,497 1,263 1,527 1,713 Revenue Breakdown:# Cement 5,790,500 6,931,500 5,144,100 5,684,600 4,904,278 6,537,162 13,122,000 12,722,000 10,828,700 11,441,440 12,573,362 Modern building materials 5,807,000 4,716,000 5,125,000 5,246,700 4,809,330 5,243,790 14,644,500 10,523,000 10,371,700 10,053,120 10,586,967 Property investment 1,103,700 1,088,700 1,264,000 1,428,400 1,380,618 1,572,411 1,945,000 2,192,400 2,692,400 2,953,029 3,114,157 Property development 7,937,900 7,598,700 6,493,900 10,427,500 9,378,774 11,462,946 14,953,000 15,536,600 16,921,400 20,841,719 23,295,723 Growth Rates: Revenue 1% -17% -14% 11% 14% 9% 33% -9% -2% 11% 9% EBIT 34% -30% -20% 20% -4% 44% 21% -4% -3% 22% 7% EBITDA 30% -24% -15% 20% -1% 35% 19% -2% 1% 19% 7% Core net income 12% -60% -28% 34% 8% 96% 38% -34% -4% 56% 11% Recurring EPS 0% -64% -28% 20% -3% 96% 38% -41% -14% 56% 11% Margins and Ratios: Gross margin 21.9% 19.6% 23.1% 19.7% 20.3% 22.6% 19.5% 20.7% 21.2% 21.6% 21.1% Net margin 6.6% 4.6% 4.8% 4.5% 4.6% 8.4% 6.9% 5.6% 4.7% 6.7% 6.8% EBIT margin 11.1% 8.0% 10.4% 8.9% 8.8% 12.8% 9.3% 9.6% 9.6% 11.0% 10.9% EBITDA margin 15.6% 13.2% 15.5% 14.4% 13.5% 17.9% 13.4% 14.4% 14.9% 15.9% 15.6% Effective tax rate 27% 31% 33% 44% 27% 28% 19% 29% 39% 28% 27% # Business tax included for figures since 2012 due to change in disclosure format. Sources: Company data, CGIS Research estimates 9

10 Jul-09 Nov-09 Feb-10 May-10 Aug-10 Dec-10 Mar-11 Jun-11 Sep-11 Jan-12 Apr-12 Jul-12 Oct-12 Feb-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 07/ / / / / / / / / / / / / / / / / / / / /2016 Key financials BBMG (02009.HK) Balance Sheet (RMB'000, except for per share amount) Statement of Cash Flow As at 31 Dec E 2017E Year ended 31 Dec E 2017E Inventories 37,602,014 48,853,159 54,007,187 60,000,000 65,000,000 Profit before tax 3,993,753 3,803,345 3,182,654 3,963,077 4,403,670 Trade receivables 5,337,443 5,785,423 7,387,536 8,600,000 10,000,000 Depreciation & Amortization 1,169,655 1,291,784 1,395,886 1,502,927 1,604,141 Bills receivable 1,373,660 2,651,028 2,197,924 2,300,000 2,400,000 Change in w orking capital (3,791,176) (7,521,294) (8,477,792) (6,886,503) (6,200,000) Others 7,248,598 6,749,024 7,373,104 7,424,233 7,449,233 Others / adjustments (1,932,069) (1,201,652) (846,452) 1,133, ,555 Bank balances and cash 8,595,510 10,980,172 18,369,881 13,100,526 11,845,209 Net operating cash flow (559,837) (3,627,817) (4,745,703) (287,280) 64,366 Total current assets 60,157,225 75,018,806 89,335,633 91,424,759 96,694,442 Capex (3,437,698) (3,473,151) (680,623) (2,000,000) (2,000,000) PPE, net 18,633,539 18,856,086 19,390,359 20,030,474 20,226,333 Others (280,583) (127,391) 1,169, Prepaid lease payments Net investing cash flow (3,718,281) (3,600,542) 488,824 (2,000,000) (2,000,000) Others 20,048,785 21,810,079 22,020,713 23,188,016 24,117,470 Total non-current assets 38,682,323 40,666,165 41,411,072 43,218,490 44,343,803 Change in debt 4,253,226 (1,970,954) 5,279,212 (2,689,871) 1,005,000 Dividends (668,263) (478,464) (320,333) (292,204) (324,683) Total assets 98,839, ,684, ,746, ,643, ,038,245 Others 3,002,653 26,774,080 3,591, Net financing cash flow 6,587,616 24,324,662 8,550,872 (2,982,075) 680,317 Trade payables 9,022,805 9,534,764 9,062,191 9,500,000 9,800,000 Other payables 3,154,941 3,696,216 3,626,299 3,700,000 3,800,000 Increase / Decrease in cash 2,689,412 2,384,661 7,389,709 (5,269,354) (1,255,317) Bank and other borrow ings 13,516,500 11,635,636 16,805,996 17,000,000 18,000,000 Net cash/(debt) (21,106,510) (23,104,876) (23,324,716) (27,899,474) (30,154,791) Others 26,365,726 34,647,039 35,692,087 39,198,268 41,303,268 Total current liabilities 52,059,971 59,513,656 65,186,574 69,398,268 72,903,268 Finance Ratios Bank and other borrow ings 6,879,920 6,779,500 6,888,600 4,000,000 4,000, E 2017E Others 9,874,344 13,144,427 16,489,656 16,489,656 16,489,656 Valuation Total non-current liabilities 16,754,264 19,923,927 23,378,256 20,489,656 20,489,656 PE(x) EPS grow th (%) Total liabilities 68,814,236 79,437,583 88,564,830 89,887,924 93,392,924 Yield (%) PEG (x) Shareholders' equity 26,280,140 31,107,268 38,082,973 40,712,810 43,634,953 EV/EBITDA (x) Minority interests 3,745,173 5,140,120 4,098,901 4,042,514 4,010,368 PB(x) Sources: Company data, CGIS Research estimates Operational Revenue grow th (%) Gross margin (%) Net profit margin (%) Days receivables Days payables Days inventories Current ratio (x) Quick ratio (x) Asset/Equity (x) Net debt/equity (%) EBITDA interest coverage (x) Core ROE (%) Figure 4: PER band of BBMG Figure 5: PBR range of BBMG HKD 14 3-Year Average Rolling Forward PER =11.3X 1.6 P/B trend (x) 1 Standard deviation -1 Standard deviation Average x 17x 13x 9x 5x Source: CGIS Research Source: CGIS Research 10

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Explanation on Equity Ratings BUY SELL HOLD : : share price will increase by >20% within 12 months in absolute terms share price will decrease by >20% 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: