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1 11/12/ /1/ /2/ /3/ /4/ /5/ /6/ /7/ /8/ /9/ /10/ /11/ /12/2014 Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World HONG KONG & CHINA INDICES Close 1D YTD HSI % -0.2% HSCEI % 3.9% Shanghai Comp % 38.9% HANG SENG SECTOR INDICES Close 1D YTD HSF % 2.2% HSP % 6.0% HSU % 11.8% HSC % -5.7% CSI All SHARES SECTOR INDICES Close 1D YTD CSI Energy % 13.6% CSI Materials % 39.9% CSI Industrials % 48.9% CSI Cons Disc % 32.0% CSI Cons Stpls % 18.0% CSI Health Care % 19.3% CSI Financials % 53.9% CSI IT % 40.7% CSI Telecom % 46.4% CSI Utilities % 54.4% FEATURED INDICES Close 1D YTD S&P % 8.3% Dow % 4.2% Nasdaq % 11.4% CURRENCIES Close 1D YTD DXY % 10.2% HKD % 0.0% CNY % -2.2% JPY % -10.8% AUD % -7.5% EUR % -9.2% GBP % -5.0% COMMODITIES Close 1D YTD Reuters/ Jefferies CRB % -13.0% BDIY % -62.1% Gold % 1.4% Crude - NYMEX % -42.7% Crude - Brent % -45.4% Copper % -10.4% Source: Bloomberg % A share premium H-share reports :HK Dongjiang Environmental BUY (Initiation) Banking: Sector outlook Overweight CTRP:US Ctrip International BUY (U/G Rec) 3699:HK Dalian Wanda Commercial Properties N-R A-share reports... In the news... Macro news Company news Macroeconomics: Central economic work conference review Agriculture: Sector outlook Textiles and apparel: Sector outlook State Council to approve formation of three new free trade zones: in Tianjin, Fujian and Guangdong. (Sina) M2 growth for the first 11 months of 2014 slows 0.3ppts from end-october to 12.3% YoY, November total social financing increases Rmb465.6bn MoM to Rmb1.15tn. (PBoC) Industrial value-added output for November grows 7.2% YoY, 0.5ppts lower than in October. (NBS) PBoC signs three-year Rmb7bn currency swap agreement with central bank of Kazakhstan. (Sina) NDRC releases circular lowering gasoline price by Rmb170/tonne and diesel price by Rmb400/tonne. (Sina) :CH Huatai Securities completes Rmb2.5bn short-term notes issue. (Sina Finance) :CH Shanghai Jahwa United is investigated for illegal information disclosure, faces delisting. (Securities Times) :CH China Communications Construction acquires an Australia-based construction company, John Holland Group, for AU$950m. (Securities Times) :CH China Construction Bank plans to raise Rmb60bn through 600m preferred share issuance in the domestic market. (Securities Times) :CH Sinochem International plans to acquire agrichemical assets from its parent company. (Securities Times) The Source: company Bloomberg does not hold any equities or derivatives of the listed compan

2 Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World :CH Shandong Dong-E E-Jiao launches a new cooperation campaign with key distributors; distribution channel restructuring starts. (21cbn) :CH - Inner Mongolia Baotou Steel Rare Earth Hi Tech to integrate five local rare earth companies. (Securities Daily) :CH - Shanghai Jahwa United sues former Board of Director Ge Wenyao and former Asset Management Director Wang Haorong for embezzlement, seeks 17m in damages. (Securities Daily) :CH - Gansu Gangtai Holding Group to acquire Guoding Gold for Rmb300m. (Shanghai Securities) :CH - Xiaomi to invest Rmb1.27bn in Midea Group. (Shanghai Securities) Today s H-share research 895:HK Dongjiang Environmental BUY (Initiation) Dimi Du duwei@swsresearch.com Duke of hazardous waste Demand for hazardous waste treatment is growing more rapidly than treatment providers can service. The volume of hazardous waste produced is likely to increase to more than 65m tonnes in 2015, while current treatment facilities have a total capacity of just 30mt. Official data puts nationwide capacity utilization & disposal at 78%, leaving substantial amounts of waste being put into storage; we estimate at least 30mt in storage at the moment and need to be processed. As a result, we see substantial scope for industry expansion over the coming 10 years to digest the backlog. Banking: Sector outlook Vivian Xue xuehr@swsresearch.com Credit rating November new lending was Rmb853bn (+Rmb228bn YoY), raising the total balance of loans outstanding by 13.4% YoY, while deposits for the month were Rmb671bn (+Rmb124bn YoY), boosting overall deposits by 9.6% YoY, according to People's Bank of China data. M2 growth decelerated, from 12.6% YoY in October to 12.3% YoY in November. The government's measure of credit to the economy, total social financing (TSF), reached Rmb1.15tn in November (-Rmb85bn YoY), of which the proportion accounted for by trust financing and bankers' acceptances continued to decrease. CTRP:US CTRP BUY (U/G Rec from Outperform to BUY) Roger Gu gurg@swsresearch.com Departure point Ctrip guided a net loss for 4Q14 and 1Q15 during its 25 November 3Q earnings results conference call, which would be the first quarterly losses for Ctrip in ten years. In the three weeks since, the company s stock has lost 22.5% of its value, lowering its market cap to US$6.1bn; after accounting for

3 Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World its convertible debt (US$1.3bn), the market value of its properties (US$1bn), its investments in other firms equity (US$1.2bn) and its cash-on-hand (US$1.8bn), the company s value is just US$3.4b, or 18x 16E earnings and 0.2x PEG. We believe this represents a significant undervaluation. 3699:HK Dalian Wanda Commercial Properties N-R Kris Li lihong@swsresearch.com Property empire Dalian Wanda Commercial Properties is the flagship real estate platform under Dalian Wanda Group. As the largest commercial property operator in China, Wanda operates large-scale commercial complexes across c.110 cities in most Chinese provinces. Wanda sells residential properties and office buildings for instant cash proceeds and operates shopping malls and hotels as long-term investments. Its controlling shareholder, Wang Jianlin, holds a 59% interest in the company (c.51% after the company completes its IPO). Wang also runs private businesses such as Wanda Cinema (A-share IPO recently approved) and Wanda Department Stores. This year, Wang set up a JV with Baidu (BIDU:US) and Tencent (700:HK) in an effort to explore e-commerce opportunities. Today s A-share research Macroeconomics: Central economic work conference review Li Rong lirong@swsresearch.com Slow and steady wins the race At the Central Economic Work Conference, officials announced China s new norms (also known as new normal s) in details. Unlike the market s previous expectation, the central government guided steady economic growth, an optimised economic structure, stressed the importance of investment and export in stimulating the nation s GDP growth and new growth driver requirements. We recommend investors pay attention to upcoming monetary easing and hot investment themes including the New Silk Road, Beijing- Tianjin-Hebei economic development zone and the Yangtze River economic belt. Agriculture: Sector outlook Dong Liang dongliang@swsresearch.com Fresh start At the Central Economic Work Conference, China reaffirmed its commitment to promote land reform and the modernisation of the country s farming industry. We expect to see land use rights transfer policies, sustainable agriculture policies and pricing reform of agriculture produce to be launched in the near-term. Among individual stocks, we recommend Zhongnongfa Seed Industry (600313:CH), Xinjiang Machinery Research Institute (300159:CH), Beijing Dabeinong Technology (002385:CH), Heilongjiang Agriculture (600598:CH) and Yuan Longping High-tech Agriculture (000998:CH).

4 Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World Textiles and apparel: Sector outlook Dong Liang The line starts here In 10M14, textile and apparel exports grew 6.4% YoY (excluding February, when exports slumped). Cotton prices stabilised on the back of government subsidies for cotton planting. During the same period, retail sales of textile and apparel products grew 9.8% YoY. Thanks to large-scale promotions, offline retailers saw increasing traffic following a surge in online sales in November.

5 Commercial & Professional Services Bringing China to the World 15 December 2014 BUY Initiation of Coverage Market Data: Dec, 12 Closing Price (HK$) Price Target (HK$) HSCEI 11,236 HSCCI 4, week High/Low (HK$) 34.00/22.27 Market Cap (US$m) 1,281 Market Cap (HK$m) 9,934 Shares Outstanding (m) 347 Exchange Rate (Rmb-HK$) 1.27 Price Performance Chart: Source: Bloomberg Analyst Dimi Du A BEE282 (+86) Rong Ye A AYZ033 Daniel Huang A BDQ227 The company does not hold any equities or derivatives of the listed company mentioned in this report ( target ), but then we shall provide financial advisory services subject to the relevant laws and regulations. Any affiliates of the company may hold equities of the target, which may exceed 1 percent of issued shares subject to the relevant laws and regulations. The company may also provide investment banking services to the target. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for relevant disclosure materials or log into under disclosure column for further information. The clients shall have a comprehensive understanding of the disclosure and disclaimer upon the last page. Duke of hazardous waste DONGJIANG ENVIRONMENTAL (895:HK) Financial summary and valuation E 2015E 2016E Revenue (Rmbm) 1, , , , , YoY (%) Net income (Rmbm) YoY (%) (21.91) EPS (Rmb) Diluted EPS (Rmb) ROE (%) Debt/asset (%) Dividend yield (%) PE (x) PB (x) EV/Ebitda (x) Note: Diluted EPS is calculated as if all outstanding convertible securities, such as convertible preferred shares, convertible debentures, stock options and warrants, were exercised. Investment Highlights: Fertile growth environment. Demand for hazardous waste treatment is growing more rapidly than treatment providers can service. The volume of hazardous waste produced is likely to increase to more than 65m tonnes in 2015, while current treatment facilities have a total capacity of just 30mt. Official data puts nationwide capacity utilization & disposal at 78%, leaving substantial amounts of waste being put into storage; we estimate at least 30mt in storage at the moment and need to be processed. As a result, we see substantial scope for industry expansion over the coming 10 years to digest the backlog. Dongjiang stands out in fragmented market. Currently there are over 1,500 firms qualified to process at least one type of hazardous waste in China, but few have capacity of more than 10,000t per annum, while even the larger players have fewer than 30 of the 49 hazardous waste licensees available. Dongjiang, by contrast, has an annual processing capacity of 433,000tpa and holds government certification to clean up 46 categories of hazardous waste. Organic growth: capacity expansion. The company is based in southern China s Guangdong Province, one of the most populous and industrially advanced regions in China. Among its upcoming projects are a 500,000tpa project (Yuebei) in northern Guangdong, a 60,000tpa project in Deda and a 198,500tpa project in the Pearl River Delta city of Jiangmen. By end-2015, we expect the company's hazardous waste treatment capacity will reach 1.79mtpa, a four-fold expansion from its current capacity. M&A strategy Dongjiang has made six acquisitions this year, a number of which lie outside of the company s home province. We expect more acquisitions in future to help the company expand geographically. The company is in a net cash position and has significant potential to increase gearing to finance further expansion. Initiate with BUY. Although its current valuation, at 31x 14E PE and 18x 15E PE, makes the company look more expensive than its peers, it is the only company focused on hazardous waste disposal listed in Hong Kong, and it presents a better growth profile than other Hong Kong-listed environmental services companies. Out target price of HK$39.5 represents 36% upside; we initiate coverage of the company with a BUY recommendation.

6 October 15 December 12, Commercial & Building Professional Materials Services Company Research 投资要点 : 危废处理行业未来五年将高速增长 全国危废年生产量预计 2015 年达 6500 万吨以上, 目前的设备年处理产能约在 3000 万吨, 产能严重不足 我国官方统计危废生产量数据存在严重低估, 尽管如此, 官方数据显示 2012 年我国危险废物综合处置利用率在 78%, 过去多年每年危废的存储量巨大, 预计已经超过 3000 万吨, 存量危废处理需求也十分巨大 随着监管越来越严格, 未来危废处理行业发展潜力巨大, 行业将迎来高增长时代 东江环保作为全资质运营商极具竞争力, 有望最受益于行业增长 目前全国拥有危废资质运营公司约 1500 家, 但大部分公司运营产能不足 10 万吨, 行业存在集中度不足的情况, 拥有危废资质超过 30 种类的公司占比较低 东江环保目前危废产能 43.3 万吨 / 年, 并且拥有 49 种危废资质中的 46 种经营许可证, 不论是量还是种类都具有明显龙头优势, 在未来行业爆发期具有很强的竞争优势 公司项目储备将于 14 年下半年开始陆续投产, 产能未来两年产能翻三倍 14 年下半年公司 50 万吨粤北项目,6 万吨德达项目以及 万吨江门项目将开始陆续投产, 到 2015 年年底, 预计公司危废项目处理产能将达到 179 万吨, 相比目前 43 万吨有三倍增长, 随着新增产能利用率逐渐提升, 对盈利增速贡献巨大 公司 14 年开启外延并购脚步, 负债率低, 现金充足, 未来潜在并购有望使得公司快速扩张 公司今年以来已经完成六笔主要收购 6 月最新的收购为厦门绿洲环保公司, 收购价格为 13 年 22 倍 PE, 该收购代表着东江进入福建市场 公司三季度末在手现金 8 亿, 并且还有 3.5 亿公司债额度, 处于净现金状态, 我们预计公司未来将会有更多收购 三季度末目前公司资产负债比为 35%, 属于较低水平, 未来扩张空间较大 首次覆盖给予买入评级, 目标价 39.5 港币 我们预计公司未来两年净利润复合增速为 64%, 目前股价 14 年动态市盈率为 31 倍,15 年为 18 倍,14 年估值较同行有明显溢价 我们认为公司未来增速预期为同行最高, 并且是 A+H 中唯一专注危废的公司, 未来估值将持续保持领先 目前 H 股较 A 股折价 40%, 具有较大安全边际, 我们给予目标价 39.5 港币, 反应 25x15 年市盈率, 较现股价有 36% 上行空间 Please refer to the last page for important disclosures Page 1

7 October 15 December 12, Commercial & Building Professional Materials Services Company Research Hazardous waste market starts to boom A major headache for policymakers looking to regulate the hazardous waste industry is the lack of hard-and-fast data in the industry. Illustrating the point, the Ministry of Environmental Protection (MEP) reported 10.79mt of hazardous waste were produced in For the same year, however, the first National Pollution Sources census found 45.73mt of industrial hazardous waste produced. We calculate the current nationwide capacity for hazardous waste treatment however much of it is produced is over 30mt per annum, and we note that this capacity is operating at close to full utilisation. Although, as noted above, a definitive figure of the amount of waste produced is hard to come by (in part due to a propensity for disposing of it illegally), we believe China s capacity for hazardous waste treatment is still far short of the quantity produced. We estimate that this shortfall at present is at least 30mt per annum. Fig 1: Official hazardous waste volume slower than expected 40 mt Source: Ministry of Environmental Protection, SWS Research Our channel checks have shown a trend that hazardous waste output has increased quickly since In heavily industrialised provinces such as Zhejiang and Jiangsu in the Yangtze River Delta and in Guangdong on the Pearl River Delta, volume of hazardous waste produced rose 50% YoY in Disposal plants in these regions report that they are operating at full capacity, and cannot service total demand. As a result, industry disposal prices increased on average at least 10% YoY in Based on our channel checks, we expect hazardous waste output will top 65mt by 2015, and operational capacity by that point will be able to process less than 50% of that volume. We estimate that accumulated storage of hazardous waste to date has reached 30mt. Please refer to the last page for important disclosures Page 2

8 October 15 December 12, Commercial & Building Professional Materials Services Company Research Fig 2: Disposal, recycling and storage rates for hazardous waste, % 93.89% 90% 80% 70% 89.02% 88.04% 78.39% 78.01% 60% 50% 40% 30% 20% 15.31% 24.01% 24.44% 10% 14.44% 10.46% 0% Recycle Overall disposal rate Treatment Storage Source: Ministry of Environmental Protection, SWS Research The entry barriers for hazardous waste treatment are high due to regulatory requirements (licensing), and the processes are technology and capital-intensive, requiring a substantial amount of experience to operate efficiently. In terms of regulatory requirements, Chinese regulators have categorised hazardous waste treatment into 49 different divisions, each one requiring that prospective treatment companies apply for a license. companies need to apply for licenses. The approval process for a single license typically takes two to three years. In terms of project construction, large projects (with capacity greater than 100,000tpa) can take between seven and nine years. Nevertheless, the market is relatively fragmented, in part a factor of its relatively early stage of development. There are currently 1,500 companies holding have licenses to process hazardous waste in China. The majority of these companies have treatment capacity of less than 30,000t per annum; we estimate the average scale for each plant is c.20,000tpa, resulting in a low-concentration market in which demand far outstrips the ability to service that demand. Dongjiang Environmental is the largest hazardous waste treatment player in terms of capacity, with 443,000tpa. We expect market concentration to increase, with encouragement from the government as efforts to clean up industrial pollution rise higher on its list of priorities. Policy support The incoming government of Xi Jinping has raised environmental protection as one of its key targets for the first half of its 10-year term. We expect the government to accelerate investment and management of hazardous waste and anticipate a series of policies and supportive Please refer to the last page for important disclosures Page 3

9 October 15 December 12, Commercial & Building Professional Materials Services Company Research measures to stimulate industries cleaning up environmental pollutants in the 13th Five-Year Plan (covering the period ). Fig 3: Policies favors the industry to grow Date of issue Regulation Details 24 January December March August May 2014 Hazardous waste treatment 12th Five-Year Plan Environmental protection 12th Five-Year Plan Guangdong new industries 12th Five-Year Plan State Council guidelines on developing environmental protection industry Notice authorising local governments to approve waste treatment providers Source: Public information, SWS Research Optimise industrial structure, improve industrial concentration. Promote technological progress to achieve industrial transformation and upgrading. Support key projects to enhance the overall level of development. Strengthen the overall planning, improve the recycling system. Step up efforts to prevent and manage ndustrial solid waste pollution. Raise industrial solid waste treatment to 72% by Sets rules on recycling of electronic devices, constructs waste recycle system and calls for centralised processing facilities. Calls for investment of Rmb26.1bn in hazardous waste projects over the five-year period. Supports recycling of industrial waste Supports recycling of industrial waste Authorises provincial environmental protection authorities to issue hazardous waste operating licenses Stricter regulations on waste-processing We expect demand for waste processing services to rise as the government has signaled its intention to clamp down on polluters. To date, the proportion of waste treated using harmless methods (including landfill or waste-to-energy among others) has been low as government enforcement of existing rules has been lax and the cost of infringement for waste producers has been low, leaving little incentive for producers to pay to dispose of waste. As a result, harmless treatment rates have been very low in recent years, while in contrast, recycling services, which typically pay waste producers to take away waste with recoverable value, have had much higher utilisation rates. Amended environmental regulations, which become effective as of 2015, give environmental authorities more teeth, setting more strict rules for disposal or discharge of waste: disposal of more than three tonnes of hazardous waste without treatment will be considered an offence. We expect the result to be a sharp increase in demand for treatment services. Dongjiang Environmental Dongjiang Environmental has 20 years of experience treating waste in one of the most populous and economically advanced provinces in China, Guangdong Province. The region has at its heart the Pearl River Delta, a Please refer to the last page for important disclosures Page 4

10 October 15 December 12, Commercial & Building Professional Materials Services Company Research major industrial centre comprising several large conurbations and a significant proportion of the country s manufacturing. Dongjiang has licenses to process 46 of the government's 49 categories of hazardous waste, and has built up strong long-standing relationships with its clients. The company boasts a contract renewal rate among its large clients of over 99%. Furthermore, the company has a number of exclusive regional concessions, such as the Yuebei region of northern Guangdong. In total, the company offers treatments services in over 90% of the 17 cities in Pearl River Delta, Yuebei and western Guangdong. The company's share of the Guangdong market, as measured by capacity, was over 20% in Given the company's expansionary plans, we expect this market share to grow to over 40% by Fig 4: Revenue breakdown, % 26% 48% 14% 10% Shenzhen Other regions in Guangdong Province Overseas Pearl River Delta Other provinces Dongjiang derives the majority of its revenue from waste treatment, with its businesses classified into six main segments: namely, recycling of industrial waste and industrial waste treatment & disposal; municipal waste treatment & disposal; renewable energy production; environmental engineering services and trading. Of these, industrial waste recycling generated 63% of the company's total revenue in 2013, and 55% of gross profit. Industrial waste treatment & disposal contributed 15% of total revenue and 29% of gross profit in the same year. Please refer to the last page for important disclosures Page 5

11 October 15 December 12, Commercial & Building Professional Materials Services Company Research Fig 5: Dongjiang revenue breakdown by segment 4% 6% 3% 9% 15% 63% Industrial waste recycling Municipal waste treatment & disposal Environmental engineering & services Industrial waste treatment & disposal Renewable energy utilisation Trading and other businesses Fig 6: Dongjiang business lines by margin, % 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% Industrial waste recycling Industrial waste treatment & disposal Municipal waste treatment & disposal Renewable energy utilisation Environmental engineering & services Trading and other businesses The proportion of revenue derived from industrial waste disposal the highest margin segment of Dongjiang's businesses is increasing. In 9M14, revenue from industrial waste disposal accounted for 20% of the company's total, up from 15% in 2013; in contrast, recycling revenue decreased from 63% to 56% in the same period. Treatment & disposal gross margin increased from 29% in 2013 to 35% in 1H14, while recycling gross margin decreased from 55% to 47%. We expect a rising gross profit contribution from industrial waste recycling as the company continues to shift emphasis toward the higher margin segment through its slated project expansions in We also note an increase in the contribution from disposal charges in 9M14 compared with 9M13. We believe as the government enforces environmental protection laws more strictly and raises the economic Please refer to the last page for important disclosures Page 6

12 October 15 December 12, Commercial & Building Professional Materials Services Company Research cost of violating pollutant discharge rules, Dongjiang will be able to raise its disposal charges. Fig 7: Dongjiang gross margin breakdown by segment, % 8% Fig 8: Dongjiang revenue breakdown by segment 9M14 9% 9% 29% 55% 35% 47% Industrial waste recycling Industrial Wastes Treatment & disposal Municipal Waste Treatment & disposal Industrial waste recycling Industrial Wastes Treatment & disposal Municipal Waste Treatment & disposal Fig 9: Business model for hazardous wastes recycle & treatment Recycle Product Sell Downstream Clients Wastes producing enterprises Physical and chemical curing Treatment Landfill Incineration Capacity expansion in The company targets completion and start of operations at projects in Yuebei, Jiaxing and Jiangmen in 2015, which will boost both capacity and utilisation significantly. We forecast a tripling of capacity in 2015 compared with To date the company's waste treatment capacity is 443,000t per annum, but the projects scheduled to come online in 2015 will add another 758,500tpa as Yuebei, Jiaxing and Jiangmen project finish. Unlike recycling plants, which typically take up to three years to ramp up to full utilisation, we expect the company s waste treatment plants to run at high utilisation levels by the end of the first year of operations. Please refer to the last page for important disclosures Page 7

13 October 15 December 12, Commercial & Building Professional Materials Services Company Research Fig 10: Treatment capacity, 1H14 Hazardous waste treatment centre Capacity ('000 t)/year Shajin plant 92.1 Guangdong hazardous waste centre 83 Huizhou plant 81.8 Longgang Dongjiang plant Dongguan Hengjian plant 50 Qingyuan Xinlv plant 26 Kunshan plant 80 Yanhai solid waste plant 6 Total 443 Fig 11: Capacity additions from 2H14 Hazardous waste treatment centre Capacity ('000 t)/year Yuebei plant 500 Jiaxing Deda plant 60 Jiangmen industrial waste project Total Fig 12: Capacity expansion forecast 2,000 1,800 1,600 1,400 1,200 1, mtpa Hazardou waste recycling Hazardous waste treatment Yuebei expansion We see the Yuebei region as likely to be a element of Dongjiang's expansion efforts. The company's project in the region, expected to enter operation in stages starting from 4Q14 into 2015, is one of six key hazardous waste treatment centres across the entire province and the only one in the region. The company has secured an exclusivity agreement from the regional government that no other treatment centre will be permitted to enter the region until Dongjiang's project with a total designed capacity of 500,000tpa achieves full utilisation. Of the Please refer to the last page for important disclosures Page 8

14 October 15 December 12, Commercial & Building Professional Materials Services Company Research total capacity, the first 250,000t was recently awarded the necessary regulatory paperwork, allowing it to enter operations. Fig 13: Yuebei capacity operation schedule Project Capacity (tpa) Estimated launch Incineration plant hazadous waste treatment H14 Physicochemical biochemical treatment plant H14 Wastes containing Zinc recycle & treatment plant H14 Copper, nickel, chrome waste treatment plant H14 HW08 organic solvent recycling plant Copper containing scrap, copper containing sludge, surface treatment plant Stabilisation/solidification & safe landfill site Dead catalyst waste circuit boards & nonferrous smelting waste treatment plant Total Appliances recycling The company's home appliances recycling facility is located in the northern Guangdong city of Qingyuan. The project services adjacent city Shaoguan, as well as major Guangdong conurbations Shenzhen, Guangzhou and Foshan. The project disassembles, processes, and recycles discarded electronic appliances, with a focus on fridges, washing machines, televisions, air-conditioners and PCs. In 9M14, alongside a contribution from the company's acquired Fujian Lvzhou project, the company's revenue from recycling of appliances was Rmb140m. Fig 14: Home appliances recycling capacity additions, 2014 New projects Capacity ('000 t/year) Qingyuan home appliances recycling plant 80 Hubei home appliances recycling plant 50 Fujian Lvzhou 45 Stock incentive scheme The company awarded stock options on 6.71m shares at Rmb19.37/share to 111 members of its management and core staff teams, accounting for 4.39% of the company's workforce, in September The shares will be unlocked on condition that the company books net profit growth of 10% YoY in 2014, 32% YoY in 2015 and 72% in 2016, as well as ROE of 7% in 2014, 7.5% in 2015 and 8% in We expect the incentive scheme to result in improved performance. Inorganic growth Dongjiang began a programme of expansion through acquisitions from 2014, taking over a solid waste treatment company in Yancheng, Jiangsu Province, as well as projects in Jiangsu and Nanchang (Jiangxi Province) and Hefei (Anhui Province). By end-3q14, the company has c.rmb800m cash in hand and another Rmb350m in corporate debt rights Please refer to the last page for important disclosures Page 9

15 October 15 December 12, Commercial & Building Professional Materials Services Company Research to be released. We expect the company will continue to look for opportunities to expand through acquisitions given the improving market conditions and government encouragement for the sector. One of the latest acquisitions, a 60% stake in Fujian Province-based Lvzhou Environmental for Rmb375m, was completed in June Lvzhou recorded a revenue of Rmb149m in 2013 and net profit of Rmb28m. The acquisition price implies a valuation of 22x 13A PE. The company guided net profit of Rmb35m for 14E and Rmb50m for 15E. Fig 15: Dongjiang acquisitions, 2014 Target company Business Location Price (Rmbm) Stake Nanchang Xinguan, Hefei Xinguan Yanhai solid waste Xiamen Lvzhou Enviromental Waste-to-energy Jiangsu, Anhui % Solid waste treatment Hazardous waste treatment yancheng, Jiangsu % Xiamen, Fujian % Jiangsu Shangtian Soil remediation Jiangsu % Kelamayiwosen Jiangxi Kangtai Hazardous waste treatment Hazardous waste treatment Xinjiang % Jiangxi % Solid balance sheet with net cash position The company s debt-asset ratio was just 35% by end-3q14, with c.rmb800m cash on hand and a further Rmb350m in corporate debt rights to be released. With a net cash position, the company has significant potential to fund more aggressive expansion by taking on leverage. Most environmental industry peers, including wastewater treatment industry leaders Beijing Enterprises Water (0371:HK) and CT Environmental Group (1363:HK) already operate at a net gearing level of %. Earnings forecast In our forecasts, we assume operations immediately reach full utilisation at its new treatment facilities, while for its new recycling capacity, we assume utilisation rates of 50% in 14E, 75% in 15E and 100% by 16E as this capacity is slower to ramp up. We anticipate a lower margin for recycling in proportion to the lower utilisation rates. We also assume other businesses deliver 10% YoY growth from E. Fig 16: Assumptions and forecast for key businesses E 2015E 2016E Recycling 1,003,746 1,012,981 1,620,769 2,188,038 YoY 6.9% 0.9% 60.0% 35.0% Gross margin 26.3% 28.5% 26.0% 28.0% Harmless Treatment 243, , ,960 1,424,651 YoY 21.5% 63.3% 110.0% 70.6% Gross margin 57.4% 55.0% 55.0% 55.0% We forecast net profit of Rmb258m in 14E (+24.3% YoY), Rmb433.3m in 15E Please refer to the last page for important disclosures Page 10

16 October 15 December 12, Commercial & Building Professional Materials Services Company Research (+67.4% YoY) and Rmb696.9m in 15E (+60.8% YoY). Fig 17: Key income statement line forecasts, 2013A-16E E 2015E 2016E Revenue 1,582,936 1,866,620 2,957,373 4,264,617 YoY 4.0% 17.9% 58.4% 44.2% Gross margin 30.5% 33.1% 34.1% 36.7% Net Profit 208, , , ,988 YoY -21.9% 24.3% 67.4% 60.8% Valuation We employ a combination of discounted cash flows (DCF) and relative (PE) methods to derive our target price for the company s shares. Our DCF model shows that the company s equity value is at 39.4 HK$ per share. Fig 18: DCF calculation ( 000) Input Present value of free cash flows of E 6,081,410 Terminal value 4,721,872 Core Firm Value 10,803,281 Bank balances and cash 811,337 Total firm value 11,614,618 Minus: Interest bearing debt 369,024 Minority interests 377,681 Equity value 10,867,913 No. of shares 347,347 Equity value per share (Rmb) 31 Equity value per share (HK$) Fig 19: Peer valuations Input Assumption Risk-free rate 3.50% Equity risk premium 7.50% Beta 1.20 Cost of equity 12.50% Nominal cost of debt 6.50% Debt to equity ratio 60% Effective tax rate 10.00% WACC 10.01% Terminal rate 1.50% Source: Bloomberg, SWS Research Please refer to the last page for important disclosures Page 11

17 25-Apr 25-May 25-Jun 25-Jul 25-Aug 25-Sep 25-Oct 25-Nov 25-Dec 25-Jan 25-Feb 25-Mar 25-Apr 25-May 25-Jun 25-Jul 25-Aug 25-Sep 25-Oct 25-Nov 25-Dec 25-Jan 25-Feb 25-Mar 25-Apr 25-May 25-Jun 25-Jul 25-Aug 25-Sep 25-Oct 25-Nov October 15 December 12, Commercial & Building Professional Materials Services Company Research Fig 20: Peer valuations Code We expect the overall environmental sector to experience a revaluation as the government holds industry and local governments to tighter environmental standards and releases policies to support growth of the environmental services sector. Although its current valuation, at 31x 14E PE and 18x 15E PE, makes the company look more expensive than its peers in 2014 (see Figure 19) it is the only company focused on hazardous waste disposal listed in Hong Kong, and it presents a better growth profile than other Hong Kong-listed environmental services companies. As a result, we believe these factors will support the current valuation premium in the medium to long term. We derive a twelve-month target price of HK$39.5 based on 25x15PE. With 36% upside, we initiate coverage of the company with a BUY recommendation. Company PE (x) PB (x) ROE (%) 2014E 2015E 2014E 2015E 2014E 2015E 895 HK Dongjiang Environmental Group HK KANGDA INTERNATIONAL HK SOUND GLOBAL HK BEIJING ENTERPRISES WATER GR HK CT ENVIRONMENTAL GROUP HK CHINA EVERBRIGHT INTL HK GUANGDONG INVESTMENT Source: Bloomberg, SWS Research PEERS AVERAGE H-share stocks are currently trading at a 40% discount to A-share valuations. A rally in the A-share environmental sector has further widened the premium at which increased A-share environmental stocks are trading against H-share peers. We believe that, as more investors trade through the Shanghai-Hong Kong Stock Connect, H-share stocks will benefit from the disconnect between mainland and Hong Kong-listed environmental industries shares, with a positive impact for Dongjiang. Figure 21: A-H-share valuations discount/premium 70% 60% 50% 40% 30% 20% 10% 0% Source: Bloomberg, SWS Research Please refer to the last page for important disclosures Page 12

18 31/01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/ /01/ /04/ /07/ /10/2014 October 15 December 12, Commercial & Building Professional Materials Services Company Research Figure 22: Historical PE band Figure 23: Historical PB band Historical PE Average PE Average+std Average-std Historical PB Average PB Average+std Average-std Risks We see the chief risks to the company s valuation as being:- - Delays to start of new capacity - Slower-than-anticipated ramp-up of new capacity utilisation Please refer to the last page for important disclosures Page 13

19 October 15 December 12, Commercial & Building Professional Materials Services Company Research APPENDIX Fig 1: Consolidated income statement Rmb ' E 2015E 2016E Revenue 1,521,518 1,582,936 1,866,620 2,957,373 4,264,617 Cost of Sales 959,814 1,100,399 1,248,033 1,948,783 2,697,615 Gross Profit 561, , ,587 1,008,590 1,567,002 Other Income 14,873 9,422 8,773 17,744 25,588 Selling/General/Admi. Expenses 241, , , , ,751 Finance Costs 3,192 1,469 22,170 24,387 34,142 Profit before tax 332, , , , ,513 Income tax expense 38,711 27,839 34,569 57,859 93,062 Minority interests 27,311 35,356 42,147 70, ,463 Profit for the year 266, , , , ,988 Fig 2: Consolidated balance sheet Rmbm E 2015E 2016E Current Assets 1,766,619 1,626,682 1,668,974 2,155,133 2,733,550 Bank balances and cash 1,027, , , , ,072 Trade and other receivables 283, , , , ,614 Inventories 258, , , , ,669 Other current assets 59 15,000 15,000 15,000 15,000 Non-Current Assets 3,109,606 3,267,458 4,729,214 5,819,597 7,067,235 Long-term receivables 44,815 56,310 67,572 87, ,197 PP&E 572, ,882 1,221,119 1,709,567 2,136,959 Intangible and other assets 341, , , ,960 1,048,384 Total Assets 3,109,606 3,267,458 4,729,214 5,819,597 7,067,235 Current Liabilities 623, , , ,048 1,322,173 Borrowings 38, , , , ,626 Trade and other payables 152,867 80,000 84,963 79,651 75,400 Other current liabilities 3,657 6,073 6,073 6,073 6,073 Long-term liabilities 213, ,774 1,034,532 1,362,058 1,592,327 Total Liabilities 836, ,494 1,725,377 2,339,106 2,914,501 Minority Interests 178, , , , ,646 Shareholder Equity 2,272,946 2,449,963 3,003,837 3,480,491 4,152,734 Total Liabilities and equity 3,109,606 3,267,458 4,729,214 5,819,598 7,067,235 Please refer to the last page for important disclosures Page 1

20 October 15 December 12, Commercial & Building Professional Materials Services Company Research Fig 3: Consolidated cash flow statement Rmbm E 2015E 2016E Profit before taxation 266, , , , ,994 CF from operating activities 311, , , , ,134 CF from investing activities -255, , , , ,289 CF from financing activities 712,000 34, , ,000-60,000 Net cash flow 767,826-82, ,654 62,003 69,845 Cash at beginning 247,814 1,016, , , ,226 Cash at end 1,016, , , , ,072 Please refer to the last page for important disclosures Page 2

21 October 15 December 12, Commercial & Building Professional Materials Services Company Research Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). 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23 Industry Research 15 December 2014 Overweight Unchanged Analyst Vivian Xue A BBE746 Related Reports Negative on earnings Nov 24, 2014 Mortgage valuation Oct8, 2014 Negative to earnings, yet positive to valuation Sep25, 2014 Don t be desperate on disappointing news Sep15, 2014 Unsustainable financial data, targeted easing may recur July 16, 2014 May new loans beat, valuation recovery will continue June 13, 2014 Enhanced targeted easing June 4, 2014 The company does not hold any equities or derivatives of the listed company mentioned in this report ( target ), but then we shall provide financial advisory services subject to the relevant laws and regulations. Any affiliates of the company may hold equities of the target, which may exceed 1 percent of issued shares subject to the relevant laws and regulations. The company may also provide investment banking services to the target. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for relevant disclosure materials or log into under disclosure column for further information. The clients shall have a comprehensive understanding of the disclosure and disclaimer upon the last page. Credit rating Banking sector outlook Bringing China to the World Investment Highlights: New loans beat. November new lending was Rmb853bn (+Rmb228bn YoY), raising the total balance of loans outstanding by 13.4% YoY, while deposits for the month were Rmb671bn (+Rmb124bn YoY), boosting overall deposits by 9.6% YoY, according to People's Bank of China data. M2 growth decelerated, from 12.6% YoY in October to 12.3% YoY in November. The government's measure of credit to the economy, total social financing (TSF), reached Rmb1.15tn in November (-Rmb85bn YoY), of which the proportion accounted for by trust financing and bankers' acceptances continued to decrease. Fundamentals remain weak. Though the amount of new loans issued beat expectations, the structure of lending continues to show deterioration as mid-/long-term household loans decreased from 22% in October to 21% in November, and mid-/long-term enterprise loans fell from 41% in October to 34% in November. However, the proportion of discount bills increased from 21% in October to 28% in November, signaling effective credit to the real economy remains weak. The main reason is that while the base rate cut in late November mildly improved loan demand, it did not incentivise banks to lend more. We expect the government will use fiscal policy methods to ensure more capital enters the real economy, whilst loosening monetary policy to encourage banks to improve effective loans supply. Banking benefits from easing. Amid the continued risk of slower economic growth, the government has ratcheted up efforts to provide monetary and fiscal support to the economy. Since November, the central bank's stimulus policies have shifted from a policy of contained and targeted easing measures to a more broad-based approach. SWS s A-share macro team forecasts a further three interest rate cuts and six reserve requirement ratio cuts over the next 12 months. We also expect the government to encourage higher loan quota and to loosen loanto-deposit ratio requirements. As a result, we see the combination of continued economic growth deceleration and government stimulus policies as likely to continue. We expect that in this stage of the economic cycle, banking stocks offer both absolute and relative returns. Sector valuation to recover. The banking sector is currently trading at 0.8x 15E PB, vs a sector average of 1.11x leading PB since Moreover, banking H-shares are now trading at a 10% discount to A-shares. Meanwhile, most funds are still underweight banking stocks with holdings of less than 10% as compared to the 40% weighting allocated the sector in the HSCEI. We believe there is significant scope for revaluation of banking stocks. Bank of Communications and Chongqing Rural Commercial Bank are top picks. We like Bank of Communications (3328:HK) for its revaluation prospects given its participation in a trial employee stock ownership plan. We like Chongqing Rural Commercial Bank (3618:HK) due to its strong funding capability and its rural positioning allowing it to take advantage of policy support for agricultural businesses. Company Code Rating Target price (HK$) +/- (%) PE PB 13E 14E 15E 13E 14E 15E BOCOM 3328 HK Buy % CRCB 3618 HK Buy % CMBC 1988 HK Outperform % ABC 1288 HK Outperform % ICBC 1398 HK Neutral % CCB 939 HK Neutral % BOC 3988 HK Neutral % CITIC 998 HK Underperform % CMB 3968 HK Underperform %

24 15 December 2014 Bank Industry Comment Figure 1: Sensitivity to RRR cut (Rmbm) 15E ICBC ABC BOC CCB BOCOM CMB CITIC CMBC CRCB Assuming a 50bps RRR cut Deposit 14,402,012 11,796,548 10,454,212 12,086,081 3,939,571 2,915,742 2,728,305 2,188, ,308 Deposit reserve released 72,010 58,983 52,271 60,430 19,698 14,579 13,642 10,944 1,887 Net profit enhancement if assets are relocated in 1.95% 2.01% 1.97% 1.99% 2.03% 2.11% 2.07% 2.21% 2.11% loans Net profit enhancement if assets are relocated in bond 0.95% 1.31% 0.96% 0.98% 1.02% 1.10% 1.02% 1.19% 1.09% investments Assuming a 75bps RRR cut Deposit 14,402,012 11,796,548 10,454,212 12,086,081 3,939,571 2,915,742 2,728,305 2,188, ,308 Deposit reserve released 108,015 88,474 78,407 90,646 29,547 21,868 20,462 16,417 2,830 Net profit enhancement if assets are relocated in 2.93% 3.02% 2.96% 2.99% 3.05% 3.17% 3.11% 3.32% 3.17% loans Net profit enhancement if assets are relocated in bond investments 1.42% 1.97% 1.44% 1.47% 1.53% 1.65% 1.53% 1.79% 1.64% Assuming a 100bps RRR cut Deposit 14,402,012 11,796,548 10,454,212 12,086,081 3,939,571 2,915,742 2,728,305 2,188, ,308 Deposit reserve released 144, , , ,861 39,396 29,157 27,283 21,889 3,773 Net profit enhancement if assets are relocated in 3.90% 4.02% 3.94% 3.98% 4.06% 4.22% 4.14% 4.42% 4.22% loans Net profit enhancement if assets are relocated in bond investments 1.89% 2.62% 1.92% 1.96% 2.04% 2.20% 2.04% 2.38% 2.18% Figure 2:Sensitivity to loan-deposit ratio adjustment ICBC ABC BOC CCB BOCOM CMB CITIC CMBC CRCB Avg Loans 9,922,374 7,224,713 7,607,791 8,590,057 3,266,366 2,197,094 1,941,175 1,574, ,252 42,529,086 Deposits 14,751,383 11,811,411 10,097,786 12,223,037 4,157,833 2,775,276 2,651,678 2,146, ,883 60,962,976 LDR 67.26% 61.17% 75.34% 70.28% 78.56% 79.17% 73.21% 73.33% 59.00% 69.76% Interbank deposit 1,015, ,194 1,551, , , , , ,473 63,557 6,574,446 Total liablity 17,639,289 13,717,565 12,912,822 14,288,881 5,539,453 3,750,443 3,410,468 3,021, ,557 74,746,401 Proportion of interbank deposit 5.76% 5.34% 12.02% 4.84% 16.27% 13.71% 16.41% 18.02% 13.65% 8.80% New deposit 15,259,085 12,177,508 10,873,598 12,569,085 4,608,458 3,032,367 2,931,512 2,418, ,662 64,250,199 New LDR 65.03% 59.33% 69.97% 68.34% 70.88% 72.45% 66.22% 65.08% 54.06% 66.19% LDR decline 2.24% 1.84% 5.38% 1.93% 7.68% 6.71% 6.99% 8.25% 4.94% 3.57% Releasing loan quota 341, , , , , , , ,643 18,749 2,373,917 Net profit before 291, , , ,861 67,558 55,847 44,037 46,347 6,892 1,100,539 Net profit after 298, , , ,362 71,597 58,595 45,531 47,818 7,179 1,132,425 Profit enhanement 2.47% 2.05% 3.58% 2.00% 5.98% 4.92% 3.39% 3.17% 4.16% 2.90% Releasing loan quota given CAR restrict 341, , , , ,996-86, ,494 42,657 18, ,440 Net profit after 298, , , ,362 69,520 55,074 41,825 46,661 7,179 1,117,778 Net profit enhancement 2.47% 2.05% 1.22% 2.00% 2.90% -1.39% -5.02% 0.68% 4.16% 1.57% Please refer to the last page for important disclosures Page 1

25 December 2014 Bank Industry Comment Figure 3: Sector PB valuation 2.50 PB Figure 4: A-H premium for dual-listed banks A share price(rmb) H share price(hkd) A-H premium CMBC % CITIC % ICBC % CCB % BOC % ABC % BOCOM % CMB % Please refer to the last page for important disclosures Page 2

26 15 December 2014 Bank Industry Comment Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). 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27 15 December 2014 Bank Industry Comment Independent investment consultant should be consulted before any investment decision is rendered based on this report or at any request of explanation for this report where the receiver of this report is not a client of the Company. The Company possesses all copyrights of this report which shall be treated as non-public information. The Company reserves all rights related to this report. Unless otherwise indicated in writing, all the copyrights of all the materials herein belong to the Company. In the absence of any prior authorization by the Company in writing, no part of this report shall be copied, photocopied, replicated or redistributed to any other person in any form by any means, or be used in any other ways which will infringe upon the copyrights of the Company. 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28 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 China Online Travel Company Research Bringing China to the World 15 December 2014 BUY Upgrade Market Data: Dec, 12 Closing Price (US$) Price Target (US$) DJI 17,596 NASDAQ 4, week High/Low (US$) 69.74/35.96 Market Cap (US$m) 6,135 Market Cap (Rmbm) 38,161 ADRs Outstanding (m) Exchange Rate (US$-Rmb) 6.22 Price Performance Chart: 350% 300% 250% 200% 150% 100% 50% 0% Source: Bloomberg NASDAQ Analyst Roger Gu A BDE CTRP Related reports Ctrip (CTRP.US) Up, up and away Aug 6, 2014 Ctrip (CTRP.US) Room for two Aug 8, 2014 Ctrip (CTRP.US) Travel guidance Nov 5, 2014 Ctrip (CTRP.US) All in Nov 27, 2014 The company does not hold any equities or derivatives of the listed company mentioned in this report ( target ), but then we shall provide financial advisory services subject to the relevant laws and regulations. Any affiliates of the company may hold equities of the target, which may exceed 1 percent of issued shares subject to the relevant laws and regulations. The company may also provide investment banking services to the target. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for relevant disclosure materials or log into under disclosure column for further information. The clients shall have a comprehensive understanding of the disclosure and disclaimer upon the last page. Departure point CTRIP.COM INTERNATIONAL (CTRP:US) Financial summary and valuation E 2015E 2016E Revenue (US$m) ,263 1,705 2,287 YoY (%) 33% 34% 35% 34% Net income (US$m) (46) 95 YoY (%) 44% -83% -263% -306% EPS (US$) (0.33) 0.67 Diluted EPS (US$) (0.22) 0.66 ROE (%) 11% 11% 2% -3% 5% Debt/asset (%) 44% 58% 64% 66% 66% Dividend Yield (%) 0% 0% 0% 0% 0% PE (x) (136.3) 67.4 PB (x) EV/Ebitda (x) (767.4) (121.9) 62.2 Note: Diluted EPS is calculated as if all outstanding convertible securities, such as convertible preferred shares, convertible debentures, stock options and warrants, were exercised. P/E is calculated as closing price divided by each year s EPS. Investment Highlights: Undervalued in terms of market cap. Ctrip guided a net loss for 4Q14 and 1Q15 during its 25 November 3Q earnings results conference call, which would be the first quarterly losses for Ctrip in ten years. In the three weeks since, the company s stock has lost 22.5% of its value, lowering its market cap to US$6.1bn; after accounting for its convertible debt (US$1.3bn), the market value of its properties (US$1bn), its investments in other firms equity (US$1.2bn) and its cash-on-hand (US$1.8bn), the company s value is just US$3.4b, or 18x 16E earnings and 0.2x PEG. We believe this represents a significant undervaluation. Investment to boost efficiency. Over the course of , Ctrip has been aggressively investing in both internally and externally. Its equity investments extend to a variety of travel services across China, and it has increased the number of business units by more than 10 over that period to 17. In 2015, we expect the company to shift the focus of its investments from volume growth to improving efficiency. Given its already-extensive investments in the industry, we see limited scope for further large scale investments in 2015-on. Internally, after a couple of years of investment and aggressive expansion, we expect the company to leave those business units with limited growth prospects to fend for themselves, and to focus resources on the most promising segments, such as hotel, outbound travel and cruises. However, we see limited prospect that management will further raise operating expense forecasts for 2015 from current guided levels. Standing out in homogenous market. Online travel business models are becoming increasingly homogenous as competition builds and market share is concentrated in a few large players. We are confident in Ctrip s ability to maintain an edge over much of the competition due to a combination of the company s strong financial resources (US$1.8b cash and we forecast US$200m-plus in operating cash flow even in 2015E) and its ability to identify and take advantage of opportunities. Over the past three years, Ctrip has shifted from a predominant focus on call-centre sales to a model under which it takes the majority of its bookings (85% in revenue terms) from online and mobile channels. Upgrade to BUY. As noted above, we believe the current decline in stock price is overdone and undervalues the company s potential for growth as demonstrated by its low PEG multiple. We maintain our earnings forecast of US$0.21 for 14E (-83.2% YoY), a net loss of US$0.33 for 15E, rebounding to and US$0.67 in 16E. We maintain our DCF-based price target of US$59. With 30% upside, upgrade to BUY.

29 October 15 December 12, Building Online Materials travel Company Research 投资要点 : 股价反应过度悲观预期 携程在三季报电话会议上提到将在四季度及明年一季度录得亏损, 导致股价短期下跌超过 22% 由于这将是携程上市十年来首次录得季度亏损, 我们认为市场反映过度 目前的股价是长期投资者布局的好时机, 同时也为短期投资者提供一个投资机会 市值显著低估 目前股价对应的携程市值为 61 亿美金, 再加上 到期的可转换债券 13 亿美金, 总计 74 亿美金 截止三季度末, 携程拥有现金及现金等价物 18 亿美金, 物业价值 10 亿美金, 以及在上市及未上市公司中的股权投资约 12 亿美金 扣除这些资产以后, 携程股价对应的携程主业估值仅为 34 亿美金 相当于 14 倍 2013 年经调整净利润,18 倍 2016 年经调整净利润以及 0.2 倍 2016 年 PEG 2015 将更加注重投资效率 公司在 年大举投资, 对内增设了大量业务部门使得业务部门数量达到 17 个, 对外在旅游行业各个细分领域布局投资 我们认为经过两年的粗放式投资,2015 年开始公司将更加注重投资效率 对于业务部门的考核将从只看业务量到考核整体收入及利润, 对于增长前景有限的业务部门进行收缩, 将资源投入优质部门 对外投资上, 我们预计在广泛布局的基础上, 今年的新增投资将减速 因此, 整体来看, 尽管公司给出的整体费用率指引高于去年, 但是进一步上调或者超预期的可能性大幅减少 同时, 过去两年投资的内部和外部业务线日趋成熟, 将在收入端给公司带来更多的贡献 商业模式趋同, 资源和执行力成为核心竞争力 随着携程越来越多地依赖开放平台, 推出比价功能, 其他的 OTA 引入更多的业务品类, 以及去哪儿直销占比提高, 我们认为各家在线旅游公司的业务模式的差异化越来越小 资源和执行力将成为决定公司长期竞争力的关键因素 通过过去三年携程的成功转型, 我们看到了行业龙头的成功战略及执行能力 依托于携程强大的资金实力及上下游资源, 我们对携程在在线旅游领域保持龙头领先地位保持乐观 上调评级至买入 我们维持对携程的盈利预测及 59 美金的目标价 基于 DCF 的 12 个月目标价对应当前股价有 30% 的空间, 因此上调评级至买入 Please refer to the last page for important disclosures Page 1

30 October 15 December 12, Building Online Materials travel Company Research Ctrip valuation Ctrip s current valuation implies a US$6.1bn market cap. Assuming full conversion of the company s US$1.3bn convertible debt, which we believe is likely in , we calculate a full market cap of c.us$7.4b. The company recently completed its purchase of an office building for a total consideration of US$500m. Together with its existing properties, we calculate a market value of its properties of c.us$1bn. As of September 2014, Ctrip has reported total cash and short-term investments of US$1.8bn. In last few years, Ctrip aggressively invested across the whole travel industry, such as hotel, car rental, cruise, hotel wholesale and other online travel agencies. Based on the market cap of these investments and our estimates of the company s investment cost, we arrive at what we believe is a conservative value for these investments of US$1.2bn. After accounting for these items, we derive a business value of just US$3.4bn, equivalent to 18x non-gaap net income in 16E, or 0.22x 16E PEG. Fig 1: Ctrip investments Listed companies % of shares Ctrip hold Market cap (US$) Ctrip interest/cost (US$) China Lodging (HTHT:US) 15.35% Home Inn (HMIN:US) 9% ehi (EHIC:US) 18.7% Tuniu (TOUR:US) 3.34% Subtotal 463 Unlisted companies 7 Days 26 Easy go 23 Tongcheng (LY.com) 200 Cruise 100 Tours4fun 24 Hytours 150 Mind Education 15 Tujia 200 Dining Secretary 9 Happy City 6 Yishang Network 4 Zhong an Online 8 Subtotal 764 Total investment interest 1227 Source: SWS Research Please refer to the last page for important disclosures Page 2

31 October 15 December 12, Building Online Materials travel Company Research Good execution and abundant resources Ctrip s management has demonstrated a strong execution ability, supported by a high-quality workforce. It has successfully shifted from a call-centre driven company to an online driven company over the past three years. In 2011, 75% of its business came via its call-centre, while by 2014, c.85% is derived from its online and mobile channels. In terms of resources, Ctrip reported US$1.8bn in cash and short-term investments as of September 2014, almost three times the market cap of domestic competitor Tuniu (TOUR:US). While we expect operating expenses to increase significantly in 2015, we forecast Ctrip will nevertheless generate US$241m in operating cash flow for the year. The company has also demonstrated its ability to tap equity and bond markets for relatively low-cost financing. Meanwhile, the company now controls a network of upstream resources in hotel, car rental, cruise and travel agency segments via equity investments over the past two years. Fig 2: Sales channel breakdown 80% 70% 60% 50% 40% 30% 20% 10% 0% offline online mobile Fig 3: Cash balance of online travel companies as of Sep 2014 (US$m) Ctrip elong Tuniu Qunar Cash Restricted cash Short-term investments Total Please refer to the last page for important disclosures Page 3

32 October 15 December 12, Building Online Materials travel Company Research Fig 4 Performance metrics Upgrade to BUY Considering the company s valuation after accounting for its convertibles, cash and investments, we believe the current decline in stock price is overdone. We believe the PEG multiple of 0.22x E growth demonstrates that the current valuation does not fully reflect the company s potential for growth. We maintain our earnings forecast of US$0.21 for 14E (-83.2% YoY), a net loss of US$0.33 for 15E, rebounding to and US$0.67 in 16E. We maintain our DCF-based price target of US$59. With 30% upside, we upgrade our recommendation from Outperform to BUY. (US$m) E 2015E 2016E Hotel reservation Ticketing Packaged tour Corporate travel Others Total revenue Sales mix Hotel reservation 39% 39% 41% 42% 42% Ticketing 38% 38% 38% 37% 37% Packaged tour 16% 16% 14% 14% 14% Corporate travel 5% 5% 5% 5% 5% Others 3% 2% 2% 2% 2% Total revenue 100% 100% 100% 100% 100% YoY growth Hotel reservation 16% 34% 43% 36% 40% Ticketing 19% 32% 34% 32% 34% Packaged tour 30% 40% 11% 39% 35% Corporate travel 25% 38% 39% 42% 40% Others 21% 12% 24% 29% 25% Total revenue 20% 33% 34% 35% 34% Gross margin Gross profit margin 74% 73% 72% 71% 71% Operating expense as % of revenue Product development/revenue -19% -21% -29% -33% -30% Sales and marketing/revenue -22% -23% -29% -30% -26% General and administrative/revenue -8% -7% -8% -8% -8% Non-GAAP operating margin 26.1% 23.7% 4.4% -1.0% 6.6% Fig 5 DCF assumptions Input Assumption Risk-free Rate 4.0% Equity Risk Premium 6.5% Beta : 1.22 CAPM 11.9% Nominal Cost of Debt 10.0% Debt to Equity Ratio 10.0% Effective Tax Rate 25.0% Please refer to the last page for important disclosures Page 4

33 October 15 December 12, Building Online Materials travel Company Research WACC 11.5% Terminal growth 3.0% Fast and stable growth value 3,199 Terminal value 3,980 Core firm value 7,180 Minus: Net of debts -839 Equity value 8,019 Share capital 136 Equity value per share in USD 59 Fig 6 Comparable companies Price Mkt cap P/E P/S PE/G Company (LC) US$m 14E 15E 16E 14E 15E 16E Ctrip , NA Qunar , NA elong NA Tour NA Priceline , Expedia , Orbitz TripAdvisor , OTA average Sina , Sohu , NA Bidu , Tencent , QIHOO , , Autohome , Bitauto , SouFun , E-House , Average , Bloomberg data as of Dec 11. Please refer to the last page for important disclosures Page 5

34 October 15 December 12, Building Online Materials travel Company Research APPENDIX Figure 1: Consolidated Income Statement US$m E 2015E 2016E Revenue ,263 1,705 2,287 Hotel reservations Ticketing Packaged tours Corporate travel Others Cost of Sales (207) (284) (408) (564) (755) Gross Profit ,141 1,531 Other Income Selling/General/Admi. Expenses (396) (522) (885) (1,249) (1,488) Ebitda (8) (53) 105 Ebit (30) (109) 43 Finance Costs Profit before tax (71) 73 Income tax expense (47) (49) (18) (10) (15) Minority interests Profit for the year (46) 95 Figure 2: Consolidated Cash flow Statement US$m E 2015E 2016E Net income (46) 95 Plus:Depr. and amortisation Losses from investments (6) (9) Change in working capital Others (7) (1) CF from operating activities Capex (92) (127) (450) (120) (120) Other CF from investing activities (107) (548) (500) (400) (280) CF from investing activities (199) (675) (950) (520) (400) Equity financing Net change in liabilities Dividend and interest paid Other CF from financing activities (359) CF from financing activities (97) Net cash flow (13) 614 (233) (279) 22 Please refer to the last page for important disclosures Page 6

35 October 15 December 12, Building Online Materials travel Company Research Figure 3: Consolidated Balance Sheet Statement US$m E 2015E 2016E Current Assets 1,227 2,373 2,307 2,246 2,554 Bank balances and cash 899 1,902 1,668 1,389 1,411 Trade and other receivables Inventories Other current assets Long-term investment ,064 1,464 1,744 PP&E Intangible and other assets Total Assets 1,873 3,439 4,301 4,704 5,351 Current Liabilities 628 1,052 1,303 1,659 2,112 Borrowings Trade and other payables ,113 1,447 1,870 Other current liabilities Long-term liabilities ,445 1,445 1,445 Total Liabilities 816 1,997 2,748 3,104 3,557 Minority Interests Shareholder Equity 1,042 1,409 1,520 1,566 1,761 Share Capital Reserves ,005 Equity attributable (9) Total Liabilities and equity 1,873 3,439 4,301 4,704 5,351 Fig 4: Key Financial Ratios E 2015E 2016E Ratios per share (US$) Earnings per ADS (0.33) 0.67 Diluted Epads (0.22) 0.66 Operating CF per ADS Dividend per ADS Net assets per ADS Key Operating Ratios(%) ROIC 25% 28% -2% -6% 2% ROE 11% 11% 2% -3% 5% Gross profit margin 75% 74% 72% 71% 71% Ebitda Margin 18% 18% -1% -3% 5% Ebit Margin 16% 16% -3% -7% 2% Growth rate of Revenue(YoY) 20% 33% 34% 35% 34% Growth rate of Profit (YoY) -33% 44% -83% -263% -306% Debt-to-asset ratio 44% 58% 64% 66% 66% Turnover rate of net assets 65% 76% 84% 108% 135% Turnover rate of total assets 41% 36% 33% 38% 45% Effective tax rate (%) 26% 20% 17% 21% 20% Dividend yield (%) 0% 0% 0% 0% 0% Valuation Ratios (X) PE (177.2) 87.6 PB EV/Sale EV/Ebitda (1001) (157.5) 80.4 Please refer to the last page for important disclosures Page 7

36 October 12, 2010 Building Materials Company Research Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). 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37 October 12, 2010 Building Materials Company Research The Company possesses all copyrights of this report which shall be treated as non-public information. The Company reserves all rights related to this report. Unless otherwise indicated in writing, all the copyrights of all the materials herein belong to the Company. In the absence of any prior authorization by the Company in writing, no part of this report shall be copied, photocopied, replicated or redistributed to any other person in any form by any means, or be used in any other ways which will infringe upon the copyrights of the Company. All the trademarks, service marks and marks used herein are trademarks, service marks or marks of the Company, and no one shall have the right to use them at any circumstances without the prior consent of the Company. This report may be translated into different languages. The Company does not warrant that the translations are free from errors or discrepancies. 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38 Real Estate Company Research Bringing China to the World 15 December 2014 N-R Source: Bloomberg Analyst Kris Li A ARG379 (+86) x7223 IThe company does not hold any equities or derivatives of the listed company mentioned in this report ( target ), but then we shall provide financial advisory services subject to the relevant laws and regulations. Any affiliates of the company may hold equities of the target, which may exceed 1 percent of issued shares subject to the relevant laws and regulations. The company may also provide investment banking services to the target. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for relevant disclosure materials or log into under disclosure column for further information. The clients shall have a comprehensive understanding of the disclosure and disclaimer upon the last page. Property empire DALIAN WANDA COMMERCIAL PROPERTIES (3699:HK) China s largest landlord. Dalian Wanda Commercial Properties is the flagship real estate platform under Dalian Wanda Group. As the largest commercial property operator in China, Wanda operates large-scale commercial complexes across c.110 cities in most Chinese provinces. Wanda sells residential properties and office buildings for instant cash proceeds and operates shopping malls and hotels as long-term investments. Its controlling shareholder, Wang Jianlin, holds a 59% interest in the company (c.51% after the company completes its IPO). Wang also runs private businesses such as Wanda Cinema (A-share IPO recently approved) and Wanda Department Stores. This year, Wang set up a JV with Baidu (BIDU:US) and Tencent (700:HK) in an effort to explore e-commerce opportunities. Sizeable landbank at low cost. The company operates 175 projects with a total size of c.85mm 2 (at an average cost of Rmb1,012/m 2 ). Of these, 159 are commercial complexes (also known as Wanda Plazas) across 109 cities, 10 further commercial projects under the Wanda Plaza brand, and six tourism projects (Wanda Cities) in seven cities. In total, the company operates 158 shopping malls and 92 hotels integrated into these projects. The company s pipeline of projects under construction amounts to 45mm 2, of which residential properties accounted for 45%, offices 29%, car parks 14% and retail shops 12%. Approximately 60% are located in third- and fourth-tier cities. The company generated Rmb126bn in contract sales in 2013, making it the third-ranked company among all property firms, behind China Vanke (2202:HK, Rmb170bn) and Greenland Hong Kong Holdings (0337:HK, Rmb160bn). Due to worsening market conditions and a weak full-year sales performance, Wanda s sales momentum has slowed and is likely to reach just c.rmb bn by year-end (Rmb103bn in the first eleven months). Average selling price was Rmb11,500/m 2 in 2013 and Rmb10,137/m 2 in 1H14. Growing portfolios. By mid-2014, c.80 malls were available to lease with total gross floor area (GFA) of c.15mm 2 (leasable GFA of c.8mm 2 ). The remaining 78 malls are expected to be ready in (the locations will be situated in low-tier cities) and may exceed c.25mm 2 GFA by In 1H14, the average occupancy ratio stood at c.98% and the rental reached Rmb75/m 2. We forecast a rise in rental income from c.rmb10bn in 2014 to Rmb20bn in 2017 (a three-year Cagr of 24%). Of the 48 hotels in operation (with 14,854 rooms or total GFA of c.2mm 2 ), 28 are managed by leading hotel management groups and 20 are run under Wanda s own brand. The average occupancy ratio was 58% in 1H14 and the average room rate per night was Rmb718 during the same period. We expect an additional c.40 hotels to be completed by end-2017, total revenue is therefore likely to rise from Rmb4bn in 2014 to Rmb6bn in 2017 (a three-year Cagr of 16%). Heavy Capex ahead. In mid-2014, net gearing rose to 88% (vs 39% in 11A, 49% in 12A and 53% in 13A). Meanwhile, total interest-bearing debt grew to Rmb180bn. The company requires Rmb430bn to complete its projects under construction, with Rmb80bn to be invested in 2H14, Rmb124bn in 15E and Rmb226bn in 16E. Wanda s IPO may reduce its net gearing by c.30ppts. However, providing that no equity financing is made, we forecast gearing to rise to c.70% in 15E and to c.90% in 16E. The company s current average borrowing cost is c.8%. Since offshore bonds accounted for just c.4% of total borrowing and will play an important role in future debt financing, we expect room for a further decrease. Earnings forecast. In 2017, we expect revenue to reach Rmb173bn (a three-year Cagr of 16%) and core earnings of Rmb25bn (a three-year Cagr of 21%). Gross margin reached 48% in 11A, 51% in 12A and 43% in 13A. We believe improving cost controls and rising leasing income will make up for the declining gross margin of property sales. In 2014, we forecast core earnings of Rmb14.3bn (+10% YoY), a three-year Cagr of 15% from Valuation. The company disclosed a pricing range of HK$ /share and a base offering size of 600m shares (c.13% of enlarged share capital). The pricing implies a post- IPO market cap of HK$ bn and a valuation of 9.2x 14E PE, 0.84x PB, 55% discount to NAV at the low-end or 10.9x 14E PE, 1.0x PB, 47% discount to NAV at the high-end. This compares with the valuation of 9.6x 14E PE, 1.0x PB, 28% discount to NAV of China Resources Land (1109:HK), the closest comparable peer listed on the Hong Kong market. Applying a target NAV discount range of 35-45%, we believe a reasonable price range for the company s stock would be HK$

39 October 15 December 12, Building Materials Real Estate Company Research History and background Dalian Wanda Commercial Properties is the flagship real estate platform under Dalian Wanda Group. As the largest commercial property operator in China, Wanda primarily engages in large-scale commercial complex projects across c.30 provinces (c.110 cities). Wanda sells residential properties and office buildings for instant cash proceeds and operates shopping malls and hotels under long-term investments. In this Oct, the shell company it acquired with controlling interest in Wanda Hotel Development (169: HK) was re-named and re-positioned as a platform focusing on overseas hotel business. Its controlling shareholder, Wang Jianlin, holds a c.59% interest in the company (c.51% after its IPO). Wang also runs private businesses such as Wanda Cinema (A-share IPO recently approved) and Wanda Department Stores. This year, Wang set up a JV with Baidu (BIDU:US) and Tencent (700:HK) in an effort to explore e-commerce opportunities. Fig 1: Shareholding structure prior to IPO Mr Wang wang Jianlin Mr Wang Sicong (Ultimate controlling Dalian Hexing Group Ms Lin Ning (Son (Son of Mr of Mr wang Wang) Jianlin) shareholder) Wanda (Spouse of Mr Wang) 2% 98% 100% Department 3.2% Store Dalian Hexing Group Senior 100% Management Wanda Kidsland 99.76% 0.24% 3.6% Independent Shareholders Wanda Group Shareholders prior to IPO 100% 70% 44.2% 6.9% 28.7% Shareholders to be introduced through IPO 13.4% Hua Xia Times (newspaper) Wanda Cultural Group 68% Beijing Wanda Dagexing Cinema (karaoke) 79% Changbaisha n Int'l Tourism Resorts Development Co., Ltd Wanda E-commerce Dalian Wanda Commercial Dalian Wanda Commercial Properties Co., Ltd Properties Co., Ltd 65% Wanda Hotel Wanda Hotel C.400 subsidiaries Development Co., Ltd Development Co., Ltd engaging in property Four JVs established (169:HK) (169:HK) development, between them to shell company A shell company property leasing, primarily carry acquired in 2013 to hotel mgmt mainly in forward overseas acquired in 2013 to run hotels with with projects in UK, Spain, run hotels overseas Wanda China mainland brand Wanda overseas brand US, Australia under Wanda brand overseas Note: Here above we only assumed 600mn shares would be offered through IPO but haven t taken an additional of up to 90mn shares allowed by Greenshoe scheme (up to 15% of base offering size) into account. Please refer to the last page for important disclosures Page 1

40 October 15 December 12, Building Materials Real Estate Company Research Fig 2: Milestone of the company Year 1988 Events Our business commenced by participating in the redevelopment of urban areas in the PRC, which laid down a solid foundation for our business in the future 1993 One of the earliest real estate companies engaged in cross-region operations in China 2002 The first generation Wanda Plaza opened, a single commercial building Our predecessor was established, which provided a clear and independent platform for the future development of our business 2003 The second generation of Wanda Plaza opened, which was a mixed-use commercial complex which typically comprises three to five buildings connected via an outdoor pedestrian street 2006 The third generation of Wanda Plaza opened, which was a large-scale, mixed-use integrated complex which typically comprises a shopping center with indoor walkways, office buildings and residential buildings, and often includes hotels Our business expanded into development and operation of luxury hotels 2008 Our headquarters were relocated to Beijing, the capital city 2009 Our company was incorporated 2012 We opened six self-operated hotels under our own brand 2013 We acquired 65% interest in the HK Listed Subsidiary We acquired a property in London, our first overseas property project, which will be developed into a complex featuring a luxury hotel with residential and commercial components Construction of the first "Wanda City" commenced in Harbin We first tapped into the international financial markets by issuance of US$600 million bonds due 2018 Fig 3: The basic structure of a typical Wanda Plaza Please refer to the last page for important disclosures Page 2

41 October 15 December 12, Building Materials Real Estate Company Research Sufficient pipelines at low cost The company operates 175 projects held with a total size of c.85m m 2 (at an average cost of Rmb1,012/ m 2 ). Of which, 159 are commercial complexes (also known as Wanda Plazas) across 109 cities and six tourism projects (Wanda Cities) in seven cities. In total, there re 158 shopping malls and 92 hotels integrated into these projects. Of which, 80 malls and 48 hotels have already been basically completed for operation, while the majority of the rest of the projects would be accomplished in the next three years. Aside from 11m m 2 in reserves under planning, develop-for-sale pipelines under construction amount to 45m m 2. Of which, residential properties accounted for 45% of the total, offices (29%), car parks (14%) and retail shops (12%), Fig 4: Sizeable pipelines Number of buildings Vanda Plaza Vanda City Hotel Completed Under Construction Fig 5: Land bank breakdown Land Banks GFA ('000 sq.m.) (%) of total Completed Properties 19,205 22% Investment Portfolios 14,693 17% Shopping Malls 10,200 12% Office Buildings 200 0% Car parks 4,293 5% Hotels 2,112 2% Develope-for-sale properties 2,400 3% Retail Shops 541 1% SOHO & Office 874 1% Residential 659 1% Others 326 0% Properties under construction 55,638 65% Investment Portfolios 10,729 13% Hotels 1,909 2% Develope-for-sale properties 43,000 50% Retail Shops 4,912 6% SOHO & Office 12,396 14% Residential 19,744 23% Others 5,949 7% Reserves held for future development 10,700 13% Total 85, % Please refer to the last page for important disclosures Page 3

42 October 15 December 12, Building Materials Real Estate Company Research Fig 6: Relatively stable land acquisitions 140 Rmb bn % 80% 60% 40% 20% H2014 0% Land Acquisitions (LHS) Acqusitions as % of Sales (RHS) Contracted Sales (LHS) Fig 7: Well-controlled land cost 2,000 Rmb per sqm. 1,800 1,600 1,400 1,200 1, H2014 Average Land Cost of the existing land banks Fig 8: 60% of existing land reserves are in third and lower-tier of cities 8% 43% 34% 15% First-tier cities Second-tier cites Third-tier cities Lower-tier cities Please refer to the last page for important disclosures Page 4

43 October 15 December 12, Building Materials Real Estate Company Research Rapid growing investment portfolios By mid-2014, c.80 malls were available to lease with total gross floor area (GFA) of c.15m m 2 (leasable GFA of c.8m m 2 ) and rental income increased from Rmb8.5bn in 2013 to Rmb5.2bn in 1H14 (or Rmb10.5bn in 2014 by estimates). According to the company s development schedule, the remaining 78 malls are expected to ready in (the locations will be situated in low-tier cities) and may exceed c.25m m 2 GFA by In 1H14, the average occupancy ratio stood at c.98% and the rental per m 2 reached Rmb75/m. We forecast a rise in rental income from c.rmb10bn in 2014 to Rmb20bn in 2017 (a three-year Cagr of 24%). Fig 9: Operating data of existing investment portfolios H2014 Total leasable GFA ('000 sq.m.) 4,425 6,052 7,706 8,088 Average Occupancy Ratio 99% 99.20% 99.20% 97.80% Monthly Rental Per sqm (Rmb) Rental Income (Rmbm) 3,027 4,575 6,473 3,639 Mgmt Revenue (Rmbm) 742 1,268 2,010 1,538 Total Leasing & Mgmt Income (Rmbm) 3,769 5,843 8,483 5,177 Fig 10: Leasing space continues to expand rapidly '000 sqm 25,000 20,000 15,000 10,000 5, E 2015E 2016E 2017E Total GFA completed for leasing Please refer to the last page for important disclosures Page 5

44 October 15 December 12, Building Materials Real Estate Company Research Fig 11: To further penetrate into lower-tier of cities First-tier cities Second-tier cites Third-tier cities Lower-tier cities Completed Vanda Plaza Shopping Malls Vanda Plaza Shopping Malls under construction Fig 12: Recurring rental income is promising to beat c.rmb20bn by 2017 Rmb mn 20,000 17,500 15,000 12,500 10,000 7,500 5,000 2, E 2015E 2016E 2017E Property Leasing & Mgmt Income Fig 13: Biggest landlord in China Rmb mn 10,000 8,000 6,000 4,000 2,000 - Estimated Rental Income in 2014 Please refer to the last page for important disclosures Page 6

45 October 15 December 12, Building Materials Real Estate Company Research More self-operated hotels Of the 48 hotels in operation (with total rooms of 14,854 or total GFA of c.2m m 2 ), 28 are managed by leading hotel management groups and 20 are run under Wanda s own brand. Wanda has launched three different hotel brand names in 2012, namely, Ruihua, Wenhua, Jiahua with Ruihua targeting top-end customers, and Jiahua targeting mid-end customers. To date, the company has one Wanda Ruihua hotel, five Wanda Wenhua hotels and 14 Wanda Jiahua hotels in operation. The average occupancy rate was 58% in 1H14 and the average room rate per night was Rmb718 during the same period. We expect an additional c.40 hotels to be completed by end-2017, total revenue is therefore expected to rise from Rmb4bn in 2014 to Rmb6bn in 2017 (a threeyear Cagr of 16%). In particular, we note that Wanda subsidiary Wanda Hotel Development (169:HK) focused on running hotels primarily in the overseas market. We see a possibility for a split of the large-scale hotel assets currently held by the company at a later point. Fig 14: Operating data of existing hotels H2014 No of hotels in operation above 1 year Occupancy Ratio 55% 55% 60% 58% Room Rates Per Night No of hotels commencing operation before Occupancy Ratio 55% 62% 64% 62% Room Rates Per Night No of total hotel rooms 4,642 7,118 10,522 14,854 Fig 15: Hotel rooms continues to expand rapidly 30,000 25,000 20,000 15,000 10,000 5, E 2015E 2016E 2017E Actual and Estimated total number of hotel rooms Please refer to the last page for important disclosures Page 7

46 October 15 December 12, Building Materials Real Estate Company Research Fig 16: Currently self-operated hotels account for c.30% of total revenue 3,500 Rmb mn 3,000 2,500 2,000 1,500 1, H2014 Mgmt revenue from global-brand Hotels Mgmt revenue from self-operated Hotels Fig 17: More self-operated hotels in the pipelines Completed Hotels Number of Self-operated Hotels Hotels under construction Number of Global brand Hotels Fig 18: Hotel mgmt revenue may reach c.rmb6bn by 2017 Rmb mn 6,400 4,800 3,200 1, E 2015E 2016E 2017E Hotel Mgmt Revenue Please refer to the last page for important disclosures Page 8

47 October 15 December 12, Building Materials Real Estate Company Research Sizeable contracted sales The company generated Rmb126bn in contract sales in 2013, making it the thirdranked company among all property firms, behind China Vanke (2202:HK, Rmb170bn) and Greenland Hong Kong Holdings (0337:HK, Rmb160bn). Due to worsening market conditions and a weak full-year sales performance, Wanda s sales momentum has slowed and is likely to reach just c.rmb bn by yearend (Rmb103bn in the first eleven months). Of the total existing c.45mm 2 saleable resources (2.4mm 2 inventories and 43bn sqm under construction), residential properties accounted for 45%, offices 29%, car parks 14% and retail shops 12%. Sales revenue booked was Rmb75bn in 2013 and Rmb 16.3bn in 1H2014, while the average selling prices booked was Rmb11,500/m 2 in 2013 and Rmb10,137/m 2 1H14. For the next three years, based upon the current pipelines and moderately recovering market sentiment, we see a high likelihood that contracted sales of Wanda to return to a two-digit growth on the annual basis. Fig 19: Contracted Sales ranked No3 in 2013 Developer Ranking Market Share Sales (Rmb bn) % Chg YoY Ranking Market Share Sales (Rmb bn) % Chg YoY Ranking Market Share Sales (Rmb bn) Vanke % % % % % % Greenland % % % % % 76 17% Wanda % % % % % 90 39% A-share Poly % % % % % 73 11% COLI % % % 89 28% % 70 30% Country Garden % % % 48 10% % 43 32% Evergrande % 100 9% % 92 15% % 80 59% Shimao % 67 46% % 46 50% % 31 1% CR Land % 66 27% % 52 45% % 36 62% Greentown % 62 22% % 51 55% % 33-39% Sunac % 51 61% % 32 78% % % Longfor % 48 20% % 40 5% % 38 15% Gemdale % 45 32% % 34 10% % 31 9% China Merchant % 43 19% % 36 73% % 21 47% R&F % 42 27% % 33 13% % 29-11% % Chg YoY Fig 20: Jan-Nov 2014 contracted sales slightly retreated to No7 200 Rmb bn Jan-Nov 2014 Contracted Sales Please refer to the last page for important disclosures Page 9

48 October 15 December 12, Building Materials Real Estate Company Research Fig 21: Property Sales Revenue Booking during H2014 Rmb mn H2014 Commercial properties 27,129 36,002 41,828 10,923 -Office buildings 6,673 6,970 14,701 4,074 --SOHO 6,459 8,062 6,676 2,180 --Retail shops 13,997 20,970 20,451 4,669 Residential properties 16,945 13,031 30,457 4,673 Car parks 1,431 1,539 2, Total 44,074 49,033 72,285 15,596 GFA ('000 sq.m.) H2014 Commercial properties 2,016 2,142 2, Office buildings , SOHO Retail shops Residential properties 2,047 1,336 3, Total 4,063 3,479 6,286 1,539 ASP (Rmb per sq.m.) H2014 Commercial properties 13,455 16,805 14,596 11,551 -Office buildings 9,953 12,376 11,226 9,472 --SOHO 8,441 9,119 7,816 6,455 --Retail shops 24,106 30,166 29,135 26,261 Residential properties 8,277 9,751 8,906 7,881 Total 10,847 14,095 11,500 10,137 Fig 22: Breakdown of saleable resources Please refer to the last page for important disclosures Page 10

49 October 15 December 12, Building Materials Real Estate Company Research Two years of large Capex In mid-2014, net gearing rose to 88% (vs 39% in 11A, 49% in 12A and 53% in 13A). Meanwhile, total interest-bearing debt grew to Rmb180bn. The company requires Rmb430bn to complete its projects under construction. Of which, Rmb80bn will be generated in 2H14, Rmb124bn in 15E and Rmb226bn in 16E. Wanda s IPO may lead to a net gearing decline of c.30ppts. However, providing that no equity financing is made, we forecast the gearing to rise to c.70% in 15E and surge to c.90% in 16E. Wanda s IPO may lead to a net gearing decline of c.30ppts. However, providing that no equity financing is made, we forecast the gearing to rise to c.70% in 15E and surge to c.90% in 16E. The current average borrowing cost is c.8%. Since off-shore bonds accounted for just c.4% of total borrowing and will play an important role in future debt financing, we expect room for a further decrease. Fig 23: Net gearing surged to c.88% in 1H14 and IPO may lead to c.30ppts decrease 200,000 Rmb mn 100% 180,000 90% 160,000 80% 140,000 70% 120,000 60% 100,000 50% 80,000 40% 60,000 30% 40,000 20% 20,000 10% 0 0% H14 Cash (LHS) Interest bearing debt (RHS) Net gearing ratio (RHS) Fig 24: But construction Capex in 2015 and 2016 stays high Rmb mn 250, , , ,000 50, H or after Construction Cost scheduled to be paid Please refer to the last page for important disclosures Page 11

50 October 15 December 12, Building Materials Real Estate Company Research Fig 25: Wanda has just started to issue offshore bonds since late last year Issue Date Tenure Yield Currency Amount (mn) Type 23-Jan % US$ 600 Senior Notes 15-Nov % US$ 600 Senior Notes Fig 26: Wanda has been assigned the same credit rating as COLI and Vanke Code Company S&P Credit Rating Outlook Code Company Moody's Credit Rating 688 HK COLI BBB+ Stable 1109 HK CR Land Baa HK Vanke BBB+ Stable 688 HK COLI Baa SS A-share Poly BBB+ Stable 2202 HK Vanke Baa2 3699:HK Wanda BBB+ Stable SS A-share Poly Baa HK CR Land BBB+ Stable 3699:HK Wanda Baa2 337 HK Greenland HK BBB Stable 817 HK Franshion Baa3 817 HK Franshion BBB- Stable 337 HK Greenland HK Baa HK Sino-ocean land BBB- Stable 3377 HK Sino-ocean land Baa3 123 HK Yuexiu BBB- Stable 123 HK Yuexiu Baa3 960 HK Longfor BB+ Stable 960 HK Longfor Ba HK Country Garden BB+ Positive 2007 HK Country Garden Ba2 813 HK Shimao BB Stable 813 HK Shimao Ba3 832 HK Central China BB- Stable 832 HK Central China Ba HK Sunac BB- Stable 1638 HK Kaisa Ba HK Kaisa BB- Stable 1813 HK KWG Ba HK Greentown BB- Stable 1918 HK Sunac Ba HK Agile BB- Negative 3383 HK Agile Ba HK R&F BB- Negative 2777 HK R&F Ba HK Evergrande BB- Negative 3333 HK Evergrande B HK KWG BB- Negative 3900 HK Greentown B HK Renhe B- Negative 754 HK Hopson B3 754 HK Hopson B- Negative 845 HK Glorious Caa1 845 HK Glorious B- Negative 1387 HK Renhe Caa3 Fig 27: Offshore bonds only account for c.4$ of total borrowing 200, , , , , ,000 80,000 60,000 40,000 20,000 0 Rmb mn H14 Short-term loans Long-term loans Offshore bonds Please refer to the last page for important disclosures Page 12

51 October 15 December 12, Building Materials Real Estate Company Research Earnings forecast Revenue of was Rmb51bn, 59bn (+16% YoY), 87bn (+47% YoY) and core earnings reached 9.3bn, 10.9bn (+17% YoY), 13bn (+19% YoY). In 2014, we forecast core earnings of Rmb14.3bn (+10% YoY), a three-year Cagr of 15% from Gross margin reached 48% in 11A, 51% in 12A and 43% in 13A. During the same period, property sales reached 47%, 51% and 41%; property leasing reached 62%, 65%, 66%, and hotel management reached 31%, 34%, 33%. In 2017, we expect revenue to reach Rmb173bn (a three-year Cagr of 16%) and core earnings of Rmb25bn (a three-year Cagr of 21%). We believe improving cost controls and rising leasing income will make up for the declining gross margin of property sales. Fig 28: Actual and estimated growth of sales revenue and core earnings 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% E 2015E 2016E 2017E Revenue Growth Core Earnings Growth Fig 29: Actual and estimated revenue breakdown 200, , , , , ,000 80,000 60,000 40,000 20,000 0 Rmb mn E 2015E 2016E 2017E Property Sales Property Leasing and Mgmt Hotel mgmt Please refer to the last page for important disclosures Page 13

52 SG&A as % of revenue October 15 December 12, Building Materials Real Estate Company Research Fig 30: Actual and estimated core earnings breakdown 30,000 Rmb mn 25,000 20,000 15,000 10,000 5, E 2015E 2016E 2017E Property Sales Property Leasing and Mgmt Hotel mgmt Fig 31: Room for continuous improvement of cost control 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% E 2015E 2016E 2017E Distribution Expenses As % of Revenue Adminstrative Expenses As % of Revenue Finance Cost As % of Revenue Fig 32: Expense ratio is the highest among the sector 10% Vanda 8% 6% 4% R&F 2% Sunac Vanke Sino-Ocean KWG Country Garden 0% COLI Shimao CR Land Agile Longfor Evergrande 0% 2% 3% 5% 6% 8% 9% 11% 12% -2% Finance cost as % of revenue -4% Please refer to the last page for important disclosures Page 14

53 October 15 December 12, Building Materials Real Estate Company Research Valuations The company disclosed a fair pricing range of HK$ /share and a base offering size of 600m shares (c.13% of enlarged capital shares). The pricing represents a post-ipo market cap of HK$ bn and implies a valuation of 9.2x 14E PE, 0.84x PB, 55% discount to NAV at the low-end or 10.9x 14E PE, 1.0x PB, 47% discount to NAV at the high-end. This compares with the valuation of 9.6x 14E PE, 1.0x PB, 28% discount to NAV of the comparable peer China Resources Land (1109:HK). Applying a target NAV discount range at 35-45%, we arrive at a reasonable price range of HK$ Fig 33: NAV of Wanda Commercial Properties (Rmb mn) After IPO (low-end) After IPO (high-end) Total GAV 461, ,931 Cash 100, ,617 Debt 179, ,688 Payables 52,739 52,739 NAV 330, ,121 NAV per share (RMB) NAV per share (HK$) NAV disc implied by Offering Price -55% -47% Fig 34: Calculation of reasonable price NAV 92.8 Target discount Reasonable Price (HK$) Upside potential vs low-end price Upside potential vs mid-end price Upside potential vs high-end price -30% % 42% 31% -35% % 32% 22% -40% % 22% 12% -45% % 12% 3% -50% % 2% -6% Fig 35: Valuation comparison Company Code Target Market Cap +/- Rating price PE (x) PB (x) NAV Disc (HK$bn) (HK$) (%) 13E 14E 15E 13E 14E 15E Vanke 2202 HK 21.5 Not Rated % COLI 688 HK O-PF % % CR land 1109 HK O-PF % % Country Garden 2007 HK 55.1 Neutral 3.2 7% % Shimao 813 HK 59.1 BUY % % Longfor 960HK 51.9 O-PF % % Evergrande 3333 HK 49.7 U-PF 3.1 0% % R&F 2777 HK 29.5 U-PF 9.1-2% % Sino-ocean 3377 HK 31.8 BUY % % Agile 3383 HK 14.0 U-PF % % Sunac 1918HK 22.7 BUY % % Poly Ppty 119 HK 10.9 U-PF 3.2 7% % KWG 1813 HK 15.0 O-PF % % Average % Source: Bloomberg, Company data, SWS Research Please refer to the last page for important disclosures Page 15

54 October 15 December 12, Building Materials Real Estate Company Research Appendix Figure 1: Forecast Income Statement Rmb mn E 2015E 2016E 2017E Revenue 50,772 59,091 86, , , , ,715 Property Sales 45,505 50,573 74,981 96, , , ,698 Property Leasing and Mgmt 3,769 5,843 8,483 10,476 12,475 16,052 19,737 Hotel mgmt 1,450 2,576 3,215 3,962 4,687 5,518 6,180 Others Cost of Sales (26,469) (28,807) (49,438) (65,028) (77,155) (90,553) (105,789) Gross Profit 24,303 30,284 37,336 45,967 51,032 58,682 66,926 Revaluation gains 13,992 21,898 15,443 12,967 21,247 38,386 15,732 Other Income 1,966 2,162 4,142 1,284 1,343 1,407 1,477 Interests Income Government Subsidy 1,358 1,742 3, Others Distribution expenses (2,829) (2,997) (4,298) (4,943) (5,437) (5,981) (6,579) Administrative expenses (3,226) (3,950) (4,914) (5,897) (6,486) (7,135) (7,849) Other expenses (309) (272) (353) (371) (389) (409) (429) EBIT 33,897 47,125 47,356 49,007 61,308 84,950 69,279 Profits of JCEs (9) Finance Costs (3,056) (3,861) (5,855) (7,277) (7,539) (7,794) (8,037) Profit before tax 30,841 43,264 41,492 41,730 53,769 77,156 61,242 Tax expense (11,066) (15,443) (16,610) (17,314) (20,686) (26,675) (23,621) Inc tax (3,916) (4,543) (5,444) (9,598) (12,367) (17,746) (14,086) LAT (4,743) (5,749) (7,196) (7,717) (8,319) (8,929) (9,535) Deferred (2,407) (5,151) (3,970) Profit for the year 19,775 27,821 24,882 24,416 33,083 50,481 37,621 Minority interests (4) Profit attr. to shareholders 19,779 27,310 24,581 24,028 32,557 49,679 37,023 Core earnings 9,285 10,887 12,999 14,303 16,622 20,889 25,224 Dividends paid 1,980 1,999 2,145 3,324 4,178 5,045 Please refer to the last page for important disclosures Page 16

55 October 15 December 12, Building Materials Real Estate Company Research Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). A group company(ies) of the Company confirm that they, whether individually or as a group (i) are not involved in any market making activities for any of the listed corporation reviewed; or (ii) do not have any individual employed by or associated with any group company(ies) of the Company serving as an officer of any of the listed corporation reviewed; or (iii) do not have any financial interest in relation to the listed corporation reviewed or (iv) do not, presently or within the last 12 months, have any investment banking relationship with the listed corporation reviewed. Undertakings of the Analyst I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered as the Securities Analyst. I hereby issue this report independently and objectively with due diligence, professional and prudent research methods and only legitimate information is used in this report. I am also responsible for the content and opinions of this report. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. Disclosure with respect to the Company The company is a qualified securities investment consulting institute approved by China Securities Regulatory Commission with the code number ZX0065. Releasing securities research reports is the basic form of the securities investment consulting services. The company may analyze the values or market trends of securities and related products or other relevant affecting factors, provide investment analysis advice on securities valuation/ investment rating, etc. by issuing securities research reports solely to its clients. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for the relevant disclosure materials or log into for the analysts' qualifications,the arrangement of the quiet period and the affiliates shareholdings. Introduction of Share Investment Rating Security Investment Rating: When measuring the difference between the markup of the security and that of the market s benchmark within six months after the release of this report, we define the terms as follows: BUY: Share price performance is expected to generate more than 20% upside over a 12-month period. Trading BUY: Share price performance is expected to generate more than 20% upside over a 6-month period. Outperform: Share price performance is expected to generate between 10-20% upside over a 12-month period. Hold: Share price performance is expected to generate between 10% downside to 10% upside over a 12-month period. Underperform: Share price performance is expected to generate between 10-20% downside over a 12-month period. SELL: Share price performance is expected to generate more than 20% downside over a 12-month period. Industry Investment Rating: When measuring the difference between the markup of the industry index and that of the market s benchmark within six months after the release of the report, we define the terms as follows: Overweight:Industry performs better than that of the whole market; Equal weight: Industry performs about the same as that of the whole market; Underweight:Industry performs worse than that of the whole market. We would like to remind you that different security research institutions adopt different rating terminologies and rating standards. We adopt the relative rating method to recommend the relative weightings of investment. The clients decisions to buy or sell securities shall be based on their actual situation, such as their portfolio structures and other necessary factors. 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The clients shall consider the Company s possible conflict of interests which may affect the objectivity of this report, and shall not base their investment decisions solely on this report. The clients should make investment decisions independently and solely at your own risk. Please be reminded that in any event, the company will not share gains or losses of any securities investment with the clients. Whether written or oral, any commitment to share gains or losses of securities investment is invalid. The investment and services referred to herein may not be suitable for certain clients and shall not constitute personal advice for individual clients. The Company does not ensure that this report fully takes into consideration of the particular investment objectives, financial situations or needs of individual clients. The Company strongly suggests the clients to consider themselves whether the opinions or suggestions herein are suitable for the clients particular situations; and to consult an independent investment consultant if necessary. Under no circumstances shall the information contained herein or the opinions expressed herein forms an investment recommendation to anyone. Under no circumstances shall the Company be held responsible for any loss caused by the use of any contents herein by anyone. Please be particularly cautious to the risks and exposures of the market via investment. Please refer to the last page for important disclosures Page 17

56 October 15 December 12, Building Materials Real Estate Company Research Independent investment consultant should be consulted before any investment decision is rendered based on this report or at any request of explanation for this report where the receiver of this report is not a client of the Company. The Company possesses all copyrights of this report which shall be treated as non-public information. The Company reserves all rights related to this report. Unless otherwise indicated in writing, all the copyrights of all the materials herein belong to the Company. In the absence of any prior authorization by the Company in writing, no part of this report shall be copied, photocopied, replicated or redistributed to any other person in any form by any means, or be used in any other ways which will infringe upon the copyrights of the Company. All the trademarks, service marks and marks used herein are trademarks, service marks or marks of the Company, and no one shall have the right to use them at any circumstances without the prior consent of the Company. This report may be translated into different languages. The Company does not warrant that the translations are free from errors or discrepancies. This report is for distribution in Hong Kong only to persons who fall within the definition of professional investors whether under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the SFO ) or the Securities and Futures (Professional Investor) Rules (Chapter 571D of the laws of the Hong Kong under the SFO). This report is for distribution in the United Kingdom only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) order 2001 (as amended) (the Order ) or (ii) are persons falling within Article 49(2)(a) to (d) ( High Net Worth Companies, Unincorporated Associations, etc ) of the Order (All such persons together being referred to as Relevant Persons ). This document is directed only at Relevant Persons. Other Persons who are not Relevant Persons must not act or rely upon this document or any of its contents. Disclaimer This report was prepared, approved, published and distributed by the SWS Research Co., Ltd located outside of the United States (a non-us Group Company ). This report is distributed in the U.S. by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of SWS Research Co., Ltd only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the Exchange Act )) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036). Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. ( FINRA ) or other regulatory requirements pertaining to research reports or research analysts. No non-us Group Company is registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. The information has been compiled or arrived from sources believed to be reliable and in good faith, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. SWS Research Co., Ltd has not verified the factual accuracy, assumptions, calculations or completeness of the information. Accordingly, SWS Research Co., Ltd accepts no liability whatsoever for any direct or consequential loss or damage arising from (i) the use of this communication (ii) reliance of any information contained herein, (iii) any error, omission or inaccuracy in any such Information or (iv) any action resulting there from. SWS Research Co., Ltd provides the information for the purpose of the intended recipient s analysis and review. Accordingly you are advised to verify the factual accuracy, assumptions, calculations or completeness of the information. Analyst Certification Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. Important US Regulatory Disclosures on Subject Companies This material was produced by SWS Research Co., Ltd solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. It is distributed in the United States of America by Enclave Capital LLC and elsewhere in the world by SWS Research Co., Ltd or an authorized affiliate of SWS Research Co., Ltd This document does not constitute an offer of, or an invitation by or on behalf of SWS Research Co., Ltd or its affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources, which SWS Research Co., Ltd or its Affiliates consider to be reliable. None of SWS Research Co., Ltd Limited accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions. 1. SWS Research Co., Ltd or its Affiliates have not recently been the beneficial owners of 1% or more of the securities mentioned in this report. 2. SWS Research Co., Ltd or its Affiliates have not managed or co-managed a public offering of the securities mentioned in the report in the past 12 months. 3. SWS Research Co., Ltd Limited or its Affiliates have not received compensation for investment banking services from the issuer of these securities in the past 12 months and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months. 4. However, one or more person of SWS Research Co., Ltd or its affiliates may, from time to time, have a long or short position in any of the securities mentioned herein and may buy or sell those securities or options thereon either on their own account or on behalf of their clients. 5. As of the publication of this report Enclave Capital LLC, does not make a market in the subject securities. 6. SWS Research Co., Ltd or its Affiliates may, to the extent permitted by law, act upon or use the above material or the conclusions stated above or the research or analysis on which they are based before the material is published to recipients and from time to time provide investment banking, investment management or other services for or solicit to seek to obtain investment banking, or other securities business from, any entity referred to in this report Distribution in Singapore If distributed in Singapore, this report is meant only for Accredited Investors and Institutional Investors as defined under Section 4A of the Securities and Futures Act of Singapore. If you are not an Accredited Investor or an Institutional Investor, you shall ignore the report and its contents. The Singapore recipients of the report are to contact the Singapore office of ShenyinWanguo Singapore Private Limited at , or in respect of any matters arising from, or in connection with, the report. Please refer to the last page for important disclosures Page 18

57 A-share research Friday, 12 December, 2014 Bringing China to the World Macroeconomics Central Economic Work Conference Slow and steady wins the race At the Central Economic Work Conference, officials announced China s new norms (also known as new normal s) in details. Unlike the market s previous expectation, the central government guided steady economic growth, an optimised economic structure, stressed the importance of investment and export in stimulating the nation s GDP growth and new growth driver requirements. The Conference also highlighted new investment opportunities in infrastructure construction facilitated by the New Silk Road strategy. Differing from last year, the 2014 Conference emphasised that China is facing risk of an economic decline. Maintaining stable economic growth is imperative for 2015 s economic development. During the conference, the central government called to promote reforms of state-owned enterprises (SOE), in line with our expectation. According to the Conference, the fiscal policy will remain proactive in 2015 with more effective policy support, such as increased taxation reduction and expanded fiscal expenditure. We forecast the central budget deficit to increase to 2.5% of GDP in Contact Li Rong Lirong@swsresearch.com The monetary policy will remain prudent in 2015 with flexibility to ease or tighten. In our view, this implies that the current monetary policy is slightly tight and the recent interest rate cuts has lagged behind an economic slowdown and a commodity price decline. Over the next 12 months, we believe the People s Bank of China (PBoC) will cut interest rates three times and the reserve requirement ratio (RRR) six times in the next 12 months. We recommend investors pay attention to upcoming monetary easing and hot investment themes including the New Silk Road, the Beijing-Tianjin-Hebei economic development zone, the Yangtze River economic belt and the Shanghai Free Trade Zone (FTZ).

58 A-share research Friday, 12 December, 2014 Bringing China to the World Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). A group company(ies) of the Company confirm that they, whether individually or as a group (i) are not involved in any market making activities for any of the listed corporation reviewed; or (ii) do not have any individual employed by or associated with any group company(ies) of the Company serving as an officer of any of the listed corporation reviewed; or (iii) do not have any financial interest in relation to the listed corporation reviewed or (iv) do not, presently or within the last 12 months, have any investment banking relationship with the listed corporation reviewed. Undertakings of the Analyst I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered as the Securities Analyst. I hereby issue this report independently and objectively with due diligence, professional and prudent research methods and only legitimate information is used in this report. I am also responsible for the content and opinions of this report. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. Disclosure with respect to the Company The company is a qualified securities investment consulting institute approved by China Securities Regulatory Commission with the code number ZX0065. Releasing securities research reports is the basic form of the securities investment consulting services. The company may analyze the values or market trends of securities and related products or other relevant affecting factors, provide investment analysis advice on securities valuation/ investment rating, etc. by issuing securities research reports solely to its clients. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for the relevant disclosure materials or log into for the analysts' qualifications,the arrangement of the quiet period and the affiliates shareholdings. Introduction of Share Investment Rating Security Investment Rating: When measuring the difference between the markup of the security and that of the market s benchmark within six months after the release of this report, we define the terms as follows: Buy: with a markup more than 20% better than that of the market; Outperform:With a markup 5% to 20% better than that of the market; Neutral: with a markup less than 5% better or worse than that of the market; Underperform: with a markup more than 5% worse than that of the market. Industry Investment Rating: When measuring the difference between the markup of the industry index and that of the market s benchmark within six months after the release of the report, we define the terms as follows: Overweight:Industry performs better than that of the whole market; Equal weight: Industry performs about the same as that of the whole market; Underweight:Industry performs worse than that of the whole market. We would like to remind you that different security research institutions adopt different rating terminologies and rating standards. We adopt the relative rating method to recommend the relative weightings of investment. The clients decisions to buy or sell securities shall be based on their actual situation, such as their portfolio structures and other necessary factors. The clients shall read through the whole report so as to obtain the complete opinions and information and shall not rely solely on the investment ratings to reach a conclusion. The Company employs its own industry classification system. The industry classification is available at our sales personnel if you are interested. HSCEI is the benchmark employed in this report.

59 A-share research Friday, 12 December, 2014 Bringing China to the World Disclaimer: This report is to be used solely by the clients of SWS Research Co., Ltd. (hereinafter referred to as the Company ). The Company will not deem any other person as its client notwithstanding his receipt of this report. This report is based on public information, however, the authenticity, accuracy or completeness of such information is not warranted by the Company. The materials, tools, opinions and speculations contained herein are for the clients reference only, and are not to be regarded or deemed as an invitation for the sale or purchase of any security or other investment instruments. The clients understand that the text message reminder and telephone recommendation are no more than a brief communication of the research opinions, which are subject to the complete report released on the Company s website ( The clients may ask for follow-up explanations if they so wish. The materials, opinions and estimates contained herein only reflect the judgment of the Company on the day this report is released. The prices, values and investment returns of the securities or investment instruments referred to herein may fluctuate. At different periods, the Company may release reports which are inconsistent with the materials, opinions and estimates contained herein. Save and except as otherwise stipulated in this report, the contactor upon the first page of the report only acts as the liaison who shall not provide any consulting services. The clients shall consider the Company s possible conflict of interests which may affect the objectivity of this report, and shall not base their investment decisions solely on this report. The clients should make investment decisions independently and solely at your own risk. Please be reminded that in any event, the company will not share gains or losses of any securities investment with the clients. Whether written or oral, any commitment to share gains or losses of securities investment is invalid. The investment and services referred to herein may not be suitable for certain clients and shall not constitute personal advice for individual clients. The Company does not ensure that this report fully takes into consideration of the particular investment objectives, financial situations or needs of individual clients. The Company strongly suggests the clients to consider themselves whether the opinions or suggestions herein are suitable for the clients particular situations; and to consult an independent investment consultant if necessary. Under no circumstances shall the information contained herein or the opinions expressed herein forms an investment recommendation to anyone. Under no circumstances shall the Company be held responsible for any loss caused by the use of any contents herein by anyone. Please be particularly cautious to the risks and exposures of the market via investment. Independent investment consultant should be consulted before any investment decision is rendered based on this report or at any request of explanation for this report where the receiver of this report is not a client of the Company. The Company possesses all copyrights of this report which shall be treated as non-public information. The Company reserves all rights related to this report. Unless otherwise indicated in writing, all the copyrights of all the materials herein belong to the Company. In the absence of any prior authorization by the Company in writing, no part of this report shall be copied, photocopied, replicated or redistributed to any other person in any form by any means, or be used in any other ways which will infringe upon the copyrights of the Company. All the trademarks, service marks and marks used herein are trademarks, service marks or marks of the Company, and no one shall have the right to use them at any circumstances without the prior consent of the Company. This report may be translated into different languages. The Company does not warrant that the translations are free from errors or discrepancies. This report is for distribution in Hong Kong only to persons who fall within the definition of professional investors whether under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the SFO ) or the Securities and Futures (Professional Investor) Rules (Chapter 571D of the laws of the Hong Kong under the SFO). This report is for distribution in the United Kingdom only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) order 2001 (as amended) (the Order ) or (ii) are persons falling within Article 49(2)(a) to (d) ( High Net Worth Companies, Unincorporated Associations, etc ) of the Order (All such persons together being referred to as Relevant Persons ). This document is directed only at Relevant Persons. Other Persons who are not Relevant Persons must not act or rely upon this document or any of its contents.

60 A-share research Friday, 12 December, 2014 Bringing China to the World Disclaimer : This report was prepared, approved, published and distributed by the SWS Research Co., Ltd located outside of the United States (a non-us Group Company ). This report is distributed in the U.S. by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of SWS Research Co., Ltd only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the Exchange Act )) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036). Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. ( FINRA ) or other regulatory requirements pertaining to research reports or research analysts. No non-us Group Company is registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. The information has been compiled or arrived from sources believed to be reliable and in good faith, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. SWS Research Co., Ltd has not verified the factual accuracy, assumptions, calculations or completeness of the information. Accordingly, SWS Research Co., Ltd accepts no liability whatsoever for any direct or consequential loss or damage arising from (i) the use of this communication (ii) reliance of any information contained herein, (iii) any error, omission or inaccuracy in any such Information or (iv) any action resulting there from. SWS Research Co., Ltd provides the information for the purpose of the intended recipient s analysis and review. Accordingly you are advised to verify the factual accuracy, assumptions, calculations or completeness of the information. Analyst Certification Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. Important US Regulatory Disclosures on Subject Companies This material was produced by SWS Research Co., Ltd solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. It is distributed in the United States of America by Enclave Capital LLC and elsewhere in the world by SWS Research Co., Ltd or an authorized affiliate of SWS Research Co., Ltd This document does not constitute an offer of, or an invitation by or on behalf of SWS Research Co., Ltd or its affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources, which SWS Research Co., Ltd or its Affiliates consider to be reliable. None of SWS Research Co., Ltd Limited accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions. 1. SWS Research Co., Ltd or its Affiliates have not recently been the beneficial owners of 1% or more of the securities mentioned in this report. 2. SWS Research Co., Ltd or its Affiliates have not managed or co-managed a public offering of the securities mentioned in the report in the past 12 months. 3. SWS Research Co., Ltd Limited or its Affiliates have not received compensation for investment banking services from the issuer of these securities in the past 12 months and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months. 4. However, one or more person of SWS Research Co., Ltd or its affiliates may, from time to time, have a long or short position in any of the securities mentioned herein and may buy or sell those securities or options thereon either on their own account or on behalf of their clients. 5. As of the publication of this report Enclave Capital LLC, does not make a market in the subject securities. 6. SWS Research Co., Ltd or its Affiliates may, to the extent permitted by law, act upon or use the above material or the conclusions stated above or the research or analysis on which they are based before the material is published to recipients and from time to time provide investment banking, investment management or other services for or solicit to seek to obtain investment banking, or other securities business from, any entity referred to in this report. Distribution in Singapore If distributed in Singapore, this report is meant only for Accredited Investors and Institutional Investors as defined under Section 4A of the Securities and Futures Act of Singapore. If you are not an Accredited Investor or an Institutional Investor, you shall ignore the report and its contents. The Singapore recipients of the report are to contact the Singapore office of Shenyin Wanguo Singapore Private Limited at , or in respect of any matters arising from, or in connection with, the report.

61 A-share research Friday, 12 December, 2014 Bringing China to the World Agriculture: Sector outlook Fresh start At the Central Economic Work Conference, China reaffirmed its commitment to promote land reform and the modernisation of the country s farming industry. We expect to see land use rights transfer policies, sustainable agriculture policies and pricing reform of agriculture produce to be launched in the near-term. Among individual stocks, we recommend Xinjiang Machinery Research Institute (300159:CH), Zhongnongfa Seed Industry (600313:CH), Beijing Dabeinong Technology (002385:CH), Heilongjiang Agriculture (600598:CH) and Yuan Longping High-tech Agriculture (000998:CH). We also recommend agrichemical companies with cheap valuations such as Anhui Huilong Agricultural (002556:CH) and agriculture machinery suppliers such as Gifore Agricultural Machinery (300022:CH) and Winall Hi-Tech Seed (300087:CH). Contact Dong Liang Dongliang@swsresearch.com At the conference, top Chinese leaders planned for the modernisation of the agriculture industry, by accelerating the development of rural areas and improving the livelihood of rural residents. In particular, the central government called for stable growth in agriculture product output, strict inspections on food quality, constant improvement of farming technologies and enhancement in land use efficiency. The central government will continue to release favourable policies to subsidise farming and to facilitate farming companies financing. For collectively-owned rural land, in a bid to improve farming efficiency, the top Chinese leaders are expected to perfect relevant policies to facilitate the upcoming land use rights transfer. Training courses are expected to be provided to improve the expertise of Chinese farmers, paving the way for the modernisation of agriculture industry. Code Name Price We believe the Central Economic Work Conference has set the tone for the upcoming Central Rural Work Conference (schedule to take place on 23 December). Currently China s agriculture industry confronts two major issues low farming efficiency and centrally-controlled pricing system. Improving farming efficiency will guarantee food safety, reduce pollution and resource consumption and allow the market to play a bigger role in pricing agriculture products in China. We believe the central government s File No.1 for 2015 will stress the importance of increasing food imports, improving farming technologies and reforming the agriculture food pricing system. As China kicks off rural land reform next year, we expect the upgrade of development model in the agriculture industry to increase the demand for advanced farming machinery and information technology amid the modernisation of the country s agriculture industry. In 2015, we expect the central government to spend Rmb50bn on the agriculture sector as the top leaders strive to adopt advanced information technology in farming, in a bid to speed up the realisation of precision agriculture in the world s most populous nation. 52 Week Low 52 Week High Market Cap (Rmbm) ADJ EPS 14F ADJ EPS 15F YoY (%) Sales Est 14F (Rmbm) Sales Est 15F (Rmbm) CH Xinjiang Machinery Research Institute , % CH Zhongnongfa Seed Industry , % 2, , CH Beijing Dabeinong Technology , % 20, , CH Heilongjiang Agriculture , % 5, , CH Yuan Longping High-tech Agriculture , % 2, , CH Anhui Huilong Agricultural Means of Production 14F PE (x) 14F PB (x) , CH Gifore Agricultural Machinery Chain , CH Winall Hi-Tech Seed , ROE (%)

62 A-share research Friday, 12 December, 2014 Bringing China to the World Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). A group company(ies) of the Company confirm that they, whether individually or as a group (i) are not involved in any market making activities for any of the listed corporation reviewed; or (ii) do not have any individual employed by or associated with any group company(ies) of the Company serving as an officer of any of the listed corporation reviewed; or (iii) do not have any financial interest in relation to the listed corporation reviewed or (iv) do not, presently or within the last 12 months, have any investment banking relationship with the listed corporation reviewed. Undertakings of the Analyst I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered as the Securities Analyst. I hereby issue this report independently and objectively with due diligence, professional and prudent research methods and only legitimate information is used in this report. I am also responsible for the content and opinions of this report. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. Disclosure with respect to the Company The company is a qualified securities investment consulting institute approved by China Securities Regulatory Commission with the code number ZX0065. Releasing securities research reports is the basic form of the securities investment consulting services. The company may analyze the values or market trends of securities and related products or other relevant affecting factors, provide investment analysis advice on securities valuation/ investment rating, etc. by issuing securities research reports solely to its clients. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for the relevant disclosure materials or log into for the analysts' qualifications,the arrangement of the quiet period and the affiliates shareholdings. Introduction of Share Investment Rating Security Investment Rating: When measuring the difference between the markup of the security and that of the market s benchmark within six months after the release of this report, we define the terms as follows: Buy: with a markup more than 20% better than that of the market; Outperform:With a markup 5% to 20% better than that of the market; Neutral: with a markup less than 5% better or worse than that of the market; Underperform: with a markup more than 5% worse than that of the market. Industry Investment Rating: When measuring the difference between the markup of the industry index and that of the market s benchmark within six months after the release of the report, we define the terms as follows: Overweight:Industry performs better than that of the whole market; Equal weight: Industry performs about the same as that of the whole market; Underweight:Industry performs worse than that of the whole market. We would like to remind you that different security research institutions adopt different rating terminologies and rating standards. We adopt the relative rating method to recommend the relative weightings of investment. The clients decisions to buy or sell securities shall be based on their actual situation, such as their portfolio structures and other necessary factors. The clients shall read through the whole report so as to obtain the complete opinions and information and shall not rely solely on the investment ratings to reach a conclusion. The Company employs its own industry classification system. The industry classification is available at our sales personnel if you are interested. HSCEI is the benchmark employed in this report.

63 A-share research Friday, 12 December, 2014 Bringing China to the World Disclaimer: This report is to be used solely by the clients of SWS Research Co., Ltd. (hereinafter referred to as the Company ). The Company will not deem any other person as its client notwithstanding his receipt of this report. This report is based on public information, however, the authenticity, accuracy or completeness of such information is not warranted by the Company. The materials, tools, opinions and speculations contained herein are for the clients reference only, and are not to be regarded or deemed as an invitation for the sale or purchase of any security or other investment instruments. The clients understand that the text message reminder and telephone recommendation are no more than a brief communication of the research opinions, which are subject to the complete report released on the Company s website ( The clients may ask for follow-up explanations if they so wish. The materials, opinions and estimates contained herein only reflect the judgment of the Company on the day this report is released. The prices, values and investment returns of the securities or investment instruments referred to herein may fluctuate. At different periods, the Company may release reports which are inconsistent with the materials, opinions and estimates contained herein. Save and except as otherwise stipulated in this report, the contactor upon the first page of the report only acts as the liaison who shall not provide any consulting services. The clients shall consider the Company s possible conflict of interests which may affect the objectivity of this report, and shall not base their investment decisions solely on this report. The clients should make investment decisions independently and solely at your own risk. Please be reminded that in any event, the company will not share gains or losses of any securities investment with the clients. Whether written or oral, any commitment to share gains or losses of securities investment is invalid. The investment and services referred to herein may not be suitable for certain clients and shall not constitute personal advice for individual clients. The Company does not ensure that this report fully takes into consideration of the particular investment objectives, financial situations or needs of individual clients. The Company strongly suggests the clients to consider themselves whether the opinions or suggestions herein are suitable for the clients particular situations; and to consult an independent investment consultant if necessary. Under no circumstances shall the information contained herein or the opinions expressed herein forms an investment recommendation to anyone. Under no circumstances shall the Company be held responsible for any loss caused by the use of any contents herein by anyone. Please be particularly cautious to the risks and exposures of the market via investment. Independent investment consultant should be consulted before any investment decision is rendered based on this report or at any request of explanation for this report where the receiver of this report is not a client of the Company. The Company possesses all copyrights of this report which shall be treated as non-public information. The Company reserves all rights related to this report. Unless otherwise indicated in writing, all the copyrights of all the materials herein belong to the Company. In the absence of any prior authorization by the Company in writing, no part of this report shall be copied, photocopied, replicated or redistributed to any other person in any form by any means, or be used in any other ways which will infringe upon the copyrights of the Company. All the trademarks, service marks and marks used herein are trademarks, service marks or marks of the Company, and no one shall have the right to use them at any circumstances without the prior consent of the Company. This report may be translated into different languages. The Company does not warrant that the translations are free from errors or discrepancies. This report is for distribution in Hong Kong only to persons who fall within the definition of professional investors whether under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the SFO ) or the Securities and Futures (Professional Investor) Rules (Chapter 571D of the laws of the Hong Kong under the SFO). This report is for distribution in the United Kingdom only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) order 2001 (as amended) (the Order ) or (ii) are persons falling within Article 49(2)(a) to (d) ( High Net Worth Companies, Unincorporated Associations, etc ) of the Order (All such persons together being referred to as Relevant Persons ). This document is directed only at Relevant Persons. Other Persons who are not Relevant Persons must not act or rely upon this document or any of its contents.

64 A-share research Friday, 12 December, 2014 Bringing China to the World Disclaimer : This report was prepared, approved, published and distributed by the SWS Research Co., Ltd located outside of the United States (a non-us Group Company ). This report is distributed in the U.S. by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of SWS Research Co., Ltd only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the Exchange Act )) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036). Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. ( FINRA ) or other regulatory requirements pertaining to research reports or research analysts. No non-us Group Company is registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. The information has been compiled or arrived from sources believed to be reliable and in good faith, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. SWS Research Co., Ltd has not verified the factual accuracy, assumptions, calculations or completeness of the information. Accordingly, SWS Research Co., Ltd accepts no liability whatsoever for any direct or consequential loss or damage arising from (i) the use of this communication (ii) reliance of any information contained herein, (iii) any error, omission or inaccuracy in any such Information or (iv) any action resulting there from. SWS Research Co., Ltd provides the information for the purpose of the intended recipient s analysis and review. 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65 A-share research Friday, 12 December, 2014 Bringing China to the World Textiles and Apparel Sector outlook The line starts here In 10M14, textile and apparel exports grew 6.4% YoY (excluding February, when exports slumped). Cotton prices stabilised on the back of government subsidies for cotton planting. We expect the price gap between domestic and imported cotton to contract to Rmb1,000/t. During the same period, retail sales of textile and apparel products grew 9.8% YoY. Thanks to large-scale promotions, offline retailers saw increasing traffic following a surge in online sales in November. We believe the worst is over and recommend investors to look for opportunities in menswear, kidswear, sports and outdoor apparel subsectors. Historically, the upward cycle of each apparel segment lasted around two years. Following earnings recovery in sportswear, casual wear and home textile subsector in , we expect menswear and high-end apparel market to rebound in In addition, we suggest investors pay attention to companies with innovative business models such as Heilan Home (600398:CH). Amid Japan s economic slowdown, large apparel retailers that targeted the mass market (Uniqlo) saw strong growth momentum. Moreover, the fourth baby boom in China and the government s support for the sports industry are expected to bode well for kidswear and sportswear markets. Contact Dong Liang Dongliang@swsresearch.com In addition, investor may pay attention to opportunities arising from favourable policies amid the economic restructuring. We expect some companies to benefit from China s ongoing state-own enterprise (SOE) reform, financial reform and land reform. We expect Jihua Group (601718:CH) to be a major beneficiary of SOE reforms as its parent, Xinxing Jihua Group is included in the list of pilot reform of central government-owned companies. Other companies related to SOE reforms at the provincial level include Huafang (600448:CH), Shanghai Shenda (600626:CH) and Shanghai Dragon (600630:CH). Meanwhile, Jihua Group, with land reserves of over 667ha, may benefit from the ongoing land reform. The company expects 80ha land to be acquired by the government in the next two-three years. ZheJiang Jiaxin Silk (002404:CH), with over 66.7ha land in Jiaxin (Zhejiang Province), will also receive considerable returns from selling land to the government during the land reform. In terms of the financial reform, we believe the largest beneficiary will be ZheJiang Jiaxin Silk as its subsidiary, China Cocoon and Silk Exchange, will provide financing services for upstream and downstream players along the silk industry chain. We expect the company to establish a comprehensive silk trading platform covering data mining, trading and settlement services. Finally, given China s emphasis on developing the sports industry, we are positive on sports and outdoor apparel makers such as Beijing Toread Outdoor Product (300005:CH) as well as companies with plans to expand into the sports industry such as Jihua Group and Guirenniao (603555:CH). Overall, we recommend investor pay close attention to leading apparel brands with solid fundamentals and companies with business diversification plans. These include Heilan Home, Zhejiang Aokang Shoes (603001:CH), Luolai Home Textile (002293:CH), ZheJiang Jiaxin Silk, Zhejiang Semir Garment (002563:CH) and Jihua Group. Due to its novel business model and excellent execution ability, Heilan Home demonstrated strong organic growth. The company targets menswear for the mass market and is likely to become a nation-wide leading apparel brand in the near-future. Maintain BUY. We expect Zhejiang Aokang Shoes earnings to bottom out in 4Q14 and recover in The launch of Aokang International Shoes Centre (which sells Aokang s own brands as well as overseas shoes brands) will likely boost the company s competitiveness amid a weak market. Maintain BUY.

66 A-share research Friday, 12 December, 2014 Bringing China to the World Code Name Price On the back of its distribution channel reform and strengthening ties with franchisees, we expect Luolai Home Textile to resume growth in Meanwhile, it recently invested in a home textile e-commerce website, Dapu.com, indicating the company s increasing efforts in business diversification. Maintain BUY. In 3Q14, Zhejiang Semir Garment s casual wear business turned around in terms of earnings while kidswear business maintained over 20% growth. We are positive on the company s leading position in the kidswear product market. Maintain BUY. Jiaxin Silk s major selling point lies in its own e-commerce platform and financing services. Given potential benefit from land and financial reforms, we expect its market cap to double (currently Rmb3.2bn). Maintain BUY. Jihua Group is expected to gain from the development of the sports industry and is a major beneficiary of SOE and land reforms. 52 Week Low 52 Week High Market Cap (Rmbm) ADJ EPS 14F ADJ EPS 15F YoY (%) Sales Est 14F (Rmbm) Sales Est 15F (Rmbm) CH Heilan Home , % 12, , CH Jihua Group Corp , , , CH Huafang , , , CH Shanghai Shenda , CH Shanghai Dragon Corp , CH ZheJiang Jiaxin Silk Corp , % 1, , CH Beijing Toread Outdoor Products , % 1, , CH Guirenniao , % 2, , CH Zhejiang Aokang Shoes , % 2, , CH Luolai Home Textile , % 2, , CH Zhejiang Semir Garment , % 8, , F PE (x) 14F PB (x) ROE (%)

67 A-share research Friday, 12 December, 2014 Bringing China to the World Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). A group company(ies) of the Company confirm that they, whether individually or as a group (i) are not involved in any market making activities for any of the listed corporation reviewed; or (ii) do not have any individual employed by or associated with any group company(ies) of the Company serving as an officer of any of the listed corporation reviewed; or (iii) do not have any financial interest in relation to the listed corporation reviewed or (iv) do not, presently or within the last 12 months, have any investment banking relationship with the listed corporation reviewed. Undertakings of the Analyst I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered as the Securities Analyst. I hereby issue this report independently and objectively with due diligence, professional and prudent research methods and only legitimate information is used in this report. I am also responsible for the content and opinions of this report. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. Disclosure with respect to the Company The company is a qualified securities investment consulting institute approved by China Securities Regulatory Commission with the code number ZX0065. Releasing securities research reports is the basic form of the securities investment consulting services. The company may analyze the values or market trends of securities and related products or other relevant affecting factors, provide investment analysis advice on securities valuation/ investment rating, etc. by issuing securities research reports solely to its clients. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for the relevant disclosure materials or log into for the analysts' qualifications,the arrangement of the quiet period and the affiliates shareholdings. Introduction of Share Investment Rating Security Investment Rating: When measuring the difference between the markup of the security and that of the market s benchmark within six months after the release of this report, we define the terms as follows: Buy: with a markup more than 20% better than that of the market; Outperform:With a markup 5% to 20% better than that of the market; Neutral: with a markup less than 5% better or worse than that of the market; Underperform: with a markup more than 5% worse than that of the market. Industry Investment Rating: When measuring the difference between the markup of the industry index and that of the market s benchmark within six months after the release of the report, we define the terms as follows: Overweight:Industry performs better than that of the whole market; Equal weight: Industry performs about the same as that of the whole market; Underweight:Industry performs worse than that of the whole market. We would like to remind you that different security research institutions adopt different rating terminologies and rating standards. We adopt the relative rating method to recommend the relative weightings of investment. The clients decisions to buy or sell securities shall be based on their actual situation, such as their portfolio structures and other necessary factors. The clients shall read through the whole report so as to obtain the complete opinions and information and shall not rely solely on the investment ratings to reach a conclusion. The Company employs its own industry classification system. The industry classification is available at our sales personnel if you are interested. HSCEI is the benchmark employed in this report.

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69 A-share research Friday, 12 December, 2014 Bringing China to the World Disclaimer : This report was prepared, approved, published and distributed by the SWS Research Co., Ltd located outside of the United States (a non-us Group Company ). This report is distributed in the U.S. by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of SWS Research Co., Ltd only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the Exchange Act )) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036). Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. ( FINRA ) or other regulatory requirements pertaining to research reports or research analysts. 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70 Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World PicturesBEST HSCEI PERFORMERS Best Rank Name CITIC Securities Co Ltd China Railway Group Ltd New China Life Insurance Co Lt Haitong Securities Co Ltd China Coal Energy Co Ltd China Merchants Bank Co Ltd Huaneng Power International In Tsingtao Brewery Co Ltd Great Wall Motor Co Ltd Byd Co Ltd 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Source: Bloomberg WORST HSCEI PERFORMERS Worst Rank Name Air China Ltd China Oilfield Services Ltd China Telecom Corp Ltd Yanzhou Coal Mining Co Ltd Jiangxi Copper Co Ltd China Construction Bank Corp China Petroleum & Chemical Cor Sinopharm Group Co Ltd China Life Insurance Co Ltd PICC Property & Casualty Co Lt -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% Source: Bloomberg

71 Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World BEST CSI300 PERFORMERS Best Rank Name Neusoft Corp Southwest Securities Co Ltd China Railway Group Ltd Inner Mongolia Junzheng Energy Searainbow Holding Corp China Railway Construction Cor Hong Yuan Securities Co Ltd China Merchants Securities Co Haining China Leather Market C China Gezhouba Group Co Ltd 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Source: Bloomberg BEST CSI300 PERFORMERS Worst Rank Name Henan Dayou Energy Co Ltd Poly Real Estate Group Co Ltd Midea Group Co Ltd Baoshan Iron & Steel Co Ltd Pangang Group Vanadium Titaniu Jiangsu Zhongnan Construction RiseSun Real Estate Developmen China Shipping Container Lines China Eastern Airlines Corp Lt Chongqing Changan Automobile C -7.0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% Source: Bloomberg

72 6/4/ /4/2013 4/5/ /5/2013 1/6/ /6/ /6/ /7/ /7/ /8/ /8/2013 7/9/ /9/2013 5/10/ /10/2013 2/11/ /11/ /11/ /12/ /12/ /1/ /1/2014 8/2/ /2/2014 8/3/ /3/2014 5/4/2014 5/4/ /4/2013 3/5/ /5/ /5/ /6/ /6/ /7/ /7/2013 9/8/ /8/2013 6/9/ /9/2013 4/10/ /10/2013 1/11/ /11/ /11/ /12/ /12/ /1/ /1/2014 7/2/ /2/2014 7/3/ /3/2014 4/4/2014 Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World Macro Assumption Macro Indicator 3Q13 4Q Q14 2Q E China's GDP Industrial Value Added Growth (%) FAI (%) Real Estate Investment Growth (%) Retail Sales Growth (%) Exports (%) Imports (%) Real Estate Sales Area Growth (%) Automobile Sales Growth (%) Electricity Output growth rate (%) CPI PPI Renminbi Loan Balance Growth (%) M2 (%) Source: Bloomberg HSCEI Index Source: Bloomberg CSI300 Volume (RHS) PX_LAST Source: Bloomberg Volume (RHS) PX_LAST

73 Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World China manufacturing PMI China non-manufacturing PMI China input prices PMI 54 China manufacturing PMI 59 China non-manufacturing PMI 65 China input prices PMI Historical avg Source: Bloomberg Historical avg Historical avg CPI YoY growth PPI YoY growth GDP 5.0 CPI YoY % Growth 4.0 PPI YoY % Growth 10 9 % Historical avg Historical avg China GDP Source: Bloomberg Trade balance China exports China imports 60 Trade Balance (USbn) 30 China Export Trade YoY % Growth 50 China Import Trade YoY % Growth Historical avg Source: Bloomberg Historical avg Historical avg China FAI Manufacturing China FAI Real Estate China FAI Ex rural 26 China CNY Monthly New Loan (Rmbbn) 35 China FAI Real Estate Development Cumulative 24 China FAI ex Rural Cumulative YoY % Growth Historical avg Source: Bloomberg Historical avg Historical avg

74 Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 12/12/ /1/ /2/ /3/ /4/ /5/ /6/ /7/ /8/ /9/ /10/ /11/ /12/ /4/ /6/ /8/ /10/ /12/ /2/ /4/ /6/ /8/ /10/ /12/ /2/ /4/ /6/ /8/ /10/ /12/ / /2010 2/2011 4/2011 6/2011 8/ / /2011 2/2012 4/2012 6/2012 8/ / /2012 2/2013 4/2013 6/2013 8/ /2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World China M2 growth New loans Total social financing 19 China M2 YoY % Growth 1,500 China CNY Monthly New Loan (Rmbbn) 3,200 China Total Social Financing (Rmbbn) 18 1,300 2, ,100 2, , , Historical avg Historical avg Historical avg Source: Bloomberg 7-day repo rate 5-year lending rate Product inventory % % % PX_LAST PX_LAST Product Inventory: YoY: Ferrous Metal Mining & Dressing Product Inventory: YoY: Non Ferrous Metal Mining & Dressing Product Inventory: YoY: Paper Making & Paper Product Source: Bloomberg Industrial output: Steel Industrial output: Copper Industrial output: Paper 15 Industrial Output Steel Products YoY % Growth 30 Industrial Output Copper Prudcts YoY % Growth 22 Industrial Output Paper YoY % Growth Historical avg Historical avg Historical avg Source: Bloomberg

75 4Q13 3Q13 2Q13 1Q13 4Q12 3Q12 2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q Shanghai Guangdong Zhejiang Beijing Liaoning Henan Sichuan Shaanxi Shenyin Wanguo Research (HK) Ltd 18/F, 28 Hennessy Road, Admiralty, Hong Kong Daily Insight: Monday, 15 December, 2014 Bringing China to the World China urban household living expenditure China population Monthly minimum wage % 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6% 5% 4% 3% 2% 1% 0% 1,800 1,600 1,400 1,200 1, % China Urban Households Living Expenditure YoY % Growth Rural Population As % of Total Population (LHS) Urban Population As % of Total Population (LHS) China Urban Population YoY % Growth (RHS) Monthly Minimu Wage Income in 2013 Source: Bloomberg SWS Research team Analyst Anthony Hu Dimi Du Leo Fan Daniel Huang Roger Gu Kris Li Albert Miao Ming Shi Titus Wu Vivian Xue Rong Ye Vincent Yu Ashley Sheng Yi Zhang Sector Strategy Commodities Transportation & Diversified Finance Commodities & Utilities Gaming, Leisure & Travel Property & Insurance Oil & Gas Pharmaceuticals Capital Goods Banks Cement, Pulp & Paper Renewable Energy TMT Non-Bank Financials

76 12-Dec-14 Code Company Rating Auto & Components (Titus Wu) Target Price Closing Price +/- (%) Market cap. (HK$m) EPS 2014E (Report Currency) BPS 2014E (Report Currency) 1114 HK BRILLIANCE CHINA AUTOMOTIVE Outperform % 64, HK XINCHEN CHINA POWER HOLDINGS BUY % 4, HK GREAT WALL MOTOR COMPANY-H Outperform % 41, Banks (Vivian Xue) 1288 HK AGRICULTURAL BANK OF CHINA-H Outperform % 113, HK CHINA MINSHENG BANKING-H Outperform % 62, HK CHONGQING RURAL COMMERCIAL-H Outperform % 11, HK CHINA MERCHANTS BANK-H Underperform % 78, HK CHINA CITIC BANK CORP LTD-H Underperform % 85, Capital goods (Titus Wu, Leo Fan, Rong Ye, Vincent Yu) 182 HK CHINA WINDPOWER GROUP LTD BUY % 4, HK CHINA MACHINERY ENGINEERIN-H BUY % 5, HK CHINA SINGYES SOLAR TECH BUY % 8, Commercial & Professional Serv (Daniel Huang) 257 HK CHINA EVERBRIGHT INTL LTD BUY % 51, Consumer Services (Roger Gu) 1928 HK SANDS CHINA LTD BUY % 330, HK GALAXY ENTERTAINMENT GROUP L BUY % 203, Diversified Financials (Yi Zhang) 6837 HK HAITONG SECURITIES CO LTD-H BUY % 27, HK CHINA GALAXY SECURITIES CO-H Outperform % 16, Energy (Albert Miao) 3337 HK ANTON OILFIELD SERVICES GP SELL % 3, HK CHINA PETROLEUM & CHEMICAL-H SELL % 153, HK PETROCHINA CO LTD-H BUY % 170, HK CNOOC LTD BUY % 449, PE 2014E PE 2015E PB 2014E PB 2015E

77 Code Company Rating Materials (Albert Miao, Dimi Du, Rong Ye) Target Price Closing Price +/- (%) Market cap. (HK$m) EPS 2014E (Report Currency) BPS 2014E (Report Currency) 1818 HK ZHAOJIN MINING INDUSTRY - H Outperform % 3, HK NINE DRAGONS PAPER HOLDINGS BUY % 32, HK CHINA NATIONAL BUILDING MA-H Underperform % 21, HK ANGANG STEEL CO LTD-H BUY % 6, HK JIANGXI COPPER CO LTD-H Outperform % 18, HK ANHUI CONCH CEMENT CO LTD-H Outperform % 35, Pharmaceuticals, Biotechnology & Life Sciences (Ming Shi) 1177 HK SINO BIOPHARMACEUTICAL BUY % 35, HK DAWNRAYS PHARMACEUTICAL HOLD BUY % 5, HK HUA HAN BIO-PHARMACEUTICAL H BUY % 9, HK CHINA MEDICAL SYSTEM HOLDING Outperform % 31, Real estate (Kris Li) 1109 HK CHINA RESOURCES LAND LTD Outperform % 116, HK COUNTRY GARDEN HOLDINGS CO Neutral % 61, HK CHINA OVERSEAS LAND & INVEST Outperform % 188, HK SHIMAO PROPERTY HOLDINGS LTD BUY % 59, HK LONGFOR PROPERTIES Outperform % 51, Semiconductors & Semiconductor equipment (Ashley Sheng, Vincent Yu) 1385 HK SHANGHAI FUDAN MICROELECT-H BUY % 1, HK GCL-POLY ENERGY HOLDINGS LTD Neutral % 29, Software & Services (Ashley Sheng) 700 HK TENCENT HOLDINGS LTD Outperform % 1,065, HK NETDRAGON WEBSOFT INC BUY % 6, Technology hardware & equipment (Ashley Sheng) 2382 HK SUNNY OPTICAL TECH Neutral % 14, HK ZTE CORP-H BUY % 11, Telecommunication Services (Ashley Sheng) 728 HK CHINA TELECOM CORP LTD-H Outperform % 61, HK CHINA UNICOM HONG KONG LTD Outperform % 254, HK CHINA MOBILE LTD Outperform % 1,848, Transportation (Titus Wu) 699 HK CAR INC BUY % 25, PE 2014E PE 2015E PB 2014E PB 2015E

78 Code Company Rating Utilities (Daniel Huang) Target Price Closing Price +/- (%) Market cap. (HK$m) EPS 2014E (Report Currency) BPS 2014E (Report Currency) 1363 HK CT ENVIRONMENTAL GROUP LTD Outperform % 11, HK BEIJING ENTERPRISES WATER GR BUY % 46, HK CHINA GAS HOLDINGS LTD Trading BUY % 63, HK KANGDA INTERNATIONAL ENVIRON BUY % 7, N.A N.A 902 HK HUANENG POWER INTL INC-H Outperform % 38, HK CHINA LONGYUAN POWER GROUP-H Outperform % 27, PE 2014E PE 2015E PB 2014E PB 2015E Core sales income of the banking sector refers to net sales. Complete EXCEL Tables are availabe upon request. SWS Research Co., Ltd. possesses all copyrights of this report. The clients should have comprehensive understanding of the Share Investment Rating and the Disclosure on the 1st page.

79 12-Dec-14 Please refer to the notes below the table. GICS II EPS 2012 (HKD)* EPS 2013E (HKD)* EPS 2014E (HKD)* P/E 2012* PE 2013E* PE 2014E* PB 2012 PB 2013E* PB DPS E* (HK$) DPS 2013E (HK$)* DPS 2014E (HK$)* Benchmark HSCEI HSCCI Automobiles & Components Banks Capital Goods Commercial & Professional Services Consumer Durables & Apparel Consumer Services Diversified Financials Energy Food & Staples Retailing Food, Beverage & Tobacco Health Care Equipment & Services Household & Personal Products Insurance Materials Media Pharmaceuticals, Biotechnology & Life Sciences Real Estate Retailing Semiconductors & Semiconductor Equipment Software & Services Technology Hardware & Equipment Telecommunication Services Transportation Utilities Notes: Companies Upgraded/Downgraded This Week presents the number of companyies with revised share investment rating. Revised items will be marked in red or green. Green stands for UPGRADE.Red indicates DOWNGRADE. SWS Research Co., Ltd. possesses all copyrights of this report. The clients should have comprehensive understanding of the Share Investment Rating and the Disclosure on the 1st page.