Research Highlights. Hong Kong Morning Daily. 1. Sunac China (1918 HK) Stake Purchase in Greentown: A win-win acquisition

Transcription

1 May 21, 2014 (Wednesday) 晨会报告 Research Highlights 1. Sunac China (1918 HK) Stake Purchase in Greentown: A win-win acquisition Sunc+Greentown: combined gross contracted sales in 2014 could be above RMB100 bn Improving economics of scale in the Yangtze River Delta Enhancing cooperation with a well-operated partner Sunac to acquire no more than 30% of Greentown Sunac China made an announcement on May 15 confirming current discussion with Song Weiping, chairman of Greentown China (3900 HK), Xia Yibo, a shareholder, and Shou Bainian, CEO, about the proposed acquisition of no more than 30% interest in the issued share capital of Greentown. Further collaboration a win-win 1) Synergy effect: Greentown has an attractive top-notch brand name as well as product design, while Sunac s strength is in its strong project positioning and sales strategies. 2) Economies of scale: Among Chinese developers, Sunac and Greentown will have the highest focus in Yangtze River Delta, Bohai Rim Region as well as Chengdu and Chongqing. We think this can enhance their cost advantages, management efficiency and brand images. 3) Partnership with good track record: The two companies have already begun in-depth collaboration in project development in Yangtze River Delta since June 2012 with effective results (Sunac ranked the third in Shanghai in terms of sales in 2013). Bank loan is a better solution to achieve acquisition Assuming 30%-50% premium for a 30% stake in Greentown, we estimate the final transaction cost could be about RMB bn, which is affordable for Sunac, given its balance sheet and current cash reserves. We expect Sunac to borrow around RMB bn from banks. Valuation & Key risk We maintain our financial forecast and valuation. Current Sunac s price is at a 77% discount to its NAV. There are concerns about Wharf (4 HK) s selling of Greentown if Mr. Song sells his shares. That said, we believe that Wharf would keep its shares in Greentown given the potential benefits from further collaboration with Sunac as stated above. HK Indices Last price chg % chg HSI Finance Properties Utilities 22, , , , Commerce&Industry 13, HSCEI 9, HSCCI 4, HKSPGEM World Indices Last price chg % chg FTSE 100 DAX 30 6, , CAC 40 4, DJIA 16, S&P500 1, Nasdaq Composite 4, Nikkei , Asia-Pacific Indices Last price chg % chg KOSPI 2, TWSE 8, STI 3, India BSE 30 24, S&P/ASX 200 5, HSI One Year May-13 Sep-13 Jan-14 May-14 HSCEI One Year May-13 Sep-13 Jan-14 May-14 Source:Bloomberg China Merchants Securities (HK) Research of 17

2 Company Comments 1. Summary of Tingyi s analyst meeting Tingyi Holdings (322 HK, BUY, TP$25.4) held an analyst meeting in Hong Kong on May 20 in the morning, with the presence of its Chairman Wei Ing-chou accompanied by the senior management. The meeting focused on describing the external environment and the mid-term strategy of the company. Below is a summary of the main points. I.Looking to the future 1.The future is the golden two decades for food and beverage. Now China is in the process of transition from small well-off families to average affluent class, which will drive up demand for instant noodles. The growth opportunities of beverage, at a growth rate of about times GDP, lie in the growth of volume and product types. 2.In 2014 the industry environment will be filled with overcapacity and increased competition. This situation will continue to last for two to three years. II.Competition with Uni-President 3.The coming one to two years will be the weakest time for Uni-President. Uni-President will need to accomplish something in three years which they have not been doing over the past ten years (expansion), in particular owing to the success of pickled mustard noodles and Assam milk tea, the management has an overly optimistic judgment on the market, thus undertaking plenty of capital expenditure. This will bring difficulty to the company s operation amid the weak environment at present. 4.The price war with Uni-President is still going on. The company is hopeful to increase the market shares in pickled vegetable and braised meat. Price war is no good for either party. The company is seen to be at an advantageous position at present, while Uni-President is very weak. Hence the company can speed up to increase the market shares in pickled vegetable and braised meat. 5.The target of price war is market share. At present the market shares of the company and Uni-President in pickled vegetable at about 44%:56%, braised meat noodles at 65%:35%. The company s target is to achieve 60%:40% or 70%:30%. The company s demand for the team is to base on province as a unit, e.g. if Tingyi s market share reaches 70%, then it can stop promotions (the giving away of hams). III.About buying Shanghai Operations Center 6.Buying Shanghai Operations Center is an important decision for the future of the company, with the main consideration of recruiting talents. The company has its headquarters in Tianjin, with surroundings being too relaxing. Moving the operations center to the more competitive Shanghai, on the one hand, will be able to recruit more talents, and on the other hand, the change of environment can also stimulate the existing staff. As the company has a good relationship with Tianjin government, it still retains the position of headquarters in Tianjin. Its beverage business will first be relocated to Shanghai, while instant noodles will have adjustments again in the coming one to two years. Global Commodity Last price chg % chg Brent Oil Gold LME Aluminum LME Copper BDI API Coal Exchange /Currency /Bond Market USD/RMB USD/HKD 1-YR RMB NDF EUR/USD 3-M Libor 3-M Shibor 1, , , , Last price chg % chg YR US T-Note Yield Brent Oil One Year May-13 Oct-13 Mar-14 Gold Commodity One Year May-13 Sep-13 Jan-14 May-14 LME Aluminum Commodity One Year May-13 Sep-13 Feb-14 Source:Bloomberg 2 of 17

3 IV.About the retirement of chairman 7.Planning to use five years for the preparation of retirement. Instant noodles and beverages will be handed over to the eldest and third son respectively. At present, both are planning to come back two years later. Chairman Wei will continue to provide guidance for three years. Food and beverage are planned to be listed separately in future, which is also the target before retirement. V.Strategy of Pepsi-Cola 8. In 2014 Pepsi focuses on maintaining results and rebuilding organization. As the two-year transition period promised at the time of acquisition draws nigh in April 2014, the company will make adjustments for the team. For the staff, it is considering to replace the high-pay staff and promote the existing team members for training up. At the same time, it will control the cost in order to raise the profit margin. The company does not want Pepsi to further increase their stake as this will affect the control. (Hua Ling) 2. Technology - Lenovo (992 HK, BUY, TP HK$10.5) FY4Q14 Preview: PC leadership to continue; All eyes on MMI progress Lenovo will announce FY4Q14 results after market-close on 21 May, and analyst meeting will be hosted at 6pm, 21 May at Conrad. Below is our preview. 1) Solid PC share gain in FY4Q14; OPM expansion to continue. We expect Lenovo's FY4Q revenue to grow 15.8% YoY/-15.9% QoQ and net profit to grow 37% YoY, driven by continued PC share gain, healthy smartphone/tablet shipment and sustained margin improvement. We expect OPM to expand 24bps YoY to 2.4% due to increasing scale and better cost control. According to Gartner, Lenovo continued its No.1 in global PC market in FY4Q14, with 17.7% market share (vs 15.3% in FY4Q13) and 10.5% YoY shipment growth (vs -4.4% of global PC market). 2) Smartphone: China inventory correction in price; Focus on EM expansion. Given China 4G transition in 2014, mgmt indicated FY4Q14 smartphone weakness in previous conf call due to 3G inventory clearance, and expected to resume growth momentum with strong 4G product rollout in 2H14. In last quarter, 2mn smartphones (14% of FY3Q shipment) were sold outside China, mainly in APAC and EMEA. Based on IDC data, Lenovo's smartphone shipment grew 63.3% YoY to 12.9mn units in 1Q14 (vs 28.6% of global smarpthone market). Given intensified competition and 3G inventory clearance in China market, we expect Lenovo to expand aggressively in overseas emerging market (20+ new markets in 2014), particularly after MMI deal close. 3) All eyes on Motorola turnaround; FY4Q progress is encouraging. We believe MMI integration progress will be key driver for share price. We are optimistic about MMI turnaround, given accelerated product offerings, improving scale, and expanding sales network, esp. Moto's opportunities in China/EM. In particular, according to Google's Q1 financials, we noted that MMI has reported an impressive YoY/QoQ revenue turnaround (attached chart) on the back of increasing penetration of latest products (Moto G/Moto X) in new markets. Last week, MMI also launched new models, Moto E (US$129) and Moto G LTE (US$219), and gained 3 of 17

4 tremendous market attention (esp India, EU) according to media. We maintain our view that Lenovo will turn MMI back to profitability within 3-4 quarters after deal-close. 4) Maintain BUY; Downside risks fully priced in. We believe Lenovo/MMI integration will significantly strengthen the Chinese hardware giant in terms of branding, product portfolio, market coverage, and sales channels. Given that the positive financial impact from the deals will be reflected in FY16, we maintain our Mar-15 TP of HK$10.5 based on FY16 P/E of 12.75x (15% discount to historical avg. P/E of 15x, further discount back to Mar-15 with 3% discount rate). Upcoming catalysts include Motorola's product launches and FY4Q14 result on 21 May. (Alex Ng) 3. Technology - Truly (732 HK, BUY, TP HK$7.15) Solid 1Q on better margin; Expect momentum to resume from late 2Q We conducted conf call with management after Truly's 1Q result release yesterday. We maintain BUY with TP HK$7.15 (60% upside potential), implying 10.6x our 2014 EPS of HK$0.67. Below are our key takeaways. 1) Solid 1Q on better product mix and opex control. Truly reported a solid set of 1Q results, with revenue of RMB4,310mn (+27.3% YoY, -29.6% QoQ) and net profit of RMB211mn (+23.1% YoY). GPM improved 47bps YoY to 12.5% due to improving mix (auto display, TLI) and scaling benefits. Net profit margin slightly decline 17bps to 4.9%, partly due to RMB depreciation of RMB 15mn and accounting changes of RMB 20mn commission booked as SG&A expense. 2) April is likely to be the trough due to 4G transition and chipset shortage. We believe the recent 25%+ share price correction arises from concerns about April revenue decline (-7.1% YoY, -4% MoM), following strong revenue growth of 27% YoY in 1Q. Management attributed April weakness to seasonal order slowdown, 3G inventory correction on operators' subsidy policy change, 4G chipset shortage, and reduced orders of Samsung's low-margin shipments. Management expects sequential revenue growth starting from May, as local high-end clients plan to ramp up 4G models and Chinese operators to start new 4G subsidy programs in June. Truly also plans to launch new GFF product line in June to meet strong demand on GFF TLI products. 3) More upside potential from local high-end customers. With a strong local customer portfolio focusing on high-end handsets (RMB 2000+), we believe recent product launches confirmed Truly's momentum to resume in next few months. In particular, we expect stronger demand from Huawei Honor series (3C/3X), Vivo Xplay series (3S, XShot), and 4G pipeline from OPPO/Gionee/TCL/Sony. Given high exposure to open/ecommerce brands and 4G chipset shortage in 1H, we anticipate a solid ASP and margin trend on new 4G models in the near term, as 4G replacement demand tends to focus on better user experience/differentiation rather than lower pricing. 4) Maintain BUY on attractive valuation and promising 2H outlook. Trading at 6.5x 2014 P/E, we think the current valuation is attractive given the company's improving outlook in 2H and industry leadership in CCM/TLI. We maintain BUY with TP HK$7.15 (60% upside potential), implying 10.6x our 2014 EPS of HK$0.67. Catalysts include monthly sales data and customers' product launches. Downside risks include slower inventory correction, operators' subsidy policy changes and component shortage. (Alex Ng) 4 of 17

5 A-share Research Highlights (CMS Research Center) 1. Nuclear Power Equipment Sector Both Existing and New Development Markets Resumed [Qiao Min and Liu Rong, May 19, 2014] 1. Sector bottomed out with approval for new projects resumed. New projects on nuclear power have been suspended for two years due to the Fukushima Nuclear Accident. In 2013, new nuclear power projects gradually resumed. With the commencement of Tianwan Phase II and Yangjiang Phase III, short-cycle orders were received in the second half of the year and construction of new nuclear projects resumed normal. Based on the planned installed capacity of 58,000,000 kw for commercial operation + capacity under construction of 30,000,000 kw by 2020, it is estimated that at least 6 generating units will be under construction within Based on the schedule of preliminary activities and expected commencement of different projects, it is estimated that there may be as much as 10 generating units with construction begun in 2014, representing an increase of 100% to 200% compared with Generation of existing generating units (commercial generating units) entering a peak period and will continue to increase. According to the schedule of the nuclear projects under construction, 8 generating units will be starting commercial operation in 2014, representing an increase of nearly 50%. Nuclear power entered peak period of construction during 2008 and 2009, the increase of generating units in operation will be highest in this and the next year. With the operation of the generating units under construction, the installed capacities of commercial generating units will continue to increase. As a result, the market of relevant consumptive equipment will change in terms of quantity and have sustainable growth. 3. National 3rd Generation to be submitted for approval first, then AP1000, dispute in reactor model is not an obstacle to resumption of industry. Based on our studies on the upstream and downstream of the industry, dispute in reactor model does not exist in the several projects that are very likely to be submitted for approval during the year. The models of those projects are National 3rd Generation, which is an upgraded version on top of the National 2nd Generation Plus. In addition, AP1000, the more disputable reactor model, will be widely promoted after the first generating unit tested with Sanmen nuclear power station. 4. Investment advice: We maintain Outperform rating for the nuclear power equipment sector, with the short-cycle equipment orders having the best elasticity. There are different cycles for the production of nuclear power equipment. Tenders for long-cycle products usually require a period of more than 18 months before commencement of the project, whilst short-cycle products usually require around six months before or after. Tenders for the long-cycle products of the projects resumed have already been started before 2011, and the elasticity of new orders is limited after the resumption. However, production of short-cycle equipment is in the same pace as the commencement of the new projects and the elasticity is therefore the best. Leading companies of short-cycle equipment including Jiangsu Shentong ( CH), Jiuli Hi-tech ( CH), Sufa Technology ( CH) and Nanfeng Ventilator ( CH) are best 5 of 17

6 choices for income. In particular, we maintain a STRONG BUY rating for Jiangsu Shentong as it is benefited from increases in both the markets of new and existing projects. 5. Risk reminder: Uncertainties exist in the timing of approval and tender; accidental events affect the overall development of the industry. 6 of 17

7 What to Watch LME Copper Commodity One Year 8000 Economic Data HK:Nil US:MBA Mortgage Index 6000 Date Ticker Stock Name Earnings 2014/05/ LENOVO GROUP Date Ticker Stock Name Issue Price 4000 May-13 Sep-13 Feb-14 BDI One Year May-13 Sep-13 Jan-14 API Coal One Year May-13 Sep-13 Jan-14 Source:Bloomberg 7 of 17

8 China Merchants Securities (Hong Kong) Stock Pool Update Weekly Stock Code Short Name Rating Price Currency Latest Price 12- Month Target Price Upside Potential EPS Currency EPS P/E 1-Month 2013E 2014E 2015E 2013E 2014E 2015E Performance Analyst Textiles, Apparel & Luxury Goods 589 Ports Neutral HKD % RMB % Ivy Zhao 1880 Belle Neutral HKD % RMB % Ivy Zhao 1368 Xtep Buy HKD % RMB % Ivy Zhao 2020 Anta Sports Buy HKD % RMB % Ivy Zhao Degrees Neutral HKD % RMB % Ivy Zhao 1968 Peak Sport Buy HKD % RMB % Ivy Zhao 2331 Li Ning Buy HKD % RMB N.A % Ivy Zhao 3818 China Dongxiang Buy HKD % RMB % Ivy Zhao 1234 China Lilang Buy HKD % RMB % Ivy Zhao 891 Trinity Buy HKD % HKD % Ivy Zhao Metals & Mining 1818 Zhaojin Mining Neutral HKD % RMB % Li Xiang 2899 Zijin Mining Neutral HKD % RMB % Li Xiang 358 Jiangxi Copper Sell HKD % RMB % Li Xiang 3993 CMOC Neutral HKD % RMB % Li Xiang 2600 Chalco Neutral HKD % RMB N.A. N.A. -5.7% Li Xiang 1378 China Hongqiao Buy HKD % RMB % Li Xiang 486 Rusal Neutral HKD % USD N.A % Li Xiang Environmental Protection 257 CHINA EVERBRIGHT Buy HKD % HKD % Li Xiang 895 DONGJIANG Buy HKD N.A. RMB N.A. N.A. N.A. N.A. Li Xiang 8 of 17

9 Stock Price Latest 12- Month Upside EPS EPS P/E 1-Month Short Name Rating Code Currency Price Target Price Potential Currency 2013E 2014E 2015E 2013E 2014E 2015E Performance Analyst ENVIRONMENTAL Auto & Others 1211 BYD Company Neutral HKD % RMB % Colleen Li 489 Dongfeng Group Buy HKD % RMB % Colleen Li 175 Geely Auto Buy HKD % RMB % Colleen Li 2333 Greatwall Motor Buy HKD % RMB % Colleen Li 1114 Brilliance Chi Buy HKD % RMB % Colleen Li 425 Minth Group Buy HKD % RMB % Colleen Li 1728 Zhengtong Auto Buy HKD % RMB % Colleen Li 881 Zhongsheng Hldg Neutral HKD % RMB % Colleen Li 1766 CSR Buy HKD % RMB % Colleen Li 3898 CSR Times Electric Buy HKD % RMB % Colleen Li Oil & Gas 857 Petro China Buy HKD % RMB % Michael Yuk 386 Sinopec Corp Buy HKD % RMB % Michael Yuk 883 CNOOC Buy HKD % RMB % Michael Yuk 603 China Oil & Gas Neutral HKD % HKD % Michael Yuk 342 Newocean Energy Buy HKD % HKD % Michael Yuk 467 United Energy Gp Buy HKD % HKD % Michael Yuk Oil & Gas Services/Equipment 3899 CIMC Enric Buy HKD % RMB % Michael Yuk 3337 Anton Oilfield Buy HKD % RMB % Michael Yuk 1938 Chu Kong Pipe Buy HKD % RMB % Michael Yuk 2883 China Oilfield Buy HKD % RMB % Michael Yuk 9 of 17

10 Stock Price Latest 12- Month Upside EPS EPS P/E 1-Month Short Name Rating Code Currency Price Target Price Potential Currency 2013E 2014E 2015E 2013E 2014E 2015E Performance Analyst 3303 Jutal Oil Ser Buy HKD % RMB % Michael Yuk 1623 Hilong Buy HKD % RMB % Michael Yuk Property 688 China Overseas Buy HKD % HKD % DuanFeiqin 1109 China Res Land Buy HKD % HKD % DuanFeiqin 3333 Evergrande Buy HKD % HKD % DuanFeiqin 3900 Greentown China Buy HKD % HKD % DuanFeiqin 754 Hopson Dev Hold Buy HKD % HKD % DuanFeiqin 978 Ch Merchant Land Buy HKD % HKD % DuanFeiqin 1918 SUNAC Buy HKD % HKD % DuanFeiqin Consumer Discretionary 1833 Intime Buy HKD % RMB % Gloria Wang 1700 Springland Neutral HKD % RMB % Gloria Wang 493 GOME Buy HKD % RMB % Gloria Wang 653 Bonjour Holdings Neutral HKD % HKD % Gloria Wang 1169 Haier Electronics Buy HKD % RMB % Gloria Wang 178 Sa Sa International Buy HKD % HKD % Gloria Wang Telecommunication 941 China Mobile Neutral HKD % RMB % Jeff Hao 762 China Unicom Neutral HKD % RMB % Jeff Hao 728 China Telecom Neutral HKD % RMB % Jeff Hao Information Technology 700 Tencent Buy HKD % RMB % Jeff Hao 3888 Kingsoft Buy HKD % RMB % Jeff Hao 10 of 17

11 Stock Price Latest 12- Month Upside EPS EPS P/E 1-Month Short Name Rating Code Currency Price Target Price Potential Currency 2013E 2014E 2015E 2013E 2014E 2015E Performance Analyst 1661 Wisdom Buy HKD % RMB % Jeff Hao 777 Netdragon Buy HKD % RMB % Jeff Hao 354 Chinasoft Neutral HKD % RMB % Jeff Hao 268 Kingdee Neutral HKD % RMB % Jeff Hao Port 144 China Merchant Hldg Neutral HKD % HKD % Kate Li 1199 Cosco Pacific Buy HKD % USD % Kate Li Shipping 368 Sinotrans Shipping Neutral HKD % USD % Kate Li 316 OOIL Buy HKD % USD % Kate Li 2866 CSCL Neural HKD % RMB N.A % Kate Li Alternative Energy 3800 GCL-Poly Energy Buy HKD % HKD N.A % Yin Lei 750 Singyes Solar Buy HKD % RMB % Yin Lei 2208 Goldwind Buy HKD % RMB % Yin Lei 916 Longyuan Power Neutral HKD % RMB % Yin Lei 1798 Datang Power Neutral HKD % RMB % Yin Lei 182 China Wind Power Buy HKD % HKD % Yin Lei 819 Tianneng Power Buy HKD % RMB % Yin Lei Food & Beverage 322 Tingyi Buy HKD % USD % Ling Hua 2319 Mengniu Dairy Buy HKD % RMB % Ling Hua 151 Want Want China Neutral HKD % USD % Ling Hua 345 Vitasoy Neutral HKD % HKD % Ling Hua 11 of 17

12 Stock Price Latest 12- Month Upside EPS EPS P/E 1-Month Short Name Rating Code Currency Price Target Price Potential Currency 2013E 2014E 2015E 2013E 2014E 2015E Performance Analyst Machinery & Equipment 1157 Zoomlion Neutral HKD % RMB % Jiao Yiding 631 Sany International Neutral HKD % RMB % Jiao Yiding 3339 Lonking Buy HKD % RMB % Jiao Yiding Engineering 1829 CMEC Buy HKD % RMB % Jiao Yiding Electricity 902 Huaneng Power Buy HKD % RMB % Vera Liang 991 Datang Power Neutral HKD % RMB % Vera Liang 1071 Huadian Power Buy HKD % RMB % Vera Liang 2380 China Power Buy HKD % RMB % Vera Liang Semi and Hardware Technology 992 Lenovo Buy HKD % USD % Alex Ng 2382 Sunny Optical Neutral HKD % RMB % Alex Ng 732 Truly Buy HKD % HKD % Alex Ng 2018 AAC Tech Neutral HKD % RMB % Alex Ng 2618 TCL Comm Buy HKD % HKD % Alex Ng 2369 Coolpad Group Buy HKD % HKD % Alex Ng Pharmaceuticals & Medical Devices 2348 Dawnrays Pharma Buy HKD % RMB % Jonathan Hsu 460 Sihuan Pharm Buy HKD % RMB % Jonathan Hsu 1177 Sino Biopharm Buy HKD % HKD % Jonathan Hsu 1093 CSPC Pharm Buy HKD % HKD % Jonathan Hsu 1099 Sinopharm Buy HKD % RMB % Jonathan Hsu 12 of 17

13 Stock Price Latest 12- Month Upside EPS EPS P/E 1-Month Short Name Rating Code Currency Price Target Price Potential Currency 2013E 2014E 2015E 2013E 2014E 2015E Performance Analyst 2877 Shineway Pharm Neutral HKD % RMB % Jonathan Hsu 1515 Phoenix Healthcare Buy HKD % RMB % Jonathan Hsu 1061 Essex Bio-tech Buy HKD % HKD % Jonathan Hsu Industrial Goods 2283 TK group Buy HKD % HKD % Ling Hua 13 of 17

14 HSI Index Components Performance Code Name Price Chg 1D (%) Last price HSCEI Index Components Performance Code Name Price Chg 1D 1 CHEUNG KONG TSINGTAO BREW-H CLP HLDGS LTD JIANGSU EXPRES-H HONG KG CHINA GS MAANSHAN IRON-H WHARF HLDG SINOPEC SHANG-H HSBC HLDGS PLC ANGANG STEEL-H POWER ASSETS HOL JIANGXI COPPER-H HANG SENG BK CHINA PETROLEU-H HENDERSON LAND D CHINA RAIL GR-H HUTCHISON WHAMPO DONGFENG MOTOR-H SHK PPT CHINA COMM SER-H NEW WORLD DEV ZHEJIANG EXPRESS SWIRE PACIFIC-A BEIJING CAP AI-H BANK EAST ASIA CHINA TELECOM-H MTR CORP AIR CHINA LTD-H SINO LAND CO PETROCHINA CO-H HANG LUNG PROPER HUANENG POWER-H CHINA MERCHANT ANHUI CONCH-H CITIC PACIFIC CHINA CONST BA-H CHINA RES ENTERP DATANG INTL PO-H CATHAY PAC AIR CHINA CITIC BK-H ESPRIT HLDGS CHINA SHENHUA-H CHINA PETROLEU-H HARBIN ELECTRIC HKEX CHINA SHIPPING-H LI & FUNG LTD YANZHOU COAL-H YUE YUEN INDUS CHINA RAIL CN-H CHINA OVERSEAS IND & COMM BK-H TENCENT CHINA COM CONS-H CHINA UNICOM HON CHINA COAL ENE-H PETROCHINA CO-H CHINA COSCO HO-H CNOOC LTD PING AN INSURA-H CHINA CONST BA-H PICC PROPERTY & CHINA MOBILE ALUMINUM CORP-H CHINA SHENHUA-H CHINA LIFE INS-H COSCO PAC LTD SHANGHAI ELECT-H IND & COMM BK-H GUANGZHOU R&F -H FIH MOBILE LTD CHINA SHIPPING-H PING AN INSURA-H CHINA OILFIELD-H BOC HONG KONG HO ZIJIN MINING-H ALUMINUM CORP-H CHINA NATL BDG-H CHINA LIFE INS-H BANK OF COMMUN-H BANK OF COMMUN-H CHINA MERCH BK-H BANK OF CHINA-H BANK OF CHINA-H CMOC-H (%) 14 of 17

15 A+H Company Performance Last price Name(H) Code (H) Price (H) Code (A) Price (A) Spread (%) NORTHEAST ELEC-H JINGCHENG MAC NANJING PANDA-H SHENJI GROUP-H CHONGQING IRON-H SHANDONG XINHU-H TIANJIN CAP-H SINOPEC SHANG-H SINOPEC YIZHEN-H BEIJING NORTH-H JINGWEI TEXTIL-H DATANG INTL PO-H YANZHOU COAL-H ALUMINUM CORP-H BAIYUNSHAN PH-H HISENSE KELON -H CHINA SOUTHERN-H SHENZHEN EXPRE-H JIANGXI COPPER-H CHINA SHIPPING-H MAANSHAN IRON-H ANHUI EXPRESS-H DONGFANG ELECT-H CHINA CITIC BK-H GUANGSHEN RAIL-H ZTE CORP-H LUOYANG GLASS-H GUANGZHOU SHIP-H BANK OF CHINA-H BANK OF COMMUN-H AIR CHINA LTD-H HUADIAN POWER-H CHINA MERCH BK-H IND & COMM BK-H CHINA PETROLEU-H TSINGTAO BREW-H PING AN INSURA-H HUANENG POWER-H CHINA LIFE INS-H JIANGSU EXPRES-H ANGANG STEEL-H WEICHAI POWER-H ANHUI CONCH-H of 17

16 Recently Published Research Date published Name of report Analyst 19-May-14 GCL -Poly Energy (3800 HK) Yin Lei 19-May-14 China Hardware Technology Alex Ng 16-May-14 Environmental protection solid waste treatment Li Xiang 16-May-14 Eurozone 1Q14 GDP unchanged Lynn Song, Cliff Zhao, David Xie 15-May-14 Japan 1Q14 GDP exceeded forecasts Lynn Song, Cliff Zhao, David Xie 14-May-14 Zoomlion (1157 HK) Yiding Jiao 14-May-14 Takeaways from the Expert Conference of the Ministry of Ivy Zhao 12-May-14 HK Market Strategy Bi-weekly_(Vol. 08,2014) Cliff Zhao, Zi chen Xu, George Chen 12-May-14 Chinese Property Duan Feiqin 8-May-14 Dawnrays Pharma (2348.HK) Jonathan Hsu 8-May-14 Metals and Mining Sector Li Xiang 8-May-14 Optics Valley Union(798 HK) Duan Feiqin 8-May-14 Retail Remains Slump, E-comm Grows quickly Ivy Zhao 7-May-14 XINJIANG Goldwind-H(2208.HK) Yin Lei 6-May-14 SANY HEAVY EQUIP(631.HK) Yiding JIAO 6-May-14 Hong Kong Property Kate Li 6-May-14 Datang International (991.HK) Vera Liang 2-May in 20: Eurozone Monthly Chart Book (May 2014) Lynn Song, Cliff Zhao, David Xie 2-May-14 April Eurozone Flash HICP inflation rebounded to 0.7% Lynn Song, Cliff Zhao, David Xie 30-Apr-14 Sinopec (386 HK) Michael Yuk 30-Apr-14 HK Market Strategy Bi-weekly_(Vol. 07,2014) Cliff Zhao, Zi chen Xu, George Chen 29-Apr-14 China Mengniu Dairy (2319 HK) Hua Ling 28-Apr-14 Sihuan Pharma (460.HK) Jonathan Hsu 28-Apr-14 Dawnrays Pharma (2348.HK) Jonathan Hsu 28-Apr-14 Metal and Mining Deng Liangsheng 28-Apr-14 Monthly Report on HK Stock Market Funds Flow (April Qing Li, Cliff Zhao, David Xie 28-Apr-14 China Telecom Operators Investment Cycle Begins Jeff Hao 28-Apr-14 Coolpad Group (2369 HK) Alex Ng 28-Apr-14 Jutal Offshore Oil Services (3303 HK) Michael Yuk 25-Apr-14 PetroChina(857 HK) Michael Yuk 25-Apr-14 China Power (2380 HK) Vera Liang 24-Apr-14 China Merchants Land(978 HK) Duan Feiqin 24-Apr-14 April Eurozone Flash Composite PMI rose to 35 month Lynn Song, Cliff Zhao, David Xie 23-Apr-14 high Sinotrans of 54.0 Shipping Limited (368 HK) Kate Li 23-Apr-14 China Singyes Solar (750 HK) Yin Lei 23-Apr-14 CNOOC (883 HK) Michael Yuk 22-Apr-14 China Resources Land (1109 HK) Duan Feiqin 17-Apr-14 Hong Kong Stock Market Investment Outlook 2Q2014 Cliff Zhao, Zi chen Xu, George Chen 17-Apr-14 Wisdom (1661 HK ) Jeff Hao 17-Apr-14 China Merchants Land (978 HK) Duan Feiqin 16-Apr-14 China Hardware Technology Alex Ng 16 of 17

17 RATING DEFINITION & DISCLAIMER INDUSTRY OVERWEIGHT NEUTRAL UNDERWEIGHT DEFINITION Expected to outperform the market index by > 10% over the next 12 months Expected to outperform or underperform the market index by 10% or less over the next twelve months Expected to underperform the market index by >10% over the next 12 months COMPANY BUY NEUTRAL SELL DEFINITION Expected to outperform the market index by >10% over the next twelve months Expected to outperform or underperform the market index by 10% or less over the next twelve months Expected to underperform the market index by >10% over the next twelve months DISCLAIMER This document is prepared by China Merchants Securities (HK) Co., Limited ( CMS HK ). CMS HK is a licensed corporation to carry on Type 1 (dealing in securities), Type 2 (dealing in futures), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571). This document is for information purpose only. Neither the information nor opinion expressed shall be construed, expressly or impliedly, as an advice, offer or solicitation of an offer, invitation, advertisement, inducement, recommendation or representation of any kind or form whatsoever to buy or sell any security, financial instrument or any investment or other specific product. The securities, instruments or strategies discussed in this document may not be suitable for all investors, and certain investors may not be eligible to participate in some or all of them. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. The information and opinions, and associated estimates and forecasts, contained herein have been obtained from or are based on sources believed to be reliable. CMS HK, its holding or affiliated companies, or any of its or their directors, officers or employees ( CMS Group ) do not represent or warrant, expressly or impliedly, that it is accurate, correct or complete and it should not be relied upon. CMS Group will not accept any responsibility or liability whatsoever for any use of or reliance upon this document or any of the content thereof. The contents and information in this document are only current as of the date of their publication and will be subject to change without prior notice. Past performance is not indicative of future performance. Estimates of future performance are based on assumptions that may not be realized. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Opinions expressed herein may differ or be contrary to those expressed by other business divisions or other members of CMS Group as a result of using different assumptions and/or criteria. This document has been prepared without regard to the individual financial circumstances and investment objectives of the persons who receive it. Use of any information herein shall be at the sole discretion and risk of the user. Investors are advised to independently evaluate particular investments and strategies, take financial and/or tax advice as to the implications (including tax) of investing in any of the securities or products mentioned in this document, and make their own investment decisions without relying on this publication. CMS Group may have a long or short position, make markets, act as principal or agent, or engage in transactions in securities of companies referred to in this document and may also perform or seek to perform investment banking services or provide advisory or other services for those companies. This document is for the use of intended recipients only and this document may not be reproduced, distributed or published in whole or in part for any purpose without the prior consent of CMS Group. CMS Group will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This document is for distribution only under such circumstances as may be permitted by applicable law. This document is not directed at you if CMS Group is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. In particular, this document is only made available to certain US persons to whom CMS Group is permitted to make available according to US securities laws, but cannot otherwise be made available, distributed or transmitted, whether directly or indirectly, into the US or to any US person. This document also cannot be distributed or transmitted, whether directly or indirectly, into Japan and Canada and not to the general public in the People s Republic of China (for the purpose of this document, excluding Hong Kong, Macau and Taiwan). 17 of 17