Yum Cha 飲茶. February 4, 2015 RESEARCH NOTES TALKING POINT JIN CAI HOLDINGS: PRICED IN A LOT OF OPTIMISTIC EXPECTATIONS. INDICES Closing DoD%

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1 Yum Cha 飲茶 February 4, 2015 TALKING POINT JIN CAI HOLDINGS: PRICED IN A LOT OF OPTIMISTIC EXPECTATIONS INDICES Closing DoD% Hang Seng Index 24, HSCEI 11, Shanghai COMP 3, Shenzhen COMP 1, Gold 1, BDIY (2.2) Crude Oil, WTI(US$/BBL) 51.8 (2.4) Crude Oil, BRENT(US$/BBL) HIBOR, 3-M SHIBOR, 3-M RMB/USD 6.3 (0.0) DATA RELEASES DUE THIS WEEK Feb 07/08 Trade Balance CNY Feb 07/08 Exports YoY CNY Feb 07/08 Imports YoY CNY Feb 07/08 Trade Balance Feb 07/08 Exports YoY Feb 07/08 Imports YoY Source: Bloomberg Share price of Jin Cai Holdings [1250.HK] surged 114% yesterday, as the company will introduce BE Water [0371.HK] and other investors to jointly develop solar farm projects in Shandong, Inner Mongolia, Hebei, Henan, Gansu, Xinjiang, Shanxi, Ningxia and Shaanxi provinces. Issue price of new shares and preference shares is HK$0.79 (closing price yesterday: HK$3). BE Water will become the largest shareholder with about 35% stake when all preference shares are converted. According to the company, it will develop solar farm projects with a total capacity of 1.7GW between 2015 and Total investment is expected to be RMB13.8bn and 30% (RMB4.1bn) will be financed by internal resources of the company while the balance will be funded by bank borrowings. Since the company will obtain about HK$4.86bn through issuance of new shares and preference shares, it should be sufficient to cover the RMB 4.1bn investment. However, based on the fully diluted market cap of HK$15.2bn, we believe most of the positives have been reflected in the price. If we assume a ROE of 15% for the investment of RMB4.1bn, annual net profit will be about RMB763m, implying 16.2x PER. Don t forget the company will need three to four years to reach the target capacity of 1.7GW. Paying 16.2x 2017E or 2018E PER for a solar farm project company without proven track record looks quite risky, in our view. RESEARCH NOTES Wong Chi-man, CFA STRATEGY - Price difference between A-share and H-share has kept widening in the past few months but we saw stabilization and a small narrowing of A-H spread in the past two weeks. As the H-share discount remains high at >30% on average, there is a large scope for A-H spread to return to a normalized level. Short ishare China A50 ETF [2823.HK] and long Hang Seng H- share ETF [2828.HK] remains a good trading strategy in our view. Trading at a 45% discount, we see potential for Datang-H [0991.HK] to catch up if it can successfully dispose the lossmaking coal chemical business to attract more Hong Kong and overseas institutional investors. If short-selling of A-shares is allowed later this month, investors may consider short CSR-A [ CH] and CNR-A [ CH] and long CSR-H and CNR-H. A-H spread of these pairs widened by >60% in the past few weeks and their H-shares are trading at >30% discount now. China Oilfield Services Limited (COSL) [2883.HK; SELL] - CNOOC yesterday announced a 26%-35% YoY (year-on-year) capex reduction in 2015, more aggressive than our expectation. We believe this will exert further pressure on COSL on both drill rigs day rate and job volume, which reaffirms our negative stance on COSL s outlook in the foreseeable future. Our 2015E earnings estimate of RMB5.58bn is 19% below consensus and we expect substantial earnings downgrade in the near term. We maintain our SELL rating with target price of HK11.80 (unchanged 8x 2015E PER). 1

2 COMPANY / INDUSTRY NEWS STRATEGY A-H SPREAD UPDATE: A-H spread began to narrow Analyst: Wong Chi Man, CFA (Tel: (852) ); cmwong@chinastock.com.hk February 4, 2015 A-H spread stabilized and narrowed. Price difference between A-share and H-share has begun to widen since August 2014, reaching a high level in early January when H-share traded at >30% to A-share counterparts on average. However, as big cap A- shares underperformed in the past few weeks (Figure 2C), we eventually see a healthy sign of narrowing A-H spread (Figure 1). Nearly all H-shares are still trading at a discount. Currently only five H-share companies are trading at a premium, including Jiangsu Expressway [0177.HK], Anhui Conch [0914.HK], Huaneng Power [0902.HK], Tsingtao Brewery [0168.HK] and ICBC [1398.HK] (Figure 3). Discount of H-share banks narrowed by 6ppt. In our research note dated January 5, we highlighted the attractiveness of H-share banks and IPPs due to widening price discounts. The strategy worked well in the past month. Price discount of H-share banks narrowed from 20.3% to 14.3% within a month. H-share discount of IPPs also reduced from 30.3% to 14.5% during the same period (Figure 5). A-share railway stocks look increasingly unattractive. As A-share investors are more optimistic about the future prospects brought by the proposed merger of CSR [1766.HK] and CNR [6199.HK], H-share price discount of railway stocks increased from 13.5% to 39.4% within a month. Continued to long H-share ETF and short A-share ETF. Based on Figure 1, we believe the narrowing of A-H spread is just the beginning and still way to return to a normalized level. As HKEX will soon allow Hong Kong and overseas investors to execute covered short-selling of A-shares through Shanghai-Hong Kong Stock Connect, more investors will pay attention to the large A-H spread, in our view. Therefore we reckon long Hang Seng H-share ETF [2828.HK] and short ishares China A50 ETF [2823.HK] remains a good trading strategy. Datang Power: Potential to catch up. H-share discount of Huaneng and Huadian [1071.HK] narrowed by 15.5ppt and 24.8ppt within a month while Datang Power [0991.HK] only narrowed by 7.2%. As Datang-H is still trading at a 45% discount to its A-share counterparts, there is potential for Datang-H to outperform Datang-A if we see the following catalysts: (1) a successful disposal of the lossmaking coal chemical business and (2) further rate cut in China as the company s earnings are sensitive to interest rate due to high gearing. We estimate that interest cost savings brought by 1% of rate cut are equivalent to 17% of Datang s 2013 recurring pre-tax earnings. Pay attention to CSR and CNR if short-selling of A-shares is allowed. If A-shares short-selling is allowed later this month, investors may consider short CSR-A [ CH] and CNR-A [ CH] and long CSR-H and CNR-H. A-H spread of these two pairs widened by >60% in the past few weeks (Figure 5) and their H-shares are trading at >30% discount now. 2

3 COMPANY / INDUSTRY NEWS STRATEGY A-H SPREAD UPDATE: A-H spread begins to narrow Analyst: Wong Chi Man, CFA (Tel: (852) ); cmwong@chinastock.com.hk Figure 1: H-share discount relative to A-share Figure 2A: Share price performance (Aug 1 - Nov 14) H-share return A-share return Group A 2.0% 13.7% Group B 15.7% 24.0% Group C 19.6% 23.2% Covering period: Between August 1, 2014 and November 14, Note 1: Negative figures mean H-share is cheaper than A-share. Note 2: Group A refers to the top 20 A-H dual listing stocks eligible for Shanghai-Hong Kong Stock Connect. The next 20 are Group B. The remaining stocks are Group C. Figure 2B: Share price performance (Nov 14 - Jan 2) H-share return A-share return Group A 23.7% 66.7% Group B 5.5% 38.3% Group C -7.5% 24.3% Covering period: Between November 14, 2014 and January 2, Figure 2C: Share price performance (Jan 5 - Feb 3) Covering period: Between January 5, 2015 and February 3, Note: CSR (1766.HK) is excluded from Group A to avoid distortion caused by the news related to its merger with CNR (6199.HK). 3

4 COMPANY / INDUSTRY NEWS STRATEGY A-H SPREAD UPDATE: A-H spread begins to narrow Analyst: Wong Chi Man, CFA (Tel: (852) ); cmwong@chinastock.com.hk Figure 3: H-share discount relative to A-share (ranked by discount) Note 1: Negative figures mean H-share is cheaper than A-share. Company name Market Cap(HK$m) 9-Apr Apr-14 5-May-14 6-Jun-14 4-Jul-14 1-Aug-14 5-Sep-14 3-Oct Nov-14 1-Dec-14 2-Jan-15 3-Feb CH Equity 1108 HK Equity Luoyang Glass Co Ltd 3, % -71.1% -70.6% -71.0% -57.9% n.a. n.a. n.a. n.a. n.a. n.a % CH Equity 1033 HK Equity Sinopec Yizheng Chemical Fibre Co Ltd 89, % -47.1% -43.1% -48.7% n.a. n.a. n.a % -37.3% -41.1% -65.9% -67.9% CH Equity 38 HK Equity First Tractor Co Ltd 11, % -48.7% -51.4% -49.1% -45.9% -45.2% -47.7% -55.7% -42.1% -60.7% -64.5% -67.8% CH Equity 300 HK Equity Shenji Group Kunming Machine Tool Co Ltd 3, % -55.0% -61.3% -58.3% -49.9% -45.1% -48.3% -44.1% -39.3% -60.1% -65.0% -65.9% CH Equity 187 HK Equity Beijing Jingcheng Machinery Electric Co Ltd 3, % -56.8% -64.4% -57.3% -51.7% -47.3% -50.9% -49.3% -45.4% -59.9% -66.3% -65.2% CH Equity 3993 HK Equity China Molybdenum Co Ltd 58, % -49.4% -50.4% -53.2% -50.2% -45.0% -43.9% -48.8% -41.9% -58.9% -57.5% -64.6% CH Equity 2727 HK Equity Shanghai Electric Group Co Ltd 140, % -36.5% -33.3% -36.6% -34.1% -32.5% -33.1% -38.7% -39.5% -43.5% -59.7% -64.1% CH Equity 1171 HK Equity Yanzhou Coal Mining Co Ltd 62, % -21.3% -22.8% -25.4% -32.0% -31.3% -35.0% -42.8% -40.7% -55.0% -59.3% -63.6% CH Equity 1065 HK Equity Tianjin Capital Environmental Protection Group Co Ltd 16, % -53.5% -57.6% -55.5% -49.2% -47.4% -44.9% -48.2% -39.2% -54.2% -62.4% -61.0% CH Equity 553 HK Equity Nanjing Panda Electronics Co Ltd 11, % -60.7% -60.7% n.a. n.a % -47.3% -44.9% -40.2% -53.6% -55.6% -60.8% CH Equity 1053 HK Equity Chongqing Iron & Steel Co Ltd 15, % -58.6% -62.0% -60.0% -53.2% -44.9% -44.7% -53.9% -43.9% -57.5% -58.2% -60.0% CH Equity 2880 HK Equity Dalian Port PDA Co Ltd 24, % -34.5% -45.3% -41.7% -47.1% -39.3% -35.9% -44.6% -38.2% -53.3% -54.5% -59.1% CH Equity 2866 HK Equity China Shipping Container Lines Co Ltd 51, % -30.2% -32.3% -27.1% -28.7% -29.4% -38.6% -48.8% -41.0% -50.5% -59.5% -56.5% CH Equity 338 HK Equity Sinopec Shanghai Petrochemical Co Ltd 45, % -48.1% -49.9% -49.7% -44.5% -43.2% -41.4% -47.5% -42.4% -53.5% -57.1% -55.5% CH Equity 588 HK Equity Beijing North Star Co Ltd 15, % -42.1% -43.9% -44.6% -38.3% -36.5% -35.7% -43.2% -39.8% -50.2% -55.0% -53.9% CH Equity 317 HK Equity Guangzhou Shipyard International Co Ltd 36, % -35.8% n.a. n.a. n.a. n.a. n.a. n.a % -39.8% -49.0% -53.4% CH Equity 1618 HK Equity Metallurgical Corp of China Ltd 88, % -28.5% -27.7% -28.9% -26.9% -27.3% -23.2% -33.4% -30.9% -42.6% -57.0% -53.2% CH Equity 323 HK Equity Maanshan Iron & Steel Co Ltd 28, % -10.8% -15.8% -14.7% -13.4% -15.5% -20.4% -32.9% -36.7% -47.7% -54.1% -51.6% CH Equity 564 HK Equity Zhengzhou Coal Mining Machinery Group Co Ltd 13, % -35.5% -34.2% -24.6% -23.8% -28.1% -28.1% -38.4% -34.1% -43.0% -49.3% -51.3% CH Equity 1919 HK Equity China COSCO Holdings Co Ltd 69, % -21.9% -18.6% -17.2% -18.4% -18.1% -21.7% -37.1% -35.0% -46.4% -56.7% -50.7% CH Equity 107 HK Equity Sichuan Expressw ay Co Ltd 15, % -31.9% -34.2% -31.4% -27.0% -26.5% -25.2% -30.7% -28.3% -41.7% -50.1% -46.6% CH Equity 2600 HK Equity Aluminum Corp of China Ltd 75, % -26.6% -25.5% -23.7% -26.2% -22.1% -23.3% -34.6% -30.0% -41.3% -54.7% -46.5% CH Equity 1898 HK Equity China Coal Energy Co Ltd 88, % -16.7% -17.5% -13.5% -17.8% -13.7% -13.6% -21.5% -21.2% -31.8% -43.0% -46.0% CH Equity 2899 HK Equity Zijin Mining Group Co Ltd 85, % -34.4% -32.1% -37.6% -34.8% -32.9% -31.2% -40.4% -34.6% -43.6% -47.7% -45.8% CH Equity 991 HK Equity Datang International Pow er Generation Co Ltd 88, % -30.2% -34.7% -28.5% -31.9% -20.5% -9.6% -23.7% -20.2% -26.6% -50.5% -45.1% CH Equity 2883 HK Equity China Oilfield Services Ltd 93, % -13.5% -9.7% -4.0% -12.1% -15.7% -12.1% -18.4% -30.0% -41.3% -46.8% -44.3% CH Equity 1138 HK Equity China Shipping Development Co Ltd 28, % -9.1% -15.0% -8.7% -9.7% -7.1% -18.4% -32.6% -32.7% -44.9% -50.7% -44.0% CH Equity 390 HK Equity China Railw ay Group Ltd 196, % 14.9% 17.2% 16.2% 19.7% 14.8% 15.7% 3.6% -5.0% -13.0% -43.0% -43.6% CH Equity 1800 HK Equity China Communications Construction Co Ltd 200, % 12.9% 12.2% 16.0% 19.1% 15.7% 9.6% -6.6% -12.3% -18.4% -42.4% -42.8% CH Equity 358 HK Equity Jiangxi Copper Co Ltd 63, % -14.6% -16.1% -13.3% -16.5% -13.4% -20.0% -27.6% -23.1% -32.6% -42.0% -42.7% CH Equity 2009 HK Equity BBMG Corp 50, % -22.2% -27.9% -23.3% -23.1% -27.1% -27.9% -36.4% -30.4% -44.0% -45.1% -42.5% CH Equity 1186 HK Equity China Railw ay Construction Corp Ltd 170, % 20.4% 22.8% 22.9% 21.7% 16.9% 16.3% 6.7% -4.3% -20.0% -45.8% -42.3% CH Equity 670 HK Equity China Eastern Airlines Corp Ltd 69, % -13.9% -20.4% -16.6% -14.9% -20.3% -22.8% -34.4% -38.1% -46.8% -42.8% -41.2% CH Equity 857 HK Equity PetroChina Co Ltd 2,526, % -8.2% -5.9% 1.1% 4.1% 1.4% 12.0% 1.5% -12.3% -21.9% -35.6% -40.6% CH Equity 548 HK Equity Shenzhen Expressw ay Co Ltd 18, % -20.3% -19.8% -12.3% -8.4% -9.0% -14.9% -23.6% -21.5% -36.2% -49.5% -40.3% CH Equity 1055 HK Equity China Southern Airlines Co Ltd 53, % -20.5% -22.8% -21.1% -17.6% -13.8% -16.9% -31.3% -28.5% -37.2% -43.7% -37.3% CH Equity 1766 HK Equity CSR Corp Ltd 188, % 7.8% 9.1% 13.4% 9.2% 7.3% 5.5% 3.1% 7.3% n.a. 54.6% -34.9% CH Equity 1072 HK Equity Dongfang Electric Corp Ltd 46, % -20.3% -19.1% -13.4% -7.8% -15.2% -22.6% -22.8% -26.4% -34.3% -44.8% -34.5% CH Equity 6199 HK Equity China CNR Corp Ltd 171,853 n.a. n.a. n.a. -4.0% -5.0% 4.3% 3.6% -1.0% -6.4% n.a. 45.9% -33.3% CH Equity 6837 HK Equity Haitong Securities Co Ltd 232, % -5.0% -5.6% 3.0% 7.9% 2.1% -0.4% -7.3% -6.3% -13.9% -32.6% -32.9% CH Equity 1336 HK Equity New China Life Insurance Co Ltd 182, % -9.8% -7.3% -5.3% -2.1% -9.2% -11.7% -12.6% -14.6% -34.6% -33.8% -32.0% CH Equity 998 HK Equity China CITIC Bank Corp Ltd 357, % -18.9% -20.9% -12.6% -9.6% -8.6% -11.9% -17.8% -15.3% -29.9% -38.1% -32.0% CH Equity 2628 HK Equity China Life Insurance Co Ltd 1,179, % 23.1% 18.7% 21.1% 21.6% 21.7% 17.3% 10.1% 7.6% -6.6% -26.4% -31.3% CH Equity 2238 HK Equity Guangzhou Automobile Group Co Ltd 58, % -7.6% -12.8% -5.4% -0.8% -14.7% -18.2% -29.1% -22.8% -31.8% -34.0% -31.3% CH Equity 525 HK Equity Guangshen Railw ay Co Ltd 36, % -3.2% -4.8% -7.7% -7.8% -7.9% -12.3% -18.6% -19.7% -27.6% -32.2% -29.4% CH Equity 874 HK Equity Guangzhou Baiyunshan Pharmaceutical Holdings Co Ltd 46, % -21.7% -24.5% -22.0% -20.2% -22.4% -19.9% -24.0% -18.0% -31.0% -31.4% -28.2% CH Equity 6030 HK Equity CITIC Securities Co Ltd 376, % 22.9% 8.5% 18.0% 23.1% 17.7% 14.7% 7.9% 3.9% 0.0% -28.0% -27.7% CH Equity 753 HK Equity Air China Ltd 109, % 7.9% 8.4% 8.0% 9.7% 7.4% 9.5% -1.5% -13.1% -23.3% -36.0% -25.1% CH Equity 2333 HK Equity Great Wall Motor Co Ltd 162, % -8.4% -16.3% -5.8% -5.2% -18.3% -19.4% -22.9% -8.6% -15.9% -14.8% -24.1% CH Equity 995 HK Equity Anhui Expressw ay Co Ltd 11, % -20.1% -19.2% -12.7% -13.2% -15.5% -17.7% -25.4% -23.4% -26.0% -32.1% -22.4% CH Equity 1988 HK Equity China Minsheng Banking Corp Ltd 379, % -15.3% -20.5% -11.1% -8.1% -2.4% -6.7% -9.2% -6.0% -9.0% -23.8% -20.2% CH Equity 2607 HK Equity Shanghai Pharmaceuticals Holding Co Ltd 52, % -3.7% -7.4% -1.8% 4.0% -10.3% -3.1% -1.1% 0.2% -6.1% -17.1% -18.6% CH Equity 3988 HK Equity Bank of China Ltd 1,448, % 5.3% 5.4% 8.4% 11.3% 7.7% 8.1% 2.2% -1.5% -8.2% -14.5% -18.5% CH Equity 386 HK Equity China Petroleum & Chemical Corp 848, % 9.7% 8.1% 14.4% 15.9% 16.3% 12.2% -0.2% -4.0% -10.7% -22.5% -17.0% CH Equity 6818 HK Equity China Everbright Bank Co Ltd 232, % -3.0% 4.1% 13.9% 13.8% 8.5% 10.9% 3.3% 0.5% -21.9% -27.0% -16.9% CH Equity 3328 HK Equity Bank of Communications Co Ltd 526, % 6.2% 4.3% 11.3% 6.7% 4.9% 4.6% 0.6% 2.5% -8.0% -13.6% -14.6% CH Equity 939 HK Equity China Construction Bank Corp 1,569, % 9.0% 8.8% 13.3% 7.7% 13.7% 13.3% 6.1% 4.6% -5.1% -22.7% -13.3% CH Equity 1088 HK Equity China Shenhua Energy Co Ltd 462, % 21.2% 21.2% 21.8% 18.6% 18.4% 18.4% 11.0% 7.0% 3.3% -8.7% -10.6% CH Equity 1288 HK Equity Agricultural Bank of China Ltd 1,354, % 11.4% 9.6% 15.3% 21.4% 18.6% 16.0% 9.5% 6.9% 1.3% -13.9% -10.3% CH Equity 2601 HK Equity China Pacific Insurance Group Co Ltd 372, % 23.9% 18.2% 26.8% 24.7% 21.5% 15.4% 12.0% 9.2% 5.5% -1.2% -8.2% CH Equity 1071 HK Equity Huadian Pow er International Corp Ltd 63, % -0.4% 7.9% 9.9% 22.5% 7.9% 17.9% 9.3% 8.8% 6.6% -23.6% -4.3% CH Equity 3968 HK Equity China Merchants Bank Co Ltd 452, % 11.2% 9.1% 18.4% 14.9% 12.4% 8.4% 2.4% 8.9% 2.3% -4.0% -3.1% CH Equity 2318 HK Equity Ping An Insurance Group Co of China Ltd 774, % 22.4% 17.2% 22.9% 21.7% 19.5% 18.7% 12.7% 8.0% 1.4% -11.0% -2.5% CH Equity 2196 HK Equity Shanghai Fosun Pharmaceutical Group Co Ltd 65, % 5.5% 14.4% 18.8% 18.8% 6.9% 9.2% 3.6% 6.5% 5.8% 4.7% -1.4% CH Equity 1398 HK Equity Industrial & Commercial Bank of China Ltd 1,971, % 10.4% 8.9% 15.2% 17.3% 16.4% 16.9% 9.1% 6.9% 1.5% -5.2% 0.1% CH Equity 168 HK Equity Tsingtao Brew ery Co Ltd 68, % 13.2% 17.8% 17.5% 22.7% 20.1% 14.2% 13.1% 10.3% 9.0% 0.5% 1.7% CH Equity 902 HK Equity Huaneng Pow er International Inc 146, % 15.3% 17.4% 20.6% 25.5% 18.4% 16.3% 10.3% 7.3% 6.5% -1.2% 6.0% CH Equity 914 HK Equity Anhui Conch Cement Co Ltd 132, % 36.3% 34.9% 35.8% 43.4% 29.9% 22.5% 15.3% 10.8% 13.3% 6.2% 7.5% CH Equity 177 HK Equity Jiangsu Expressw ay Co Ltd 44, % 25.1% 29.7% 31.3% 36.0% 23.1% 13.3% 6.0% 6.2% 8.2% 0.2% 9.2% 4

5 COMPANY / INDUSTRY NEWS STRATEGY A-H SPREAD UPDATE: A-H spread begins to narrow Analyst: Wong Chi Man, CFA (Tel: (852) ); cmwong@chinastock.com.hk Figure 4: H-share discount relative to A-share (ranked by market cap) Company name Market Cap(HK$m) 9-Apr Apr-14 5-May-14 6-Jun-14 4-Jul-14 1-Aug-14 5-Sep-14 3-Oct Nov-14 1-Dec-14 2-Jan-15 3-Feb CH Equity 857 HK Equity PetroChina Co Ltd 2,527, % -8.2% -5.9% 1.1% 4.1% 1.4% 12.0% 1.5% -12.3% -21.9% -35.6% -40.6% CH Equity 1398 HK Equity Industrial & Commercial Bank of China Ltd 1,971, % 10.4% 8.9% 15.2% 17.3% 16.4% 16.9% 9.1% 6.9% 1.5% -5.2% 0.1% CH Equity 939 HK Equity China Construction Bank Corp 1,569, % 9.0% 8.8% 13.3% 7.7% 13.7% 13.3% 6.1% 4.6% -5.1% -22.7% -13.3% CH Equity 3988 HK Equity Bank of China Ltd 1,449, % 5.3% 5.4% 8.4% 11.3% 7.7% 8.1% 2.2% -1.5% -8.2% -14.5% -18.6% CH Equity 1288 HK Equity Agricultural Bank of China Ltd 1,355, % 11.4% 9.6% 15.3% 21.4% 18.6% 16.0% 9.5% 6.9% 1.3% -13.9% -10.3% CH Equity 2628 HK Equity China Life Insurance Co Ltd 1,180, % 23.1% 18.7% 21.1% 21.6% 21.7% 17.3% 10.1% 7.6% -6.6% -26.4% -31.3% CH Equity 386 HK Equity China Petroleum & Chemical Corp 848, % 9.7% 8.1% 14.4% 15.9% 16.3% 12.2% -0.2% -4.0% -10.7% -22.5% -17.0% CH Equity 2318 HK Equity Ping An Insurance Group Co of China Ltd 774, % 22.4% 17.2% 22.9% 21.7% 19.5% 18.7% 12.7% 8.0% 1.4% -11.0% -2.6% CH Equity 3328 HK Equity Bank of Communications Co Ltd 526, % 6.2% 4.3% 11.3% 6.7% 4.9% 4.6% 0.6% 2.5% -8.0% -13.6% -14.6% CH Equity 1088 HK Equity China Shenhua Energy Co Ltd 463, % 21.2% 21.2% 21.8% 18.6% 18.4% 18.4% 11.0% 7.0% 3.3% -8.7% -10.6% CH Equity 3968 HK Equity China Merchants Bank Co Ltd 452, % 11.2% 9.1% 18.4% 14.9% 12.4% 8.4% 2.4% 8.9% 2.3% -4.0% -3.1% CH Equity 1988 HK Equity China Minsheng Banking Corp Ltd 379, % -15.3% -20.5% -11.1% -8.1% -2.4% -6.7% -9.2% -6.0% -9.0% -23.8% -20.3% CH Equity 6030 HK Equity CITIC Securities Co Ltd 376, % 22.9% 8.5% 18.0% 23.1% 17.7% 14.7% 7.9% 3.9% 0.0% -28.0% -27.7% CH Equity 2601 HK Equity China Pacific Insurance Group Co Ltd 372, % 23.9% 18.2% 26.8% 24.7% 21.5% 15.4% 12.0% 9.2% 5.5% -1.2% -8.2% CH Equity 998 HK Equity China CITIC Bank Corp Ltd 357, % -18.9% -20.9% -12.6% -9.6% -8.6% -11.9% -17.8% -15.3% -29.9% -38.1% -32.0% CH Equity 6818 HK Equity China Everbright Bank Co Ltd 232, % -3.0% 4.1% 13.9% 13.8% 8.5% 10.9% 3.3% 0.5% -21.9% -27.0% -17.0% CH Equity 6837 HK Equity Haitong Securities Co Ltd 232, % -5.0% -5.6% 3.0% 7.9% 2.1% -0.4% -7.3% -6.3% -13.9% -32.6% -33.0% CH Equity 1800 HK Equity China Communications Construction Co Ltd 200, % 12.9% 12.2% 16.0% 19.1% 15.7% 9.6% -6.6% -12.3% -18.4% -42.4% -42.8% CH Equity 390 HK Equity China Railw ay Group Ltd 196, % 14.9% 17.2% 16.2% 19.7% 14.8% 15.7% 3.6% -5.0% -13.0% -43.0% -43.6% CH Equity 1766 HK Equity CSR Corp Ltd 188, % 7.8% 9.1% 13.4% 9.2% 7.3% 5.5% 3.1% 7.3% n.a. 54.6% -34.9% Simple average 10.6% 8.1% 6.4% 12.3% 13.0% 11.4% 9.9% 2.7% 0.5% -8.0% -18.0% -21.1% CH Equity 1336 HK Equity New China Life Insurance Co Ltd 182, % -9.8% -7.3% -5.3% -2.1% -9.2% -11.7% -12.6% -14.6% -34.6% -33.8% -32.0% CH Equity 6199 HK Equity China CNR Corp Ltd 171,896 n.a. n.a. n.a. -4.0% -5.0% 4.3% 3.6% -1.0% -6.4% n.a. 45.9% -33.4% CH Equity 1186 HK Equity China Railw ay Construction Corp Ltd 171, % 20.4% 22.8% 22.9% 21.7% 16.9% 16.3% 6.7% -4.3% -20.0% -45.8% -42.3% CH Equity 2333 HK Equity Great Wall Motor Co Ltd 162, % -8.4% -16.3% -5.8% -5.2% -18.3% -19.4% -22.9% -8.6% -15.9% -14.8% -24.1% CH Equity 902 HK Equity Huaneng Pow er International Inc 146, % 15.3% 17.4% 20.6% 25.5% 18.4% 16.3% 10.3% 7.3% 6.5% -1.2% 6.0% CH Equity 2727 HK Equity Shanghai Electric Group Co Ltd 140, % -36.5% -33.3% -36.6% -34.1% -32.5% -33.1% -38.7% -39.5% -43.5% -59.7% -64.1% CH Equity 914 HK Equity Anhui Conch Cement Co Ltd 132, % 36.3% 34.9% 35.8% 43.4% 29.9% 22.5% 15.3% 10.8% 13.3% 6.2% 7.5% CH Equity 753 HK Equity Air China Ltd 109, % 7.9% 8.4% 8.0% 9.7% 7.4% 9.5% -1.5% -13.1% -23.3% -36.0% -25.1% CH Equity 2883 HK Equity China Oilfield Services Ltd 93, % -13.5% -9.7% -4.0% -12.1% -15.7% -12.1% -18.4% -30.0% -41.3% -46.8% -44.3% CH Equity 1033 HK Equity Sinopec Yizheng Chemical Fibre Co Ltd 89, % -47.1% -43.1% -48.7% n.a. n.a. n.a % -37.3% -41.1% -65.9% -67.9% CH Equity 991 HK Equity Datang International Pow er Generation Co Ltd 88, % -30.2% -34.7% -28.5% -31.9% -20.5% -9.6% -23.7% -20.2% -26.6% -50.5% -45.1% CH Equity 1618 HK Equity Metallurgical Corp of China Ltd 88, % -28.5% -27.7% -28.9% -26.9% -27.3% -23.2% -33.4% -30.9% -42.6% -57.0% -53.2% CH Equity 1898 HK Equity China Coal Energy Co Ltd 88, % -16.7% -17.5% -13.5% -17.8% -13.7% -13.6% -21.5% -21.2% -31.8% -43.0% -46.0% CH Equity 2899 HK Equity Zijin Mining Group Co Ltd 85, % -34.4% -32.1% -37.6% -34.8% -32.9% -31.2% -40.4% -34.6% -43.6% -47.7% -45.8% CH Equity 2600 HK Equity Aluminum Corp of China Ltd 75, % -26.6% -25.5% -23.7% -26.2% -22.1% -23.3% -34.6% -30.0% -41.3% -54.7% -46.5% CH Equity 1919 HK Equity China COSCO Holdings Co Ltd 69, % -21.9% -18.6% -17.2% -18.4% -18.1% -21.7% -37.1% -35.0% -46.4% -56.7% -50.7% CH Equity 670 HK Equity China Eastern Airlines Corp Ltd 69, % -13.9% -20.4% -16.6% -14.9% -20.3% -22.8% -34.4% -38.1% -46.8% -42.8% -41.2% CH Equity 168 HK Equity Tsingtao Brew ery Co Ltd 68, % 13.2% 17.8% 17.5% 22.7% 20.1% 14.2% 13.1% 10.3% 9.0% 0.5% 1.7% CH Equity 2196 HK Equity Shanghai Fosun Pharmaceutical Group Co Ltd 65, % 5.5% 14.4% 18.8% 18.8% 6.9% 9.2% 3.6% 6.5% 5.8% 4.7% -1.4% CH Equity 358 HK Equity Jiangxi Copper Co Ltd 63, % -14.6% -16.1% -13.3% -16.5% -13.4% -20.0% -27.6% -23.1% -32.6% -42.0% -42.8% Simple average -11.3% -10.7% -9.8% -8.0% -5.5% -7.4% -7.9% -16.7% -17.6% -26.1% -32.1% -34.5% CH Equity 1071 HK Equity Huadian Pow er International Corp Ltd 63, % -0.4% 7.9% 9.9% 22.5% 7.9% 17.9% 9.3% 8.8% 6.6% -23.6% -4.3% CH Equity 1171 HK Equity Yanzhou Coal Mining Co Ltd 62, % -21.3% -22.8% -25.4% -32.0% -31.3% -35.0% -42.8% -40.7% -55.0% -59.3% -63.6% CH Equity 2238 HK Equity Guangzhou Automobile Group Co Ltd 59, % -7.6% -12.8% -5.4% -0.8% -14.7% -18.2% -29.1% -22.8% -31.8% -34.0% -31.3% CH Equity 3993 HK Equity China Molybdenum Co Ltd 58, % -49.4% -50.4% -53.2% -50.2% -45.0% -43.9% -48.8% -41.9% -58.9% -57.5% -64.7% CH Equity 1055 HK Equity China Southern Airlines Co Ltd 53, % -20.5% -22.8% -21.1% -17.6% -13.8% -16.9% -31.3% -28.5% -37.2% -43.7% -37.3% CH Equity 2607 HK Equity Shanghai Pharmaceuticals Holding Co Ltd 52, % -3.7% -7.4% -1.8% 4.0% -10.3% -3.1% -1.1% 0.2% -6.1% -17.1% -18.6% CH Equity 2866 HK Equity China Shipping Container Lines Co Ltd 51, % -30.2% -32.3% -27.1% -28.7% -29.4% -38.6% -48.8% -41.0% -50.5% -59.5% -56.5% CH Equity 2009 HK Equity BBMG Corp 50, % -22.2% -27.9% -23.3% -23.1% -27.1% -27.9% -36.4% -30.4% -44.0% -45.1% -42.5% CH Equity 874 HK Equity Guangzhou Baiyunshan Pharmaceutical Holdings Co Ltd 46, % -21.7% -24.5% -22.0% -20.2% -22.4% -19.9% -24.0% -18.0% -31.0% -31.4% -28.3% CH Equity 1072 HK Equity Dongfang Electric Corp Ltd 46, % -20.3% -19.1% -13.4% -7.8% -15.2% -22.6% -22.8% -26.4% -34.3% -44.8% -34.5% CH Equity 338 HK Equity Sinopec Shanghai Petrochemical Co Ltd 45, % -48.1% -49.9% -49.7% -44.5% -43.2% -41.4% -47.5% -42.4% -53.5% -57.1% -55.5% CH Equity 177 HK Equity Jiangsu Expressw ay Co Ltd 44, % 25.1% 29.7% 31.3% 36.0% 23.1% 13.3% 6.0% 6.2% 8.2% 0.2% 9.2% CH Equity 525 HK Equity Guangshen Railw ay Co Ltd 36, % -3.2% -4.8% -7.7% -7.8% -7.9% -12.3% -18.6% -19.7% -27.6% -32.2% -29.4% CH Equity 317 HK Equity Guangzhou Shipyard International Co Ltd 36, % -35.8% n.a. n.a. n.a. n.a. n.a. n.a % -39.8% -49.0% -53.4% CH Equity 323 HK Equity Maanshan Iron & Steel Co Ltd 28, % -10.8% -15.8% -14.7% -13.4% -15.5% -20.4% -32.9% -36.7% -47.7% -54.1% -51.6% CH Equity 1138 HK Equity China Shipping Development Co Ltd 28, % -9.1% -15.0% -8.7% -9.7% -7.1% -18.4% -32.6% -32.7% -44.9% -50.7% -44.0% CH Equity 2880 HK Equity Dalian Port PDA Co Ltd 24, % -34.5% -45.3% -41.7% -47.1% -39.3% -35.9% -44.6% -38.2% -53.3% -54.5% -59.1% CH Equity 548 HK Equity Shenzhen Expressw ay Co Ltd 18, % -20.3% -19.8% -12.3% -8.4% -9.0% -14.9% -23.6% -21.5% -36.2% -49.5% -40.3% CH Equity 1065 HK Equity Tianjin Capital Environmental Protection Group Co Ltd 16, % -53.5% -57.6% -55.5% -49.2% -47.4% -44.9% -48.2% -39.2% -54.2% -62.4% -61.0% CH Equity 107 HK Equity Sichuan Expressw ay Co Ltd 15, % -31.9% -34.2% -31.4% -27.0% -26.5% -25.2% -30.7% -28.3% -41.7% -50.1% -46.6% CH Equity 588 HK Equity Beijing North Star Co Ltd 15, % -42.1% -43.9% -44.6% -38.3% -36.5% -35.7% -43.2% -39.8% -50.2% -55.0% -53.9% CH Equity 1053 HK Equity Chongqing Iron & Steel Co Ltd 15, % -58.6% -62.0% -60.0% -53.2% -44.9% -44.7% -53.9% -43.9% -57.5% -58.2% -60.0% CH Equity 564 HK Equity Zhengzhou Coal Mining Machinery Group Co Ltd 13, % -35.5% -34.2% -24.6% -23.8% -28.1% -28.1% -38.4% -34.1% -43.0% -49.3% -51.3% CH Equity 38 HK Equity First Tractor Co Ltd 11, % -48.7% -51.4% -49.1% -45.9% -45.2% -47.7% -55.7% -42.1% -60.7% -64.5% -67.8% CH Equity 553 HK Equity Nanjing Panda Electronics Co Ltd 11, % -60.7% -60.7% n.a. n.a % -47.3% -44.9% -40.2% -53.6% -55.6% -60.8% CH Equity 995 HK Equity Anhui Expressw ay Co Ltd 11, % -20.1% -19.2% -12.7% -13.2% -15.5% -17.7% -25.4% -23.4% -26.0% -32.1% -22.5% CH Equity 300 HK Equity Shenji Group Kunming Machine Tool Co Ltd 3, % -55.0% -61.3% -58.3% -49.9% -45.1% -48.3% -44.1% -39.3% -60.1% -65.0% -65.9% CH Equity 1108 HK Equity Luoyang Glass Co Ltd 3, % -71.1% -70.6% -71.0% -57.9% n.a. n.a. n.a. n.a. n.a. n.a % CH Equity 187 HK Equity Beijing Jingcheng Machinery Electric Co Ltd 3, % -56.8% -64.4% -57.3% -51.7% -47.3% -50.9% -49.3% -45.4% -59.9% -66.3% -65.2% Simple average -33.7% -29.9% -31.9% -27.8% -24.4% -25.4% -27.0% -33.5% -29.7% -40.9% -47.2% -46.0% Note 1: Negative figures mean H-share is cheaper than A-share. 5

6 COMPANY / INDUSTRY NEWS STRATEGY A-H SPREAD UPDATE: A-H spread begins to narrow Analyst: Wong Chi Man, CFA (Tel: (852) ); cmwong@chinastock.com.hk Figure 5: H-share discount relative to A-share (by sectors) A-share dividend H-share dividend A-share PER (x) H-share PER (x) A-share PBR (x)h-share PBR (x) Company name Market cap (HK$m) yield (%) yield (%) H-share discount 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2014E 5-Jan-15 3-Feb-15 Difference Banks CH Equity 1398 HK Equity Industrial & Commercial Bank of China Ltd 1,971, % 0.1% 8.1% CH Equity 939 HK Equity China Construction Bank Corp 1,569, % -13.3% 11.1% CH Equity 1288 HK Equity Agricultural Bank of China Ltd 1,355, % -10.3% 6.6% CH Equity 3988 HK Equity Bank of China Ltd 1,449, % -18.6% 0.9% CH Equity 3328 HK Equity Bank of Communications Co Ltd 526, % -14.6% 3.7% CH Equity 3968 HK Equity China Merchants Bank Co Ltd 452, % -3.1% 3.6% CH Equity 1988 HK Equity China Minsheng Banking Corp Ltd 379, % -20.3% 2.5% CH Equity 998 HK Equity China CITIC Bank Corp Ltd 357, % -32.0% 6.8% CH Equity 6818 HK Equity China Everbright Bank Co Ltd 232, % -17.0% 10.2% Simple average % -14.3% 6.0% Insurance CH Equity 2628 HK Equity China Life Insurance Co Ltd 1,180, % -31.3% -3.3% CH Equity 2318 HK Equity Ping An Insurance Group Co of China Ltd 774, % -2.6% 10.8% CH Equity 2601 HK Equity China Pacific Insurance Group Co Ltd 372, % -8.2% -2.6% CH Equity 1336 HK Equity New China Life Insurance Co Ltd 182, % -32.0% 1.0% Simple average % -18.5% 1.5% Energy CH Equity 857 HK Equity PetroChina Co Ltd 2,527, % -40.6% 0.4% CH Equity 386 HK Equity China Petroleum & Chemical Corp 848, % -17.0% 11.5% CH Equity 1088 HK Equity China Shenhua Energy Co Ltd 463, % -10.6% 5.1% CH Equity 1898 HK Equity China Coal Energy Co Ltd 88, % -46.0% 0.8% CH Equity 1171 HK Equity Yanzhou Coal Mining Co Ltd 62, % -63.6% -2.4% Simple average % -35.6% 3.1% Securities CH Equity 6030 HK Equity CITIC Securities Co Ltd 376, % -27.7% 3.7% CH Equity 6837 HK Equity Haitong Securities Co Ltd 232, % -33.0% 0.9% Simple average % -30.3% 2.3% Railw ay CH Equity 1800 HK Equity China Communications Construction Co Ltd 200, % -42.8% -1.1% CH Equity 390 HK Equity China Railw ay Group Ltd 196, % -43.6% -0.5% CH Equity 1186 HK Equity China Railw ay Construction Corp Ltd 171, % -42.3% 3.5% CH Equity 1766 HK Equity CSR Corp Ltd 188, % -34.9% -68.4% CH Equity 6199 HK Equity China CNR Corp Ltd 171, % -33.4% -63.2% Simple average % -39.4% -25.9% IPPs CH Equity 902 HK Equity Huaneng Pow er International Inc 146, % 6.0% 15.5% CH Equity 991 HK Equity Datang International Pow er Generation Co Ltd 88, % -45.1% 7.2% CH Equity 1071 HK Equity Huadian Pow er International Corp Ltd 63, % -4.3% 24.8% Simple average % -14.5% 15.8% Auto CH Equity 2333 HK Equity Great Wall Motor Co Ltd 162, % -24.1% -3.3% CH Equity 2238 HK Equity Guangzhou Automobile Group Co Ltd 59, % -31.3% 4.7% Simple average % -27.7% 0.7% Cyclicals CH Equity 914 HK Equity Anhui Conch Cement Co Ltd 132, % 7.5% 4.6% CH Equity 2600 HK Equity Aluminum Corp of China Ltd 75,629 n.a. n.a. n.a. n.a % -46.5% 5.8% CH Equity 2899 HK Equity Zijin Mining Group Co Ltd 85, % -45.8% 3.9% CH Equity 358 HK Equity Jiangxi Copper Co Ltd 63, % -42.8% 2.1% CH Equity 2009 HK Equity BBMG Corp 50, % -42.5% 1.1% CH Equity 3993 HK Equity China Molybdenum Co Ltd 58, % -64.7% -5.4% CH Equity 323 HK Equity Maanshan Iron & Steel Co Ltd 28, % -51.6% 2.2% CH Equity 1053 HK Equity Chongqing Iron & Steel Co Ltd 15,649 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a % -60.0% -1.1% CH Equity 1108 HK Equity Luoyang Glass Co Ltd 3,816 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a % -73.6% -11.1% Simple average % -46.7% 0.2% Machinery and equipment CH Equity 2727 HK Equity Shanghai Electric Group Co Ltd 140, % -64.1% -3.1% CH Equity 1072 HK Equity Dongfang Electric Corp Ltd 46, % -34.5% 10.1% CH Equity 564 HK Equity Zhengzhou Coal Mining Machinery Group Co Ltd 13, % -51.3% -1.6% CH Equity 38 HK Equity First Tractor Co Ltd 11, % -67.8% -5.0% CH Equity 300 HK Equity Shenji Group Kunming Machine Tool Co Ltd 3,986 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a % -65.9% -2.0% CH Equity 187 HK Equity Beijing Jingcheng Machinery Electric Co Ltd 3,175 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a % -65.2% -1.3% Simple average % -58.1% -0.5% Transportation CH Equity 753 HK Equity Air China Ltd 109, % -25.1% 14.9% CH Equity 670 HK Equity China Eastern Airlines Corp Ltd 69, % -41.2% 3.5% CH Equity 1055 HK Equity China Southern Airlines Co Ltd 53, % -37.3% 6.9% CH Equity 177 HK Equity Jiangsu Expressw ay Co Ltd 44, % 9.2% 9.4% CH Equity 525 HK Equity Guangshen Railw ay Co Ltd 36, % -29.4% 3.5% CH Equity 2880 HK Equity Dalian Port PDA Co Ltd 24,712 n.a. n.a n.a. n.a n.a % -59.1% -5.4% CH Equity 548 HK Equity Shenzhen Expressw ay Co Ltd 18, % -40.3% 9.3% CH Equity 107 HK Equity Sichuan Expressw ay Co Ltd 15, n.a. n.a % -46.6% 3.6% CH Equity 995 HK Equity Anhui Expressw ay Co Ltd 11,319 n.a. n.a n.a. n.a n.a % -22.5% 11.0% Simple average % -32.5% 6.3% Shipping CH Equity 1919 HK Equity China COSCO Holdings Co Ltd 69,342 n.a n.a % -50.7% 6.0% CH Equity 2866 HK Equity China Shipping Container Lines Co Ltd 51, % -56.5% 4.3% CH Equity 317 HK Equity Guangzhou Shipyard International Co Ltd 36, n.a. n.a n.a % -53.4% -5.6% CH Equity 1138 HK Equity China Shipping Development Co Ltd 28, % -44.0% 10.4% Simple average % -51.1% 3.8% Pharmaceuticals CH Equity 2196 HK Equity Shanghai Fosun Pharmaceutical Group Co Ltd 65, % -1.4% -2.6% CH Equity 2607 HK Equity Shanghai Pharmaceuticals Holding Co Ltd 52, % -18.6% 1.2% CH Equity 874 HK Equity Guangzhou Baiyunshan Pharmaceutical Holdings Co Ltd 46, n.a % n.a. Simple average % -16.1% -6.8% Others CH Equity 1618 HK Equity Metallurgical Corp of China Ltd 88, % -53.2% 4.2% CH Equity 2883 HK Equity China Oilfield Services Ltd 93, % -44.3% 5.1% CH Equity 1033 HK Equity Sinopec Yizheng Chemical Fibre Co Ltd 89, % -67.9% -3.7% CH Equity 168 HK Equity Tsingtao Brew ery Co Ltd 68, % 1.7% 5.6% CH Equity 338 HK Equity Sinopec Shanghai Petrochemical Co Ltd 45,236 n.a % -55.5% 3.8% CH Equity 588 HK Equity Beijing North Star Co Ltd 15, % -53.9% 2.2% CH Equity 1065 HK Equity Tianjin Capital Environmental Protection Group Co Ltd 16, % -61.0% 0.5% CH Equity 553 HK Equity Nanjing Panda Electronics Co Ltd 11,365 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a % -60.8% -8.2% Simple average % -49.4% 1.2% Note 1: Negative figures mean H-share is cheaper than A-share. 6

7 February 4, 2015 China Oilfield Services Limited - H [2883.HK] CNOOC s aggressive capex cut suggests further downside risk to COSL; Reiterate SELL What s new? CNOOC yesterday announced a 26%-35% YoY (year-on-year) capex reduction in 2015, more aggressive than our expectation. We believe this will exert further pressure on COSL on both drill rigs day rate and job volume, which reaffirms our negative stance on COSL s outlook in the foreseeable future. Our 2015E earnings estimate of RMB5.58bn is 19% below consensus and we expect substantial earnings downgrade in the near term. We maintain our SELL rating with target price of HK11.80 (unchanged 8x 2015E PER). CNOOC slashed total capex by 26-35% YoY to RMB70bn-80bn in Exploration capex will be down 29-38% YoY to RMB14.7bn-16.8bn; Development capex will be reduced by 23-33% YoY to RMB46.9bn-53.6bn while production capex down 41-48% YoY to RMB7bn-8bn. COSL s revenue highly relies on CNOOC s capex. Around 60% of COSL s revenue came from CNOOC over the past few years. Given that CNOOC s capex in offshore China will be reduced by 29-38% YoY in 2015, this will directly hit COSL s domestic job volume in 2015E. Besides, we expect the drill rigs day rate will be under pressure given the soft market rate and CNOOC s stringent cost control. We have already expected ~15% YoY decline in drill rig day rate for 2015E. Analyst meeting today. COSL will hold a presentation today at 10:00 a.m. (Venue: Ballroom C, Level 5, Island Shangri-la Hong Kong). Upside risks: (1) sharp rebound in crude oil price; (2) recovery of work volume and day rates. Key Financials (RMB m) E 2015E 2016E Revenue 22,279 27,527 31,380 29,701 30,206 Change (YoY) 20% 24% 14% -5% 2% EBIT 5,619 7,648 8,256 6,572 6,444 Change (YoY) 13% 36% 8% -20% -2% Core net profit 4,463 6,716 6,741 5,579 5,555 Change (YoY) 13% 50% 0% -17% 0% Core EPS (RMB) Change (YoY) 13% 50% -5% -17% 0% ROE 6% 9% 8% 6% 6% Net debt/equity 61% 55% 34% 30% 24% PER (core earnings) (x) Dividend yield 2.9% 4.4% 4.1% 3.4% 3.4% PBR (x) EV/EBITDA (x) Sources: Company, CGIHK Research estimates Oilfield Services Sector Wayne Fung, CFA Analyst (852) waynefung@chinastock.com.hk Harry He Research Assistant Wong Chi Man Head of Research (852) SELL (Unchanged) Close: HK$ (Feb 3, 2015) Target Price: HK$11.80 (-10%) Share Price Performance Market Cap Shares Outstanding Auditor cmwong@chinastock.com.hk US$12,087m 4,771.6m Deloitte Free Float 33% 52W range 3M average daily T/O Major Shareholding HK$ US$23m CNOOC Group (50.5%) 7

8 Figure 1: CNOOC s capex Sources: Company, CGIHK Research 8

9 Figure 2: Key assumptions for COSL Key operating assumptions E 2015E 2016E Revenue from drilling (RMB m) 5,920 9,892 9,327 9,515 11,252 14,665 16,501 14,427 14,555 Change (YoY) 51.0% 67.1% -5.7% 2.0% 18.3% 30.3% 12.5% -12.6% 0.9% Drilling EBIT 2,118 2,748 3,505 3,430 3,714 5,765 5,805 4,141 4,046 EBIT margin 35.8% 27.8% 37.6% 36.0% 33.0% 39.3% 35.2% 28.7% 27.8% No. of Jack up rigs Average Jack up day rate (US$) 116, , , , , , , ,065 96,119 Change (YoY) 48.1% 3.4% -5.8% -5.3% 0.9% 8.3% 2.6% -14.9% -5.8% No. of operating days of Jack ups 4,556 7,089 7,933 8,692 9,244 9,654 10,253 10,976 11,498 Change (YoY) 7.8% 55.6% 11.9% 9.6% 6.4% 4.4% 6.2% 7.1% 4.7% Jack ups Calendar Day Utilization Rate 91.1% 94.7% 94.9% 93.4% 93.5% 95.8% 91.0% 90.0% 90.0% No. of Semi-sub rigs Average Semi-sub day rate (US$) 179, , , , , , , , ,750 Change (YoY) 25.8% 5.0% 3.2% 34.5% 14.2% 8.4% 0.0% -15.0% -3.2% No. of operating days of Semi-subs 1,098 1,066 1,003 1,178 1,712 3,033 3,631 3,648 3,904 Change (YoY) 1.7% -2.9% -5.9% 17.4% 45.3% 77.2% 19.7% 0.5% 7.0% Semi-subs Calendar Day Utilization Rate 100.0% 97.4% 91.6% 95.5% 91.6% 95.0% 99.0% 95.0% 95.0% Revenue from well services (RMB m) 2,733 4,417 4,327 3,950 4,858 6,475 8,387 8,806 8,983 Change (YoY) 20.4% 61.6% -2.0% -8.7% 23.0% 33.3% 29.5% 5.0% 2.0% Well services EBIT ,426 1,365 1,302 EBIT margin 17.2% 16.8% 18.8% 11.4% 11.6% 10.7% 17.0% 15.5% 14.5% Revenue from MS&T (RMB m) 1,614 2,171 2,346 2,534 2,945 3,251 3,489 3,628 3,799 Change (YoY) 17.5% 34.5% 8.0% 8.0% 16.2% 10.4% 7.3% 4.0% 4.7% MS&T EBIT EBIT margin 30.4% 30.1% 23.1% 20.5% 18.6% 14.3% 9.4% 13.0% 13.0% No. of total vessels No. of operating days of self-owned vessels 23,626 27,702 26,769 25,650 24,195 23,916 25,185 26,864 29,215 Self-owned Vessels Calendar Day Utilization rate 94.8% 93.4% 94.7% 94.6% 91.7% 93.9% 92.0% 92.0% 92.0% Revenue from geophysical (RMB m) 1,877 1,399 1,561 2,427 3,050 2,973 2,847 2,692 2,719 Change (YoY) 30.1% -25.5% 11.6% 55.5% 25.7% -2.5% -4.2% -5.5% 1.0% Geophysical EBIT EBIT margin 29.3% 23.1% 21.7% 24.2% 26.1% 24.4% 24.5% 22.1% 22.1% No. of seismic vessels owned No. of integrated marine surveying vessels No. of undersea cable teams n.a n.a n.a n.a n.a Revenue from surveying (RMB m) Revenue from seismic (RMB m) 1,611 1,097 1,251 2,004 2,443 2,431 2,316 2,187 2,240 2D Collection (km) 49,448 33,900 24,469 27,808 17,894 25,976 21,560 20,482 20,892 2D Processing (km) 23,402 22,588 14,846 22,132 23,600 23,656 15,376 14,608 15,338 3D Collection (km 2 ) 13,592 10,394 13,008 23,174 29,498 24,675 24,182 22,972 23,432 3D Processing (km 2 ) 8,382 7,951 7,983 9,972 16,000 24,397 25,122 23,866 24,343 Sources: Company, CGIHK Research 9

10 Figure 3: Earnings projection (RMB m) FY2012 FY2013 FY2014E FY2015E FY2016E (RMB m) FY2012 FY2013 FY2014E FY2015E FY2016E Income Statement (Y/E Dec) Cash Flow Statement (Y/E Dec) Revenue 22,279 27,527 31,380 29,701 30,206 Pretax profit 5,437 7,520 8,179 6,620 6,671 Drilling 11,252 14,665 16,501 14,427 14,555 Depreciation & Amortization 3,173 3,311 3,644 3,908 4,057 Well services 4,858 6,475 8,387 8,806 8,983 Share of profits of jointly-controlled entities (243) (297) (365) (468) (600) Marine support and transportation 2,945 3,251 3,489 3,628 3,799 Interest expenses Geophysical 3,050 2,973 2,847 2,692 2,719 Change in w orking capital 599 (1,187) Other revenue Interest income (127) (125) (156) (148) (150) Total operating expense (16,660) (19,879) (23,124) (23,129) (23,763) Income tax paid (791) (1,337) (1,022) (1,026) (1,101) EBIT 5,619 7,648 8,256 6,572 6,444 Others 174 (52) Drilling 3,714 5,765 5,805 4,141 4,046 Operating cash flow 8,727 8,463 10,983 9,806 9,500 Well services ,426 1,365 1,302 Marine support and transportation Purchase/(disposal) of PP&E,net (3,638) (7,646) (8,457) (6,948) (5,442) Geophysical Acqusition of subsidiaries D&A 3,173 3,311 3,597 3,860 4,007 Investment in associates/jce EBITDA 8,792 10,959 11,853 10,432 10,451 Dividend received from associates/jce Exchange loss, net (42) (6) Interest received Finance costs (513) (638) (598) (568) (523) Others (5,050) 2, Interest income Investing cash flow (8,403) (4,785) (8,137) (6,589) (5,021) Investment income Share of profits of joint ventures, net of tax Proceed from /(repayment of) borrow ings 5,299 (1,636) (1,714) (2,000) (4,029) Pretax Profit 5,437 7,520 8,179 6,620 6,671 Proceed from equity 0 0 4, Income tax expenses (867) (793) (1,022) (1,026) (1,101) Dividend paid (811) (1,394) (2,052) (2,022) (1,674) After tax profit 4,570 6,726 7,156 5,594 5,570 Others (555) (663) (598) (568) (523) Minority interests Financing cash flow 3,933 (3,693) 268 (4,590) (6,226) Net Profit 4,559 6,716 7,141 5,579 5,555 Recurring net profit 4,463 6,716 6,741 5,579 5,555 Net change in cash 4,256 (16) 3,114 (1,374) (1,747) EPS (RMB) FY2012 FY2013 FY2014E FY2015E FY2016E Reported Valuation Recurring PER (recurring earnings) (x) DPS (RMB) Dividend yield 2.9% 4.4% 4.1% 3.4% 3.4% PBR (x) (RMB m) FY2012 FY2013 FY2014E FY2015E FY2016E EV/EBITDA (x) Balance Sheet (RMB m) Growth rate NON-CURRENT ASSETS Revenue 20.2% 23.6% 14.0% (5.4%) 1.7% Property, plant and equipment 47,076 51,292 56,092 59,121 60,495 EBIT 12.8% 36.1% 7.9% (20.4%) (2.0%) Goodw ill 4,235 4,108 4,108 4,108 4,108 EBITDA 9.2% 24.6% 8.2% (12.0%) 0.2% Other intangible assets Recurring net profit 12.6% 50.5% 0.4% (17.2%) (0.4%) Investments in joint ventures ,168 1,499 Deferred Tax Assets, LT Operating ratios Other non-current assets 235 1,160 1,160 1,160 1,160 EBIT margin 25.4% 28.0% 26.4% 22.2% 21.4% Total non-current assets 52,425 57,672 62,686 65,983 67,699 EBITDA margin 39.8% 40.0% 38.0% 35.3% 34.8% Recurring net margin 20.2% 24.5% 21.6% 18.9% 18.5% CURRENT ASSETS Asset Turnover Inventory 949 1,052 1,269 1,253 1,284 Adjusted ROE 14.7% 19.3% 16.0% 11.4% 10.6% Notes Receivable 620 1,513 1,780 1,744 1,833 Adjusted ROA 6.4% 8.7% 8.0% 6.2% 6.1% Accounts Receivable 4,145 5,873 6,713 6,354 6,462 Interest coverage Prepayments, deposits and other receivable Net debt / equity 60.9% 55.4% 33.7% 30.0% 23.7% Cash and equivalents 9,815 9,601 12,714 11,341 9,593 Current Ratio Other Current Assets 6,044 3,125 3,125 3,125 3,125 Quick Ratio Total Current Assets 22,223 21,591 26,320 24,496 22,990 Days inventories Days receivables Total assets 74,649 79,262 89,006 90,479 90,688 Days payables NON-CURRENT LIABILITIES Long term borrow ings 31,710 27,027 24,537 22,537 20,537 Deferred tax liabilities 1,688 1,129 1,129 1,129 1,129 Deferred revenue 1,122 1,266 1,561 1,478 1,503 Other non-current liabilities Total Non-Current Liabilities 34,521 29,458 27,264 25,180 23,206 CURRENT LIABILITIES Short term borrow ings 1,660 3,804 4,580 4,580 2,551 Trade payables 5,022 7,159 8,494 8,382 8,594 Other payables 914 1,210 1,301 1,398 1,503 Current income tax liabilities Other Current Liabilities Total current liabilities 7,923 12,544 14,746 14,732 13,019 EQUITY Share capital 4,495 4,495 4,772 4,772 4,772 Reserves 27,699 32,743 42,187 45,744 49,625 MI Total equity 32,205 37,260 46,996 50,567 54,464 Toal equity and liabilities 74,649 79,262 89,006 90,479 90,688 BVPS (RMB) Sources: Company, CGIHK Research 10