Yum Cha 飲茶. October 27, 2017 RESEARCH NOTES SNIPPETS. INDICES Closing DoD%

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1 Yum Cha 飲茶 RESEARCH NOTES October 27, 2017 INDICES Closing DoD% Hang Seng Index (0.4) HSCEI (0.4) Shanghai COMP Shenzhen COMP Gold (0.8) BDIY (0.9) Crude Oil, WTI(US$/BBL) Crude Oil, BRENT(US$/BBL) HIBOR, 3-M SHIBOR, 3-M RMB/USD DATA RELEASES DUE THIS WEEK October 26 Industrial Profits YoY Source: Bloomberg AVIC INTERNATIONAL HOLDINGS [0161.HK; HK$5.40; NOT RATED] - SOE reform progress continues to accelerate, with the latest examples like the CNBM-SINOMA merger at the listco level and business streamlining of the listcos of COFCO Group. We believe investors should also pay attention to AVIC International Holdings (AVIC IHL; 0161.HK)). With a conglomerate structure, including business segments such as electronics, consumer products, trading/logistics and property development, the Company has begun to dispose some of its property business. In addition, the upcoming A-share IPO of Shennan Circuits should be a key event to unlock the value of the Company. We estimate that the attributable fair value of Shennan Circuits is about HK$10.9bn. The total attributable value of AVIC IHL s listed assets, including Shennan Circuits, will reach HK$23.7bn. Yet AVIC IHL s fully diluted market cap is only HK$10.6bn. SHENHEN EXPRESSWAY [0548.HK; HK$8.11; BUY] - SZE released solid Q earnings, in line with our expectations. During the quarter, revenue was up 13.04% YoY to RMB1.26bn, thanks to improved traffic volume on most toll roads. With the help of its newly introduced environmental business, EPS for the quarter grew even faster at 41.5% YoY to RMB We feel more confident that SZE will achieve EPS growth of >25% in 2017E, delivering solid earnings momentum. Other positive news from the Q3 earnings report is that Vanke will be responsible for the construction management of the Meilin Checkpoint Project. However, without further details on the stake disposal, the value of the Project is yet to be clarified. After considering the recent operating performance, our earnings forecast for 2017E remains unchanged at RMB0.68, while we slightly lift EPS for 2018E and 2019E by 2.7% and 2.5% to RMB0.76 and RMB0.82, respectively. We raise our target price slightly to HK$9.28, accordingly. Maintain BUY. Details regarding the stake disposal to be announced later may enable us to revisit our estimates for the Meilin Checkpoint project and raise our target price further. CIFI [0884.HK; HK$4.40; NOT RATED] - CIFI management attended our NDR hosted in Taiwan and shared its cautiously optimistic view of the China property market in the near term. While the work report in the19th Party Congress continued to discourage speculation in the property market, no other surprises or additional tightening measures were mentioned. The Company expects policy to remain tight for a while, but there may be relaxation in selective Tier 2 cities in The current market environment is supportive to national developers like CIFI, and management is confident that the Company will exceed this year s sales target of RMB80bn and expand its market share. CIFI s consistent execution of its development strategy should help the Company maintain its growth momentum. EPS growth in 2016 was more than 30%. The Company is also aiming for RMB300bn in contracted sales in 2021, implying a CAGR of 41.4% between 2016 and SNIPPETS Wynn Macau (1128.HK, HK$19.90; SELL) has just reported its unaudited IFRS results for Q Net revenues from Wynn Macau were US$597.4m for Q3 2017, a 15.3% increase from US$518.1m a year ago. Adjusted Property EBITDA from Wynn Macau was US$183.2m for Q3 2017, up 21.3% YoY. Net profit was US$90.0m, compared to a loss of US$8.6m a year ago. We will have more information later on. 1

2 COMPANY NEWS AVIC INTERNATIONAL HOLDINGS [0161.HK; HK$5.40; NOT RATED] - VALUE OF LISTED ASSETS = 222% OF MARKET CAP Analyst: Wong Chi Man, CFA (cmwong@chinastock.com.hk; Tel: ) Summary. SOE reform progress continues to accelerate, with the latest examples like the CNBM-SINOMA merger at the listco level and business streamlining of the listcos of COFCO Group. We believe investors should also pay attention to AVIC International Holdings (AVIC IHL; 0161.HK)). With a conglomerate structure, including business segments such as electronics, consumer products, trading/logistics and property development, the Company has begun to dispose some of its property business. In addition, the upcoming A-share IPO of Shennan Circuits should be a key event to unlock the value of the Company. We estimate that the attributable fair value of Shennan Circuits is about HK$10.9bn. The total attributable value of AVIC IHL s listed assets, including Shennan Circuits, will reach HK$23.7bn. Yet AVIC IHL s fully diluted market cap is only HK$10.6bn. Company background. AVIC International Holdings is an SOE, in which AVIC International Holdings Corporation has a 71.43% stake. The Company has a long listing history, as it was listed on the main board in It has four major lines of business: electronics, consumer products, trading/logistics and property development. Operations streamlining to be more focused. As AVIC IHL has four major business segments without much synergy, it has begun to dispose of some of its property assets. The Company is planning to sell its 47.12% stake in AVIC International Vanke. The minimum bid is RMB1.8bn. The bidding process is expected to be completed by mid- December. The Company also intends to sell its 75% stake in Guangdong International, with a base bid of RMB297m. With net debt of RMB12.3bn, these proposed disposals will strengthen the Company s balance sheet and allow the Company s resource allocation to be more focused. Potential to see more asset disposals. As shown in the organization chart (Figure 1), the Company still has other property businesses, which may be sold in the future, allowing it to further strengthen its financial position. Electronics: the most important part of its business. In 2016, its electronics business accounted for 67.6% of the Company s after-tax profit. The profit was contributed by two business arms: (i) Tianma Microelectronics ( CH; 20.81%-owned): it focuses on the display business, with products including small-to-medium size flat panel displays (FPD) and display modules. Its AMOLED products are already in mass production; (ii) Shennan Circuits: it is engaged mainly in producing PCB products, comprising the R&D, manufacture and sales of middle to high-end multi-layer PCB products and packaging substrate. Its top three customers in 1H17 were Huawei (24.55% of total revenue), ZTE (5.76%) and Samsung (3.76%). IPO of Shennan Circuits to be the key catalyst in the near term. Shennan Circuits received approval to be listed on the Shenzhen Stock Exchange early this week. We expect the A-share IPO to be launched later this year. Currently, PCB companies are trading at an average of 26.5x 2017E PER in the A-share market (Figure 2). In 1H17, Shennan Circuits recorded a net profit of RMB252m. If we assume full-year net profit of about RMB500m, the attributable market cap (69.7% stake post- IPO) of AVIC IHL would be about HK$10.9bn after the listing, based on 26.5x 2017E PER, equivalent to 102% of AVIC IHL s fully diluted market cap. Other businesses. The consumer product business is mainly the middle to high-end watch business Fiyta ( CH; 37.15%- (HK$) Market Cap: US$814m; Free Float: 28.6% Source: Bloomberg consensus, Company Data October 26, 2017 AVIC INTERNATIONAL HOLDINGS (HK$ million) Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Turnover (RHS) Price (LHS) RMB (Y/E Dec) Revenue (m) 37,262 33,960 34,351 33,008 COGS (m) (32,256) (28,341) (28,627) (27,321) Gross profit (m) 5,006 5,619 5,724 5,687 Gross margin (%) EBIT (m) 2,013 1,650 1, Net profit (m) 1, , Net margin (%) EPS ROE (%) Dividend yield (%) PER (x) PBR (x) owned). This segment accounted for 14.8% of after-tax profit in The performance of the trading/logistics business was not impressive in 2016; it contributed only 2.3% of the after-tax profit last year. Still a lot of room to unlock value if we see further restructuring of the business. As we highlighted earlier, the IPO of Shennan Circuits will be the most important catalyst in the near term, as investors will realize that the attributable market cap of the listed assets of AVIC IHL will be equivalent to 222% of AVIC IHL s fully diluted market cap, while the remaining property and trading/logistics business is free. We understand that the conglomerate structure of the Company is a key reason for the deep valuation discount. Further disposals of the property assets should help narrow the discount and strengthen its balance sheet. Meanwhile, we estimate that the book value of the trading/logistics business is more than RMB2bn, but the earnings contribution is very limited. There may be extra re-rating potential if the Company also takes action to streamline this business segment. (Note: Since the Company has issued perpetual subordinated convertible securities to its parent, which can be converted into 801m shares (conversion price: RMB3.47), fully diluted market cap is a better indicator for discussion of valuation.)

3 Figure 1: Organization structure of AVIC IHL Sources: Company, CGIS Research 3

4 Figure 2: Valuation of A-share listed PCB companies Ticker Company name Price (RMB) Market cap (RMB m) PER (x) 2017E PER (x) 2018E PER (x) PBR (x) CH Equity Shenzhen Kinwong Electronic Co Ltd , CH Equity Shengyi Technology Co Ltd , CH Equity Guangdong Ellington Electronics Technology Co Ltd , CH Equity Shenzhen Suntak Circuit Technology Co Ltd , CH Equity Goldenmax International Technology Ltd , CH Equity Victory Giant Technology Huizhou Co Ltd , CH Equity Shenzhen Fastprint Circuit Tech Co Ltd , CH Equity WUS Printed Circuit Kunshan Co Ltd , CH Equity Olympic Circuit Technology Co Ltd , CH Equity Guangdong Goworld Co Ltd , CH Equity Shenzhen Danbond Technology Co Ltd , CH Equity Guangdong Chaohua Technology Co Ltd ,018 n.a CH Equity Bomin Electronics Co Ltd , CH Equity Jiangsu Transimage Technology Co Ltd , CH Equity Guangdong Champion Asia Electronics Co Ltd , CH Equity Zhejiang Huazheng New Material Co Ltd , CH Equity Huizhou China Eagle Electronic Technology Co Ltd , CH Equity Tianjin Printronics Circuit Corp ,493 n.a Sources: WIND Info, CGIS Research Weighted average Figure 3: Value of AVIC IHL s listed assets Company name Ticker Stake Attributable market cap (HK$m) Tianma Microelectronics CH Equity 20.81% 8,754 Fiyta CH Equity 37.15% 2,159 AVIC Real Estate CH Equity 22.35% 1,811 AVIC International Maritime AVIC SP Equity 73.87% 119 Shennan Circuits Pending listing 69.7% (post-ipo) 10,851 23,694 Market cap of AVIC International Holdings 6,297 Fully diluted market cap of AVIC International Holdings 10,626 Sources: Bloomberg, CGIS Research 4

5 Shenzhen Expressway - H [0548.HK] Q Results on Track. Maintain BUY. SZE released solid Q earnings, in line with our expectations. During the quarter, revenue was up 13.04% YoY to RMB1.26bn, thanks to improved traffic volume on most toll roads. With the help of its newly introduced environmental business, EPS for the quarter grew even faster at 41.5% YoY to RMB We feel more confident that SZE will achieve EPS growth of >25% in 2017E, delivering solid earnings momentum. Other positive news from the Q3 earnings report is that Vanke will be responsible for the construction management of the Meilin Checkpoint Project. However, without further details on the stake disposal, the value of the Project is yet to be clarified. After considering the recent operating performance, our earnings forecast for 2017E remains unchanged at RMB0.68, while we slightly lift EPS for 2018E and 2019E by 2.7% and 2.5% to RMB0.76 and RMB0.82, respectively. We raise our target price slightly to HK$9.28, accordingly. Maintain BUY. Details regarding the stake disposal to be announced later may enable us to revisit our estimates for the Meilin Checkpoint project and raise our target price further. Investment Highlights Q Results Exhibited Decent Organic and M&A Growth. In line with what the monthly operating statistics showed, revenue in Q improved due to across-theboard improvement in traffic volume and hence toll road revenue. Mature projects based in Shenzhen continued to record YoY revenue growth ranging from 3.3% to 16.3% in Q3, while some projects outside Shenzhen (such as the Changsha Ring Road and Qinglian Expressway) also recorded solid double-digit growth in toll revenue. In addition, the Yichang Expressway, acquired in June 2017, contributed RMB113.8m in toll revenue in Q3, accounting for 9.0% of revenue in Q3. Earnings Recovery in 2017 On Track. On a nine-month basis, the results are also in line with our expectations. The introduction of the environmental business through Derun Environment provided a boost to investment income, directly lifting the bottom line. The RMB104m fair value loss on foreign exchange swaps in the nine months of 2017 due to RMB appreciation was somewhat negative, but as net finance cost dropped 11% YoY to RMB373m in 9M2017, we believe SZE is on track to deliver an earnings recovery of >25% in FY2017E. Vanke introduced into the Meilin Checkpoint Project. According to the media and the Q3 earnings announcement, China Vanke was the successful bidder for the entrustment of the construction management of the Meilin Checkpoint Project. While this is a good sign of progress, we believe investors will stay on the sidelines and wait for details on how SZE will unlock the value of the Project through asset disposal. 2018E-2019E EPS Forecast Slightly Lifted. Maintain BUY. We maintain our 2017E EPS forecast unchanged, while slightly adjusting our E EPS forecast by +2.7%/+2.5% respectively after the Q3 results. We also lift our TP slightly from HK$8.98 to HK$9.28. Maintain BUY. Risks: (1) Weaker-than-expected traffic volume; (2) lower-than-expected contribution from the Meilin Checkpoint Project; (3) uncertainty regarding new toll road policies; and (4) RMB depreciation. Year ended 31 December FY2015 FY2016 FY2017E FY2018E FY2019E Revenue (RMB m) 3,421 4,532 5,030 5,279 5,854 YoY Change -5.5% 32.5% 11.0% 4.9% 10.9% Net Profit After Tax (RMB m) 1,553 1,169 1,476 1,651 1,785 YoY Change -29.0% -24.7% 26.2% 11.8% 8.1% EPS (RMB) YoY Change -29.2% -24.5% 26.2% 11.8% 8.1% ROE 13.2% 9.5% 11.6% 12.1% 12.1% P/E 9.7x 12.9x 10.2x 9.1x 8.4x Dividend Yield 4.9% 3.2% 3.9% 4.4% 4.7% Sources: Company, CGIS Research China Infrastructure Sector Toll Road BUY (unchanged) Close: HK$8.11 (Oct 26, 2017) Target Price: HK$9.28 (+14.4%) Price Performance Market Cap Shares Outstanding Auditor US$2,896m 2,180.8m Ernst & Young Free Float 40.2% 52W range 3M average daily T/O Major Shareholding Sources: Company, Bloomberg Tony Li, CFA Analyst (852) tonyli@chinastock.com.hk October 27, 2017 HK$ US$2.31m SZ International (50.9%) Wong Chi Man, CFA Head of Research (852) cmwong@chinastock.com.hk Source: Bloomberg 5

6 Figure 1: Q Results Review Unit: RMB Q Q YoY Revenue 1,116,681,419 1,262,257, % Operating Costs (576,619,445) (569,934,815) -1.16% Tax and Surcharges (5,255,264) (6,966,826) 32.57% Selling Expenses (4,814,919) (5,872,766) 21.97% General and Administrative Expenses (27,258,960) (37,928,134) 39.14% Gain or loss from changes in fair value (2,196,680) (43,184,384) % Investment Income 106,936, ,899, % Financial Expenses, net (148,700,171) (138,929,552) -6.57% Operating Profit 458,772, ,340, % Non-operating Expenses (1,056,044) (1,146,961) 8.61% Non-operating Income 1,332,934 1,497, % Earnings before Tax 459,213, ,526, % Provision for Income Tax (87,789,658) (112,114,155) 27.71% Net Profit 371,424, ,412, % Net Income attributable to shareholders 331,851, ,219, % Minority Interest (After Tax) 39,572,980 37,192, % EPS % Sources: Company, Capital IQ, CGIS Research Figure 2: 9M 2017 Results Review Unit: RMB 9M M 2017 YoY Revenue 3,179,809,568 3,370,642, % Operating Costs (1,643,658,085) (1,591,239,682) -3.19% Tax and Surcharges (46,100,693) (23,123,439) % Selling Expenses (11,756,292) (13,664,434) 16.23% General and Administrative Expenses (68,583,325) (78,444,264) 14.38% Gain or loss from changes in fair value (2,196,680) (104,364,736) % Investment Income 334,292, ,489, % Financial Expenses, net (419,455,747) (373,144,054) % Operating Profit 1,322,350,747 1,592,151, % Non-operating Expenses (1,657,381) (2,572,656) 55.22% Non-operating Income 2,851,551 27,967, % Earnings before Tax 1,323,544,917 1,617,547, % Provision for Income Tax (258,380,038) (314,125,098) 21.57% Net Profit 1,065,164,878 1,303,421, % Net Income attributable to shareholders 946,755,267 1,210,950, % Minority Interest (After Tax) 118,409,612 92,471, % EPS % Sources: Company, Capital IQ, CGIS Research 6

7 Valuation SOTP We have slightly revised our valuation of SZE using SOTP after the latest Q3 results, reflecting the continuous improvement in core business, i.e. the toll road and environmental businesses. Our valuation of the Meilin Checkpoint Project remains unchanged at RMB2.13/share. We are aware that policy tightening in the Shenzhen property market may continue to weigh on the performance of property developers. In addition to measures like the price ceiling, the requirements for building rental apartments may affect profitability. We may review the relevant valuation if the Company announces further action or specific details of the project, such as disposing of a partial stake in the project to a thirdparty developer. Our estimate of fair value of SZE now is RM7.89/share, or HK$9.28/share, implying 14.4% upside from the current share price of HK$8.11. We maintain our BUY rating. Figure 3: Our Valuation of SZE DDM - Baseline Case 2017E 2018E 2019E 2020E 2021E DPS (RMB) PV (RMB) Core Business - Baseline Case Sum of PV 1.36 Terminal value 4.40 Fair Value for Core Business (RMB) - (1) 5.75 Meilin Checkpoint Project - Baseline Case ASP (RMB/sqm) 75,000 Profit after LAT (RMB/sqm) 24,443 Profit attributable to SZE (RMB m) 4,660 *Assuming SZE sells all its stake to third-party Profit attributable to SZE, on per share basis (RMB) - (2) 2.13 SOTP Fair Value of SZE - (1) + (2) 7.89 Our Target Price in HKD 9.28 Current Price 8.11 Potential Upside 14.4% Key Assumption: WACC 7.0% HKDCNY 0.85 Source: CGIS Research estimates 7

8 27/6/2014 4/10/ /1/ /4/ /7/2015 4/11/ /2/ /5/ /8/2016 4/12/ /3/ /6/ /9/2017 Figure 4: PER Band of SZE HKD x 11x 9x 7x 5x 2 0 Source: Bloomberg, CGIS Research Figure 5: Peer Comparison Company Ticker Price Mkt Cap PER(x) PBR(x) ROE(%) Div YIeld(%) LCY US$m E 2018E E 2018E E 2018E E 2018E Shenzhen Expressw ay Co-H 548 HK , Peers Listed in Hong Kong Jiangsu Express Co Ltd-H 177 HK , Zhejiang Expressw ay Co-H 576 HK , Anhui Expressw ay Co Ltd-H 995 HK , Hopew ell Highw ay Infrastruct 737 HK , Sichuan Expressw ay Co-H 107 HK , Yuexiu Transport Infrastructure 1052 HK , Simple Average Peers Listed in A-share Market Jiangsu Expressw ay Co Ltd-A CH , Dongguan Development Hldgs-A CH , Jiangxi Ganyue Expressw ay -A CH , Sichuan Expressw ay Co-A CH , Simple Average Source: Bloomberg, CGIS Research estimates 8

9 Key financials Income Statement (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E Balance Sheet (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E Revenue 3,421 4,532 5,030 5,279 5,854 Bank Balances and Cash 6,422 5,664 2,180 3,517 5,294 Operating Costs (1,679) (2,533) (2,473) (2,685) (2,979) Trade Receivables SG&A (148) (157) (132) (144) (159) Inventories Other Operating Items (743) 9 (167) (69) (76) Other Current Assets 2,013 2,218 1,930 1,624 2,293 Investment Income 1, Total Current Assets 8,424 8,000 3,936 5,303 7,412 Finance Costs (371) (639) (685) (698) (797) PP&E 1,156 1, Operating Profit 1,635 1,645 2,040 2,312 2,500 Long-term Equity Investments 1,983 4,703 8,956 8,638 8,331 Other Non-operating Items 37 (23) Intangible Assets 19,272 18,324 20,384 19,318 22,589 Net Profit Before Tax 1,672 1,622 2,077 2,323 2,511 Other Non Current Assets ,125 2, Income Tax (177) (306) (415) (465) (502) Total Non Current Assets 23,246 24,385 31,347 31,513 31,946 Net Profit After Tax 1,553 1,169 1,476 1,651 1,785 Total Assets 31,671 32,385 35,283 36,816 39,358 Minority Interest (After Tax) (58) EPS (RMB) Trade Payables DPS (RMB) Short-term Borrowings 1,836 1,582 1, Other Current Liabilities 2,092 2,983 2,827 2,861 2,893 EBITDA 2,909 3,457 3,969 4,232 4,627 Total Current Liabilities 4,111 4,784 4,125 3,240 3,238 EBIT 2,043 2,262 2,762 3,021 3,309 Long-term Borrowings 4,892 5,526 7,711 8,876 10,164 Other Non-current Liabilities 7,707 7,363 7,554 7,539 7,447 Revenue Growth -5.5% 32.5% 11.0% 4.9% 10.9% Total Non-current Liabilities 12,599 12,889 15,265 16,415 17,611 Operating Profit Growth 12.1% 0.6% 24.0% 13.4% 8.1% Total Liabilities 16,710 17,673 19,390 19,654 20,849 Net Profit Growth -29.0% -24.7% 26.2% 11.8% 8.1% EPS Growth -29.2% -24.5% 26.2% 11.8% 8.1% Total Common Equity 12,369 12,674 13,670 14,731 15,855 EBITDA Margin 85.0% 76.3% 78.9% 80.2% 79.0% Minority Interest 2,592 2,037 2,223 2,430 2,655 EBIT Margin 59.7% 49.9% 54.9% 57.2% 56.5% Total Equity 14,961 14,711 15,893 17,161 18,510 Operating Margin 47.8% 36.3% 40.6% 43.8% 42.7% Total Equity & Liabilities 31,671 32,385 35,283 36,816 39,358 Net Profit Margin 45.4% 25.8% 29.3% 31.3% 30.5% Ratios FY2015 FY2016 FY2017E FY2018E FY2019E Cash Flow Statement (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E ROE 13.2% 9.5% 11.6% 12.1% 12.1% Net Profit After Tax 1,553 1,169 1,476 1,651 1,785 ROA 6.1% 3.7% 4.6% 4.7% 4.8% D&A Add-back 899 1,231 1,245 1,242 1,343 Net Change in Working Capital (431) (578) (203) Net Debt / Equity 2.0% 9.8% 41.9% 32.0% 27.0% Other Items (249) EBITDA Interest Coverage 7.8x 5.4x 5.8x 6.1x 5.8x CFO 1,772 2,127 3,904 3,460 3,289 Rec. Turnover Days Purchase of PP&E & Subsidiaries (CAPEX) (1,414) (2,380) (7,738) (1,717) (2,077) Inventory Turnover Days Disposal 1, Payables Turnover Days Investment Income Other Investing Items 409 (185) (607) - - Current Ratio 2.05x 1.67x.95x 1.64x 2.29x CFI 584 (2,530) (7,721) (771) (1,113) Quick Ratio 1.89x 1.53x.80x 1.40x 2.05x Dividends & Interest Paid (1,549) (1,303) (1,165) (1,288) (1,458) Net Change in Debt (2,467) (101) 1, ,288 Valuation FY2015 FY2016 FY2017E FY2018E FY2019E Other Financing Items 6,586 (125) (229) (229) (229) P/E 9.7x 12.9x 10.2x 9.1x 8.4x CFF 2,571 (1,529) 334 (1,352) (399) P/B 1.22x 1.19x 1.10x 1.02x.95x Total Cash Flow 4,926 (1,932) (3,484) 1,337 1,777 EV / EBITDA 9.4x 7.1x 6.7x 6.0x 5.5x Free Cash Flow 2,158 (31) (3,642) 2,081 1,545 Dividend Yield 4.9% 3.2% 3.9% 4.4% 4.7% Revenue (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E Toll Road 3,014 3,680 4,315 4,701 5,209 Others Total 3,421 4,532 5,030 5,279 5,854 Segement Gross Profit (RMB m) FY2015 FY2016 FY2017E FY2018E FY2019E Toll Road 1,595 1,817 2,373 2,438 2,715 Others Total 1,778 1,973 2,533 2,603 2,885 Segement Gross Profit Margin FY2015 FY2016 FY2017E FY2018E FY2019E Toll Road 52.9% 49.4% 55.0% 51.9% 52.1% Others 45.2% 18.3% 22.4% 28.6% 26.4% Sources: Company, Capital IQ, CGIS Research estimates 9

10 COMPANY UPDATE CIFI Holdings [0884.HK, HK$4.40, NOT RATED] NDR Takeaway: Market Expected to Remain Tight after the 19th Party Congress Analyst: Tony Li, CFA Tel: (852) ) Oct 27, 2017 Summary. CIFI management attended our NDR hosted in Taiwan and shared its cautiously optimistic view of the China property market in the near term. While the work report in the19th Party Congress continued to discourage speculation in the property market, no other surprises or additional tightening measures were mentioned. The Company expects policy to remain tight for a while, but there may be relaxation in selective Tier 2 cities in The current market environment is supportive to national developers like CIFI, and management is confident that the Company will exceed this year s sales target of RMB80bn and expand its market share. CIFI s consistent execution of its development strategy should help the Company maintain its growth momentum. EPS growth in 2016 was more than 30%. The Company is also aiming for RMB300bn in contracted sales in 2021, implying a CAGR of 41.4% between 2016 and View of the Property Market Q: What is your general view of recent policy tightening in the China property market? A: The work report in the 19th Party Congress mentioned that the government is determined to improve the living conditions of residents and that soaring property prices definitely affect living standards. This is why tightening measures may last for at least a while longer. There has always been policy control in the property market in China, and it always swings like a pendulum. When policy affects economic growth, control is relaxed. While the current policy tightening may last longer than before, in the past the cycle usually lasted three years. It is also important to understand that many municipal governments depend on revenue from land sales, so a depressed property market is not a desired outcome for them. Q: How will different cities respond after the 19th Party Congress? A: In Tier 1 cities, the policy may remain tight for 5 to 10 years. In fact, the local governments in these cities do not really depend on land and property for fiscal revenue. They are also facing limited land supply, so property developers will find it difficult to achieve growth in these cities. In leading Tier 2 cities, like Suzhou and Nanjing, the policy may continue to remain tight for a while, but it may be relaxed after the Congress. These cities were under heavy policy pressure before the Congress, and land supply was suppressed. However, the tightening could not continue for an extended period, or it could jeopardize economic development. In fact, these cities need to provide adequate housing in order to promote population inflow, and they are facing fierce competition with nearby cities. In laggard Tier 2 cities, policy control is not as tight, so land prices for some cities may continue to rise. In Tier 3 and 4 cities, policy has been more relaxed, so the local property markets have performed well recently. That said, risk will also likely be higher. It is likely these cities will face policy tightening in the future, but this will be 5 to 10 years from now. Q: How will this affect the industry landscape? A: Because of the discrepancy in policy tightening, national developers like CIFI will find it easier to smoothen their sales pattern and secure better growth than regional players. National developers will also have more resources to sustain a better product pipeline as it becomes more difficult to replenish their land bank. (Note: For CIFI, the Yangtze River Delta accounted for 68% of 1H 2017 contracted sales; this percentage should come down gradually as it increases its investments in central and southern China.) Therefore, industry concentration will increase at an accelerated pace. The total size of the property market is unlikely to change significantly in the future, but the market share of developers matters. The market is already getting more concentrated, with the top 10 developers getting significantly more market share in (Note: If CIFI can achieve RMB300bn in contracted sales in 2021, it may become a Top 10 developer, enjoying better market recognition and funding costs. This is why CIFI is determined to keep its high asset turnover strategy.) 10

11 COMPANY UPDATE Oct 27, 2017 CIFI Holdings [0884.HK, HK$4.40, NOT RATED] NDR Takeaway: Market Expected to Remain Tight after the 19th Party Congress Analyst: Tony Li, CFA Tel: (852) ) September & October Performance Q: Some statistics have shown that the property market slowed down significantly during the October Golden Week. How does this affect the Company? A: It should be clarified that the Golden Week figures were affected by many factors. First, many of the statistics reflect the performance of Tier 1 cities, which are under heavy policy control. Second, because Golden Week this year was linked to the Mid- Autumn Festival, many potential buyers were traveling abroad, which affected property sales. CIFI has already achieved RMB68.92bn in contracted sales in Sept 2017, up 66.8% YoY. While it is difficult to comment on the October performance right now, the Company should be able to achieve RMB10bn in sales each month in Q4. So total contracted sales in 2017 should reach RMB100bn, exceeding the sales target of RMB80bn. Company-Specific Questions Q: Is there any plan for another equity offering after the introduction of Ping An (2318.HK)? A: No. In fact the controlling shareholder and his family will keep their stake at close to 60%. They prefer no more share dilution in the future. Q: What will be the impact of introducing Ping An? A: CIFI was already obtaining financial support from Ping An, as Ping An Bank is one of the most active lenders in the property market. Ping An Real Estate is also an active real estate investor in China, and CIFI is co-operating with Ping An on three projects. Also, CIFI is likely to have one representative from Ping An join the board of directors. Q: How will CIFI manage its debt? A: The Company s target is to have a net gearing ratio of 70%. The current level of 59.3% at the end of 1H 2017 should be in the mid range of the industry. It should be noted that the controlling shareholder, the Lin family, also prefers to have a moderate level of leverage. CIFI will try to strike a balance between onshore and offshore funding. While onshore financial institutions favour developers of larger scale, the Company is aware that offshore lenders will pay attention to a developer's gearing. CIFI will try to lower its offshore funding costs by obtaining a better credit rating (currently BB). Investor Feedback Investors have been cautious during the 19th Party Congress, waiting to see if there will be any additional long-term measures to tighten the property market in China. Some investors have also noted the recent weakening property sales nationwide and are concerned about whether some property developers may be able to deliver solid growth. That said, the China property sector has rallied significantly even after the tightening in October 2016, and there is solid evidence that industry consolidation is accelerating. Some investors are more willing to accept the fact that large developers, especially privately owned ones, are taking a large chunk of the market share. These high-performers are likely to draw more investor attention in the future. 11

12 COMPANY UPDATE Oct 27, 2017 CIFI Holdings [0884.HK, HK$4.40, NOT RATED] NDR Takeaway: Market Expected to Remain Tight after the 19th Party Congress Analyst: Tony Li, CFA Tel: (852) ) Valuation CIFI s 2017E and 2018E Bloomberg-consensus PER are 7.1x and 5.7x, respectively. According to Capital IQ, CIFI s NAV median consensus estimate is RMB7.2/share or HK$8.37/share. The current share price level implies that CIFI is now trading at close to a 47% discount to the street s NAV estimate. The discount still looks attractive compared with its peers after taking the market cap into account (Figure 1). Figure 1: Peer Comparison Ticker Name Price Mkt Cap P/E P/B ROE (%) DivYield(%) NAV HKD (HKD Bil) FY17E FY18E FY19E FY16 FY17E FY18E FY16 FY17E FY16 FY17E Mkt Est. (HKD) Prem / Dist Large-Mid Cap 3333 HK Equity China Evergrande Group % 2202 HK Equity China Vanke Co Ltd % 688 HK Equity China Overseas Land & Investme % 2007 HK Equity Country Garden Holdings Co Ltd % 1109 HK Equity China Resources Land Ltd % 1918 HK Equity Sunac China Holdings Ltd % 960 HK Equity Longfor Properties Co Ltd % 2777 HK Equity Guangzhou R&F Properties Co Lt % 813 HK Equity Shimao Property Holdings Ltd % 3383 HK Equity Agile Group Holdings Ltd % 3380 HK Equity Logan Property Holdings Co Ltd % 3377 HK Equity Sino-Ocean Group Holding Ltd % 817 HK Equity China Jinmao Holdings Group Lt % 884 HK Equity CIFI Holdings Group Co Ltd % 604 HK Equity Shenzhen Investment Ltd % 1813 HK Equity KWG Property Holding Ltd % 410 HK Equity SOHO China Ltd % 3900 HK Equity Greentow n China Holdings Ltd % 123 HK Equity Yuexiu Property Co Ltd % 754 HK Equity Hopson Development Holdings Lt N/A N/A 272 HK Equity Shui On Land Ltd % Simple Average Sources: Bloomberg, Capital IQ, CGIS Research 12

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Explanation on Equity Ratings BUY SELL HOLD : : share price will increase by >20% within 12 months in absolute terms share price will decrease by >20% within 12 months in absolute terms : no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL Copyright Reserved No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited. China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459 Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: