Content. The Art of investing in "Fallen Angels" Quality cash-cow assets: Buy & Hold should be a good strategy

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1 11 Mar 2016 The Art of investing in "Fallen Angels" Content The Art of investing in "Fallen Angels" 01 Ed FY15 results from PCCW (8) Recommendations Changes to earnings and recommendations Quam Research Extra China Everbright International (257): 2015 results Earning s Table Earning s Table Customer Service: (852) support@hk.quamnet.com Although many prudent investors prefer safer investments such as cash-cow assets with steady dividend payment, the reality is that risky stocks could provide additional performance contribution for any stock portfolio. Of course, the art of catching the timing and gut from investors should be other issues. Quality cash-cow assets: Buy & Hold should be a good strategy For example, utility and infrastructure cash-cow assets such as CKI (1038; HK$76.25) should be suitable for prudent investors. Since utility businesses are not sensitive to economic cycles, they are usually defensive even under bear market. Investors simply need to purchase the assets at price correction and hold them for at least 3 to 5 years (unless foreseeing seeing any structural policy and/or industry risks). Sometimes Fallen Angels with sufficient liquidity are good for speculators Nevertheless, we can say that at least 90% of the large-cap stocks are cyclical in nature. While some people think the banks, REITs and rental stocks to be safe given moderate single-day price volatility and the ability to pay dividend, the reality is that these assets are sensitive to economic and industry cycles. For example, rental stock such as Wharf (4; HK$43.50) could be quite volatile if we look at 52-week period. The local rental stock has fluctuated within price range of $34.5-HK$58.6. In other words, an investor of the safe stock could have chance to lose around half of its value in 12-month period. While some investors hate blue-chip stocks that suffer from significant share price decline due to earnings decline and/or dividend cut, the reality is that sometimes these fallen angels are good for enhancing stock portfolio performance. P.1 Issue No March

2 Taking CNOOC (883; HK$9.03) as example, the upstream oil energy company plunged from HK$13.2 to HK$6.4 during the period of April 27, 2015 to January 21, Weakness of international oil price and operating loss from Canadian oil sand assets started dragging down earnings level since first half of Nevertheless, the upstream oil energy company was a good speculative pick during early 2016, or the time when many individual investors and analysts became very pessimistic towards the stock. Ironic to say, CNOOC has rebounded by around 41% in less than 2-month period (i.e. from HK$6.4 bouncing to the level of HK$9.03). To sum up, speculative investors could refer to some guidelines for distressed investment: 1) The HK-listed stock is better to be an index component (Hang Seng Index, HSCEI or even FTSE 100 Index) to ensure sufficient market liquidity 2) Earnings decline has been well recognized by most media, analysts and individual investors (i.e. most hesitate investors have already sold the shares) 3) Mid-term improvement for industry factor (e.g. rebound of international oil price) 4) The appearance and the completion of favorable catalysts such as rights issue (e.g. Standard Chartered). Rights issue could be a bless for the fallen angels While many investors think rights issue should be a bad thing for shareholders, actual situation should be case by case. For blue-chip components that raises capital through rights issue (note: especially after the announcement of bad financial results), this could be a favorable incident. The underlying logic is that insiders and institutional investors would like to take advantage of the rights issue to accumulate shares at relatively low price. Since the chance for blue-chip companies to go bankrupt in next 12 months should be very low, investors who purchase the fallen angel assets at distressed prices are often well rewarded in next 6 to 12 months. A famous example should be HSBC (5; HK$50.05) in The banking stock once returned to the level of ~HK$90 after the completion of rights issue activities in March, 2009 (rights issue price of HK$28). The bank hit the low level (HK$31) during March, 2009, and rebounded to the price level of HK$90-HK$98 during November, Disclosure: Albert Cheng, the author of this document declares that as of the date of publication of this report, he does not hold 4, 5, 883. P. 2 Issue No March

3 FY15 results from PCCW (8) In this article, we have a review on the FY15 results of PCCW (8), the local TMT conglomerate company that relies on HKT (6823) for dividend payment. PCCW (8): Higher FY15 dividend payment due to HKT (6823) For 12 months ended December 31, 2015, PCCW reported revenue of HK$39,314M, up 18.1% YOY. Reported net profit fell 30.7% YOY to HK$2,295M. Nevertheless, core net profit increased by around 36% YOY to HK$2,117M if we exclude one-off items. The management has declared final DPS of HK$ (2H14 DPS: HK$0.1321). Full-year DPS increased to the level of HK$0.250 (FY14 DPS: HK$0.202). Readers may note that dividend payment capability of PCCW comes from the cash distribution from HKT (PCCW holds 63.1% in HKT). For FY15, free cash flow from HKT was HK$4,093M. Of which, HK$2,582.7M (or HK$0.344 per PCCW share) was attributable to PCCW. Given full-year DPS level of HK$0.250, this implies PCCW distributed around 73% of the HKT cash distribution as dividend. Strong solutions earnings offset media business weakness As what we have discussed at the HKT analysis article, the local telecom unit trust reported strong revenue and free cash flow growth in 2015 due mainly to 1) CSL acquisition factor and 2) strong handset sales. Nevertheless, free cash flow may merely achieve slow growth in 2016 due to the absence of these factors. Handset sales revenue may decline in 2016 as iphone demand turns weak in Hong Kong. For FY16, HKT may achieve revenue growth of 1.6% (HK$35,292M) and EBITDA increase of 3.4% (HK$12,514M). Free cash flow from the cash-cow asset could be around HK$4,143M, up 1.2% YOY. During FY15, solutions business segment achieved EBITDA of HK$688M, up 10.6% YOY. Strong demand from cloud computing and data centre businesses fueled revenue and earnings growth. Nevertheless, EBITDA from media business segment fell 13.1% YOY to HK$393M. Despite steady EBITDA from NOW TV business, overall earnings level was dragged down by initial costs from businesses such as free TV and OTT. We think OTT and free TV businesses may take a few years before achieving EBITDA breakeven. From the positive perspective, limited loss from these 2 businesses should be acceptable especially when we see strong growth potential from the OTT industry. Affordable valuation Since free cash flow from HKT should be steady, we expect similar dividend level in FY16 (DPS: HK$0.250). Priced at HK$4.78, PCCW trades at dividend yield of around 5.2%. Growth from solutions business and long-term value from OTT and free-tv businesses should be interesting from some investor perspective. P. 3 Issue No March

4 We advise prudent investors to accumulate PCCW especially during price correction. Disclosure: Albert Cheng, the author of this document declares that as of the date of publication of this report, he does not hold 8. P. 4 Issue No March

5 Changes to earnings and recommendations Sources: Quam Maintain China Everbright International (257): HOLD / HIGH RISK Valuation is fair. Maintain HOLD and HIGH RISK rating on this counter. Risk-taking investors may consider accumulating the share on price weakness to catch more value (e.g., forecasted P/E: 13x; HK$7.0). Anta Sports (2020): HOLD / HIGH RISK Updated the 2016 forecasted earnings. Valuation is unattractive. Maintain HOLD and HIGH RISK rating. Hysan (14): HOLD / MEDIUM RISK For FY15, Hysan achieved 5.5% core net profit growth. Despite weakening HK tourism and retail industries, the local commercial property company was capable to maintain steady rental levels for shopping malls. Nevertheless, we think business situation may turn weak during the second half of Maintain HOLD and MEDIUM RISK rating due to undemanding P/B valuation. Downgrade HAECO (44): REDUCE / MEDIUM RISK For 12 months ended December 31, 2015, HAECO reported lower earnings due to enlarged operating loss from North American business. Relatively speaking, earnings from Hong Kong and Mainland China businesses remained solid. Due to awful profitability from North America, we downgrade the rating to REDUCE and MEDIUM RISK (from Hold and Medium Risk). Accumulate: The share is undervalued and investors may accumulate on weakness to secure more unrealized value. However, if investors already own excessive holdings of this stock, then they might have to reduce their holdings. Despite having the same rating of accumulate, some stocks might have higher unrealized value than others. Hold: Reduce: Low risk: The share is priced close to its value. If investors own excessive holdings of this stock, then they might have to reduce their holdings. Despite having the same rating of hold, some stocks might have higher unrealized value than others. The share is not attractively priced and investors should reduce their exposures Earnings predictability is high. Investors may own relatively high exposures of the share. Medium risk: There is a certain degree of earnings predictability. Investors may own controlled exposures of the share. However, if investors own excessive holdings of this stock, then they might have to reduce their holdings. High risk: Earnings predictability is low. Exposure should be strictly controlled. If investors own excessive holdings of this stock, then they should reduce their holdings. P. 5 Issue No March

6 Quam Research EXTRA: China Everbright International (257): 2015 results HOLD and HIGH RISK China Everbright International (257; CEI) is mainly engaged in environmental energy, environmental water and environmental technology businesses. The company released its final results for the year ended 31 December 2015 recently. In 2015, CEI recorded revenue of HK$8,535M, up 34.3% YOY. EBITDA grew 21.6% YOY to HK$4,383M. Excluding one-off items, recurring net profit grew 16.6% YOY to HK$1,802M in The company declared a final dividend of HK$0.12. Coupled with interim dividend of HK$0.065, annual dividend reached HK$0.185 per share, up 68.2% YOY. Maintain HOLD and HIGH RISK rating CEI experienced rapid growth these years. As the company is holding huge new projects that are under construction and stable contribution from the existing projects, we expect the company to maintain growth in future. We expect the company to record recurring net profit of HK$2,441M in Priced at HK$8.77, it is trading at 2016E P/E of 16.1x. Valuation is fair. We maintain HOLD and HIGH RISK rating on this counter. Risk-taking investors may consider accumulating the share on price weakness to catch more value (e.g., forecasted P/E: 13x; HK$7.0). Earnings forecast HK$ M E Revenue 5,320 6,355 8,535 11,469 Reported net profit 1,325 1,703 2,085 2,441 Recurring net profit 1,201 1,545 1,802 2,441 Reported EPS Recurring EPS DPS Reported P/E (@HK$8.77) Recurring P/E (@HK$8.77) Source: company results and Quam estimates. Environmental protection business Environmental protection business accounted majority income of the company. In 2015, environmental protection business generated revenue of HK$8,393.4M, up 32.2% YOY. There are three major segments under environmental protection business, which are environmental energy projects, environmental water projects and greentech projects. In 2015, environmental energy project contributed revenue of HK$5,400M, up 28.5% YOY. Segment EBITDA grew 28.3% YOY to HK$2,608M. In 2015, CEI secured 12 waste-to-energy projects and 2 foot waste treatment projects with an increase in designed daily household waste processing capacity of 6,450 tonnes. Also, there were 6 waste-to-energy projects completed construction and commenced construction in P. 6 Issue No March

7 Income statement HK$ M 1H14 2H14 1H15 2H15 Revenue 2,944 3,411 3,772 4,763 Direct cost and operating expenses (1,592) (1,794) (1,972) (2,654) Gross profit 1,352 1,617 1,800 2,109 Administrative expenses (208) (332) (307) (461) Profit from operations 1,143 1,285 1,493 1,647 Other revenue Other income /(losses) (0) (1) Finance costs (171) (210) (224) (228) Share of profit of associate 0 (0) 0 (0) Share of profit of JV 0 (1) (0) (6) Profit before tax 1,080 1,219 1,470 1,649 Taxation (243) (291) (367) (417) Minority interest (35) (27) (103) (148) Reported net profit ,000 1,085 Recurring net profit Gross margin 45.9% 47.4% 47.7% 44.3% Operating margin 38.8% 37.7% 39.6% 34.6% Reported net margin 27.2% 26.4% 26.5% 22.8% Recurring net margin 24.4% 23.2% 22.5% 19.1% Source: company results. CEI operates environmental water segment through 74.4%-owned Everbright Water (SGD: U9E). In 2H15, the company completed the acquisition of Dalian Dongda, which has a total of 17 waste water treatment projects. In 2015, environmental water project contributed revenue of HK$1,815M, up 72.7% YOY. CEI is considering the possibility of a separate listing in HKEx of its greentech business. As at 31 December 2015, NAV of its greentech project construction and operation segment was HK$3,093.9M. Financials As at 31 December 2015, CEI held cash and cash equivalents of HK$5,953.5M (31 Dec 2014: HK$4,094.1M). Total debt amounted to HK$15,710.7M (31 Dec 2014: HK$9,136.5M), in which HK$3,409.6M should be repaid within one year. The net debt ratio reached 56.7%. Financials were tight. P. 7 Issue No March

8 Segmental income HK$ M 1H14 2H14 1H15 2H15 Environmental energy project 2,543 2,710 3,441 3,775 Construction 1,457 1,353 1,683 2,032 Operation Finance income Environmental water project Construction Operation Finance income Greentech project Construction Operation Finance income Total 2,941 3,406 3,764 4,630 Construction 1,772 1,856 2,063 2,853 Operation 729 1,035 1,093 1,092 Finance income Source: company results. Key financial information Price: HK$ mth H/L: HK$16.28 / HK$7.11 O/S share: 4,483.7M Market cap: HK$39,187.5M 2016E EPS: HK$ E P/E: 16.1x 2016E DPS: HK$ E yield: 2.5% BVPS: HK$3.84 (as at 31 Dec 2015) P/B: 2.3x 2015 ROE: 10.8% Major shareholder: China Everbright Holding Company Limited (41.39%) P. 8 Issue No March

9 Disclosure: Mao Ting, the author of this article declares that she does not hold an interest in the shares mentioned when it is published. Notes on ratings Accumulate: The share is undervalued and investors may accumulate on weakness to secure more unrealized value. However, if investors already own excessive holdings of this stock, then they might have to reduce their holdings. Despite having the same rating of accumulate, some stocks might have higher unrealized value than others. Hold: Reduce: Low risk: The share is priced close to its value. If investors own excessive holdings of this stock, then they might have to reduce their holdings. Despite having the same rating of hold, some stocks might have higher unrealized value than others. The share is not attractively priced and investors should reduce their exposures Earnings predictability is high. Investors may own relatively high exposures of the share. Medium risk: There is a certain degree of earnings predictability. Investors may own controlled exposures of the share. However, if investors own excessive holdings of this stock, then they might have to reduce their holdings. High risk: Earnings predictability is low. Exposure should be strictly controlled. If investors own excessive holdings of this stock, then they should reduce their holdings. P. 9 Issue No March

10 Earnings Forecasts Company Price (Mar 11) Review Date Rating 1 Risk levels Market cap Profit A Finance and banking 5 HSBC Hold Med 981, ,201 91, % % N.A. 11 Hang Seng Bank Hold Med 251,216 16,751 15, % % N.A. 23 Bank of East Asia Hold Med 67,480 4,970 3, % % N.A. 53 Guoco Hold High 27,476 6,296 N.A. N.A. N.A. N.A N.A. N.A. N.A. 388 HKEx Reduce Med 205,079 7,956 6, % % N.A. 665 HAITONG INT'L Reduce High 3, N.A. 939 China Construction Hold Med 1,200, , , % % N.A. 998 CNCB Hold High 182,284 16,265 21, % % N.A CH Bank Hold High 6, % % N.A Agricultural Bank Hold High 883, , , % % N.A ICBC Hold Med 1,448, , , % % N.A China Minsheng Bank Hold High 190,474 13,749 19, % % N.A Dah Sing Banking Hold High 17,639 1,078 1, % % N.A BOCHK Hold Med 226,787 24,280 25, % % N.A Standard Chartered Hold High 164,459-17,069 12, N.A (4.7) % N.A Bank of Hold Med 298,909 46,023 56, % % N.A China Merchants Bank Hold Med 392,637 56,333 63, % % N.A Bank of China Hold Med 868,384 92, , % % N.A. Insurance 945 Manulife Reduce Med 190,490 9,883 22, % % N.A AIA Reduce High 516,301 20,936 10, % % N.A Ping An Insurance Hold Med 275,081 24,948 37, % % N.A PICC Reduce High 182,838 12,947 15, % % N.A China Pacific Insurance Hold Med 237,424 11,860 14, % % N.A China Life Hold High 505,938 39,297 40, % % N.A. Properties 10 Hang Lung Group Hold Med 29,454 1,578 3, % % 27.9% 12 Henderson Land Hold Med 134,384 9,292 8, % % 19.6% 14 Hysan Hold Med 34,470 2,283 2, % % 7.3% 16 Sun Hung Kai Reduce Med 264,450 19,501 16, % % 18.2% 17 New World Hold High 31,102 5,618 N/A N/A N/A N/A 5.3% 45.1% 41 Great Eagle Hold Med 16,987 1,780 1, % % 37.2% 50 HK Ferry Accumulate High 3,168 1, % N.A % 0.0% 83 Sino Land Hold Med 61,226 6,094 7, % % 19.1% 101 Hang Lung Properties Hold Med 64,850 4,571 4, % % 24.3% 194 LCH Investment Hold Medium 3, % % 26.6% 405 GZI REIT Hold High 4,402 1, % % 38.0% 480 HKR Accumulate High 4,456 1, % % 25.8% 683 Kerry Properties Hold Med 28,221 6,310 5, % % 37.9% 823 Link Hold Med 101,568 3,830 4, % % 13.0% 1200 Midland Reduce High 1, % % 0.7% 688 China Overseas Reduce Med 210,481 19,000 21, % % 65.5% 1109 China Resources Land Hold High 115,821 6,027 5, % % 76.5% 2777 Guangzhou R&F Hold High 33,509 3, % % 0.0% 2868 BJ Capital Accumulate High 6, % % 98.9% Profit E EPS E EPS growth QuamResearch Weekly 2016/03/11 Construction 914 Anhui Conch Hold High 97,290 14,298 10, % % 48.3% 1893 Sinoma Accumulate High 5,321 1,000 1, % % 117.5% 2009 BBMG Hold High 20,820 2,411 2, % % 126.0% 3311 China State Hold High 41,394 1,036 1, % % 80.0% 3323 CNBM Hold High 10,339 2,729 3, % % 241.5% Hotels, Travel 45 HK & S Hotels Hold Med 12, % % 14.9% 69 Shangri-la Hold High 22,742 1,961 2, % % 48.6% 71 Miramar Hold High 7, , % % 9.7% 105 Associated Hotels Hold Med 7,560 2, % % 14.7% Power 2 CLP Hold Med 172,178 11,533 12, % % 59.6% 3 HK Gas Hold Med 161,419 6,835 7, % % 51.1% 6 PAH Accumulate Low 162,204 8,077 7, % % 8.2% 1038 CKI Accumulate Low 189,852 10,546 11, % % 16.6% 836 CR Power Hold Med 67,864 13,226 13, % % 111.8% 902 Huaneng Hold High 102,448 13,323 17, % % 167.5% 991 Datang Hold High 29,016 4,613 4, % % 293.5% 1071 Huadian Hold High 45,863 7,437 8, % % 182.2% 2380 China Power Hold High 26,846 3,740 3, % % 128.1% 916 China LongYuan Power Hold High 40,986 2,867 3, % % 173.4% Telecom 8 PCCW Accumulate Med 36,055 1,603 2, % % 335.1% 315 Smartone Reduce High 13, % % 87.4% 1137 CTI Accumulate High 1, % % 13.3% 728 China Telecom Hold Med 304,306 22,100 22, % % 30.6% 762 China Unicom Accumulate Med 225,635 15,069 16, % % 60.0% DPS E PB (x)** ROE A PE E (x) Yield E Debt /Equity

11 Earnings Forecasts Company Price (Mar 11) Review Date Rating 1 Risk levels Market cap Profit A Profit E EPS E EPS growth QuamResearch Weekly 2016/03/11 DPS E PB (x)** ROE A PE E (x) Yield E Debt /Equity 763 ZTE Hold Med 49,309 3,213 3, % % 66.7% 941 China Mobile Hold Med 1,751, , , % % 1.1% Conglomerates 4 Wharf Hold Med 124,038 35,750 27, % % 32.2% 1 Cheung Kong Hutchison Hold Med 229,651 46,055 28, % % 14.1% 19 Swire A Hold Med 72,752 8,471 9, % % 33.9% 20 Wheelock Hold Med 67,869 20,194 29, % % 35.5% 54 Hopewell Accumulate High 21, , % % 0.0% 87 Swire B Hold Med 44,027 8,471 9, % % 33.9% 97 Henderson Investment 0.62 Hold Med 1,889 3,505 2, % % 2.0% 152 Shenzhen International Accumulate High 170, % % 116.5% 257 Everbright Hold High 38,067 1,802 2, % % 80.9% 267 CITIC Pacific Accumulate High 44,919 2,468 3, % N.A % 104.4% 291 CR Beer Reduce Med 29,211 N.A N.A N.A. N.A % 38.1% 392 Beijing Enterprises Hold Med 52,295 4,491 5, % % 54.7% 604 Shenzhen Investment Accumulate High 10, % % 106.5% 659 NWS Hold Med 46,347 3,867 4, % % 40.6% 882 Tianjin Development Accumulate Med 3, % % 21.4% Oil & Gas 386 Sinopec Hold High 580,350 57,990 67, % % 857 PetroChina Reduce High 991, ,751 44, % % 40.9% 883 CNOOC Reduce High 410,406 75,128 31, % % 36.0% 1088 Shenhua Hold High 249,818 60,794 56, % % 19.1% 1171 Yanzhou Coal Hold High 19,721 11,018 6, % % 79.5% 1898 China Coal Energy Hold High 41,501 12,096 11, % % 30.3% 2883 China Oilfield Hold Med 28,815 5,131 6, % % 131.6% 2688 ENN Energy Accumulate High 42,438 3,168 3, % % 94.8% 1193 CR Gas Accumulate Med 48,039 2,603 3, % % 66.5% 1083 Towngas China Hold Med 11,610 1,134 1, % % 55.4% Petrochemical 338 Shanghai Pet Accumulate High 26,208-6,862 2, % N.A % 52.9% 408 Yip's Chemical Hold High 1, % % 71.2% Water and Sewage 270 Guangdong Investment Hold Med 60,924 3,590 3, % % 21.5% 371 BEW U.R. U.R. 40,474 1,323 2, % % 136.1% Automobiles 175 Geely Reduce High 25,041 1,905 1, % % 48.3% 425 Minth Accumulate High 14, % % 8.4% 489 Dongfeng Hold High 80,819 12,934 9, % % 36.8% 1211 BYD Reduce High 97,931 3, % % 71.8% 2333 GW Auto Hold High 21,023 7,083 11, % % 0.0% 2338 Weichai Hold High 16,994 4,573 5, % % 61.9% 3808 Sinotruk Hold High 9,884 1, % % 75.9% 1114 Brilliance Auto Reduce High 35,182 2,863 3, % % 28.2% 1828 Dah Chong Hong Hold Med 5, % % 65.7% Metals 323 Maanshan Iron Hold High 11,783 1, % % 54.3% 347 Angang Steel Hold High 26,408 2,465-2,581 (0.36) % N/A 0.0% 58.6% 358 Jiangxi Copper Hold High 33,487 4,553 2, % % 47.8% 826 Tiangong Int'l Accumulate High % % 99.6% 1053 Chongqing Iron Hold High 1, % % 163.3% 1208 Minmetals Resources Hold High 3, % % 18.9% 1818 Zhaojin Mining Hold High 19,210 1,417 2, % % 33.4% 2600 CHALCO Reduce High 36, , % % 101.2% 2626 Hunan Nonferrous Accumulate High 8, % % 0.0% 2899 Zijin Mining Hold High 56,057 5,673 7, % % 29.1% 3993 China Molybdenum Hold High 6, % % 2.2% China Foods 151 Want Want Hold Med 74,196 4,805 4, % % 58.6% 168 Tsingtao Hold Med 40,597 2,484 2, % % 2.2% 322 Tingyi Hold Med 41,966 1, % N.A N.A. 60.6% 506 China Foods Hold Med 7, % % 21.2% 606 China Agri Accumulate High 9,167 1, % % 158.5% 828 Dynasty Reduce High 1, % % 0.0% 2319 Mengniu Hold Med 21,496 3,242 3, % % 50.1% Airlines 44 HAECO Reduce Med 8, % % 57.6% 293 Cathay Hold High 54,368 3,150 4, % % 115.4% 670 China Eastern Hold High 44,770 5,537 4, % % 284.5% 753 Air China Accumulate High 61,471 4,076 2, % % 194.0% 1055 China Southern Hold High 47,026 6, % % 191.0%

12 Earnings Forecasts Company Price (Mar 11) Review Date Rating 1 Risk levels Market cap Profit A Profit E EPS E EPS growth QuamResearch Weekly 2016/03/11 Airports 357 HNA INFRA Hold High 4, % % 74.5% 694 BCIA Hold Med 33,305 1,775 1, % % 68.7% 696 TravelSky Accumulate Med 34,646 1,593 1, % % 0.0% Highways & Railways 66 MTRC Hold Med 211,175 11,571 10, % % 12.6% 62 Transport International Accumulate Med 8, % % 8.7% 77 AMS Transport Hold High % % 29.2% 107 Sichuan Expressway Hold Med 7,614 1,200 1, % % 111.6% 177 Jiangsu Expressway Hold High 49,218 3,246 3, % % 70.2% 525 Guangshen Rail Hold Med 23, , % % 0.0% 548 Shenzhen Expressway Hold High 14,110 1,215 1, % % 62.8% 576 Zhejiang Expressway Hold Med 33,529 2,950 3, % % 50.5% 737 HHI Hold Med 11, % % 13.1% 995 Anhui Expessway Hold Med 10,549 1,046 1, % % 14.4% 1052 Yuexiu Transport Hold Med 8, % % 85.8% 1766 CRRC Hold Med 218,856 N.A. 15, N.A. N.A. 1.9 N.A N.A. 29.1% 3898 Zhuzhou CSR Times Hold High 49,371 2,890 3, % % 8.3% Ports and Containers 144 China Merchants Hold Med 67,824 4,599 5, % % 27.7% 390 China Railway Hold Med 127,700 12,353 12, % % 136.2% 1186 China Railway Con Hold Med 118,006 13,311 13, % % 133.9% 1199 COSCO Pacific Hold Med 26,670 2,272 2, % % 40.3% 1800 China Communications Hold Med 131,018 14,660 15, % % 205.1% 2880 Dalian Port (PDA) Hold Med 12, % % 74.3% 3378 Xiamen International Hold Med 4, % % 33.0% 3382 Tianjin Port Hold Med 6, % % 65.5% Shipping 316 OOIL Hold High 18, , % % 78.0% 317 Guangzhou shipyard Hold High 5, % % 92.9% 1138 China Shipping Dev Hold High 16,719 1,214 2, % % 56.9% 1919 China COSCO Holdings Hold High 30,137-11, N.A. N.A. 0.0% 247.6% 2866 CSCL Hold High 21,029-3, % N.A % 58.9% 2343 Pacific Basin Accumulate High 2, % % 0.0% Retailers 116 Chow Sang Sang Hold Med 8,218 1,218 1, % % 14.5% 178 Sa Sa Hold Med 6, % % 0.0% 210 Daphne Hold High 1, , % % 14.5% 330 Esprit Reduce High 13,679-3,696-2,450 (1.26) N/A N/A (5.6) 0.0% 0.0% 589 Ports Design Hold High 1, % % 51.4% 590 Luk Fook Reduce High 10,366 1,266 1, % % 0.0% 653 Bonjour Reduce Med 1, % % 12.0% 738 Le Saunda Reduce High 1, % % 0.0% 825 NWDS China Accumulate High 1, % % 10.9% 980 Lianhua Supermarket Reduce High 2, % % 984 AEON Stores Hold Med 1, % % 1.4% 1833 Intime Hold High 13, , % % 51.4% 1880 Belle Hold Med 41,159 5,812 5, % % 15.2% 2020 ANTA Sports Hold High 46,971 2,238 2, % % 15.1% 2331 Li Ning Reduce High 6,938-1, % N.A % 37.1% 3308 Golden Eagle Hold Med 16,749 1,515 1, % % 96.7% 3368 Parkson Accumulate High 2, % 3389 Hengdeli Hold High 3,123 1, % % 80.5% 3818 Dongxiang Hold High 9,180 1, % % 11.7% Textile and Garment 321 Texwinca Hold Med 10, % % 31.7% 551 Yue Yuen Hold High 45,593 3,640 3, % % 26.4% 1382 Pacific Textiles Hold High 15, , % % 1.2% 2313 Shenzhou Hold High 52,735 2,103 2, % % 20.4% 2698 Weiqiao Hold High 4, % Culinary 52 Fairwood Hold Med 3, % % 1.4% 341 Cafe de Coral Reduce Med 13, % % 0.0% 345 Vitasoy Hold Med 13, % % 12.5% 538 Ajisen Hold Med 3, % % 4.2% 573 Tao Heung Hold Med 1, % % 1.6% 968 Little Sheep Hold High 2, % % 36.3% Electronics 148 Kingboard Hold High 10,137 2,396 3, % % 41.6% 285 BYD Electronic Hold High 10,477 1, % N.A N.A. 0.0% 303 VTech Hold Med 21,833 1,541 1, % % 0.0% 522 ASM Reduce Med 25, % % 7.9% 2038 Foxconn U.R. U.R. 21,205-1, N.A. N.A. 0.7 N.A N.A. 22.4% DPS E PB (x)** ROE A PE E (x) Yield E Debt /Equity

13 Earnings Forecasts 1 QuamResearch Weekly 2016/03/11 Company Price (Mar 11) Review Date Rating Risk levels Market cap Profit A Profit E EPS E EPS growth DPS E PB (x)** ROE A PE E (x) Yield E Debt /Equity Electrical & Mechanical 57 Chen Hsong Hold High % % 8.3% 179 Johnson Electric Hold Med 20,774 1,641 1, % % 4.7% 300 Kuming Machine Hold High 1, % % 6.9% 658 China High Speed Accumulate High 7,888 1,064 1, % % 88.5% 669 Techtronic Reduce Med 53,894 1,552 1, % % 41.7% 1072 Dongfang Electric Hold High 12,826 3,121 3, % % 22.4% 1133 Harbin Power Hold High 4,172 1,229 1, % % 16.9% 1882 Haitian International Reduce High 18,673 1,227 1, % % 8.0% 2727 Shanghai Machinery Hold High 43,985 3,163 3, % % 17.3% 3339 Lonking Hold High 5, % % 66.8% Trading 494 Li & Fung Reduce Med 40,946 4,186 3, % % 63.6% 752 Pico Far East Hold High 2, N.A. N.A. N.A. N.A N.A. N.A. 0.4% Technology 700 Tencent Reduce Med 1,367,555 19,610 29, % % 25.7% 861 Digital China Hold High 9,771 1,005 1, % % 56.8% 992 Lenovo Reduce Med 71,400 6,441 3, % % 28.4% 8008 Sunevision Hold High 9, % % 0.0% Paper 3331 Vinda Reduce Med 11, N.A. N.A. N.A. N.A N.A. N.A. 47.9% 1044 Hengan Hold Med 76,935 3,519 4, % % 77.9% 1812 Chenming Hold High 11, , % % 53.9% 2314 L & M Paper Hold High 24,648 1,948 1, % % 67.0% 2689 Nine Dragons Hold High 26,995 2,166 2, % % 87.1% Media 100 Clear Media Reduce High 3, % % 0.0% 423 HKET Hold High % % 0.0% 511 TVB Reduce Med 13,228 1, % % 5.0% 2008 Phoenix Satellite TV Hold Med 7, % % 12.0% Gaming 1128 Wynn Macau Reduce High 50,137 6,485 2, % N.A N.A % 1928 Sands China Reduce High 231,589 11,803 N.A. N.A. N.A. N.A N.A. N.A. 58.8% 880 SJM Hold High 28,849 2,780 N.A. N.A. N.A. N.A N.A. N.A. 3.0% * 1 RMB = 1.17 HKD 1 USD = 7.8 HKD Change in ratings: Upgra Down New Rating Scale: Accumulate Hold Reduce The share is undervalued and investors may accumulate on weakness to secure more unrealized value. However, if investors already own excessive holdings of this stock, then they might have to reduce their holdings. Despite having the same rating of accumulate, some stocks might have higher unrealized value than others. The share is priced close to its value. If investors own excessive holdings of this stock, then they might have to reduce their holdings. Despite having the same rating of hold, some stocks might have higher unrealized value than others. The share is not attractively priced and investors should reduce exposure. Low risk Medium risk High risk Earnings predictability is high. Investors may own relatively high exposures of the share. There is a certain degree of earnings predictability. Investors may own controlled exposures of the share. However, if investors own Earnings predictability is low. Exposure should be strictly controlled. If investors own excessive holdings of this stock, then they should reduce their holdings.

14 DISCLAIMER AND RISK STATEMENT ( 免責及風險聲明 ) 證券價格可升可跌, 甚至變成毫無價值 買賣證券未必一定能賺取利潤, 反而可能會招致損失 投資者及客戶應審慎, 並在作出其投資決定時僅應視本報告為眾多考慮因素之一 所提供的投資組合未必適合所有投資者 25 May 2012 Ed 作者合理地認為所提及的資料在公佈時是準確的, 但並不保證 ( 明確或暗示 ) 該等資料的準確性 上述觀點只代表作者本人意見, 與華富財經的立場無關 華富財智所載資料並不構成招攬或要約, 或推薦購買或出售任何投資產品, 同時亦不構成達成任何交易或任何法律行為 華富財智所載資料及發表意見由華富股評團隊 ( 下稱 作者 ) 提供, 僅供參考及個人使用, 有關資料及發表意見之更改將不作向外通知 作者對華富財智所載資料及發表意見的準確性 完整性或是否最新資料並不作出任何陳述 ( 明確或默示 ) 特別是作者將無責任從華富財智刪除任何過時資料或明確標明有關資料已過時 華富財智所載資料並不構成財務 法律 稅務或其他建議, 因此不可僅基於華富財智內容而作出任何投資或其他決定 閣下於作出任何投資決定前應諮詢專業顧問的意見 作者否認就使用或進入華富財智或任何與華富財智連結之第三者網站而產生的任何損失或損害 ( 包括任何直接 間接或後果性損害 ) 的所有責任 Quamnet.com 已根據本地報刊註冊條例 ( 第 268 章 ), 於電影 報刊及物品管理辦事處正式登記成為本地註冊報紙之一 ( 中文譯本只供參考, 中英文本如有任何歧異, 概以英文為準 ) DISCLAIMER AND RISK STATEMENT The prices of securities may move up or down, and may become valueless. It is likely that losses will be incurred rather than profit made as a result of buying and selling securities. Investors and clients are cautioned and should consider this report as only a single factor in making their investment decision. The portfolio provided may not be suitable for all investors. The author reasonably believes that the information mentioned is correct at the time of release, but does not guarantee (explicitly or implicitly) the accuracy of such information. The above views are the personal opinions of the author and do not represent the views of Quamnet. Information contained in Quam Wise does not constitute solicitation or offer, or recommendation to buy or sell any investment products, at the same time, does not constitute any transaction or any legal act. Information and views in Quam Wise are provided by Quamnet Research team (author) for individual use only. No notice about changes of the related information and views will be made. The author does not make any statements (explicit or implied) for the accuracy, completeness and timeliness for the information and views in Quam Wise. In particular, the author has no responsibilities to remove any outdated information or clearly mark the related information obsolete in Quam Wise. Information in Quam Wise does not constitute any financial, legal, tax or other recommendations. Therefore, no investments or other decisions should be made only by the content of Quam Wise. Prior to making any investment decisions, you should consult the professional advisers. The author denies all responsibilities of any losses or damages (direct, indirect or consequential damages) incurred by using and accessing Quam Wise or links of third-parties' websites. Quamnet.com is officially registered with the Hong Kong Government s Office for Film, Newspaper and Article Administration as an official newspaper under the Registered of Local Newspaper Ordinance (chapter 268).