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1 June 27, 2016 Company background. Shun Tak Holdings, which was listed on the main board in 1973, is a conglomerate with businesses including property, transportation, hospitality and investment. Most of its revenue comes from Macau and Hong Kong. The Ho family controls the Company with a combined 58.2% stake. Recap of the transaction with the Abu Dhabi Investment Authority (ADIA). Last Wednesday, Shun Tak announced that it will sell a 50% stake in the Nova City Phase 5 shopping centre (under development) to the ADIA for a total consideration of HK$3.2bn. It is located in Taipa, Macau and has a GFA of 655,000 sq. ft. Shun Tak will collect net proceeds of about HK$3bn and book a pre-tax profit of HK$1.3bn (17.8% of its market cap). Potential for more cooperation with the ADIA. In our discussion with Shun Tak, we learned that one of the goals of the Nova City Phase 5 shopping centre deal with the ADIA was to form a strategic partner relationship. It was not a one-off transaction for short-term capital gains. The Company sees the potential to work with the ADIA because of the latter s investment experience in a wide range of sectors and regions. However, no details have been provided yet. No decision on a special dividend. Since the payment from the ADIA will be settled by installments, with the last payment expected to be settled in Q4 2018, the Company has not made a decision on the payment of a special dividend. The pre-tax disposal gain of about HK$1.3bn will be booked when the deal is fully completed. Property profit to see strong recovery in The Company s revenue from its property business dropped 85% year-on-year (YoY) to HK$869m in 2015 because of very limited booking of property sales. It expects the revenue booking this year to remain relatively low as sales are expected to come mainly from the Chung Hom Kok Collection, a relatively small luxury residential project with a salable GFA of about 26,000 sq.ft (five houses in total). It plans to sell two units this year; we understand the market price of nearby houses is about HK$50,000-80,000/sq. ft. Property revenue should pick up mildly in 2017 from sales of about 100 units of Nova City Phase 4 (ASP about HK$11,500/sq. ft with average unit size of >1,000 sq.ft. In 2018, revenue booking is likely to be much stronger thanks to Nova City Phase 5 (under development) with a GFA of 2.3m sq. ft. The ASP of nearby projects is about HK$8,000/sq. ft. now. This implies the total revenue of the project may reach about HK$18bn (71% of which is attributable to Shun Tak). We estimate potential attributable pre-tax profit to Shun Tak is about HK$6.5bn (89% of its current market cap). SHUN TAK (0242.HK; NOT-RATED) (HK$) Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 Jun16 Turnover (RHS) Price (LHS) Market Cap: US$941m; Free Float: 37.3% Source: Bloomberg Other promising projects but time required to realize value. Shun Tak owns a 24% stake in Beijing Tongzhou Integrated Development (residential, office and serviced apartments) Phase 1 (GFA: 334,000 m 2 ) and a 19.35% stake in Phase 2 (GFA: 300,000 m 2 ). The projects, which are expected to be completed in 2018, will benefit from the authorities decision to pick Tongzhou to share some of the functions of the Beijing municipal government. According to press reports, the ASP for residential housing in Tongzhou reached RMB35,000/m 2 in May. Another key project is the 70%- owned Hengqin Integrated Development (office, serviced apartments, hotel, commercial) (GFA: 131,000 m 2 ) near Macau. The expected completion date is About 75% of the GFA will be reserved for leasing. In the medium term, the Company intends to increase its revenue contribution from rental income. (more on next page) (HK$ million) HK$ E 2017E Revenue (m) 9,151 4,116 4,762 5,034 COGS (m) (4,670) (1,495) n.a. n.a. Gross profit (m) 4,482 2,621 n.a. n.a. Gross margin (%) n.a. n.a. EBIT (m) 3, ,315 1,899 Net profit (m) 4, Net margin (%) Core net profit 2, EPS ROE (%) Dividend yield (%) PER (x) PBR (x)

2 Transportation business to remain resilient thanks to low oil prices. Although TurboJET s flagship Hong Kong-Macau ferry routes reported a 2% decline in total passenger throughput (14m) last year, adjusted segment profit still grew 218% YoY to HK$321m as a result of lower fuel costs. As oil prices remain at a relatively low level this year, we expect the transportation business to continue to report earnings growth in 2016, despite lower passenger numbers. Outlook for hospitality business to remain challenging but limited impact on overall performance. The weakness of the Macau tourism industry has adversely affected the Company s hotel business. The occupancy rate for the Mandarin Oriental, Macau remains at a relatively low level. The Hong Kong SkyCity Marriott Hotel also faced some pressure on room rates, but was still able to keep its occupancy rate over 80%. Any further impact on the Company s financial performance should be limited, as this segment accounted for only 4.7% of the total adjusted segment profit in Investment segment to remain unexciting because of the indirect link with SJM (0880.HK). Shun Tak owns an effective interest in STDM of about 11.5%, which in turn has a 54.13% stake in SJM. The performance of this segment largely reflects the dividend paid by SJM in the previous financial year. As the dividend declared by SJM in 2015 dropped about 70% YoY, it will inevitably affect the dividend to be collected by Shun Tak this year. Unexciting core earnings before 2018 but deeply undervalued; more corporate action will be the key to triggering a rerating. We believe the Company s core earnings in 2016 and 2017 will remain unexciting because of limited revenue booking from its property business and the lower indirect dividend from SJM. However, there will be a substantial jump in profit in 2018 with revenue booking from Macau Nova City Phase 5 and the one-off pre-tax profit of HK$1.3bn from the transaction with the ADIA. With a net cash position of HK$3.48bn (47.6% of total market cap) and a PBR of 0.28x (Note: NAV per share is about HK$10 based on street estimates), the Company is clearly undervalued on an absolute basis and its historical trading range. Given the lackluster earnings outlook in 2016 and 2017, further cooperation with the ADIA or other reputable partners in investment projects will be the key to drawing more attention from investors and triggering a re-rating. Figure 1: PBR of Shun Tak 0.277x Sources: Capital IQ, CGIS Research

3 Figure 2: 2015 results highlights Y/E Dec 31 (HK$'000) YoY change Revenues Turnover 9,538,561 4,405, % Property 5,909, , % Transportation 2,437,768 2,406, % Hospitality 772, , % Investment 418, , % Other Income 257, , % Total Revenues 9,795,759 4,695, % Expenses Cost of Inventories Sold and Services Provided (4,669,794) (1,494,894) -68.0% Staff Cost (1,234,493) (1,288,973) 4.4% Other Operating Costs (528,003) (636,183) 20.5% Other Gain/(Loss), Net 22,713 23, % Depreciation and Amortization (155,387) (153,820) -1.0% Fair Value Changes on Investment Properties 941, , % Share of Results of Associates 50,801 (43,753) % Share of Results of Joint Ventures 1,581, , % Finance Costs (135,408) (170,089) 25.6% Earnings before Taxes 5,668,832 1,311, % Taxes and Other Expenses Provision for Income Tax (404,999) (138,371) -65.8% Minority Interest (After Tax) (810,924) (428,297) -47.2% Net Income (Loss) 4,452, , % Core net profit 2,577, , % Adjusted segment profit Property 2,809, , % Transportation 101, , % Hospitality 93,000 56, % Investment 385, , % Supplementary Info (HK$) Basic EPS - Continuing Operations % Diluted EPS - Continuing Operations %

4 Figure 3a: Schedule of major properties

5 Figure 3b: Schedule of major properties

6 Figure 3c: Schedule of major properties

7 Figure 3d: Schedule of major properties

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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: