China EB (165 HK) Trading Sell: HK$17.64-HK$17.72 Last price: HK$17.64 Target price: HK$16.70 / HK$16.00 Protective stop: Close above HK$18.

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1 MARKET NEWS P R I C E C H A R T ( H a n g S e n g I n d e x ) Better-than-expected Tencent s quarterly growth became an important supporting factor of HK stock market Yesterday (15 November), the HSI fell 300 points to settle at 28,851 points. The HSCEI dropped 188 points and closed at 11,412 points. The market turnover amounted to HK$ bn with 480 gainers and 1,213 losers. The core CPI for October rose 1.8% yearly, in line with expectations, paving way for the Fed to raise rates in December. However, as the global capital risk appetite continued to decline, the stocks, which have been affected by the tax reform proposal, further retreated with the Dows and S&P 500 Index posted worse day in two months. Apart from China s worse-than-expected economic data which has triggered investors concern over the local economic downside risks, the recent trend of the bond market also captured market attention. The Treasury two-year note yield hit a nine-year high. Although the ten-year note yield also rose, the yield spread between the short-term note and the long-term note continued to become narrower, resulting in a flattening yield curve. As this trend showed the market believed that it was a mature time to raise rates, and it has been considered by the traders as a signal of weaker market confidence towards economic outlook, triggering short-term risk aversion to risky assets. Nevertheless, it is expected the pace of Fed s future rate hike would be adjusted according to its direct impact on the economy, and the conditions of the real economy could not be fully reflected just from a single indicator. Of course, the sustainability of relevant trend is worthy to pay attention with, and similar to the tax reform proposal, it is also considered to be the most direct uncertain factor to the stock market under high valuation. The Hong Kong stock market has also been significantly dragged by the investment sentiments, with the index gapped down and closed at intraday low. However, the current volatility has been within the normal range when the market is zigzagging upwards. Furthermore, the market is expected to be underpinned by the release of better-than-expected Tencent s quarterly result. WHAT S I N THE PACK Tencent Holdings (700 HK) 3Q17: Game Revenue Above Expectation; Digital Content To Take Off Tencent s total 3Q17 revenue jumped 61% yoy and 15% qoq to Rmb62b, ahead of our and consensus estimates by 5-7%. Non-GAAP EPS increased 45% yoy to Rmb1.79, above consensus and our estimates by 4-6%. GPM shrank 5ppt/1ppt yoy/qoq to 48.6%, due to heavy investment in content as well as payment and cloud services. Non- GAAP OPM dropped 1ppt/5ppt yoy/qoq to 31.9%. Maintain BUY. Target price: HK$ China EB (165 HK) Trading Sell: HK$17.64-HK$17.72 Last price: HK$17.64 Target price: HK$16.70 / HK$16.00 Protective stop: Close above HK$18.78 Sinopec (386 HK) Trading Sell: HK$5.52 Last price: HK$5.51 Target price: HK$5.20 / HK$4.99 Protective stop: Close above HK$5.83 Trailing stop: When share price hit HK$5.35, move the stop down to HK$5.72. KEY I NDICES Prev Close Chg YTD HSI Index 28, HI1 Index 28, HSCEI index 11, SHCOMP index 3, DJI index 23, SPX index 2, NKY index 22, DAX index 12, CAC index Source: Bloomberg 5, TOP VOLUME Stock Price (HK$) Chg Value ($m) TENCENT % SMIC PING AN % ICBC-H % CCB-H % TOP GAI NERS Stock Price (HK$) Chg Value ($m) SATU HOLDINGS LT % 30.0 CISCO SYSTEMS N.A. 258% 0.0 HANBO ENT HLDGS % 30.1 C HEALTH GP % 0.48 SHUANG YUN % TOP LOSERS Stock Price (HK$) Chg Value ($m) AMGEN INC N.A. -33% 0.0 MICROSOFT CORP N.A. -39% 0.0 APPLIED MATERIAL N.A. -42% 0.0 VERTICAL INTERNA % 45.4 STARBUCKS CORP N.A. -67% 0.0 ANALYST Ivan Ip ivan.ip@uobkayhian.com.hk w w w. u t r a d e. c o m. h k 1

2 COMPANY RESULTS Tencent Holdings (700 HK) 3Q17: Game Revenue Above Expectation; Digital Content To Take Off Tencent s total 3Q17 revenue jumped 61% yoy and 15% qoq to Rmb62b, ahead of our and consensus estimates by 5-7%. Non-GAAP EPS increased 45% yoy to Rmb1.79, above consensus and our estimates by 4-6%. GPM shrank 5ppt/1ppt yoy/qoq to 48.6%, due to heavy investment in content as well as payment and cloud services. Non-GAAP OPM dropped 1ppt/5ppt yoy/qoq to 31.9%. Maintain BUY. Target price: HK$ RESULTS Online games continue to beat expectations. Tencent Holdings (Tencent) online game revenues increased 48% yoy to Rmb26.8b, 7% ahead of our estimate. Mobile games revenue surged 84% yoy in the peak season (3Q) (vs 54% in 2Q17) to Rmb18.2b, driven by existing game titles such as HoK (the Chinese version of Contra Return), Legacy TLBB and Legend of XuanYuan. PC games revenue was up 27% yoy to Rmb14.6b (vs 29% yoy in 2Q17), on another quarter of strong contributions from Dungeon and Fighter (DnF) and League of Legends (LoL). Gross profit margin (GPM) of value-added Services (VAS) shrank 5ppt/0.7ppt yoy/qoq to 59.9%, due to increase in mobile games weighting in Tencent s revenue mix. Strong performance from synergistic content platforms. According to the company, online video revenue increased more than 100% yoy in 3Q17, in which video advertising revenue grew over 70% yoy. Video subscriber base more than doubled yoy to exceed 43m, driving equally strong subscription revenue growth. According to AppAnnie, Tencent Video ranked No.1 in the entertainment category in China. Social network revenues increased by 56% (51% in 2Q17) to Rmb15.3b, primarily driven by digital content services such as live broadcasting and video subscription. Online advertising increased 48% yoy (vs 55% in 1Q17) to Rmb11b on video services and news feeds. GPM of online ads was flattish yoy but shrank 1.5ppt yoy to 36%, due to increased video content investment and traffic acquisition. 800m paying users and offline payment volume up 280% yoy. Other (payment/cloud) revenues grew 143% yoy (vs 177% yoy in 2Q17) in the quarter to Rmb12b. Both cloudand payment-related services maintained triple-digit yoy revenue growth. Payments grew faster with 800m active payment monthly active users (MAU) (vs 600m in 4Q16) and monthly offline payment volume increased 280% yoy. GPM for the segment was at 20.3%, an improvement of 2.2ppt yoy but a 1.1ppt decrease qoq. With regard to profitability, the company expects marketing expenses and human resource expenses would continue to weigh on margins. ANALYST(S) Julia Pan Meng Yao ext 808 juliapan@uobkayhian.com Pierce Qian ext 801 pierceqian@uobkayhian.com w w w. u t r a d e. c o m. h k 1

3 STOCK IMPACT Advertising revenue. Media advertising revenue grew 29% yoy (vs 48% yoy in 2Q17), flattish qoq, due to the high base impact from the Olympics event in 3Q16 and reduced advertising inventory of TianTian KuaiBao. Social and others advertising revenue grew 63% yoy (vs 61% in 2Q17), driven by Weixin. Survival shooter games to be the key theme in game pipeline. On 14 November, Tencent released a survival shooter expansion pack called Deserted Island for CrossFire mobile. In late-november, it will release a new survival shooter game, Glorious Mission. Each of these titles already accumulated over 20m registrations in the first week of availability and during the pre-launch registration campaign for Glorious Mission. However, we find that the monetisation potential of such games could still be low as these types of games tend to offer a fair competitive environment for both paying and nonpaying players. Potential monetisation could take place in the form of instating upfront payments for the game and the sale of loot boxes. Mobile-based digital content businesses are synergistic. Tencent launched the Content Open Platform on 9 November, which provides intelligent connections for partners, builds an ecosystem for content providers and creates a cloud platform for content. For dramas -which are most popular among consumers and revenue-generating - Tencent is focused on target users within its large user base and has successfully expanded its young female user base in the recent quarters. For variety shows, it has accumulated expertise in co-producing differentiated shows tailored to young audiences. For animation, Tencent has a rich anime IP pool from China Literature (its e-book company) and multiple investments in leading domestic studios. In addition, anime content can also support its game business. For example, the famous IP Fighter of the Destiny which started off under China Literature has been adapted into an anime, a TV drama and a mobile game. For movies, it has a rich library of domestic and Hollywood studio productions. EARNINGS REVISION/RISK We raise our top-line estimates by 2% and 3% on better-than-expected game revenue growth and strong outlook for content driving platforms in 2017 and We trim our GPM and non-gaap operating margin assumptions by 0.5ppt and 1.5ppt for 2018 and bottom line forecast by 2% due the heavy investment in content and payment services which would still weigh on margins. VALUATION/RECOMMENDATION Maintain BUY with a target price of HK$ Our valuation is based on 2018F SOTP, implying a 48x PE on 2018F non-gaap EPS. SHARE PRICE CATALYST Positive catalysts include, a) newly-launched content platform to boost the media related subscription revenue and advertising revenue, b) higher-than-expected social network penetration into lower-tier cities, c) better-than-expected demand for mobile advertising. w w w. u t r a d e. c o m. h k 2

4 TRADERS CORNER China EB (165 HK) Trading Sell: HK$17.64-HK$17.72 Last price: HK$17.64 Target price: HK$16.70 / HK$16.00 Protective stop: Close above HK$18.78 The stock broke below a rising trendline (formed since Jan 17) yesterday with a larger black candle. The 20-day moving average is turning down and playing a resistance role. The RSI also broke below an ascending trendline and is heading downwards. The MACD crossed below its signal line and is likely to cross below 0 in the coming sessions. Source: MetaStock As long as the key resistance at HK$18.78 holds on the upside, look for a further drop towards HK$16.70 and HK$ Investors should close their positions if share price breaks above the key resistance at HK$ Average time frame: 2.0 months (abort this trade idea if the stock cannot hit the entry price range within 3 trading days). Sinopec (386 HK) Trading Sell: HK$5.52 Last price: HK$5.51 Target price: HK$5.20 / HK$4.99 Protective stop: Close above HK$5.83 Trailing stop: When share price hit HK$5.35, move the stop down to HK$5.72. Share price broke below the key support at HK$5.59 on Wednesday. The cloud, descending 20-day and 50-day moving averages are playing resistance roles. The RSI is below its neutrality level at 50 and is heading downwards. The MACD crossed below its signal line below 0. Source: MetaStock As long as HK$5.83 holds on the upside, look for a further drop towards HK$5.20 and HK$4.99. Investors should close their positions to control risk if share price breaks above HK$5.83. Average time frame: 2 months (abort this trade idea if the stock cannot hit the entry price range within 2 trading days). ANALYST Joyce Chan CMT Joyce.chan@uobkayhian.com.hk w w w. u t r a d e. c o m. h k 3

5 FOC NEWS Market News On Wednesday (15 November), the balance of Northbound Trading of Shanghai- Hong Kong Stock Connect was RMB billion, accounted for about % of the daily quota of RMB 13 billion. The balance of Southbound Trading was RMB billion, accounted for about 87.66% of the daily quota of RMB 10.5 billion. The balance of Northbound Trading of Shenzhen-Hong Kong Stock Connect was RMB billion, accounted for about % of the daily quota of RMB 13 billion. The balance of Southbound Trading was RMB billion, accounted for about 88.02% of the daily quota of RMB 10.5 billion. PBOC News The People s Bank of China conducted RMB 160 billion of 7-day reverse repos at the interest rate of 2.45%, RMB 140 billion of 14-day reverse repos at the interest rate of 2.6%, and RMB 30 billion of 63-day reverse repos at the interest rate of 2.9% yesterday. The matured reverse repos for yesterday amounted to RMB 110 billion. There was a net injection of RMB 220 billion for yesterday. Stock Results China Gas Holdings (384 HK, HK$23.05) issued a positive profit alert, predicting the consolidated net profit attributable to the owners of the company for the six months ended 30 September 2017 to increase by more than 90% when compared with that for the six months ended 30 September The stock fell 1.9% yesterday. CSPC Pharma (1093 HK, HK$15.28) announced the results for the first three quarters ended September. Net profit rose 30.4% yearly to HK$2.044 billion. Turnover rose 21.2% yearly to HK$ billion. Gross profit rose 41.2% yearly to HK$6.552 billion. The stock rose 0.1% yesterday. SMIC (981 HK, HK$11.70) announced the third quarter results ended September. Net profit amounted to D25.9 million, showing a yearly decline of 77.2%. Revenue fell 0.7% yearly to $770 million. Gross profit dropped 23.6% yearly to $177 million. Gross margin dropped 7 ppt to 30%. The stock fell 13.7% yesterday. Man Wah Holdings (1999 HK, HK$7.45) announced that for the interim period as of the end of September, turnover rose 28.8% yearly to HK$4.627 billion. Gross profit rose 14.1% yearly to HK$1.773 billion. Turnover fell 10.2% yearly to HK$4.627 billion. The stock rose 1.2% yesterday. Stock News It is reported that, BYD (1211 HK, HK$68.10) Canada spokesman Ted Dowling said the company plans to open its first assembly plant in Canada. It expects to make an announcement in a few weeks.the stock fell 4.5% yesterday. GAC Group (2238 HK, HK$20.45) announced that, the company and Guangdong Meizhou New & Hi-tech Industrial Development Zone Management Committee signed a letter of intent of entry, as the company planned to set up GAC Parts Industrial Park there. The total investment is RMB 1.6 billion. The stock fell 1.9% yesterday. E C O N O M I C C A L E N D A R Event Period Survey Prior Nov 16 (Thu) Total Net TIC Flows Sep -- $125b EC CPI YoY Oct % Initial Jobless Claims Philadelphia Fed Business Outlook Industrial Production MoM Nov 17 (Fri) Nov Nov Oct 0.5% 0.3% Housing Starts Oct 1165k 1127k Building Permits Oct 1239k 1215k Nov 20 (Mon) Leading Index Oct % Nov 21 (Tue) Chicago Fed Nat Activity Index Existing Home Sales Nov 22 (Wed) EC MBA Mortgage Applications Initial Jobless Claims Durable Goods Orders Consumer Confidence U. of Mich. Sentiment Nov 23 (Thu) EC EC Markit Eurozone Manufacturing PMI Markit Eurozone Composite PMI Nov 24 (Fri) Markit Manufacturing PMI Markit Composite PMI Source: Bloomberg (HK Time), UOBKayHian Oct Oct m Nov Nov Oct 0.7% 2% Nov Nov Nov Nov Nov Nov Cathay Pacific Air (293 HK, HK$11.98) announced for the connected transaction. The company purchased minority interest in AHK Air Hong Kong Limited from Deutsche Post International B.V. (a wholly owned subsidiary of DHL, as vendor), being million class B ordinary shares in AHK held by the vendor, representing 40% of the issued share capital of AHK. Upon completion of the share transaction, AHK will become a wholly owned subsidiary of Cathay Pacific. The stock remained unchanged yesterday. Shanghai Pharma (2607 HK, HK$19.34) would acquire the entire equity interest in Cardinal Malaysia for a Reference Final Payment of $557 million. The stock rose 0.6% yesterday. w w w. u t r a d e. c o m. h k 4

6 Colour Life (1778 HK, HK$4.95) announced that the company planned to acquire 100% stake in Shenzhen Wanxiang, a property management business, from its controlling shareholder Fantasia (1777 HK, HK$1.11) at a consideration of RMB2.012 billion. Colour Life rose 1.4% and Fantasia fell 0.9%. Shui On Land (272 HK, HK$1.94) and Socam Development (983 HK, HK$1.86) separately announced that they agreed to sell all the 61.54% share interest and 28.2% share interest in Richcoast Group Limited and the liabilities thereon to Yida China (3639 HK, HK$2.10) at a consideration of RMB3.16 billion and RMB1.3 billion respectively. Losses arising from the disposal to Shui On Land and Socam Development are RMB495 million and RMB132 million respectively. Shui On Land remained unchanged; Socam Development rose 3.3%; Yida China remained unchanged. Yuexiu Property (123 HK, HK$1.43) announced that the company agreed to sell 67% interest in a property development project on the waterfront of Hankou District in Wuhan, Hubei Province and the shareholders' loan to Yuexiu REIT, which the company owns % interest. The consideration for the sale of the sale shares and assignment of the shareholder s loan is the agreed disposal amount, being RMB2.28 billion. The company is expected to record a gain (after taxation) of approximately RMB400 million. The stock fell 3.4% yesterday. China Soft Power (139 HK, HK$0.142) announced that the company, from the open market, acquired 3 million shares of CMBC Capital (1141 HK, HK$0.66) on 14 November, at a consideration of roughly HK$1.921 million. Currently, China Soft Power held 7.91% of the total issued share capital of CMBC Capital. China Soft Power fell 2.1% and CMBC Capital rose 3.1%. Yihai International (1579 HK, HK$6.48) announced that Shi Yonghong was appointed as the chairman of the company in place of Gou Yiqun as Gou wants to devote more time for business affairs which do not compete with the business of the company. The stock fell 4.3% yesterday. Stock Data Dongfeng Group (489 HK, HK$10.06) announced that in October 2017, car sales volume rose 6.1% yearly to about 313,600 units; production volume rose 3.1% yearly to about 294,100 units. For the first ten months of 2017, cumulative car sales volume and production volume were million and million respectively, up by 5.6% and 6.5% yearly. The stock fell 2% yesterday. IPO News Yixin (2858 HK) announced that it received an over-subscription of times. One-lot (500 shares) success rate is 10%. The stock is priced at HK$7.7, which is the upper limit of the offer price range. The listing in the shares of the company is expected to commence on 16 November. w w w. u t r a d e. c o m. h k 5

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