INVESTMENT DAILY NOTE

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1 INVESTMENT DAILY NOTE Market Highlights Content Trends of HSI, HSCEI Market and HSI Up/Down Ratios Result Calendar Stock in Focus Today s Top Picks Overview of Sector Performance Forward P/E and Valuations of Major Indices Market Data Previous day s best and worst performers; HSCI volume filter; Most short sold stocks; Interest rates, exchange rates, precious metals and commodities A-share premium to H-share Top 20 most traded ETFs Economic data and event calendar According to Reuters, People s Bank of China has started an investigation into the accuracy of commercial banks' data on non-performing loans (NPLs). Actual situation of NPLs may be worse than current level, and this is negative to China s banks. Newly amended regulations toward China stock suspensions will soon be announced next week, reported by CNSTOCK, and this could raise the possibility of MSCI inclusion of A-shares. HSI may possibly rebound on the news, but be cautious at resistance 20,000 pts. Equity Indices Close d-d YTD Hang Seng Index 19, (9.3) HSCEI 8, (14.0) Shanghai Comp 2, (19.4) Shenzhen Comp 1, (21.4) DJIA 17, S&P 500 2, Nasdaq Comp 4, (4.6) FTSE 100 6, (1.5) DAX 9, (7.4) CAC 40 4,312 (0.2) (7.0) Nikkei , (12.8) Taiwan Weighted 8, (3.2) Hong Kong Market Turnover HSI HK$bn d-d % HSCCI % HSCEI % Main Board % External Market Conditions US stocks rose amid gains in energy and technology shares. Dow closed at 17,711, up 175 points. S&P 500 closed at 2,066 points, up 20 points. NASDAQ closed at 4,775 points, up 58 points. ADRs rose in the U.S. market, with their closing prices effectively putting HSI up 93 points, closing at 19,977. Oil prices surged as Goldman Sachs said the market is lacking crude supply. New York crude oil futures closed at US$47.72/bbl, up US$1.51. New York gold futures settled at US$1,274.20/oz, up US$1.5. Yesterday s Hong Kong Equities Hong Kong stocks veered from the previous three consecutive days of declines and rose with stock markets in Asia Pacific. The HSI climbed over 250 points to a day s high yet was unable to recover the 20,000-point threshold. The index finished the day at 19,883, up 164 points. The HSCEI rose 11 points to close at 8,312. Total turnover of the Main Board was HK$56.4bn. Domestic consumption stocks fared well. Want Want China (151.HK, HK$5.75) s major shareholder bought more stakes in the company in May. The stock advanced 4.5%. The market expected Tencent (700.HK, HK$159.90) to report good Q1 results. Capital flowed into the stock ahead of result announcement. The stock gained 3.1%.

2 Trends of HSI and HSCEI HSI: Closed at 19,883 Source: Bloomberg and SHKF HSCEI: Closed at 8,312 Source: Bloomberg and SHKF 2

3 % Hang Seng Index % Hang Seng Index INVESTMENT DAILY NOTE Market and Hang Seng Index Up/Down Ratios It captures the proportion of rising /falling stocks of the market */HSI in the past seven trading days to evaluate the market performance. *About 1,700 listed companies in mainboard, excluding growth enterprise market(gem), ETF, unlisted and suspended companies. Market Up/Down Ratio 100% 20,300 90% 80% 21.3% 26.0% 26.1% 27.2% 27.8% 21.5% 27.3% 20,200 20,100 70% 60% 50% 40% 30% 20% 10% 0% 39.9% 37.6% 35.1% 46.9% 63.6% 47.0% 58.7% 34.0% 35.1% 37.6% 27.1% 25.2% 15.1% 19.8% 6-May 9-May 10-May 11-May 12-May 13-May 16-May 20,000 19,900 19,800 19,700 19,600 19,500 19,400 Unchange Down Up HSI Date Hang Seng Index Up/Down Ratio 100% 90% 92% 38% 40% 76% 72% 78% 20,300 20,200 80% 70% 60% 50% 40% 30% 20% 10% 0% 24% 58% 56% 58% 18% 26% 20% 8% 6-May 9-May 10-May 11-May 12-May 13-May 16-May 20,100 20,000 19,900 19,800 19,700 19,600 19,500 19,400 Unchanged Down Up HSI Date Source:Bloomberg and SHKF 3

4 Result Calendar This table may not be exhaustive and is for reference only. Investors can refer to HKEx. Date Stock Name Stock Code Type Period 17/05/2016 CAR INC 699 1ST QUARTER RES 3-MTH-ENDED31/03/16 17/05/2016 COMTEC SOLAR 712 QUARTER RESULTS 3-MTH-ENDED31/03/16 17/05/2016 JOHNSON ELEC H 179 FIN RES/DIV Y.E.31/03/16 17/05/2016 VTECH HOLDINGS 303 FIN RES/DIV Y.E.31/03/16 18/05/2016 ASMC 3355 RESULTS 3-MTH-ENDED31/03/16 18/05/2016 CSPC PHARMA ST QUARTER RES 3-MTH-ENDED31/03/16 18/05/2016 EMPEROR CAPITAL 717 INT RES/DIV 6-MTH-ENDED31/03/16 18/05/2016 LE SAUNDA 738 FIN RES/DIV Y.E.29/02/16 18/05/2016 SINO BIOPHARM ST QUARTER RES/DIV 3-MTH-ENDED31/03/16 18/05/2016 TENCENT 700 1ST QUARTER RES/DIV 3-MTH-ENDED31/03/16 18/05/2016 TPV TECHNOLOGY 903 QUARTER RESULTS 3-MTH-ENDED31/03/16 18/05/2016 TRULY INT'L 732 1ST QUARTER RES 3-MTH-ENDED31/03/16 18/05/2016 ZHEJIANGEXPRESS 576 1ST QUARTER RES 3-MTH-ENDED31/03/16 19/05/2016 KINGSOFT 3888 RESULTS 3-MTH-ENDED31/03/16 19/05/2016 PARKSON GROUP ST QUARTER RES 3-MTH-ENDED31/03/16 20/05/2016 GLOBAL TECH 143 INT RES/DIV 6-MTH-ENDED31/03/16 20/05/2016 LC GROUP 1683 INT RES/DIV 6-MTH-ENDED31/03/16 20/05/2016 NIRAKU 1245 FIN RES/DIV Y.E.31/03/16 23/05/2016 TSE SUI LUEN 417 FIN RES/DIV Y.E.29/02/16 24/05/2016 BELLE INT'L 1880 FIN RES/DIV Y.E.29/02/16 24/05/2016 PHOENIXHEALTH 1515 FIN DIV Y.E.31/12/15 24/05/2016 TIANGE ST QUARTER RES 3-MTH-ENDED31/03/16 25/05/2016 MAN WAH HLDGS 1999 RESULTS/FIN DIV Y.E.31/03/16 26/05/2016 TINGYI 322 1ST QUARTER RES 3-MTH-ENDED31/03/16 27/05/2016 SINCERE 244 FIN RES Y.E.29/02/16 27/05/2016 WATER OASIS GP 1161 INT RES/DIV 6-MTH-ENDED31/03/16 3/6/2016 SE ASIA PPT 252 FIN RES/DIV Y.E.31/03/16 24/06/2016 EAGLE NICE 2368 FIN RES/DIV Y.E.31/03/16 27/06/2016 LEE KEE 637 FIN RES/DIV Y.E.31/03/16 29/06/2016 MODERN BEAUTY 919 FIN RES/DIV Y.E.31/03/16 16/08/2016 HAECO 44 INT RES/1ST INT DIV 6-MTH-ENDED30/06/16 17/08/2016 CATHAY PAC AIR 293 INT RES/1ST INT DIV 6-MTH-ENDED30/06/16 18/08/2016 SWIRE PACIFIC A 19 INT RES/1ST INT DIV 6-MTH-ENDED30/06/16 18/08/2016 SWIRE PACIFIC B 87 INT RES/1ST INT DIV 6-MTH-ENDED30/06/16 Source:HKEx 4

5 Stock in Focus CRCC HIGH-TECH-H (1786.HK) Last Close 4.25 Entry 4.00 Target 4.95 Stop-loss 3.46 YTD/1M/3M/12M % Change Market Cap 3M Average Daily Volume FY1 Forward P/E %/-9.4%/13.9%/#N/A N/A% HK$6.46bn 1.05mn shares CRCC High-Tech Equipment: Flashing buy signal with attractive outlook for maintenance machinery The railway running map adjustment covering the largest area in ten years went into force last Sunday (15 May), focusing on the speed raise of the Beijing-Tianjin-Hebei track, which involves increasing the frequencies of intercity long-distance passenger trains and morning and evening suburban high-speed trains in the Beijing-Tianjin-Hebei region. This is a plus factor for Chinese railway-related companies. CRCC High-Tech Equipment (1786.HK, HK$4.34) is principally engaged in machinery manufacture, part sales and product overhaul services. The company is ranked Asia s first and the world s second in terms of sales revenues of railway machinery manufacturers in It is well positioned to benefit from the progressing Beijing-Tianjin-Hebei railway blueprint. In 2014, CRCC High-Tech Equipment s revenue and net profit climbed 14.3% and 25.7% respectively from a year earlier. The Chinese government is aggressively modernising the hardware of its railways nationwide. According to a report of Insights Consultancy, between 2014 and 2019 inclusive, China s railway large-scale maintenance machinery market and overhaul service market are forecast to see compound annual growth rates (CAGRs) of 9.3% and 35.7% respectively. Accordingly, CRCC High-Tech Equipment is flashing long-term investment value. The company has technological advantages. It is the major writer of the Chinese National Railway Administration s railway large-scale maintenance machinery rules and regulations, which are adopted widely in the sector. Its advanced equipment and overhaul technologies place it flavourably in the One Belt, One Road development. The China International Science and Technology Cooperation Centre project is expected to generate profits one year after its commencement of commercial operation in Riding on cooperative ties with railway engineering and contracting companies including China Railway (390.HK) and China Communications Construction (1800.HK), overseas sales of its high-tech equipment and repair services may accelerate. Buy at below HK$4.00 to target HK$4.95 with a stop loss of HK$

6 CRCC HIGH-TECH-H: Target price HK$4.95 Source: Bloomberg and SHKF 6

7 Today s Top Picks Today s Top Picks selects a list of stocks whose prices are expected to increase. The selection is made through the analysis of the daily most updated market information, including price movement and technical analysis, as well as corporate news, such as change of ownership, results announcement, merger or acquisition. The above column is also published in the Broker Challenge of Hong Kong Economic Times Investment and Finance Section every Tuesday to Saturday. Kenford Group (464) Last Trading Day Closing Price:HK$ 1.05 Purchase Price:current Target Price:HK$ 1.17 Stop-loss Price:HK$ 1.00 Reason: Share price is trending up, may test 50-day MA. Source: Bloomberg, SHKF (as of 16 May 2016) Kiu Hung Int'l (381) Last Trading Day Closing Price:HK$ Purchase Price:current Target Price:HK$ Stop-loss Price:HK$ Reason: Share price rallied strongly with increasing turnover, may place a small bet.. Source: Bloomberg, SHKF (as of 16 May 2016) 7

8 Overview of Sector Performance Last day s best performing sectors d-d 5D 1M Other Metals 3.0% 1.8% 7.0% Logistics 2.6% 4.4% -4.0% Heavy Machinery 2.5% -1.2% -16.8% Infrastructure 2.1% 0.2% -10.9% Brokerages 2.0% -2.1% -16.3% Steel 1.8% -0.1% -13.7% Coal 1.6% -4.8% -15.3% Consumer Staples 1.3% 1.8% -2.3% Sports accessories 0.8% -1.3% -4.0% Gaming 0.8% -0.7% -13.2% Chinese Telecoms 0.6% 0.4% -9.6% Marine 0.6% 0.1% -11.6% Chinese Property 0.6% -4.3% -11.9% Airline 0.5% -2.0% -7.2% Building Materials 0.5% -0.5% -11.8% Major stocks of best performing sectors Other Metals Jiangxi Copper ( 358 ), CMOC ( 3993 ), Zhaojin Mining ( 1818 ), Zijin Mining ( 2899 ) Logistics Kerry Log Net ( 636 ), SITC ( 1308 ) Heavy Machinery Sany Int'l ( 631 ), Zoomlion ( 1157 ), Lonking ( 3339 ), Sinotruk ( 3808 ) Infrastructure China Railway ( 390 ), China Railway Cons. ( 1186 ), CSR Corp. ( 1766 ), China Comm. Cons. ( 1800 ), China Machinery Eng. ( 1829 ) Brokerages First Shanghai ( 227 ), Central China Sec. ( 1375 ), CITIC Sec. ( 6030 ), Haitong Sec. ( 6837 ), China Galaxy Sec. ( 6881 ) Steel Angang Steel ( 347 ), Maanshan Iron ( 323 ), Shougang Res ( 639 ) Coal China Shenhua ( 1088 ), Yanzhou Coal ( 1171 ), China Coal ( 1898 ) Consumer Staples Want Want ( 151 ), Uni-President ( 220 ), Tingyi ( 322 ), Hengan Int'l ( 1044 ), Sun Art Retail ( 6808 ) Sports accessories 361 Degrees ( 1361 ), Xtep Int'l ( 1368 ), Peak Sport ( 1968 ), Anta Sports ( 2020 ), Li Ning ( 2331 ) Gaming Galaxy Ent. ( 27 ), SJM Hldg ( 880 ), Wynn Macau ( 1128 ), Sands China ( 1928 ), MGM China ( 2282 ) Chinese Telecoms China Telecom ( 728 ), China Unicom ( 762 ), China Mobile ( 941 ) Marine OOIL ( 316 ), Sinotrans Ship ( 368 ), Cosco Pacific ( 1199 ), Pacific Basin ( 2343 ), CSCL ( 2866 ) Chinese Property COLI ( 688 ), China Res Land ( 1109 ), Sunac ( 1918 ), Country Garden ( 2007 ), Evergrande ( 3333 ) Airline Cathay Pacific ( 293 ), China East Air ( 670 ), Air China ( 753 ), China South Air ( 1055 ) Building Materials Shanshui Cement ( 691 ), Anhui Conch ( 914 ), China Res Cement ( 1313 ), BBMG ( 2009 ), CNBM ( 3323 ) 8

9 Forward P/E and Valuations of Major Indices HSI 16 HSCEI Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Prospective P/E Average +/- 1 s.d. 6 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Prospective P/E Average +/- 1 s.d Shanghai Composite 6 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Prospective P/E Average +/- 1 s.d. S&P Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Prospective P/E Average +/- 1 s.d. Source: Bloomberg, SHKF Valuations and estimated earnings growth of major indices FY16E P/E (X) Long-term avg. fwd. P/E (X) Deviation from avg. FY1 EPS growth FY2 EPS growth Hang Seng Index (1.9) (7.5) 10.3 HSCEI (13.4) (5.2) 9.3 Shanghai Comp S&P

10 Market Data Previous day s best and worst performers Stock code Price (HK$) 1D chg 5D chg 1M chg YTD chg Turnover (HK$m) FY1 P/E (X) FY2 P/E (X) Best CHINA PUBLIC PRO 1094.HK N/A N/A CMOC-H 3993.HK MAANSHAN IRON-H 323.HK N/A N/A DAH CHONG HONG 1828.HK WANT WANT CHINA 151.HK Worst CHINA PRECIOUS M 1194.HK N/A N/A EMPEROR WATCH & 887.HK N/A 23.0 EMPEROR WATCH & 887.HK N/A 23.0 WANDA HOTEL DEV 169.HK N/A N/A YUEXIU PROPERTY 123.HK Note: Best and worst performers from HSI, HSCEI, HSCI HSCI volume filter Company Stock code Price (HK$) 1D chg Avg. vol. (m shares) Prev. vol. (m shares) % increase FY1 P/E CHINA PUBLIC PRO 1094.HK N/A N/A YUEXIU PROPERTY 123.HK CMOC-H 3993.HK VINDA INTL HLDGS 3331.HK GOLDEN EAGLE RET 3308.HK KB LAMINATES 1888.HK YUEXIU TRANSPORT 1052.HK GREATVIEW ASEPTI 468.HK TSINGTAO BREW-H 168.HK YASHILI INT'L 1230.HK Note: Based on volume change from last 30 trading days average of HSCI constituents (X) FY2 (X) P/E Most short sold stocks Company Stock code Price (HK$) 1D chg Shortsell turnover (HK$m) % of total shortsell turnover % of own turnover BANK EAST ASIA 23.HK TCC INTL HLDGS 1136.HK N/A 26.4 SINOFERT HOLDING 297.HK TOWNGAS CHINA 1083.HK SWIRE PACIFIC-A 19.HK ASM PACIFIC 522.HK SHK PPT 16.HK EVERGRANDE 3333.HK CHINA COAL ENE-H 1898.HK N/A N/A MINSHENG BANK-H 1988.HK Note: Based on short-selling turnover of constituents of HSI, HSCEI, HSCI FY1 (X) P/E FY2 (X) P/E 10

11 Interest rates Latest 5D chg (bps) 1M chg (bps) YTD chg (bps) y-y % chg U.S. 2-year Treasury yield U.S. 10-year Treasury yield U.S. 30-year Treasury yield HK 1-month HIBOR HK 3-month HIBOR SH 1-month HIBOR SH 3-month HIBOR Exchange rates Latest 5D % chg 1M % chg YTD % chg y-y % chg USD Dollar Index USD/HKD EUR/USD USD/JPY GBP/USD USD/CHF AUD/USD NZD/USD USD/CAD USD/CNY USD/CNH Precious metals and commodities Latest 5D % chg 1M % chg YTD % chg y-y % chg CRB Index Comex Gold 1, Comex Silver Nymex WTI Crude ICE Brent Crude LME Copper 4, LME Aluminum 1, CBT Wheat CBT Corn CBT Soybean

12 Companies listed on both the A-share and H-share markets A-share premium to H-share Company H share code Price (HK$) A share code Price (RMB) A-share premium to H-share Company H share code Price (HK$) A share code LUOYANG GLASS-H BAIYUNSHAN PH-H ZHEJIANG SHIBA-H HUANENG POWER-H SHENJI GROUP-H HUADIAN POWER-H GUANGZHOU AUTO-H AIR CHINA LTD-H SHANDONG MOLON-H CHINA VANKE-H JINGCHENG MAC-H PETROCHINA-H SINOPEC OILFIE-H ZTE-H NANJING PANDA-H MINSHENG BANK-H NORTHEAST ELEC-H XINJIANG GOLD-H CHINA SHIPPING-H ZIJIN MINING-H SHANDONG XINHU-H CRRC CORP LTD -H FIRST TRACTOR-H CHINA LIFE-H SHANGHAI ELECT-H CHINA COM CONS-H YANZHOU COAL-H CITIC BANK-H ANHUI EXPRESS-H LIVZON PHARM-H CHONGQING IRON-H HAITONG SECURI-H CMOC-H CHINA SHIPPING D CSSC OFFSHORE -H CHINA RAIL GR-H CHINA OILFIELD-H CHINA SHENHUA-H HISENSE KELON -H HANG SENG CHINA AH N/A N/A N/A PREMI CHINA COSCO HO-H BANKCOMM-H DATANG INTL PO-H ANGANG STEEL-H TIANJIN CAP-H SHENZHEN EXPRE-H ZHENGZHOU COAL-H SHANGHAI PHARM-H METALLURGICAL-H ABC-H DALIAN PORT PD-H CEB BANK-H ZOOMLION HEAVY-H GUANGSHEN RAIL-H BEIJING NORTH-H CM BANK-H SINOPEC SHANG-H ICBC-H DONGFANG ELECT-H BANK OF CHINA-H CHINA EAST AIR-H TSINGTAO BREW-H NEW CHINA LIFE-H CHINA RAIL CN-H ALUMINUM CORP-H CHINA PACIFIC-H CHINA COAL ENE-H CCB-H SICHUAN EXP-H CITIC SEC-H BBMG CORP-H FOSUN PHARMA-H MAANSHAN IRON-H PING AN-H SHANDONG CHEN-H GF SECURITIES-H JIANGXI COPPER-H SINOPEC CORP-H CHINA SOUTHERN-H WEICHAI POWER-H GREAT WALL MOT-H FUYAO GLASS IN-H DONGJIANG ENV-H JIANGSU EXPRES-H CIMC-H ANHUI CONCH-H BYD CO LTD-H Price (RMB) A-share premium to H-share 12

13 Top 20 most traded ETFs Price (HK$) 1D chg 5D chg 2800 TRACKER FUND HK HS H-SHARE ETF-H CSOP FTSE CH-HKD ISHARES FTSE A CHINAAMC 300-HKD SPDR GOLD SHARES CHINAAMC 300-CNY CSOP SZSE ETF-HK CSOP FTSE CH-RMB VALUEGOLD ETF HSI ETF-HKD ISHARES S&P BSE DBX VIETNAM DBX CSI DBX MSCI EM VG FTSE DE EU EF DB X-TRACKERS MS DBX INDONESIA HT CSI 300 ETF-H HARVEST CH A-HKD

14 Economic data and event calendar Country/ Date Event Period Survey Prior Mon 16 May Japan PPI YoY Apr -3.70% -3.80% Tue 17 May US Housing Starts Apr 1120k 1089k US CPI MoM Apr 0.40% 0.10% Wed 18 May Eurozone CPI YoY Apr -0.20% -0.20% US MBA Mortgage Applications 13-May % Thu 19 May US Initial Jobless Claims 14-May k US Leading Index Apr 0.40% 0.20% Fri 20 May US Existing Home Sales Apr 5.40m 5.33m Source:Bloomberg, SHKF Note:HK Time P=Preliminary;F=Final 14

15 Analyst:Kenny Wen Disclosure of Interests Research Analyst Certification Research Analyst Conflicts SHKF's Financial Interests and Business Relationships Disclaimer The views about any and all of the subject securities and issuers expressed in this report accurately reflect the personal views of the research analyst(s) primarily responsible for this report; and the analysts are paid in part based on the profitability of Sun Hung Kai Investment Services Limited ("SHKIS") and its affiliates (collectively called "SHKF") which includes revenue from investment banking activities. Financial Interests: The research analyst(s) who prepared this report and/or his/her/their associates has/have no financial interests in relation to listed corporation(s) covered in this report. Relevant Relationships: The research analyst(s) who prepared this report and his/her/their associates do not serve as officer(s) of listed corporation(s) covered in this report. SHKF may make a market in, or may, as principal or agent, buy or sell securities (or derivatives thereon) of issuer(s) mentioned in this report. SHKF may have a financial interest in the issuer(s) mentioned in this report, including a long or short position in its/their securities and/or options, futures or other derivative instruments based thereon, or vice versa. Likewise, SHKF, including its officers or employees may serve or have served as an officer, director or in an advisory capacity for any issuer(s) mentioned in this report. SHKF may also, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last 12 months for any issuer(s) referred to in this report. Information about conflicts of interest relevant to this report is available at this SHKF website: This report is provided for information and discussion purposes only. 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In no event will SHKIS or any other member of SHKF be liable or have any responsibility for loss of any kind, whether direct, indirect, consequential or incidental, resulting from the act or omission of any third party occurring in reliance upon the contents of this report even if SHKF is aware of such act or omission at the time that it occurs SHKIS. All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of SHKIS and SHKIS accepts no liability whatsoever for the actions of third parties in this respect. 15