Yum Cha 飲茶. May 29, 2018 TALKING POINT LARGE SOUTHBOUND INFLOW TO HUANENG-H AGAIN RESEARCH NOTES SNIPPETS. INDICES Closing DoD%

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1 Yum Cha 飲茶 INDICES Closing DoD% Hang Seng Index HSCEI Shanghai COMP (0.2) Shenzhen COMP (0.2) Gold (0.3) BDIY (2.9) Crude Oil, WTI(US$/BBL) 67.9 (4.0) Crude Oil, BRENT(US$/BBL) 75.3 (1.5) HIBOR, 3-M SHIBOR, 3-M RMB/USD DATA RELEASES DUE THIS WEEK 31 May Manufacturing PMI 31 May Non-manufacturing PMI Source: Bloomberg May 29, 2018 TALKING POINT LARGE SOUTHBOUND INFLOW TO HUANENG-H AGAIN 28.00% 26.00% 24.00% 22.00% 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 14.99% 17.37% 21.48% 22.28% 1-Jan-18 1-Feb-18 1-Mar-18 1-Apr-18 1-May-18 Southbound investors' holdings in H-shares of Huaneng Power (0902.HK) 25.78% Source: HKEx After a short-term slowdown in April, southbound fund inflow to Huaneng Power (0902.HK) accelerated again in May. Southbound investors owned 25.78% of the H-shares of Huaneng Power on May 28, increased from 22.28% a month ago. On May 24, Qiu Guogen, a mainland investor, increased his stake in Huaneng H-shares from 7.96% to 8.08%. In terms of valuation, the Company is trading at 14.3x 2018E PER after a rally of 27% in the past few months. It may not look very attractive at the first glance. We don t rule out the possibility that southbound investors are focusing on the restructuring potential as the stock is trading at 0.83x 2018E PBR. Following the restructuring of Guodian Group and China Power Investment, there is restructuring potential for Huaneng as the largest IPP in China. Analyst: Wong Chi-man, CFA RESEARCH NOTES TRADING IDEA - FIRST PACIFIC [0142.HK; HK$4.13; NOT RATED] - Following a correction of >20% YTD, we see a good trading opportunity for First Pacific (0142.HK). The share price stabilized in recent weeks and has rebounded gradually. We expect the rebound to continue because (i) the total value of its major listed assets is equivalent to 216% of its market cap, still near the high end of the 3-year range; and (ii) its latest forward PER (6.8x) and PBR (0.7x) are still near the low end of the 3-year range, which should offer a good margin of safety. Currently, the Street is expecting its major listed assets to report decent earnings growth in More investors will revisit First Pacific, in our view, if these listed assets deliver results which meet market expectations. SNIPPETS XIONGAN NEW AREA DEVELOPMENT - The authorities began the international promotion of Xiongan New Area development yesterday. The Ministry of Foreign Affairs invited more than 160 countries to participate a briefing session yesterday. We may see more news flow related to the Xiongan New Area development in the near term. Please click here for the promotion video released yesterday. 1

2 TRADING IDEA FIRST PACIFIC [0142.HK; HK$4.13; NOT RATED] - TRADING AT 6.8X PER; VALUE OF LISTED ASSETS = 216% OF MARKET CAP Analyst: Wong Chi Man, CFA (cmwong@chinastock.com.hk; Tel: (852) ) Summary. Following a correction of >20% YTD, we see a good trading opportunity for First Pacific (0142.HK). The share price stabilized in recent weeks and has rebounded gradually. We expect the rebound to continue because (i) the total value of its major listed assets is equivalent to 216% of its market cap, still near the high end of the 3-year range; and (ii) its latest forward PER (6.8x) and PBR (0.7x) are still near the low end of the 3- year range, which should offer a good margin of safety. Currently, the Street is expecting its major listed assets to report decent earnings growth in More investors will revisit First Pacific, in our view, if these listed assets deliver results which meet market expectations. Company background. First Pacific is a conglomerate with an investment focus in consumer food products, infrastructure, natural resources and telecommunications. Most of its earnings are contributed by four listed companies: Indofood (50.1%- owned; the largest vertically integrated food company in Indonesia), PLDT (25.6%-owned; a leading telecommunications provider in the Philippines), MPIC (42%-owned; the largest infrastructure investment management and holding company in the Philippines), and Philex (31.2%-owned; one of the largest metal mining companies in the Philippines). First Pacific was listed on the main board in Anthoni Salim owns a 44.35% stake in the Company. Earnings breakdown. In 2017, about 35% of its profit was from Indofood, 29.7% from PLDT, 28.1% from MPIC, and 3% from Philex. Underperformance because of weakness in SE Asia stock markets. Although the share price correction of First Pacific since late January was triggered mainly by overall market weakness, its YTD performance (>20% decline) was much weaker than that of Hang Seng Index (largely flat YTD). We believe the share price performance of First Pacific was affected by the lacklustre SE Asian stock markets. For instance, the FTSE Philippines and MSCI Indonesia indices have dropped 15.5% and 10.9% YTD, respectively. Total value of listed assets = 216% of market cap. The latest total value of First Pacific s listed assets is HK$38.7bn, equivalent to 216% of its market cap, which is still near the high end of the 3-year range (Figure 2). Limited analyst coverage has led to mispricing. As shown in Figure 3, the share price performance of First Pacific YTD is weaker than that of its two major listed assets: Indofood and PLDT. This has led to a deep discount to the sum-of-the-parts valuation. We believe the phenomenon is attributable partly to limited analyst coverage (only two analysts). Major listed assets expected to deliver decent profit growth. According to market consensus, the net profit of Indofood is expected to grow 9% YoY to 4548bn rupiah in 2018E. Based on (HK$) Market Cap: US$2,286m; Free Float: 53.05% May 29, 2018 Note: Recurring net profit in 2016 and 2017 was US$265m and US$300m, respectively. Source: Bloomberg, Company Data FIRST PACIFIC (HK$ million) May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Turnover (RHS) Price (LHS) US$ E 2019E Revenue (m) 6,779 7,297 7,517 7,980 EBIT (m) 856 1,006 1,079 1,192 Net profit (m) Net margin (%) EPS ROE (%) Dividend yield (%) PER (x) PBR (x) the guidance issued in March, PLDT is expecting its recurring net profit to grow >5% YoY to 23-24bn PHP. Meanwhile, the Street is projecting the net profit of MPIC and Philex to grow 11% and 24% YoY, respectively. If these companies can deliver results that meet market expectations, we expect more investors to revisit First Pacific, as the stock is trading at merely 6.8x 2018E PER. Relatively large margin of safety. First Pacific is trading at 6.8x 2018E PER and 0.66x PBR, which is near the low end of the 3-year range (Figure 4 and 5). With such low market expectations, we see limited downside risk, unless the Company misses the market consensus forecast significantly. The 0.66x PBR may look too conservative if the Company achieves ~10% ROE. Although the stock has limited analyst coverage, we see decent trading volume on a daily basis. In the past three months, the average daily turnover of First Pacific has been about HK$30m. Major risk factors: Sharp depreciation of the rupiah and PHP; the results of its major listed assets miss market consensus

3 Figure 1: First Pacific s major listed assets Company name Ticker Stake Attributable market cap (HK$m) Indofood INDF IJ Equity 50.10% 17,460 PLDT TEL PM Equity 25.60% 10,708 MPIC MPI PM Equity 42.00% 9,379 Philex PX PM Equity 31.20% 1,180 Total 38,727 Market cap of First Pacific 17,932 Sources: Bloomberg, CGIS Research Figure 2: Total value of listed assets/ market cap of First Pacific 250% 240% 230% 220% 210% 200% 190% 180% 170% 160% Sources: Bloomberg, CGIS Research Figure 3: Relative performance of First Pacific s listed assets

4 Figure 4: Forward PER of First Pacific 13.00x 12.00x 11.00x 10.00x 9.00x 8.00x 7.00x 6.00x 5.00x Figure 5: Forward PBR of First Pacific 1.30x 1.20x 1.10x 1.00x 0.90x 0.80x 0.70x 0.60x

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