Content. Moody s lowers outlook of China. Moody s lowers outlook of China to negative. S&P current rating on China: AA- (stable)

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1 04 Mar 2016 Moody s lowers outlook of China Content Moody s lowers outlook of China Ed Earnings of HKEx (388) weakened during 4Q Recommendations Changes to earnings and recommendations Quam Research Extra Galaxy (27): Update on 2015 results Earning s Table Earning s Table Recently, American credit rating agency Moody s lowered the outlook of China to negative. Nevertheless, the credit rating of China remains at Aa3. In this article, we explain why the outlook downgrade is good for the HK and H-share stock markets (from mid-term perspective). Moody s lowers outlook of China to negative On Wednesday, Moody s lowered the outlook on China s credit rating from stable to negative, citing risks such as slowing economic growth and possible increase of government debt level. According to Moody s, China s government debt-to-gdp ratio rose from 32.5% in 2012 to 40.6% in The ratio may increase to 43% in 2017 as the government may spend more to bolster economic growth. Despite negative outlook, the rating of China remains at Aa3, or 7 notches above junk level. In other words, Chinese government bonds remain safe from investor perspective. Customer Service: (852) support@hk.quamnet.com S&P current rating on China: AA- (stable) According to the current ratings by S&P, credit rating of China is AA- (stable outlook). Similarly, creditworthiness of Chinese government bond remains high. As a reference, sovereign credit rating from the US is AA+ while the rating from France is AA. In other words, credibility of China is similar to some Western countries. China's debt / GDP ratio is unlikely to rise significantly While Moody s may worry possible increase of debt/gdp ratio in China, the reality is that the credit rating agency could be over-worried. Instead of launching enormous fiscal stimulus policy in that focus at strong economic growth, the current China government is likely to pursue quality of growth (rather than quantity of growth). P.1 Issue No March

2 Recently, the authority indicates the possibility of the bankruptcy of some zombie state-owned enterprises (i.e. enterprises with poor profitably for some years). The central government allows restructuring plan by some state-owned enterprises with weak profitability and operating efficiency. If these enterprises fail to restructure, they may face the fate of bankruptcy. Implications for stock investors: Positive from mid-term perspective Some media and investors think the credit outlook downgrade (from stable to negative) could be bad for HK and Mainland China stock markets, the reality could be somewhat different. Indeed, Hang Seng Index (19,914), H-share index (8,372) and SCHOMP (2,856) have declined significantly since June, In other words, the panic selling activities over past 8-9 months should have priced in negative factors (e.g. slow economic growth, earnings decline from some PRC companies, RMB depreciation) that are over-talked by the media, pundits and individual investors. When most hesitate investors have sold their stocks, there is only one possibility in the market Strong market rebound from mid-term perspective Author(s):Albert Cheng, CFA P. 2 Issue No March

3 Earnings of HKEx (388) weakened during 4Q15 HKEx (388) just released its FY15 results. Despite net profit growth of 54% during FY15, both revenue and earnings levels indeed weakened during the second half of the year. Revenue and earnings weakened during the second half of 2015 For 12 months ended December 31, 2015, revenue rose 35.8% YOY to HK$13,375M while net profit rose 54.0% YOY to HK$7,956M. The management team has declared final dividend of HK$2.8 per share (2H14 DPS: HK$2.15). Full-year DPS reached HK$5.95 (FY14 DPS: HK$3.98). Despite solid full-year earnings, the reality is that HKEx reported weak earnings during the second half of 2015 (particularly in 4Q15). As illustrated in Table 1, net profit during the second half of 2015 was HK$3,861M, or 5.8% below the net profit level during the first half of If we consider quarterly performance, revenue and earnings deterioration worsened during the fourth quarter of As shown in Table 2, net profit during the fourth quarter of 2015 dropped to the level of HK$1,531M, or 34.3% lower than the level during 3Q15. As what many readers could have aware of, both HK and Mainland China stock market conditions turned weak since July, This explains the weak business and earnings performance during 4Q15. Mid-term rebound possible on stable stock market condition Unless regional stock market condition improves significantly in coming months, we think FY16 net profit level should be lower than that in FY15. Net profit in 2016 could drop to the level of HK$6,430M (EPS: HK$5.42), down 19.2% YOY. Current share price of HK$ implies FY16 P/E of 32.2x. Although we do not rule out the possibility of share price rebound in coming 3 months (note: due to stabilized stock market condition), we do not think prudent investors should consider HKEx at this moment. At least, true bottom (in terms of earnings and/or share price) of the local stock exchange operator may yet to come. Table 1: Income statement summary HK$M 1H14 2H14 FY14 1H15 2H15 FY15 Revenue 4,621 5,228 9,849 6,853 6,522 13,375 EBITDA 3,198 3,693 6,891 5,273 4,812 10,085 Net profit 2,367 2,798 5,165 4,095 3,861 7,956 Average daily turnover (HK$ B) P. 3 Issue No March

4 Table 2: Quarterly results summary in FY15 HK$M 1Q15 2Q15 3Q15 4Q15 Revenue 2,796 4,057 3,747 2,775 EBITDA 2,078 3,195 2,866 1,946 Net profit 1,575 2,520 2,330 1,531 Disclosure: Albert Cheng, the author of this document declares that as of the date of publication of this report, he does not hold 388. P. 4 Issue No March

5 Changes to earnings and recommendations Sources: Quam Maintain SJM (880): HOLD / HIGH RISK Although the company underperformed, valuation is lower than peers. Current valuation is fair. Maintain HOLD and HIGH RISK rating on this counter. Yuexiu Transport (1052): HOLD / MEDIUM RISK Valuation is fair. Maintain HOLD and MEDIUM RISK rating on this counter. Investors may consider accumulating the shares at weakness (e.g., at 8x forecasted P/E, or HK$4.22). CLP (2): HOLD / MEDIUM RISK Core net profit during FY15 rose 14.6% due mainly to higher non-hk profits and lower interest expenses. Structural risk may be potential decline of HK earnings some few years later. Permitted return on net fixed asset for HK power utility companies may decline after Maintain HOLD and MEDIUM RISK. Great Eagle (41): HOLD / MEDIUM RISK During 2015, core net profit from Great Eagle fell 7.2% due to higher operating expenses and flat revenue. Lower cash distribution income from Langham SS (1270) and Champion REIT (2778) was compensated by solid overseas hotel revenue growth. Maintain HOLD and MEDIUM RISK. HKEx (388): REDUCE / MEDIUM RISK Despite strong net profit increase in 2015, revenue and earnings levels indeed weakened during the second half of We think profit level in 2016 should be lower due to slow stock market condition. Due to possible earnings decline and unattractive P/E valuation (above 30x), we reiterate the REDUCE and MEDIUM RISK rating. Accumulate: Hold: Reduce: Low risk: Medium risk: High risk: 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 their exposures 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 excessive holdings of this stock, then they might have to reduce their holdings. 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: Galaxy (27): Update on 2015 results REDUCE and HIGH RISK Galaxy (27), one of the leading operators of casinos and entertainment resorts in Macau, just released its final results for the year ended 31 December 2015 in accordance with HKFRS. With new contribution from Galaxy Macau Phase 2 and Broadway Macau, net gaming income declined 31.7% YOY to HK$46,215M, and total revenue declined 28.9% YOY to HK$50,991M in Adjusted EBITDA declined 33.9% YOY to HK$8,736M, and recurring net profit declined 52.5% YOY to HK$5,156M during the period, which were dragged down by higher depreciation & amortization as well as employee benefit expenses on new projects launched in Galaxy declared a special dividend of HK$0.15 per share to be paid on or about 29 April Maintain REDUCE and HIGH RISK Thanks to the new contribution from Galaxy Macau Phase 2 and Broadway Macau, the company's mass market gaming income outperformed peers in However, higher operating expenses eroded the earnings growth. Priced at HK$26.10, Galaxy is trading at 2015 recurring P/E of 21.6x. Current valuation is not attractive. We maintain REDUCE and HIGH RISK rating on this counter. Earnings table HK$ M Total operating revenue 66,033 71,752 50,991 Reported net profit 10,052 10,340 4,161 Recurring net profit 10,017 10,850 5,156 Reported EPS Recurring EPS DPS Reported P/E (@HK$26.1) Recurring P/E (@HK$26.1) Source: company results and Quam estimates. Comparison with industry In 2015, Galaxy recorded mass market gaming revenue of HK$16,030M, down 2.5% YOY, much lower than the peers. The market share of mass market gaming revenue increased to 18.1% from 16.1%, but still lower than Sands China (1928) whose share was 33.4%. Opening of new facilities Broadway Macau and the Phase 2 of Galaxy Macau project commenced on 27 May In 2015, total income of Galaxy Macau declined 24.3% YOY to HK$35,502M, and adjusted EBITDA declined 29.6% YOY to HK$6,946M. Broadway Macau does not have a VIP gaming component. The property contributed revenue of HK$425M, and an adjusted EBITDA loss of HK$7M in P. 6 Issue No March

7 Income statement HK$ M 1H14 2H14 1H15 2H15 - Net gaming wins 36,365 31,262 23,365 22,850 - City Club Tips received Gaming operations 36,458 31,336 23,421 22,901 Administrative fees from gaming operations Hotel operations ,030 1,701 Sales of construction materials 1,019 1, ,009 Total revenue 38,407 33,346 25,371 25,620 Gaming taxes and premium (14,278) (12,287) (9,211) (9,022) Commission & allowances to gaming counterparties (12,143) (10,071) (6,905) (5,636) Raw materials & consumables used (528) (457) (415) (422) Depreciation & amortization (970) (915) (1,212) (1,875) Employee benefit expenses (2,524) (3,078) (3,415) (3,638) Other operating expenses (2,009) (2,396) (2,303) (2,702) Operating profit 5,956 4,142 1,911 2,326 Finance cost (17) (16) (19) (13) Other net income / gains (186) Share of results of JCEs Share of results of associates 1 (1) 0 (0) Earnings before tax 6,116 4,449 2,053 2,156 Tax expenses (144) (58) (35) (48) Minority interest (1) (21) Reported net profit 5,971 4,369 2,030 2,131 Recurring net profit 6,065 4,787 2,740 2,416 Adjusted EBITDA 7,288 5,935 4,159 4,577 Operating margin 15.5% 12.4% 7.5% 9.1% Adjusted EBITDA margin 19.0% 17.8% 16.4% 17.9% Reported net margin 15.5% 13.1% 8.0% 8.3% Recurring net margin 15.8% 14.4% 10.8% 9.4% Source: company results. P. 7 Issue No March

8 Galaxy vs. Macau gaming market (2015) HK$ M Macau gaming market Galaxy (27) Market share Gross casino revenue 224,117 46, % VIP gross gaming revenues 124,095 28, % Mass market table gross gaming revenue 88,610 16, % Slot machine gross gaming revenue 11,412 1, % Source: DICJ, company results and Quam estimates. Note: based on HK$1 = MOP1.03 Growth comparison (for 2015) YOY Growth Macau gaming market Galaxy (27) Gross casino revenue -34.3% -31.7% VIP gross gaming revenue -39.9% -42.4% Mass market table gross gaming revenue -26.7% -2.5% Slot machine gross gaming revenue -18.6% -0.9% Source: DICJ, company results and Quam estimates. Note: based on HK$1 = MOP1.03 Galaxy will commence the construction of Cotai phases 3 & 4. Site investigation works will be commenced in However, as other casino operators will launch new projects in 2016 or 2017, market supply will increase, plus the diversion from other Asian destinations, competition to intensify in future. Financials As at 31 December 2015, Galaxy held cash and cash equivalent of HK$7,717.7M (31 Dec 2014: HK$9,040.3M). It owed borrowings of HK$1,390.3M (31 Dec 2014: HK$988M), among which HK$718.9M should be repaid within one year. Galaxy was in net cash position. Key financial data Price: HK$ mth H/L: HK$42.58 / HK19.02 O/S share: 4, M Market cap: HK$111,205.2M 2015 EPS: HK$ P/E: 21.6x P. 8 Issue No March

9 BV per share (as at 31 December 2015): HK$9.65 P/B: 2.7x 2015 ROE: 13% Major shareholder: Lui Che Woo (41.28%) 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: Hold: Reduce: Low risk: Medium risk: High risk: 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 their exposures 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 excessive holdings of this stock, then they might have to reduce their holdings. 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 4) Review Date Rating 1 Risk levels Market cap Profit A Finance and banking 5 HSBC Hold Med 980, ,201 91, % % N.A. 11 Hang Seng Bank Hold Med 263,643 16,751 15, % % N.A. 23 Bank of East Asia Hold Med 68,120 4,970 3, % % N.A. 53 Guoco Hold High 26,851 6,296 N.A. N.A. N.A. N.A N.A. N.A. N.A. 388 HKEx Reduce Med 207,690 7,956 6, % % N.A. 665 HAITONG INT'L Reduce High 3, N.A. 939 China Construction Hold Med 1,197, , , % % N.A. 998 CNCB Hold High 180,723 16,265 21, % % N.A CH Bank Hold High 6, % % N.A Agricultural Bank Hold High 889, , , % % N.A ICBC Hold Med 1,427, , , % % N.A China Minsheng Bank Hold High 187,001 13,749 19, % % N.A Dah Sing Banking Hold High 17,114 1,078 1, % % N.A BOCHK Hold Med 224,672 24,280 25, % % N.A Standard Chartered Hold High 168,987-17,069 12, N.A (4.7) % N.A Bank of Hold Med 297,053 46,023 56, % % N.A China Merchants Bank Hold Med 415,942 56,333 63, % % N.A Bank of China Hold Med 865,591 92, , % % N.A. Insurance 945 Manulife Reduce Med 188,718 9,883 22, % % N.A AIA Reduce High 504,894 20,936 10, % % N.A Ping An Insurance Hold Med 283,393 24,948 37, % % N.A PICC Reduce High 177,124 12,947 15, % % N.A China Pacific Insurance Hold Med 240,596 11,860 14, % % N.A China Life Hold High 511,591 39,297 40, % % N.A. Properties 10 Hang Lung Group Hold Med 29,252 1,578 3, % % 27.9% 12 Henderson Land Hold Med 135,130 9,292 8, % % 19.6% 14 Hysan Hold Med 35,534 2,163 2, % % 8.6% 16 Sun Hung Kai Reduce Med 266,290 19,501 16, % % 18.2% 17 New World Hold High 31,015 5,618 N/A N/A N/A N/A 5.3% 45.1% 41 Great Eagle Hold Med 16,422 1,780 1, % % 37.2% 50 HK Ferry Accumulate High 3,150 1, % N.A % 0.0% 83 Sino Land Hold Med 62,804 6,094 7, % % 19.1% 101 Hang Lung Properties Hold Med 66,557 4,571 4, % % 24.3% 194 LCH Investment Hold Medium 3, % % 26.6% 405 GZI REIT Hold High 4,434 1, % % 38.0% 480 HKR Accumulate High 4,712 1, % % 25.8% 683 Kerry Properties Hold Med 28,336 6,310 5, % % 37.9% 823 Link Hold Med 102,493 3,830 4, % % 13.0% 1200 Midland Reduce High 1, % % 0.7% 688 China Overseas Reduce Med 203,533 19,000 21, % % 65.5% 1109 China Resources Land Hold High 117,685 6,027 5, % % 76.5% 2777 Guangzhou R&F Hold High 31,415 3, % % 0.0% 2868 BJ Capital Accumulate High 6, % % 98.9% Profit E EPS E EPS growth QuamResearch Weekly 2016/03/04 Construction 914 Anhui Conch Hold High 102,165 14,298 10, % % 48.3% 1893 Sinoma Accumulate High 5,464 1,000 1, % % 117.5% 2009 BBMG Hold High 22,362 2,411 2, % % 126.0% 3311 China State Hold High 42,327 1,036 1, % % 80.0% 3323 CNBM Hold High 10,528 2,729 3, % % 241.5% Hotels, Travel 45 HK & S Hotels Hold Med 11, % % 14.9% 69 Shangri-la Hold High 22,453 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 175,336 11,533 12, % % 59.6% 3 HK Gas Hold Med 161,882 6,835 7, % % 51.1% 6 PAH Accumulate Low 163,911 8,077 7, % % 8.2% 1038 CKI Accumulate Low 188,088 10,546 11, % % 16.6% 836 CR Power Hold Med 68,055 13,226 13, % % 111.8% 902 Huaneng Hold High 101,688 13,323 17, % % 167.5% 991 Datang Hold High 28,750 4,613 4, % % 293.5% 1071 Huadian Hold High 46,652 7,437 8, % % 182.2% 2380 China Power Hold High 26,920 3,740 3, % % 128.1% 916 China LongYuan Power Hold High 39,941 2,867 3, % % 173.4% Telecom 8 PCCW Accumulate Med 36,130 1,603 2, % % 335.1% 315 Smartone Reduce High 13, % % 87.4% 1137 CTI Accumulate High 1, % % 13.3% 728 China Telecom Hold Med 312,399 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 4) Review Date Rating 1 Risk levels Market cap Profit A Profit E EPS E EPS growth QuamResearch Weekly 2016/03/04 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 1,755, , , % % 1.1% Conglomerates 4 Wharf Hold Med 130,550 35,750 27, % % 32.2% 1 Cheung Kong Hutchison Hold Med 228,956 46,055 28, % % 14.1% 19 Swire A Hold Med 71,982 8,471 9, % % 33.9% 20 Wheelock Hold Med 67,767 20,194 29, % % 35.5% 54 Hopewell Accumulate High 21, , % % 0.0% 87 Swire B Hold Med 43,847 8,471 9, % % 33.9% 97 Henderson Investment 0.62 Hold Med 1,889 3,505 2, % % 2.0% 152 Shenzhen International Accumulate High 173, % % 116.5% 257 Everbright Hold High 31, % % 73.4% 267 CITIC Pacific Accumulate High 43,096 2,468 3, % N.A % 104.4% 291 CR Beer Reduce Med 29,250 N.A N.A N.A. N.A % 38.1% 392 Beijing Enterprises Hold Med 50,368 4,491 5, % % 54.7% 604 Shenzhen Investment Accumulate High 10, % % 106.5% 659 NWS Hold Med 45,662 3,867 4, % % 40.6% 882 Tianjin Development Accumulate Med 4, % % 21.4% Oil & Gas 386 Sinopec Hold High 565,108 57,990 67, % % 857 PetroChina Reduce High 984, ,751 44, % % 40.9% 883 CNOOC Reduce High 406,829 75,128 31, % % 36.0% 1088 Shenhua Hold High 247,034 60,794 56, % % 19.1% 1171 Yanzhou Coal Hold High 18,443 11,018 6, % % 79.5% 1898 China Coal Energy Hold High 40,705 12,096 11, % % 30.3% 2883 China Oilfield Hold Med 30,298 5,131 6, % % 131.6% 2688 ENN Energy Accumulate High 43,412 3,168 3, % % 94.8% 1193 CR Gas Accumulate Med 49,929 2,603 3, % % 66.5% 1083 Towngas China Hold Med 11,637 1,134 1, % % 55.4% Petrochemical 338 Shanghai Pet Accumulate High 26,064-6,862 2, % N.A % 52.9% 408 Yip's Chemical Hold High 1, % % 71.2% Water and Sewage 270 Guangdong Investment Hold Med 61,612 3,590 3, % % 21.5% 371 BEW U.R. U.R. 40,213 1,323 2, % % 136.1% Automobiles 175 Geely Reduce High 25,266 1,905 1, % % 48.3% 425 Minth Accumulate High 15, % % 8.4% 489 Dongfeng Hold High 83,663 12,934 9, % % 36.8% 1211 BYD Reduce High 100,167 3, % % 71.8% 2333 GW Auto Hold High 19,380 7,083 11, % % 0.0% 2338 Weichai Hold High 17,214 4,573 5, % % 61.9% 3808 Sinotruk Hold High 8,780 1, % % 75.9% 1114 Brilliance Auto Reduce High 35,835 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 27,638 2,465-2,581 (0.36) % N/A 0.0% 58.6% 358 Jiangxi Copper Hold High 33,972 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 19,880 1,417 2, % % 33.4% 2600 CHALCO Reduce High 38, , % % 101.2% 2626 Hunan Nonferrous Accumulate High 8, % % 0.0% 2899 Zijin Mining Hold High 58,238 5,673 7, % % 29.1% 3993 China Molybdenum Hold High 6, % % 2.2% China Foods 151 Want Want Hold Med 73,014 4,805 4, % % 58.6% 168 Tsingtao Hold Med 40,664 2,484 2, % % 2.2% 322 Tingyi Hold Med 42,526 1, % N.A N.A. 60.6% 506 China Foods Hold Med 8, % % 21.2% 606 China Agri Accumulate High 9,490 1, % % 158.5% 828 Dynasty Reduce High 1, % % 0.0% 2319 Mengniu Hold Med 21,535 3,242 3, % % 50.1% Airlines 44 HAECO Hold Med 9, % % 74.2% 293 Cathay Hold High 53,738 3,150 4, % % 115.4% 670 China Eastern Hold High 44,206 5,537 4, % % 284.5% 753 Air China Accumulate High 60,979 4,076 2, % % 194.0% 1055 China Southern Hold High 48,106 6, % % 191.0%

12 Earnings Forecasts Company Price (Mar 4) Review Date Rating 1 Risk levels Market cap Profit A Profit E EPS E EPS growth QuamResearch Weekly 2016/03/04 Airports 357 HNA INFRA Hold High 4, % % 74.5% 694 BCIA Hold Med 31,226 1,775 1, % % 68.7% 696 TravelSky Accumulate Med 36,168 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 7,523 1,200 1, % % 111.6% 177 Jiangsu Expressway Hold High 48,715 3,246 3, % % 70.2% 525 Guangshen Rail Hold Med 26, , % % 0.0% 548 Shenzhen Expressway Hold High 14,066 1,215 1, % % 62.8% 576 Zhejiang Expressway Hold Med 32,877 2,950 3, % % 50.5% 737 HHI Hold Med 11, % % 13.1% 995 Anhui Expessway Hold Med 10,864 1,046 1, % % 14.4% 1052 Yuexiu Transport Hold Med 8, % % 85.8% 1766 CRRC Hold Med 204,939 N.A. 15, N.A. N.A. 1.8 N.A N.A. 29.1% 3898 Zhuzhou CSR Times Hold High 47,314 2,890 3, % % 8.3% Ports and Containers 144 China Merchants Hold Med 69,977 4,599 5, % % 27.7% 390 China Railway Hold Med 120,389 12,353 12, % % 136.2% 1186 China Railway Con Hold Med 108,229 13,311 13, % % 133.9% 1199 COSCO Pacific Hold Med 24,935 2,272 2, % % 40.3% 1800 China Communications Hold Med 122,607 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 19, , % % 78.0% 317 Guangzhou shipyard Hold High 6, % % 92.9% 1138 China Shipping Dev Hold High 17,434 1,214 2, % % 56.9% 1919 China COSCO Holdings Hold High 31,874-11, 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 7,825 1,218 1, % % 14.5% 178 Sa Sa Hold Med 6, % % 0.0% 210 Daphne Hold High 1, , % % 14.5% 330 Esprit Reduce High 13,970-3,696-2,450 (1.26) N/A N/A (5.7) 0.0% 0.0% 589 Ports Design Hold High 1, % % 51.4% 590 Luk Fook Reduce High 10,343 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 45,376 5,812 5, % % 15.2% 2020 ANTA Sports Hold High 45,520 2,238 N.A. N.A. N.A. N.A N.A. N.A. 15.1% 2331 Li Ning Reduce High 6,712-1, % N.A % 37.1% 3308 Golden Eagle Hold Med 16,879 1,515 1, % % 96.7% 3368 Parkson Accumulate High 2, % 3389 Hengdeli Hold High 3,606 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 46,252 3,640 3, % % 26.4% 1382 Pacific Textiles Hold High 15, , % % 1.2% 2313 Shenzhou Hold High 52,402 2,103 2, % % 20.4% 2698 Weiqiao Hold High 4, % Culinary 52 Fairwood Hold Med 3, % % 1.4% 341 Cafe de Coral Reduce Med 12, % % 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 10,018 2,396 3, % % 41.6% 285 BYD Electronic Hold High 10,815 1, % N.A N.A. 0.0% 303 VTech Hold Med 21,984 1,541 1, % % 0.0% 522 ASM Reduce Med 25, % % 7.9% 2038 Foxconn U.R. U.R. 21,716-1, N.A. N.A. 0.8 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 2016/03/04 Company Price (Mar 4) 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 20,170 1,641 1, % % 4.7% 300 Kuming Machine Hold High 1, % % 6.9% 658 China High Speed Accumulate High 7,637 1,064 1, % % 88.5% 669 Techtronic Reduce Med 56,273 1,552 1, % % 41.7% 1072 Dongfang Electric Hold High 12,765 3,121 3, % % 22.4% 1133 Harbin Power Hold High 4,062 1,229 1, % % 16.9% 1882 Haitian International Reduce High 17,875 1,227 1, % % 8.0% 2727 Shanghai Machinery Hold High 45,524 3,163 3, % % 17.3% 3339 Lonking Hold High 4, % % 66.8% Trading 494 Li & Fung Reduce Med 39,274 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 1,359,245 19,610 29, % % 25.7% 861 Digital China Hold High 10,209 1,005 1, % % 56.8% 992 Lenovo Reduce Med 72,730 6,441 3, % % 28.4% 8008 Sunevision Hold High 9, % % 0.0% Paper 3331 Vinda Reduce Med 12, N.A. N.A. N.A. N.A N.A. N.A. 47.9% 1044 Hengan Hold Med 76,075 3,519 4, % % 77.9% 1812 Chenming Hold High 12, , % % 53.9% 2314 L & M Paper Hold High 23,805 1,948 1, % % 67.0% 2689 Nine Dragons Hold High 27,554 2,166 2, % % 87.1% Media 100 Clear Media Reduce High 3, % % 0.0% 423 HKET Hold High % % 0.0% 511 TVB Reduce Med 13,271 1, % % 5.0% 2008 Phoenix Satellite TV Hold Med 7, % % 12.0% Gaming 1128 Wynn Macau Reduce High 50,552 6,485 2, % N.A N.A % 1928 Sands China Reduce High 231,992 11,803 N.A. N.A. N.A. N.A N.A. N.A. 58.8% 880 SJM Hold High 28,453 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).