We believe further upside for the Hang Seng Index is limited and recommend short-term investors to take profit. Hang Seng Index Performance

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1 19 th Jan, 2017 Hang Seng Index Performance Index Performance Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 23, HSCI 3, HSCCI (Red Chips) 3, HSCEI (H-Shares) 9, Mkt T/O ($ Mn) 68, , Source: Bloomberg Market Outlook Eric Yuen - ericyuen@masonsec.com Hang Seng Index closed up 1.1% at 23,098. Market turnover increased to $68.5 billion. Heavily weighted China Mobile (941), Tencent (700) and HSBC (5) climbed 1.6%, 1.0% and 0.5% respectively. Three local banks and nine local property stocks in Hang Seng Index grew an average 1.9% and 1.4% respectively, among which BOC Hong Kong (2388), Hang Seng Bank (11), CK Property (1113) and Hang Lung Properties (101) surged 2.1%-3.4%. Eight largest Chinese property developers increased an average 1.1%. Gaming operator Sands China (1928) and Galaxy Entertainment (27) soared 1.1%-1.2%. Consumption stocks were mixed. Belle Int l (1880) jumped 4.1%, the most in Hang Seng Index. Want Want China (151) retreated 0.4%. Cathay Pacific (293), the worst performing index stock, slid 2.0%. HSCEI advanced 1.0% led by power, securities and railway stocks. China Longyuan (916) and CGN Power (1816) rose 2.3%-3.7%. China Railway Construction (1186), CCCC (1800), Zhuzhou CRRC Times Electric (3898) posted a gain of 1.4%-2.3%. Securities, insurance and banking shares in HSCEI grew an average 1.7%, 1.1% and 0.9% respectively, among which China Life (2628), Haitong Securities (6837) and GF Securities (1776) went up 1.9%-3.2%. Four largest Chinese banks added 0.6%-1.0%. Sinopharm (1099) was the worst performing HSCEI stock, down 0.3%. We believe further upside for the Hang Seng Index is limited and recommend short-term investors to take profit. Oversea DJIA 19, NASDAQ 5, Shanghai SE Composite 3, Crude Oil Futures (US$) Gold Futures (US$) 1, Baltic Dry Index USD / Euro Yen / USD HSCEI HSI 20-Day MA 9, , Day MA 9, , Day RSI We believe further upside for the Hang Seng Index is limited and recommend short-term investors to take profit. Remarks: Mason Securities Ltd ( Mason Securities ) is licensed by the Securities and Futures Commission to carry on Types 1, 4, 6 and 9 regulated activities in Hong Kong. Mason Futures Ltd is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong. Securities Futures

2 Industry / Corporate News Eric Yuen - ericyuen@masonsec.com Valuation dipped below the historical average Maintain on Texhong Textile (2678) Reiterate Risk Level: Medium Time Horizon: Medium Early redemption of USD denominated debt will minimize impact of further yuan depreciation Company targets sales volume growth of 26% in 2016 and 15% in 2017 Inexpensive valuation at 2017 PER of 6.7x versus 5-year average forward PER of 7.3x Since our latest commentary dated January 3, the share price of Texhong Textile (2678, $11.50) has been unchanged whilst Hang Seng Index surged 5.0% over the same period. We believe the underperformance is mainly due to profit taking by short-term investors rather than any change in company s fundamentals. In October 2016, the company completed a placement of approximately 30.3mn new shares at $9.50 each to raise net proceeds of $281mn. The placement is expected to dilute EPS by less than 2% in 2017 but enable the company to speed up capacity expansion in Vietnam. Yesterday, the company announced that it has exercised its right to redeem in full the aggregate outstanding US$182.2mn 6.5% senior notes due This will minimize the impact of further depreciation of renminbi. We remain optimist about company s earnings outlook in the long term. As a recap, Texhong Textile is principally engaged in the manufacturing and sales of yarn, fabrics and garment fabrics with a diversified customer base. In 2015, approximately 93% of revenue came from sales of yarn and 86% of revenue was contributed by the PRC customers. In the first half of 2016, the company s revenue expanded by 20% yoy to RMB5.82bn on the back of a 20.9% yoy growth in sales volume of yarn and a 1.6% yoy decline in blended ASP. Overall gross margin improved from 17.0% to 18.2% mainly due to the drop in cotton cost. Interim earnings surged 56% yoy to RMB457mn. During the interim period, the company expanded its annual production capacity by 29% from 2.20mn spindles by end-2015 to 2.84mn spindles (Mainland China : 1.59mn, Vietnam : 1.25mn) by June Thanks to capacity expansion, the company has targeted sales volume of yarn at 600,000 tonnes in 2016 and 690,000 tonnes in 2017 representing an increase of 26% and 15% yoy respectively. Average cotton price in 2H16 is 15%-20% higher than 1H16 that should benefit the company given Texhong s cost-plus model and low-cost cotton inventory. Texhong Textile issued positive profit alert in November that earnings for the first ten months of 2016 would exceed RMB1.0bn on higher sales volume and gross margin. According to Bloomberg estimates, the company s earnings are expected to grow 96% to RMB1,158mn in 2016 and 8% to RMB1,250mn in 2017 fueled by capacity expansion and improvement in gross margin. Traded at forward PER of 6.7x in 2017 compared to its 5-year average forward PER of 7.3x, Texhong looks cheap and offers good value to long term investors considering its aggressive sales volume target in Maintain with an unchanged 6-month price target of $13.0 based on 8.4x 2017 earnings. Analysts consensus price target is $14.2. Recent Recommendations Stock Pick Rating Recommendation Highlights TP SMIC (981) HOLD No longer undervalued plus a risk of equity fund raising Downgrade SMIC (981) to HOLD $12.0 Lee & Man Paper (2314) Reiterate on Lee & Man Paper (2314) as oversupply situation of paper industry has eased $7.90 Hua Hong Semiconductor (1347) Promising industry outlook and cheap valuation - Maintain Hua Hong Semiconductor (1347) $10.7 Sunny Optical (2382) Reiterate on Sunny Optical (2382) as shipment of handset lens sets in December remains intact $42.6 Luk Fook (590) Improvement in tourist arrivals and same store sales Maintain Luk Fook (590) $24.8 Chalco (2600) on Chalco (2600) amid better alumina price trend and lower cost pressure compared to peers $4.27 CCCC (1800) Both China and U.S. are likely to accelerate infrastructure investments Maintain CCCC (1800) $10.5 Maanshan Iron (323) Reiterate on Magang (323) as China sees no signs to loosen de-capacity measures $3.07 ANTA Sports (2020) Upgrade ANTA Sports (2020) to on potential M&A and strong earnings results for 2016 $26.0 Xinyi Glass (868) Reiterate on Xinyi Glass (868) as China may accelerate de-capacity measures on glass industry $7.73

3 Technical Ideas Tianjin Development (882, $4.35) TP: $4.79 Risk: Low Time Horizon: Short Tianjin Development manufactures and sells consumer products such as winery products. The company's infrastructure operations include container and cargo handling, stevedoring, and toll roads construction and services. In addition, Tianjin Development operates commercial trading and property development businesses. The counter rose 4.8% yesterday with exceptional turnover, surpassing its critical resistance at $4.19 and reached its new 52-week high, indicating the counter s strong uptrend momentum ahead.. Short-term target at $4.79. Cut loss at $4.06. Source: Bloomberg, Mason Securities Consensus 2017 PER: 6.4x Consensus target price: N/A China Harmony New Energy Auto (3836, $3.20) TP: $3.52 Risk: Medium Time Horizon: Short China Harmony New Energy Auto is a dealership group that deals exclusively in luxury and ultra-luxury passenger vehicles in China. The company's dealership outlets are located in populous and affluent cities in China. The counter surged 7.7% yesterday with exceptional turnover, surpassing its critical resistance at $3.04 and SMA50, indicating the counter s further upside potential ahead.. Short-term target at $3.52. Cut loss at $2.90. Consensus 2017 PER: 6.3x Consensus target price: $4.93 Source: Bloomberg, Mason Securities

4 RSI Indicator Overbought (9-day RSI> 80) Tickers 106, 257, 315, 316, 336, 338, 474, 546, 565, 718, 752, 801, 805, 838, 881, 882, 992, 1076, 1129, 1182, 1193, 1234, 1268, 1293, 1299, 1499, 1566, 1622, 1658, 1728, 1803, 1833, 2018, 2086, 2333, 2382, 2662, 2688, 2888, 3311, 3669, 3708, 3836, 3996 Oversold (9-day RSI<20) Tickers 235, 559, 582, 1559, 1678, 6858 Exceptional Turnover & Price Movements Stock Stock Last Price ($) Price Change (%) Turnover / 3-mth daily avg turnover Target price up / downside (%)* Rating*^ Baoxin Auto Jutal Offshore Oil Services Besunyen N/A N/A N/A China Water Industry N/A N/A N/A China Zhengtong Auto Service China Harmony New Energy Auto Orient Overseas International N/A Art Group N/A N/A N/A Guotai Junan International Shenzhou International Qianhai Health N/A N/A N/A China Yongda Automobiles Tianjin Development N/A China Foods Q Technology Zhongsheng Group Pacific Basin Shipping N/A China Longyuan Power ZTE Corporation Wasion Group BAIC Motor Corporation GCL-Poly Energy BOC Hong Kong First Tractor Dongfang Electric N/A Daohe Global N/A N/A N/A China Everbright Ltd Hang Lung Properties Shanghai Industrial Fufeng Group China Resources Cement Greentown China China Agri-Industries PER* Source: Bloomberg, Mason Securities; *Based on consensus estimates ^ The Rating indicates analysts opinions on the security. It is calculated by converting analysts recommendations into a number from 1-5 and taking the average. 5 is the best while 1 is the worst.

5 A-H Share Premium / Discount (%) Average AH Shanghai Listed -35.5% Premium/Discount (%) Shenzhen Listed -35.7% H Share A Share A-H Shares Shanghai Listed Company Name A Close (RMB) H Close (HKD) AH Price Gap (%) H Share A Share A-H Shares Shanghai Listed Company Name A Close (RMB) H Close (HKD) AH Price Gap (%) Luoyang Glass China Life Xinhua Winshare Huatai Securities Kunming Machine Chongqing Iron Jingcheng Haitong Securities First Machinery Tractor CRCC SSC Guangshen Railway CSCL Magang Anhui Expressway Minsheng Bank Shanghai Electric Everbright Bank GAC Group Shanghai Pharma COMEC China Shenhua Nanjing Panda CPIC Dalian Port BoComm Tianjin Capital Tsingtao Brewery China Moly Citic Securities Datang Intl Power Bank of China Yanzhou Coal CMB China Cosco Fosun Pharma China Eastern Sinopec Airlines MCC CCB Zhengzhou Coal ABC Beijing North Star ICBC CCCC Ping An Insurance China South Air Jiangsu Express COSL Anhui Conch Sichuan Exp Fuyao Glass China Shipping Huadian Power A-H Shares Shenzhen Listed China Coal Energy Zhejiang Shibao BBMG Shandong Molong Jiangxi Copper Northeast Electric Air China Xinhua Pharma Sinopec Shanghai Hisense Kelon Huaneng Power Dongjiang Env Dongfang Electric China Int'l Marine Great Wall Motor Chenming Paper China Railway Livzon Pharm CRRC Group Corp Xinjiang Goldwind Petrochina Zoomlion China Citic Bank ZTE Corp Chalco BYD Zijin Mining China Vanke Guangzhou Pharm Angang Steel Shenzhen Express GF Securities New China Life Weichai Power

6 HSI & HSCEI Constituents Performance Price Change (%) Index 5 D 1 M 3 M vs 3M High Hang Seng Index Hang Seng China Ent Index Outperform Underperform Mixed Airline, HK Bank, Oil&Gas, Power, PRC Property PRC Bank, Gaming, Global player, Insurance, PRC Securities Automobile, Consumer, IT Price Change (%) Price Change (%) Stock vs 3M Stock vs 3M Company Name 5 D 1 M 3 M Company Name 5 D 1 M 3 M High High 2202 China Vanke SHK Prop Dongfeng Group CPIC GreatWall Motor CRRC Sinopec Corp CKI Holdings China Res Power Swire Pacific Anhui Conch BOCOM BOC Hong Kong HK & China Gas AAC Technologies CLP Hldgs Lenovo Ping An China Mer Port ABC China Shenhua Bank of China Air China China Telecom Hengan Int'l China Life Power Assets ICBC Cathay Pac Air Sinopharm Longyuan Power China Unicom CRRC Times CITIC Bank Tsingtao Brew CITIC Ltd PetroChina MTR Corporation Belle Int'l Wharf Hang Lung Prop HKEx AIA China Railway Hang Seng Bank Want Want CNOOC CGN Power Huaneng Power Bank of E Asia China Mobile Tencent Kunlun Gas CK Hutchison China Overseas CITIC Securities Sino Land Galaxy Entertain HSBC Hldgs PICC Group Henderson Land Galaxy Securities CM Bank China Cinda New World Dev CCB GF Securities Link REIT China Comm Cons BYD Company China Res Land HTSC CK Property Li & Fung China Railway Sands China Minsheng Construction Bank PICC P&C New China Life Mengniu Dairy Haitong Securities

7 Upcoming Events Date Stock Company Name Event Jan Public Financial Holdings Final Jan Pico Far East Holdings Final Jan Sands China Dividend Disclosures Investment Rating System Ratings Description Mason Securities Limited s investment Buy Expected positive return of > 10 % rating system is divided into investment Investment Ratings Hold Expected return range of ~ ±10 % ratings, risk rating and investment time Sell Expected negative return > 10% horizon. The rating scale is subject to change upon periodic review of market by High (H) 90-day volatility of > 50% research department. Assigned ratings are Risk Ratings Medium (M) 90-day volatility of > 30-50% based on company and sector historical Low (L) 90-day volatility of < 30% performance and analysts intrinsic Long (L) 6 12 Months valuation of the stock Investment Time Medium (M) 3 6 Months Horizon Short (S) Less than 1 Month Note: 90-day volatility is measured from the security s standard deviation of day to day logarithmic historical price changes. The 90-day price volatility equals the annualized standard deviation of the relative price change for the 90 most recent trading days closing price, expressed as a percentage Mason Securities Limited Portion 1, 12/F, The Center 99 Queen s Road Central Hong Kong Tel: (852) Fax: (852) This report is for information only and is not to be construed as investment advice or as an offer to buy or sell securities or financial instruments. Your investment decision should be based upon your personal investment objectives and should be made only after evaluating the stock s expected performance and risk. While the report is compiled using sources believed to be reliable, no assurance or guarantee is given regarding its accuracy or completeness. Neither Mason Securities Limited nor any of its affiliates, nor any employees or other persons connected with any of them, accepts any responsibility or liability arising from any use of this report. To the extent permitted under applicable law, the abovementioned companies or individuals may have used the research materials before publication. Mason Securities Limited (or any of its affiliates) and their respective officers, directors, analysts, or employees may or may not have a position in or with respect to the securities or financial instruments covered herein, and may, as principal or agent, buy and sell such securities or financial instruments. However, it is hereby declared that the writer, at the time of writing, does not have any interest in any of the securities or financial instruments covered in this report. An employee, analyst, officer, or a director of Mason Securities Limited( or any of its affiliates), may serve as a director for companies covered in this report. Mason Securities Limited (or any of its affiliates) may from time to time perform investment banking or other services or solicit investment banking or other business for any companies covered in this report. Mason Securities Limited is licensed by the Securities and Futures Commission to carry on Types 1, 4, 6 and 9 regulated activities in Hong Kong. Mason Futures Limited is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong.