Monthly market wrap. China / Hong Kong Market Focus. Back to old normal valuations. DBS Group Research. Equity 3 August 2015 HSI: 24,636

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1 China / Hong Kong Market Focus Refer to important disclosures at the end of this report DBS Group Research. Equity 3 August 2015 Back to old normal valuations ETF flows, currency trends, and short activity suggests cautious market environment Low valuations and a pickup in 2016 earnings growth helps longer term H-share outlook Favor Hong Kong banks, and low P/BV China sectors such as China property and China banks Catch-22 for A-shares. Worst than anticipated A-share contagion effect on H-shares dragged Hong Kong equities in July. Unfortunately we do not foresee a quick turnaround for A-shares since they are stuck in a catch-22 situation. A- shares will likely fall without policy support. But further support enlarges overhang from eventual policy exit, and hurts foreign investor sentiment and MSCI inclusion probability. We expect A-shares to only be range bound for the rest of the year. Cautious sentiment for Hong Kong. ETF flows (pg 2), HKD trend, and short selling activity (pg 4) point to a cautious market environment at the start of August. We expect Hong Kong equities will revert to their old valuation ranges on a lack of positive catalysts. This means x forward PE for the HSCEI (pg 5). Fortunately, the PE bands are upward sloping as 2016 earnings growth should be quicker than This is driven by improvements for China banks, China telecom, oil, and gaming (pg 7-8), partly from a low base in But the market may take these forecasts with a grain of salt in the near term, given continued downward revisions (pg 6), potential CNY depreciation after IMF SDR review, and weak confidence for China s macro outlook after the A-share collapse. Cutting index targets to old trading ranges. We are lowering our year end HSI and HSCEI targets to 25,800 and 12,400 to account for a sharp confidence hit on China. These targets imply 11.4x and 8.2x 2016 PE, and assume mild HSI and HSCEI 2016 EPS forecast cuts. We expect H- shares to be dragged by A-share sentiment in the near term. But we expect foreign funds to return to H-shares earlier than A-shares in part due to much more attractive valuations. Gaming and Hong Kong sectors outperformed. Gaming, Hong Kong sectors, and defensive sectors outperformed in July (pg 12). In the near term, we continue to like Hong Kong banks. We also like low P/BV sectors with favourable developments such as China property (can capture pent up liquidity as A-shares cool) and China banks (new business and mixed ownership reforms). We recommend to add beta near trough market valuation levels. HSI: 24,636 ANALYST Alexander LEE CFA, alexander_lee@hk.dbsvickers.com Performance of key indices As of % change Indices week 1 month YTD 2014 Asia HSI 24,636 (2.0) (6.1) HSCEI 11,132 (4.7) (14.2) (7.1) 10.8 HSCCI 4,421 (3.2) (9.3) 1.6 (4.5) Shanghai Comp. 3,664 (10.0) (14.3) Shenzhen Comp. 2,111 (9.1) (14.3) CSI300 3,817 (8.6) (14.7) NIKKEI , KOSPI 2,030 (0.8) (2.1) 6.0 (4.8) Taiex 8,665 (1.2) (7.1) (6.9) 8.1 STI 3,203 (4.5) (3.5) (4.8) 6.2 KLCI 1, (2.2) (5.7) SET 1, (4.3) (3.8) 15.3 JCI 4,803 (1.1) (2.2) (8.1) 22.3 Sensex 28, Others Dow J ones 17, (0.7) 7.5 S&P 500 2, Nasdaq 5, FTSE 100 6, (2.7) DAX 30 11,309 (0.3) Source: Bloomberg Finance L.P., DBS Vickers DBSV Top Ten Buy List Closing F Tgt Ticker price PBV PER y ield ROE Price (X) (X) (%) (%) China Citic Bank 998.HK CMB 3968.HK CR Land 1109.HK Dah Sing Fin.* 440.HK n.a. Far East Horizon 3360.HK Nexteer Auto 1316.HK Sinopharm Group 1099.HK Tencent 700.HK Wasion Group 3393.HK Yestar Intl HK * consensus estimates Source: Bloomberg Finance L.P., DBS Vickers Based on closing prices on 31 July, sa- AH

2 ETF flows ETF fund flows are weak. We track 39 global ETFs that invest in H-shares and Hong Kong stocks, and another 62 global ETFs that invest in A-shares. The 39 H-share and HK ETFs still saw Global listed HK ETF flows and HSI performance net fund inflows during July, but the amount shrunk to HK$0.8bn compared to June s HK$6.7bn. Meanwhile, the A- share ETFs continued to see outflows of Rmb7.6bn. This increased from June s Rmb4.6bn outflow. Offshore listed A-share ETF flows and SHCOMP perf. (HK$ bn) 25 HK and H-shr ETF flows (LHS) HSI monthly perf. (RHS) (%) 25.0 (HK$ bn) 20 Offshore A-shr ETF flows (LHS) SHCOMP monthly perf. (RHS) (%) (5) (10) (20) (30) (10) Jan/14 Jul/14 Jan/15 Jul/ (40) Jan/14 Jul/14 Jan/15 Jul/ Sources: Bloomberg Finance L.P., DBS Vickers Global listed HK and H-share ETF flows and HSI (HK$ m) HK and H-share ETF flows HSI (RHS) 4,000 3,500 3,000 2,500 2,000 1,500 1, (500) (1,000) Oct/15 Source: Bloomberg Finance L.P., DBS Vickers 30,000 29,000 28,000 27,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 Page 2

3 Offshore A-share ETF flows and SHCOMP index (Rmb m) A-share ETF flows SHCOMP (RHS) 4,000 5,500 3,000 5,000 2,000 4,500 1,000 4,000-3,500 (1,000) 3,000 (2,000) 2,500 (3,000) 2,000 (4,000) 1,500 Oct/15 Source: Bloomberg Finance L.P., DBS Vickers Northbound stock connect daily quota usage (% of daily quota of Rmb 13bn) 80% 60% 40% 20% 0% -20% -40% -60% -80% -100% -120% Oct-14 Jan-15 Apr-15 Jul-15 Southbound stock connect daily quota usage (% of daily quota of Rmb 10.5bn) 120% 100% 80% 60% 40% 20% 0% -20% -40% Oct-14 Jan-15 Apr-15 Jul-15 Sources: Bloomberg Finance L.P., DBS Vickers *Daily quota usage = (Daily quota daily quota balance)/(daily quota) Page 3

4 US 10yr treasury yield HK$ (%) Jan/14 Jul/14 Jan/15 Jul/15 Sources: Bloomberg Finance L.P, DBS Vickers Short selling activity and HSI Short selling activity and HSI ( ) (%) SST as % of turnover HSI (RHS) 18% 16% 14% 12% 10% 8% 6% (%) SST as % of turnover HSI (RHS) 17% 15% 13% 11% 9% 7% 5% 3% Jan/07 Jul/07 Jan/08 Jul/08 Jan/09 Jul/ Sources: Bloomberg Finance L.P., DBS Vickers Page 4

5 HSI 1 year forward PE bands 5yr mean and standard deviations 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 HSI 5 yr mean of 1 yr forward P/E +1 std -1 std +2 std -2 std Source: Bloomberg Finance L.P., DBS Vickers HSCEI 1 year forward PE bands 5yr mean and standard deviations 12.4x 11.4x 10.4x 9.4x 8.4x HSCEI 5 yr mean of 1 yr forward P/E +1 std -1 std +2 std -2 std 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4, x 10.0x 8.6x 7.1x 5.7x Source: Bloomberg Finance L.P., DBS Vickers CSI year forward PE bands 5yr mean and standard deviations CSI300 5 yr mean of 1 yr forward P/E +1 std -1 std +2 std -2 std 6,000 5,000 4,000 3,000 2, x 15.0x 12.5x 10.0x 7.6x 1, Source: Bloomberg Finance L.P., DBS Vickers Page 5

6 Earnings forecasts and revisions H-shares continued to see downward earnings revisions. Consensus forecasts for HSCEI members fell 0.3% for 20 and 0.7% for 2016 forecasts. HSI members earnings cuts were milder at 0.1% and 0.3% respectively for 2015 and Companies with positive revisions: - Companies with commodity costs Air China and Huaneng Power - Chinese brokers still enjoyed positive revisions in July - Others include SHKP and Sinopharm Companies with negative revisions: - Cement companies Anhui Conch and CNBM - Companies with revenues linked to commodity prices China oilfield services, Jiangxi Copper - Auto companies Greatwall and Dongfeng - HKEX Revision trends for HSI consensus earnings Revision trends for HSCEI consensus earnings ,700 2,600 2,500 2,400 2,300 2,200 2,100 2,000 1,900 1,800 Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/ ,800 1,700 1,600 1,500 1,400 1,300 1,200 Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15 Sources: Bloomberg Finance L.P., DBS Vickers Page 6

7 Consensus forecasts for HSI members EPS EPS growth HSI China banks BoCom HK % 2.2% BOC HK % 5.2% ICBC HK % 4.6% CCB HK % 4.7% HK banks BEA HK % 6.5% BOCHK HK % 10.2% Hang Seng Bank HK % 3.0% HSBC HK % 4.5% HKEX HK % 14.5% Insurance China Life HK % 14.4% Ping An HK % 9.9% AIA HK % 9.6% Telcos China Mobile HK % 6.6% China Unicom HK % 13.4% Oil PetroChina HK % 55.8% Sinopec HK % 53.2% CNOOC HK % 70.8% Coal China Shenhua HK % 6.0% China Coal HK % 18.1% Gas Kunlun Energy HK % 19.6% Towngas HK % 7.6% Power CLP HK % 4.9% China Res Power HK % 2.1% Power Assets HK % 0.2% HK property MTR HK % -1.5% Cheung Kong HK % 18.2% SHK Land HK % 15.5% Henderson Land HK % 2.8% New World Development HK % 6.8% Hang Lung Property HK % -2.8% Sino Land HK % 5.8% China property COLI HK % 13.7% China Resources Land HK % 16.8% Conglomerates China Resources HK291 (0.07) % 89.9% Citic Pacific HK % 7.0% China Merchants HK % 11.1% Swire HK % 9.0% Wharf HK % 11.0% Gaming Galaxy HK % 11.4% Sands China HK % 3.1% Tech Lenovo HK % 16.3% Tencent HK % 30.4% Transport Cathay Pacific HK % 12.5% Cosco Pacific HK % 7.7% Commerce Li & Fung HK % 15.1% Consumer Hengan HK % 14.8% Belle Int'l HK % 3.1% Want Want HK % 10.9% Tingyi HK % 14.2% Source: Bloomberg Finance L.P., DBS Vickers Page 7

8 Consensus forecasts for HSCEI members EPS EPS growth Banks BOC HK % 5.2% BoCom HK % 2.2% CCB HK % 4.7% CMB HK % 11.1% ICBC HK % 4.6% ABC HK % 5.0% Citic Bank HK % 6.7% Minsheng HK % 7.2% Insurance China Life HK % 14.4% PICC Group HK % 7.6% CPIC HK % 11.3% PICC P&C HK % 5.0% Ping An HK % 9.9% Brokers and AM Citic Securities HK % 12.6% Haitong HK % 5.2% China CINDA HK % 19.9% Telcos China Telecom HK % 11.0% Oil and services PetroChina HK % 55.8% Sinopec HK % 53.2% China Oilfield HK % 22.6% China property Dalian Wanda HK % 26.4% China V anke HK % 16.7% Power Huaneng Power HK % -1.9% China Longyuan HK % 16.2% CGN Power HK % 19.4% Construction and China Railway HK % 12.1% machinery China Comm Cons HK % 12.8% Cement Anhui Conch HK % 9.0% CNBM HK % 6.8% Coal China Coal HK (0.03) % % China Shenhua HK % 6.0% Autos BYD HK % 24.5% GAC Group HK % 22.5% Dongfeng Motors HK % 9.1% Greatwall Motor HK % 18.6% Others Tsingdao HK % 9.8% Sinopharm HK % 20.9% Air China HK % 8.4% J iangxi Copper HK % 17.9% Source: Bloomberg Finance L.P., DBS Vickers Page 8

9 Best EPS revisions among index stocks in 3Q in HKD terms Consensus earnings revisions for Air China (753.HK) Consensus earnings revisions for Sinopharm (1099.HK) Consensus revisions for Huaneng Power (902.HK) Consensus earnings revisions for SHKP (16.HK) Consensus revisions for Haitong Sec (6837.HK) Consensus earnings revisions for Citic Sec (6030.HK) Sources: Bloomberg Finance L.P., DBS Vickers Page 9

10 Worst EPS revisions among index stocks in 3Q in HKD terms Consensus earnings revisions for Lenovo (992.HK) Consensus earnings revisions for HKEX (388.HK) Consensus earnings revisions for Greatwall (2333.HK) Consensus earnings revisions for Dongfeng (489.HK) Consensus earnings revisions for Anhui Conch (914.HK) Consensus earnings revisions for CNBM (3323.HK) Sources: Bloomberg Finance L.P., DBS Vickers Page 10

11 Consensus revisions for China Oilfield Services (2883.HK) Consensus earnings revisions for ICBC (1398.HK) Consensus revisions for Jiangxi Copper (358.HK) Consensus earnings revisions for Power Assets (6.HK) Consensus revisions for Li & Fung (494.HK) Consensus revisions for Galaxy Entertainment (27.HK) Sources: Bloomberg Finance L.P., DBS Vickers Page 11

12 1 month sector share price performance 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% Brokers-China Steel & aluminium Coal Software & IT services Consumer (household) Autos and parts Rail & construction Insurance Alternative energy Transport (ports) Water, environmental HSCEI Banks - China Consumer (retailers) Consumer (personal) Oil Power - China Pharmaceuticals Food and beverages Transport (toll roads) Hardware & equip Properties - China Consumer (luxuries) Cement Transport (airlines) Transport (shipping) HSI Industrial Consumer (apparel) Telecom - China Banks - Global Properties -HK Banks -HK Conglomerates -HK REIT Power, infra & utilities Gas Consumer (sportswear) Telecom -HK Gaming Source: Thomson Reuters, DBS Vickers YTD sector share price performance 70% 60% 50% 40% 30% 20% 10% 0% 10% 20% 30% Brokers China Coal Consumer (luxuries) Steel & aluminium Gaming Insurance Power China Consumer (retailers) Hardware & equip Oil Autos and parts HSCEI Transport (shipping) Pharmaceuticals Food and beverages Consumer (apparel) Banks China Banks Global Power, infra & utilities Alternative energy Conglomerates HK Properties HK Consumer (personal) Water, environmental Industrial Rail & construction Telecom China HSI Transport (ports) Transport (toll roads) REIT Gas Telecom HK Consumer (household) Properties China Banks HK Consumer (sportswear) Cement Software & IT services Transport (airlines) Source: Thomson Reuters, DBS Vickers Page 12

13 Moving average and RSI for HSI Moving average and RSI for HSCEI HSI 50d avg 100d avg 250d avg 30,000 29,000 28,000 27,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 HSCEI 50d avg 100d avg 250d avg 15,000 14,000 13,000 12,000 11,000 10,000 9, d RSI 80 14d RSI Moving average and RSI for CSI 300 CSI 50d avg 100d avg 250d avg 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2, d RSI Sources: Bloomberg Finance L.P, DBS Vickers Page 13

14 Macro and currency Summary of macro data released during July Data for J une 2015 Actual Surv ey +/- from Prior Av g forecast period Official PMI (0.2) 50.2 Caixin PMI (0.2) 49.2 Trade surplus (US$ bn) (10.2) 59.5 Exports (yoy %) (2.8) Imports (yoy %) (6.7) (16.2) 9.5 (18.1) M2 growth (yoy %) New loans (Rmb bn) 1,279 1, Total financing (Rmb bn) 1,860 1, ,220 CPI (%) PPI (%) (4.8) (4.6) (0.2) (4.6) Retail sales (yoy %) Ind. Prod. (yoy %) Urban FAI YTD (yoy %) Q Real GDP (yoy %) Official PMI (J uly) (0.1) 50.2 Source: CEIC, DBS Vickers CNY CNH Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15 CNY / EUR (CNY/EUR) Sources: Bloomberg Finance L.P, DBS Vickers Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15 JPY / CNY (JPY/CNY) Page 14

15 H-share to A-share price gaps H-sh A-sh H-sh DoD H-sh A-sh H-sh DoD Name Ticker Exchange vs. A-sh % Name Ticker Exchange vs. A-sh % LUOYANG GLASS-H 1108 Shanghai -82% 1% PETROCHINA-H 857 Shanghai -44% 2% SINOPEC OILFIE-H 1033 Shanghai -79% 1% ZOOMLION HEAVY-H 1157 Shenzhen -44% -1% SHANDONG MOLON-H 568 Shenzhen -75% -1% DONGJIANG ENV -H 895 Shenzhen -44% 1% CMOC-H 3993 Shanghai -74% 0% JINGWEI TEXTIL-H 350 Shenzhen -43% 2% GUANGZHOU AUTO-H 2238 Shanghai -74% 0% BAIYUNSHAN PH-H 874 Shanghai -43% -2% CHONGQING IRON-H 1053 Shanghai -73% 0% ANHUI EXPRESS-H 995 Shanghai -43% 4% CHINA SHIPPING-H 2866 Shanghai -73% 0% CIMC-H 2039 Shenzhen -43% -1% NANJ ING PANDA-H 553 Shanghai -72% 0% SHENZHEN EXPRE-H 548 Shanghai -42% 2% SHANGHAI ELECT-H 2727 Shanghai -71% 1% CITIC BANK-H 998 Shanghai -42% 2% BEIJING NORTH-H 588 Shanghai -71% -1% GREAT WALL MOT-H 2333 Shanghai -38% -2% METALLURGICAL-H 1618 Shanghai -70% 0% GF SECURITIES-H 1776 Shenzhen -35% -1% NORTHEAST ELEC-H 42 Shenzhen -70% -2% HAITONG SECURI-H 6837 Shanghai -35% 0% CHINA COSCO HO-H 1919 Shanghai -69% 0% ZTE-H 763 Shenzhen -31% -1% SINOPEC SHANG-H 338 Shanghai -68% 1% CHINA SHENHUA-H 1088 Shanghai -30% 0% JINGCHENG MAC-H 187 Shanghai -67% 3% XINJIANG GOLD-H 2208 Shenzhen -29% -1% SHANDONG XINHU-H 719 Shenzhen -67% -3% FOSUN PHARMA-H 2196 Shanghai -29% -1% FIRST TRACTOR-H 38 Shanghai -67% 0% HUANENG POWER-H 902 Shanghai -28% 0% YANZHOU COAL-H 1171 Shanghai -66% 0% SHANGHAI PHARM-H 2607 Shanghai -28% -1% MAANSHAN IRON-H 323 Shanghai -66% 0% CEB BANK-H 6818 Shanghai -24% 2% ALUMINUM CORP-H 2600 Shanghai -65% -1% BANK OF CHINA-H 3988 Shanghai -24% 2% DALIAN PORT PD-H 2880 Shanghai -65% 0% MINSHENG BANK-H 1988 Shanghai -23% 0% CSSC OFFSHORE -H 317 Shanghai -63% 0% HUADIAN POWER-H 1071 Shanghai -22% 2% SHANDONG CHEN-H 1812 Shenzhen -63% 1% SINOPEC CORP-H 386 Shanghai -21% 2% TIANJ IN CAP-H 1065 Shanghai -62% 0% BANKCOMM-H 3328 Shanghai -20% 0% ZHENGZHOU COAL-H 564 Shanghai -62% 0% CHINA LIFE-H 2628 Shanghai -19% -2% CHINA COAL ENE-H 1898 Shanghai -62% 0% ABC-H 1288 Shanghai -19% 0% CHINA OILFIELD-H 2883 Shanghai -62% -1% CITIC SEC-H 6030 Shanghai -18% 1% CHINA SHIPPING D 1138 Shanghai -61% -1% CCB-H 939 Shanghai -16% 0% CHINA RAIL GR-H 390 Shanghai -60% -2% ICBC-H 1398 Shanghai -11% -1% WEICHAI POWER-H 2338 Shenzhen -58% 2% TSINGTAO BREW-H 168 Shanghai -11% 0% ZIJIN MINING-H 2899 Shanghai -58% 0% CM BANK-H 3968 Shanghai -7% -1% DATANG INTL PO-H 991 Shanghai -58% 0% FUYAO GLASS IN-H 3606 Shanghai 0% -2% SICHUAN EXP-H 107 Shanghai -57% 2% J IANGSU EXPRES-H 177 Shanghai 0% 0% HISENSE KELON -H 921 Shenzhen -56% -1% ANHUI CONCH-H 914 Shanghai 3% -2% LIV ZON PHARM-H 1513 Shenzhen -53% 0% CHINA V ANKE-H 2202 Shenzhen 4% 0% BBMG CORP-H 2009 Shanghai -53% -3% CHINA PACIFIC-H 2601 Shanghai 4% 1% CHINA EAST AIR-H 670 Shanghai -52% 4% PING AN-H 2318 Shanghai 7% 3% CHINA RAIL CN-H 1186 Shanghai -51% -2% BYD CO LTD-H 1211 Shenzhen -51% -4% DONGFANG ELECT-H 1072 Shanghai -50% 1% CRRC CORP LTD -H 1766 Shanghai -49% -1% CHINA SOUTHERN-H 1055 Shanghai -47% 4% GUANGSHEN RAIL-H 525 Shanghai -47% -2% AIR CHINA LTD-H 753 Shanghai -47% 4% JIANGXI COPPER-H 358 Shanghai -46% -1% ANGANG STEEL-H 347 Shenzhen -45% -1% CHINA COM CONS-H 1800 Shanghai -45% -1% Source: Bloomberg Finance L.P., DBS Vickers Page 15

16 Summary of sector views Sector Weighting Rationale China banks Overweight LGFV loan-bond swap, mixed ownership, and new businesses are positives Hong Kong banks Overweight A rare sector that can benefit from USD interest rate normalisation Environmental Overweight Prefer smaller caps with better valuations and growth potential Internet and e-commerce Overweight E-commerce continues to gain share of retail sales and services Pharmaceutical + healthcare Overweight Wealth and aging population are drivers; prefer services and equipment Apparel and footwear Neutral Prefer non-hk centric companies like Belle China airlines Neutral Earnings upgrades thanks to falling oil price; large H-share discount China appliances Neutral Outlook to improve on back of expected rebound in property sales China auto and parts Neutral Slow car sales balances cheaper commodity input costs China coal Neutral Documentary "Under the Dome" is scary; structurally unattractive China IPPs Neutral Helped by lower coal prices; prefer operators with more alternative exposure China non-bank financials Neutral We look to revisit this sector when SZ-HK stock connect kicks off China property Neutral Expecting sales recovery due to rate cut, HPR and mortgage policies China retailers Neutral Positive wealth effect helps counter anti-graft and e-competition drags China telecom carriers Neutral VAT reform will still impact 2015 earnings China telecom equipment Neutral 4G network capex to slow slightly in 2015 and more significantly in 2016 Gaming Neutral Worst seems to be over for y-o-y gaming revenue declines Hong Kong telecom Neutral Industry consolidation should help pricing in the future Oil Neutral Potential downside risk from strong USD if Greece exits Railway and construction Neutral Positive outlook, but valuations are less attractive after run up Textiles Neutral Stable outlook for 2015 offset by near peak valuations China F&B Underweight High valuations cap upside, particularly with earnings downgrades China materials Underweight Mismatch between share price gain and decelerating domestic FAI Hong Kong property Underweight US interest rate cycle and HK political pressure are key risks HK REITs Underweight Rising risk appetite and US$ interest rate normalization are key risks HK retailers Underweight Unfavorable structural change in mainland tourist spending behavior Source: DBS Vickers Page 16

17 DBSV HK top ten BUYs EPS Closing DBSV Tgt PER CAGR ROE PBV Div y ield Ticker price rating Price FY F FY F FY F Y16F FY F Top picks (X) (X) (%) (%) (%) (X) (X) (%) (%) China Citic Bank 998.HK 5.53 B BUY CMB 3968.HK B BUY CR Land 1109.HK B BUY (11.6) Dah Sing Fin.* 440.HK NR NR n.a Far East Horizon 3360.HK 7.23 B BUY Nexteer Auto 1316.HK 7.35 B BUY Sinopharm Group 1099.HK B BUY Tencent 700.HK B BUY Wasion Group 3393.HK B BUY Yestar Intl HK 3.07 B BUY Simple average * consensus estimates Source: DBS Vickers DBSV top picks simple average DBSV top picks market cap weighted (28 Feb 2014 = 100) DBSV top picks HSI (28 Feb 2014 = 100) DBSV top picks -market cap weighted HSI Sources: Bloomberg Finance L.P, DBS Vickers Page 17

18 DBSV universe comparison table Mkt Cap (US$m) Share Price Target Price Stock code Stock name upside (%) Remd PE (x) PE (x) 16F PB (x) Yld (%) ROE (%) A uto manufacturers & dealers 1114 Brilliance China 6, H China ZhengTong 1, B Dah Chong Hong B Dongfeng Motor Group 9, B Geely Automobile 3, H Great Wall Motor 10, H Great Wall 12, H Guangzhou Automobile 5, B Minth Group 2, B Nexteer Automotiv e Group 2, B Xinchen China Power Hldgs B ZhongSheng 1, B Banking and Finance Agricultural Bank of China-A 161, H Bank of China-A 214, H Bank of Comm-A 81, B China CITIC Bank-A 60, S China Construction Bank-A 242, H China Merchants Bank-A 68, B China Minsheng Bank-A 53, FV ICBC-A 274, B Banking and Finance (China) 1288 Agricultural Bank of China 146, H Bank of China 160, B Bank of Communications 65, B China CITIC Bank 33, B China Construction Bank 204, B China Financial Services B China Merchants Bank 65, B China Minsheng Bank 41, H Chongqing Rural Bank 6, B ICBC 245, B Banking and Finance (HK) 2388 Bank of China HK 42, B Bank of East Asia 10, H China Everbright Ltd 4, B Dah Sing Banking Group 2, B Far East Horizon 3, B Hang Seng Bank (1) 39, B HSBC Holdings 175, B Cement 914 Anhui Conch Cement 16, B Anhui Conch 12, H China Nat'l Bldg Mat 4, FV China Resources Cement 3, H Shanshui Cement 2, FV Chemicals 2283 T K Group B Source: DBS denominated in RMB Page 18

19 DBSV universe comparison table (con t) Mkt Cap (US$m) Share Price Target Price Stock code Stock name upside (%) Remd PE (x) PE (x) 16F PB (x) Yld (%) ROE (%) Conglomerates-HK 4 Wharf Holdings # 19, H Wheelock # 10, B Food and Beverages Bright Dairy & Food@@@ 2, B China Foods 1, H China Mengniu 8, B China Modern Dairy 1, B China Yurun H Tingyi Holding 10, H Tsingtao Brewery 7, H Tsingtao 6, FV Uni-President China 3, H V itasoy 1, H Want Want China 13, B Hardware & Equipment 552 China Comm Services 3, B China Fiber Optic Network B Comba H TCL Communication H Trigiant Group B V ST Holdings B V Tech 3, B ZTE 10, B Household/Personal (China/HK) 1880 Belle Int'l 8, B Best Pacific Int'l Hldgs B ^^^ H Daphne International H Haier Electronics 6, B Hengan 13, H Li & Fung 6, B Li Ning H Luen Thai B Pacific Textile 2, B Prada 11, FV Samson Holding B Samsonite Int'l ^^ 4, B Sitoy Group H Stella International 2, H Texhong Textile Group B Texwinca 1, B Source: DBS Vickers # P/NAV ; '@ denominated in USD denominated in RMB; ^^^ Valuation based on US-listed share; ^^ Core profit and EPS Page 19

20 DBSV universe comparison table (con t) Mkt Cap (US$m) Share Price Target Price Stock code Stock name upside (%) Remd PE (x) PE (x) 16F PB (x) Yld (%) ROE (%) Industrials 569 China Automation B Cosco International B J iangnan Group B J ohnson Electric 2, H Lee and Man Paper 2, H Nine Dragons 3, FV Wasion Group 1, B Infrastructure 152 Shenzhen International 3, B Investment Services (China / HK) 806 V alue Partners Group 2, B Media 752 Pico Far East B TV B 2, FV Pharmaceutical & Health Care 2877 China Shineway 1, H China Traditional Chinese Med 3, B Consun Pharmaceutical B CR Sanjiu Medical & Pharm@@ 4, B Microport Scientific FV n.a Shandong Weigao 3, H Sinopharm Group 10, B Tianjin Chase Sun Pharm@@@ 2, H Yestar International B Properties (China) (2) 3383 Agile Property # 2, H Central China # B CC Land # H China Overseas Grand Oceans B China Overseas # 31, B China Resources Land # 19, B China V anke 26, B China V 20, B Country Garden # 8, B Ev ergrande Real Estate # 10, H fsg sp First Sponsor B Franshion Properties # 3, B Shimao Property # 6, B Shui On Land # 2, H n.a. n.a Sino-Ocean Land # 5, B Soho China # 3, H Greenland (Hong Kong) # 1, B Yllg sp Yanlord Land 1, B Yuexiu Property # 2, H Source: DBS denominated in SGD; # P/NAV Page 20

21 DBSV universe comparison table (con t) Mkt Cap (US$m) Share Price Target Price Stock code Stock name upside (%) Remd PE (x) PE (x) 16F PB (x) Yld (%) ROE (%) Properties (HK) 1113 CK Property 32, B Great Eagle # 2, H Hang Lung Group # ^ 6, H Hang Lung Properties # ^ 12, B Henderson Land # ^ 21, B HKL SP Hongkong Land ^ 17, B Hysan Development # 4, B K. Wah Intl # 1, B Kerry Properties # 5, B Lai Sun Development # B MTR ^ # 26, H New World Dev # 10, B SHK Properties # ^ 44, B Sino Land # 9, B Swire Properties # 18, B Tai Cheung # B Wing Tai Properties # B Railway & Construction 1800 China Comm Construction 20, B China Comm 29, H China Railway Construction 17, B China Railway 27, H China Railway Group 19, B China Railway Group-A@@@ 37, H CRRC Corp 34, B CRRC 54, H China State Construction 6, H Real Estate Inv estment Trust 2778 Champion REIT 3, B nmf nmf Fortune REIT 2, B nmf nmf J inmao Investment 1, B nmf nmf Prosperity REIT B nmf nmf Sunlight REIT B nmf nmf The Link REIT 13, H nmf nmf Restaurants 538 Ajisen China FV Cafe de Coral 2, H Retailers 814 Beijing Jingkelong H Bonjour Holdings H Chow Sang Sang 1, B Esprit Holdings 1, FV n.a Giordano H Golden Eagle % 2, H Gome Elec Appliances % 2, H Hengdeli H Intime Department Store 2, H J D US J D.com ^^@ 46, B Lianhua Supermarket H Source: DBS Vickers ^ EPS and Net Profit exclude fair value changes on investment properties; % - Fully Diluted EPS; # P/NAV; ^^Core profit and EPS; denominated in USD Page 21

22 DBSV universe comparison table (con t) Mkt Cap (US$m) Share Price Target Price Stock code Stock name upside (%) Remd PE (x) PE (x) 16F PB (x) Yld (%) ROE (%) Retailers (cont'd) 1212 Lifestyle 2, B Luk Fook 1, B New World Dept Stores H Nirvana Asia Ltd B Oriental Watch H Parkson H Sa Sa 1, H Springland Int'l H Sun Art Retail Group 7, FV Trinity Ltd H Wumart ^^ H Software & Computer Serv ices 268 Kingdee 1, B Tencent ^^ 175, B Yonyou Network Tech@@@ 9, FV Steel, aluminium & copper 347 Angang Steel 3, B Angang 5, H Baoshan Iron & Steel Co-A 17, B China Hongqiao Group 4, H Maanshan I & S 1, FV Maanshan I & 4, FV United Co RUSAL PLC 7, B Telecom Services (China) 941 China Mobile 268, B China Unicom 33, H China Telecom 45, B Telecom Services (HK) 1883 CITIC Telecom 1, B HKT Trust 9, H Hutchison Telecom 2, H SmarTone 2, B Transportation - Ports & Airports 694 Beijing Capital Intl Airport 4, B China Merchants Hldgs 9, B COSCO Pacific 3, B Utitilies 1816 CGN Power 19, B Warehouse 925 Beijing Properties B n.a. n.a China Fortune Land Dev@@@ 12, B China South City 2, B Shenzhen Chiwan Petroleum B Source: DBS denominated in denominated in RMB % - Fully Diluted EPS; ^^Core profit and EPS Page 22

23 DBSV universe comparison table (con t) Mkt Cap (US$m) Share Price Target Price Stock code Stock name upsid e (%) Remd PE (x) PE (x) 16F PB (x) Yld (%) ROE (%) Water Infrastructure, Environmental 371 Beijing Enterprises Water % 6, B Canvest Environment Protection B China Everbright Intl 6, B CEWL SP China Everbright 1, B CT Environmental Group 2, B Kangda International 4, B SIIC SP SIIC 1, H Sound Global 7, B Tianjin Cap Environmental S Tianjin Cap 1, S UENV SP United 1, B Source: DBS denominated in denominated in RMB % - Fully Diluted EPS Page 23

24 DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited ( DBSVHK ), a direct wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVHK and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVHK accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVHK, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVHK and/or DBSVH (and/or any persons associated with the aforesaid entities), that: a. such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and b. there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his / her spouse and/or relatives and/or associate who are financially dependent on the analyst, do not hold interests in the securities recommended in this report ( interest includes direct or indirect ownership of securities, directorships and trustee positions). Page 24

25 COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended in this report as of the date the report is published. 2. DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates beneficially own a total of 1% or more of any class of common equity securities of Fortune REIT (778 HK) mentioned in this document as of the latest available date of the updated information. 3. Compensation for investment banking services: DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Bank Of China (3988 HK/ CH), Best Pacific (2111 HK), China Merchants Holdings (144 HK), China Overseas Grand Oceans (81 HK), China Resources Land (1109 HK), China Unicom (762 HK), Far East Horizon (3360 HK), Franshion Properties (817 HK), Henderson Land (12 HK), Jinmao Investments (6139 HK), Lenovo Group (992 HK), Nirvana Asia (1438 HK), China Petroleum & Chemical (386 HK), The Link REIT (823 HK), The Wharf Holdings (4 HK), Yuexiu Property (123 HK) and First Sponsor (FSG SP) mentioned in this document. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This document is being distributed in Australia by DBSVHK, which is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 [ CA ] in respect of financial services provided to the recipients. DBSVHK is regulated by the Securities and Futures Commission under the laws of Hong KONG, which differ from Australian laws. Distribution of this report is intended only for wholesale investors within the meaning of the CA. Hong Kong Indonesia Malaysia This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission. This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia. This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Singapore Thailand United Kingdom Dubai United States Other jurisdictions Wong Ming Tek, Executive Director, ADBSR This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No E) or DBSVS (Company Regn No G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at for matters arising from, or in connection with the report. This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients. This research report is being distributed in The Dubai International Financial Centre ( DIFC ) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box , 3 rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it. Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSV US, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBS Vickers Securities (USA) Inc ( DBSVUSA ) directly and not its affiliate. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers (Hong Kong) Limited 18 th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) , Fax: (852) Page 25