We believe further upside for Hang Seng Index will be limited in near term. Market Overview. 05 December 2017

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1 05 December 2017 Hang Seng Index Performance Major Market Indicators % Change Hong Kong Close 1-Day 1-Mth 6-Mth 12-Mth Hang Seng Index 29, HSCEI (H-Shares) 11, Mkt T/O ($ Mn) 108, Oversea DJIA 24, NASDAQ 6, Shanghai SE Composite 3, Shenzhen Component 11, Commodities and FX Crude Oil Futures (US$) Gold Futures (US$) 1, Baltic Dry Index 1, USD / Euro Yen / USD CNH / USD Source: Bloomberg Market Overview Hang Seng Index closed up 0.2% at 29,138. Market turnover decreased to $108.7 billion. Heavily weighted Tencent (700) and AIA Group (1299) climbed 0.6%-0.9%. HSBC (5) and China Mobile (941) cut 0.3%-0.4%. Country Garden (2007) and Geely Automobile (175) surged 3.1% and 2.2% respectively. Three largest oil companies soared 1.1%-1.5%. AAC Technologies (2018) and Sunny Optical (2382) were little changed. Gaming, consumption, local banking and property stocks were mixed. WH Group (288) was the best performing index stock, up 3.5%. Want Want China (151) slid 0.5%. Galaxy Entertainment (27) increased 0.4% whilst Sands China (1928) decreased 0.5%. Wharf (4) climbed 1.6%. SHK Properties (16), Henderson Land (12) and Hang Lung Properties (101) dropped 1.7%-2.4%, the most in Hang Seng Index. Hang Seng Bank (11) and Bank of East Asia (23) lost 1.2%-1.5%. HSCEI advanced 0.6% led by airline, cement and insurance stocks. Air China (753) and Anhui Conch (914) went up 3.0% and 1.6% respectively. Six insurance stocks in HSCEI all increase with an average gain of 2.0% among which New China Life (1336) and CPIC (2601) rose 3.0%-3.6%. Automobile stocks ended higher. Banking, securities, power and railway related stocks lacked clear direction. China Merchants Bank (3968) added 0.5%. ICBC (1398), CCB (939) and ABC (1288) were almost unchanged. Haitong Securities (6837) shrank 0.5%. CGN Power (1816) and China Railway Construction (1186) plunged 0.9%-1.1%. Sinopharm (1099) was the worst performing HSCEI stock, down 1.6%. We take a neutral view on Hang Seng Index in December with a trading range of 28,600-29,800. We believe further upside for Hang Seng Index will be limited in near term

2 Market in Focus Mengniu Dairy (2319) - Recent share price weakness offers a buying opportunity Mengniu s (2319, $20.15) share price fell nearly 5% last week after China s Ministry of Finance (MOF) announced a reduction in the import tariffs on nearly 200 types of consumer goods effectively on 1 Dec 2017, including diapers, cosmetics and infant milk formula (IMF) etc., in a bid to encourage domestic consumption. We think investors have over-estimated the negative impact of import duty reduction on domestic IMF companies such as Mengniu. We believe the impact is negligible as the IMF business only accounted for 6.7% of Mengniu s revenue and -1.7% of its segment profit in the first half of The recent share price weakness therefore creates a good buying opportunity. We continue to take a positive view on Mengniu given 1) better competitive dynamics that the leading players strategies are more focusing on key-product upgrade and differentiated products rather than grabbing market share by keeping price low, 2) more net margin upsides from favorable input costs such as milk powder cost, product mix upgrades driven by consumption upgrades and 3) loss in Yashili (1230) and China Modern Dairy (1117) will narrow with improved operation in As a recap, Mengniu s revenue, gross profit and net profit increased by 8.1%, 14.4% and 4.7% yoy to RMB29.5bn, RMB10.5bn and RMB1.1bn respectively in 1H17. Gross margin added 2.0ppts to 35.6%. Overall SG&A ratio increased slightly by 0.4ppt and A&P ratio was down 1.4ppts to 9%. Operating margin improved 1.6ppts to 6.6%. Excluding the items of RMB362mn non-cash loss from China Modern Dairy and RMB125mn loss from disposal of partial interests in associates, Mengniu s core earnings amounted to RMB1.60bn (+ 20% yoy) with core profit margin improved from 4.0% to 5.3%. According to Bloomberg estimates, the company s revenue will reach RMB58.5bn in 2017 and RMB63.6bn in 2018 representing an increase of 8.8% and 8.6% yoy respectively. Net profits are expected to grow 17.6% to RMB2.4bn (EPS RMB0.626) in 2017 and 38.1% to RMB3.3bn (EPS RMB0.855) in Traded at 2017 PER of 27.0x and 2018 PER of 19.8x with 2-year EPS CAGR of 27%, we believe Mengniu offers good value to long term investors in our view. Besides, we see up upside risk to Bloomberg consensus revenue growth of 8.8% in 2017, mainly due to accelerated revenue growth driven by product mix upgrade in 3Q17. We expect the growth momentum to continue in 4Q17 and therefore recommend a on Mengniu with a 12-month price target of $24.2 based on 24.0x FY18 PER, in line with its historical average PER since 2010.

3 Technical Ideas China Resources Beer (291, $22.50) Stock Rating: Target Price: $24.75 Company Description: China Resources Beer Company is an alcoholic beverage retailer. Commentary: Driven by expectations on higher ASP next year, counter rose 5.6% yesterday with large turnover. MACD also showed improving signal, indicating the counter s strong uptrend momentum ahead. Recommendation:. Target at $ Cut loss at $ Company Statistics Last Closing Price $22.50 Consensus 2017 P/E 32.97x Consensus Target Price $22.68 Hutchison Telecommunications (215, $2.92) Stock Rating: Target Price: $3.18 Company Description: Hutchison Telecommunications Hong Kong is an integrated mobile and fixed-line services telecom operator. The Company operates GSM dual-band and 3G mobile telecom services in Hong Kong and Macau. It also provides fixed-line telecom services for corporate, carrier, and international customers under the licensed "HGC" brand. Commentary: Counter rose 2.5% yesterday with relative large turnover and reached its 1-month high. MACD also showed positive crossing, indicating the counter s strong uptrend momentum ahead. Recommendation:. Target at $3.18. Cut loss at $2.84. Company Statistics Last Closing Price $2.92 Consensus 2017 P/E 12.02x Consensus Target Price $3.06

4 Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) 20/11/2017 Singamas (716) Weakness in share price offers a good buying opportunity Maintain Singamas (716) Likely to benefit from a continued recovery in the container shipping industry Traded at 2017 P/B of 0.91x and EPS growth of 50% in 2018, Singamas is undervalued ($2.05) 21/11/2017 Galaxy Entertainment (27) Galaxy Entertainment (27) achieved satisfactory third quarter results Maintain Revenue and adjusted EBITDA increased by 23% and 31% yoy respectively in 3Q17 Completion of HK-Zhuhai-Macau Bridge by 2017 is likely to boost Macau s gaming revenue in 2018 ($63.0) 22/11/2017 Xinyi Glass (868) Upgrade to as 2017 earnings may beat market expectations The company is still undervalued and trading at 2017 PER of 7.7x, lower than the average historical PER of 9.7x from 2010 to 2017 Dollar gross margin per ton is expected to record a quarter-over-quarter increase ($10.3) 23/11/2017 Wisdom Education (6068) Promising industry outlook plus strong student enrolment growth Maintain Wisdom Education (6068) Revenue and net profit grew 40% and 30% yoy respectively in FY17 Promising outlook for China s education services industry given a fast-growing middle class and rising demand for quality education service ($5.5) 24/11/2017 China Oriental Group (581) Time to revisit steel players; sustainable high margin, China Oriental Group (581) is our top pick Traded at 3.5x/4.6x FY17/18 PER and 1.3x/1.1x FY17/18 PBR, COG (581) is undervalued in our view Our earnings forecast are RMB5.09bn in 2017 and RMB4.08bn in We think its fair value at FY17 PBR of 1.8x or equivalent to $8.0 ($8.0) 27/11/2017 China State Construction (3311) Accelerating infrastructure investment in China after rights issue China State Construction (3311) Accumulated new contract value of $90.1bn in 10M17, up 24% yoy Attractive valuation at 2018 P/E of 7.4x with EPS growth of 12% ($12.3) 28/11/2017 Angang Steel (347) 29/11/2017 Fairwood (52) 30/11/2017 Anta Sports (2020) Gross profit margin hitting high level Reiterate on Angang (347) Industry s gross profit per ton of flat steel products has already stayed above the previous peak levels in September 4Q17 net profit may beat market expectations given the fundamental improvement of the industry recently Gross profit margin hitting high level Reiterate on Angang (347) Earnings is expected to grow 14.0% yoy to $234mn (EPS $1.84) in FY18 Traded at FY18 PER of 17.1x with an EPS growth of 14.0% and dividend yield of 4.6%, valuation of is attractive in our view Maintain SELL Anta Sports (2020) on rich valuation Traded at 2017 P/E of 25.4x and 2018 P/E of 23.2x, current valuation of Anta Sports is unattractive to short-term investors Slowdown in revenue growth could minimize the chance of re-rating ($8.8) ($34.8) SELL ($32.1) 4/12/2017 Galaxy Entertainment (27) Macau s gaming revenue beat market expectation Maintain Galaxy Entertainment (27) The latest Macau s gaming revenue monthly data beat market expectations again on the back of recovery in the tourism industry Traded at 16.4x 2018 EV/EBITDA, valuation of Galaxy Entertainment is still attractive to long-term investors. ($63.0)

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