We believe further upside for Hang Seng Index will be limited in near term. Market Overview. 17 November 2017

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1 17 November 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) 113, Oversea DJIA 23, 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 0.6% at 29,018. Market turnover decreased to $113.9 billion. Heavily weighted Tencent (700), AIA Group (1299) and HSBC (5) surged 2.3%, 1.1% and 0.3% respectively. China Mobile (941) cut 0.6%. AAC Technologies (2018) rose 2.1%. Oil and consumption stocks were mixed. China Mengniu Dairy (2319) soared 1.2%. Want Want China (151) and Hengan Int l (1044) slid 0.8%. Sinopec (386) added 0.4% while Kunlun Energy (135) dropped 0.6%. Gaming, local property and banking shares ended lower. Wharf (4) tumbled 2.2%. SHK Properties (16) and Henderson Land (12) fell 1.4%-1.5%. Sands China (1928) and Galaxy Entertainment (27) lost 1.0% and 0.3% respectively. China Merchants Port (144) was the worst performing index stock, down 7.3%. HSCEI advanced 1.1% led by insurance, cement and airline stocks. Six insurance companies in HSCEI grew an average 3.8% among which Ping An Insurance (2318) and New China Life (1336) jumped 4.5%-5.6%. Anhui Conch (914) and Air China (753) went up 2.6% and 1.2% respectively. Banking, automobile, railway related stocks lacked clear direction. Postal Savings Bank (1658), Great Wall Motor (2333) and CRRC Corporation (1766) increased 0.6%-1.0%. Dongfeng Motor (489) and Zhuzhou CRRC Times Electric (3898) declined 0.8%- 0.9%. Power and securities stocks ended lower. Huaneng Power (902) and China Galaxy Securities (6881) slumped 1.1%-1.3%. China Shenhua (1088) was the worst performing HSCEI stock, down 1.8%. We believe further upside for Hang Seng Index will be limited in near term. We believe further upside for Hang Seng Index will be limited in near term

2 Market in Focus Share price correction provides a good buying opportunity Maintain Huaneng Power (902) Since our commentary dated Oct 26, the share price of Huaneng Power (902, $5.37) has increased by 4.3% and outperformed the Hang Seng Index by 1.7% over the same period. We attributed the outperformance to better-than-expected quarterly results. For the first nine months of 2017, the company s operating revenue and net profit amounted to RMB111.1bn and RMB2.86bn according to the PRC GAAP representing an increase of 10.8% and decrease of 74.3% yoy respectively. Revenue growth was supported by a 26.2% yoy growth in electricity sales volume and 3.7% yoy increase in the average on-grid electricity sales price for its power plants. The earnings decline was mainly due to the increase in fuel price. For the third quarter of 2017, operating revenue grew 9.8% yoy to RMB39.6bn whilst net profit dropped 38.2% yoy to RMB2.07bn. According to Bloomberg estimates, the company s earnings are expected to reach RMB2.34bn in 2017 and RMB7.00bn in 2018 implying a strong earnings recovery in Traded at 2018 P/B of 0.81x and 2018 P/E of 9.5x, Huaneng Power is undervalued in our view and likely to outperform the market over the next six months. Share price has dropped 3.9% in past five days providing a good buying opportunity to long term investors. Speculation on the increase of tariff early next year could be a share price catalyst. We maintain our rating on Huaneng Power with a 6-month price target of $6.15 based on 2017 P/B of 1.0x.

3 Technical Ideas Dali Foods Group (3799, $6.38) Stock Rating: Target Price: $7.02 Company Description: Dali Foods Group is a snack food and beverage company. The company is actively expanding its products offering and distributes its products through retailers. Commentary: Counter rose 6.3% yesterday with large turnover, reached its 52-week high and surpassed SMA20, indicating the counter s strong uptrend momentum ahead. Recommendation:. Target at $7.02. Cut loss at $5.90. Company Statistics Last Closing Price $6.38 Consensus 2017 P/E 21.6x Consensus Target Price $6.52 China Taiping Insurance (966, $29.45) Stock Rating: Target Price: $32.40 Company Description: China Taiping Insurance underwrites life and property/casualty insurance and reinsurance. Commentary: Counter rose 5.4% yesterday with large turnover and reached its 52-week high, indicating the counter s strong uptrend momentum ahead. Recommendation:. Target at $ Cut loss at $ Company Statistics Last Closing Price $29.45 Consensus 2017 P/E 19.9x Consensus Target Price $29.02

4 Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) 1/11/2017 CCCC (1800) 2/11/2017 Galaxy Entertainment (27) 3/11/2017 Angang (347) 6/11/2017 7/11/2017 China State Construction(3311) China Overseas Property (2669) 9/11/2017 HKEx (388) 10/11/2017 Hua Hong Semiconductor (1347) CCCC (1800) reported lower than expected third quarter earnings Downgrade to HOLD The third quarter earnings actually declined 3.9% yoy to RMB3.9bn Strong growth in new contracts value by 30.6% yoy in 9M17 providing a solid foundation for earnings growth in the long term A positive surprise on Macau s October gaming revenue Galaxy Entertainment (27) Macau s gaming revenue up 22.1% yoy in October, higher-than-expected 22.1% Traded at 16.4x 2018 EV/EBITDA, valuation is still attractive to long-term investors Flat steel prices will stay high in 4Q17-1Q18 amid production cut in Hebei Maintain Angang (347) China s steel supply may become tight in 4Q17 and 1Q18 resulting in an upward pressure on steel prices Revenue and net profit were RMB60.5bn and RMB3.29bn in 9M17, up 47% and 236% yoy respectively Accelerating infrastructure investment in China after rights issue China State Construction (3311) Participation into more PPP projects in China will improve earnings growth prospects in the long-term Operating profit (including share of profits of joint ventures) surged 34% yoy to $5.02bn in 9M17 Strong net cash will facilitate expansion through M&A Maintain China Overseas Property (2669) Likely to achieve decent earnings growth in long-term through economies of scale and parent support Current forward P/E valuation is cheap given a strong 2-year EPS CAGR of 28% HKEx (388) was fully valued despite strong quarterly results HOLD 3Q17 net profit increased by 32% yoy to $2,033mn. Traded at 2017 P/E of 37.3x, valuation of HKEx is fully valued Hua Hong Semiconductor (1347) reported higher-than-expected third quarter earnings - Maintain 3Q17 revenue increased by 6.0% qoq and 13.3% yoy to all-time-high of US$209.9mn. Management expects 4Q17 revenue to grow 3% qoq with a gross margin of 33%-34% HOLD ($9.50) ($60.5) ($8.05) ($12.5) ($2.20) HOLD ($230) ($17.5) 13/11/2017 CIMC (2039) 15/11/2017 Shimao Property (813) 16/11/2017 SMIC (981) Substantial land appreciation gains from Qianhai properties Maintain CIMC (2039) Redevelopment of Qianhai sites will generate enormous profit to CMIC Strong improvement in container manufacturing business along with a recovery in global trade. Valuation of Shimao Property (813) is unreasonably cheap Maintain Contracted sales amount and ASP surged 39% and 21% yoy respectively in 10M17 Low valuation at 2017 P/E of 6.5x and 2017 P/B of 0.8x SMIC (981) reported lower than expected quarterly earnings Downgrade to SELL Company expects revenue to grow 1%-3% qoq in 4Q17 with a gross margin of 18%-20% Expensive valuation at 2017 P/E of 44.9x and 2017 P/B of 1.48x ($18.0) ($20.0) SELL ($10.3)

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