Lee & Man Paper (2314 HK) Trading Buy Last price: HK$5.20 Resistance: HK$5.50/5.70 Support/Stop-loss: HK$4.94. First Pacific (142 HK)

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1 MARKET NEWS As FED and BOJ are going to discuss interest rates, HK stocks are expected to trade choppily in short term P R I C E C H A R T ( H a n g S e n g I n d e x ) The HSI retreated for two consecutive trading days. The benchmark index opened 58 points lower, and fell 162 points to settle at points. The HSCEI dropped 134 points to close at 8986 points. The total turnover amounted to HK$55.9b with 592 winners and 877 losers. The HSI rebounded over 3000 points and rose for 10 consecutive weeks since hitting a low at points on 12 February and it has nearly pared losses for this year. Although the Hong Kong stocks rebounded strongly as a result of the positive sentiments driven by an improvement seen in China s economy, together with a fall of $ and a recovery of commodity prices, there is an increase in risk for a short term pull back. In particular, this week is the settlement week of index futures (settlement day is on this Thursday, 28 April). Furthermore, since the Fed and the Bank of Japan are going to hold meetings to discuss interest rates, it is likely for the Hong Kong stocks to trade choppily in the short term. The FOMC meeting will be held on Tuesday and Wednesday ( time, 26 and 27 April), and the results will be announced in the early morning of Thursday (Hong Kong time, 28 April). It is widely expected that the Fed is going to maintain its interest rates unchanged. The market expects a rate hike will only be occurred in the fourth quarter. Therefore, the BOJ s discussion on interest rates provokes more attention. The BOJ mentioned in the previous meeting that it will not hesitate to take additional easing measures if it is judged necessary, and there s news saying that the central bank may consider to adopt a negative interest rate for some loans to banks. If the above measure is implemented, the global market will move higher, in turn benefiting Hong Kong stocks. Otherwise, in the event that the rumour comes to nothing, the Hong Kong stocks will take this as an excuse to retreat. Furthermore, investors shall pay attention to the quarterly results of China s banking stocks, the performance of China s commodity futures and China s economic data (China s manufacturing PMI will be released on 1 May) during the week. Technically, the HSI has moved along the upward channel. It is normal for the index to retreat, with the initial support at points. If the index can hold above this level, the trend is still on the strong side, with the key support at the bottom of the upward channel (about points as at the time of writing). KEY INDICES Prev Close Chg (%) YTD (%) HSI Index 21, HI1 Index 8, HSCEI index 2, SHCOMP index 17, DJI index 2, SPX index 17, NKY index 10, DAX index 4, CAC index Source: Bloomberg 21, TOP VOLUME Price Chg Value Stock (HK$) (%) ($m) TRACKER FUND HK % TENCENT % HKEX % AIA % HSBC HLDGS PLC % WHAT S IN THE PACK Evergrande Real Estate (3333 HK) To Acquire 52.8% Stake In Calxon; Hints At Possible "Going-Back" Move Evergrande will acquire 52.8% share of A-share listcom Calxon for Rmb3.6b, which will offer Evergrande a domestic listing platform. Wanda Commercial has announced a privatisation plan and aims to return to A-shares for listing due to a largely undervalued share price (from management's point of view) and to tap the better onshore financing environment. However, the procedure of the potential privatisation for Evergrande may not be easy, given its red-chip structure and huge offshore debt. Maintain HOLD. Target price: HK$6.33. Entry price: HK$5.06. Lee & Man Paper (2314 HK) Trading Buy Last price: HK$5.20 Resistance: HK$5.50/5.70 Support/Stop-loss: HK$4.94 First Pacific (142 HK) Trading Buy Last price: HK$4.88 Resistance: HK$5.19/5.33 Support/Stop-loss: HK$4.65 TOP GAINERS Price Chg Value Stock (HK$) (%) ($m) EAGLE LEGEND ASI % 1.3 REAL % TUNGTEX HLDGS % 34.7 WAI CHUN GROUP % 1.52 CHINA GREEN % TOP LOSERS Price Chg Value Stock (HK$) (%) ($m) C SMART % 11.7 EXPERT SYSTEMS % 15.2 AMGEN INC % 0.1 CISCO SYSTEMS % 0.0 MICROSOFT CORP % 0.0 STRATEGIST Hannah Li, CFA, CAIA hannah.li@uobkayhian.com.hk w w w. u t r a d e. c o m. h k 1

2 COMPANY UPDATE Evergrande Real Estate (3333 HK) To Acquire 52.8% Stake In Calxon; Hints At Possible "Going-Back" Move Evergrande will acquire 52.8% share of A-share listcom Calxon for Rmb3.6b, which will offer Evergrande a domestic listing platform. Wanda Commercial has announced a privatisation plan and aims to return to A- shares for listing due to a largely undervalued share price (from management's point of view) and to tap the better onshore financing environment. However, the procedure of the potential privatisation for Evergrande may not be easy, given its red-chip structure and huge offshore debt. Maintain HOLD. Target price: HK$6.33. Entry price: HK$5.06. WHAT S NEW Acquisition of A-share platform. Evergrande Real Estate (Evergrande) released an announcement that the company's subsidiary plans to acquire 952.3m shares of China Calxon ( CH, Not Rated) from its three original shareholders, which represent 52.78% of Calxon s total shares, with an aggregate consideration of Rmb3.6b or Rmb3.79/share which is based on 10% discount of the arithmetic average of daily weighted average prices. Calxon Group is a subsidiary of Zhejiang SASAC established in China and its major business is property development. Its projects are mainly located in cities in the Yangtze River Delta such as Shanghai, Hangzhou and Suzhou. Other regions include Wuhan, Qingdao and Chongqing with around 50 projects and GFA of nearly 6.0m sqm. As at end-15, the company recorded a Rmb2.3b net loss to attributable shareholder compared with a Rmb38m gain in Valuation support after acquisition. Once the acquisition is finalised, Evergrande will become the largest shareholder of Calxon and will own a domestic property platform. We think the potential benefits for the acquisition include: a) the acquired A-share listed company would likely to gain a better valuation (12x average PE for major A-share listed property company) based on Evergrande's brand name and diversified business model, it could also help with the valuation recovery of its HK listcom (market consensus 2016 PE is 8.9x for Evergrande), b) the acquisition of Calxon will add more land reserves in the Yangtze river delta where Evergrande has a relatively low proportion of land reserves; and c) Evergrande s share price will see positive support under delisting expectations. STOCK IMPACT However, if Evergrande is willing to privatise, the road will not be easy due to: a) a red chip structure is more complex compared with H-shares like Wanda, b) huge offshore debt outstanding, and c) offshore platforms still have value to large groups such as Evergrande. Thus, we hold a neutral view on this event. It is essential to see if Evergrande will officially propose a privatisation plan with a higher offer price which will lead to trading opportunities in the short term. Complex red-chip structure is major barrier. As we have mentioned, the difficulties for privatisation include its red-chip company structure. Evergrande is incorporated in Cayman Island while the current requirement for onshore listing only allows companies that are incorporated in China such as Wanda Commercial (3699 HK), R&F (2777 HK), Bejing Capital Land (2868 HK) and Red Star Macalline (1528 HK) to do so. Thus, the ideal 'A+H' structure is not likely to happen for Evergrande. Hence, if the company wants to carry out a re-listing in A-share, they need to de-list on the H-share platform first. Large amount of offshore borrowings remains a concern. The potential privatization could encounter another key hurdle - Evergrande's massive offshore borrowings. As at end-15, Evergrande had Rmb296.9b interest-bearing borrowings (net debt: Rmb132.9b) and Rmb75.7b perpetual capital instruments (PCI). Of this amount, Rmb55b worth of debts are denominated in /HK dollars. ANALYSTS David Yang ext 801 davidyang@uobkayhian.com Edison Bian (852) edison.bian@uobkayhian.com.hk w w w. u t r a d e. c o m. h k 1

3 Consider its already extremely high leverage ratio (as at end-15, PCI adjusted net gearing ratio is 314.2%, up 63.1ppt yoy), it will not be easy for Evergrande to repay such a huge amount of offshore borrowings. Contracted sales saw a good start in 1Q16. Apart from the acquisition, Evergrande achieved Rmb65.7b contracted sales, up 115% yoy and locked in 32.8% of its Rmb200b full-year target. ASP was also up 15.7% yoy to Rmb8,752/sqm in 1Q16. With the help of solid GFA new starts in 2015 (42.6m sqm) and 2016 (target 45m sqm), saleable resources (Rmb311b) will be adequate to underpin its sales growth in the coming years. EARNINGS REVISION/RISK We hold our earnings estimate for unchanged. VALUATION/RECOMMENDATION Maintain HOLD and keep our target price of HK$6.33 unchanged, based on HK$10.55/share end-16 RNAV (HK$8.53/share from our end-16 RNAV for its property business, and HK$2.02/share for its non-property businesses). We keep our target discount to RNAV unchanged at 40% (high end for mid-large developer due to its high leverage) and derive a target price of HK$6.33, which implies 7.3% upside. Entry price: HK$5.06. SHARE PRICE CATALYST Key catalysts include: a) privatisation plan released with a higher-thanexpected offer price, b) contracted sales recording better-than-expected growth in Shenzhen and Hainan, c) the roll-out of more sector-specific loosening policies in core tier-2 cities and supportive local policies in tier-3 cities, and d) credit easing measures remaining in place. w w w. u t r a d e. c o m. h k 2

4 TRADERS CORNER Lee & Man Paper (2314 HK) Trading Buy Last price: HK$5.20 Resistance: HK$5.50/5.70 Support/Stop-loss: HK$4.94 Lee & Man Paper completed the piercing pattern by closing higher at HK$5.20 yesterday. With the WLPR hooking up and the RSI stabilising near its previous low, we expect the stock to test the one-month high of HK$5.50. If this resistance is taken out, the stock will then test the uptrend resistance line near HK$5.70. Approximate time frame on average: 1 month First Pacific (142 HK) Trading Buy Last price: HK$4.88 Resistance: HK$5.19/5.33 Support/Stop-loss: HK$4.65 First Pacific closed higher at HK$4.88 to form a quasi-hammer candle yesterday on very strong volume. Given that the ROC I s heading towards its centreline as well as the bullish divergence of the WLPR, the stock is prone to test the 0.38x retracement level at HK$5.19. If this resistance is cleared, the stock will then test the 0.5x retracement level at HK$5.33. Approximate time frame on average: 1 month Source: HKETNet Barole Shiu, CAIA CMT barole.shiu@uobkayhian.com.hk w w w. u t r a d e. c o m. h k 3

5 FOC NEWS Market News On Monday (25 April), the balance of Northbound Trading was RMB billion, accounted for about 97.7% of the daily quota of RMB 13 billion. The balance of Southbound Trading was RMB billion, accounted for about 97.8% of the daily quota of RMB 10.5 billion. There will be 19 HSI constituents to ex-dividend in May and is expected to affect the benchmark index by around 134 points. There will be 20 HSI constituents to exdividend in June and is expected to affect the benchmark index by around 309 points. Industry News NDRC and NEA issued a notice to curb power output from burning power. Power sector was under pressure. PBOC News The People's Bank of China (PBOC) conducted RMB 180 billion of seven-day reverse repos in the open market on Monday (25 April) with an interest rate remained unchanged at 2.25%. Stock News Evergrande (3333 HK, HK$ 5.90) announced for the acquisition of 52.78% equity interests in its A-share peer China Calxon Group with RMB3.609 billion. The former rose 3.7% yesterday. Lifestyle International (1212 HK, HK$ 10.98) announced that the Company submitted an application to the Stock Exchange in relation to the proposed spin-off of Lifestyle China for listing on the Main Board. The stock rose 7.0% yesterday. Real Nutri (2010 HK, HK$ 1.03) announced that it has entered into a settlement agreement with Glaucus. The stock bucked the trend and rose 43.1% yesterday. Chanjet (1588 HK, HK$ 11.80) issued a profit warning, expecting to record a loss for the three months ended 31 March The stock fell 0.7% yesterday. SFK (1447 HK, HK$ 1.67) announced that it won the tender and award of contract for the construction of Home Ownership Scheme Development at Choi Hing Road in an amount of HK$1.297 billion. The stock rose 13.6% yesterday. United PV (686 HK, HK$ 0.70) announced it would acquire the entire equity interest of Yongren Huiguang Photovoltaics Power for a cash consideration of RMB30.5 million. The stock rose 4.5% yesterday. China Partytime (1532 HK, HK$ 0.72) announced that the Company agreed to issue the convertible bonds. The stock rose 9.1% yesterday. Stock Data China Power (2380 HK, HK$ 3.54) announced that for the three months ended 31 March 2016, the power generation of the Group grew 16.61% when compared to that of the same period last year. The stock fell 4.3% yesterday. Stock Results CRRC Times Electric (3898 HK, HK$ 45.30) announced the results for the three months ended 31 March The net profit rose 41.7% yearly to RMB566 million. The stock fell 1.6% yesterday. ECONOMIC CALENDAR Event Period Survey Prior Apr 26 (Tue) Durable Goods Orders Markit Services PMI Markit Composite PMI Consumer Confidence Index Richmond Fed Manufact. Index Apr 27 (Wed) EC M3 Money Supply YoY MBA Mortgage Applications Pending Home Sales MoM Apr 28 (Thu) FOMC Rate Decision Initial Jobless Claims GDP Annualized QoQ Personal Consumption Mar 1.9% -3.0% Apr Apr Apr Apr Mar 5.0% 5.0% Apr % Mar 0.5% 3.5% Apr Apr K 247K 1Q 0.6% 1.4% 1Q 1.7% 2.4% Core PCE QoQ 1Q 1.9% 1.3% EC Bloomberg Consumer Comfort Consumer Confidence Apr 29 (Fri) EC Unemployment Rate Apr Apr Mar 10.3% 10.03% EC GDP SA YoY 1Q 1.4% 1.6% Personal Income Mar 0.3% 0.2% Personal Spending Mar 0.2% 0.1% Chicago Purchasing Manager U. of Mich. Sentiment May 1 (Sun) Apr Apr CH Manufacturing PMI Apr CH Non-manufacturing PMI Apr Source: Bloomberg (HK Time), UOBKayHian Greatwall Motor (2333 HK, HK$ 6.23)'s first-quarter net profit was RMB billion, down 5.5% yearly. The stock rose 0.5% yesterday. China Resources Cement (1313 HK, HK$ 2.62) announced its net profit for the first quarter of the year was HK$6.6 million, down 99%. The stock fell 1.9% yesterday. w w w. u t r a d e. c o m. h k 4

6 Zoomlion (1157 HK, HK$ 2.72) announced the first-quarter results ended March. Loss widened to RMB660 million. The stock fell 3.5% yesterday. YOFC (6869 HK, HK$ 9.70) announced that for the first quarter as of the end of March, the net profit rose 2.2% yearly to RMB138 million. The stock remained unchanged yesterday. w w w. u t r a d e. c o m. h k 5

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