HSI gained 9% in March on tamed rate hike fear

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1 Turnover (HK$ bn) Hang Seng Index EAST ASIA SECURITIES COMPANY LIMITED 9/F, 10 Des Voeux Road Central, Hong Kong. Dealing: Research: Facsimile: HONG KONG RESEARCH Restricted circulation Weekly Report Analyst: Kelvin Li 1 st April HSI gained 9% in March on tamed rate hike fear HSI Weekly Movement 20,346 20,346 20,366 Holiday ,803 20,777 20, Mar Mon Tue Wed Thu Fri Turnover Hang Seng Index 22,000 21,500 21,000 20,500 20,000 19,500 19,000 18,500 18,000 Weekly Market Statistics Week ended 01/4/ /3/2016 Change % Hang Seng Index 20,499 20, % HS Red Chip Index 3,700 3, % HS China Enterprises Index 8,843 8, % HS Hong Kong 35 Index 2,447 2, % HS Mainland 100 Index 6,063 5, % Growth Enterprise Index % Avg Daily Turnover % (HK$ bn ) Sectoral Indices Finance 26,706 26, % Utilities 52,383 51, % Properties 28,432 28, % Comm & Ind 12,451 12, % Review & Outlook of Market Performance The Hang Seng Index surged to three-month highs during the week, supported by dovish comments made by the Federal Reserve Chairlady Yellen after she said the central bank would take cautious approach in hiking interests. Profit taking kicked in towards the end of the week, after the PRC Big Four banks reported flat earnings on higher loan impairment charges and cut dividend payout. Over the week, the HSI gained points or 0.75% to 20, , while the HSCEI rose 1.6% to 8, The daily average Mainboard turnover amounted to HK$67.9 billion, little changed from HK$68.0 billion in the previous week. Not only Yellen s latest dovish comments lent support to the HK stock market, the Fed s downward revision of year-end fed funds rate estimate at its March FOMC meeting had also triggered a strong rebound in the local bourse. For March, the HSI rebounded strongly by 8.7% and the HSCEI gained 13.7%, led by gains in HK property developers, the PRC oil producers, banks as well as infrastructure plays. The local earnings reporting season has come to an end, after major PRC banks like CCB (#939), ICBC (#1398) and BOC (#3988) announced their 2015 final results. All PRC banks registered similar earnings trend last year, as higher loan impairment charges offset solid top-line growth, which resulted in unimpressive flat bottom lines. For the second quarter, investors will keep eyes of the Q1 results amongst the PRC companies due in late April. Meanwhile, the stock market will also focus on the MSCI review over the possible inclusion of A shares in its Emerging Market Index. The index complier said it has resumed related consultation with global market participants, while the decision is expected in June. In the short run, we see limited downside to the HSI and good support near the 20,000 level, as the Mainland economy as well as corporate earnings continued to stabilize. This report has been prepared solely for information purposes and we, East Asia Securities Company Limited are not soliciting any action based upon it. Neither this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. This document is based upon information, which we consider reliable, but accuracy and completeness are not guaranteed. Opinions expressed herein are subject to change without notice. At the time of preparing this report, we have no position in securities of the company or companies mentioned herein, while other Bank of East Asia Group companies may from time to time have interests in securities of the company or companies mentioned herein.

2 US & Regional Markets Weekly Update Date US US JAPAN SINGAPORE MALAYSIA BANGKOK TAIPEI Dow Jones NASDAQ Nikkei Avg STI KLSE Index SET Index Weighted Index 1st April 17,685.09* 4,869.85* 16, , , , , th March 17, , , , , , , Change % +1.0% +2.0% -4.9% -1.0% +0.4% +0.5% -0.5% Remark: (*) closing as of 31 st March 2016 Major Changes in Index Constituent s (Week ended 1 st April 2016) Hang Seng Index (HSI) Sinopec Corp HK$5.06 +HK$ % Sinopec Corp outperformed the other two PRC oil producers (PetroChina and CNOOC), after it reported a milder 30% earnings decline in 2015, as better earnings in its downstream operations lent support. However, a weaker bottom line in its refining segment in 2H15 raised alarm, as market competition from low-end refiners may continue to hurt its profit margin in Hang Seng China Enterprises Index (HSCEI) Wanda Commercial Properties HK$ HK$ % The Landlord jumped during the week, after its parent company proposed to privatize the unit by making a general offer to buy out all H shares at no less than HK$48 each, its IPO price. Hang Seng China-Affiliated Corporations Index (HSCCI) COSCO Pacific HK$9.79 +HK$ % The port operator surged, after it reported a strong 30% rise in FY15 net profit on provision write-back. A hefty dividend payout also lent support to share prices, as the aggregate amount of special dividend related to the COSCO/China Shipping group restructuring and the FY15 final dividend would imply above 10% dividend yield. 2

3 Major Results Announcements During the Week FY2014 Net profit y-o-y change Drivers of performance Share price w-o-w chg Agricultural Bank of China (01288) RMB180.6 billion +0.6% ABC reported flat earnings in FY15, amid a 24% rise in loan impairment charges. +1.1% Air China (00753) RMB7.1 billion +83.3% Bank of China (03988) Bank of Communications (03328) BOC (Hong Kong) (02388) BYD Company (01211) China Communications Construction (01800) China Construction Bank (00939) China Merchants (00144) China Merchants Bank (03968) RMB171 billion +0.8% RMB66.5 billion +1.0% HK$24 billion +9.3% RMB2.8 billion +551% RMB15.8 billion +13.2% RMB228 billion +0.1% HK$4.8 billion +6.2% RMB57.7 billion +3.2% Air China reported strong earnings in 2015, thanks to sharply lower jet fuel expenses on weak crude oil prices. BOC s net profit was almost flat in FY15, as rising loan impairment and depressed net interest margin offset a 4% operating income growth. BoCom s net profit inched up by one percent in FY15, as higher credit costs hurt profit margin. BOCHK reported solid results in 2015, as net fee and commission income grew 26% y-o-y. The electric vehicle manufacturer reported strong rebound in earnings, as revenue grew 40% y-o-y. Net profit of the integrated infrastructure builder grew solidly by 13% in 2015 on stable top-line growth and contained financial expenses. CCB posted flat earnings in FY15, as strong non-interest income growth was offset by higher loan impairment charges. The port operator reported trivial earnings growth in FY15, which was mainly supported by gain from accounting changes and a lower effective income tax rate. Higher loan impairment offset CMB s strong 21% y-o-y top-line growth, which led to an unimpressive 3% earnings rise in FY % +1.9% +2.0% +3.6% +1.8% +14.6% +0.8% +8.6% +0.2% China Pacific Insurance (02601) RMB17.7 billion +60.4% CPIC reported strong profit growth in FY15 on robust investment gain. +1.1% China Railway Group (00390) RMB11.7 billion +13.8% CRG marked stable earnings growth in FY15, supported by its core infrastructure construction operation. +6.5% CRRC Corp (01766) RMB11.8 billion +9.3% Both revenue and net profit of the rolling stock manufacturer grew 9% in 2015, amid stable profit margin. +1.0% 3

4 Major Results Announcements During the Week FY2014 Net profit y-o-y change Drivers of performance Share price w-o-w chg ICBC (01398) RMB278 billion +0.5% ICBC reported flat earnings as rising loan impairment offset a 5% top-line growth. +0.2% Minsheng Bank (00998) RMB46 billion +3.5% Minsheng Bank reported an unexciting 3% earnings rise in FY15 with a 14% top-line growth, as a 66% jump in loan impairment dragged on its bottom line. -1.4% PICC P & C (02328) RMB21.8 billion +44.5% The non-life insurer registered strong earnings growth in 2015 on solid investment gain and stable underwriting margins. +7.0% Sinopec Corp (00386) RMB32.4 billion -30.2% Sinopec s net profit weakened in 2015, owing to widening losses in its upstream oil and gas production on weak energy prices. +5.6% Summary of US Economic News Indicator Change/Index Comments Consumer confidence index March The consumer confidence index surged to 96.2 in Mar from 94.0 in Feb, beating consensus forecast of 94. Initial jobless claims week ended 26 th March ,000 Initial jobless claims rose 11,000 to 276,000, higher than market expectation of 265,000. Forthcoming Important Announcements / Events 4 th April 2016 (Monday) HK : Ching Ming Festival holiday US : Factory orders February th April 2016 (Tuesday) HK : No important announcement/event US : Trade balance February 2016 ISM non-manufacturing index March th April 2016 (Wednesday) HK : ZTE (00763) final results US : FOMC minutes meeting on th March 7 th April 2016 (Thursday) HK : Fast Retailing (06288) interim results US : Initial jobless claims week ended 2 nd April th April 2016 (Friday) HK : AP Rentals (01496) trading debut Get Nice Financial (01469) trading debut PRADA (01913) final results US : No important announcement/event 4

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