We expect Hang Seng Index to maintain a technical rebound in near term. Market Overview. `Hang Seng Index Performance

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1 24 October 2018 `Hang Seng Index Performance Major Market Indicators % Change Hong Kong Close 1-Day 1-Mth 6-Mth 12-Mth Hang Seng Index 25, % -7.8% -17.3% -10.0% HSCEI (H-Shares) 10, % -5.5% -16.4% -10.3% Mkt T/O ($ Mn) 97, % -25.6% 10.2% 6.3% Oversea DJIA 25, % -5.2% 4.9% 7.5% NASDAQ 7, % -7.0% 6.1% 12.7% Shanghai SE Composite 2, % -7.2% -17.1% -23.4% Shenzhen Component 7, % -9.9% -28.2% -33.2% Commodities and FX Crude Oil Futures (US$) % -8.1% -2.1% 26.3% Gold Futures (US$) 1, % 2.9% -7.4% -3.4% Baltic Dry Index 1, % 10.1% 18.7% -0.6% USD / Euro % -2.5% -6.3% -2.5% Yen / USD % 0.2% -3.3% 1.3% CNH / USD % -1.1% -9.4% -4.4% Source: Bloomberg Market Overview Hang Seng Index closed down 3.1% at 25,346. HSCEI dropped 2.4%. Heavily weighted AIA Group (1299), Tencent (700) and HSBC (5) cut 4.6%, 4.6% and 3.0% respectively. Gaming, technology, automobile, pharmaceutical, cement and PRC property stocks underperformed the market. Sands China (1928) and Galaxy Entertainment (27) tumbled 5.3%-7.9%. Sino Biopharmaceutical (1177) declined 6.5%. Anhui Conch Cement (914) decreased 5.0%. Ten largest Chinese property developers cut an average 4.0% among which Country Garden (2007), China Resources Land (1109) and Sunac China (1918) fell 5.4%-6.6%. BYD Company (1211), Great Wall Motor (2333) and Guangzhou Automobile (2238) lost 3.4%-4.8%. Sunny Optical (2382) and AAC Technologies (2018) slid 3.7%-4.0%. Railway and power stocks moved in line with Hang Seng Index. HK banking & property, oil and PRC financial stocks ended lower but outperformed the market. Nine local propety stocks in Hang Seng Index dropped an average 2.0% among which CK Asset (1113) and SHK Properties (16) plunged 2.3%-2.4%. Hang Seng Bank (11) retreated 3.2%. Insurance, banking and securities stocks in HSCEI cut an average 1.8%, 1.9% and 2.9% respectively. Four largest Chinese banks slumped 2.1%-2.4%. Zhongan Online (6060) was the worst performing HSCEI stock, down 9.5%. GF Securities (1776) and Haitong Securities (6837) shrank3.3%-4.0%. Consumption and telecom stocks lacked clear direction. China Mobile (941) cut 3.9% while China Telecom (728) added 0.5%. WH Group (288) decreased 5.8% while Shenzhou (2313) was the best performer in Hang Seng Index, up 1.6%. We expect Hang Seng Index to maintain a technical rebound in near term. We expect Hang Seng Index to maintain a technical rebound in near term

2 Market in Focus China Resources Gas MKT Cap ($Bn) 69.5 Bloomberg Ticker 1193 HK Equity 52-week High/Low ($) Rating BUY Free Float (%) 36.0% Target Price $ M Avg Turnover ($, Mn) CRG (1193): Focus on long-term trend, Good entry point for long-term investors, Maintain BUY Since our BUY commentary dated September 19, China Resources Gas (1193, $31.25, CRG ) has risen 3.5% compared with a loss of 3.3% for Hang Seng Index over the same period. We believe the previous weakness in share price was mainly due to weak market sentiment and concerns about city connection fee cut of Chinese downstream gas sector recently which normally contributes 40-55% to total operating profit. However, we believe the market over-reacts the news under the current weak market sentiments because: Fig1: 1 Year Share Price 1) Chongqing government is going to cancel residential initial installation fee for natural gas which is just a part of the total connection fee; 2) The intention of the installation fee is to subsidy downstream gas operator to run less profitable residential business and expand their investment so as to uplift the penetration rate of gas usage, while the penetration rate of gas usage in Chongqing is as high as 70%, much higher than other regions. We do not believe the other regions will follow the same policy and we think the recent share price weakness offers a buying opportunity for long term investor. As a recap, CRG reported better-than-expected interim results on 24 Aug, revenue surged 34.8% yoy to $23,847mn. Revenue from (i) gas sales, (ii) gas connection and (iii) other segments including gas station and design and construction services grew approximately 44.9%, 5.7% and 16.9% yoy to $18,182mn, $3,342mn and $2,322mn respectively accounting for 76.2%, 14.0% and 9.7% of total revenue. Total gas sales volume grew 22.9% to 12,375mn m3, better than our expectations. Residential, industrial and commercial users gas sales volume grew 13.8%, 29.8% and 27.2%. Overall gross profit amounted to $6,742mn, up 18.3% yoy. CRG s dollar margin of gas sales dropped to RMB0.62/m3 from RMB 0.64/m3 in 1H17, but improved hoh from RMB 0.52/m3 in 2H17. Segment profit amounted to $4,871mn in 1H18, the above-mentioned three sectors grew approximately 54.6%, 11.3% and 36.2% respectively to $2,605mn, $1,728mn and 538mn. Source: Bloomberg, Mason Securities We maintain our long-term positive views on China gas market and expect the gas consumption in China to nearly triple by Among the gas supply sources, we expect domestic production to reach nearly 6% CAGR and LNG imports to reach approximately 13% CAGR from 2018 to We continue to take a long-term positive view on the CRG given the industry s long-term and stable growth. According to Bloomberg estimates, the company s earnings are expected to reach $4.52bn in 2018 and $5.07bn in 2019, up approximately 23.6% and 12.2% respectively. EPS is expected to reach $2.05 in 2018 and $2.30 in Traded at 2018 P/E of 15.3x and 2019 P/E 13.6x, we believe the valuation of CRG is attractive to long-term investors. We maintain our BUY rating on CRG with 12-month target price of $38.4. Our target PE multiple is based on 2019 P/E of 16.7x or equivalent to average forward P/E of 16.7x from 2011 to 2018.

3 Technical Ideas Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss Zhaojin Mining 1818 HK Equity BUY $7.05 $7.76 $6.93 $6.70 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity % % 272% 29.3X 1.38X 66% Technical Indicator SMA RSI (14) 70.9 SMA BB (Upper) 7.07 SMA BB (Lower) 5.55 Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss SmarTone 315 HK Equity BUY $10.40 $11.44 $11.04 $9.88 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity % % 83% 18X 2.39X 11% Technical Indicator SMA RSI (14) 60.0 SMA BB (Upper) SMA BB (Lower) 9.96 Source: Bloomberg, Mason Securities

4 Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) China s infrastructure investment is likely to increase in 4Q18 Maintain BUY CSCI (3311) 10/10/2018 CSCI (3311) 11/10/2018 COG (581) 12/10/2018 Anta Sports (2020) 15/10/2018 Kunlun Energy s (135) 16/10/2018 A-Living Services (3319) 18/10/2018 ENN Energy (2688) Outperformance of CSCI is mainly driven by speculation that China will increase infrastructure spending in the fourth quarter Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CSCI COG (581): Expect increasing infra. spending in 4Q, re-rating on sustainable profitability, Maintain BUY Overall steel price and margin staying at high level which have proved our previous thoughts We believe the Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit the overall steel industry Valuation looks attractive to long-term investors - Maintain BUY Anta Sports (2020) We believe the potential earnings dilution effect has been fully discounted in share price We believe current valuation of Anta Sports is still attractive to long term investors Benefit from sustainable LNG consumption growth in China, recommend BUY Kunlun Energy (135) We expect LNG imports will reach approximately 13% CAGR from 2018 to 2025 in China Kunlun Energy s LNG terminals and LNG processing business will benefit from the sustainable LNG import growth given its leading position in LNG industry Attractive valuation after a 35% drop in share price Maintain BUY on A-Living Services (3319) We believe the underperformance is partially due to worries about an increase in employee benefit expenses after a strict enforcement of China s social security taxs in 2019 The negative impact on 2019 s earnings should be fully discounted in share price in our view ENN Energy (2688) : Recent share price weakness offers a long-term buying opportunity; BUY Management guided a +20% yoy volume growth on natural gas sold and high-single-digit new connection growth for the next 2-3 years. Management also expect the core net profit growth in 2018 to reach +18% BUY ($10.0) BUY ($9.50) BUY ($42.0) BUY ($10.70) BUY ($14.30) BUY ($79.4) Valuation of ENN is still reasonable long term investors Attractive valuation after a 33% drop in share price Maintain BUY China Overseas Property (2669) 19/10/2018 China Overseas Property (2669) The underperformance is partially due to worries about an increase in employee benefit expenses after a strict enforcement of China s social security taxs in 2019 As at 30 June 2018, COPH owned net cash of $2.20bn or equivalent to $0.67 per share that should enable it to continue its strategy of expansion through acquisition BUY ($2.60) Recent share price weakness offers a buying opportunity Maintain Buy on China Oilfield Services (2883) for short term trading purpose 22/10/2018 China Oilfield Services (2883) 23/10/2018 CEG (839) We expect the international crude oil spot price to maintain at a relatively high level which incentivize the oil explorer to increase their capex Current valuation of COSL is attractive because the P/B ratio historically ranged between 1x and 2x during the CNOOC s capex upcycle Major beneficiary from proposed personal income tax reduction Upgrade China Education Group (839) to BUY The proposed personal income tax reduction will be effective on 1st January 2019 and is likely to benefit CES which is a leading provider of private higher education service in China CES is also less affected by the Draft Amendments on the Implementation Rules for the Law for Promoting Private Education issued in August BUY ($9.20) BUY ($12.1)

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