INVESTMENT DAILY NOTE

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1 INVESTMENT DAILY NOTE Content Trends of HSI, HSCEI Stock in Focus Today s Top Picks Overview of Sector Performance Forward P/E and Valuations of Major Indices Market Data Previous day s best and worst performers; HSCI volume filter; Most short sold stocks; Interest rates, exchange rates, precious metals and commodities A-share premium to H-share Top 20 most traded ETFs Economic data and event calendar Market Highlights Premier Li Keqiang chaired the State Council on 24 Feb and said the annual purchase ratio of new energy vehicles (NEVs) for central government, departments with new energy vehicle promotions, and public institutions will be raised above 50 percent. We estimate that the news is positive to NEV-related stocks like BYD (1211.HK). AIA (1299.HK) announced its results for the year ended 30 November During the FY, net profit declined 18% on constant exchange rates and 22% on actual exchange rates, but final dividend significantly increased by 50%, which may bring support to stock price. Equity Indices Close d-d YTD Hang Seng Index 19,192 (1.1) (12.4) HSCEI 8,062 (1.3) (16.6) Shanghai Comp 2, (17.2) Shenzhen Comp 1,876 (0.0) (18.7) DJIA 16, (5.4) S&P 500 1, (5.6) Nasdaq Comp 4, (9.3) FTSE 100 5,867 (1.6) (6.0) DAX 9,168 (2.6) (14.7) CAC 40 4,155 (2.0) (10.4) Nikkei , (15.8) Taiwan Weighted 8,283 (0.6) (0.7) External Market Conditions US stocks dropped in early trading session amid lower oil prices and worse-than-expected data for the service sector, but reversed sharp losses later as oil prices rebounded and ended with modest gain. Dow closed at 16,485, up 53 points. S&P 500 closed at 1,929, up 8 points. NASDAQ closed at 4,543, up 39 points. ADRs dropped in the US market, with their closing prices effectively putting HSI down 38 points, closing at 19,154. A weekly decline in crude production, along with strong demand for gasoline overshadowed the news of a weekly climb in U.S. crude stockpiles, oil prices ended slightly higher. New York crude oil futures closed at US$30.56/bbl, up US$0.28. US released worse-than-expected data, capital flows toward gold market to hedge, boosting up gold prices to one-week-high. New York gold futures settled at US$1,239.10/oz, up US$ Hong Kong Market Turnover HSI HK$bn d-d % HSCCI % HSCEI % Main Board % Yesterday s Hong Kong Equities Dragged down by downward movements in external markets, the HSI dropped over 300 points to a day s low before closing at 19,192, down 222 points. The HSCEI declined 108 points and closed at 8,061. Total turnover of the Main Board was HK$60.6bn. Standard Chartered (2888.HK, HK$44.75) reported a pre-tax loss of US$1.5bn in 2015, the first annual loss since The stock lost 6.3%. Oil output cuts were nowhere in sight, sending oil stocks lower. PetroChina (857.HK, HK$5.07), Sinopec (386.HK, HK$4.28) and CNOOC (883.HK, HK$7.98) fell 2.1%, 2.7% and 3% respectively.

2 Trends of HSI and HSCEI HSI: Closed at 19,192 Source: Bloomberg and SHKF HSCEI: Closed at 8,061 Source: Bloomberg and SHKF 2

3 Stock in Focus AAC TECHNOLOGI ES (2018.HK) Last Close Entry Target Stop-loss YTD/1M/3M/12M % Change Market Cap 3M Average Daily Volume FY1 Forward P/E %/6.1%/-3.7%/4.6% HK$65.02bn 4.19mn shares AAC Technologies: Buy on positive capital gain and dividend outlooks AAC Technologies (2018.HK, HK$52.95), a supplier of parts to Apple, staged a decline earlier when Apple announced a cut in iphone production. AAC Technologies indeed has sound fundamentals and it is flashing buy opportunities after the correction. AAC Technologies is a supplier of acoustic parts. The company is going through business transformation. It is actively developing businesses in addition to acoustic parts, extending to haptic engine, radio frequency and optic devices. Its products can be used in smartphones, tablet computers, wearable devices and notebook computers. In H1 2015, compared with the previous year, the company s revenue and gross profit grew 26.7% and 27.7% while net profit increased 24.1%. The company is engaged in high gross margin businesses. Its gross margin and net margin went up 41.5% and 26.1% respectively, similar to Benefiting from business transformation, it registered a significant improvement in revenue distribution. Revenue from acoustic parts used to be as much as 80% for the company; yet, in H1 2015, the proportion of revenue from haptic engines jumped from 2.7% to 31.5%, and the segment s gross margin was 50%, which can help diversify business risks. AAC Technologies shows stability in profitability that besides a strong cash flow from operating activities, average revenue and return on equity were respectively 28.6% and 29.1% from 2010 to The latest data shows the company has a debt ratio of only 10.4%. This low debt ratio offers more flexibility in dividend policy. Its dividend payouts have been stable since 2008 with an average payout ratio of 40%. According to Bloomberg s estimates, for 2016, AAC Technologies will post earnings per share growth of 18.6% and a forward P/E of 14.8x. The share price is still inside a large upward channel. Its 10-day moving average has broken above its medium and long-term moving averages. The stock may go up further. Buy at HK$50 to target HK$58, and set a stop loss at HK$44. 3

4 AAC TECHNOLOGIES: Target price HK$58 Source: Bloomberg and SHKF 4

5 Today s Top Picks Today s Top Picks selects a list of stocks whose prices are expected to increase. The selection is made through the analysis of the daily most updated market information, including price movement and technical analysis, as well as corporate news, such as change of ownership, results announcement, merger or acquisition. The above column is also published in the Broker Challeng e of Hong Kong Economic Times Investment and Finance Section every Tuesday to Saturday. Pico Far East (752) Last Trading Day Closing :HK$ 1.82 Purchase :current Target :HK$ 2.00 Stop-loss :HK$ 1.63 Reason: Support is seen at bottom, stock price may bounce back. Source: Bloomberg, SHKF (as of 24 Feb 2016) Zhongzhi Pharm (3737) Last Trading Day Closing :HK$ 2.15 Purchase :current Target :HK$ 2.36 Stop-loss :HK$ 1.93 Reason: Stock price gradually picked up, may place a small bet. Source: Bloomberg, SHKF (as of 24 Feb 2016) 5

6 Overview of Sector Performance Last day s best performing sectors d-d 5D 1M Agriculture 2.9% 6.4% 3.2% Aluminum 1.4% 6.1% 10.2% Other Metals 0.9% 9.7% 15.7% HK Telecoms 0.5% 1.7% 6.5% Brokerages 0.4% 4.3% 5.0% Heavy Machinery 0.2% 4.9% 1.1% REITs 0.1% 1.5% 0.2% Sports accessories 0.0% 1.9% -2.3% Durable Consumables 0.0% 2.3% -3.3% Department Store 0.0% 1.2% -0.5% Logistics -0.1% 3.7% 10.1% Building Materials -0.1% 3.1% 1.8% Chinese Telecoms -0.3% 3.2% 6.2% Telecoms Equipment -0.3% 3.7% 6.0% Airline -0.4% 2.5% -3.6% Major stocks of best performing sectors Agriculture First Tractor ( 38 ), Sinofert ( 297 ), Ko Yo Group ( 827 ), National Agri ( 1236 ), China Bluechem ( 3983 ) Aluminum Chalco ( 2600 ), China Hongqiao ( 1378 ), China Zhongwang ( 1333 ), RUSAL ( 486 ) Other Metals Jiangxi Copper ( 358 ), CMOC ( 3993 ), Zhaojin Mining ( 1818 ), Zijin Mining ( 2899 ) HK Telecoms HutchTel HK ( 215 ), Smartone ( 315 ), HKT-SS ( 6823 ) Brokerages First Shanghai ( 227 ), Central China Sec. ( 1375 ), CITIC Sec. ( 6030 ), Haitong Sec. ( 6837 ), China Galaxy Sec. ( 6881 ) Heavy Machinery Sany Int'l ( 631 ), Zoomlion ( 1157 ), Lonking ( 3339 ), Sinotruk ( 3808 ) REITs Yuexiu REIT ( 405 ), Fortune REIT ( 778 ), Prosperity REIT ( 808 ), LINK Reit ( 823 ), Champion REIT ( 2778 ) Sports accessories 361 Degrees ( 1361 ), Xtep Int'l ( 1368 ), Peak Sport ( 1968 ), Anta Sports ( 2020 ), Li Ning ( 2331 ) Durable Welling Hldg. ( 382 ), Skyworth Digital ( 751 ), Hisense Kelon Elec ( 921 ), TCL Multimedia ( 1070 ) Consumables Department Store NWDS China ( 825 ), Springland ( 1700 ), Intime ( 1833 ), Golden Eagle ( 3308 ), Parkson Group ( 3368 ) Logistics Kerry Log Net ( 636 ), SITC ( 1308 ) Building Materials Shanshui Cement ( 691 ), Anhui Conch ( 914 ), China Res Cement ( 1313 ), BBMG ( 2009 ), CNBM ( 3323 ) Chinese Telecoms China Telecom ( 728 ), China Unicom ( 762 ), China Mobile ( 941 ) Telecoms Equipment China Com Service ( 552 ), ZTE ( 763 ), Trigiant ( 1300 ), Comba ( 2342 ) Airline Cathay Pacific ( 293 ), China East Air ( 670 ), Air China ( 753 ), China South Air ( 1055 ) 6

7 Forward P/E and Valuations of Major Indices HSI 16 HSCEI Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Prospective P/E Average +/- 1 s.d. 6 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Prospective P/E Average +/- 1 s.d Shanghai Composite 6 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Prospective P/E Average +/- 1 s.d. S&P Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Prospective P/E Average +/- 1 s.d. Source: Bloomberg, SHKF Valuations and estimated earnings growth of major indices FY16E P/E (X) Long-term avg. fwd. P/E (X) Deviation from avg. FY1 EPS growth FY2 EPS growth Hang Seng Index (10.3) (13.6) 11.8 HSCEI (20.6) (5.0) 10.2 Shanghai Comp S&P

8 Market Data Previous day s best and worst performers Stock (HK$) 1D chg 5D chg 1M chg YTD chg Turnover (HK$m) FY1 P/E (X) FY2 P/E (X) Best CHINA PUBLIC PRO 1094.HK N/A N/A CHINA BLUECHEM-H 3983.HK GOLDEN EAGLE RET 3308.HK ALUMINUM CORP-H 2600.HK N/A N/A G-RESOURCES GROU 1051.HK N/A N/A Worst SJM HOLDINGS LTD 880.HK CRTG 269.HK N/A N/A PACIFIC BASIN 2343.HK N/A N/A CHINA HARMONY AU 3836.HK SPT ENERGY GROUP 1251.HK N/A N/A Note: Best and worst performers from HSI, HSCEI, HSCI HSCI volume filter Company Stock (HK$) 1D chg Avg. vol. (m shares) Prev. vol. (m shares) % increase FY1 P/E CHINA PUBLIC PRO 1094.HK N/A N/A CHINA TRAVEL HK 308.HK GOLDEN EAGLE RET 3308.HK SINOPEC KANTONS 934.HK ALUMINUM CORP-H 2600.HK N/A N/A CHINA BLUECHEM-H 3983.HK WANT WANT CHINA 151.HK SJM HOLDINGS LTD 880.HK HAITIAN INTL 1882.HK BLOOMAGE BIOTE 963.HK Note: Based on volume change from last 30 trading days average of HSCI constituents (X) FY2 (X) P/E Most short sold stocks Company Stock (HK$) 1D chg Shortsell turnover (HK$m) % of total shortsell turnover % of own turnover PHOENIX SATELLIT 2008.HK N/A N/A ASIA CEMENT CH 743.HK N/A COUNTRY GARDEN 2007.HK HANG SENG BANK 11.HK BANK EAST ASIA 23.HK HONG KG CHINA GS 3.HK WHARF HLDG 4.HK ORIENT OVERSEAS 316.HK CHINA AGRI-INDUS 606.HK N/A 19.7 MINSHENG BANK-H 1988.HK Note: Based on short-selling turnover of constituents of HSI, HSCEI, HSCI FY1 (X) P/E FY2 (X) P/E 8

9 Interest rates Latest 5D chg (bps) 1M chg (bps) YTD chg (bps) y-y % chg U.S. 2-year Treasury yield U.S. 10-year Treasury yield U.S. 30-year Treasury yield HK 1-month HIBOR HK 3-month HIBOR SH 1-month HIBOR SH 3-month HIBOR Exchange rates Latest 5D % chg 1M % chg YTD % chg y-y % chg USD Dollar Index USD/HKD EUR/USD USD/JPY GBP/USD USD/CHF AUD/USD NZD/USD USD/CAD USD/CNY USD/CNH Precious metals and commodities Latest 5D % chg 1M % chg YTD % chg y-y % chg CRB Index Comex Gold 1, Comex Silver Nymex WTI Crude ICE Brent Crude LME Copper 4, LME Aluminum 1, CBT Wheat CBT Corn CBT Soybean

10 Companies listed on both the A-share and H-share markets A-share premium to H-share Company H share (HK$) A share (RMB) A-share premium to H-share Company H share (HK$) A share LUOYANG GLASS-H BYD CO LTD-H SHENJI GROUP-H CHINA SHIPPING D SINOPEC OILFIE-H AIR CHINA LTD-H SHANDONG MOLON-H CHINA SOUTHERN-H ZHEJIANG SHIBA-H ZIJIN MINING-H NORTHEAST ELEC-H CHINA VANKE-H CHINA SHIPPING-H DALIAN PORT PD-H GUANGZHOU AUTO-H CRRC CORP LTD -H JINGCHENG MAC-H CHINA RAIL CN-H CHONGQING IRON-H BAIYUNSHAN PH-H CMOC-H SHANDONG CHEN-H YANZHOU COAL-H CIMC-H SHANDONG XINHU-H CITIC BANK-H HISENSE KELON -H HUADIAN POWER-H SHANGHAI ELECT-H ANGANG STEEL-H CSSC OFFSHORE -H CHINA LIFE-H NANJING PANDA-H MINSHENG BANK-H ZHENGZHOU COAL-H LIVZON PHARM-H METALLURGICAL-H CHINA SHENHUA-H FIRST TRACTOR-H HUANENG POWER-H ANHUI EXPRESS-H BANKCOMM-H CHINA COSCO HO-H HANG SENG CHINA AH N/A N/A N/A PREMI CHINA OILFIELD-H ZTE-H DATANG INTL PO-H SHANGHAI PHARM-H ZOOMLION HEAVY-H ABC-H MAANSHAN IRON-H CEB BANK-H CHINA COAL ENE-H HAITONG SECURI-H BBMG CORP-H GUANGSHEN RAIL-H BEIJING NORTH-H BANK OF CHINA-H XINJIANG GOLD-H WEICHAI POWER-H SICHUAN EXP-H SINOPEC CORP-H DONGFANG ELECT-H FOSUN PHARMA-H SINOPEC SHANG-H ICBC-H CHINA EAST AIR-H CCB-H TIANJIN CAP-H CM BANK-H CHINA COM CONS-H CITIC SEC-H GREAT WALL MOT-H TSINGTAO BREW-H NEW CHINA LIFE-H GF SECURITIES-H JIANGXI COPPER-H CHINA PACIFIC-H ALUMINUM CORP-H PING AN-H CHINA RAIL GR-H ANHUI CONCH-H DONGJIANG ENV-H JIANGSU EXPRES-H SHENZHEN EXPRE-H FUYAO GLASS IN-H PETROCHINA-H (RMB) A-share premium to H-share 10

11 Top 20 most traded ETFs (HK$) 1D chg 5D chg 2800 TRACKER FUND HK HS H-SHARE ETF-H ISHARES FTSE A CSOP FTSE CH-HKD CHINAAMC 300-HKD CSOP FTSE CH-RMB SPDR GOLD SHARES HORIZONS-MSCI CH CHINAAMC 300-CNY CSI 300 CHINA HSI ETF-HKD CSOP SZSE ETF-HK VALUEGOLD ETF DBX VIETNAM HT CSI 300 ETF-H ISHARES S&P BSE DBX MSCI WLD DBX MSCI RUS CAP ETFS SILVER ETFS PLATINUM

12 Economic data and event calendar Country/ Date Event Period Survey Prior Mon 22 Feb Eurozone Markit Eurozone Manufacturing PMI Feb P US Markit US Manufacturing PMI Feb P Tue 23 Feb US Consumer Confidence Index Feb Wed 24 Feb US MBA Mortgage Applications 19-Feb % Thu 25 Feb Eurozone M3 Money Supply YoY Jan 4.70% 4.70% Eurozone CPI YoY Jan F 0.40% 0.40% US Fri 26 Feb Eurozone Consumer Confidence Feb P US U. of Mich. Sentiment Feb P Source:Bloomberg, SHKF Note:HK Time P=Preliminary;F=Final 12

13 Analyst:Kenny Wen Disclosure of Interests Research Analyst Certification Research Analyst Conflicts SHKF's Financial Interests and Business Relationships Disclaimer The views about any and all of the subject securities and issuers expressed in this report accurately reflect the personal views of the research analyst(s) primarily responsible for this report; and the analysts are paid in part based on the profitability of Sun Hung Kai Investment Services Limited ("SHKIS") and its affiliates (collectively called "SHKF") which includes revenue from investment banking activities. Financial Interests: The research analyst(s) who prepared this report and/or his/her/their associates has/have no financial interests in relation to listed corporation(s) covered in this report. Relevant Relationships: The research analyst(s) who prepared this report and his/her/their associates do not serve as officer(s) of listed corporation(s) covered in this report. SHKF may make a market in, or may, as principal or agent, buy or sell securities (or derivatives thereon) of issuer(s) mentioned in this report. SHKF may have a financial interest in the issuer(s) mentioned in this report, including a long or short position in its/their securities and/or options, futures or other derivative instruments based thereon, or vice versa. Likewise, SHKF, including its officers or employees may serve or have served as an officer, director or in an advisory capacity for any issuer(s) mentioned in this report. SHKF may also, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last 12 months for any issuer(s) referred to in this report. Information about conflicts of interest relevant to this report is available at this SHKF website: This report is provided for information and discussion purposes only. 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The instruments and investments discussed in this report may not be suitable for all investors, and this report has no regard to the specific investment objectives, investment experience, financial situation or needs of any particular recipient. Investors must make their own investment decisions based on their own investment objectives and financial position. The value of, and income from, an investment may vary because of changes in interest rates or foreign exchange rates, changes in the price of securities or indices, changes in operational or financial conditions of companies and other factors. There may be time limitations on the exercise of, or the exercise of rights associated with, the instruments and investments discussed in this report. Past performance is not necessarily a guide to future performance. In no event will SHKIS or any other member of SHKF be liable or have any responsibility for loss of any kind, whether direct, indirect, consequential or incidental, resulting from the act or omission of any third party occurring in reliance upon the contents of this report even if SHKF is aware of such act or omission at the time that it occurs SHKIS. All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of SHKIS and SHKIS accepts no liability whatsoever for the actions of third parties in this respect. 13