We expect Chinese financial stocks to outperform the market in near term. Market Overview. 30 October 2017

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1 30 October 2017 Hang Seng Index Performance Major Market Indicators % Change Hong Kong Close 1-Day 1-Mth 6-Mth 12-Mth Hang Seng Index 28, HSCEI (H-Shares) 11, Mkt T/O ($ Mn) 99, 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 0.8% at 28,438 last Friday. Market turnover increased to $99.9 billion. Heavily weighted China Mobile (941) and AIA Group (1299) surged 1.5% and 1.0% respectively. HSBC (5) and Tencent (700) added 0.2%-0.3%. China Unicom (762) and Cathay Pacific (293) rose 1.5%-2.0%. Local banking and property stocks were mixed. Sino Land (83) and Bank of East Asia (23) climbed 0.6%-0.7%. Wharf (4) and Hang Seng Bank (11) tumbled 1.2% and 0.7% respectively. Consumption, gaming and Chinese property stocks ended lower. Ten largest Chinese property developers dropped an average 3.3% among which Sunac China (1918) shrank 5.5%. China Mengniu Dairy (2319) lost 2.3%. WH Group (288), Want Want China (151) and Hengan Int l (1044) slid 0.6%-1.4%. Sands China (1928) and Galaxy Entertainment (27) plunged 1.4% and 2.0% respectively. Geely Automobile (175) was the worst performing index stock, down 3.6%. We expect Chinese financial stocks to outperform the market in near term. HSCEI advanced 1.7% led by airline and financial stocks. Air China (753) was the best performing HSCEI stock, up 7.0%. Nine banking and six insurance stocks in HSCEI grew an average 2.5% and 1.6% respectively among which ICBC (1398), CCB (939) and BOC (3988) jumped 3.0%-4.1%. China Life (2628) and Ping An Insurance (2318) soared 2.2%-2.8%. Power, railway and securities stocks lacked clear direction. Huaneng Power (902) climbed 0.8%. China Longyuan (916) dropped 5.5%, the most in HSCEI. BYD Company (1211) and Great Wall Motor (2333) cut 2.3%-2.8%. We expect Chinese financial stocks to outperform the market in near term.

2 Market in Focus Weakness in share price offers a good buying opportunity Singamas (716) Singamas (716, $1.65), the world s second largest container manufacturer, is likely to benefit from a continued recovery in the container shipping industry. Latest economic data from U.S., Europe and China were better than expected reflecting a promising outlook for the global economy in the second half of the year. In fact, OECD has recently raised global GDP growth forecast to 3.5% in 2017 and 3.7% in 2018 compared to 3.1% in The World Bank also revised China s GDP growth forecast to 6.7% in 2017 and 6.4% in 2018, up from previous forecast of 6.5% and 6.3% respectively. We expect operating performance of container shipping companies to improve significantly this year leading to higher demand for containers in the first half of Singamas manufactures a wide range of products in China including dry freight containers and specialized containers with a total annual capacity of 750,000 TEUs. In the first half of 2017, the company s revenue surged 45.0% yoy to US$595mn of which approximately 80% came from dry freight containers, 17% from specialized containers and 3% from logistics business. Sales volume and ASP of dry freight containers grew 52% yoy to 247,500 TEUs and 35% yoy to US$1,902 respectively. Hence, the company posted a net profit of US$16.6mn in 1H17 compared with a loss of US$36.6mn in 1H16. Management disclosed that positive market sentiment had already led to strong demand for the company s dry freight containers, with order books full for July and August According to Bloomberg estimates, net profits of Singamas are expected to reach U S$47.8mn in 2017 and US$71.5mn in 2018 translating into forward PER of 10.6x in 2017 and 7.3x in With 2017 P/B of 0.92x and EPS gro wth of 50% in 2018, valulation of Singamas is undervalued in our view. After a 20% drop from intra-day high of $2.05 on September 21, current share price of Singamas is attractive to investors. We therefore recommend a with a 6-month price target of $2.05 based on 9x 2018 PER.

3 Technical Ideas Air China (753, $7.14) Stock Rating: Target Price: $7.85 Company Description: Air China provides passenger, cargo, and airlinerelated services in China. The company is primarily based in Beijing and a major hub for domestic and international air transportation. Commentary: Counter rose 7.0% last Friday with large turnover, surpassing SMA20 and SMA100, indicating the counter s strong uptrend momentum ahead. Recommendation:. Target at $7.85. Cut loss at $6.80. Company Statistics Last Closing Price $7.14 Consensus 2017 P/E 10.3x Consensus Target Price $7.44 COSCO Shipping (1919, $4.49) Stock Rating: Target Price: $4.94 Company Description: COSCO Shipping Holdings offers container shipping, port investment, terminal operation services. Commentary: Counter rose 8.2% last Friday with large turnover surpassing its critical resistance at $4.45, SMA20 and SMA100, indicating the counter s strong uptrend momentum ahead. Recommendation:. Target at $4.94. Cut loss at $ Company Statistics Last Closing Price $4.49 Consensus 2017 P/E 12.9x Consensus Target Price $4.44

4 Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) 12/09/2017 Brilliance China (1114) 09/10/2017 Singamas (716) 11/10/2017 CIMC (2039) 12/10/2017 GWM (2333) 13/10/2017 New World Dev (17) 17/10/2017 Angang (347) 23/10/2017 China Overseas Property (2669) 25/10/2017 Luk Fook (590) 26/10/ /10/2017 Huaneng Power (902) ANTA Sports (2020) Interim results indicated better-than-expected performance from BBA Maintain Brilliance China (1114) BBA's strong performance in 1H2017 reaffirms our view that the JV serves as a key beneficiary of the fast growing luxury PV in China; BBA's strong model cycle ahead should support the JV's operational performance in the future; and Proposed cooperation with Renault in forming a JV on Brilliance's minibus and Light Commercial Vehicle (LCV) segment may potentially cause a turnaround for the currently loss-making business. Weakness in share price offers a good buying opportunity Singamas (716) Share price has experienced a 15% drop from its intra-day high of $2.05 on September 21 With 2017 P/B of 1.0x and EPS growth of 50% in 2018, valuation of Singamas is undervalued in our view Substantial land appreciation gains from Qianhai properties CIMC (2039) Estimated land appreciation gain from Qianhai properties is RMB12bn or equivalent to $4.77 per share Strong recovery in container manufacturing business Largely expected monthly sales volume results Maintain SELL Great Wall Motor (2333) Monthly sales volume were largely in-line with our expectations Earnings outlook remain challenging on fierce competition and slowdown in Chinese PV market Launch of CAFC and NEV scoring system to weight on GWM s medium term earnings outlook given its lack of presence in the NEV segment Valuation remains cheap with a deep discount to book value Maintain New World Development (17) Sizeable reserve of farmland pending for conversion into residential use Share buyback is a positive signal Flat steel prices are likely to stay high in 2H17 amid production halt in Hebei Maintain Angang (347) Ongoing improvement in demand and supply dynamics should bode well for steel price trend in 2H17 Issued a positive profit alert that earnings for 9M17 will surge 236% yoy to RMB3,285mn 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% Higher than expected same store sales growth in 2QFY18 Maintain Luk Fook (590) Overall same store sales growth was 17% yoy in 2QFY18 compared with 5% yoy in 1QFY18 A special dividend may be declared this year to celebrate the 20th anniversary of listing Higher than expected third quarter earnings Huaneng Power (902) In 3Q17, operating revenue grew 9.8% yoy to RMB39.6bn and net profit cut 38.2% yoy to RMB2.07bn Speculation on the increase of tariff early next year could be a share price catalyst Valuation of ANTA Sports (2020) remains expensive Maintain SELL Valuation remains expensive even taking into account a potential M&A opportunity Traded at 2017 PER of 25.1x compared to its 5-year average forward PER of 15.7x ($24.0) ($2.05) ($18.0) SELL ($8.82) ($14.0) ($8.35) ($2.20) ($33.80) ($6.15) SELL ($30.0)

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