We believe further upside for the Hang Seng Index is limited and recommend short-term investors to take profit. Hang Seng Index Performance

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1 16 th Jan, 2017 Hang Seng Index Performance Index Performance Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 22, HSCI 3, HSCCI (Red Chips) 3, HSCEI (H-Shares) 9, Mkt T/O ($ Mn) 56, , Source: Bloomberg Market Outlook Eric Yuen - ericyuen@masonsec.com Hang Seng Index closed up 0.5% at 22,937 last Friday. Market turnover decreased to $56.8 billion. Heavily weighted Tencent (700) and China Mobile (941) surged 0.5%-0.6%. HSBC (5) was little changed. Oil and utilities counters outperformed the market. PetroChina (857), Sinopec (386) and CNOOC (883) jumped 2.4%-3.6%. Power Assets (6), HK & China Gas (3) and MTR Corporation (66) increased 0.7%-1.0%. Gaming stocks posted moderate gains but underperformed the market. Consumption and local property stocks were mixed. Henderson Land (12) and Wharf (4) climbed 1.2%-1.6% whilst CK Property (1113) tumbled 1.1%. China Mengniu Dairy (2319) rose 0.9%. Want Want China (151) and Belle Int l (1880) plunged 1.0% and 2.3% respectively. HSCEI advanced 0.7% led by property, oil, coal and automobile stocks. China Vanke (2202) soared 5.7% as Shenzhen Metro became the developer s second largest shareholder. China Shenhua (1088) added 4.1%. Great Wall Motor (2333) and BYD Company (1211) increased 1.3%-2.7%. Financial stocks had no direction. New China Life (1336) and Bank of Communications (3328) went up 0.9%-2.4%. PICC P&C (2328) and CCB (939) both decreased 0.7%. Power and railway related stocks ended lower. CGN Power (1816) and China Longyuan (916) slid 0.9%-1.1%. CCCC (1800) and Zhuzhou CRRC Times Electric (3898) lost 0.8% and 1.4% respectively. Sinopharm (1099) retreated 0.6% after a rise for seven consecutive days. We believe further upside for the Hang Seng Index is limited and recommend short-term investors to take profit. Oversea DJIA 19, NASDAQ 5, Shanghai SE Composite 3, Crude Oil Futures (US$) Gold Futures (US$) 1, Baltic Dry Index USD / Euro Yen / USD HSCEI HSI 20-Day MA 9, , Day MA 9, , Day RSI We believe further upside for the Hang Seng Index is limited and recommend short-term investors to take profit. Remarks: Mason Securities Ltd ( Mason Securities ) is licensed by the Securities and Futures Commission to carry on Types 1, 4, 6 and 9 regulated activities in Hong Kong. Mason Futures Ltd is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong. Securities Futures

2 Industry / Corporate News Becky Yuen, CFA beckyyuen@masonsec.com Reiterate on Maanshan Iron (323) as China sees no signs to loosen its de-capacity measures Reiterate China takes stronger measures to crack down illegal capacities using MLF furnaces, which will Risk Level: High effectively lower the supply of long steel in the market Long steel accounted for 50% of Magang's product mix Time Horizon: Medium Valuation of Magang is undemanding at 0.85x 2017 PBR given improved industry outlook According to media sources, China is reinforcing its effort on eliminating illegal steel capacities that use medium-frequency induction (MFI) furnaces as a production mean. As a top official from NDRC cited on Jan 10, State Council of China is sending twelve inspection teams to monitor the crackdown progress of those illegal mills from Jan 5-15, and local governments are required to clean up all MFI capacities by 30 June 2017 as this is a political mission. At the same time, it is rumored that NDRC Hebei has put eight steel upgrade projects on hold as these projects have a capacity replacement ratio of less than 1:1.25. We believe the above news flow is a strong indication that China will not loosen the de-capacity measures on steel industry despite having a rather successful year in Note that according to study by Custeel.net, 88mnt of crude steel capacity has been eliminated last year, which way exceeded the initial 45mnt target set by the central government. We believe the strong wordings use by NDRC officials will put more pressure on local governments to take serious approach in eliminating backward steel facilities amid rising concern on air pollution and hiking pressure to protect environment. As mentioned in our previous commentaries on Maanshan Iron & Steel (323, Magang, $2.57) a month ago, we believe the latest measures to take out illegal capacity is a major positive to Hong Kong-listed steel mills, especially for Magang which has the largest exposure to long steel (around half of its total capacity) that are mainly used in construction activities. As a note, most of these illegal capacities are long steel producers due to the lower level of technology involved in production. At the same time, major steel mills have been focusing on capacity addition of value-added flat steel in the past five to ten years. As such, the forced closure of these illegal steel mills could create a tighter market supply on long steel products even though housing construction activities this year may slow from last year s level amid the home purchase restriction imposed by first- and second-tier cities since October. Based on a study from China Iron & Steel Association (CISA), there are around 80mnt of steel capacity using MFI furnaces in China, equivalent to around 7% of total steel capacity. Fundamentally, profitability of Magang has been gradually improving since 2Q16. It reported 3Q16 earnings of RMB306.7mn (EPS RMB0.04), which is a huge turnaround from the net loss of RMB1.34bn in 3Q15 and also the second consecutive quarter of positive profit. Even though company s gross margin in 3Q16 was down 6.8ppts qoq to 10.0%, this result was better than feared considering that major raw materials iron ore and coking coal price trended up 5% and 17% qoq respectively during the period while steel price was mostly flat qoq. Company also did an impressive job in cost control with operating expenses to sales ratio further dropped to 4.5% as compared to 7.0% in 2Q16. We maintain our estimates that Magang will post earnings of RMB87.3mn for 4Q16 and RMB846.8mn (EPS RMB0.11) for 2016 respectively. As for 2017, we keep our earnings forecast unchanged at RMB1,240mn (EPS RMB0.16) based on an assumption of 20% yoy ASP growth and gross margin level of 9.1%. This implies a 46% EPS growth this year. Counter is now trading at 0.85x 2017 PBR. In view of the stronger than expected capacity cut by local governments, we believe the re-rating on the counter is not yet over. Reiterate with unchanged 6-month target price of $3.07, based on 1.0x 2017 PBR which is in par with Magang s average forward PBR in 2010 before the down cycle of steel industry in Recent Recommendations Stock Pick Rating Recommendation Highlights TP AAC Technologies (2018) Reiterate on AAC Tech (2018) amid multiple earnings growth drivers ahead $81.7 Texhong Textile (2678) Valuation dipped below the historical average Maintain on Texhong Textile (2678) $13.0 Sands China (1928) Reiterate on Sands China (1928) as recent retreat creates a good entry point $40.7 SMIC (981) HOLD No longer undervalued plus a risk of equity fund raising Downgrade SMIC (981) to HOLD $12.0 Lee & Man Paper (2314) Reiterate on Lee & Man Paper (2314) as oversupply situation of paper industry has eased $7.90 Hua Hong Semiconductor (1347) Promising industry outlook and cheap valuation - Maintain Hua Hong Semiconductor (1347) $10.7 Sunny Optical (2382) Reiterate on Sunny Optical (2382) as shipment of handset lens sets in December remains intact $42.6 Luk Fook (590) Improvement in tourist arrivals and same store sales Maintain Luk Fook (590) $24.8 Chalco (2600) on Chalco (2600) amid better alumina price trend and lower cost pressure compared to peers $4.27 CCCC (1800) Both China and U.S. are likely to accelerate infrastructure investments Maintain CCCC (1800) $10.5

3 Technical Ideas China ZhengTong Auto (1728, $2.42) TP: $2.66 Risk: Low Time Horizon: Short China ZhengTong Auto operates automotive dealerships throughout China. The company specializes in retailing luxury automobiles as well as providing maintenance services for the cars it sells. The counter surged 6.1% last Friday with exceptional turnover, surpassing its critical resistance at $2.33 and SMA50, indicating the counter s strong uptrend momentum ahead.. Short-term target at $2.66. Cut loss at $2.24. Consensus 2017 PER: 6.8x Consensus target price: $3.15 Source: Bloomberg, Mason Securities Samsonite (1910, $24.25) TP: $26.68 Risk: Low Time Horizon: Short Samsonite Int l S.A. designs, manufactures, and distributes luggage. The company's products include suitcases, garment bags, casual bags, business cases, clothing, shoes, and accessories. Samsonite also licenses their trademarks for use on products such as travel accessories, leather goods, handbags, clothing, and furniture. The counter gapped up and advanced 6.4% last Friday with exceptional turnover, surpassing its critical resistance at $22.95, SMA50, SMA100 and SMA250, indicating the counter s further upside potential ahead.. Short-term target at $ Cut loss at $ Source: Bloomberg, Mason Securities Consensus 2017 PER: 17.8x Consensus target price: $27.45

4 RSI Indicator Overbought (9-day RSI> 80) Tickers 16, 17, 83, 148, 255, 258, 316, 336, 338, 372, 384, 431, 442, 497, 528, 593, 688, 692, 718, 836, 861, 881, 992, 1072, 1076, 1083, 1182, 1193, 1234, 1566, 1833, 1913, 1929, 2320, 2333, 2688, 3669, 3708 Oversold (9-day RSI<20) Tickers 136, 311, 400, 547, 831, 1236, 1297 Exceptional Turnover & Price Movements Stock Stock Last Price ($) Price Change (%) Turnover / 3-mth daily avg turnover Target price up / downside (%)* Rating*^ Advanced Card Systems N/A N/A N/A China Household N/A N/A N/A Imperial Pacific International N/A N/A N/A Zhongsheng Group ITC Corporation N/A N/A N/A Skyocean International N/A N/A N/A Chow Tai Fook Jewellery Samsonite Int l China Zhengtong Auto Service China Vanke China Harmony New Energy Auto Gome Electrical Appliances China Agri-Industries Digital China Sino Haijing N/A N/A N/A Dah Sing Financials Prada S.P.A PER* Source: Bloomberg, Mason Securities; *Based on consensus estimates ^ The Rating indicates analysts opinions on the security. It is calculated by converting analysts recommendations into a number from 1-5 and taking the average. 5 is the best while 1 is the worst.

5 A-H Share Premium / Discount (%) Average AH Shanghai Listed -34.8% Premium/Discount (%) Shenzhen Listed -35.3% H Share A Share A-H Shares Shanghai Listed Company Name A Close (RMB) H Close (HKD) AH Price Gap (%) H Share A Share A-H Shares Shanghai Listed Company Name A Close (RMB) H Close (HKD) AH Price Gap (%) Luoyang Glass New China Life Xinhua Winshare Huatai Securities Jingcheng Haitong Securities Kunming Machinery Machine Chongqing Iron First Tractor Magang SSC Guangshen Railway CSCL CRCC COMEC Everbright Bank GAC Group Minsheng Bank Shanghai Electric Shanghai Pharma Anhui Expressway Tsingtao Brewery Nanjing Panda China Shenhua Tianjin Capital BoComm Dalian Port CPIC China Moly Citic Securities China Cosco Fosun Pharma Datang Intl Power Bank of China China Eastern Sinopec Yanzhou Airlines Coal ABC MCC CMB COSL CCB Zhengzhou Coal ICBC CCCC Jiangsu Express China South Air Ping An Insurance Sichuan Exp Anhui Conch Beijing North Star Fuyao Glass China Shipping BBMG A-H Shares Shenzhen Listed Huadian Power Zhejiang Shibao Jiangxi Copper Shandong Molong China Coal Energy Northeast Electric Sinopec Shanghai Xinhua Pharma Huaneng Power Hisense Kelon Air China Dongjiang Env Dongfang Electric Chenming Paper Great Wall Motor China Int'l Marine CRRC Corp Livzon Pharm China Railway Xinjiang Goldwind Petrochina Group Zoomlion China Citic Bank ZTE Corp Chalco BYD Zijin Mining China Vanke Shenzhen Express GF Securities Guangzhou Pharm Angang Steel China Life Weichai Power

6 HSI & HSCEI Constituents Performance Price Change (%) Index 5 D 1 M 3 M vs 3M High Hang Seng Index Hang Seng China Ent Index Outperform Underperform Mixed Automobile, Cement, Coal, Gaming, PRC Property Financials, Global Player, Infrastructure, IT, Telecom Consumer, Insurance, Oil&Gas, Power, HK Property Price Change (%) Price Change (%) Stock vs 3M Stock vs 3M Company Name 5 D 1 M 3 M Company Name 5 D 1 M 3 M High High 2333 GreatWall Motor Minsheng Bank Sinopharm CK Property China Vanke China Mobile China Res Power Bank of E Asia China Overseas Tsingtao Brew Sino Land China Railway New World Dev China Mer Port China Shenhua CPIC Anhui Conch MTR Corporation China Res Land CRRC Hang Lung Prop Hang Seng Bank Sinopec Corp Hengan Int'l HK & China Gas CITIC Securities Henderson Land BOCOM Galaxy Entertain ICBC PetroChina CITIC Bank Mengniu Dairy Cathay Pac Air Belle Int'l CCB AIA China Comm Cons Sands China HKEx BOC Hong Kong Bank of China BYD Company CGN Power Lenovo HTSC SHK Prop HSBC Hldgs CM Bank GF Securities Wharf CNOOC New China Life AAC Technologies Dongfeng Group ABC CLP Hldgs China Telecom Tencent CRRC Times Swire Pacific Galaxy Securities Power Assets China Cinda Kunlun Gas PICC Group Haitong Securities Want Want China Life Li & Fung CK Hutchison Link REIT Air China CKI Holdings China Railway Longyuan Power Construction Ping An PICC P&C Huaneng Power China Unicom CITIC Ltd

7 Upcoming Events Date Stock Company Name Event Jan Chinese Estates Final Jan 16 8 PCCW Final Jan Pacific Century Premium Development Final Jan Public Financial Holdings Final Jan Pico Far East Holdings Final Jan Sands China Dividend Disclosures Investment Rating System Ratings Description Mason Securities Limited s investment Buy Expected positive return of > 10 % rating system is divided into investment Investment Ratings Hold Expected return range of ~ ±10 % ratings, risk rating and investment time Sell Expected negative return > 10% horizon. The rating scale is subject to change upon periodic review of market by High (H) 90-day volatility of > 50% research department. Assigned ratings are Risk Ratings Medium (M) 90-day volatility of > 30-50% based on company and sector historical Low (L) 90-day volatility of < 30% performance and analysts intrinsic Long (L) 6 12 Months valuation of the stock Investment Time Medium (M) 3 6 Months Horizon Short (S) Less than 1 Month Note: 90-day volatility is measured from the security s standard deviation of day to day logarithmic historical price changes. The 90-day price volatility equals the annualized standard deviation of the relative price change for the 90 most recent trading days closing price, expressed as a percentage Mason Securities Limited Portion 1, 12/F, The Center 99 Queen s Road Central Hong Kong Tel: (852) Fax: (852) This report is for information only and is not to be construed as investment advice or as an offer to buy or sell securities or financial instruments. Your investment decision should be based upon your personal investment objectives and should be made only after evaluating the stock s expected performance and risk. While the report is compiled using sources believed to be reliable, no assurance or guarantee is given regarding its accuracy or completeness. Neither Mason Securities Limited nor any of its affiliates, nor any employees or other persons connected with any of them, accepts any responsibility or liability arising from any use of this report. To the extent permitted under applicable law, the abovementioned companies or individuals may have used the research materials before publication. Mason Securities Limited (or any of its affiliates) and their respective officers, directors, analysts, or employees may or may not have a position in or with respect to the securities or financial instruments covered herein, and may, as principal or agent, buy and sell such securities or financial instruments. However, it is hereby declared that the writer, at the time of writing, does not have any interest in any of the securities or financial instruments covered in this report. An employee, analyst, officer, or a director of Mason Securities Limited( or any of its affiliates), may serve as a director for companies covered in this report. Mason Securities Limited (or any of its affiliates) may from time to time perform investment banking or other services or solicit investment banking or other business for any companies covered in this report. Mason Securities Limited is licensed by the Securities and Futures Commission to carry on Types 1, 4, 6 and 9 regulated activities in Hong Kong. Mason Futures Limited is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong.