Major Market Indicators

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1 4 th 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) 103, Source: Bloomberg Oversea DJIA 22, 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 Market Overview Hang Seng Index closed up 2.2% at 28,173. Market turnover increased sharply to $103.1 billion. Heavily weighted Tencent (700), HSBC (5) and China Mobile (941) surged 3.2%, 1.2% and 0.4% respectively. Geely Automobile (175) jumped 12.3%, the most in Hang Seng Index. AAC Technologies (2018) added 2.9%. Eight largest Chinese property developers posted an average gain of 3.6% among which China Evergrande (3333) soared 8.8%. Three local banks and nine local property companies in Hang Seng Index grew an average 1.5% and 1.1% respectively among which Wharf (4), New World Development (17), BOC Hong Kong (2388) and Bank of East Asia (23) climbed 2.0%-2.3%. Oil and consumption stocks were mixed. Kunlun Energy (135) advanced 1.8% but Sinopec (386) retreated 0.3%. Want Want China (151) rose 12.7% whilst China Mengniu Dairy (2319) tumbled 1.6%. HSCEI surged 3.6% as China decided to cut reserve requirement ratio for commercial banks in order to boost lending to small firms and the agricultural sector. Banking, securities and insurance stocks in HSCEI grew an average 4.8%, 2.9% and 2.6% respectively among which ICBC (1398) and China Merchants Bank (3968) advanced 7.9%-8.0%. CCB (939), BOC (3988), Ping An Insurance (2318), New China Life (1336) and Huatai Securities (6886) rose 3.9%-5.9%. Anhui Conch (914) added 3.5%. Power, automobile and railway related counters ended higher but underperformed the HSCEI. Great Wall Motor (2333) and Zhuzhou CRRC Times Electric (3898) increased 3.0%. Sinopharm (1099) was the second worst performing HSCEI stock, down 0.1%. We expect Chinese financial stocks to outperform the market in near term. We expect Chinese financial stocks to outperform the market in near term.

2 Market in Focus Likely to report satisfactory 3Q earnings in early November Maintain Hua Hong Semiconductor (1347) Since our recommendation on August 9, the stock price of Hua Hong Semiconductor (1347, HHS, $10.56) has dropped 4.2% compared to a gain of 1.1% for Hang Seng Index over the same period. We believe the underperformance is partly due to unexpected placement of existing shares at $10.69 per share by Shanghai Alliance Investment in June. Taking into account the positive management guidance for operating results in 3Q, we expect the company to announce satisfactory third-quarter earnings in early November and maintain our rating on HHS with an unchanged 6-month price target of $12.3 based on 2017 P/B of 1.0x. As a recap, HHS s revenue for 2Q17 hit an all-time high of US$198.1mn representing an increase of 8.1% qoq. Revenue from China grew 15.1% qoq to US$111.2mn, contributing 56.2% of total revenue. Sales volume surged 6.3% qoq to 459,000 wafers while the average selling price increased 1.7% qoq. Thanks to improved product mix and high utilization, gross margin expanded from 29.7% in 1Q17 to 33.2% in 2Q17 and much better than management guidance of 30%-31%. Capacity utilization rate improved from 96.2% in 1Q17 to 99.4% in 2Q17. Net profit increased by 0.8% qoq to US$34.4mn in 2Q17 that was below our forecast due to higher-than-expected administrative expenses. As at 30 June 2017, HHS owned net cash of US$351mn or equivalent to $2.65 per share. A strong financial position enables it to further expand production capacity and maintain a dividend payout of 30% in future. Looking ahead, the company expects its fabs to be operated at their optimal levels thro ughout the second half of the year due to strong product demand. Management forecasts revenue to grow approximately 5% qoq in 3Q17 with a gross margin of approximately 33% which is remarkable compared with the average gross margin of 29.8%, 31.0% and 30.5% in the full year of 2014, 2015 and 2016 respectively. Based on this guidance, we estimate HHS s revenue and net profit to reach US$208mn and US$39.6mn in 3Q17, up 5. 0% and 15.2% qoq respectively. HHS is a well-managed company with a proven track record. During the four-year period from 2012 to 2016, revenue, production capacity and net profit grew at a CAGR of 6%, 6% and 21% respectively. Net cash exceeded US$370mn or $2.80 per share in the p ast three financial years. Top management believes 2017 will be another year of strong growth. We expect the company s monthly production capacity to grow 6% yoy to 164,000 wafers by end Our revenue and net profit forecast for the full year of 2017 are basically unchanged at US$791mn and US$142mn representing a yoy increase of 9.6% and 10.3% respectively primarily driven by sales volume growth. Traded at 2017 PER of 9.9x and 2017 P/B of 0.86x, valuation of HHS remains undervalued in our view.

3 Technical Ideas CCB (939, $6.86) Stock Rating: Target Price: $7.55 Company Description: CCB provides a comprehensive range of commercial banking products and services to individuals and corporate customers, including corporate banking, personal banking, treasury operations and bank cards. Commentary: Counter rose 5.9% yesterday with large turnover, surpassing its resistance at $6.70 and SMA50, indicating the counter s strong uptrend momentum ahead. Recommendation:. Target at $7.55. Cut loss at $6.34. Company Statistics Last Closing Price $6.86 Consensus 2017 P/B 0.9x Consensus Target Price $7.91 Zoomlion (1157, $3.63) Stock Rating: Target Price: $3.99 Company Description: Zoomlion manufactures and markets construction machinery. The company's products include concrete machinery, cranes, road machinery, drilling equipment, and other heavy construction equipment. Commentary: Counter rose 5.5% yesterday, surpassing its critical resistance at $3.47 and SMA250. MACD also showed positive crossing, indicating the counter s further upside potential ahead. Recommendation:. Target at $3.99. Cut loss at $3.31. Company Statistics Last Closing Price $3.63 Consensus 2017 P/E 17.3x Consensus Target Price $4.36

4 Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) Likely to post strong interim results and raise contracted sales target Yuzhou Properties (1628) Yuzhou Properties 21/08/2017 Gross margin stood at 36% in past three years versus industry average of below 30% (1628) Contracted sales up 63% with ASP up 33% in 7M17 implies higher gross profit in 2017/2018 Cheap valuation with 2-year earnings CAGR of 22% Reiterate on Yangtze Optical Fibre and Cable (6869) on positive gross margin surprise Yangtze Optical Interim earnings beat expectation amid strong gross margin expansion 22/08/2017 Fibre and Cable Capacity growth of preform in 2017 will continue to support gross margin recovery thanks to better (6869) internal supply ratio and lower outsourcing Management believe ASP of optical preforms and fibre will stay resilient in coming years amid strong demand Strong interim results accompanied with bright future outlook ahead - Maintain on Geely Auto (175) Interim results were in-line with market expectations plus satisfactory sales volume for July 23/08/2017 Geely Auto (175) Strong model cycle in 2018 should guarantee Geely's glamorous sales performance ahead Formation of JV with Volvo and parent co. in the development of Lynk & Co could potentially increase the possibility of success for the bran A laggard education service provider Maintain China Maple Leaf Education (1317) China Maple Leaf 24/08/2017 Growth in student enrollment is expected to accelerate from 20% in FY16 to 35% in FY17 Education (1317) Projected EPS growth of 30% in FY17 and 15% in FY18 Growing demand for high quality education service in China Reiterate on Techtronic Industries (669) amid solid interim results Techtronic Robust power tool sales in 1H17 is an indication that rollout of new DeWalt's FlexVolt series is not a 25/08/2017 Industries (669) threat to TTI Product innovation will lead to a new round of product upgrade cycle and hence margin expansion Home Depot's penetration into Pro segment will also help to expand TTI's market size A strong growth in new contracts improves earnings prospects Maintain CCCC (1800) 28/08/2017 CCCC (1800) Growth in new contracts value accelerated from 12.4% yoy in 2016 to 52.0% yoy in 1H17 Overseas expansion will be key earnings growth driver Undemanding valuation at 2017 PER of 7.5x Reiterate on AAC Technologies (2018) amid company s growth potential in optics business AAC Technologies Faster than expected capacity expansion of optical lens is a positive surprise 29/08/2017 (2018) Acoustic growth is sustainable in 2018 as adoption rate of high-end speaker box with waterproof and stereo sound feature continues to surge in android camp Valuation is undemanding given our estimates of 34% EPS CAGR from Better-than-expected 2017 interim results Maintain Zhengtong Auto (1728) Zhengtong Auto Better-than-expected interim results reaffirms our positive stance and demonstrates strong earnings 30/08/2017 (1728) momentum ahead Innovative expansion model shall enable Zhengtong to expand more rapidly at a much less burdensome way compared to traditional M&A Reiterate on Lee & Man Paper (2314) on its robust interim results Interim earnings beat estimates, with net dollar margin of containerboard and tissue paper both Lee & Man Paper 31/08/2017 reached record high (2314) Environmental inspection in China see no signs of slow down, favouring the demand/supply dynamics in 2H17 More paper price upside in 2H17 amid peak season, which will be a positive share price catalyst 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 Brilliance China 12/09/2017 growing luxury PV in China; (1114) 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. ($5.20) ($26.70) ($21.0) ($7.20) ($43.0) ($12.0) ($155.7) ($9.98) ($10.9) ($24.0)

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