Further Enhancements in Valuation Still Feasible from Potential ROE Expansion, Maintain Buy 潜在的净资产收益率扩张导致进一步估值中枢增长仍然可期, 维持 买入

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1 Anhui Conch (914 HK) Cement and Construction Materials Sector Equity Research 股票研究 Company Report: Anhui Conch (914 HK) 公司报告 : 安徽海螺 (914 HK) Sean Xiang 向宇豪 (86755) xiangyuhao@gtjas.com [Table_Summary] Further Enhancements in Valuation Still Feasible from Potential ROE Expansion, Maintain Buy 潜在的净资产收益率扩张导致进一步估值中枢增长仍然可期, 维持 买入 公 司 报 告 证 券 研 究 报 告 水泥建材行业 Equity Research Report Company Report FY18 cement pricing will reflect more on seasonality than cyclicity. The cyclical upward swing of cement prices since 216 was in fact due to a correction in demand-supply mechanism, with marginal supply having declined much heavier than changes in marginal demand. While cement demand is expected to stabilize at the 2,4mt platform, as the magnitude of cement supply deduction measures (e.g. the winter production shift) is not expected to be tightened even more in 218, the diminishing marginal cement capacity shrink in 218 implies that cement price movement in 218 will pose less cyclicity as it did in 216 and 217, but more seasonality in reflection of seasonal demand movement. Market concentration will be improved further post the CNBM and Sinoma merger. Conch and the new CNBM jointly accounts for approximately 5% and 4% of clinker capacity in eastern China and southwestern China, respectively, which makes price coordination and production control much easier. The overlap of two giants may simultaneously enhance their bargaining power in coal procurement. We see persistency in Conch s ROE expansions. Conch s ambitions in expanding 1mt cement and aggregate capacity by 22 enables it to proactively enhance its ROE to over. This should lead Conch to differentiate its valuation logic as well as median valuation from other domestic peers, where their ROE improvements rely heavily on further cement price hikes. Subject to a 1.8x FY18 PER and the revised earnings estimates, we fine-tune Conch s TP to HK$37. and maintain the Buy investment rating. 218 财年水泥价格将反映更多的季节性而非周期性 自 217 年开始的周期性水泥价格上 扬实质上是供需机制修复所致, 源于边际供应下滑大幅超过边际需求的变动 在预期水泥 需求于 24 亿吨平台企稳的背景下, 由于水泥供给削减措施的幅度 ( 例如错峰生产 ) 在 218 年预期将不会加剧收紧, 因此边际水泥产能收缩的递减表明 218 年水泥价格走势将更多 地趋向由季节需求变动所带来的季节性而非类似 216 和 217 年的周期性 在中国建材和中材合并后市场集中度将被进一步提升 海螺水泥和新中国建材合计将在华 东和西南分别占据 5% 和 4% 的熟料产能, 这将使得价格协同以及生产控制更加容易 两 家巨头的交互同时可能也将加强对煤炭采购的议价能力 我们认为海螺水泥净资产回报率的改善具有持续性 海螺水泥在 22 年前扩张 1 亿吨水 泥和骨料产能的战略使得其能主动地提升净资产回报率至超过 在大多数企业净资产 回报率提升很大程度上依赖水泥价格上涨的情况下, 海螺水泥的估值逻辑以及估值中枢应 当与这些同行显著区分 基于 1.8 倍的 218 财年市净率和盈利预测调整, 我们调整海螺 水泥的目标价至 37. 港元并且维持对其 买入 的投资评级 Rating: Buy Maintained 评级 : 买入 ( 维持 ) 6-18m TP 目标价 : HK$37. Revised from 原目标价 : HK$34. Share price 股价 : Stock performance 股价表现 (1.) [Table_PriceChange] Change in Share Price 股价变动 Abs. % 绝对变动 % % of return Rel. % to HS Index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 3 M 3 个月 HK$3.9 (2.) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 HSI Index Anhui Conch 1 Y 1 年 安中徽外海运螺输 [Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 215A 5,976 7, (31.3) A 55,932 8, F 7,818 14, F 74,629 14, F 77,887 16, [Table_BaseData] Shares in issue (m) 总股数 (m) 5,299. Major shareholder 大股东 Conch Holdings 36.8% Market cap. (HK$ m) 市值 (HK$ m) 163,748.5 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( ) 9,293.8 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Net cash 52 Weeks high/low (HK$) 52 周高 / 低 34.6 /2.3 FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 4.8 Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 7

2 INDUSTRY UPDATES Cement pricing may reflect more on seasonality than cyclicity given the marginal cement demand and supply outlook in the medium term as a backdrop. YTD cement pricing evolvement reflects the new cement demand and supply dynamics, with changes in marginal cement supply being significantly lower than marginal cement demand (flat national demand but enlarged demand in Conch s operating regions). While 217 cement output is now more certain, the latest national FAI investment data makes the medium-term outlook more unpredictable. This may raise concerns for overall cement pricing, as cement supply deduction measures (e.g. the winter production shift) is not expected to shrink even more in 218, indicating that the most effective cement price hike catalyst may start to vanish. For Conch s operating regions, we are cautious on new GFA in the medium term, as continuing deceleration in sales has already slowed down fund sources for property development, which may in turn drag down new GFA. However, positives include: 1) a slowdown in other fund sources (due to sales slowdown) was compensated by accelerated bank loans, and 2) surging land purchases. Both indicate proactive new property development willingness amid a low property stock environment. So we still see moderate cement demand outlook in Conch s operating regions, unless signals of remarkable cement demand decline occurs. But in terms of cement pricing, we might see more seasonality in cement prices rather than further cyclical upticks, given the marginal cement demand and supply outlook in the medium term. Figure- 1: New GFA in Conch s Operating Regions ' Sqm , yoy 217 yoy 1, 8, 6, 4, 2, 4.5% 18.6% 16.7% 12.9%12.7% 12.4%11.9% 1.4% 1.% 12.7% 11.7% 12.3% 11.2% Jan- Feb Mar Apr May Jun 5.% 6.7% 6.6% 8.7% Jul Aug Sep Oct Nov Dec 25% 15% 5% % Figure- 2: Land Purchases in Conch s Operating Regions 1k Sqm 25, 2, 15, 1, 5, 6.2% 6.8% -24.3% Jan- Feb yoy 217 yoy -16.1% Mar 12.4% 9.8% 12.5% -1.2%-9.7% Apr May 16.9% -5.1% -7.% -6.1% -5.3% -6.1% -4.3%-2.3% Jun Jul Aug Sep Oct Nov Dec 15% 5% % -5% - -15% - -25% -3% Figure- 3: GFA Sold in Conch s Operating Regions ' sqm 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, 3.9% 23.6% Jan- Feb yoy 217 yoy 39.5% 37.2% 36.8% 17.4% 15.% 13.5% 16.% 14.5% Mar Apr May 31.5% 29.4% 28.2% 29.2% 29.9% 26.9% 24.4% Jun Jul Aug Sep Oct Nov Dec 45% 4% 35% 3% 25% 15% 5% % Figure- 4: Fund Sources for Property Investments in Conch s Operating Regions 7% 6% 5% 4% 3% % - - Feb-13 Jun-13 Oct-13 Total fund sources yoy Self-owned funds Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Domestic loans Other sources Jun-16 Oct-16 Feb-17 Jun-17 See the last page for disclaimer Page 2 of 7

3 Further improvement in market concentration post CNBM and Sinoma merger. As Conch, CNBM and Sinoma have geographic overlap in cement business, the merger between CNBM and Sinoma will reduce homogeneous competition and raise regional pricing power. Conch and the new CNBM accounts for approximately 5% and 4% of clinker capacity in eastern China and southwestern China, respectively, which makes price coordination and production control much easier. In addition, the overlap between two giants may also enhance their bargaining power in coal procurement, as CNBM s management articulates a joint coal procurement plan with Conch, which would enable Conch to reduce production costs. Table- 1: Market Concentration Level of Domestic Cement Industry CNBM Conch Jidong CRC Huaxin Shanshui Hongshi TCCI Tianrui Tapai Total Eastern Anhui 15% 59% % % % % % % 1% % 13,51 Fujian 3% % % 13% % % 12% % % 6% 5,341 Jiangsu 34% 5% % % % % % 6% % % 7,31 Jiangxi 3% 16% % % % % 7% % % % 6,659 Shandong 38% 1% 2% % % 25% % % % % 11,189 Zhejiang 57% 4% % % % % 12% % % % 7,223 Subtotal 29% 19% % 1% % 5% 4% 1% % 1% 5,944 Southern Central Guangdong 15% % 23% 2% % % 13% % 6% 9,616 Guangxi 8% 21% % 34% % % 4% % % 7,465 Hainan % % % 23% % % % % % % 1,395 Hunan 34% 28% 2% % % 2% 3% % % 7,592 Hubei % % % % 37% % % % % % 6,851 Henan 17% % 2% % 2% 2% % % 21% % 9,858 Subtotal 14% 12% 1% 12% 8% % 1% 5% 5% 1% 42,777 Northern Beijing % % 1% % % % % % % % 4 Tianjin % % 8% % % % % % % % 155 Hebei 3% % 55% % % % % % % % 9,173 Shanxi 1% % 18% 9% % 15% % % % % 6,426 Inner Mongolia 21% % % % 4% % % % % 6,86 Subtotal 8% % 32% 2% % 5% % % % % 23,14 Northeastern Heilongjiang 58% % 14% 1% % 3% % % % % 2,316 Jilin 25% % 17% % % 6% % % % % 2,666 Liaoning 5% % 4% % % 19% % 3% 18% % 5,163 Subtotal 22% % % % 12% % 2% 9% % 1,144 Southwestern Chongqing 11% 9% % 11% 7% % 6% 7% % 5,521 Sichuan 34% 8% % % 8% % 6% 4% % % 11,132 Guizhou 31% 22% % 2% 4% % 8% 7% % % 8,584 Yunnan 21% 9% % 3% % 3% % % % 9,533 Tibet % % % % 55% % % % % % 341 Subtotal 27% 12% 1% 1% 9% 1% 5% 4% 1% % 35,111 Northwestern Gansu 49% 13% % % % % 6% % % % 4,86 Shaanxi 3% 18% 23% % % % % % % % 5,639 Qinghai 19% % % % % % % % % % 1,516 Ningxia 45% % % % % % % % % % 1,919 Xinjiang 31% 1% % % % 2% 2% % % % 8,55 Subtotal 27% 8% 6% % % 1% 2% % % % 21,215 Total 22% 11% 6% 4% 4% 3% 2% 2% 2% % 183,25 Source: Digital Cement, Guotai Junan International. Persistency in ROE expansion. Unlike other cement names whose ROE management seems to be more passive, we see that Conch owns vast potential to proactively expand its ROE through M&A and overseas capacity additions, as well as vertical business expansion (e.g. aggregate and concrete) backed by its robust cash position and net cash flow. This should fundamentally differentiate Conch s ROE, and thus its valuation from other cement peers when domestic cement market volume becomes static, since for most peers that are solely exposed to domestic markets, their ROE hiking is highly dependent on persistent cement price hikes, being quite challenging while both cement supply and demand have already started to decline since 217. Per Conch s 1 million ton capacity expansion plan from domestic and foreign markets and the 1 million ton aggregate capacity target during 216 to 22, Conch s ROE is estimated to hit by assuming achieving 5% of this target during 218 to 22, based on the current cement price environment. The capital expenditure for such expansion could be completed being the lowest in terms of opportunity costs, satisfied by Conch s strong cash position and annual cash flow. See the last page for disclaimer Page 3 of 7

4 EARNINGS REVISIONS Key assumptions adjustments include: 1) Fine-tune FY17/FY18/FY19 ASP based on latest regional cement prices, we see expectations of strong price hikes from eastern China backed by low inventory and moderate demand, which will remarkably boost Conch s FY17 ASP with its strong exposure to the Eastern China cement market. 2) Raise FY17/FY18/FY19 coal price forecasts, as we see RMB62/t to be an equilibrium departing from coal supply and domestic macro economy landscape. 3) GP/t in FY18/FY19 has been revised down owing to coal price adjustments and other costs arising from environmental related taxes. 4) Raise other income during FY17 to FY19 due to rising interest income on cash and equivalents. We have also input the net earnings from disposal of several equity investments during 1H17. Besides, government subsidies have been slightly raised based on 1H17 figures. Table- 2: Key Earnings Assumptions Old Forecast New Forecast Revision 217F 218F 219F 217F 218F 219F 217F 218F 219F Operations ASP/t (RMB) % 2.1% 2.1% Unit cost/t (RMB) % 4.9% 6.5% GP/t (RMB) % -2.9% -5.2% Sales Volume (Mt) % 1.% 1.4% QHD 55K coal price (RMB/t) % 3.3% 5.1% Cement-coal price gap (RMB/t)) % 1.6%.9% Financials (RMB Mn) Revenue 69,292 72,373 75,182 7,818 74,629 77, % 3.1% 3.6% Gross profit 22,794 25,857 28,187 23,423 25,349 27,96 2.8% -2.% -3.9% Operating profit 17,818 19,759 22,38 2,73 2,759 22, % 5.1% 1.% Other income 2,92 1,252 1,422 3,458 2,465 2, % 96.8% 72.7% Profit before tax 17,118 19,17 21,475 19,44 2,181 21, % 5.6% 1.4% Net profit 12,669 14,137 15,887 14,383 14,931 16, % 5.6% 1.4% EPS (RMB) % 5.6% 1.4% BPS % 1.5% 1.5% Margins and ratios Revenue growth 23.9% 4.4% 3.9% 26.6% 5.4% 4.4% 2.7ppt.9ppt.5ppt Gross profit growth 3.% 13.4% 9.% 33.6% 8.2% 6.9% 3.6ppt -5.2ppt -2.1ppt Net profit growth 47.8% 11.6% 12.4% 67.8% 3.8% 7.8% 2.ppt -7.8ppt -4.5ppt Gross margin 32.9% 35.7% 37.5% 33.1% 34.% 34.8%.2ppt -1.8ppt -2.7ppt Net Profit Margin 18.3% 19.5% 21.1% 2.3% 2.% 2.7% 2.ppt.5ppt -.5ppt ROE 15.9% 16.3% 16.8% 17.9% 16.9% 16.8% 2.ppt.7ppt.ppt Source: Guotai Junan International. Figure- 5: Regional Cement Prices North China East China RMB/t Southwest China Northeast China Central South China Northwest China Figure- 6: Regional Cement Inventory Level Northern China Northeast China East China Central South China % Southwest China Northwest China Jun-17 Feb-17 Oct-16 Jun-16 Feb-16 Oct-15 Jun-15 Feb-15 Oct-14 Jun-14 Feb-14 Aug-17 Feb-17 Aug-16 Feb-16 Aug-15 Feb-15 Aug-14 Feb-14 Aug-13 Feb-13 Aug-12 Feb-12 Source: Digital Cement, Guotai Junan International. Source: Digital Cement, Guotai Junan International. See the last page for disclaimer Page 4 of 7

5 212/7 213/7 214/7 215/7 216/7 217/7 212/7 213/7 214/7 215/7 216/7 217/7 VALUATION Further valuation enhancement will be fulfilled by M&A engagement, slightly raise TP to HK$37. and maintain Buy. The domestic market is standing at a watershed moment with cement output staying at around a 2.4 billion ton platform in the medium term. This static market size with more balanced demand-supply dynamics would more likely result in relatively stable cement pricing and less cyclical nature in earnings for leading cement names. Among which, earnings from Conch have the highest certainty given Conch s cost leadership and pricing power, and naturally such expectations convey the market with a higher valuation centre for Conch, which is observed at around 1.7x subject to FY17 consensus. On top of this, if Conch could manage to realize its expansion plan through M&A and overseas capacity additions, its valuation center should be further lifted in correspondence to Conch s ROE spikes. Conch remains our top pick for the sector due to its high certainty and share price potential. We slightly raise Conch s TP to HK$37. based on our earnings revision and maintain the Buy investment rating. Figure-7: PER (Next Year) Curve for Conch Figure-8: PBR (Current Year) Curve for Conch (x) 3. (x) Anhui Conch. Anhui Conch PER (historical) PER (current) PER (high) PBR (historical) PBR (current) PBR (high) PER (low) PER band PBR (low) PBR band Table- 3: Peers Comparison GP Net Market PE (fiscal year) PB (fiscal year) Company ROE(%) Margin(%) Margin(%) Cap Stock Code Currency Last price 16A 17F 18F 19F 16A 17F 18F 19F 17F 17F 17F HKD mil HK Listed Peers Anhui Conch Cement Co Ltd-H 914 HK HKD ,749 China National Building Ma-H 3323 HK HKD ,936 China Resources Cement 1313 HK HKD ,43 Asia Cement China Holdings 743 HK HKD ,513 China National Materials - H 1893 HK HKD ,5 China Shanshui Cement Group 691 HK HKD 6.29 n.a. n.a. n.a. n.a n.a. n.a. n.a. n.a. (2.6) 21,255 West China Cement Ltd 2233 HK HKD ,778 Tcc Intl Hldgs Ltd 1136 HK HKD n.a. n.a ,945 Bbmg Corp-H 29 HK HKD ,913 Simple Average Weighted Average Mainland Listed Peers Anhui Conch Cement Co Ltd-A 6585 CH CNY ,595 Tangshan Jidong Cement Inv-A 41 CH CNY ,837 Huaxin Cement Co Ltd-A 681 CH CNY ,336 Gansu Qilianshan Cement Gr-A 672 CH CNY ,1 Ningxia Building Materials-A 6449 CH CNY ,253 Xinjiang Tianshan Cement-A 877 CH CNY ,539 Xinjiang Qingsong Buildin-A 6425 CH CNY 3.89 n.a. n.a. n.a. n.a. 1.3 n.a. n.a. n.a. n.a. n.a. n.a. 6,386 Jiangxi Wannianqing Cem-A 789 CH CNY ,244 Guangdong Tapai Group Co -A 2233 CH CNY n.a. n.a. n.a ,817 Sinoma International Engin-A 697 CH CNY ,443 Jilin Yatai Group Co Ltd-A 6881 CH CNY n.a. n.a. n.a ,276 Xiamen Academy Of Building-A 2398 CH CNY ,757 China West Construction Gr-A 232 CH CNY ,74 Simple Average Weighted Average Overseas Listed Peers Taiheiyo Cement Corp 5233 JP JPY ,735 Sumitomo Osaka Cement Co Ltd 5232 JP JPY ,446 Heidelbergcement Ag HEI GY EUR ,472 Ultratech Cement Ltd UTCEM IN INR 4, ,11 Ambuja Cements Ltd ACEM IN INR ,98 Semen Indonesia Persero Tbk SMGR IJ IDR 1, ,177 Taiwan Cement 111 TT TWD ,92 Asia Cement Corp 112 TT TWD ,147 Simple Average Weighted Average See the last page for disclaimer Page 5 of 7

6 Financial Statements and Ratios Income Statement Year end 31 Dec (RMBm) 215A 216A 217F 218F 219F Total revenue 5,976 55,932 7,818 74,629 77,887 Cost of sales (37,267) (38,396) (47,395) (49,28) (5,792) Gross profit 13,79 17,536 23,423 25,349 27,96 Other income 3,667 1,859 3,458 2,465 2,456 Selling expenses (3,15) (3,276) (3,448) (3,64) (3,73) Administrative expenses (3,184) (3,53) (3,361) (3,451) (3,572) Operating Profit 11,87 12,588 2,73 2,759 22,25 Share profits of associates (38) (65) Share profits of JCE () (32) (12) (12) (11) Finance costs (963) (792) (634) (587) (496) Profit Before Tax 1,86 11,699 19,44 2,181 21,767 Income Tax (2,44) (2,73) (4,347) (4,514) (4,871) Profit After Tax 7,645 8,997 15,93 15,667 16,897 Non-controlling Interest (16) (423) (79) (736) (794) Shareholders' Profit / Loss 7,539 8,574 14,383 14,931 16,12 EPS Key Assumptions Cement (RMB) 215A 216A 217F 218F 219F ASP/t (ex. VAT) Unit cost GP/t Cash Flow Statement Year end 31 Dec (RMBm) 215A 216A 217F 218F 219F CFO Profit before tax 1,86 11,699 19,44 2,181 21,767 Depreciation & amortisation 4,459 4,753 5,198 5,14 5,71 Finance costs Other items (2,357) (451) (1,49) (777) (98) Working capital change (172) (1,275) (477) (79) (557) Interest & Tax (4,35) (3,326) (4,994) (5,112) (5,377) Cash from Operating Activities 8,944 12,191 18,31 19,939 2,42 CFI CAPEX (5,75) (4,865) (4,513) (4,287) (4,71) Net bank deposits (8,5) 5 2,5 1, 4 Net advance to government Net proceeds from associates 1,18 Others (491) (222) Cash from Investing Activities (12,719) (4,552) (1,974) (3,243) (3,625) CFF Increase in debts (77) (3,538) (4,) (896) (1,717) Dividends paid (3,445) (2,279) (6,472) (7,167) (8,51) Others (216) (327) (137) (223) (231) Cash from Financing Activities (4,431) (6,145) (1,69) (8,286) (9,999) Net Changes in Cash (8,26) 1,494 5,727 8,41 6,797 Cash at Beg of Year 12,512 4,285 5,8 11,526 19,936 Foreign exchange rate changes (21) 21 Cash at End of Year 4,285 5,8 11,526 19,936 26,733 Source: the Company, Guotai Junan International. [Table_BalanceSheet] Balance Sheet Year end 31 Dec (RMBm) 215A 216A 217F 218F 219F Fixed assets 64,148 64,689 63,751 62,651 61,468 Lease prepayments 4,489 4,82 4,924 5,56 5,172 Intangible assets 2,878 2,913 2,98 2,939 2,961 Available-for-sale equity securities 3, ,914 2,89 2,867 Other non-current assets 4,591 6,98 6,76 7,678 8,93 Total Non-current Assets 79,355 79,931 81,22 81,214 81,371 Cash & Cash Equivalents 4,285 5,8 11,526 19,936 26,733 Inventories 4,238 4,549 4,792 4,912 5,15 Trade & other receivable 7,56 9,49 1,619 1,421 1,728 Bank deposits 1, 9,5 7, 6, 5,6 Other current assets Total Current Assets 26,426 29,583 34,681 42,53 48,9 Total Assets 15,781 19, , ,267 13,271 Bills & other payable 11,379 11,656 12,937 12,726 12,535 Short term loans 8,445 4,538 4,57 3,941 3,718 Other current liabilities ,138 1,26 1,379 Total Current Liabilities 2,42 17,49 18,132 17,927 17,632 Long term loans 1,74 11,443 7,923 7,144 5,65 Other non-current liabilities 1,95 1,44 1,356 1,438 1,66 Total Non-current Liabilities 11,835 12,487 9,279 8,582 7,256 Total Liabilities 32,237 29,536 27,412 26,58 24,888 Total Shareholders' Equity 7,148 76,39 84,219 91,983 1,34 Minority Interest 3,397 3,669 4,252 4,775 5,349 Total Equity 73,545 79,978 88,471 96,759 15,383 [Table_FinancialRatio] Financial Ratios 215A 216A 217F 218F 219F Growth (%): Revenue (16.1) Gross profit (32.1) Operating profit (3.8) Net profit (31.3) Profitability (%): Gross margin Operating margin Net margin ROA ROE Liquidity & Solvency Current Ratio (x) Quick Ratio (x) Net gearing (%) 7..9 net cash net cash net cash Interest coverage (x) Dividend payout ratio (%) See the last page for disclaimer Page 6 of 7

7 [Table_CompanyRatingDefinition] Company Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. [Table_IndustryRatingDefinition] Sector Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Outperform 跑赢大市 Relative Performance>5%; or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable. [Table_DISCLOSUREOFINTERESTS] DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for SMI HOLDINGS GROUP (198 HK),GUOTAI JUNAN I (1788 HK),BINHAI INVESTMENT (2886 HK),MR CSI3 ETF (3127 HK),GFI MSCI A I (3156 HK),CAM SCSMALLCAP (3157 HK),LINK HOLDINGS (8237 HK),MR CSI3 ETF-R (CNY) (83127 HK),GFI MSCI A I-R (CNY) (83156 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. 217 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 7 of 7