HK Market Quarterly Outlook and Sector Update

Transcription

1 Equity Research Report Equity Research 股 票 研 究 Johnny Wong 王俊浩 Jake Wang 汪昌江 Grace Liu 刘谷 (852) (86755) (852) HK Market Quarterly Outlook and Sector Update 11 October, 2017 策略报告证券研究报告香港市场季度展望及行业更新 HK Market Quarterly Outlook and Sector Update Strategy Report Table of Contents Summary... 2 Quarterly Market Data... 3 Quarterly Market Review... 6 Market Outlook Latest China, US and Europe Macroeconomic Data Sectors Quarterly Update Automobiles & Components Sector Aviation Sector Banking Sector Cement and Construction Materials Sector Clean Energy Sector - Gas Clean Energy Sector - Solar Clean Energy Sector - Wind & Others Consumer Sector - Apparel Consumer Sector - Food & Beverage Consumer Sector - Hotels Consumer Sector - Household Products Consumer Sector - Retail Electric Equipment Sector Environmental Protection Sector Gaming Sector Health Care Sector Infrastructure Sector Insurance Sector Internet Sector Machinery Sector Nonferrous Metals Sector Petrochemicals Sector Port Sector Precious Metals Sector Property Sector Shipping and Logistics Sector Telecommunication Equipment Sector Telecommunication Services Sector See the last page for disclaimer page 1 of 80

2 Summary The Hong Kong market experienced a significant rebound with the HSI soaring 29.4% and HSCEI climbing 22.0% YTD. Over the past quarter, the Hang Seng Index edged up 6.9% to reach the 28,000 level. Recent major market news includes: 1. Some economic indicators missed expectations, but credit market liquidity remained high in China. 2. The US Federal Reserve ( the Fed ) announced to reduce their balance sheet in October. 3. The Fed is still expecting to raise interest rates again this year according to the latest dot plot. 4. US President Donald Trump announced tax reform details. 5. The HKMA issued additional Exchange Fund Bills, lifting the HIBOR to new highs. 6. The 4 th round of Brexit talks has been completed, but little progress has been made. 7. Adverse impacts brought by the latest events surrounding North Korea have started to fade. 8. The Bank of Japan (BOJ) maintained its monetary easing measures, but the forthcoming general election may bring changes to BOJ s philosophy. 9. Economic growth momentum persists in Hong Kong. 10. Standard & Poor's trimmed the credit ratings for China and Hong Kong. We expect that the the liquid credit market will support the growth momentum in China, especially after the announcement from the PBOC to trim the required reserve ratio for inclusive financing. The market is expecting the European Central Bank (ECB) to announce its plan to reduce quantitative easing in the October monetary policy meeting, but events surrounding Catalan independence will drag the value of the euro in the short term. US economic data is expected to weaken temporarily due to recent hurricanes affecting the US, but the medium-term economic outlook remains solid. The latest economic data in China showed some weakening signs, but the credit market liquidity provides support to the economy. US tax reform, the downward pressure on the euro and the depreciation of RMB against USD have been detrimental to the Hong Kong market. Geopolitical issues still create uncertainty in the market. However, the advance in global stock markets will provide support for the Hong Kong market. The Hong Kong market has reached a certain high level while short-term support still remains. We expect the Hong Kong market to be volatile in 4Q17. We are bullish on internet, clean energy (gas, wind & solar), environmental protection, consumer (apparel, hotel), gaming and petrochemicals sectors. Top picks in sectors under GTJA International coverage Sectors Company name Code Rating 6 to 18m TP (HKD) Remarks Automobiles & Components Brilliance China HK Buy Maintained Banking BOC Hong Kong HK Buy Newly added Cement and Construction Materials Anhui Conch HK Buy Maintained Clean energy - Natural Gas China Resources Gas HK Buy Replacing HK Clean energy - Solar GCL-Poly Energy HK Buy 1.30 Maintained Clean energy - Wind & Others Huaneng Renewables HK Buy 3.30 Maintained Consumer -- Apparel 361 DEGREES HK Buy 3.50 Newly added Consumer -- Retailing Sun Art HK Accumulate 7.77 Maintained Environmental Protection China Everbright International HK Buy Maintained Gaming Melco Resorts MLCO US Buy US$28.60 Maintained Infrastructure China Railway HK Buy 8.76 Maintained Internet Tencent HK Buy Maintained Machinery Haitian International HK Buy Maintained Petrochemicals CNOOC HK Accumulate Newly added Property Longfor Properties HK Buy Replacing HK Shipping and Logistics Sinotrans HK Accumulate 2.50 Maintained Telecommunication Services China Telecom HK Buy 4.70 Maintained Source: Guotai Junan International. Note: CSPC Pharmaceutical Group (01093 HK), VINDA (03331 HK), Shanghai Electric (02727 HK), Wynn Macau (01128 HK) are no longer in our top picks; ENN Energy (02688 HK) was replaced by China Resources Gas (01193 HK); Modern Land (01107 HK) was replaced by Longfor Properties (00960 HK). See the last page for disclaimer page 2 of 80

3 Quarterly Market Data Indicator 6 October 2017 chg % qoq chg % yoy Remarks HSI 28, HSI forward PE (1.2) above the avg. P.E. of from 2006 to 2016 HSI forward PB below the avg. P.B. of 1.60 from 2006 to 2016 HSCEI 11, HSCEI forward PE below the avg. P.E. of from 2006 to 2016 HSCEI forward PB below the avg. P.B. of 1.65 from 2006 to Q17 Average daily turnover (ADT) HK$92,664.59mn AH Premium Index (2.3) 6.0 above the avg. of since the beginning of 2006 Source: Bloomberg, Guotai Junan International. Major stock market performance Stock Index 2017YTD HANG SENG INDEX (7.16) (19.97) 5.32 BRAZIL IBOVESPA INDEX (13.31) (2.91) (15.50) 7.40 (18.11) 1.04 NASDAQ COMPOSITE INDEX (1.80) HANG SENG CHINA ENT INDX (2.75) (19.39) (5.42) (21.71) (0.79) PSEi - PHILIPPINE SE IDX (1.60) (3.85) S&P BSE SENSEX INDEX (5.03) (24.64) KOSPI INDEX (4.76) (10.98) FTSE MIB INDEX (10.20) (25.20) (13.23) S&P/NZX 50 Index Gross (1.04) 2.44 Athex Composite Share Pr (23.58) (28.94) (51.88) (35.62) DOW JONES INDUS. AVG (2.23) S&P 500 INDEX (0.73) (0.00) TAIWAN TAIEX INDEX (10.41) (21.18) 9.58 DAX INDEX (14.69) CAC 40 INDEX (0.54) (16.95) (3.34) MEXICO IPC INDEX (0.39) 0.98 (2.24) (3.82) SZSE COMPONENT INDEX 8.94 (19.64) (10.91) 2.22 (28.41) (9.06) IBEX 35 INDEX 8.91 (2.01) (7.15) (4.66) (13.11) (17.43) NIKKEI (17.34) (3.01) SHANGHAI SE COMPOSITE 7.90 (12.31) (6.75) 3.17 (21.68) (14.31) FTSE Bursa Malaysia KLCI 7.45 (3.00) (3.90) (5.66) FTSE 100 INDEX (4.93) (2.71) (5.55) 9.00 S&P/TSX COMPOSITE INDEX (11.09) (11.07) S&P/ASX 200 INDEX (2.13) (14.51) (2.57) ChiNext Price Index (4.85) (27.71) (2.14) (35.88) n.a. Source: Bloomberg, Guotai Junan International. Note: Prices are as at 06/10/2017 for 2017YTD. See the last page for disclaimer page 3 of 80

4 HSI & HSCEI monthly performance Monthly HSI average turnover 35,000 30,000 25,000 20,000 15,000 10,000 HSI(L) HSCEI(L) HSI increase % mom 30.0% 20.0% 10.0% 0.0% -10.0% 250, , , ,000 monthly avg turnover (HK$ mn) turnover increase % mom 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 5, % -30.0% 50, % -40.0% -60.0% Source: HKEx, Guotai Junan International. Source: HKEx, Guotai Junan International. HSI & HSCEI quarterly performance Quarterly daily turnover 29,000 28,500 HSI (Left) HSCEI 11,600 11, , ,000 HK$ mn daily avg turnover (HK$ mn) 28,000 11, ,000 27,500 11, ,000 27,000 10,800 80,000 26,500 10,600 60,000 26,000 10,400 40,000 25,500 10,200 20,000 25,000 1-Jul 16-Jul 31-Jul 15-Aug 30-Aug 14-Sep 29-Sep Source: HKEx, Guotai Junan International. 10, Jul 15-Jul 29-Jul 12-Aug 26-Aug 9-Sep 23-Sep Source: HKEx, Guotai Junan International. Sector performance on HKEX Main Board relative to HSI Over the past quarter Sector performance on HKEX Main Board relative to HSI Over the past 6 months Technology 19.1 Technology 37.9 Materials 16.5 Materials 18.7 Consumer Discretionary 7.9 Consumer Discretionary 15.3 Financials 5.2 Financials 10.8 Consumer Staples 2.2 Health Care -1.0 Industrials -2.3 Consumer Staples -2.3 Health Care -2.3 Utilities -6.4 Energy -3.4 Industrials -7.4 Utilities -4.0 Energy Communications -5.7 Communications Source: HKEx, Guotai Junan International. Source: HKEx, Guotai Junan International. See the last page for disclaimer page 4 of 80

5 Performance of sectors under GTJA coverage relative to HSI over the past quarter Performance of sectors under GTJA coverage relative to HSI over the past 6 months Telecommunication Equipment Others Property Automobiles & Components Internet Clean energy - Solar Consumer -- Hotels Nonferrous metals Consumer -- Household Products Consumer -- Apparel Gaming Consumer -- Foods & Beverage Cement and Construction Materials Banking Ports Shipping and Logistics Health Care Conglomerate Media Precious Metals Environmental Protection Consumer -- Retailing Clean energy - Natural Gas Petrochemicals Manufacturing Telecommunication Services Clean energy - Wind & Others Machinery Insurance Electric Equipment Infrastructure Aviation Property Telecommunication Equipment Automobiles & Components Internet Others Consumer -- Hotels Nonferrous metals Shipping and Logistics Consumer -- Apparel Consumer -- Household Products Banking Consumer -- Foods & Beverage Gaming Insurance Health Care Ports Consumer -- Retailing Cement and Construction Materials Clean energy - Solar Clean energy - Natural Gas Machinery Conglomerate Environmental Protection Telecommunication Services Manufacturing Aviation Clean energy - Wind & Others Petrochemicals Electric Equipment Precious Metals Media Infrastructure Source: Bloomberg, Guotai Junan International. Note: Based on GTJA International sector coverage. Consumer Hotels is comprised of companies listed in the US market. Source: Bloomberg, Guotai Junan International. Note: Based on GTJA International sector names. Consumer Hotels is comprised of companies listed in the US market. AH Premium Index Average level of Source: Hang Seng Index Company, Bloomberg, Guotai Junan International. HSI forward PE and PB HSCEI forward PE and PB Est P/E (L) Est P/B Est P/E (L) Est P/B Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International. See the last page for disclaimer page 5 of 80

6 Quarterly Market Review Over the past quarter, the Hang Seng Index edged up 6.9% to reach the 28,000 level. As at 6 October, the Hang Seng Index surged 29.4% from the beginning of the year, and the HSCEI increased 22.0%. The Hong Kong market performed well in July and rose by over 1,500 points in a month. Most of the Chinese economic data released in that month beat market expectations. In particular, real GDP growth for 2Q17 was 6.9%, which is 0.1 ppts higher than market consensus. In late July, Hong Kong entered into the interim results announcement period and the promising interim results of a number of blue chips, including Cheung Kong Infrastructure, AIA and HSBC, added upward momentum to the Hong Kong market. Overall, the Hang Seng Index soared 6.1% mom to 27,324 in July, while the HSCEI rose 4.5% mom to 10,828. The Hong Kong stock market continued its rally in August, but volatility increased. On August 9, North Korea indicated their ability to launch four Hwasong-12 missiles capable of targeting Guam in mid-august, intensifying geopolitical tension. The Hang Seng Index fell by a total of 971 points in 3 days after North Korea issued their statement. However, North Korea s rhetoric has since quietened down; better-than-expected corporate earnings growth and real GDP growth in Hong Kong gave the market a good push. The Hang Seng Index grew 2.4% to 27,970 in August, while the HSCEI rose 4.3% to 11,295. The Hong Kong stock market had lossed momentum in September. In early September, the Hong Kong market was dragged by the missile tests conducted by North Korea. In late September, the Fed announced that it will start shrinking its balance sheet in October and the dot plot released fuelled up the likelihood of another rate hike in 4Q17, leading to the Hang Seng Index decreasing 1.5% mom to 27,554 and the HSCEI falling 3.4% mom to 10,910. Some economic indicators missed expectations, but credit market liquidity remained high in China. Manufacturing PMI stayed in the expansion zone in 3Q17 with September official manufacturing PMI index rising to a fresh high of 52.4, which beat market expectations. However, Caxin manufacturing PMI shocked the market by ending its 3-month increase in September to record a 0.6 ppt mom decrease to The latest external trade results were also below expectations. In USD terms, total exports and imports in August rose 5.5% and 13.3%, respectively, leading to a trade deficit of USD41.99 billion. Cumulative fixed asset investments in August edged up 7.8% in August, which was again below market expectations. Inflation pressure resurgence occured with the latest readings of CPI and PPI in August, growing 1.8% and 6.3% yoy, respectively. The growth in money supply (M2) has been on the decrease since 2017 as part of the government s deleveraging campaign. M2 expanded 8.9% yoy in August, but the growth rate is the lowest historic growth rate level in China. With regards to the credit market, August total social financing increased RMB1.48 trillion while new RMB loans amounted to RMB190 billion. Both of the indictors were above expectations, which implied that the credit market in China is still buoyant and can support economic growth. The Fed announced to start shrinking their balance sheet in October. As expected by the market, the Fed has decided to reduce its balance sheet in October after the September FOMC meeting and leave federal fund target rates unchanged. The Fed will gradually reduce the reinvestment of principal payments into treasury bonds, federal agency security and MBS until the Fed's balance sheet reaches a level appreciably below that seen in recent years but larger than before the financial crisis". However, the FOMC reiterated that the Fed is ready to resume reinvestment of principal payments received if they see material deterioration in the economic outlook. In our view, the Fed s moves are basically in line with what it had hinted the market in the past few months and the market should have priced them in already. The Fed is still expecting to raise interest rates again this year, according to the latest dot plot. Even though inflation rates in the US are still below the Fed's long-term target, the latest dot plot released after the September FOMC meeting showed that the median forecast for the Fed fund rate was 1.375% by the end of 2017, which implied that interest rates should rise by 0.25% compared to its current level. In addition, the median forecast for the Fed fund rates in 2018 and 2019 are 2.125% and 2.625%, respectively, which is equivalent to rate hikes by 3 times and 2 times in the two years. The latest See the last page for disclaimer page 6 of 80

7 HK Market Quarterly Outlook and Sector Update dot plot surprised the market since the market consensus for another rate hike within 2017 was fading in view of the weak inflation statistics released. We expect that this surprise will support the USD in the short run. US President Donald Trump announced tax reform details. US President Donald Trump unveiled the details of his tax reform program, which included cutting corporate tax rates, raising personal tax allowances, simplifying the personal tax system, imposing a low repatriation rate to attract US companies back from overseas to benefit the US. The main context of the proposal is largely the same as what the US president announced in April with the exception that the latest proposal for corporate tax rates and a lower boundary of personal income tax have been increased to 20% and 12%, respectively. The US Secretary of Commerce Wilbur Ross predicted that the tax reform would boost the US economy by 1% and would add USD3 trillion to revenue of the federal government over the next decade. However, Trump did not offer a solution to the financial burden created by the reform, but we believe that the US Congress will have a heated debate over it. Hence, we expect that the tax reform will not be passed easily in the short run. The HKMA issued additional Exchange Fund Bills, lifting the HIBOR to new highs. The USD significantly strengthened against the HKD since late August and once reached 7.82 in early September. On 19 September, HKMA announced that additional Exchange Fund Bills amounting to HKD40 billion would be issued on 26 September and 3, 10, 17, 24 October to meet the strong demand for Exchange Fund paper by banks for liquidity. The HIBOR rates edged upwards after the HKMA s announcement, with 1 month HIBOR rising from % on 19 September to % on 6 October, which effectively narrowed the interest spread between 1 month Libor and 1 month HIBOR. In our view, the HKMA s move was more about the management of exchange rates by trimming the interest spread rather than targeting bank liquidity due to the fact that liquidity across the banking system (reflected by the level of aggregate balance) has been on the decrease since The USD/HKD exchange rate softened to below 7.81 level on 6 October as a result. Hong Kong Aggregate Balance and 1 Month HIBOR Rate USD/HKD and Interest Spread HKD million 450, , , , , , , ,000 50,000 0 % % Aggregate Balance (LHS) Source: Bloomberg, Guotai Junan International. 1 Month HIBOR (RHS) 7.70 USD/HKD (RHS) Interest Spread (LHS) Source: Bloomberg, Guotai Junan International. Note: We calculated interest spread by subtracting 1 month HIBOR from 1 month LIBOR The 4th round of Brexit talks has been completed, but little progress has been made. The British Prime Minister Theresa May proposed that Britain would leave the EU in 2021 after a two-year transition period, during which the current single market status with the EU would remain. In exchange for the status quo, the UK suggested an exit bill payment amount of EUR20 billion. Nonetheless, no agreement was made on the amount of the exit bill in the 4 th round Brexit talks; the EU warned that the progress achieved so far is still insufficient to start trade negotiations. The rating agency Moody's downgraded the UK s credit rating to Aa2 based on their view that the outlook for the UK s public finances had weakened and risks involved surrounding Brexit have risen. See the last page for disclaimer page 7 of 80

8 The adverse impact brought by US-North Korea tension seems to be fading. North Korea carried out several missile tests and a hydrogen bomb test last quarter. The fear of another Korean war resurged and global stock markets tumbled every time North Korea engaged in weapon tests. The United Nations has adopted a new round of sanctions including a ban on North Korean textile exports and a cap of 2 million barrels of crude oil allowed to be shipped to North Korea per year, but dropped the proposal to freeze North Korea s leader Kim Jong-un s assets and oil embargo to gain China s support. North Korea reacted to the sanctions with a tough response. North Korea's ambassador to the UN Han Tae Song said the sanctions will make the US suffer the greatest pain it has ever experienced in its history. However, the market seems to have played down the risk of a war and the HSI even closed with a 30-point increase on 15 September after North Korea fired a missile over Japan in another round of tests. The Bank of Japan (BOJ) has maintained its monetary easing measures for the time being, but the forthcoming general election may bring changes to BOJ s philosophy. The Bank of Japan, as expected by the market, kept the policy interest rate unchanged at 0.1%, preserving the 10-year treasury yield target of zero and continued its JPY80 trillion asset purchase plan after the monetary policy meeting in September. Although growth momentum in Japan has been picking up, inflationary pressure has remained sluggish. The latest inflation rates in August were 0.7% (excluding fresh food prices) and 0% (excluding fresh food and energy prices), respectively, which are still far below the Bank of Japan s 2% inflation target. The minutes of July s monetary policy meeting revealed that the Bank of Japan has once again delayed the timeline for Japan to reach their 2% inflation target to March Japanese Prime Minister Shinzo Abe called for a snap election to set the stage for an increase in general sales tax rate and the expansion in education and social security spending. Abe s main opponent Yuriko Koike and her new political party Party of Hope vowed to reduce the reliance on fiscal and monetary policy and promised to revitalize private companies through taxing excessive cash holdings. In our view, BOJ will continue to maintain its monetary easing stance in the short run regardless of the election results based on the current low inflation rates. However, Yuriko Koike, a clear non-believer in Abenomics, is expected to start unwinding monetary easing sooner if her party gets the victory in the election. Economic growth momentum persists in Hong Kong. Hong Kong's real GDP grew 3.8% yoy in 2Q17, beating market expectations. Real GDP growth rate in 1H17 was 4.0%, which is above the 10-year average growth rate of 2.9% from 2006 to Private consumption expenditure rose 5.3% yoy in 2Q17, which was mainly due to strong maintenance of the labor market and the wealth effect of the Hong Kong real estate market and the stock market. Inflation pressure is still moderate, but we expect an uptick in general price levels to be seen in 2H17. The labor market remained strong. Overall, Hong Kong's economic growth continued to be in the expansion stage, which will drive underlying profit growth among Hong Kong enterprises. Standard & Poor's trimmed credit ratings for China and Hong Kong. Following its peer, Moody's, who lowered sovereign ratings for China and Hong Kong in May, rating agency Standard & Poor's downgraded China s long-term sovereign credit rating to A + and Hong Kong's to AA + on September 21 and September 22, respectively. Standard & Poor's said China's prolonged period of strong credit growth magnified its economic and financial risks. Followed by the decline in China's rating, Standard & Poor's lowered Hong Kong's credit rating to reflect the strong institutional and political links between China and Hong Kong. The Hang Seng index edged down slightly from 28,127 on 20 September to 27,880 on 22 September. See the last page for disclaimer page 8 of 80

9 Sector Performance Sectors (calculated from companies under our coverage) that significantly outperformed or underperformed the market during the past quarter are listed as follows: Underperform / Outperform Relative return to HSI (ppts) Sector Reasons Outperform 43.7 Telecommunication Equipment Smartphone components makers are expected to benefit from the specification upgrade cycle. Most of the latest smartphones are equipped with OLED displays, minimal bezels, dual cameras, high resolution displays, water proof features, high pixel cameras and 3D sensing cameras. These specification upgrades are helping electronic components companies to improve their product shipments and margin thanks to better high-end product mix. Outperform 28.0 Property Higher-than-expected results, improving fundamentals and valuation recovery should be the main reasons. Outperform 23.9 Automobiles & Components 3Q17 was strong for most auto stocks, mainly driven by those with strong vehicle sales such as Geely Auto (00175), Brilliance China (01114 HK) and Guangzhou Automobile (02238 HK), which sales growth has continuously beat the market and their peers. as Also, more positives can be seen from their interim results, such as improving margins and strong bottom-line growth. Underperform (10.4) Electric Equipment Thermal capacity oversupply in China will lead to decreased investment in coal-fired power plants over the next few years. Meanwhile, expected industry consolidation for electric equipment manufacturers is neither happening nor has any sign of happening soon. Underperform (10.5) Infrastructure Underperform (25.5) Aviation Source: Bloomberg, Guotai Junan International. Note: Closing prices as at 06/10/2017. Jan. Aug. Urban FAI growth was 0.4 ppts lower than expected. Overall infrastructure investment growth dropped 0.6 ppts compared with that in Jan.-Jul. to 16.1%, in which investment growth of transportation and storage, and irrigation, environment and public facilities both dropped slightly, only water, electricity, heat and gas investment growth rebounded a little, reflecting overall infrastructure investment slightly decelerated. Underlying passenger traffic was satisfactory with moderate growth recorded among our covered companies. We believe the stock underperformed as both RMB and oil price has gone against the aviation industry, in which RMB has been weakening and oil price gradually increased in 3Q17, making the industry less favorable to invest. See the last page for disclaimer page 9 of 80

10 Market Outlook Economic growth in China showed traces of weakening, but the liquid credit market will support growth momentum. Some of the latest economic data in China, including external trade, national investment in fixed assets and Caixin manufacturing PMI, were worse than expected, reflecting that the risk of economic slowdown has not completely subsided. Although official manufacturing PMI and Caxin manufacturing PMI is pointing in different directions, both readings remained in the expansion zone. Inflation rates rebounded slightly with both CPI and PPI higher than market expectations. SHIBOR has remained largely stable so far this quarter. The overall credit market has remained lenient as the increase in total social financing and new RMB loans were higher than expected. Even though we expect that China s economic growth rate in 2H17 will be slightly lower than 1H17, growth momentum, supported by the ease in credit, still exists. The People s Bank of China (PBOC) announced a target reserve cut for direct credit to inclusive financing. On September 30, the PBOC announced a reduction in the required reserve ratio in 2018 for inclusive financing including lending to SMEs, startups, student education and agricultural production. The PBOC will lower the reserve requirement by 0.5ppts if commercial banks reach 1.5% of their outstanding loan balance in inclusive financing. If the ratio exceeds 10%, the reserve requirement will be cut by 1.5ppts. The PBOC expects that the reserve cut will benefit 90% of city commercial banks and 95% of rural commercial lenders and the easing effect will emerge in 4Q17. The PBOC s move will unleash additional RMB in the region of hundreds of billions in liquidity to the market, which should be positive to economic growth in China. The market is expecting the European Central Bank (ECB) to announce its plan to reduce quantitative easing in the October monetary policy meeting. Economic growth in the euro zone has started to transmit into a higher price level. Inflation in the euro zone in September was 1.5%, while the core inflation rate was 1.1%. IHS Markit September Manufacturing PMI and Composite PMI rose to 58.1 (a 6.5-year high) and 56.7, respectively. In addition, euro zone economic sentiment rose to in September, the highest level since June Strengthening economic momentum in the euro zone and climbing inflationary pressures have paved the way for the ECO to unwind its quantitative easing policy. ECB President Mario Draghi said at the quarterly hearing of the European Parliament that the ECB will make a decision on the adjustment in the bond-buying program later this year and was increasingly confident that inflation will eventually achieve their target level, but accommodative monetary policy will be still need to spur higher price levels. Meeting minutes of the July monetary policy meeting recorded that some members expressed concern that excessive appreciation of the euro may dampen economic growth, but the euro has depreciated about 2% against the dollar after the Fed finished its September FOMC meeting. Therefore, we expect the that the ECB is likely to announce the details of reducing or ending when its current asset purchase plan expires, but interest rates should remain unchanged in the October meeting. Catalan independence will drag the value of the euro in the short term. Catalonia held an independence referendum on October 1 despite strong opposition from the Spanish government. Over 90% of voters supported independence. Catalonia s president Carles Puigdemont announced that Catalonia had won the right to statehood, but the Spanish government refused to recognize the results of the referendum and claimed that the referendum was unconstitutional. The European Union also expressed that the Catalan independence referendum was illegal. We believe that the issue in Catalonia will take some time to be resolved, but the chaos created will exert downward pressure on the euro in the short term. US economic data is expected to weaken temporarily due to recent hurricanes in the US. Southeastern areas of the United States were seriously hit by hurricanes, which destroyed houses and core infrastructure. Foreign media cited that the estimated economic loss from Hurricane Harvey and Hurricane Emma to be more than USD200 billion, and thousands of people were made homeless. In our view, the adverse impact brought by the hurricanes will drag US economic performance in the short term, See the last page for disclaimer page 10 of 80

11 but post-disaster reconstruction will boost consumption and investment spending. Overall, we believe that the growth momentum in the US should remain intact in the medium run. Upcoming events to watch: The 19th National Congress of the Communist Party of China will be held on 18 October, which is expected to shed light on the direction of future economic growth in China. Japan will hold a general election on 22 October, where Japan Prime Minister Abe hopes to gain public support for the revision of constitution and an increase in consumption tax. The European Central Bank will announce their decision on monetary policy on October 26 and the market is expecting to see the ECB unveil its plan to unwind quantitative measures. The latest economic data in China showed some weakening signs, but the credit market liquidity provides support to the economy. US tax reform, the downward pressure on the euro and the depreciation of RMB against USD have been detrimental to the Hong Kong market. Geopolitical issues still create uncertainty in the market. However, the advance in global stock markets will provide support for the Hong Kong market. The Hong Kong market has reached a certain high level while short-term support still remains. We expect the Hong Kong market to be volatile in 4Q17. We are bullish on internet, clean energy (gas, wind & solar), environmental protection, consumer (apparel, hotel), gaming and petrochemicals sectors. Top picks in sectors under GTJA International coverage Sectors Company name Code Rating 6 to 18m TP (HKD) Remarks Automobiles & Components Brilliance China HK Buy Maintained Banking BOC Hong Kong HK Buy Newly added Cement and Construction Materials Anhui Conch HK Buy Maintained Clean energy - Natural Gas China Resources Gas HK Buy Replacing HK Clean energy - Solar GCL-Poly Energy HK Buy 1.30 Maintained Clean energy - Wind & Others Huaneng Renewables HK Buy 3.30 Maintained Consumer -- Apparel 361 DEGREES HK Buy 3.50 Newly added Consumer -- Retailing Sun Art HK Accumulate 7.77 Maintained Environmental Protection China Everbright International HK Buy Maintained Gaming Melco Resorts MLCO US Buy US$28.60 Maintained Infrastructure China Railway HK Buy 8.76 Maintained Internet Tencent HK Buy Maintained Machinery Haitian International HK Buy Maintained Petrochemicals CNOOC HK Accumulate Newly added Property Longfor Properties HK Buy Replacing HK Shipping and Logistics Sinotrans HK Accumulate 2.50 Maintained Telecommunication Services China Telecom HK Buy 4.70 Maintained Source: Guotai Junan International. Note: CSPC Pharmaceutical Group (01093 HK), VINDA (03331 HK), Shanghai Electric (02727 HK), Wynn Macau (01128 HK) are no longer in our top picks; ENN Energy (02688 HK) was replaced by China Resources Gas (01193 HK); Modern Land (01107 HK) was replaced by Longfor Properties (00960 HK). See the last page for disclaimer page 11 of 80

12 Latest China, US and Europe Macroeconomic Data China Indicator data period mom / qoq yoy Official Manufacturing PMI Sep ppts 2.0ppts Exports (bn USD) Aug % 5.6% Imports (bn USD) Aug % 13.5% Trade Balance (bn USD) Aug 41.9 (9.3%) (16.3%) Money Supply - M1 (YoY) Sep 14.0% 0.0ppts (10.7ppts) Money Supply - M2 (YoY) Sep 8.9% 0.0ppts (2.6ppts) New RMB Loans (bn) Aug 1, % 14.9% Total social financing (bn RMB) Aug 1, % 1.3% PPI yoy Aug 6.3% 0.8ppts 7.1ppts PPI mom Aug 0.9% 0.7ppts 0.7ppts CPI yoy Aug 1.8% 0.4ppts 0.5ppts CPI mom Aug 0.4% 0.3ppts 0.3ppts Actual FDI (bn USD) Aug % 6.8% Retail Sales (YoY) Aug 10.1% (0.3ppts) (0.5ppts) Power consumption (KWH bn) Aug (1.3%) 6.4% Industrial Production (YoY) Aug 6.0% (0.4ppts) (0.3ppts) Power output (KWH bn) Aug (1.7%) 4.8% FAI excl. rural (bn) Aug 5,674.1 (0.1%) 3.8% Real estate investment (bn) Aug % 7.8% Beijing new house selling prices yoy Aug 5.6% (9.0ppt) (20.2ppt) Beijing new house selling prices mom Aug 0.0% 0.0ppt (3.8ppt) GDP yoy growth 2Q 6.9% 0.0ppts 0.2ppts Foreign exchange reserve (bn USD) Sep 3, % (8.0%) Source: National Bureau of Statistics of China, the People's Bank of China, China Customs, Ministry of Commerce of the PRC. See the last page for disclaimer page 12 of 80

13 US Indicators data period chg mom / qoq ISM Manufacturing Sep ppts Unemployment Rate Sep 4.2% (0.2ppts) Chg in Nonfarm Payrolls (mom '000) Sep (119.5%) Retail & Foods service Sales SA (bn USD) Aug (0.2%) Industrial Production (mom) Aug 1.5% (0.9ppts) PPI (yoy) Aug 2.4% 0.5ppts Core PPI (yoy) Aug 2.0% 0.2ppts CPI (yoy) Aug 1.9% 0.2ppts Core CPI (yoy) Aug 1.7% 0.0ppts Housing Starts annualized (SA, '000) Aug 1,180.0 (0.8%) Existing Home Sales (mn units) Aug 5.4 (1.7%) House Price Index (mom) Jul 0.2% 0.1ppts Trade Balance (bn USD) Aug (42.4) 2.7% Total Net TIC Flows (bn USD) Jul -7.3 Change from +ve to -ve Net foreign purchases of LT US securities (bn USD) Jul 5.1 (85.6%) Monthly deficits +/ surplus - (bn USD) Aug (107.7) (150.8%) University of Michigan Consumer Sentiment Sep 95.1 (1.7ppts) New Home Sales annualized (SA '000) Aug (3.4%) Durable Goods New Orders SA (bn USD) Aug 233, % S&P/Case-Shiller 20 Home Price Indices, mom, SA Jul 0.4% 0.3ppts Real GDP growth QoQ 2Q 3.1% 1.9ppts Factory Orders SA (bn USD) Aug 471, % Total Vehicle Sales annualized (mn) Sep % Source: U.S. Bureau of Labor Statistics, U.S. Department of Commerce, U.S. Census Bureau, ISM, FHFA, NAR, the Federal Reserve, US Department of Treasury, University of Michigan. Europe Indicators data period chg mom/qoq Euro area GDP qoq (flash) 2Q 0.6% 0.1ppts Euro area GDP yoy (flash) 2Q 2.3% 0.3ppts Euro-zone annual inflation (final) Sep 1.5% 0.0ppts Euro-zone monthly inflation (final) Sep 0.4% 0.1ppts Markit Euro-zone Manufacturing PMI SA Sep ppts Euro-zone PPI yoy Aug 2.5% 0.5ppts Source: Eurostat, Markit. See the last page for disclaimer page 13 of 80

14 Sectors Quarterly Update See the last page for disclaimer page 14 of 80

15 M17 HK Market Quarterly Outlook and Sector Update Automobiles & Components Sector 汽车行业 Analyst: Toliver Ma 马守彰 (852) Industry dynamics 行业动态 Neutral Stable August sales growth, with PV sales up 4.1% yoy in Aug According to the China Association of Automobile Manufacturers ( CAAM ), China vehicle sales in Aug was up 5.3% yoy, with passenger vehicle ( PV ) sales up 4.1% yoy, while commercial vehicles ( CV ) increased 16.9% yoy. SUV sales remained in a high growth stage, increasing 17.7% yoy. Meanwhile, sedan sales returned to growth, up 1.6% yoy after decline over the last few months since Mar Both crossover and MPV vehicles continued to record large decline. In the CV segment, CV sales maintained high speed growth on the back on strong heavy duty truck sales, up 89.8%. China to set EV quotas in After rounds of public consultation, MIIT finalized the corporate average fuel consumption ( CAFC ) and new energy vehicle ( NEV ) credit scheme < 乘用车企业平均燃料消耗量与新能源汽车积分并 行管理办法 >, which will be implemented on 1 April The final version has delayed the implementation of EV quotas to 2019, slightly relaxing an earlier plan to introduce next year. Meanwhile, no relaxation on credit requirement ratio in 2019 and 2020, which remained at 10% and 12%. In Aug. 2017, NEV sales continued to improve in China, both production and sales volume edged up MoM. NEV sales reached 68,000 units, increasing 76.3% yoy in Aug. 2017; in cumulative terms, NEV sales grew 30.2% yoy. Key assumptions update 关键假设更新 Due to the scale down of tax subsidy, we expect vehicle sales performance in 2017 to slow down from last year but to grow moderately. Our estimation for overall 2017 vehicle market sales growth is 3.6%. Investment suggestions 投资建议 Despite a slowdown in auto sales growth, we remain positive on the industry outlook as support by the strong demand in lower tier cities. However, growth is not as clear as last year due to a scale down of purchase tax subsidy. We should see divergence in terms of sales performance. Current rating for the auto sector is Neutral. Top pick is Brilliance China (01114 HK). 中性 Vehicle sales 汽车销售 M17 30% 25% 22.7% 20% 15% 10% 4.2% 4.9% 6.4% 5.3% 5% 0.8% 0% -1.8% 0.2% -5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -10% Source: CAAM. PV sales proportion by vehicle type 乘用车型销售占比 Sedan MPV SUV Crossover 100% 15.6% 14.6% 9.1% 6.8% 5.2% 3.0% 2.5% 80% 11.2% 12.9% 16.7% 20.7% 29.4% 36.8% 40.5% 3.4% 3.2% 7.3% 9.7% 60% 10.0% 10.3% 8.7% 40% 69.8% 69.4% 67.0% 62.8% 55.4% 50.0% 20% 48.3% 0% Source: CAAM. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) Geely Auto Buy Dongfeng Motor Neutral Brilliance Auto Buy BAIC Motor Neutral Great Wall Motor Neutral Guangzhou Automobile Buy Xiezhong International Neutral (41.5) Sinotruk Buy Weighted Average 市值加权平均 Source.. the Companies, Guotai Junan International, Bloomberg. 17 P/B 市净率 Neutral See the last page for disclaimer page 15 of 80

16 Brilliance China (01114 HK) 华晨汽车 (01114 HK) Company updates 公司近况 Analyst: Toliver Ma 马守彰 (852) Buy Sales of Brilliance BMW remained strong in the first 8 months of 2017, with YTD sales up 25.7% yoy. Growth was mainly driven by the X1 and the 3-series, which increased 101.8% yoy and 30.8% yoy, respectively. Moreover, the 2-series Active Tourer and the all new 1-series sedan contributed a total of 19,800 units of additional sales in 1-8M17. Meanwhile, sales of the 5-series dropped 20.1% yoy due to the distortion caused from manufacturing adjustments for the new 5-series along with the ramp-up period needed for new models. However, we believe sales of the 5-series has still been better-than-expected so far. Sales of the 5-series has gradually picked up since launch, with monthly sales reaching 7,979 units in Aug The sales of Aug was not far from average monthly sales of the prior year (11,900 units), and we expect sales of the 5-series to reach 12,000 to 14,000 units in the remaining months of Management upgraded their full your sales guidance to yoy c. 25% (previous c.20%). Earnings comments 业绩评论 Net profit increased 28.2% yoy to RMB 2,050.7 million in 1H17, roughly in line with market consensus. Strong results were mainly due to a much improved Brilliance BMW ( BMW ) segment, in which share of profit from joint ventures was up 39.9% yoy to RMB 2,666.4 million. During the period, the Company recognized RMB 350 million in impairment regarding the intangible assets of Huasong. Excluding the one off impairment loss, the Company s net profit would have increase by 47.7%. Meanwhile, the MPV and minibus segment remained in a loss position, but as sales improved by 14.1% yoy, segment result narrowed to RMB million (excluding impairment effect), which represents a yoy increase of 9.5%. Valuation, catalysts & risks 估值 催化剂和风险 We reiterate our Buy rating for Brilliance Auto, with TP of HK$27.22, representing 20.7x 2017 PER, 13.9x 2018 PER, 4.4x 2017 PBR and 3.8x 2018 PBR. Riding along with the growing premium segments, BMW Brilliance is a clear beneficiary due to its strong product cycle ahead and its strong brand names in China. Besides BMW improvement, Jinbei business is set to improve after cooperation with Renault. We think our valuation is justified, which is equivalent to its historical mean, and the encouraging outlook bodes well with our Buy rating. 买入 6-18m TP 目标价 : HK$27.22 Share price 股价 : Stock performance 股价表现 Change in Share Price 股价变动 Abs. % 绝对变动 % % of return Rel. % to HS index 相对恒指变动 % 1 M 1 个月 3 M 3 个月 HK$ (10.0) Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 HSI Brilliance China YTD 年初累计 Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (RMB) (RMB) (%) (%) 2015A 4,863 3, (35.3) A 5,125 3, F 5,980 5, F 6,618 8, F 7,829 9, Shares in issue (m) 总股数 (m) 5,045.3 Major shareholder 大股东 Huachen Auto Group 42.5% Market cap. (HK$ m) 市值 (HK$ m) 114,023.1 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 21,007.1 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Net cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 30.2 Source: the Company, Guotai Junan International. See the last page for disclaimer page 16 of 80

17 Financial statements and ratios [Table_IncomeStatement] Income Statement [Table_BalanceSheet] Balance Sheet Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Turnover 4,863 5,125 5,980 6,618 7,829 Cost of sales (4,655) (4,954) (5,753) (6,354) (7,484) Gross profit Other revenue and expenses Selling expenses (547) (612) (714) (724) (856) Administrative expenses (394) (383) (447) (495) (585) Share of result of: 4,043 4,246 6,327 9,273 10,870 --Associates Jointly controlled entities 3,823 3,993 6,041 8,965 10,538 Operating Profit 3,391 3,504 5,496 8,429 9,903 Interets income Finance costs (147) (133) (136) (157) (173) Profit Before Tax 3,325 3,425 5,423 8,343 9,810 Income Tax (45) (36) (124) (298) (356) profit After Tax 3,280 3,389 5,300 8,045 9,455 Non-controlling Interest Shareholders' Profit / Loss 3,495 3,682 5,628 8,379 9,837 Basic EPS Diluted EPS Dividend per share (RMB) Cash Flow Statement Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F EBT 3,325 3,425 5,423 8,343 9,810 Share of results of JV and associates (4,043) (4,246) (6,327) (9,273) (10,870) Depreciation and amortisation Interest expenses/(income),net Other adjustments (41) (100) (67) (72) (70) Change in WC (524) (413) 118 (93) 541 Interest received Income tax paid (58) (33) (37) (44) (43) Cash from Operating Activities (1,021) (932) (507) (730) (196) Net Proceed of PPE (560) (455) (357) (393) (433) Change of pledged bank deposits (654) 469 (192) (174) (300) Dividend received from JV and associates 1,117 1,130 1,582 2,318 2,718 Others 457 (30) (3) (14) (9) Cash from Investing Activities 361 1,114 1,029 1,737 1,977 Net change of bank borrowing 220 (260) Net change of notes payable Dividend paid (454) (475) (844) (1,257) (1,476) Others 355 (6) (73) (86) (93) Cash from Financing Activities 553 (312) (353) (848) (1,239) Net Changes in Cash (108) (130) Other adjustment Cash at Beg of Year 1,179 1, ,110 1,269 Cash at End of Year 1, ,110 1,269 1,811 Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F PPE 2,042 2,250 2,242 2,323 2,406 Intangible assets 1,423 1,339 1,628 1,762 1,891 Lease prepayment Interests in jointly controlled entities 14,011 17,645 19,535 22,436 25,387 Other non-current assets 2,334 2,716 3,036 3,388 3,766 Total Non-current Assets 19,897 24,034 26,524 29,991 33,529 Cash & Cash Equivalents 1, ,110 1,269 1,811 Inventories 1,211 1,104 1,292 1,456 1,698 Trade and other receivables 1,757 1,880 2,785 3,809 4,076 Pledged deposit 2,002 1,532 1,725 1,899 2,199 Other Current assets 1,134 1,552 1,248 1,312 1,371 Total Current Assets 7,175 7,009 8,160 9,745 11,155 Total Assets 27,072 31,043 34,684 39,735 44,684 Trade payables 3,038 3,324 3,467 4,086 4,662 Notes payable 2,157 2,330 2,674 2,949 3,169 Bank borrowing 1,585 1,325 1,545 1,765 1,875 Other current liabilities 1,092 1,343 1,568 1,738 2,056 Total Current Liabilities 7,872 8,323 9,254 10,538 11,762 Total Non-current Liabilities Total Liabilities 8,009 8,444 9,388 10,685 11,925 Total Shareholders' Equity 19,896 23,724 26,750 30,838 34,931 Share capital Reserve 19,500 23,327 26,353 30,442 34,534 Minority Interest (832) (1,125) (1,454) (1,788) (2,171) Total Equity 19,064 22,599 25,296 29,050 32,760 BPS(RMB) Financial Ratios 2015A 2016A 2017F 2018F 2019F Profitability Sales Volume growth of Jinbei (25.3) (%) Sales volume growth of BMW (%) Change of Jinbei ASP (%) Change of BMW ASP (%) (5.1) (2.0) (2.0) EPS Growth (%) (35.3) BPS Growth (%) Gross profit margin (%) Operating profit margin of Jinbei (13.4) (14.5) (13.9) (12.8) (12.4) Operating profit margin of BMW EBITDAR (%) Net profit margin (%) ROE(%) ROA(%) Liquidity and solvency Gearing ratio (%) Net Cash Net Cash Net Cash Net Cash Net Cash Interest coverage ratio Cash ratio Quick ratio Efficiency Analysis Inventory turnover days Days receivable days Days payable days Source: the Company, Guotai Junan International. See the last page for disclaimer page 17 of 80

18 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 HK Market Quarterly Outlook and Sector Update Aviation 航空行业 Analyst: Toliver Ma 马守彰 (852) Industry dynamics 行业动态 Neutral According to China Aviation Administration of China ( CAAC ), latest (Jul. 2017) operating data maintain healthy growth in China aviation sector. RPK recorded double-digit growth of 11.8% yoy, driven by international route and domestic route which increase 11.4% and 12.0% yoy respectively. Airplane utilization is improving amid slowing down of capacity expansion which we noticed ASK grew mildly in Jul for the big 3 carriers. Passenger load factor up 0.8 to 83.3 in Jul Industry RPK (monthly) 收入客公里 中性 The big three airlines announced their 2017 interim results in late Aug. 2017, with all net profits experienced a decline. Despite an overall improvement from passenger traffic growth, bottom line experience decline due to the increase in oil price in 1H17 as compared to 1H16 which is one of the lowest in decades. However, we noticed two major positives in the sector, 1) the improvement in passenger yield, as most airlines are now focusing on yield management rather than market expansion in the past two years and 2) the strengthening of RMB, which has been noticed in 1H17. We expect the government would remain its stance of keeping RMB stable RPK: million pax-km International yoy RPK yoy Domestic yoy Regional yoy 60% 40% 20% 0% -20% -40% Key assumptions update 关键假设更新 Source: CAAC. We expect passenger traffic of China s airlines to increase stably during 2017 to 2019 due to the increasing demand of outbound and domestic tourism. We expect oil price to fluctuate between USD50/barrel to USD60/barrel in Average price should continue to rise in 2017 and We have currently expected RMB to appreciate around 2%-3% in Despite RMB recorded a c. 5% appreciation in 1-3Q17, we do not foresees RMB to continue to strengthen as too strong the currency would hamper economy growth and the recent reduction of the RMB for financial institutions settling foreign exchange forward RMB positions, effectively reducing the cost of forward trading activities. Investment suggestions 投资建议 Operating environments are fairly supportive besides rising oil price. RMB is supportive so far in 2017 and we see control from PBOC should keep it stable. On the other hand, crude oil price is picking up since 2H16 and we think the benefit from low oil price will vanish in 2017, posting significant challenge to net profit growth. Current rating for the aviation industry is Neutral. There is no top pick for this sector in short term. Industry PLF 客载率 Source: CAAC. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) Air China Accumulate China Eastern Airlines Accumulate Weighted Average. 市值加权平均 Neutral Source.. the Companies, Guotai Junan International, Bloomberg. 17 P/B 市净率 See the last page for disclaimer page 18 of 80

19 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 HK Market Quarterly Outlook and Sector Update Banking Sector 银行行业 Analyst: Richard Cao 曹柱 (86755) Industry dynamics 行业动态 Outperform In August 2017, new RMB loans achieved RMB 1,090.0 bn, up 14.9% YoY and 32.0% MoM, respectively. New RMB loans continued to stay at a good level, which showed that the demand for the funds of real economy was still good. Medium- to long-term RMB loans increased by 55.8% YoY and decreased by 8.6% QoQ. Of which, personal medium- to long-term RMB loans decreased by 15.4% YoY and 1.6% QoQ. Nine mainland banks under our coverage recorded net profit of RMB bn in 1H17, up 4.7% YoY.Of which, BOC's net profit YoY growth of 11.5% was the highest of the nine banks, while CITIC's YoY growth of 1.7% was the lowest. NPL ratios of nine banks all decreased YTD, of which, 0.18 pts YTD decline of ABC's NPL ratio was the largest as of the end of 1H17. Key assumptions update 关键假设更新 In 2017, impacted by the slow-down of such assets as inter-bank assets, the YoY growth of the Chinese banking sector's total assets is projected to decline to 10.5%, while the loans are expected to be the main driver for the growth. Given the expected slightly tight liquidity, we project the NIM of the Chinese banking sector to continue to recover QoQ in 2H17. We projectasset quality to continue to stabilize in 2H17, and the NPL ratio of the Chinese banking sector is expected to be 1.71% as of the end of Provisions Pressure of the banks is expected to mitigate further in 2H17. All things considered, we expect the banking sector's YoY growth of net profit for 2017, 2018 and 2019 to be 7.0%, 8.4% and 9.0%, respectively. Investment suggestions 投资建议 In 2H17, we expect the following factors to support bank valuations: 1) the Chinese economy is expected to stabilize further; 2) we think the exposure to economic factors will decrease further given the government's orientation on deleveraging policy; 3) we project the Chinese banking sector's net profit growth to recover and asset quality to continue to stabilize. Therefore, we maintain Outperform rating for the Chinese banking sector. Our top pick for this sector is BOCHK (02388 HK), mainly because BOCHK is expected to record a high net profit growth in the near future, given the recovery of Hong Kong's economy, the shrinkage in the U.S. Fed' balance sheet and the expected U.S. Fed's interest rates hike. 跑赢大市 Banking Sector Net Profit and YoY Growth 银行业净利润及其同比增速 Source: the CBRC, GuotaiJunan International. NPL ratio of Chinese banking sector 中国银行业不良贷款率 % Source:the CBRC. RMB 10 bn Net profit YoY growth 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17ROE 净资产收益率 (%) 17 P/B 市净率 FY17 Yield 股息率 ICBC Accumulate CCB Accumulate ABC Accumulate BOC Accumulate BANKCOMM Accumulate CMB Buy MSB Accumulate CITIC Accumulate Huishang Accumulate Weighted Average. 市值加权平均 Outperform HSBC Accumulate BOCHK Buy Weighted Average. 市值加权平均 Outperform Source.. the Companies, GuotaiJunan International, Bloomberg. See the last page for disclaimer page 19 of 80

20 BOC Hong Kong (02388HK) 中银香港 (02388 HK) Company updates 公司近况 Analyst: Richard Cao 曹柱 (86755) Buy ASEAN strategy was promoted further in 2H17, which is expected to benefit the Company's development. On 28 February 2017, BOCHK entered into Asset Purchase Agreements with BOC in relation to the acquisition of the Indonesia business and the Cambodia business, respectively. On 10 July 2017, the Company completed the acquisition of the Indonesia business, which signified the ASEAN strategy to be promoted further. ASEAN is a key region for both the Belt and Road Initiative and RMB internationalization. The acquisitionof certain ASEAN assets from BOC signified the start of the transformation of BOCHK from a local bank into a regional bank, which will benefit the Company's long-term development. Earnings comments 业绩评论 The 1H17 financial results beat expectation. The Company s 1H17 reported net profit attributable to ordinary shareholders declined by 59.8% YoY to HK$ 17.2 bn, primarily attributable to the high comparison base from the one-off gains of the sale of NCB in 1H16. Excluding the HK$ 2.6 bn gains of disposal of Chiyu, the Company's net profit attributable to ordinary shareholders from continued operations increased by 24.5% YoY to HK$ 14.6 bn. We forecast the Company's EPS for FY17/FY18/FY19 to be HK$ 3.032/HK$ 3.117/HK$ 3.462, a change of -42.2% YoY/2.8% YoY/11.1% YoY, respectively. In the near future, the recovery of Hong Kong's economy is expected to continue to drive the Company's loans to grow at a relatively good level and the rise of overall interest level in Hong Kong is projected to continue to contribute to the Company's NIM expansion. RMB internationalization and the Belt and Road Initiative are expected to continue to support the Company's development. Meanwhile, the development of ASEAN business will also contribute to its earnings growth. Valuation, catalysts & risks 估值 催化剂和风险 Maintain our "Buy" rating for the Company. We expect the Company to benefit from the following factors: 1) the expected stabilization of China s and Hong Kong s economy, 2) prospective development of businesses in the ASEAN region, 3) the promotion of the Belt and Road Initiative, 4) the U.S. Fed s interest rate hike and shrinkage of balance sheet, and 5) RMB internationalization. Therefore, we maintain our Buy rating for the Company. Our target price for the Company is HK$ 47.52, equivalent to 15.7x FY17 PER, 15.2x FY18 PER, 2.1x FY17 PBR and 2.0x FY18 PBR. 买入 6-18m TP 目标价 : HK$47.52 Share price 股价 : Stock performance 股价表现 (10.0) % of return Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % 1 M 1 个月 3 M 3 个月 HK$ (20.0) Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 HSI BOCHK YTD 年初累计 (2.3) (7.3) 26.0 Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, GuotaiJunan International. Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (HKD m) (HKD m) (HKD) ( %) (HKD) (HKD) (%) (%) 2015A 40,942 26, A 41,754 55, F 50,640 32, (42.2) F 56,573 32, F 62,753 36, Shares in issue (m) 总股数 (m) 10,572.8 Major shareholder 大股东 BOC 66.2% Market cap. (HK$ m) 市值 (HK$ m) 405,994.8 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 12,604.5 FY17 CET-1 Ratio FY17 普通股权一级资本比率 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17 NPL Ratio FY17 不良贷款率 (%) 0.2 Source: the Company, GuotaiJunan International. See the last page for disclaimer page 20 of 80

21 Financial Statements and Ratios Profit and Loss Balance Sheet HKD million, year ended 31 Dec 2015A 2016A 2017F 2018F 2019F HKD million, year ended 31 Dec 2015A 2016A 2017F 2018F 2019F Net interest income 25,739 25,428 35,522 40,276 45,210 Liquidity assets 294, , , , ,790 Net fee income 11,465 10,541 11,068 11,843 12,553 Loans 920, ,137 1,096,311 1,216,906 1,356,850 Other non interest income 3,738 5,785 4,050 4,454 4,989 Total assets 2,367,864 2,327,781 2,721,633 3,004,496 3,306,596 Total non-interest income 15,203 16,326 15,118 16,297 17,542 Customer deposits 1,404,989 1,504,076 1,744,728 1,910,477 2,082,420 Operating income 40,942 41,754 50,640 56,573 62,753 HKSARG Certi. of indebtedness 101, , , , ,575 Operating expense (11,836) (12,213) (14,559) (16,225) (17,972) Total liabilities 2,169,871 2,097,221 2,478,654 2,742,747 3,022,816 PPOP 29,106 29,541 36,081 40,348 44,780 Total equity 197, , , , ,781 Impairment losses (931) (578) (637) (689) (738) Shareholders' equity 192, , , , ,136 Operating profit 28,175 28,963 35,444 39,659 44,042 Minority 5,415 5,907 6,143 6,389 6,645 Other profits Pre-tax profit 28,952 29,452 35,947 40,178 44,576 Tax (4,284) (4,622) (5,641) (6,305) (6,995) Net profit after tax 24,668 24,830 30,306 33,873 37,581 Net profit from discontinued business 2,827 31,493 2,623 Avg. int. earning assets 1,766,079 1,918,837 2,248,237 2,486,165 2,740,021 Minorities (699) (820) (869) (921) (977) Average loans 925, ,657 1,024,157 1,134,382 1,262,148 Net profit attributable to shareholders 26,796 55,503 32,060 32,951 36,604 Avg. customer deposits 1,442,549 1,454,533 1,624,402 1,827,603 1,996,449 EPS, HKD Avg. assets 2,278,616 2,347,823 2,524,707 2,863,065 3,155,546 Performance Ratios Cash Flow Statement Performance ratios 2015A 2016A 2017F 2018F 2019F HKD million, year ended 31 Dec 2015A 2016A 2017F 2018F 2019F Growth yoy (%) Net cash, operating activities (71,213) (73,617) 88,340 26,502 5,300 Net interest income (19.4) (1.2) Net cash, investing activities (771) 21,413 (691) (829) (994) Net fee income 13.3 (8.1) Net cash, financing activities (12,259) (21,063) (10,532) (11,585) (12,743) Non-interest income (7.4) Effects of exchange rate on cash (11,129) 1,132 5,000 1,000 1,000 Operating income (7.5) Net increase in cash (95,372) (72,135) 82,118 15,089 (7,437) PPOP (7.0) Cash at beginning of the year 403, , , , ,167 Net profit (42.2) Cash at end of the year 308, , , , ,730 Income contribution (%) Net interest income Non-interest income Efficiency (%) Cost-to-income Expense / Avg. assets Liquidity (%) Avg. Loan / Avg. earning assets Loan-to-deposit Share Information &Valuation CAR (%) Year ended 31 Dec 2015A 2016A 2017F 2018F 2019F CET-1ratio EPS(HK$) CAR EPS growth(%) (42.2) BVPS(HK$) Asset Quality DPS(HK$) USD Million, year ended 31 Dec 2015A 2016A 2017F 2018F 2019F ROE(%) NPL 2,137 1,946 2,043 2,148 2,395 ROA(%) NPLratio (%) PE LLR / NPL (%) PB LLR / Loan(%) Dividend yield(%) Source: the Company, GuotaiJunan International. See the last page for disclaimer page 21 of 80

22 Cement and Construction Materials Sector 水泥建材行业 Analyst: Sean Xiang 向宇豪 Industry dynamics 行业动态 Neutral The lagged effect of property sales tightening started to catalyze. Due to the slowdown of property sales, other fund sources (mainly mortgages and prepayments) for property development started to decelerate. Such trend should be magnified before the property sales restraint policies beginning to loosen. Yet property restock amid the current low inventory status should also support moderate property investments. Limited effect to cement product upgrade from banning PC32.5R cement. As PS, PP and PF 32.5 cement is retained, it makes some illegal small enterprises being able to change the original PC cement packages to PS, PP, PF cement and then continue to sale PC32.5 cement in the low-end market. Therefore, all 32.5 cement varieties should be abolished in order to truly achieve fair competition and cement product upgrade. 中性 Coal prices and Cement-Coal Spread 煤炭价格及水泥煤炭价差 RMB/t Cement-coal spread QHD5,500 thermal coal FOB (RHS) RMB/t Cement prices may reflect more seasonality rather than cyclicity in The cyclical cement price hikes starting from 2017 was in fact a result of demand-supply rebalance, as marginal supply decline of cement exceeds marginal demand changes. Given the expected 2.4bt demand platform as a backdrop, as the magnitude from supply cut (e.g. production shift) is not expected to tighten, the diminishing marginal supply decline underpins that cement prices should tend to perform more seasonality from seasonal demand movements rather than the cyclicity as it did in 2016 and Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Source: Digital Cement, Guotai Junan International Jan-17 Jul Key assumptions update 关键假设更新 Price hikes in 4Q peak makes 2H cement ASP exceeding the 1H level. Given stable demand amid intense cement supply due to production halts for environmental purpose and the production shift, national cement price hikes should occur in 4Q. Among which clinker supply in East China may be very intense as a result of the current low inventory as well as production shift in North China, making us to expect a RMB80-100/t clinker price hikes starting from end August in East China. Cement price hikes in South China should also meet expectations due to the concentrated demand release in 4Q. Investment suggestions 投资建议 Regional Cement Prices 区域水泥价格 North China East China RMB/t Southwest China Northeast China Central South China Northwest China Overall fair sector valuation, but valuation divergence may be catalyzed in future. The earnings improvement has been priced-in and annual earnings expectations for cement names are also well understood by the market. We believe while further positive earnings elasticity to be very limited, valuations for cement names should be differentiated by: 1) possibilities of continuing expansions. 2) Capabilities to continuously manage costs and improve earnings conditions. 3) Initiatives of raising dividend payout. Based on these criteria, Anhui Conch is currently our top pick for the sector 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 Feb-17 Aug-17 Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) Anhui Conch Buy CRC Accumulate CNBM Neutral BBMG Neutral Weighted Average. 市值加权平均 Source: The Company, Bloomberg, Guotai Junan International 17 P/B 市净率 Neutral See the last page for disclaimer page 22 of 80

23 Anhui Conch Cement (00914 HK) 安徽海螺水泥 (00914 HK) Company updates 公司近况 Analyst: Sean Xiang 向宇豪 Buy Intense clinker inventory underpins sufficient room for cement price hikes. Clinker inventory along Yangtze River regions hit 30%, signaling regional inventory pressures. Regional clinker prices have been raised by 3 times with total adjustments of RMB60-80/t. Cement prices have exceeded the 2013 level and are approaching the peak in Due to the production shift, cement from East China might be shipped to the north. This prompts us to expect a decent price hikes in East China, even though the regional prices have been raised by two rounds. Anhui may adopt unconventional measures to ensure air quality. We learned that Tongling has issued plan of starting unconventional measures to ensure air quality, if the city's 3Q air quality did not meet the provincial targets. Among which Tongling Conch s production may be reduced by 30% during 4Q with 100mt clinker volume cut, which will significantly increase the regional clinker supply pressure. It should also be noted that whether the measures would be introduced in Wuhu, Ma'anshan, Chaohu and other places. Although the measure will reduce Conch s cement output, the sharp rise in prices will offset the effect from volume decline. Earnings comments 业绩评论 1H17 net profit up % YoY. The company s 1H17 results meet expectations. Due to 25.5% rise in cement and clinker ASP, revenue rose by 33.1% YoY. Gross profit was up by 37.7% YoY with GP margin at 31.0%, up by 1.0 ppt YoY. GP/t recorded RMB76/t vs. the RMB57/t in 1H16. The Company has disposed several equity investments during 1H17, resulting in RMB1.557bn net gains. Shareholders net profit recorded RMB6.739bn, up 100.6% YoY. Stripping out one-offs from net gains, net profit would be RMB5.123bn, up 71.2% YoY. EPS and Core EPS for 1H17 were RMB1.27 and RMB0.97, up by 100.2% and 71.2% YoY,s respectively. 买入 6-18m TP 目标价 : HK$37.00 Share price 股价 : HK$ Stock performance 股价表现 60.0 % of return (10.0) (20.0) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 HSI Index Anhui Conch Valuation, catalysts & risks 估值 催化剂和风险 Change in Share Price 股价变动 1 M 1 个月 3 M 3 个月 YTD 年初累计 Consistency in Conch s ROE improvements. Conch s plan of expanding 100mt cement and aggregate capacity will proactively enhance its ROE to over 20%. This should differentiate Conch s valuation logic and valuation centre from peers while most cement names ROE improvements largely depend on cement price hikes. We see Conch to have most certain growth in both operations expansions and dividend payout among our cement coverage. In addition, Conch s engagements in expanding aggregate business also help it to reduce instability of gross margin due to the fluctuations in cement and coal prices. So we see Conch to be the equally offensive and defensive play in the sector. Our TP for Conch is HK$37.00 with a Buy investment rating. Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International 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 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) ( %) (RMB) (RMB) (%) (%) 2015A 50,976 7, (31.3) A 55,932 8, F 70,818 14, F 74,629 14, F 77,887 16, Shares in issue (m) 总股数 (m) 5,299.0 Major shareholder 大股东 Conch Holdings 36.8% Market cap. (HK$ m) 市值 (HK$ m) 168,517.8 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 9,888.5 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Net cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 40.8 Source: The Company,Guotai Junan International. See the last page for disclaimer page 23 of 80

24 Financial Statement and Ratios Income Statement Year end 31 Dec (RMBm) 2015A 2016A 2017F 2018F 2019F Total revenue 50,976 55,932 70,818 74,629 77,887 Cost of sales (37,267) (38,396) (47,395) (49,280) (50,792) Gross profit 13,709 17,536 23,423 25,349 27,096 Other income 3,667 1,859 3,458 2,465 2,456 Selling expenses (3,105) (3,276) (3,448) (3,604) (3,730) Administrative expenses (3,184) (3,530) (3,361) (3,451) (3,572) Operating Profit 11,087 12,588 20,073 20,759 22,250 Share profits of associates (38) (65) Share profits of JCE (0) (32) (12) (12) (11) Finance costs (963) (792) (634) (587) (496) Profit Before Tax 10,086 11,699 19,440 20,181 21,767 Income Tax (2,440) (2,703) (4,347) (4,514) (4,871) Profit After Tax 7,645 8,997 15,093 15,667 16,897 Non-controlling Interest (106) (423) (709) (736) (794) Shareholders' Profit / Loss 7,539 8,574 14,383 14,931 16,102 EPS Key Assumptions Cement (RMB) 2015A 2016A 2017F 2018F 2019F ASP/t (ex. VAT) Unit cost GP/t Cash Flow Statement Year end 31 Dec (RMBm) 2015A 2016A 2017F 2018F 2019F CFO Profit before tax 10,086 11,699 19,440 20,181 21,767 Depreciation & amortisation 4,459 4,753 5,198 5,140 5,071 Finance costs Other items (2,357) (451) (1,490) (777) (980) Working capital change (172) (1,275) (477) (79) (557) Interest & Tax (4,035) (3,326) (4,994) (5,112) (5,377) Cash from Operating Activities 8,944 12,191 18,310 19,939 20,420 CFI CAPEX (5,075) (4,865) (4,513) (4,287) (4,071) Net bank deposits (8,500) 500 2,500 1, Net advance to government Net proceeds from associates 1, Others (491) (222) Cash from Investing Activities (12,719) (4,552) (1,974) (3,243) (3,625) CFF Increase in debts (770) (3,538) (4,000) (896) (1,717) Dividends paid (3,445) (2,279) (6,472) (7,167) (8,051) Others (216) (327) (137) (223) (231) Cash from Financing Activities (4,431) (6,145) (10,609) (8,286) (9,999) Net Changes in Cash (8,206) 1,494 5,727 8,410 6,797 Cash at Beg of Year 12,512 4,285 5,800 11,526 19,936 Foreign exchange rate changes (21) Cash at End of Year 4,285 5,800 11,526 19,936 26,733 Source: The Company,Guotai Junan International. [Table_BalanceSheet] Balance Sheet Year end 31 Dec (RMBm) 2015A 2016A 2017F 2018F 2019F Fixed assets 64,148 64,689 63,751 62,651 61,468 Lease prepayments 4,489 4,820 4,924 5,056 5,172 Intangible assets 2,878 2,913 2,908 2,939 2,961 Available-for-sale equity securities 3, ,914 2,890 2,867 Other non-current assets 4,591 6,980 6,706 7,678 8,903 Total Non-current Assets 79,355 79,931 81,202 81,214 81,371 Cash & Cash Equivalents 4,285 5,800 11,526 19,936 26,733 Inventories 4,238 4,549 4,792 4,912 5,015 Trade & other receivable 7,056 9,049 10,619 10,421 10,728 Bank deposits 10,000 9,500 7,000 6,000 5,600 Other current assets Total Current Assets 26,426 29,583 34,681 42,053 48,900 Total Assets 105, , , , ,271 Bills & other payable 11,379 11,656 12,937 12,726 12,535 Short term loans 8,445 4,538 4,057 3,941 3,718 Other current liabilities ,138 1,260 1,379 Total Current Liabilities 20,402 17,049 18,132 17,927 17,632 Long term loans 10,740 11,443 7,923 7,144 5,650 Other non-current liabilities 1,095 1,044 1,356 1,438 1,606 Total Non-current Liabilities 11,835 12,487 9,279 8,582 7,256 Total Liabilities 32,237 29,536 27,412 26,508 24,888 Total Shareholders' Equity 70,148 76,309 84,219 91, ,034 Minority Interest 3,397 3,669 4,252 4,775 5,349 Total Equity 73,545 79,978 88,471 96, ,383 [Table_FinancialRatio] Financial Ratios 2015A 2016A 2017F 2018F 2019F Growth (%): Revenue (16.1) Gross profit (32.1) Operating profit (30.8) Net profit (31.3) Profitability (%): Gross margin Operating margin Net margin ROA ROE Liquidity & Solvency Current Ratio Quick Ratio Net gearing (%) net cash net cash net cash Interest coverage Dividend payout ratio (%) See the last page for disclaimer page 24 of 80

25 Clean Energy: Gas 清洁能源 : 天然气行业 Analyst: Kevin Guo 郭勇 (0755) Kevin.guo@gtjas.com Industry dynamics 行业动态 Outperform Natural gas consumption of China increased by about 15% yoy to billion m 3 in the first half of Natural gas consumption growth of China accelerated in the first half of 2017 compared to the same period last year. Natural gas consumption from all types of customers, except CNG station, recorded fast growth. Total import of natural gas in the first half 2017 increased by 15.8% yoy to 31.1 million tons. The import of LNG increased by 37.9% yoy to15.9 million tons and the import of pipeline gas decreased by 0.8% yoy to 15.2 million tons. The average import costs of natural gas increased slightly with the rebound in oil prices. The average import price of LNG in the first half of 2017 increased by 5.6% yoy to USD 369/t, the average import price of pipeline gas decreased by 4.2% yoy to USD 271/t. Key assumptions update 关键假设更新 NYMEX Natural Gas Price 纽约商品交易所天然气价格 7.00 USD/MMBtu 跑赢大市 We expect China s consumption of natural gas to grow by about 12-15% in Natural gas consumption had resumed fast growth in the first half of 2017 and we expect it to accelerate as governments take more stimulus policies. The gas price cut in September was positive for gas consumption in China. The NDRC announced that non-residential city-gate natural gas price to be cut by RMB 0.1m 3 from September 1 st. The price cut will be positive for the downstream consumption of natural gas Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Bloomberg, Stock Price Performance 股价表现 Revise down gas dollar margin of gas distribution business. Gas distribution Companies usually offer preferential prices in some instances to secure large industrial customers. Additionally, in order to stimulate the use of gas, gas sold to coal to gas customers is usually lower in price % Return Investment suggestions 投资建议 Natural gas distribution industry possesses great growth potential due to energy structure adjustment of China. Natural gas consumption of China is expected to maintain fast growth in the next 5-10 years due to the boost of clean energy consumption by the government. We expect net profit of gas distribution companies to maintain fast growth due to more gas sales. Top pick is ENN Energy (2688 HK) Jan-17 Mar-17 May-17 Jul-17 Sep-17 HSI Index Source: Bloomberg, ompany Name 公司名称 Code 编号 HK and China Gas China Resources Gas Beijing Enterprises ENN Energy Binhai Investment Price 股价 (HK$) Weighted Average. 市值加权平均 Source.. the Companies, GuotaiJunan International, Bloomberg. Rating 投资评级 17PER 18PER 19PER 17ROE 净资产收益率 (%) 17P/B 市净率 Buy Buy Buy Buy Buy Outperform See the last page for disclaimer page 25 of 80

26 China Resources Gas (01193HK) 华润燃气 (01193 HK) Company updates 公司近况 Analyst: Kevin Guo 郭勇 (0755) Buy The sale growth of natural gas accelerated in the first half of Total sale of gas increased by 22% yoy to billion m 3 ; natural gas consumed by residential customers increased by 11.8% yoy to 2.67 billion m 3 ; natural gas consumed by industrial/commercial customers grew by 28.5% and 30.1% yoy to 3.94 and 2.59 billion m 3 ; natural gas consumed by gas stations increased by 5.3% yoy to 0.88 billion m 3. Connection service business maintained fast growth and was in line with our estimation. Revenue contributed by connection services increased by 3.2% yoy to HK$ 3.16 billion in the first half of The Company added about 3.95 million residential customers. Earnings comments 业绩评论 The 2017 interim results of the Company were higher than market consensus and our expectation, mainly due to higher sale of gas. Total revenue of the Company increased by 14.8% yoy to HK$ billion, and net profit attributable to shareholders increased by 8.0% yoy to HK$ 2.11 billion. Gas dollar margin of piped gas remained stable. Gas dollar margin of natural gas distribution companies benefited greatly from the gas prices reform took place in Although the Company usually charges lower gas price for coal to gas projects, the impacts was generally slight. 买入 6-18m TP 目标价 : HK$38.40 Share price 股价 : HK$ Stock performance 股价表现 25.0 % of return (5.0) (10.0) (15.0) (20.0) (25.0) Oct-16 Jan-17 Apr-17 Jul-17 Sep-17 HSI Index China Resources Gas Valuation, catalysts & risks 估值 催化剂和风险 Net profit growth of China resources Gas is strongly supported by fast natural gas sales growth and stable gas dollar margin. China resources Gas is one of the largest gas distributors in China and operates gas distribution business across China. We expect total sale of piped gas of the Company to benefit from the restructuring of energy structure in China and continue to maintain fast growth in the next few years. We also expect gas dollar margin of the Company to be more stable under new pricing mechanisms. Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % 1 M 1 个月 3 M 3 个月 YTD 年初累计 (1.3) (3.9) 0.2 (4.2) (15.6) (19.3) Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. Year End 年结 Turnover 收入 Net Profit 股东净利 EPS 每股净利 EPS 每股净利变动 PER BPS 每股净资产 PBR 市净率 DPS 每股股息 Yield 股息率 ROE 净资产收益率 12/31 (HK$ m) (HK$ m) (HK$) ( %) (HK$) (HK$) (%) (%) 2015A 31,096 2, A 32,916 3, F 36,591 4, F 42,173 4, F 47,518 5, Shares in issue (m) 总股数 (m) 2,176.1 Major shareholder 大股东 CR Holdings 64.0% Market cap. (HK$ m) 市值 (HK$ m) 59,298.7 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 4, FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17Est. NAV (HK$) FY17 每股估值 ( 港元 ) 45.2 Source: the Company, GuotaiJunan International. See the last page for disclaimer page 26 of 80

27 Financial Statements and Ratios Income Statement Year end 31 Dec (HK$ m) 2015A 2016A 2017F 2018F 2019F Total Revenue 31,096 32,916 36,591 42,173 47,518 Cost of sales (21,307) (21,732) (23,808) (27,899) (31,600) Gross profit 9,789 11,184 12,784 14,274 15,918 Other income S&D expenses (3,126) (3,413) (3,586) (4,049) (4,372) Administrative expenses (2,505) (2,464) (3,055) (3,458) (3,896) Operating Profit 4,892 5,955 6,804 7,442 8,338 Finance costs (541) (538) (465) (483) (457) Share results of JV ,015 1,066 Share results of associates Profit Before Tax 5,311 6,189 7,427 8,100 9,077 Income Tax (1,508) (1,751) (1,857) (2,025) (2,269) profit After Tax 3,803 4,438 5,570 6,075 6,808 Non-controlling Interest (965) (1,148) (1,393) (1,519) (1,702) Shareholders' Profit / Loss 2,838 3,289 4,178 4,556 5,106 Balance Sheet Year end 31 Dec (HK$ m) 2015A 2016A 2017F 2018F 2019F PPE 22,717 24,059 27,221 29,614 31,893 Prepaid lease payments 1,456 1,522 1,568 1,615 1,664 Interests in JV 9,994 9,029 9,480 9,954 10,452 Interests in associates 1,953 1,863 1,919 1,976 2,036 Goodwill Operating rights 1,298 1,247 1,284 1,323 1,362 Others 1,451 1, Total Non-current Assets 39,546 39,704 42,400 45,431 48,377 Inventories ,139 1,283 Trade and other receivables 7,369 8,021 6,952 8,435 9,504 Amounts due from customers 1,535 1,882 2,195 2,530 2,851 Cash & Cash Equivalents 10,751 5,501 5,855 6,748 7,603 Other deposits 0 4,025 4,145 4,270 4,398 Others Total Current Assets 20,351 19,971 20,136 23,121 25,638 Basic EPS Total Assets 59,896 59,675 62,536 68,552 74,015 Trade and other payables 12,441 10,574 12,075 13,074 14,731 Amounts due to customers 8,168 11,163 7,684 8,435 9,504 Cash Flow Statement Year end 31 Dec (HK$ m) 2015A 2016A 2017F 2018F 2019F Profit before taxation 5,311 6,189 7,427 8,100 9,077 Bank and other borrowings 4,220 3,139 3,295 4,451 3,300 Taxation payable Others Total Current Liabilities 25,423 25,416 23,636 26,587 28,210 Adjustments for: Interest expense Share results of JV (840) (653) (967) (1,015) (1,066) Share results of associates (120) (119) (123) (126) (130) Depreciation 981 1,090 1,206 1,307 1,421 Change of working capital 1, (1,797) (219) 1,192 Income Tax paid (1,294) (1,751) (1,857) (2,025) (2,269) Government grants Bank and other borrowings 4,971 3,302 6,221 6,748 7,603 Other liabilities 5,709 5,726 5,440 5,168 4,910 Amount due to subsidiary Deferred tax liabilities 1,012 1,204 1,265 1,328 1,394 Total Non-current Liabilities 11,986 10,554 13,264 13,602 14,285 Others (118) Cash from Operating Activities 5,690 5,580 4,355 6,505 8,682 Total Liabilities 37,409 35,970 36,901 40,189 42,495 Total Shareholders' Equity 17,009 17,768 19,402 21,819 24,648 Payments for acquisition (3,523) (3,000) (2,800) (3,200) (3,200) Investment in JV (404) (436) (471) (509) (549) Minority Interest 5,478 5,937 6,233 6,545 6,872 Total Equity 22,487 23,705 25,635 28,364 31,520 Dividend received from JV Withdrawal of deposits Others 2, Cash from Investing Activities (784) (3,126) (2,820) (3,235) (3,252) [Table_FinancialRatio] Financial Ratios Year end 31 Dec (HK$ m) 2015A 2016A 2017F 2018F 2019F Dividends paid (652) (827) (1,044) (1,139) (1,276) Interest paid (524) (538) (465) (483) (457) Net borrowings raised 1,282 (2,731) 2,788 1,412 (555) Others (1,485) (3,607) (2,460) (2,166) (2,286) Cash from Financing Activities (1,380) (7,704) (1,182) (2,377) (4,575) Net Changes in Cash 3,527 (5,250) Gross margin 31.5% 34.0% 34.9% 33.8% 33.5% Net margin 9.1% 10.0% 11.4% 10.8% 10.7% ROE 12.6% 13.9% 16.3% 16.1% 16.2% ROA 6.3% 7.4% 8.9% 8.9% 9.2% Free CF 2,167 2,580 1,555 3,305 5,482 Net gearing 18.4% 11.1% 19.3% 18.9% 12.1% Cash at Beg of Year 7,553 10,751 5,501 5,855 6,748 Foreign exchange rate changes (328) Cash at End of Year 10,751 5,501 5,855 6,748 7,603 Source: the Company, Guotai Junan International. See the last page for disclaimer page 27 of 80

28 U SD / watt USD / watt USD / kg HK Market Quarterly Outlook and Sector Update Clean Energy (Solar) Sector 清洁能源 ( 太阳能 ) 行业 Analyst: Jun Zhu 朱俊杰 (852) Junjie.zhu@gtjas.com.hk Industry dynamics 行业动态 Outperform Nationwide solar installation in China in 1H17 reached 24.4 GW, up YoY by 9.0%. According to NEA, newly installed solar capacity in China in 1H17 reached an all time high of 24.4 GW, up by 9.0% YoY. The record breaking new solar installation in 1H17 was a result of the solar installation rush in 1H17 and the rise of distributed solar projects in the mid-eastern region of China. Price of solar materials fell dramatically in 1H17. Demand on solar materials continued to rise but solar materials price kept its downward trend. For the first 9 months ending September, the YoY growth rates for the price of poly-silicon, multi-wafer, mono-wafer, multi-cell and module are +0.4%, -22.6%, -7.2%, -26.3% and -33.3%, respectively. The price downtrend is expected to continue. Per watt investment cost of solar projects is expected to fall to RMB 5.00 by the end of The dramatic fall in the solar project investment cost will further put pressure on solar material makers but at the same time benefiting the solar project investors. However, we expect the production costs of solar materials to continue to drop amid the advancement in production technology. Key assumptions update 关键假设更新 Nationwide new solar installation is expected to hit 35 GW in As the investment cost of the solar project continues to fall, we expect demand for solar materials will record a strong YoY increase both domestically and globally. We expect nationwide new solar installations to reach 35 GW (+1.4% YoY) and global installations to hit 90 GW (+17.5% YoY) in We are optimistic about the outlook of the solar industry. Furthermore, we expect nationwide solar installed capacity to hit 200 GW in 2020 from the GW as at 1H17. Price of solar materials will continue to remain low moving forward. As the investment cost is the key to realize grid-parity, we see no sign that the solar materials price will rebound in 2017 and onwards. However, we expect the production costs to drop substantially with the advancement in production technologies. Meanwhile, the sharp rise in solar materials demand will help alleviate the impact brought by decreased solar materials price. 跑赢大市 Poly-silicon and Multi Wafer Price 多晶硅及多晶硅片价格走势 Wafer (left) Poly (right) Source: PVinsights, PV Cell and Module Price 光伏电池片及组件价格走势 Module Cell Investment suggestions 投资建议 Most of the companies within the sector are traded cheaply. As China is on its way to double its solar capacity from 2017 to 2020 to reach 200 GW of installed capacity by 2020, we expect solar material makers are to be benefited. Our current top pick for this sector is GCL Poly Energy (03800 HK) due to its market leading position and the low valuation Source: PVinsights, Company Name 公司名称 Code 编号 GCL Poly Energy Singyes Solar Xinyi Solar Weighted Average. 市值加权平均 Source.. the Companies, Guotai Junan (HK), Bloomberg. Price 股价 (HK$) Rating 投资评级 Buy Neutral Accumulate 16 PER 17 PER 18 PER 17 ROE 净资产收益率 (%) 17 P/B 市净率 Outperform See the last page for disclaimer page 28 of 80

29 GCL Poly Energy (03800 HK) 保利协鑫能源 (03800 HK) Company updates 公司近况 1H17 results were better than expected. Poly-silicon shipment and ASP went down YoY by 23.5% and by 1.3%, respectively, in 1H17. Wafer shipment was up by 19.5% YoY but its ASP fell sharply by 30.5% YoY. The result was better than our expectation mainly due to significant earnings contribution from the Company s new energy business segment (i.e. solar farm business). Analyst: Jun Zhu 朱俊杰 (852) junjie.zhu@gtjas.com Buy 买入 Several measures were taken to further reduce production costs. GCL Poly is currently pursuing different measures to further reduce the production cost of solar materials, including putting up a new poly-silicon production plant in Xinjiang, switching to diamond wire sawing technology for wafer production (from the currently 30% of wafer production to 70%-80% by year end 2017), and the adoption of FBR technology in the production of poly-silicon. Decreased wafer ASP has substantially impacted the profitability of the company s solar materials segment in 1H17 but we expect the Company to continue to bring down its production cost over the next two-year period. Gross margin for solar materials segment is estimated to be 22.3% / 26.3% / 27.0% from 2017 to 2019, respectively. Earnings comments 业绩评论 Net profit in 1H17 went down YoY by 13.0%. Sales, gross profit and net profit in 1H17 went down YoY by 8.2%, 12.1% and 13.0%, respectively. The earnings decline was better than our prior forecast mainly due to the better than expected earnings contribution from the new energy segment. We expect production costs to continue to fall as a result of new production technologies adopted as well as the new Xinjiang plant scheduled to be commissioned in We expect net earnings to grow 8.3% and 22.9%, respectively, in 2017 and Driven by the new production technologies, new Xinjiang production plant and the massive (more than 5 GW of installed capacity as at 1H17) amount of solar power projects on hand, we believe the profitability of GCL Poly will continue to improve moving forward. The interim result of 2017 is substantially higher than market expectations and it re-strengthened the confidence of the market on the outlook of solar sector. We expect net profit to grow 8.3%/22.9% in 2017/2018. Valuation, catalysts & risks 估值 催化剂和风险 Attractive valuation and the robust demand on solar energy will continue to push the share price of GCL Poly. As the production costs are expected to continue to decline, the domestic and global demand on solar materials to remain robust, and the grid-connected solar capacity set to increase by 1-2 GW per year, we expect the fundamentals of GCL Poly will get stronger overtime. Given the its market leading position in the solar industry, we have good reason to believe that GCL s share price is highly undervalued and should deserve a strong rebound. Our target price of HK$ 1.30 is equivalent to 9.0x 2017 PER or 0.9x 2017 PBR. 6-18m TP 目标价 : HK$1.30 Share price 股价 : Stock performance 股价表现 (10.0) (20.0) (30.0) 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 % 1 M 1 个月 3 M 3 个月 HK$1.130 (40.0) Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 HSI GCL-Poly Energy YTD 年初累计 (14.7) Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. 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 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) ( %) (RMB) (RMB) (%) (%) 2015A 20,484 2, A 22,025 2, (16.6) F 23,761 2, F 22,914 2, F 22,384 2, Shares in issue (m) 总股数 (m) 18,587.6 Major shareholder 大股东 Zhu, Gongshan % Market cap. (HK$ m) 市值 (HK$ m) 21,003.9 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 192,724.6 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17 EV / EBITDA FY17 企业值 / EBITDA 6.5 Source: the Company, Guotai Junan International. See the last page for disclaimer page 29 of 80

30 Financial statements and ratios Income statement Balance sheet Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Total Revenue 20,484 22,025 23,761 22,914 22,384 PPE 41,650 52,462 57,514 61,740 65,253 COGS (14,744 (14,980 (16,514 (14,773 (13,853 Investment in affiliates ,074 Gross profit 5,741 7,044 7,247 8,141 8,531 Intangible & goodwill ,124 1,277 1,462 Selling expense (62) (73) (95) (92) (112) Prepayments 1,102 1,124 1,251 1,331 1,332 Admin expense (1,503) (1,847) (1,830) (1,810) (1,791) Others 3,496 5,361 5,977 6,667 7,440 Other gains / expenses (316) (165) Total Non-current Assets 46,636 59,907 66,639 71,926 76,561 Operating Profit 3,860 4,960 5,518 6,439 6,832 Cash & Cash Equivalents 10,260 8,958 7,286 6,745 6,247 Share of JV / affiliate (50) Inventories 1, ,156 1,182 1,108 Gain on disposals 1, Trade receivable 14,368 12,285 14,256 13,748 13,430 Net finance costs (2,195) (2,149) (2,198) (2,358) (2,431) Others 7,041 4,904 5,311 5,752 6,231 Profit Before Tax 2,775 2,844 3,355 4,117 4,437 Total Current Assets 33,055 27,112 28,009 27,427 27,017 Income Tax (484) (537) (671) (823) (887) Total Assets 79,691 87,019 94,648 99, ,578 Profit After Tax 2,291 2,307 2,684 3,294 3,550 Short-term debts 22,315 13,022 13,434 14,300 13,568 Non-controlling Interest (152) (208) (412) (500) (588) Trade payable 15,698 17,860 17,339 15,512 14,546 Shareholders' Profit / Loss 2,139 2,099 2,273 2,793 2,962 Bonds payables Obligation under finance lease, Basic EPS (RMB) Notes payables Unearned income Others 504 1,448 1,782 2,142 2,552 Total Current Liabilities 41,045 34,401 35,513 34,904 33,689 Long-term debts 12,121 20,257 25,321 26,587 27,917 Convertibles 2,018 2,013 1,013 1,513 2,013 Notes payables, non-current 3,671 4,473 4,516 4,689 4,862 Obligation under finance lease, 2,500 1,655 1,208 1,148 1,088 Cash flow statement Others ,110 1,198 Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Total Non-current Liabilities 21,087 29,225 33,002 35,048 37,078 Operating activities Total Liabilities 62,132 63,625 68,515 69,952 70,767 Net income 2,139 2,099 2,273 2,793 2,962 Total Shareholders' Equity 15,854 20,821 23,189 26,039 28,962 D&A 3,265 3,521 3,943 4,338 4,771 Minority Interest 1,705 2,573 2,943 3,361 3,849 Change in working capital (1,378) 7,727 (2,572) (1,520) (659) Total Equity 17,559 23,394 26,133 29,400 32,811 Others (808) (5,562) 1,363 1,584 1,655 BPS (RMB) Cash from Operating 3,218 7,785 5,007 7,195 8,729 Activities Investing activities Key financial ratios Capital expenditure (10,106 (10,789 (9,504) (9,166) (8,954) 2015A 2016A 2017F 2018F 2019F Proceeds from disposal 87 ) 90 ) Gross margin (%) Others 2,614 2,548 (1,580) (937) (973) EBIT margin (%) 18.8 % 22.5 % 23.2 % 28.1 % 30.5 % Cash from Investing Activities (7,405) (8,150) (10,822 (9,815) (9,618) EBITDA margin (%) 34.8 % 38.5 % 39.8 % 47.0 % 51.8 % Financing activities ) Net margin (%) 10.4 % 9.5 % 9.6 % 12.2 % 13.2 % Debt raised / (repaid) 9,892 (1,641) 4,776 2,831 1,298 ROE (%) 14.1 % % 10.8 % Dividend paid (1,269) (106) (42) (82) (100) ROA (%) 2.8 % 2.5 % 2.5 % 2.9 % 2.9 % Placement proceeds 0 2, Net gearing (%) Others 1,319 (2,392) (598) (677) (812) Inventory turnover(day) Cash from Financing 9,941 (1,232) 4,142 2, AR turnover (day) Activities Net Changes in Cash 5,754 (1,597) (1,672) (541) (497) AP turnover (day) Adjustments EV/EBITDA Cash at Beg of Year 4,362 10,260 8,958 7,286 6,745 Quick ratio Cash at End of Year 10,260 8,958 7,286 6,745 6,247 Current ratio Source: the Company, Guotai Junan International. See the last page for disclaimer page 30 of 80

31 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec HK Market Quarterly Outlook and Sector Update Clean Energy Sector -- Wind & Others 清洁能源行业 -- 风电及其它 Analyst: Jake Wang 汪昌江 (86755) Industry dynamics 行业动态 Outperform Nationwide wind power generation increased by 36.6% YoY to 20.5MMWh in August 2017, while the monthly wind utilisation hours calculated to increase by 20.7% YoY to 128 hours. For the first 8 months of 2017, the national average utilisation recorded 1,245 hours, 101 hours higher compared to the same period last year and indicating a continuous trend of improvement in wind curtailment situation. Wind power capacity addition during Jan.-Aug increased by 15.8% YoY to 8.6GW, mainly due to the relatively low base last year caused by the wind power investment decline since the beginning of Wind power investment declined by 14.5% YoY to RMB32.8 billion for Jan.-Aug. 2017, mainly due to: 1) more strict government policies on the approval of newly installed wind capacity in order to alleviate wind curtailment problems, 2) wind power companies are now concentrated more on power generating efficiency instead of merely capacity growth. Key assumptions update 关键假设更新 We expect the nationwide wind utilisation hours to be around 1,875 hours on average for 2017, with estimated wind curtailment rate of 11.5%. The NEA and the NDRC has taken multiple actions on enhancing the transmission and consumption of renewable energy electricity since Considering the sustainable mitigation of wind curtailment situation, we also revise up the national wind utilisation assumptions for 2018/2019 to 1,900 hours/ 1,925 hours, respectively. Revise the assumption for annual nationwide wind capacity addition to 19.0GW during According to the government guidance on the implementation of 13th Five-Year Plan of renewable energy, we revise the national installed wind capacity estimate by the end of year 2020 to 224.7GW. Our current estimate is representing a CAGR of 11.9% for the 13th Five-Year period. Investment suggestions 投资建议 Huaneng Renewables (00958 HK) is our sector Top Pick ( Buy, TP HK$3.30). HNR's 1H17 results was better than our expectation; wind utilisation performance remained industry-leading. Although the installed wind capacity forecasts have been revised down, we believe that the improvement in utilisation hours could essentially offset the impact so the outlook for FY17 results is still quite positive. 跑赢大市 Monthly Wind Utilisation Hours 单月风电利用小时数 Hrs YoY % 20.7% % 20% 10.5% 10.1% % 3.9% 10% % 0% % % % % 50-50% 0-60% Source: National Energy Administration, Guotai Junan International. YTD Wind Power Investment 累计风电投资额 RMB Bn YoY 0% -15.6% -10% -25.5% -18.3% -14.5% -20% -34.0% -36.4% -30% -40% -50% -45.0% -60% -70% -80% -90% -100% Source: National Energy Administration, Guotai Junan International. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) Longyuan Power Accumulate Huaneng Renewables Buy Datang Renewables Accumulate Weighted Average. 市值加权平均 Source: the Companies, Guotai Junan International, Bloomberg. 17 P/B 市净率 Outperform See the last page for disclaimer page 31 of 80

32 Huaneng Renewables (00958 HK) 华能新能源 (00958 HK) Company updates 公司近况 Analyst: Jake Wang 汪昌江 (86755) Buy Wind power generation increased by 15.0% YoY to 1,110GWh in Aug.2017 despite of wind resource deterioration. The estimated monthly wind power utilisation was 108 hours, up by 12 hours or 12.4% YoY. Wind resources had decreased during Aug. 2017; the estimateed provincial capacity weighted average wind speed decreased 3.8% YoY to 4.53m/s. For the first 8 months of 2017, the accumulated wind utilisation was estimated to be 1,322 hours, up by 97 hours or 7.9% YoY. Wind curtailment rate in 1H17 decreased 2.6 ppt YoY to 10.1% and remained lowest compared to the industry. 买入 6-18m TP 目标价 : HK$3.30 Market trading electricity sales volume in 1H17 represented 27.9% of the Company's total wind electricity sales volume, with an average discount of RMB0.092/KWh. The overall impact of market trading electricity sales on the Company's average tariff was RMB0.025/KWh. HNR will continue to actively participate in the market trading of electricity sales in order to increase the Company's wind utilisation hours and further improve its wind curtailment rate. Share price 股价 : Stock performance 股价表现 HK$2.610 Earnings comments 业绩评论 Huaneng Renewables reported a 10.1% YoY increase in 1H17 EPS to RMB0.2046, representing 69.1% of our previous full-year estimate and was better than our forecast. The increase in net profit was mainly attributable to: 1) wind capacity expansion (average wind capacity was estimated to increase by 12.7% in 1H17), and 2) the increase in wind utilisation hours (up 15 hours or 2.3% YoY, 125 hours higher than national average). In 1H17 the Company added 33MW of solar power capacity but no addition to wind power capacity. This was because of seasonality and the increasingly strict policy requirements for forest land and on-grid wind turbine connections. But we expect the improvement of utilisation hours to essentially offset the impact of less wind capacity additions for Valuation, catalysts & risks 估值 催化剂和风险 Our TP is HK$3.30 and rating is Buy for HNR. 2017/2018/2019 EPS forecasts have been revised up by 3.0%/1.4%/1.4% to RMB0.305/RMB0.351/RMB0.399, respectively. Our current TP represents 9.2x/8.0x/7.0x 2017/2018/2019 PER and 1.2x/1.1x/0.9x 2017/2018/2019 PBR. Higher utilisation perfomance may continue to raise the valuation of the Company. Major risks include: 1) less-than-expected wind curtailment improvement, and 2) financing cost rise. % of return (5.0) (10.0) (15.0) (20.0) Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % HSI Index 1 M 1 个月 Huaneng Renewables 3 M 3 个月 YTD 年初累计 (5.2) (23.7) Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. 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 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) ( %) (RMB) (RMB) (%) (%) 2015A 7,357 1, A 9,239 2, F 10,426 3, F 11,559 3, F 12,796 4, Shares in issue (m) 总股数 (m) 10,566.5 Major shareholder 大股东 Huaneng Group 52.4% Market cap. (HK$ m) 市值 (HK$ m) 27,578.6 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 27,621.4 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 4.9 Source: the Company, Guotai Junan International. See the last page for disclaimer page 32 of 80

33 Financial statements and ratios Income Statement Balance Sheet Year end Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Year end Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Revenue 7,357 9,239 10,426 11,559 12,796 PP&E 68,658 72,107 74,611 81,677 86,757 Other net income Lease prepayments Intangible assets Concession construction costs Investment in Asso. & JV D&A (2,735) (3,462) (3,867) (4,077) (4,376) Other non-current assets 5,131 3,528 5,568 5,973 5,878 Personnel costs (370) (403) (446) (513) (576) Deferred tax assets R&M (109) (189) (205) (221) (249) Non-current assets 74,901 76,749 81,260 88,714 93,678 Administration expenses (189) (223) (270) (277) (291) Other operating expenses (272) (375) (405) (456) (501) Inventories Operating profit 4,116 4,908 5,522 6,315 7,117 Receivables 2,900 4,635 5,423 5,852 6,301 Prepayments and others 122 1, Finance income Cash & term deposits 4,504 2,570 2,784 4,526 3,824 Finance expenses (2,242) (2,133) (2,127) (2,196) (2,333) Other current assets Share of loss of a joint venture (3) (3) (2) (1) (1) Current assets 7,652 8,696 8,407 10,555 10,319 Total assets 82,553 85,445 89,667 99, ,997 Profit before taxation 2,041 2,910 3,506 4,232 4,903 Income tax (141) (202) (322) (468) (627) Current borrowings 18,727 22,563 18,321 19,844 20,620 Profit after taxation 1,899 2,708 3,184 3,764 4,275 Finance leases obligations , Non-controlling interests Other payables 9,250 7,440 7,114 9,947 8,977 Net Profit 1,860 2,659 3,129 3,704 4,214 Tax payable Current liabilities 28,533 30,517 26,606 29,958 29,813 EPS (RMB) DPS (RMB) Non-current borrowings 30,677 28,372 34,025 36,853 38,295 Finance leases obligations 2,018 1, Margin and Efficiency Retention payables 2,450 3,743 3,142 3,362 3, A 2016A 2017F 2018F 2019F Deferred income Deferred tax liabilities EBITDA Margin (%) Non-current liabilities 35,395 33,933 37,397 40,449 41,841 Operating Margin (%) Net Profit Margin (%) Shareholders' equity 17,798 20,137 24,795 27,984 31,458 Dividend Payout Ratio (%) Non-controlling interests Inventory Days Total liabilities and equity 82,553 85,445 89,667 99, ,997 Receivable Days Payable Days BPS (RMB) Growth (%) Cash Flow Statement 2015A 2016A 2017F 2018F 2019F Year end Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Revenue PAT 1,899 2,708 3,184 3,764 4,275 EBITDA D&A 2,735 3,462 3,867 4,077 4,376 Operating Profit Interest expenses 2,238 2,129 2,084 2,153 2,290 Net Profit Other adjustments (31) Dividend WC Change 967 (844) (693) (59) (427) Income tax paid (126) (179) (284) (422) (580) Valuation Cash flow of operating 7,682 7,338 8,393 9,891 10, A 2016A 2017F 2018F 2019F Payments for Capex (12,644) (7,877) (7,970) (8,704) (10,272) Other CFI (49) (162) PER Cash flow of investing (12,514) (7,370) (7,232) (8,753) (10,434) EV/EBITDA Issuance of shares 0 0 1, EV/Sales Net proceeds from borrowings 5,246 1,277 1,412 4,350 2,219 PBR Dividends to shareholders (195) (292) (399) (515) (741) ROE (%) Interest paid (2,440) (2,205) (2,147) (2,252) (2,448) ROA (%) Finance lease payments (850) (645) (1,051) (1,096) 0 ROIC (%) Other CFF 16 6 (98) (55) (54) Cash flow of financing 1778 (1,858) (356) 432 (1,024) Financial Ratios 2015A 2016A 2017F 2018F 2019F Beginning cash and equivalents 6,385 3,470 1,665 2,501 4,101 Net change in cash and equivalents (3,054) (1,889) 805 1,570 (993) Net Debt/Equity Foreign exchange changes Current Ratio Ending cash and equivalents 3,470 1,665 2,501 4,101 3,127 Dividend Yield (%) Time deposits 1, Interest Coverage Balance sheet cash & time deposits 4,504 2,570 2,784 4,526 3,824 Source: the Company, Guotai Junan International. See the last page for disclaimer page 33 of 80

34 Feb/12 Jun/12 Oct/12 Feb/13 Jun/13 Oct/13 Feb/14 Jun/14 Oct/14 Feb/15 Jun/15 Oct/15 Feb/16 Jun/16 Oct/16 Feb/17 HK Market Quarterly Outlook and Sector Update Consumer Sector - Apparel 消费行业 - 服装 Analyst: Terry Hong 洪学宇 (86) hongxueyu@gtjas.com Industry dynamics 行业动态 Stable YoY growth in apparel sector. January to August 2017 accumulated retail sales of clothing and textile of above designated size enterprises grew by 7.3% YoY to RMB931.4 billion. January to August 2017 accumulated sales of sports and entertainment goods recorded a substantial YoY growth of 18.0% to RMB47.1 billion. January to August 2017 accumulated online sales value of wearable commodities increased by 19.6% YoY, higher than the growth of 16.9% YoY in the same period last year. Cotton price has remained at a relatively high level. The China Cotton Index (CC Index) closed at RMB15,988/t as at 6 October 2017, which was a high point during the past 3 years. The high level of CC index was mainly due to the new policy published in March 2017, which changed the frequency of guidance on cotton price in China from once a year to once every three years. The new guidance for cotton price in Xinjiang is RMB18,600/t. Winter sports sector in China is expected to grow fast. The Standardization Administration of China initiated a project in July 2017 to establish more detailed and uniform safety standards for winter sports. We believe that the new standards will accelerate the growth of winter sports sector in China over the next few years, which will also benefit the sportswear companies. Key assumptions update 关键假设更新 We expect sales of clothing and textile to grow YoY by high-single-digit percentage in 4Q17 and 1H18. The consumption of apparel products has maintained a continuous positive growth, and growth in sportswear sector was especially strong. The industry growth will also be driven by the fast growing e-commerce business in China. Cotton price is expected to remain stable in 4Q17. According to a report of China National Cotton Information Center, supply of cotton in 4Q17 may slightly overpass domestic demand, while international demand may remain strong. Therefore cotton price in 4Q17 is expected to remain stable. Investment suggestions 投资建议 The valuation of the apparel sector is still attractive. Excluding Prada (01913 HK), weighted average 2017 and 2018 PER is 21.6x and 18.8x, respectively. We remain optimistic on the Chinese sportswear industry due to supportive government policies and strong market demand. Our top pick is 361 Degrees (01361 HK) and TP is HK$3.50. Outperform 跑赢大市 Retail Sales Growth of Clothing and Textile (YoY) 服装纺织品零售额同比增速 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: The National Bureau of Statistics of China. China Cotton Index 328 中国棉花价格指数 ,000 20,000 15,000 10,000 Apr/14 Oct/14 Apr/15 Oct/15 Apr/16 Oct/16 Apr/17 Source: The China National Cotton Exchange. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) 17 P/B 市净率 361 Degrees Buy Xtep Buy Prada Neutral Anta Accumulate Li Ning Accumulate China Dongxiang Accumulate Weighted Average. 市值加权平均 Source: Bloomberg, Guotai Junan International. Outperform See the last page for disclaimer page 34 of 80

35 361 Degrees (01361 HK) 361 度 (01361 HK) Company updates 公司近况 Analyst: Terry Hong 洪学宇 (86) Buy Strong growth in 361 Degrees Kids segment. 2Q18 trade fair orders for 361 Degrees Kids brand recorded mid-twenties YoY growth, with improvement in both volume and ASP. This result was better than market expectations. This has been the fifth consecutive quarter with double-digit growth in the trade fair orders of the 361 Kids brand. Management of the Company expected its Kids segment to maintain double-digit growth over the next few years, driven by the Two-Child Policy in China and stronger purchasing power of Chinese new parents. Placing of existing shares. On 27 September 2017, the Company announced to place an aggregate of 150 million shares (7.25% of the total shares) held by the Company s six major shareholders to independent third parties. The placing price of HK$3.75 per share represented a 13.6% discount to the last closing price of HK$4.34 per share, which caused a crash in stock price on the next trading day. Upon completion of the placing, the shares owned by public shareholders increased from 27.3% to 34.6%. Earnings comments 业绩评论 1H17 results were basically in line. 1H17 revenue increased by 9.5% YoY to RMB2.8 billion. Revenue from the 361º Kids brand grew by 12.8% YoY and accounted for 11.0% of total revenue. Overall GPM improved by 0.9 ppt YoY to 42.3%, mainly due to increased GPM of footwear products and a higher proportion of e-commerce business. Net profit increased by 16.5% YoY to RMB318 million, mainly due to significantly decreased A&P expenses. Management provided new guidance of 8%-12% for A&P expense ratio over the next few years. We expect improvement in GPM during GPM will benefit from improvement in ASP of footwear products as well as higher revenue contribution from e-commerce business. The Company has signed a contract to become the official sponsor of Jakarta Asian Games in 2018, which will increase A&P expenses in 2H17 and However, total A&P expenses over the next few years are still expected to be lower than our previous forecasts. 买入 6-18m TP 目标价 : HK$3.50 Share price 股价 : Stock performance 股价表现 (10.0) (20.0) (30.0) % of return Change in Share Price 股价变动 1 M 1 个月 3 M 3 个月 HK$3.020 Oct-16 Dec-16 Mar-17 May-17 Jul-17 Oct-17 HSI Index 361 Degrees YTD 年初累计 Valuation, catalysts & risks 估值 催化剂和风险 Abs. % 绝对变动 % (15.0) TP is HK$3.50 and investment rating is Buy. The recent share placing undermined market confidence, while it didn t change the healthy condition of the Company s fundamentals. According to the Company's recent trade fair results and retail sales growth, the Company is growing at a relatively strong and steady pace, and growth of the 361º Kids brand and e-commerce business is especially strong. We believe that the Company s multi-brand and multi-channel strategy will be able to support its long-term growth. Our TP represents 9.4x, 8.0x and 7.0x 2017, 2018 and 2019 PER, respectively. Rel. % to HS index 相对恒指变动 % (17.7) (2.7) (15.3) Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, GuotaiJunanInternational. Major risks: 1) a slowdown in China's sportswear industry growth, 2) fierce competition in e-commerce business sector, and 3) unexpected fluctuations in foreign exchange rates. Year End 年结 Turnover 收入 Net Profit 股东净利 EPS 每股净利 EPS 每股净利变动 PER BPS 每股净资产 PBR 市净率 DPS 每股股息 Yield 股息率 ROE 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (RMB) (RMB) (%) (%) 2015A 4, A 5, (22.2) F 5, F 6, F 7, Shares in issue (m) 总股数 (m) 2,067.6 Major shareholder 大股东 Ding's Family 63.4% Market cap. (HK$ m) 市值 (HK$ m) 6,244.2 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 10,989.4 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Net Cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 4.2 Source: the Company, GuotaiJunan International. See the last page for disclaimer page 35 of 80

36 Financial Statements and Ratios Income Statement Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Total Revenue 4,459 5,023 5,706 6,414 7,175 Cost of Sales (2,636) (2,913) (3,276) (3,665) (4,087) Gross Profit 1,823 2,110 2,429 2,748 3,087 Balance Sheet Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Property, Plant and Equipment 1,294 1,325 1,454 1,597 1,747 Others Total Non-current Assets 1,432 1,456 1,619 1,770 1,940 Other Revenue Other Net Income/(Loss) 27 (10) Selling and Distribution Expenses (713) (794) (668) (789) (947) Administrative Expenses (378) (469) (604) (654) (724) Operating Profit ,291 1,422 1,543 Inventories Trade Debtors 2,018 2,037 2,288 2,523 2,755 Bills Receivable Deposits, Prepayments and Other Receivables Pledged Bank Deposits Fair Value of Derivatives Repurchase of Senior Unsecured Notes 0 (55) Net Finance Income (costs) (126) (187) (213) (213) (213) Profit Before Tax ,078 1,210 1,330 Income Tax (260) (287) (404) (423) (439) Profit After Tax Non-controlling Interest (12) (18) (18) (18) (18) Shareholders' Profit / Loss Basic EPS YoY 30.2% (22.2%) 62.8% 17.2% 13.7% Deposits with Banks 1,500 2,537 2,537 2,637 2,737 Cash & Cash Equivalents 2,286 2,882 2,849 2,891 2,943 Total Current Assets 7,355 9,034 9,414 10,038 10,681 Total Assets 8,787 10,490 11,033 11,808 12,621 Trade and Other Payables 1,659 1,928 2,120 2,311 2,496 Bank Loans Current Taxation Total Current Liabilities 1,930 2,343 2,472 2,750 3,005 Cash Flow Statement Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Deferred Tax Liabilities Interest-bearing Borrowings 1,489 2,727 2,615 2,618 2,618 Total Non-current Liabilities 1,490 2,729 2,616 2,619 2,619 Profit Before Taxation ,078 1,210 1,330 D&A Total Liabilities 3,420 5,072 5,088 5,369 5,624 Other Adjustments (8) Changes in Working Capital (474) 321 (221) (190) (207) Income Tax Paid (128) (196) (458) (344) (392) Cash from Operating Activities 245 1, ,018 Share Capital Reserves 5,100 5,121 5,630 6,106 6,647 Total Shareholders' Equity 5,283 5,303 5,812 6,289 6,829 Minority Interest Capital Expenditure (253) (147) (228) (257) (287) Total Equity 5,366 5,418 5,945 6,439 6,998 Pledged Bank Deposits 54 (64) 0 (100) (100) Deposits with Banks 300 (1,037) 0 (100) (100) Others Cash from Investing Activities 193 (1,149) (185) (414) (443) Net Borrowings (1) 2,657 (145) Interest Paid (114) (198) (213) (213) (213) Dividends Paid (165) (316) (147) (292) (333) Others 0 (1,538) Cash from Financing Activities (281) 604 (505) (489) (527) [Table_FinancialRatio] Financial Ratios 2015A 2016A 2017F 2018F 2019F Gross Margin (%) Operating Margin (%) Net Margin (%) ROE (%) ROA (%) ROCE (%) Payout Ratio (%) Net Changes in Cash (38) Cash at Beg of Year 2,130 2,286 2,882 2,849 2,891 Foreign Exchange Effect (2) Cash at End of Year 2,286 2,882 2,849 2,891 2,943 Inventory Days A/C Receivable Days A/C Payable Days Net Gearing (%) Net cash Net cash Net cash Net cash Net cash Current Ratio Interest coverage Source: the Company, Guotai Junan International. See the last page for disclaimer page 36 of 80

37 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 HK Market Quarterly Outlook and Sector Update Consumer Sector - Food & Beverage 消费行业 - 食品饮料 Analyst: Barney Wu 吴宇扬 (86755) wuyuyang@gtjas.com Industry dynamics 行业动态 Outperform Jan.-Aug. CPI and food CPI increased by 1.5% YoY and decreased by -1.7% YoY, respectively. China s CPI YoY growth rate in Aug was 1.8% YoY, up 0.4 ppt MoM, and the MoM change rate was 0.4%, up 0.3 ppt MoM, mainly due to recovery of food price. Food CPI YoY change rate was -0.2% in Aug., up 0.9 ppt from Jul., and the MoM change rate was 1.2%, up 1.3 ppt from Jul. CPI for pork was down 13.4% YoY in Aug., but up 1.3% MoM. CPI for vegetables increased 9.7% YoY in Aug, and rose 8.5% MoM. Retail sales of grain, edible oil, foodstuff and retail sales of beverages, above designated size grew by 10.7% and 12.0% YoY, respectively, in Jan-Aug., Production of edible oil increased 5.3% YoY and production of beverage climbed by 6.4% YoY in Jan-Aug. respectively, but both slowing down in Aug with 3.8% and 1.9% YoY growth. Production of dairy products and beer slightly increased 0.8% and 0.5% YoY, respectively, in Jan-Aug Hog and pork prices have been slightly recovering since Jun., up 13.3% and 2.4% from the lower price in Jun. respectively. Raw milk price has been fluctuating around RMB3.5/kg and has not shown signs of upward and downward breakouts. YTD palm oil price grew by 11.5% YoY and went up 0.6% MoM in Sep., while YTD sugar price in Mar. increased 19.8% YoY but slightly declined by 0.6% MoM. Key assumptions update 关键假设更新 Due to declining hog inventory, increasing import pork prices and strict environmental policies, we expect hog and pork prices will continuously increase in 4Q17. We expect food CPI change to turn to positive in 4Q17 due to the recovery of pork, eggs and vegetable prices, and will record higher growth in 1H18 due to carry-over effect. 跑赢大市 Food CPI MoM and Food CPI YoY Changes 食品 CPI 变动 10% Food CPI YoY Change Food CPI MoM Change 8% 6% 4% 2% 0% -2% -4% -6% Source: National Bureau of Statistics of China Retail sales above designated size 限额以上零售收入 % Retail Sales: Grain, Oil, Food: YoY 25.0 Retail Sales: Beverage above designated size YoY Growth Retail Sales: Tobacco and Liquor: YoY 20.0 We expect that palm oil prices to go down YoY in 4Q17 due to high base in the same period last year and sugar price will maintain its high price in 4Q17 due to limitation on import. Downstream F&B manufactures' gross margin is expected to improve in 4Q17 compared to in 4Q16. On the other hand, GDT of whole milk powder is fluctuating and raw milk price in China has no basis to recover due to abundant supply Investment suggestions 投资建议 Source: National Bureau of Statistics of China The sector rating is Outperform. As Hong Kong market has show a sign of losing rising momentum and entering fluctuating period, raising shareholdings in F&B sector will a defensive strategy to hedge downward pressure of Hong Kong market. The sector top pick is Tianyun (06836 HK) with investment rating of Buy and TP of HK$1.30. Company Name Code Price Rating 17 PER 18 PER 19 PER 17 ROE 17 P/B 公司名称 编号 股价 投资评级 净资产收益率 市净率 (HK$) (%) Uni-President China Neutral Tingyi Neutral Vitasoy Accumulate Tianyun Buy Café de Coral Accumulate Weighted Average. 市值加权平均 Source.. the Companies, Guotai Junan International., Bloomberg. Outperform See the last page for disclaimer page 37 of 80

38 Tianyun International (06836 HK) 天韵国际 (06836 HK) Company updates 公司近况 Analyst: Barney Wu 吴宇扬 (86755) Buy Acquired a company in Hubei province. On 15 September 2017, Tianyun agreed to purchase a Target Company located in Yichang, Hubei Province, which is principally engaged in the production and sales of processed fruits products. The consideration for the Target Company is HK$55 million. The factory in Hubei province is close to the main planting area of subtropical fruits in China. After acquisition, the Company's fruit portfolio can be expanded further to meet customers' diversified demand 买入 6-18m TP 目标价 : HK$1.30 Tianyun is introducing new processed fruit products. Tianyun has rolled out a diverse range of new products including stewed pears soup with crystal sugar and has been continuously working on researching new products such as a trans fat-free snack made 100% from fruits which is very similar to fruit ice creams and fruit jellies. Leisure food industry is booming, we expect that its sales contribution from snack food will enlarge as the Company continuously introduces new types of snack products under its own brand to meet the demands of the younger consumers. Earnings comments 业绩评论 Share price 股价 : Stock performance 股价表现 80.0 % of return 60.0 HK$1.12 Tianyun's 1H17 earnings slowed down. In 1H17, Tianyun's revenue climbed 11.6% YoY to RMB343.3 million with own brand sales up 53.9% YoY and OEM sales down 8.4% YoY. Tianyun's 1H17 GP margin was down 3.6 ppt YoY to 27.0%, affected by the hike in input costs. Due to more brand building expense from own brand business and FOEX loss, its SG&A to sales ratio rose 3.1 ppt YoY in 1H17. Overall, Tianyun's 1H17 NP decreased 15.1% YoY to RMB52.3 million. If excluding the effect of social insurance and FOEX differences, the Company's 1H17 adjusted NP rose 1.3% YoY. Own brand sales are better than our expectation. In 1H17, Tianyun's own brand sales maintained high growth as sales channel is expanding fast. As more distributors are included in its distribution system, Tianyun s new products can be well distributed over its expanding sales channel. Limited by tight capacity utilization from the surge in own brand sales, the Company has to prioritize its OEM clients structure. Valuation, catalysts & risks 估值 催化剂和风险 Tianyun's valuation is attractive. Tianyun s growth prospect and stability of profitability are better than its peers, but it has lower valuation. We believe the acquisition of new factory will be a new catalyst for its stock price and its earnings have ample room to increase (20.0) (40.0) Oct-16 Nov-16 Jan-17 Feb-17 Apr-17 May-17 Jul-17 Aug-17 Sep-17 Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % HSI 1 M 1 个月 TIANYUN 3 M 3 个月 YTD 年初累计 7.7 (0.9) (13.2) 12.5 Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. Year End 年结 Turnover 收入 Net Profit 股东净利 EPS 每股净利 EPS 每股净利变动 PER BPS 每股净资产 PBR 市净率 DPS 每股股息 Yield 股息率 ROE 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (RMB) (RMB) (%) (%) FY16A (6.7) FY17A FY18F (9.2) FY19F FY20F Shares in issue (m) 总股数 (m) Major shareholder 大股东 Mr Yang Ziyuan 46.1% Market cap. (HK$ m) 市值 (HK$ m) 1,094.8 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 5,716.3 FY17 Net gearing (%) 2017 年净负债率 (%) Net Cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 1.35 Source: the Company, Guotai Junan International. See the last page for disclaimer page 38 of 80

39 Financial statements and ratios Income Statement Balance Sheet Year end Dec (RMB m) FY15A FY16A FY17F FY18F FY19F As at Dec 31 (RMB m) FY15A FY16A FY17F FY18F FY19F OEM Sales PP&E Own Brand Sales Leasehold land Fresh Fruit & Others Others Revenue Non-current assets Cost of Sales (382) (454) (530) (581) (644) Inventories Gross Profit Trade and other receivables Cash and cash equivalents Other income Current assets Distribution expenses (11) (13) (22) (27) (30) Administrative expenses (30) (18) (28) (31) (35) Trade and other payables EBIT Short-term borrowings Others Finance income, net (2) (2) Current liabilities Profit before tax Income tax (32) (38) (35) (41) (48) Other borrowing Reported net profit Non-current assets Adjusted net profit * Shareholders' equity Reported EPS (RMB) BPS (RMB) Adjusted EPS (RMB)* DPS (HK$) Financial Ratio FY15A FY16A FY17F FY18F FY19F Cash Flow Statement Year end Dec (RMB m) FY15A FY16A FY17F FY18F FY19F Revenue Growth (%) Gross Profit Growth (%) (0.4) Profit before tax EBIT Growth (%) (11.4) Depreciation and amortisation Reported Net Profit Growth (%) (10.9) Others 3 4 (0) (0) (0) Adjusted Net Profit Growth (%) Working capital change (40) (15) (19) (35) 59 Interest and tax paid (39) (44) (37) (43) (49) Gross Margin (%) Operating cash flow EBIT Margin (%) Reported Net Margin (%) CAPEX (165) (101) (115) (106) (122) Adjusted Net Margin (%) Others ROA (%) Investing cash flow (165) (101) (113) (104) (120) ROE (%) New Proceeds (0) 0 0 Inventory turnover days Change in borrowings, net (1) 20 Receivable turnover days Dividends Paid 0 (39) (35) (29) (34) Payable turnover days Others (7) 15 (14) 0 0 Cash conversion cycle Financing cash flow 301 (24) (39) (30) (14) Current Ratio Change in cash 195 (3) (42) (14) 106 Quick Ratio Net gearing (%) Net Net Net Net Net Cash Cash Cash Cash Cash Cash balance at beginning year Net interest cover Net Net Net Gain Gain Gain Cash balance at year end Payout ratio (%) See the last page for disclaimer page 39 of 80

40 Consumer Sector - Hotels 消费行业 - 酒店 Analyst: Noah Hudson (86755) noah.hudson@gtjas.com Industry dynamics 行业动态 Outperform China's travel sector maintained strong growth momentum in the first half of According to the China National Tourism Administration ("CNTA"), in the first half of 2017, the number of domestic tourists increased by 13.5% YoY to 2.54 billion person-trips, and domestic tourism revenue was up by 15.8% YoY to RMB2.17 trillion. According to CNTA statistics, during the Oct. 1-8 eight-day National Day Golden Week there were 705 million domestic person-trips and RMB584 billion in domestic tourism revenue was generated, indicating YoY growth of 11.9% and 13.9%, respectively. Based on data from the 2017 Golden Week Tourism Consumption Report, during the Golden Week, 27% of tourists had a 5-7 day trip, 23% travelled for 7-9 days, and 17% took a vacation of more than nine days. Chinese travelers from age 26 to 35 years made up the largest demographic of domestic travelers, accounting for about 49% of total tourists. Key assumptions update 关键假设更新 China Tourism Academy expects domestic tourism revenue will increase by 12.5% to RMB4.39 trillion in The Academy estimates that in 2017: 1) domestic tourists person-trips will increase by 10% to 4.88 bn; 2) the number of inbound tourists coming to China will increase by 3.5% to 143 mn; 3) tourism revenue from overseas tourists coming to China will increase by 5.0% to US$126 bn; 4) the number of China's outbound tourists will increase by 4.0% to 127 mn; 5) tourism direct investment will increase by 15%; and 6) the number of people employed in China's tourism sector will increase by 1.4 million people. For 2017, we expect China Lodging (HTHT US)'s net revenue to increase by 26.6%, Ctrip (CTRP US)'s revenue to surge by 39.9%, and for Jin Jiang Hotels (02006 HK)'s revenue to grow by 14.7%. We expect China Lodging's 2017 revenue growth rate will reach or surpass the high end of management's guidance of 23%-26% growth as China Lodging continues the upgrade of its flagship economy HanTing brand with the "HanTing 2.0" redesign. We expect strong double-digit top line growth for Ctrip over the next three years, even after having recently adjusted down our revenue expectations due to the new guidelines issued by Civil Aviation Administration of China unbundling all products which should have negative impact on Ctrip's air ticket business. We have a "Buy" investment rating on Jin Jiang Hotels (02006 HK), which is the largest hotel company in China and the 5th largest hotel company worldwide in terms of number of rooms. Investment suggestions 投资建议 跑赢大市 Stock Performance, HTHT US 股价表现 200 % change (50) Oct-16 Jan-17 Mar-17 Jun-17 Sep-17 NASDAQ Comp Index China Lodging Source: Bloomberg, Stock Performance, HK 股价表现 40 % change (10) (20) Oct-16 Jan-17 Mar-17 Jun-17 Sep-17 HSI Shanghai Jin J-H Source: Bloomberg, Our top pick is Jin Jiang Hotels (02006 HK) with target price of HK$3.20. We also have "Buy" ratings for China Lodging (HTHT US) and Ctrip (CTRP US). Company Name 公司名称 Code 编号 Price 股价 Rating 投资评级 17PER 18PER 19PER 17 ROE 净资产收益率 (%) Ctrip.Com-Adr CTRP US US$ Buy Jin Jiang Hotels HK HK$3.050 Buy China Lodging-Adr HTHT US US$ Buy Weighted Average. 市值加权平均 Source: the Companies, Guotai Junan International, Bloomberg. 17 P/B 市净率 Outpoerform See the last page for disclaimer page 40 of 80

41 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 HK Market Quarterly Outlook and Sector Update Consumer Sector - Household Products 消费行业 - 日用品 Analyst: Barney Wu 吴宇扬 (86755) wuyuyang@gtjas.com Industry dynamics 行业动态 Neutral Retail sales of articles for daily use above designated grew by 8.5% YoY in Jan.-Aug The growth rate in Jan.-Aug was down 2.8 ppt compared to the same period last year, as penetration of daily use is approaching limit. Nevertheless, the demand for daily use products is still solid and its growth is sustainable due to the increase in disposable income and consumption upgrade. The sales growth of household products companies in 1H17 slowed down. Hengan's sales slightly decreased 0.2% YoY in 1H17 while Vinda and C&S reported organic growth of 6.8% and 19.8% YoY, both slowing down compared to the same period last year. The market competition in tissue paper market is becoming less intense as the input costs are continuously rising. Online channel has contributed most sales growth of tissue paper. Consumption upgrade has driven up the sales of napkin even though its sales volume is declining. Pulp prices maintained rising momentum. Due to Chinese government's restriction on import of wasted paper, industrial paper manufacturer's demand for wood pulp have been increased. Moreover, as expected release of pulp capacity has been postponed, the market's expectation has been changed and manufactures which have low inventory have to replenish. The rise of pulp prices were amplified by the widespread panic stockpiling. As a result, the prices of short fibre price and long fibre price as at October have increased 31.9% and 22.7% from the beginning of Key assumptions update 关键假设更新 Before the long-term mechanism of recycle of domestic wasted paper takes effect and global capacity of new added pulp put into production, the upward pressure for wood pulp prices will not disappear, which are expected to affect gross margin of tissue paper manufacturers until 2H18. Investment suggestions 投资建议 As the profitability of the industry is under pressure of rising pulp prices, the turning point for the sector has not come. Hengan has earn large profits from sanitary segment, but its current valuation has caught up with Heng Seng Index in last three months and is not attractive right now. On the other hand, the sensitively of profitability to pulp price for Vinda is higher than Hengan as its major profit is from tissue paper, so we may not see its net profit to improve until 2H18. No top pick right now. 中性 Retail Sales of Articles for Daily Use Above Designated: YoY 限额以上日用品零售额变动 % Retail Sales of Articles for Daily Use Above Designated: Source: National Bureau of Statistics of China China Wood Pulp Prices 中国木浆价格 USD/ton Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-1 Source: FOEX China Pulp NBSK PIX Index China Pulp BHKP PIX Index Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) 17 P/B 市净率 Hengan Accumulate Vinda Accumulate Weighted Average. 市值加权平均 Neutral Source.. the Companies, Guotai Junan International., Bloomberg. See the last page for disclaimer page 41 of 80

42 Consumer Sector - Retail 消费行业 - 零售 Analyst: Andrew Song 宋涛 (852) andrew.song@gtjas.com.hk Industry dynamics 行业动态 Neutral Total retail sales of consumer goods were up 10.4% YoY in Jan.-Aug Total retail sales showed a slight rebound in 1H17 but the statistics data in July and August were weak and missed market consensus. Retail sales of the enterprises above designated size rose 7.5% YoY in August. However, on the other hand, in August, sales of the top 100 retail enterprises increased 2.9% YoY in and sales of the top 50 retail enterprises improved by 7.9% YoY, according to CNCIC. The overall ratail industry remains weak recovery but larger players showed better performance. Categories performace mixed. Housing related categories slowed down the growth rates after months fast growth in August, of which furniture, building & decoration materials and home appliances increased by 11.3% YoY, 8.8% YoY and 8.4% YoY, respectively; showing that driving effect from property sales is fading. Nevertheless, sales of sports & recreational articles and communication products recorded decent growth. Cosmetics sales were strong in 2017 YTD and jewellery sales maintained positive growth in recent months and we think that the trend can continue in 4Q17 in the context of a low base and increasing demands. Retailing companies are walking out of trough. Sun Art s (06808 HK) revenue was RMB54,080 million in 1H17, up 4.2% YoY and net profit went up by 22.7% YoY. SSSG slightly decreased 0.9% YoY. Haier Electronics (01169 HK) revenue was up 24.5% YoY and net profit increased 20.6%, beating consensus, thanks to the strong white appliances sales in 1H17. Chow Sang Sang (00116 HK) results missed consensus, mainly due to weaker-than-expected rebopund in Hong Kong market but rental costs reduction helped improve profitability. Key assumptions update 关键假设更新 Total retail sales of consumer goods are expected to remain low double-digit growth in 2017, fluctuating in the range of 10%-11%. CPI was low in 1H17 but we saw gradually pickup in July and August. We expect CPI to be around 2% in 2017 and may benefit supermarket companies. 中性 Total Retail Sales of Consumer Goods 社会消费品零售总额 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Source: National Bureau of Statistics of China Sales Growth of Key Retail Enterprises 重点零售企业销售增长 9% 6% 3% 0% -3% -6% RMB bn 0 Total retail sales of consumer goods (LHS) YoY growth (RHS) -9% % 11.0% 10.5% 10.0% 9.5% 9.0% Investment suggestions 投资建议 Our top pick is Sun Art Retail (06808 HK) with investment rating of Accumulate and TP of HK$7.77. We have seen that the impact from e-commerce have been alleviated and Sun Art is doing well in combing its online and offline businesses. The Compnany is shifting the e-commerce stratey from pure B2C to B2C/ B2B, resulting in a loss narrow. In addition, the Company is trying new business formats like boutique supermrarkets, beauty stores and non-man convenient stores. We believe the Company s current valuation is attractive. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER Source: MOFCOM, CNCIC. 18 PER 100 enterprises 50 enterprises 3000 enterprises 19 PER 17 ROE 净资产收益率 (%) Chow Sang Sang Neutral Luk Fook Neutral Haier Electronics Buy Samsonite Accumulate Chow Tai Fook Neutral Sun Art Retail Accumulate Weighted Average. 市值加权平均 Neutral Source.. the Companies, Guotai Junan International., Bloomberg. 17 P/B 市净率 See the last page for disclaimer page 42 of 80

43 Sun Art Retail (06808 HK) 高鑫零售 (06808 HK) Company updates 公司近况 Analyst: Andrew Song 宋涛 (852) Accumulate Sun Art is exploring new business formats. The first RT-mart Fresh has been open in the Yang Pu Rt-Mart store, with a total gross area of 3,000 sq.m-4,000 sq.m, targeting customers working in the CBD area. O2O delivery Ji Su Da was launched in June 2017, with a coverage of over 370 stores. It provides around 4,000 SKUs with 1,000 fresh products and fulfills deliveries within 1 hour to enhance its online shopping experience. In addition, the Company is trying small business format like beauty stores and convenient stores. 收集 6-18m TP 目标价 : HK$7.77 SSSG was flat in July and and turned slightly positive in August. The decline in foot traffic has narrowed in recent months, according to the management. SSSG is expected to be suppoted by the rising CPI, especially the food CPI in the coming months. Share price 股价 : Stock performance 股价表现 HK$7.060 Earnings comments 业绩评论 Revenue reached RMB 54,080 million in 1H17, up 2.1% YoY, while shareholders profit jumped 22.7% YoY to RMB 1,757 million. Core net profit should be RMB1,412 million excluding one-off gains from aged unutilized prepaid cards. SSS decreased 0.9% YoY, of which SSSG was -1.5% in 1Q17 and remained flat in 2Q17. GMV of online business doubled in 1H17 to RMB1.8 billion. Loss of e-commerce business narrowed during the period. Total GMV of the Sun Art s online business doubled to RMB1.8 billion in 1H17 as expected but net loss from Feiniu.com narrowed to RMB97 million during the period. We expect that net loss for the full year will be around RMB200 million and the reduction in loss will help improve EBIT by 0.2 ppts. Feiniu.com has shifted its strategy from a pure B2C business model to 50%/50% B2C/B2B model, leveraging on their solid supply chain and nationwide motor stores as distribution knots. Management guided that the overall online business will double in 2017 and breakeven is expected to be reached in 2019/2020. Valuation, catalysts & risks 估值 催化剂和风险 (10.0) Change in Share Price 股价变动 Abs. % 绝对变动 % % of return (20.0) Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Rel. % to HS index 相对恒指变动 % HSI Index 1 M 1 个月 SUN ART RETAIL 3 M 3 个月 YTD 年初累计 (2.4) (0.1) 9.3 Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. We forecast EPS to be RMB0.315/ RMB0.321/RMB0.347 in 2017/ 2018/ 2019, respectively. We maintain investment rating as Accumulate and TP of HK$7.77, representing 21.0x/ 20.6x 2017/2018 PER, respectively. We believe that the impact from e-comerce is being eased and the current prive is attractive. The main risks include weaker-than-expected SSSG, higher-than-expected operating costs and larger-than-expected e-commerce losses. Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (RMB) (RMB) (%) (%) 2015A 96,414 2, (15.7) A 100,441 2, F 104,445 3, F 111,491 3, F 119,200 3, Shares in issue (m) 总股数 (m) 9,539.7 Major shareholder 大股东 A-RT Retail Holdings 51.0% Market cap. (HK$ m) 市值 (HK$ m) 67,350.3 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 8,775.7 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Net cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 8.0 Source: the Company, Guotai Junan International. See the last page for disclaimer page 43 of 80

44 Financial statements and ratios Income Statement Balance Sheet Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Total Revenue 96, , , , ,200 Cost of sales (73,951) (76,460) (79,038) (83,980) (89,429) Gross profit 22,463 23,981 25,407 27,511 29,771 Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Fixed assets 26,418 26,435 25,939 25,382 24,760 Land use right 5,278 5,740 6,221 6,717 7,225 Others Total Non-current Assets 32,865 33,244 33,294 33,326 33,315 Other revenue , Administrative expenses (2,633) (2,876) (2,089) (2,230) (2,384) Operating costs (17,002) (18,042) (20,036) (21,552) (23,399) Operating Profit 3,304 3,681 4,421 4,451 4,757 Cash & Cash Equivalents 6,582 8,100 13,174 15,510 18,642 Inventories 12,646 15,409 13,332 14,430 16,689 Trade & other receivables 3,380 3,552 3,259 3,774 3,484 Bank deposits Finance income, net Profit Before Tax 3,552 3,909 4,790 4,887 5,283 Income Tax (1,088) (1,280) (1,568) (1,600) (1,730) profit After Tax 2,464 2,629 3,221 3,287 3,553 Non-controlling Interest (21) (58) (219) (223) (242) Shareholders' Profit / Loss 2,443 2,571 3,002 3,063 3,312 Basic EPS Cash Flow Statement Total Current Assets 22,644 27,097 29,805 33,757 38,863 Total Assets 55,509 60,341 63,098 67,084 72,178 Trade & other payables 32,626 36,807 37,801 39,821 42,691 Bank loans and overdrafts Others Total Current Liabilities 33,755 37,468 38,915 40,987 43,930 Total Non-current Liabilities Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F PBT 3,552 3,909 4,790 4,887 5,283 D&A 2,954 3,166 3,348 3,459 3,576 Interest income (271) (255) (382) (450) (541) Finance cost Total Liabilities 33,882 37,532 38,976 41,048 43,991 Total Shareholders' Equity 20,746 21,785 22,879 24,569 26,479 Minority Interest 881 1,024 1,243 1,467 1,708 Total Equity 21,627 22,809 24,122 26,035 28,187 Working capital change 1,169 1,153 3, Others Cash from Operating Activities 6,300 6,952 9,849 6,906 7,710 [Table_FinancialRatio] Growth%: Financial Ratios 2015A 2016A 2017F 2018F 2019F Purchase of PP&E (4,837) (3,579) (3,526) (3,586) (3,644) Others Revenue Net profit (15.7) Cash from Investing Activities (4,583) (3,363) (3,200) (3,203) (3,184) Margins: Net bank loans 217 (614) Interest paid (15) (23) (11) (11) (12) Dividend paid (1,230) (1,702) (1,908) (1,374) (1,402) Gross margin Operating margin Net margin Others Cash from Financing Activities (919) (2,090) (1,575) (1,366) (1,394) ROE (%) ROA (%) Net Changes in Cash 798 1,499 5,074 2,336 3,132 Cash at Beg of Year 5,770 6,582 8,100 13,174 15,510 Foreign exchange effect Cash at End of Year 6,582 8,100 13,174 15,510 18,642 Inventory days Account receivable days Account payable days Cash cycle Current ratio Pay-out ratio (%) Source: the Company, Guotai Junan International. See the last page for disclaimer page 44 of 80

45 YTD Aug 1,245 2,046 2,077 2,047 2,087 1,929 2,080 1,900 1,724 1,742 2,793 2,304 2,503 3,462 3,664 3,434 3,532 3,589 3,328 3,019 3,404 3,591 3,318 3,669 3,590 5,991 5,991 5,455 5,865 5,865 5,425 5,612 5,612 5,198 5,316 5,316 5,011 4,885 4,865 5,031 5,305 4,982 5,012 4,739 4,318 4,364 3,988 4,165 3,621 3,785 4,648 4,546 4,650 4,730 4,579 4,511 4,743 7,042 7,679 7,716 7,403 7,840 7,759 7,855 7,893 7,787 HK Market Quarterly Outlook and Sector Update Electric Equipment Sector 电力设备行业 Analyst: Jun Zhu 朱俊杰 (852) Industry dynamics 行业动态 Outperform As of the end of August 2017, nationwide cumulative installed power generating capacity reached 1,656.6 GW, up YoY by 7.5%. Of the total cumulative installed power capacity, thermal, hydro, nuclear, wind and others contributed 65.0%, 17.8%, 2.1%, 2.1%, 9.4% and 5.7%, respectively. From Jan to August 2017, newly installed power capacity in China reached 81.7 GW, up YoY by 19.2%. Thermal power continued to be the dominant source of power investment and contributed 31.7% of the new installations during the first 8 months of Whereas, hydro and wind power contributed 9.6% and 10.5%, respectively. Nationwide power investment amounted to RMB bn during the first 8 months of 2017, down YoY by 0.1%. Of which, power generating infrastructure dropped YoY by 14.2% to RMB bn during the period while power grid investment went up YoY by 7.9% to RMB bn. Key assumptions update 关键假设更新 We expect newly installed power capacity to reach approximately 100 GW in 2017, down YoY by 16.7%. Thermal, hydro, nuclear, wind and solar are expected to contribute 30GW, 10GW, 7GW, 18GW and 35GW, respectively, in new installations in China during 跑赢大市 Historical Power Investment in China 中国历史电力投资 RMB Bn Power Source Investment Power Grid Investment Power Source Investment YoY (%) Power Grid Investment YoY (%) % 16.9% % -11.5% Source: NEA, CEC. 6.9% -1.1% -0.7% -5.0% 6.4% 5.8% -0.4% -0.8% 12.6% 6.8% 7.9% -12.9% -14.2% YTD Aug 15% 10% 5% 0% -5% -10% -15% -20% Nationwide power utilization hours reached 2,503 hours for the period from Jan to Aug 2017, down YoY by 0.1%. Except for the 6.2% YoY decline recorded from hydro, all other power sources recorded YoY increase in utilization hours. Thermal power utilization hour was up 2.5% YoY to reach 2,793 hours for the first 8 months. We expect nationwide average utilization hours to be around 3,800 hours for 2017, with thermal power utilization hours recovering to approximately 4,250 hours by the end of Power Utilization Hours of China 中国发电设施利用小时一览 9,000 8,000 Thermal Hydro Nuclear Wind National Average Thermal power is expected to grow at a yearly average of between 10GW and 20GW from 2018 to We expect the thermal power capacity to grow at a slower pace under the more stringent regulations promulgated by the Chinese government aiming to curb its growth considering the overcapacity of the thermal sector in China (low utilization hours). Meanwhile, renewable power sources (i.e. nuclear, wind and solar) are expected to have new additions of between 50 GW and 70 GW of per annum from 2018 to ,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Investment suggestions 投资建议 Stocks within this sector are fairly priced. Trading opportunities exist in this sector in the short term period but the fundamentals of power equipment makers may be further weakened as the government continues to curb the development of thermal power in China. There is currently no top pick for this sector. Source: NEA, CEC, Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 16 PER 17 PER 18 PER 17 ROE 净资产收益率 (%) China High Speed Trans Neutral Dongfang Electric Accumulate n.a Harbin Electric Accumulate Shanghai Electric Accumulate Wasion Group Neutral Weighted Average. 市值加权平均 Source.. the Companies, Guotai Junan (HK), Bloomberg. 17 P/B 市净率 Outperform See the last page for disclaimer page 45 of 80

46 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 HK Market Quarterly Outlook and Sector Update Environmental Protection Sector 环保行业 Analyst: Gary Wong 黄家玮 (852) Industry dynamics 行业动态 Outperform The Ministry of Finance, the Ministry of Housing, the Ministry of Agriculture and the Ministry of Environmental Protection issued the Notice on the Full Implementation of the PPP Model on the Government's Participation in Wastewater and Waste Disposal Project (the Notice ), which put forward the full implementation of the PPP model for new sewage and household wastes disposal projects involving the government and orderly transforme existing projects to the PPP model. In addition, they requested to form a social capital-based, unified, standardized and efficient PPP market as soon as possible. The Notice also stressed that if the PPP model policy is not effectively and fully implemented, in principle, relevant budget expenditure should not be arranged. The Ministry of Industry and Information Technology issued the Draft on Accelerating the Development of Environmental Protection Equipment Manufacturing Industry, stating that by 2020, the innovation ability of the industry should be significantly raised, core technology achive breakthroughs and innovation-driven industry development system is basically completed. In addition, the output value of the industry should reach RMB1 trillion (2016:RMB620 billion). Water Irrigation FAI and YoY 跑赢大市 水利管理业固定资产投资累计值及同比增速 (RMB bn) 1, Water Irrigation FAI YoY 40% 35% 30% 25% 20% 15% 10% 5% 0% The Ministry of Environmental Protection issued Notice on the Implementation Plan for the Control of Pollution Emission Permits System, which requested that by 31 December, 2017, all of the steel companies in key areas of Beijing, Tianjin and its 2+26 peripheral cities, the Yangtze River Delta region and the Pearl River Delta region should complete the application of permits, while by 31 December 2018, all of the steel companies in China should complete the application of permits. Key assumptions update 关键假设更新 More stringent environmental protection regulation accelerated industry development. Government authorities continued to issue more stringent regulation to control environmental pollution and reduce inefficient production capacity, driving demand of environmental protection equipment in the industry. More supporting policies to encourage environmental protection equipment manufacturing are expected. Investment suggestions 投资建议 Industrial prosperity index will maintain high for mid-term and long-term. Certainty of growth is high. Current valuation is near historical low and remains attractive. Our top pick company for the industry is China Everbright International (00257 HK). Source: National Bureau of Statistics of China Environmental FAI and YoY 环境业固定资产投资累计值及同比增速 Environmental FAI YoY (RMB bn) Source: National Bureau of Statistics of China 60% 50% 40% 30% 20% 10% 0% Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) BJ ENT WATER Buy CHINA EB INT'L Buy DONGJIANG EMV - H Accumulate Weighted Average. 市值加权平均 Outperform Source.. the Companies, Guotai Junan International, Bloomberg. 17 P/B 市净率 See the last page for disclaimer page 46 of 80

47 China Everbright International (00257 HK) 中国光大国际 (00257 HK) Company updates 公司近况 On 19 th September, 2017, China Everbright International announced to acquired 80% of Haiyan WTE Project in Zhejiang Province, at a total consideration of RMB525 million. The project was a 30-year BOT project with total daily designed capacity of 1,200 tonnes (phase 1 at 800 tonnes). Analyst: Gary Wong 黄家玮 (852) gary.wong@gtjas.com.hk Buy 买入 Earnings comments 业绩评论 China Everbright International s (00257 HK) 1H17 revenue increased 68.7% YoY to HKD9,142 million. Net profit increased 48.5% YoY to HKD1,796 million. Results were slightly higher than expected, mainly due to the higher-than-expected increase in construction services revenue. Overall gross margin decreased 5.4 ppts YoY to 36.2%. Administrative expense ratio was down to 1.4 ppts YoY to 6.2%. Environmental energy segment growth picked up in 1H17, accelerating expansion in WTE projects with 4 WTE projects added. We expect its revenue CAGR to reach 22.7% in Environmental water business showed small signs of recovery but is still expected to grow at a relatively slow speed. The 80.8% YoY growth in operation services revenue in 1H17 of Greentech projects was impressive, making Greentech projects the fastest growing segment and the second largest segment among the three business segments within operation services. We expect its revenue CAGR to reach 27.9% in Valuation, catalysts & risks 估值 催化剂和风险 Our EPS estimates are HKD0.795, HKD0.915 and HKD1.056 for FY17/FY18/FY19, respectively. We are more positive about the Company s business prospects compared with in 2H16. We slightly raise the TP to HKD12.76, representing 16.1x/13.9x/12.1x FY17/FY18/FY19 PER. Maintain Buy. 6-18m TP 目标价 : HK$12.76 Share price 股价 : Stock performance 股价表现 (5.0) (10.0) % of return Change in Share Price 股价变动 1 M 1 个月 3 M 3 个月 HK$ (15.0) Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 HSI index CHINA EVERBR INT YTD 年初累计 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % (1.8) (2.9) (10.9) Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (HKD m) (HKD m) (HKD) ( %) (HKD) (HKD) (%) (%) 2015A 8,528 2, ) A 13,971 2, F 18,768 3, F 21,784 4, F 25,252 4, Shares in issue (m) 总股数 (m) 4,482.7 Major shareholder 大股东 China Everbright Group 39.2% Market cap. (HK$ m) 市值 (HK$ m) 45,633.9 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 9,374.3 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY16-19 EPS CAGR (%) 年每股盈利复合年增长率 (%) 19.4 Source: the Company, Guotai Junan International. See the last page for disclaimer page 47 of 80

48 Financial statements and ratios Income Statement Balance Sheet Year end Dec (HKD million) 2015A 2016A 2017F 2018F 2019F Year end Dec (HKD million) 2015A 2016A 2017F 2018F 2019F Revenue 2015A 2016A 2017F 2018F 2019F Property, plant and equipment 2,667 3,339 3,604 3,896 4,215 Cost of sales 8,528 13,971 18,768 21,784 25,252 Interest in associates Gross profit (4,626) (8,662) (11,622) (13,655) (16,052) Intangible assets 3,357 5,686 7,833 9,707 11,789 Long-term receivables 5,697 6,494 8,668 9,921 11,357 Other income/expenses, net Amounts due from customers 15,823 19,464 22,384 25,741 29,603 Administrative expenses (768) (1,059) (1,370) (1,547) (1,768) Other non-current assets 1,351 2,013 2,263 2,541 2,855 Operating profit 3,576 4,675 6,339 7,330 8,391 Total non-current assets 29,135 37,225 44,973 52,020 60,027 Finance costs (452) (640) (865) (987) (1,125) Inventories Share of profit of JVs and associates (6) Debtors, other receivables 3,060 3,337 4,466 5,142 5,917 Profit before tax 3,119 4,099 5,536 6,419 7,358 Amounts due from customers 1,547 1,569 1,804 2,075 2,386 Income Tax (783) (1,062) (1,356) (1,643) (1,884) Other current assets Profit after Tax 2,336 3,037 4,180 4,776 5,475 Cash and cash equivalents 5,953 6,341 8,542 7,569 6,763 In which: Total current assets 11,488 12,307 15,976 16,065 16,472 Minority interest (251) (252) (617) (675) (740) Total assets 40,623 49,532 60,949 68,084 76,499 Profit to equity holders for the Company 2,085 2,785 3,563 4,101 4,735 Short-term loans 3,410 4,412 5,074 5,581 6,140 EPS (HKD) Creditors, other payables 2,794 4,804 6,429 7,402 8,518 DPS (HKD) Other current liabilities Total current liabilities 6,323 9,314 11,610 13,101 14,787 Cash Flow Statement Year end Dec (HKD million) 2015A 2016A 2017F 2018F 2019F Long-term loans 12,411 17,203 21,504 24,730 28,439 Other non-current liabilities 2,468 3,169 4,284 5,294 6,417 Profit before tax 3,119 4,099 5,536 6,419 7,358 Total non-current liabilities 14,879 20,373 25,788 30,024 34,856 Depreciation and amortization ,203 29,687 37,399 43,125 49,643 Change in working capital (4,839) (5,492) (5,441) (4,620) (5,008) Share capital 7,405 7,405 7,405 7,405 7,405 Other operating activities (2) Reserves 9,791 9,984 10,359 11,093 12,250 Net cash from operating (1,538) (758) 827 2,617 3,287 Equity attributable to equity holders 17,196 17,389 17,765 18,499 19,655 Minority interest 2,224 2,456 5,786 6,461 7,200 Purchase of PPE & intangible assets (1,082) (3,171) (4,361) (4,975) (5,677) Total equity 19,421 19,845 23,550 24,959 26,856 Other investing activities (1,594) (0) (1) Total Equity and liabilities 40,623 49,532 60,949 68,084 76,499 Net cash used in investment (2,676) (3,037) (4,360) (4,975) (5,678) BPS (HKD) Stock issuance Financial Ratios Issuance/(repayment) of debts 6,793 5,795 4,963 3,733 4, A 2016A 2017F 2018F 2019F Dividends paid (560) (829) (919) (1,188) (1,367) Other financing activities (29) (640) 1,848 (987) (1,125) Gross margin (%) Net cash used in financing 6,204 4,326 5,892 1,559 1,775 Operating margin (%) Net margin (%) Cash equivalents at beginning of the year 4,094 5,953 6,341 8,542 7,569 ROA (%) Net increase in cash 1, ,358 (799) (616) ROE (%) Forex adjustment (130) (143) (157) (173) (190) Net gearing ratio (%) Cash equivalents at end of the year 5,953 6,341 8,542 7,569 6,763 Interest coverage Source: the Company, Guotai Junan International. See the last page for disclaimer page 48 of 80

49 Gaming Sector 博彩行业 Analyst: Noah Hudson (86755) Industry dynamics 行业动态 Outperform Golden Week head-fake: Macau visitation numbers first disappointment but in the end met/exceeded expectations. Gaming sector share prices fell after the number of tourist arrivals to Macau from mainland China decreased by 1.1% YoY during the first five days of the Oct. 1-8 Mainland China national holiday, compared to market expectations for mid-to-high single digit growth during the eight day holiday period. But then on Oct. 9, the Macau Government Tourist Office announced that from Oct. 1-8, the total number of visitors increased by 10.3% YoY while the number of mainland China visitors increased by 11.0% YoY, reflecting a complete turnaround compared to the first five days. Negative impact from 23 Aug. typhoon was not as bad as initially feared. Although Typhoon Hato was the strongest to hit Macau in 53 years, gaming revenue beat market expectations (which were already revised down to reflect the typhoon impact fears) in both Aug. and Sept., up 20.4% and 16.1% YoY, respectively. The Macau Peninsula was more adversely affected than in Cotai. Many casinos were without power for several hours, but most sustained only minor damage and resumed normal operations within a few days. Group tours from mainland China were suspended until Sept. 2. Only two casinos were closed for a significant amount of time. Legend Palace, which operates under the gaming license of SJM was closed until 20 Sept. Galaxy Entertainment's Broadway was closed until 25 Sept. Key assumptions update 关键假设更新 We forecast 2017 Macau gross gaming revenue ("GGR") growth of 16.5% total GGR year to date through Sept. has increased by 18.8% YoY. Despite the rapid GGR growth, monthly GGR amounts have still been significantly less than the highs reached in 2013 and 2014, indicating further room for recovery. The Taipa Maritime Terminal opened on 1 June 2017 and we expect that it will serve as a catalyst for increased visitation to Macau in 4Q17 as it ramps up. Investment suggestions 投资建议 We expect Macau's positive GGR growth trend to continue through the rest of 2017 and into 2018, supported by higher GGR per visitor. From Jan. through Aug. this year, Macau's GGR per visitor increased by 14.1% YoY. With the exception of January this year (due to effect from Chinese New Year), GGR per visitor has increased YoY every month since August The quality of visitors going to Macau is improving as indicated not only by more overnight visitors, more airplane and helicopter visitors and longer stay duration. 跑赢大市 Macau GGR & Visitation, YoY Growth 澳门博彩总收入和入境旅客同比增长 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Source: Macau Gaming Inspection and Coordination Bureau, Government of Macao Special Administrative Region Statistics and Census Service. Stock Performance 股价表现 (20.0) % return Source: Bloomberg. Monthly Macau Gross Gaming Revenue (yoy) Monthly Total Visitor Arrivals (yoy) Monthly Mainland China Visitor Arrivals (yoy) (40.0) Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Sep-17 HSI SJM Hds. Galaxy Ent. Wynn Macau Melco Resorts MGM China Sands China We recommend to "Buy" our sector top pick Melco Resorts & Entertainment (MLCO US) with target price of US$ We also recommend to "Buy" Wynn Macau (01128 HK) with target price of HK$21.80, and to "Accumulate" Sands China with target price of US$ Company Name 公司名称 Code 编号 Price 股价 Rating 投资评级 17 PER 18PER 19 PER 17 ROE 净资产收益率 (%) Galaxy Entertainment HK HK$ Neutral Melco Resorts Entertainment MLCO US US$ Buy Mgm China HK HK$ Accumulate Sands China Ltd HK HK$ Accumulate Wynn Macau Ltd HK HK$ Buy Weighted Average. 市值加权平均 Outperform Source: the Companies, Guotai Junan International, Bloomberg. 17 P/B 市净率 See the last page for disclaimer page 49 of 80

50 Melco Resorts & Entertainment 新濠博亚娱乐 (MLCO US) Company updates 公司近况 Analyst: Noah Hudson (86755) Buy The new Morpheus hotel will open in the first or second quarter of 2018, serving as the centerpiece of City of Dreams and providing almost 800 luxury rooms, suites and villas with a unique array of new restaurant concepts. Morpheus hotel, which can house over 50 gaming tables, is the third and final phase of City of Dreams. We expect Morpheus to be a catalyst to improve the overall performance of City of Dreams, especially in the premium mass segment. More upside potential for Studio City will be unlocked when access to the property is improved, which could be as early as the end of this year. Although Studio City opened in Oct. 2015, almost two years ago already, it is still operating below its full potential due to accessibility problems. Getting to Studio City remains significantly handicapped since its main access point, the Lotus Bridge, continues to be blocked off with the construction of Macau's light rail. The Company is petitioning the Macau government to try to get that opened as soon as possible and is hopeful that that will happen by the end of We think that Studio City will see a surge in GGR growth once the property is fully accessible. Earnings comments 业绩评论 We forecast total net revenue of US$5.2 bn, US$5.7 bn and US$6.2 bn, respectively, representing growth of 15.9%, 8.7% and 9.2%, equivalent to 11.2% CAGR. Melco's properties have proved to be resilient in defending against newly opened competitor casinos in 1H17. We expect revenue from City of Dreams Manila to continue to grow for the rest of this year and into 2018 as the property continues to ramp up. However, we do expect t revenue growth to slow overall in 2018 as it loses some Macau gaming market share to new competitor casinos. Valuation, catalysts & risks 估值 催化剂和风险 We recommend to "Buy" Melco Resorts & Entertainment, our sector top pick, with US$28.60 target price. Melco is currently trading at forward (next four quarters) EV/adjusted EBITDA of 9.5x, which is a 24.9% discount to its own year historical average forward EV/Adjusted EBITDA of 12.7x, and is 42.5% below the sector market-cap weighted average of 16.5x. We think the valuation is low and has created an attractive buy opportunity, especially with Morpheus and improved access to Studio City acting as catalysts. Our target price is equivalent to 13.0x 2017 and 11.8x 2018 EV/adjusted EBITDA and 34.3x 2017 and 27.6x 2018 PER; 买入 6-18m TP 目标价 : HK$28.60 Share price 股价 : Stock performance 股价表现 (10) % change Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % 1 M 1 个月 3 M 3 个月 HK$ (20) Oct-16 Jan-17 Mar-17 Jun-17 Sep-17 NASDAQ Comp Index Melco Resorts & Ent. YTD 年初累计 (0.4) Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. Risks include Melco's gaming market share decreasing by more than we expect. Our forecasts and rating for Melco already take into account our expectation for the Company to lose some market share in 2017 and 2018 to newly opened competitor casinos. Year End Turnover Net Profit Earnings / ADS Earnings / ADS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每份 ADS 净利 每份 ADS 净利变动 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (USD m) (USD m) (USD) ( %) (USD) (USD) (%) (%) 2015A 3, (82.3) A 4, F 5, F 5, F 6, Shares in issue (m) 总股数 (m) Major shareholder 大股东 Melco International (00200 HK) 51.3% Market cap. (HK$ m) 市值 (HK$ m) 90,510.3 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 3,047.2 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (US$) FY17 每股估值 ( 美元 ) 35.9 Source: the Company, Guotai Junan International. See the last page for disclaimer page 50 of 80

51 Melco Resorts & Entertainment Financial statements and ratios Income Statement Balance Sheet Year end 31 Dec (USD m) 2015A 2016A 2017F 2018F 2019F Total Revenue 3,975 4,519 5,239 5,695 6,220 Casino Expenses (2,655) (2,905) (3,321) (3,586) (3,939) Rooms Expenses (23) (33) (34) (37) (38) Food & Beverage Expenses (43) (66) (53) (52) (56) Entertainment, Retail & Other Expenses (78) (110) (88) (95) (104) Year end 31 Dec (USD m) 2015A 2016A 2017F 2018F 2019F Property, plant and equipment 5,760 5,656 5,547 5,315 5,292 Total Intangible Assets Prepaid Expense Others ,199 1,167 1,135 Total Non-current Assets 7,390 7,061 7,790 7,500 7,419 General and Administrative (384) (447) (447) (513) (560) Depreciation and Amortization (359) (472) (469) (485) (473) Others (334) (124) (159) (165) (172) Operating Profit Interest Income Interest Expenses, Net of Capitalized (118) (224) (233) (230) (228) Interest Other Expenses (54) (70) (55) (30) (30) Profit Before Tax (60) Cash & Cash Equivalents 1,611 1,702 2,132 2,565 3,213 Bank Deposits with 3+ Month Maturity Accounts Receivable Inventories Prepaid Expense & Other Total Current Assets 3,020 2,280 2,496 3,245 3,969 Total Assets 10,410 9,340 10,286 10,746 11,388 Income Tax (1) (8) (1) (1) 1 profit After Tax (61) Non-controlling Interest Shareholders' Profit / Loss Basic EPS Diluted EPS Payables & Accruals 1,076 1,395 1,617 1,758 1,920 ST Debt Other ST Liabilities Total Current Liabilities 1,215 1,479 1,790 2,019 2,270 LT Borrowings 3,856 3,670 3,539 3,408 3,277 Others Total Non-current Liabilities 4,263 4,038 3,877 3,706 3,568 Total Liabilities 5,478 5,517 5,666 5,725 5,838 Cash Flow Statement Year end 31 Dec (USD m) 2015A 2016A 2017F 2018F 2019F Net Income Total Shareholders' Equity 4,340 3,344 4,253 4,766 5,409 Minority Interest Total Equity 4,932 3,823 4,620 5,020 5,551 D&A Other Non-Cash Adjustments Changes in Working Capital (80) (125) 163 Cash from Operating Activities 522 1,158 1, ,304 Capex (1,456) (438) (360) (253) (449) Other Investing Cash from Investing Activities (470) 281 (325) (220) (417) [Table_FinancialRatio] Financial Ratio 2015A 2016A 2017F 2018F 2019F Margins Operating Margin 2.5% 8.0% 12.7% 13.4% 14.1% Net Profit Margin 2.7% 3.9% 7.8% 9.0% 10.1% Adj. EBITDA Margin 20.5% 21.5% 23.4% 23.1% 23.6% Dividends Paid (63) (386) (192) (204) (221) Cash From (Repayment) Debt (78) (124) (43) (43) (43) Issuance (Buyback) of Equity 5 (800) (385) 4 0 Other Financing Activities 106 (30) 2 (7) 25 Cash from Financing Activities (30) (1,340) (618) (251) (239) Cash at Beg of Year 1,598 1,611 1,702 2,132 2,565 Net Changes in Cash Effect of Foreign Exchanges (9) (8) Cash at End of Year 1,611 1,702 2,132 2,565 3,213 Return Ratios ROA 1.0% 1.8% 4.2% 4.9% 5.7% ROE 2.1% 4.0% 9.7% 10.6% 11.9% Return on Capital Invested 0.6% -0.4% 7.9% 9.1% 11.1% Liquidity & Leverage Leverage (i.e., Gearing) 171.0% 183.4% 188.1% 163.0% 147.0% Net Gearing 64.6% 94.2% 73.9% 43.3% 11.3% Interest Coverage Ratio 65.5% 132.8% 253.6% 297.6% 348.0% Current Ratio 248.6% 154.1% 139.5% 160.7% 174.9% See the last page for disclaimer page 51 of 80

52 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 HK Market Quarterly Outlook and Sector Update Health Care Sector 医药行业 Analyst: Kay Mai 麦梓琪 (86755) Industry dynamics 行业动态 Neutral Revenue/total profit of the pharmaceutical manufacturing industry rose by 11.7% YoY/18.3% YoY to RMB1,945 billion/rmb213 billion in Jan.-Aug. 2017, implying profitability improvement of the industry, which was caused by 1) price rise of certain bulk drugs especially vitamins induced by more stringent environmental protection policies; 2) structure adjustment of drug administration and increase in market concentration triggered by healthcare reform; 3) relatively mild drug price cut in new rounds of provincial tenders. 1H17 terminal sales of drugs grew only by 7.8% YoY to RMB804 billion (v.s. 8.3% in 2016), with the negative impact induced by the implementation of the zero mark-up policy in certain provinces on the public hospital terminal. YoY sales growth of drugs sold in public hospitals/retail pharmacies/primary healthcare institutions decelerated to 7.2%/8.0%/11.3% respectively in 1H17. The two-invoice system has been pursued in 18 provinces/municipalities in China by Aug. 2017, and it will be implemented in nearly all provinces/ municipalities by 1 January 2018, except Guizhou Province and Tibet which have not disclosed implementation dates. 中性 Pharmaceutical Manufacturing Industry Revenue and Total Profit YTD YoY 医药制造业收入及利润总额同比增长 ( 月度累计 ) % Pharmaceutical Manufacturing Industry Total Profit YTD YoY 20 Pharmaceutical Manufacturing Industry Revenue YTD YoY Key assumptions update 关键假设更新 5 Health expenditure may increase by 13.0% YoY in Drug consumption growth may bottom out in Downward pressure on drug prices will be less in innovative drugs, exclusive products and generics which pass the Quality Consistency Evaluation. Investment suggestions 投资建议 The competitive landscape of the pharmaceutical market in 2H17 is expected to mostly be influenced by the implementation of the two-invoice system. Firstly, it accelerates the flattening of distribution channel, weeding out small-sized distributors and benefiting the profitability and market share of leading enterprises operating nationwide and in regional areas. However, with consideration to the financial stress induced by the implementation of the zero mark-up policy and the rise of effective interest rates, we think the profitability of the pharmaceutical distribution industry is temperately uncertain and thus suggest waiting to observe for a short time. Secondly, it helps reshaping the finished drug market landscape as sales of manufacturers without self-owned sales teams are expected to be negatively affected. Meanwhile, considering that the structure of drug administration in China will be approaching international medication tendency gradually, we believe the prospects of different products will diverge in 2H17. Therefore, we recommend keeping an eye on manufacturers of innovative drugs and high-end generics with strong R&D and sales capabilities such as CSPC (01093 HK). However, the current valuation of CSPC is not very attractive, thus, we have no top pick in this sector at the moment. Source: National Bureau of Statistics of China. Drug Consumption YTD YoY 药品零售额同比增长 ( 月度累计 ) % Traditional Chinese and Western Medicine 20 Consumption above Designated Size YTD YoY Source: National Bureau of Statistics of China. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) Sinopharm Neutral CSPC Accumulate Charmacy Pharma Accumulate Weighted Average. 市值加权平均 Source: the Companies, Guotai Junan International, Bloomberg. 17 P/B 市净率 Neutral See the last page for disclaimer page 52 of 80

53 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 HK Market Quarterly Outlook and Sector Update Infrastructure Sector 基建行业 Analyst: Gary Wong 黄家玮 (852) Industry dynamics 行业动态 According to the National Bureau of Statistics of China, Jan.-Aug Urban FAI amounted to RMB39,415.0 billion, up 7.8% YoY, 0.4 ppts lower than expected and 0.5 ppts lower compared with 8.3% YoY growth in Jan.-Jul For August only, Urban FAI increased 4.9% YoY, down 1.9 ppts MoM. First, Jan.-Aug. private FAI growth rate was 6.4%, down 0.5 ppts compared with that in Jan.-Jul., reaching a new low in growth rate this year, reflecting that private FAI growth might return to a downward trend after the rebound last year. Second, overall infrastructure investment growth dropped 0.6 ppts compared with that in Jan.-Jul. to 16.1%, in which investment growth of transportation and storage, and irrigation, environment and public facilities both dropped slightly; only water, electricity, heat and gas investment growth rebounded a little, reflecting that overall infrastructure investment slightly decelerated. Third, property development investment growth rate stayed flat at 7.9% compared with that of Jan.-Jul Zhang Yong, deputy director of NDRC, said in a national conference meeting of NDRC that the local governments effort in implementating the central government multi-measures of promoting private investment achievements should be fully affirmed. The Government will actively use the PPP model to revitalize the stock of assets, forming a virtuous cycle of investment. However, the Government will insist on scientific development of PPP project planning, and must reject projects that are not qualified. Key assumptions update 关键假设更新 Strengthened inspection and regulation slowed down the investment growth of PPP projects. Cumulative FAI and YoY 中国固定资产投资累计值及同比增速 (RMB bn) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: National Bureau of Statistics of China. Outperform Railway and Highway FAI YoY 铁路和公路固定资产投资累计值同比增速 Railway FAI YoY FAI YoY 跑赢大市 Highway FAI YoY 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% August new bank loan growth (+14.9% YoY) was higher than expected but most of the growth was towards short-term loans. August M2 growth (+8.9% YoY) reached new low and was lower than expected, slightly negative to the growth in infrastructure investment. Investment suggestions 投资建议 Jan.-Aug. Urban FAI growth was below expectation, while investment growth remained relatively high in transportation and storage, irrigation, environment, and public facilities. With growth in new started projects turning positive and while 2H17 will be an intensive construction period for the 13th 5-Year Plan, we think infrastructure growth should stay above 16% for the full year. In addition, urban rail transit investment continued to increase, this should propel sustainable growth in revenue and net profit of China Railway Group (00390 HK), the largest construction contractor in the urban rail transit construction market. 40% 30% 20% 10% 0% -10% -20% Source National Bureau of Statistics of China. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) CHINA RAIL CONS - H Accumulate CHINA RAILWAY - H Buy CHINA COMM CONS - H Accumulate SUNDART HLDS - H Accumulate n.a. Weighted Average. 市值加权平均 Source.. the Companies, Guotai Junan International, Bloomberg. 17 P/B 市净率 Outperform See the last page for disclaimer page 53 of 80

54 China Railway Group (00390 HK) 中国中铁 (00390 HK) Company updates 公司近况 On 26 th September, 2017, the Company announced winning bids for material projects amounting to RMB64.3 billion, of which RMB39.9 billion was for railway construction, RMB8.7 billion was for highway construction, RMB13.1 billion was for municipal works and others construction, and RMB2.6 billion was for overseas construction. Analyst: Gary Wong 黄家玮 (852) Buy 买入 Earnings comments 业绩评论 6-18m TP 目标价 : HK$8.76 1H17 revenue increased 11.2% YoY to RMB298.6 billion. Net profit increased 42.6% YoY to RMB7.7 billion, results were better than expectations. For 1H17, the Company received RMB561.7 billion in new contracts, up 34.5% YoY. Share price 股价 : HK$6.540 The infrastructure construction segment is expected to continue to grow steadily, benefiting from recovery in road construction and the robust demand in urban transit railway construction. The survey, design and consulting services segment is expected to grow faster due to higher overseas demand, while engineering equipment and component manufacturing revenue will also remain fast growing, mainly driven by sales of tunnel boring machines. The property development segment is expected to remain flat due to continuous tightening regulation. Highway operations and mining business will continue to lead the recovery in other businesses, especially for mining business which substantially benefited from the drastic increase in cobalt price. Valuation, catalysts & risks 估值 催化剂和风险 Our EPS estimates for FY17-FY19 are RMB0.686, RMB0.744 and RMB0.840, respectively. With higher-than-expected interim results, we raise the TP to HKD8.76, representing 10.8x/10.0x/8.8x FY17/FY18/FY19 PER and 5.6x 2018 EV/EBITDA. Upgrade the investment rating to Buy. Stock performance 股价表现 (5.0) (10.0) % of return (15.0) Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Change in Share Price 股价变动 HSI index 1 M 1 个月 CHINA RAIL GR-H 3 M 3 个月 YTD 年初累计 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % (0.2) (6.1) (3.4) Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. 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 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) ( %) (RMB) (RMB) (%) (%) 2015A 599,942 11, A 632,856 11, (3.0) F 700,590 15, F 755,071 16, F 815,140 19, Shares in issue (m) 总股数 (m) 22,844.3 Major shareholder 大股东 CRECG 54.4% Market cap. (HK$ m) 市值 (HK$ m) 149,401.7 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 20,474.0 FY16 Net gearing (%) FY16 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY15-18 EPS CAGR 年每股盈利复合年增长率 (%) 9.3 Source: the Company, Guotai Junan International. See the last page for disclaimer page 54 of 80

55 Financial statements and ratios Income Statement Balance Sheet Year end Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Year end Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Revenue 599, , , , ,140 Property, Plant and Equipment 51,765 54,778 58,302 62,948 68,349 Cost of sales (551,256) (583,067) (640,647) (690,288) (743,939) Lease Prepayments 9,290 11,986 10,476 10,860 11,199 Gross profit 48,686 49,789 59,943 64,783 71,200 Intangible Assets 37,547 36,821 36,845 36,867 36,889 Interests in JVs and Associates 7,889 11,482 12,514 13,722 15,140 Other income and gains (8,894) (7,932) (10,304) (11,335) (12,468) Other Non-current Assets 41,413 44,131 46,585 49,300 52,309 Selling and distribution costs (2,342) (2,560) (2,942) (3,171) (3,424) Total Non-current Assets 147, , , , ,886 Administrative expenses (17,509) (17,680) (19,967) (21,897) (23,639) 19,941 21,617 26,729 28,380 31,670 Properties under Development for Sale 66,064 60,962 57,914 55,018 52,267 Operating profit Inventories 30,110 28,737 32,032 37,966 44,636 3,012 2,197 2,307 2,422 2,543 Trade and Other Receivables 206, , , , ,753 Finance income/ (costs), net (6,184) (5,774) (5,346) (5,478) (5,617) Due from Customers for Contract Work 122, , , , ,725 Investment income &non-operating income expenses Other Current Assets 47,491 44,598 47,183 49,943 52, ,061 Cash & Cash Equivalents 93, , , , ,128 Profit before tax 17,017 18,772 24,721 26,533 30,014 Total Current Assets 565, , , , ,401 Tax (5,231) (6,069) (8,018) (8,447) (9,664) Total Assets 713, , , , ,287 Profit after tax 11,786 12,703 16,703 18,086 20,350 Including: Trade and Other Payables 365, , , , ,757 Minority interests (111) (969) (1,023) (1,087) (1,164) Due to Customers for Contract Work 14,857 12,952 14,247 15,672 17,239 Net Profit 11,675 11,734 15,681 16,999 19,186 Short-Term Borrowings 84,209 80,017 80,449 80,908 81,391 Other Current Liabilities 6,136 6,216 6,942 7,425 8,015 EPS (RMB) Total Current Liabilities 470, , , , ,403 DPS (RMB) Long-Term Borrowings 96,213 92,308 96, , ,696 Retirement and Other BOs 3,779 3,453 3,280 3,116 2,961 Cash Flow Statement Other Non-current Liabilities 3,828 2,985 3,304 3,635 4,001 Year end Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Total Non-current Liabilities 103,820 98, , , ,657 Total Liabilities 574, , , , ,060 Net profit 17,017 18,772 24,721 26,533 30,014 Depreciation and amortization 7,813 8,761 8,831 9,059 9,290 Total Shareholders' Equity 118, , , , ,180 Net change in working capital 5,835 27,212 (2,329) (8,901) (5,076) Minority Interest 20,938 20,865 21,600 22,619 23,047 Other operating activities (108) (250) (1,904) (2,053) (3,214) Total Equity 139, , , , ,226 Net cash generated from operating activities 30,557 54,495 29,319 24,638 31,015 Total equity and liaibilities 713, , , , ,287 Purchase of PPE & intangibles (10,326) (9,825) (8,776) (9,957) (10,568) BPS (RMB) Other investing activities (5,226) (7,653) (2,142) (2,371) (2,639) Net cash used in investing activities (15,552) (17,478) (10,918) (12,328) (13,207) Share issuance 12, Issue / (repayment) of debt 1,130 (3,151) 4,381 4,586 4,795 Financial Ratios Payment of dividends and interests (1,661) (1,965) (2,010) (2,666) (2,890) 2015A 2016A 2017F 2018F 2019F Other financing activities (2,045) (10,654) (8,603) (9,121) (9,708) Net cash generated from financing activities 9,424 (15,770) (6,232) (7,201) (7,803) Gross margin Operating margin Net increase in cash & cash equivalents 68,679 93, , , ,752 Net margin Effect of foreign exchange rate changes 24,429 21,247 12,169 5,109 10,005 ROA (%) Cash at the beginning in CF statement ROE (%) Cash at the end in CF Statement 93, , , , ,128 Net gearing ratio (%) Plus: 3 month or longer non-pledged deposits 17,017 18,772 24,721 26,533 30,014 Interest coverage Cash at the end of year 7,813 8,761 8,831 9,059 9,290 EV/EBITDA Source: the Company, Guotai Junan International. See the last page for disclaimer page 55 of 80

56 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 HK Market Quarterly Outlook and Sector Update Insurance Sector 保险行业 Analyst: Wiley Huang 黄重钧 (852) Industry dynamics 行业动态 Life insurance sustained NBV growth momentum in 1H17, driven by expanding agent force. Chinese insurers recorded notable expansion on agent headcount (CTIH: +59.9% yoy / PICC Group: +36.7% yoy). Therefore, more premiums of higher margin were generated from agent channel, which push up NBV (CTIH: +63.4% yoy / PICC Group: +81.6% yoy). Besides, the protection type products oriented regulations announced in 1H17 is another engine to fuel the growth. P&C insurers delivered in-line results in 1H17, but headwinds remained. Premium growth remained stable, whereas combined ratio was hurt by increasing price of auto components and hourly rate (CTIH: -0.8 ppts yoy/ PICC Group: +0.5 ppts yoy). Second pricing reform is expected to lower premium rate for insurer, which brings pressure on premium growth and loss ratio. Besides, increasing auto components price and hourly rate will worsen the situation. New measures introduced by CIRC Rule 134 banned fast-return life products lowering premium growth. Effecting from 1 st Oct, Rule 134 suspended sales of fast-return insurance products, which are main products in Open Jump. Hence, the Rule might slowdown premium growth. However, insurers are launching substitute product to reduce the negative impacts. Key assumptions update 关键假设更新 Bond yield remained high, which will lead to bottom up of 750-day average bond yield in 4Q day average bond yield is used as discount rate of life insurance contract liability. We expect that average yield will be bottom up in 4Q17 given that bond yield was still high. Therefore, the insurance liability pressure will be released, which should generate positive impacts on insurers profit. Investment suggestions 投资建议 Outperform 跑赢大市 Sector Relative Price Performance 行业相对价格表现 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% (10.0%) (20.0%) (30.0%) Source: Bloomberg Sector Valuation 行业估值 HK-listed China insurers Hang Seng Index HK-listed China insurers' 12M forward P/B The valuation of the sector recorded significant drop recently on concerns about suspension of fast-return life products sales. Despite that fast-return products have been banned from 1 st Oct, we believe NBV will continue to maintain rapid growth on the ground of expanding agent force and protection-type products oriented sales. Besides, the bottom up of 750-day average bond yield will release profit from insurance liability. We maintain Source: Bloomberg Outperform rating for the sector. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17PBR 市净率 18PBR 市净率 19 PBR 市净率 17 ROE 净资产收益率 (%) 17 Yield 股息率 (%) PICC Group Neutral PICC P&C Accumulate CTIH Buy n.a. Weighted Average. 市值加权平均 Source.. the Companies, Guotai Junan International, Bloomberg. Outperform See the last page for disclaimer page 56 of 80

57 Internet Sector 互联网行业 Analyst: Ricky Lai 黎柏坚 (852) Industry dynamics 行业动态 According to CNNIC, internet users have reached over 751 million in June 2017, with the penetration rate of 54.3%. Mobile users accounted for 96.4% of the total internet users. Mobile payment users reached over 500 million, which was contributed by Alipay and Tenpay with more merchants deploy the related e-payment services. AI Technology is being applied to different internet services including big data, FinTech, cloud platform, online advertising and O2O services. The AI technology is estimated to help internet companies to better monetize platforms by better understanding their users. 80 % of return Outperform 跑赢大市 Short video, live broadcasting are being more popular in China thanks to the proliferation of social networks platforms and better smartphone camera specifications. Tencent and Weibo have introduced more video advertisements on their social networks platforms to propel advertising revenue growth. We think short video advertisement would also help gross margin to improve. Online game users showed a solid growth in 1H17. Honor of Kings ranked the first position in China game market and we estimate this game title can maintain popular due to the launch of more upgrade versions and new features. Tencent will further leverage its advantage by launching in overseas markets. Netease will also launch a number of strong game titles in 2H18 such as Minecraft to drive game user growth and ARPU improvement. Key assumptions update 关键假设更新 We expect mobile internet user penetration rate can maintain a strong pace of growth thanks to lower mobile data tariff, better 4G network and better smartphone specifications. E-sports is estimated to be more popular in China market due to larger game user base, more market events, live broadcasting and better hardware support. Tencent s Wexin users have reached over 960 million which can support the growth of online game and advertising businesses revenue amid lower gross margin affected by mobile games, payment and cloud services contributions. 0 (20) (40) Oct-16 Jan-17 Mar-17 Jun-17 Sep-17 HSI Index Tencent Chanjet Source: Bloomberg, 80 % change (20) (40) Oct-16 Dec-16 Feb-17 May-17 Jul-17 Sep-17 NASDAQ COMP Index Sina Netease Baidu Source: Bloomberg, Investment suggestions 投资建议 The sector rating is Outperform. The sector top pick is Tencent (00700 HK) with investment rating of Buy and TP of HK$ The TP implies 47.3x FY17 PER, 39.0 FY18 PER and 32.1x FY19 PER. Company Name 公司名称 Code 编号 Price 股价 Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) Tencent HK HK$ Buy Chanjet HK HK$ Buy Baidu BIDU US US$ Buy Sina SINA US US$ Buy Netease NTES US US$ Buy Weighted Average. Outperform 市值加权平均 Source.. the Companies, Guotai Junan (HK), Bloomberg. 17 P/B 市净率 See the last page for disclaimer page 57 of 80

58 Tencent (00700 HK) 腾讯控股 (00700 HK) Company updates 公司近况 Weixin MAU grew 19% yoy to 960 million, which is expected to help advertising and social networks business. Tencent will introduce its AI technology to sustain solid revenue growth for different business segments, including performance ads, information-based services, and FinTech business. Analyst: Ricky Lai 黎柏坚 (852) Buy 买入 FY17-FY19 online advertising revenue is projected to grow by 39.0%/ 20.4%/ 13.5%, respectively. 2Q17 online advertising revenue grew 55.4% yoy, driven by video advertising, news feed advertising, Wexin Official Accounts and Weixin Moments. Weixin Moments is expected to improve its advertising revenue contributions in 2H17 with the launch of AI technology to better understand user preference. Gross margin to be dragged with lower margin business segments. 2Q17 gross profit margin declined by 7.3 ppt yoy to 50.0% due to lower margin mobile games and the impact of cloud services. Gross profit margin in FY17-FY19 is estimated to decline by 4.6ppt/ 1.7 ppt/ 0.4 ppt to 51.0%/ 49.3%/ 48.9%, respectively, due to content costs on video platforms, traffic acquisition costs and larger mobile games contributions. Earnings comments 业绩评论 We expect Honor of Kings can maintain its high pace of revenue growth thanks to the launch of more new features and overseas market contributions. Thanks to solid revenue contributions from popular game titles, we revise up FY17-FY19 online game revenue by 9.5%/ 13.0%/ 15.5%, respectively. 6-18m TP 目标价 : HK$ Share price 股价 : HK$ Stock performance 股价表现 80 % of return (20) (40) Oct-16 Jan-17 Mar-17 Jun-17 Sep-17 We lift FY17-FY19 online game revenue by 9.5%/ 13.0%/ 15.5%, respectively, due to better contributions from Honour of Kings and the launch of more game titles in 2H17. 2Q17 online game revenue grew 39% yoy, driven by popular mobile game titles (Honour of Kings, Dragon Nest Mobile and TLBB) and expansion packs. Gross margin to be dragged with lower margin business segments. Gross margin has been trending down in recent quarters, and we expect that it will continue in coming quarters due to new revenue mix. Advertising gross margin is estimated to be influenced by more content costs with the need to boost platform traffic and amortization expense with more investments. Valuation, catalysts & risks 估值 催化剂和风险 The Company s investment rating is Buy with TP of HK$ The TP implies 47.3x FY17 PER, 39.0 FY18 PER and 32.1x FY19 PER. Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % HSI Index 1 M 1 个月 Tencent 3 M 3 个月 YTD 年初累计 Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (RMB) (RMB) (%) (%) 2015A 102,863 28, A 151,938 41, F 236,356 67, F 316,008 82, F 388, , Shares in issue (m) 总股数 (m) 9,499.0 Major shareholder 大股东 Naspers Ltd 34.0% Market cap. (HK$ m) 市值 (HK$ m) 3,343,648.0 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 19,700.0 FY17 Net gearing (%) FY19 净负债 / 股东资金 (%) Net cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY17-19 PEG 1.2 Source: the Company, Guotai Junan International. See the last page for disclaimer page 58 of 80

59 Financial Statements and Ratios Income Statement Balance Sheet Year end Dec, RMB m 2015A 2016A 2017F 2018F 2019F Year end Dec, RMB m 2015A 2016A 2017F 2018F 2019F Total Revenue 102, , , , ,935 PPE 9,973 13,900 23,187 32,482 39,405 VAS 80, , , , ,562 Intangible assets 13,439 36,467 41,937 60,809 85,132 Online advertising 17,468 26,970 37,488 45,136 51,229 Investment in JCE & associates 60,715 70,672 90, , ,703 Others 4,726 17,158 45,469 70,476 95,144 Others 67, , , , ,404 Cost of revenues (41,631) (67,439) (115,814) (160,216) (198,746) Total non-current assets 151, , , , ,645 Gross profit 61,232 84, , , ,189 Accounts receivable 7,061 10,152 11,269 12,508 14,885 Interest Income 2,327 2,619 2,008 2,441 3,156 Other receivables 11,397 14,118 15,671 17,551 20,535 Other gains, net 1,886 3,594 13,500 12,150 13,730 Cash and cash equivalents 43,438 71,902 59,918 85, ,053 S&M (7,993) (12,136) (16,545) (21,489) (24,892) Others 93,482 52,982 88,723 95, ,977 G&A (16,825) (22,459) (33,090) (43,609) (52,895) Total current assets 155, , , , ,450 Operating profit 40,627 56,117 86, , ,288 Total assets 306, , , , ,095 Finance cost, net (1,618) (1,955) (2,294) (2,943) (4,263) Note payable 37,092 36,204 41,635 51,211 62,989 Share of associate / JC (2,793) (2,522) 1,200 1,320 1,460 Long term borrowings 12,922 57,549 66,181 86, ,054 Profit before income tax 36,216 51,640 85, , ,485 Others 10,298 14,702 18,967 22,642 12,278 Income tax (7,108) (10,193) (16,841) (20,462) (24,966) Total non-current liabilities 60, , , , ,320 Minority interests (302) (352) (616) (749) (914) Net profit 28,806 41,095 67,863 82, ,605 Accounts payable 15,700 27,413 28,784 30,223 31,734 Basic EPS (RMB) Other payables and accruals 70,199 20,873 22,960 24,797 25,789 Short term borrowings 11,429 12,278 16,575 22,377 39,159 Cash Flow Statement Note payable 3,886 3,466 3,986 5,062 6,429 Year end Dec, RMB m 2015A 2016A 2017F 2018F 2019F Others 23,192 37,167 42,661 49,985 58,588 Profit before taxation 36,216 51,640 85, , ,485 Total current liabilities 124, , , , ,699 Depreciation & Amortisation of intangible assets 6,674 12,741 13,723 14,781 15,921 Total liabilities 184, , , , ,019 Changes in working capital 6,389 10,967 (8,693) (6,437) (44,022) Income tax paid (5,047) (10,516) (16,188) (18,838) (23,074) Shareholders' equity 120, , , , ,996 Others 1, (12,485) 1, Share capital & Share premium 12,167 17,324 18,710 20,207 21,823 Net cash generated from operating activities 45,431 65,518 61,679 94,801 76,292 Shares held for share award scheme (1,817) (3,136) (3,387) (3,556) (3,698) Other reserves 9,673 23,693 25,573 28,158 31,743 CAPEX (5,440) (8,399) (7,475) (6,653) (5,921) Retained earnings 100, , , , ,128 Financial assets purchases (13,001) (33,556) (34,898) (36,294) (37,746) MI 2,065 11,623 12,732 14,080 14,080 Associates & JV investments (11,923) (8,996) (10,550) (8,440) (6,752) Total equity 122, , , , ,076 Financial for sale investments (13,001) (33,556) (34,898) (36,294) (37,746) BPS (RMB) Others (20,240) 13,584 (1,783) (13,000) (24,544) Net cash used in investing activities (63,605) (70,923) (89,604) (100,680) (112,708) Payments for repurchase of shares (652) (1,936) (2,130) (2,279) (2,438) Dividends paid to the Company's shareholders (2,640) (3,699) (3,699) (6,108) (7,422) Financial Ratios Change in borrowings 28,565 43,824 12,930 25,656 59,800 Year end Dec 2015A 2016A 2017F 2018F 2019F Others (6,745) (6,746) 6,318 11,116 13,752 Profitability Net cash generated from financing activities 18,528 31,443 13,419 28,384 63,693 Gross margin (%) Operating margin (%) Net increase in cash and equivalents ,038 (14,507) 22,505 27,277 Net margin (%) Cash at beginning of year 42,713 43,438 71,902 59,918 85,047 ROE (%) Exchange losses 371 2,426 2,523 2,624 2,729 ROA (%) Cash at end of year 43,438 71,902 59,918 85, ,053 Net gearing (%) Net cash Net cash Net cash Net cash 2.3% See the last page for disclaimer page 59 of 80

60 Machinery Sector 机械行业 Analyst: Sean Xiang 向宇豪 Industry dynamics 行业动态 Outperform YTD sales during Jan. - Aug up 101% YoY. Momentum of excavator sales have magnified entering Sales growth has been exceeded 100% for consecutive months. However, the KONTRAX excavator monthly utilization hours have declined from 143 hours in Jul. to 134 hours in Aug., which we think might due to the pause of construction works as a result of intensified environmental protection. Due to the influences from the 19th National Congress of the Communist Party of China, we think utilization hours of excavator might continue to be squeezed in Sep. and Oct. but might rebound in Nov. due to speeding up of construction works in year end. A recorded high Aug. HDT sales, LNG HDT sales were also eye-catching. The heated sales of HDT lasts in Aug. with monthly sales recorded 91k units, up 84% YoY, being a record high in Aug. LNG HDT sales were boosted due to the environment protection enforcements in North China, which also comes up with a record high monthly sales volume of 9,887 units. With the support from continuing high environmental pressure, we see LNG HDT penetration rate will continue to be magnified in Consumption premiumization with manufacture autonomy, PIMM industry embraces a new cycle. PIMM s key downstream includes automobile, home appliances, 3C and daily consuming goods. While the per capita income in China was climbing in recent years, we see manufacture autonomy also evolves in many manufacture sectors. For the above mentioned sectors, we believe that the progress of rising consumption power as well as production autonomy will accelerate domestic demand for PIMM. Key assumptions update 关键假设更新 跑赢大市 Komatsu KONTRAX China Excavator Monthly Utilization Hours 小松康查士中国挖掘机月度利用小时数 Hrs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: National Bureau of Statistics of China, Guotai Junan International. Cost Efficiency of LNG against Diesel 液化天然气对柴油的经济效益 Construction machineries sales momentum will last in Based on 7-10 years lifespan, construction machineries should have entered replacement cycle and this sets the key catalyst for machinery sales boom in medium term. We expect the replacement cycle for excavator to last 3 years and we anticipate the absolute sales volume of excavators to at least exceed the level in Procurement of LNG HDT will continue, thus demand for LNG cylinders will held high in Based on expectations of LNG HDT penetration rate, we see annual sales of LNG HDT to exceed 100k units with LNG cylinder demand of at least 120k units, if LNG HDT sales could continue to grow in RMB/Kcal Diesel-LNG price gap 5 per. Mov. Avg. (Diesel-LNG price gap) Investment suggestions 投资建议 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Market share expansion from Haitian International will continue. Haitian International is the largest domestic PIMM manufacturer. The company s Zhafir series target high-end manufacture sectors and these sectors usually adopt PIMM manufactured by Japan and Germany. Given Haitian s technology catch up as well as cost advantages, we believe manufacture autonomy amid consumption premiumization will create a new demand cycle for Haitian s PIMM. Source: National Bureau of Statistics of China, Guotai Junan International. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) AviChina Buy Haitian International Buy CIMC Enric Accumulate Weighted Average. 市值加权平均 Source: The Company, Bloomberg, Guotai Junan International. 17 P/B 市净率 Outperform See the last page for disclaimer page 60 of 80

61 Haitian International (01882 HK) 海天国际 (01882 HK) Company updates 公司近况 Analyst: Sean Xiang 向宇豪 Buy Passenger cars sales stabilized, but brand localization as well as manufacture autonomy sets mid-to-long term catalyst for PIMM. The past two months passenger car sales data reveals that sales growth has stabilized. Based on the heated sales since 2H16, we believe that in medium term although the surge of passenger car demand has come to an end, autonomy in car and components manufacturing has formed and this trend will continue to enhance. We expect it to fuel up demand for PIMM, as automobile sector is the key downstream of PIMM. Recovery of overseas market. Haitian generates 30% of its revenue from overseas market and it has assembling centre in Asia, Europe and South America. During 2015 to 2016, Haitian s overseas sales growths were impacted by geographic political issues and the slowdown of South America economy. But entering 2017, we observe strong economy recovery in Europe, North America and South America, with PIMs from these regions held high since 2017, implying boom in regional manufacturing activities. We therefore expect Haitian to record robust overseas sales growth. As export sales often come with higher prices, we believe it to raise Haitian s ASP and thus improve its 2017 top-line. Earnings comments 业绩评论 Record high earnings in 1H17. Revenue was up by 30.5% YoY thanks to surging sales volume of both Mars and Zhafir PIMM. Overseas sales amount climbed by 33.6% YoY owing to a largely improved economic condition in Europe. Haitian s gross profit surged by 34.2% YoY with a new high gross margin at 35.1%, up by 1.0 ppt YoY and 0.5 ppt HoH, which was the result of the continuing improved mix of high-end products. Finance costs rose by 96.2% YoY due to the change of fair value of the Company s convertible bonds. Net profit increased by 36.5% to RMB942 million, which represents 48% of our annual forecasts. Stripping out the non-recurring items related to the fair value changes of the convertible bonds, the Company s net profit during 1H17 would come to RMB1,024 million, up 43.6% YoY. Valuation, catalysts & risks 估值 催化剂和风险 Consumption premiumization with manufacture autonomy forms a new demand cycle for PIMM. The climbing sales composition from Haitian s Zhafir series PIMM underpins that domestic manufacture sector is experiencing a capacity optimizing cycle, in a bid to gain better cost control and manufacture autonomy. Besides, as plastics are most widely used materials for consumer goods, we think the consumption premiumization will in long-term push forward the demand for PIMM, as consumer goods producers have to be flexible and productive in order to adapt the fast evolving product cycle. Our investment rating for the Company is Buy with TP at HK$26.5. 买入 6-18m TP 目标价 : HK$26.50 Share price 股价 : Stock performance 股价表现 (10.0) Change in Share Price 股价变动 Abs. % 绝对变动 % % of return Rel. % to HS index 相对恒指变动 % 1 M 1 个月 3 M 3 个月 HK$ (20.0) Oct-16 Jan-17 Mar-17 Jun-17 Sep-17 HSI Index Haitian International YTD 年初累计 (0.6) (8.7) 23.8 Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International Year End 年结 Turnover 收入 Net Profit 股东净利 EPS 每股净利 EPS 每股净利变动 PER BPS 每股净资产 PBR 市净率 DPS 每股股息 Yield 股息率 ROE 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (RMB) (RMB) (%) (%) 2015A 7,336 1, A 8,098 1, F 10,374 2, F 11,989 2, F 12,963 2, Shares in issue (m) 总股数 (m) 1,596.0 Major shareholder 大股东 Sky Treasure 60.0% Market cap. (HK$ m) 市值 (HK$ m) 36,708.0 Free float (%) 自由流通比率 (%) 39.4% 3 month average vol. 3 个月平均成交股数 ( 000) 1,710.1 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Net cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 27.9 Source: The Company, Guotai Junan International. See the last page for disclaimer page 61 of 80

62 Financial Statement and Ratios Income Statement Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Total revenue 7,336 8,098 10,374 11,989 12,963 Small Tonnage PIMMs 4,563 5,204 6,875 8,008 8,728 Medium to Large Tonnage PIMMs 2,600 2,710 3,295 3,768 4,014 Parts Cost of Sales (4,917) (5,315) (6,721) (7,666) (8,188) Gross Profit 2,419 2,783 3,653 4,323 4,775 Selling and Marketing Expenses (602) (608) (809) (923) (985) General and Administrative Expenses (429) (488) (498) (563) (596) Other Income Other Gain/(Loss), Net Operating Profit 1,546 1,811 2,464 2,945 3,304 Finance Costs (77) (152) (145) (58) (31) Finance Income Share of Profit/loss of Associates Profit Before Tax 1,676 1,914 2,565 3,149 3,597 Income Tax (313) (363) (462) (567) (647) Profit After Tax 1,363 1,551 2,103 2,582 2,950 Non-controlling Interest 0 (0) (0) (0) (0) Shareholders' Profit / Loss 1,363 1,551 2,103 2,582 2,949 Basic EPS Cash Flow Statement Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F CFO Profit before Tax 1,676 1,914 2,565 3,149 3,597 Depreciation & Amortization Finance Income, Net (127) (100) (97) (201) (289) Others (10) 34 (463) 4 (946) Change in working capital (376) 216 (153) (478) (385) Interest & Tax Paid (270) (324) (581) (634) (714) Cash from Operating Activities 1,056 1,928 1,472 2,062 1,503 CFI Purchase of PPE (463) (432) (504) (519) (535) Disposals of PPE Interest Received Invest in financial products (6,250) (6,748) (559) (429) (472) Others 5,593 6,201 0 (0) 0 Cash from Investing Activities (907) (770) (821) (689) (686) CFF Bank Borrowings (41) (39) Dividends Paid (438) (485) (515) (715) (891) Others 0 (435) (0) (0) (0) Cash from Financing Activities (2) (243) (380) (756) (930) Net Changes in Cash (113) Cash at Beg of Year 2,203 2,349 3,264 3,536 4,152 Foreign exchange changes Cash at End of Year 2,349 3,264 3,536 4,152 4,040 Balance Sheet Year end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F PPE 2,417 2,712 3,023 3,330 3,633 Land Use Rights Other Non-Current assets Total Non-current Assets 3,422 3,265 3,576 3,920 4,290 Cash & Cash Equivalents 2,349 3,264 3,536 4,152 4,040 Inventories 1,557 1,720 2,173 2,457 2,625 Trade and Bill Receivables 2,414 2,593 3,268 3,613 3,907 Prepayments, Deposits and Other Receivables Available-for-sales instruments 2,813 3,729 4,288 4,717 5,189 Other current assets Total Current Assets 9,475 11,835 13,694 15,382 16,217 Total Assets 12,897 15,100 17,270 19,302 20,507 Trade and Bill Payables 1,643 2,141 2,946 2,941 2,916 Accruals and Other Payables 1,251 1,440 1,510 1,680 1,795 Bank Borrowing Other Current liabilities Total Current Liabilities 3,401 4,342 5,361 5,494 5,556 Convertible bonds 1,270 1, Other non-current liabilities Total Non-current Liabilities 1,476 1,639 1,202 1, Total Liabilities 4,877 5,981 6,562 6,728 5,874 Total Shareholders' Equity 8,020 9,118 10,707 12,574 14,633 Minority Interest Total Equity 8,020 9,119 10,707 12,575 14,633 [Table_FinancialRatio] Financial Ratios 2015A 2016A 2017F 2018F 2019F Growth (%): Revenue (3.0) Gross Profit (1.4) Operating Profit Net Profit EPS Profitability (%): Gross Margin Operating Margin Net Margin ROA ROE Liquidity & Solvency Current Ratio Quick Ratio Net Gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash Dividend payout ratio Source: The Company, Guotai Junan International. See the last page for disclaimer page 62 of 80

63 Nonferrous Metals 有色金属行业 Analyst: Kevin Guo 郭勇 (0755) Industry dynamics 行业动态 Outperform Nonferrous metals prices recorded most significant rise in the 3 rd quarter of 2017, but the performances of nonferrous metals prices were still divergent. Aluminum and zinc were the best performers, aluminum price rose by 27.6% YTD and zinc price rose by 28.3% YTD. The average aluminum price was up 22.6% yoy in the first three quarters and the average copper price rose by 26.7% yoy in the first three quarters. The consumption demand of base metals of China declined in the first half of China s consumption of refined copper decreased by 3.85% yoy to 5.70 million tons, and the consumption demand of primary aluminum increased by 10.2% yoy to million tons. China s import of refined copper continued to record negative growth in the first half of Total import of refined copper decreased by 25.7% yoy to 1.54 million tons. Nonferrous Metal Prices 有色金属价格 40.0 % return 跑赢大市 Key assumptions update 关键假设更新 Revise up nonferrous metals price assumptions due to supply side reform in China. The supply side reform in China led to significant production cut in non ferrous metals and its impacts exceeded our previous estimation. Hence, we revise up nonferrous metal price assumptions. We expect nonferrous metal prices to rebound moderately in 2017 due to supply side reform in China. We expect copper prices to trade between US$ 5,400/t-US$ 6,500/t in 2H2017, and the average copper price may be around US$ 5,400/t-US$ 5,600/t. We expect the average aluminum prices to fluctuate between US$ 1,950/t. Investment suggestions 投资建议 The profitability of nonferrous mining companies improves much with the rise of metal prices. The average metal prices are all expected to rise moderately in 2017 and will help to improve the profitability of nonferrous companies. However, we believe the rise of nonferrous stock prices have fully reflected profitability improvement. We revise up investment ratings to Outperform.There is no top pick for this sector this month Jan/17 Apr/17 Jul/17 Oct/17 copper aluminum zinc lead nickel tin Source: Bloomberg, Stock Price Performance 股价表现 % return Jan/17 Mar/17 May/17 Jul/17 Sep/17 HSI Index Source: Bloomberg, ompany Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 Jiangxi Copper Neutral China Hongqiao n.a. n.a. China Zhongwang Buy CMOC Accumulate Weighted Average. 市值加权平均 Source.. the Companies, GuotaiJunan International, Bloomberg. 17PER 18PER 19PER 17ROE 净资产收益率 (%) 17P/B 市净率 n.a. n.a. n.a. n.a. n.a Outperform See the last page for disclaimer page 63 of 80

64 US$/bbl US$/bbl HK Market Quarterly Outlook and Sector Update Petrochemicals Sector 石化行业 Analysts: Grace Liu 刘谷 David Liu 刘静骁 (852) (852) Industry dynamics 行业动态 Average YTD Brent oil price is up 21.7% YoY to US$52.6/b. Stronger than expected demand and reduced global oil production helped lift Brent oil prices from a low of US$44.8/b in June to US$59.0/b in September. The IEA has revised upwards its projections for 2017 oil demand growth in its monthly reports for three consecutive months from 1.3 mb/d to 1.6 mb/d during July through September. Outperform 跑赢大市 Brent/WTI Prices and Spread, YTD The oil market is on the path slowly heading towards rebalance. OECD commercial stocks in August fell to 190 mb above the five-year average and is expected to have continued its decline in September. This is compared with a 339 mb surplus back in January. While hurricanes in the Gulf of Mexico, the Kurdistan Referendum, and unstable oil production out of Libya have all contributed to positive oil price fluctuations, the oil market is nonetheless fundamentally on the path towards rebalance. 布伦特和 WTI 油价和价差, 年迄今 Hurricanes in the Gulf of Mexico have significantly impacted U.S. oil and gas production as well as refinery operations, introducing additional volatility to global oil markets. Hurricanes Harvey and Nate have taken down significant oil and gas production as well as refinery runs in the Gulf region. This has led to significant albeit temporary fluctuations to prices for oil and oil products as opposing effects of reduced crude supply from oil production curtailment is met with reduced crude demand from refinery outages Jan Feb Mar Apr May Jun Jul Aug Sep Oct Brent-WTI Spread (RHS) Brent WTI OPEC during the JMMC meeting in September reiterated its commitment to the production cuts, open to consider extension beyond March Compliance rate to OPEC s production cut agreement was 86% for Jan.-Aug., with an 82% compliance rate for August. Growth in production from Libya and Nigeria has offset nearly a third of the total cut. OPEC insisted on improving members compliance and to continue monitoring the oil market before meeting again in November to consider an extension of the agreement. Key assumptions update 关键假设更新 We maintain our oil price assumptions at US$53/bbl, US$63/bbl, US$68/bbl for 2017, 2018, and The oil market is on the path towards stabilization which will likely lead to oil prices rising gradually over time. Downside risks of rising U.S. shale oil production and non-compliance of OPEC s production cuts could slow the process. However, we expect rebalancing forces to prevail over the downside risks, with oil prices exhibiting an upward trend over the next few years. Investment suggestions 投资建议 Short-term opportunities exist during rebalancing of the oil market. As we expect oil prices to trend upward, upstream players most sensitive to oil prices will likely see their share prices rise. While the recent performance of its share price has somewhat diluted our expected short-term upside for CNOOC, we believe there is more room for its share price to grow. Our top pick for the sector is CNOOC (00883 HK). Source: Bloomberg. U.S. and OPEC Oil Production, 2017 美国和 OPEC 原油产量,2017 年 mb/d mb/d Jan Feb Mar Apr May Jun Jul Aug Sep OPEC Production U.S. Production (RHS) Source: EIA, OPEC. Company Name 公司名称 Code 编号 Price 股价 (HK$) Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) 17 P/B 市净率 Sinopec Accumulate Petrochina Accumulate CNOOC Accumulate Weighted Average. 市值加权平均 Source.. the Companies, Guotai Junan International, Bloomberg. Outperform See the last page for disclaimer page 64 of 80

65 CNOOC (00883 HK) 中国海洋石油 (00883 HK) Company updates 公司近况 Analyst: David Liu 刘静骁 Accumulate We expect 2H2017 performance to be relatively stable compared to 1H2017. While CNOOC beat our estimates in 1H2017, in 2H2017 we expect costs to rise gradually as CNOOC spends more on exploration and production to accomplish its capital expenditure plans in light of rising oil prices. While we expect oil prices to rise gradually for the remainder of the year, we expect an US$53/b average Brent price for the full year. CNOOC will release its 3Q2017 operating results in late October. 收集 6-18m TP 目标价 : HK$11.00 Earnings comments 业绩评论 Rising oil prices will improve earnings. With average YTD oil prices up 21.7% YoY coupled with substantial cost reduction taken by CNOOC, performance for 2017 will most likely represent a return to profit from 2016 and beat its results from We estimate EPS for to be RMB0.547, RMB0.852, RMB0.997, respectively. Share price 股价 : Stock performance 股价表现 HK$ CNOOC s share price is sensitive to oil prices. As a purely upstream E&P player, CNOOC s share price performance is more sensitive to movements in oil price compared to other integrated oil companies such as Petrochina (00857HK) and Sinopec (00386HK). As the oil market is in the midst of rebalancing with a gradual recovery of oil prices to be expected over the next few years, we believe CNOOC s shares are attractive. Valuation, catalysts & risks 估值 催化剂和风险 We think there is further upside for CNOOC during the remainder of the year. Our target price corresponds to 17.08x/11.0x/9.4x FY17/FY18/FY19 PER, equivalent to 1.07x/1.02x/0.96x FY17/FY18/FY19 PBR. CNOOC s 1.0x PBR is a discount compared to the weighted average PBR of its peers at 1.4x. We also expect CNOOC to maintain an attractive dividend policy, with yields between 4.4%-5.2% for 2017E-2019E. CNOOC saw its share price rise 16.3% since mid-august in step with the recent rally in oil prices, outperforming HSI Index by 4.1% over the past three months. We expect further upside for CNOOC s share price as long as the oil market maintains its trajectory towards re-stabilization. Downside risks to CNOOC s share price are: 1) uncertainty surrounding whether oil prices can maintain its recovering trend; 2) diligence of CNOOC s cost reducing measures as oil prices rise (5) (10) (15) Change in Share Price 股价变动 Abs. % 绝对变动 % % of return (20) Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Rel. % to HS index 相对恒指变动 % CNOOC 1 M 1 个月 HSI index 3 M 3 个月 YTD 年初累计 (3.8) (22.8) Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. Year End 年结 Turnover 收入 Net Profit 股东净利 EPS 每股净利 EPS 每股净利变动 PER BPS 每股净资产 PBR 市净率 DPS 每股股息 Yield 股息率 ROE 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (RMB) (RMB) (%) (%) 2015A 171,437 20, (66.4) A 146, (96.9) F 186,207 24, , F 219,813 38, F 237,496 44, Shares in issue (m) 总股数 (m) 44,647.5 Major shareholder 大股东 CNOOC 64.4% Market cap. (HK$ m) 市值 (HK$ m) 450,939.3 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 75,680.5 FY17 Net gearing (%) FY16 净负债 / 股东资金 (%) 32.4% 52 Weeks high/low (HK$) 52 周高 / 低 /8.320 FY17 NAV (HK$) FY17 每股估值 ( 港元 ) 14.5 Source: the Company, Guotai Junan International. See the last page for disclaimer page 65 of 80

66 Financial Statements and Ratios Income Statement Cash Flow Statement Year ended Dec 31 (RMB mn) 2015A 2016A 2017F 2018F 2019F Year ended Dec 31 (RMB mn) 2015A 2016A 2017F 2018F 2019F Oil & Gas sales 146, , , , ,997 Profit before tax 17,130 (5,275) 32,581 50,734 59,348 Marketing & other revenues 24,840 25,165 37,241 43,963 47,499 Adjustments for: REVENUE 171, , , , ,496 Depreciation 72,293 68,303 67,764 68,077 70,601 Operating expenses (28,372) (23,211) (22,918) (26,322) (29,248) Amortization 1,306 1,020 1,303 1,319 1,425 Exploration expenses (9,900) (7,359) (9,028) (11,156) (11,592) Tax Paid 3,116 5,912 (8,145) (12,683) (14,837) DD&A (73,439) (68,907) (69,067) (69,396) (72,026) JV/A Income/(loss) - net (1,903) 76 (769) (905) (961) Special oil gain levy (59) (173) Change in Working Capital (14,281) (13,113) 11,570 2,630 4,266 Crude oil and product purchases (19,840) (19,018) (33,145) (39,127) (42,274) Other Operating Cash Flows 2,434 15,940 7,885 5,458 3,873 SG&A, others (5,705) (6,493) (8,063) (9,518) (10,284) OPERATING CASH FLOW 80,095 72, , , ,714 Impairment and provision (2,746) (12,171) 0 (27) (24) Other gains - net (13,920) (11,743) (11,172) (13,189) (14,250) Capital Expenditure (67,674) (51,347) (61,448) (70,340) (73,624) EXPENSES (153,981) (148,902) (153,393) (168,735) (179,870) Investments in financial assets - net (6,905) 25,541 (21,151) (2,452) 5,686 OPERATING PROFIT 17,456 (2,412) 32,814 51,078 57,626 Investments in JV/A (1,456) (1,865) (1,000) (1,020) (1,040) Interest income ,460 Other investments (460) (282) (66) (328) (293) Finance income / (cost) (6,118) (6,246) (5,698) (5,717) (5,324) INVESTMENT CASH FLOW (76,495) (27,953) (83,665) (74,140) (69,271) Exchange (losses)/gains, net (143) (790) Investment income 2,398 2,774 2,948 2,843 3,702 Dividends Paid (20,419) (14,153) (16,846) (18,258) (20,083) Share of profit of associates 256 (609) Change in Gross Debt 28,082 (14,169) (2,628) 204 (82) Share of profit of JV 1, Other Financing Cash Flow (14,556) (14,918) Non-operating income, net FINANCING CASH FLOW (6,651) (43,042) (19,474) (18,054) (20,166) PROFIT BEFORE TAX 17,130 (5,275) 32,581 50,734 59,348 Exchange Differences Income Tax 3,116 5,912 (8,145) (12,683) (14,837) PROFIT FOR THE YEAR 20, ,436 38,050 44,511 Cash at Beginning of the Year 14,918 11,867 13,735 22,785 45,220 Basic EPS, RMB Net Change in Cash (3,051) 1,868 9,050 22,435 34,277 Diluted EPS, RMB CASH AT THE END OF THE YEAR 11,867 13,735 22,785 45,220 79,497 Balance Sheet Year end Dec 31 (RMB Mn) 2015A 2016A 2017F 2018F 2019F PPE 454, , , , ,436 Investments in JV/A 28,413 29,995 31,545 33,241 35,000 Intangibles 16,423 16,644 15,781 14,946 14,053 Other Non-Current Assets 25,174 36,532 33,533 31,407 29,429 Financial Ratios and Assumptions NON-CURRENT ASSETS 524, , , , ,918 Year ended Dec A 2016A 2017F 2018F 2019F Other Investments.(net) 71,827 53,332 74,483 76,935 71,249 Growth %: Cash & Equivalents 11,867 13,735 22,785 45,220 79,497 Oil & gas revenue (32.8)% (17.2)% 22.8% 18.0% 8.0% Inventory 9,263 8,709 9,310 9,892 9,500 Operating profit (78.4)% (113.8)% n.a. 55.7% 12.8% Trade Receivables 21,829 23,289 18,621 21,981 23,750 Net profit (66.4)% (96.9)% 3,736.1% 55.7% 17.0% Other Current Assets 25,425 22,980 24,207 28,576 30,874 Margins: CURRENT ASSETS 140, , , , ,870 Operating margin 11.9% (2.0)% 22.0% 29.0% 30.3% TOTAL ASSETS 664, , , , ,788 Net profit margin 11.8% 0.4% 13.1% 17.3% 18.7% Debt management: Short-Term Debt 33,585 19,678 15,742 14,955 14,208 Net gearing 39.9% 35.6% 32.4% 25.7% 16.2% Trade and Accrued Payables 32,614 25,345 27,501 31,587 35,098 Total debt to equity 42.6% 39.4% 37.9% 36.1% 34.1% Other Current Liabilities 18,181 22,067 25,796 30,452 32,902 Valuation: CURRENT LIABILITIES 84,380 67,090 69,040 76,994 82,207 BVPS (RMB) Long-Term Debt 131, , , , ,762 P/E Other Non-Current Liabilities 62,881 57,422 65,307 70,764 74,637 P/B NON-CURRENT LIABILITIES 193, , , , ,399 P/CF TOTAL LIABILITIES 278, , , , ,607 Assumptions & others: Brent oil price (US$/bbl) Share capital 43,081 43,081 43,081 43,081 43,081 Realised oil price(us$/bbl) Reserves 342, , , , ,100 Production(mmboe) TOTAL EQUITY 386, , , , ,181 Production growth 14.6% (3.8)% (3.9)% 0.7% 0.5% P/reserves(US$/boe) TOTAL EQUITY & LIABILITIES 664, , , , ,788 RRR % 67% 145%* Source: the Company, Guotai Junan International Note: *adjusted for economic revisions (impairment). See the last page for disclaimer page 66 of 80

67 Port Sector 港口行业 Analyst: Spencer Fan 范明 (86755) Industry dynamics 行业动态 Outperform Demand side stable with solid import/export figures. By August 2017, domestic ports container throughput reached mn TEU, up 8.8% YoY. Simultaneously, China s YTD export/import rose 7.6%/16.9% YoY in USD terms. In our view, the recent RMB appreciation resulted to the slowdown in export growth in 3Q17, which indirectly slowed down domestic ports growth. Looking forward, we expect monthly throughput growth to stay above 8% as benefited from the sustained strength of European economies. In August, U.S., Eurozone and Japan s PMI reached 58.8, 57.4 and 52.2, respectively. Major port operations remain ductile. August 2017 s monthly domestic container throughput rose 8.0%, 2.2 ppt lower than July 2017 s growth. Export-bound s active lies cooled down, while import demands remained robust. Biggest 3 destinations, Shanghai, Ningbo-Zhoushan and Shenzhen ports recorded throughputs of 3.45/2.16/2.29 mn TEU in August, with YoY growths of 4.5%/8.5%/1.8%, respectively. 跑赢大市 Domestic Port Sector's Throughput 国内港口吞吐量表现 mn TEU Major domestic ports' accumulated % 25,000 throughput 10 20,000 15,000 10,000 5, Key assumptions update 关键假设更新 0 0 Port handling ASP will not decline among domestic major ports. In 1H17, the State Council announced that port due/harbor due fees will be reduced/cancelled on the long term basis. However, this policy will not affect port industry's overall profitability in our view. Firstly, harbor due is the fee that cargo owners have to pay for ship operators while the cargos are being cleared at the customs, while port companies are not directly involved. Secondly, relevant fees occupy around 6.8% of the port handling activity s relevant charges. Yet the administration bureaus may input more supervision on tugging operations. Overall, State Council expected to deduce RMB200 mn for shipping companies, while the negative impact on port industry would be minimal. Revise the domestic major ports' YoY throughput estimate from 3.7% to 3.5% to reflect export s cool-down. We believe that August 2017 s growth decline in container throughput is partially affected by the RMB appreciation. The USD against RMB s ratio had been declining from 6.9 at the beginning of May 2017 to 6.55 by the end of September. As Chinese goods still have comparative advantage with relatively lower prices and enhanced quality, export-bound commodities advantage was diminishing. Also, property market's cool-down speed might took longer than expected due to policy tightening, domestic needs for coal and iron ore may slow down. Source: Ministry of Transportation.. Domestic Export/Import Performances (In US$) 国内进出口表现 ( 按美元计价 ) % YTD Export YoY YTD Import YoY YTD Export & Import YoY (5) (15) (25) Source: General Administration of Customs of PRC Investment suggestions 投资建议 Current valuation of Port sector is secured. We expect the industry s valuation to be reshaped by thematic topic, such as the the "Belt and Road" and integration potentials (Xiamen and Shenzhen s. Overall we recommend to buy China Merchants Port Holdings (00144 HK), the leading port operator with qualified overseas asset allocations and integration potentials in its homebase. Company Name 公司名称 Code 编号 Price 股价 (HK$) Source.. the Companies, Guotai Junan International, Bloomberg. Rating 投资评级 17 PER 18 PER 19 PER 17 ROE 净资产收益率 (%) COSCO Shipping Ports Accumulate China Merchants Port Buy Xiamen Interntaional Port Accumulate Weighted Average 市值 Outperform P/B 市净率 See the last page for disclaimer page 67 of 80

68 Precious Metals Sector 贵金属行业 Analyst: Kevin Guo 郭勇 (0755) Industry dynamics 行业动态 Neutral Gold price experienced large extent fluctuation in the 3 rd quarter. Gold price ended range fluctuation and started to rise in July and the rise extended to September and even broke the level of US$ 1,300/oz once. However, with the appreciation of U.S. dollar, gold price gradually lost rising momentum and entered into downturn cycle. Although monetary policy remains loose in Japan and the Europe, the Federal Reserve of the U.S. started to cut its balance sheet in the 3 rd quarter. The Federal Reserve had raised interest rates twice in 2017 and started to cut its balance sheet. Investors interests in gold remain weak. Total known gold ETF holdings were still below the level of 2,000 tons. Generally speaking, global ETF holdings start to drop again since the 4 th quarter of 2016 as the impact of unexpected events faded. Precious Metal Price 贵金属价格 20.0 % Return 中性 Key assumptions update 关键假设更新 We expect gold prices to under pressure in 2017 and generally remain flat. We expect short-term gold prices fluctuation will mainly be impacted by economic data and the flotation range will be relatively small. We expect gold prices to fluctuate between USD 1,100-1,350 /oz in We expect the Federal Reserve to raise interest rate again at the year end of The pace of interest rate hike is slower than market expectation in 2016, we believe there may be another interest rate hikes in 2017 rates U.S economy gains steady growth. Investment suggestions 投资建议 We believe gold equity to go down as gold prices are under pressure. We expect gold stocks to lose the driving force of further advancing as investors lose interest for safe haven assets. We expect gold price generally remain flat in There is no top pick for this sector this month Jan-17 Mar-17 May-17 Jul-17 Sep-17 gold platinum silver Source: Bloomberg, Stock Price Performance 股价表现 70.0 % return Jan-17 Mar-17 May-17 Jul-17 Sep-17 HSI Index Source: Bloomberg, ompany Name 公司名称 Code 编号 Zijin Mining Zhaojin Mining China Gold Intl Price 股价 (HK$) Weighted Average. 市值加权平均 Source.. the Companies, GuotaiJunan International, Bloomberg. Rating 投资评级 Accumulate Neutral Neutral 17PER 18PER 19PER 17ROE 净资产收益率 (%) 17P/B 市净率 Neutral See the last page for disclaimer page 68 of 80

69 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 HK Market Quarterly Outlook and Sector Update Property Sector 房地产行业 Analyst: Van Liu 刘斐凡 (86755) Analyst: Johnny Wong 王俊浩 (852) Outperform Industry dynamics 行业动态 Healthy fundamentals remained. During Jan.-Aug. 2017, the YoY increase in commodity house sales continued to decrease compared to that during Jan.-Jul But growth in investment and land area sold maintained strong in Jan.-Aug. 2017, and increased by 7.9% and 10.1% YoY, respectively. In addition, saleable areas extended downside momentum. Targeted policies will be maintained to promote the steady and sound development of the property sector. We think that soaring ASP, low stock levels and numerous "land king" projects triggered policy tightening measures. With high ASP and low stock levels in tier-1, tier-2 and select tier-3 cities, policy tightening in these related cities will be maintained. 跑赢大市 Commodity House Sales Performance 商品房销售表现 14,000 12,000 10,000 8,000 6,000 4,000 2, % 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Key assumptions update 关键假设更新 Maintain GFA sold of commodity housing for 2017 to range from 1,495 mn sq.m to 1,573 mn sq.m, or -0.5%-0.0% YoY to factor in tightening policies targeted in specific cities. In order to promote the steady and sound development of property sector, we expect stable ASP. Maintain the 2017 GFA newly started of 1,786.1 mn sq.m, or 7.0% YoY increase to reflect inventories replenishment initiatives and increasing land supplies by governments. Maintain the 2017 investment of RMB11,079 bn, or up 8.0% YoY on the grounds of YoY increasing of GFA newly started. Investment suggestions 投资建议 Source: National Bureau of Statistics of China. GFA newly started and Investment 新开工与开发投资完成额 25% 20% 15% 10% 5% 0% -5% Amount Sold of Commodity Houses (LHS)(RMB bn) Amount Sold of Residential Houses (LHS) (RMB bn) Amount Sold YTD YoY of Commodity Houses (RHS) Amount Sold YTD YoY of Residential Houses (RHS) 7.6% 7.9% Current valuation of the property sector should basically reflect fundamental improvement. But we still think sector leaders should outperform the sector average amid market consolidation. Top pick is Longfor Properties (00960 HK). -10% -15% -20% -25% Investment YTD YoY GFA Newly Started YTD YoY Company Name 公司名称 Code 编号 Price 股价 (HK$) Source: the Companies, Guotai Junan International, Bloomberg. Rating 投资评级 Hong Kong Listed Real Estate Companies with Major Revenue from mainland 17 PER Source: National Bureau of Statistics of China. 18 PER 19 PER 17 ROE 净资产收益率 (%) COLI Accumulate CR Land Accumulate Longfor Properties Buy Evergrande Buy Country Garden Buy Shenzhen Invest Buy China Aoyuan Buy Powerlong Real Estate Buy Modern Land Buy Sh Ind Urb Accumulate Colour Life Accumulate Weighted Average. Outperform Hong Kong Listed Local Developers Sino Land Accumulate Hang Lung Properties Neutral Weighted Average. Neutral P/B 市净率 See the last page for disclaimer page 69 of 80

70 Longfor Properties (00960 HK) 龙湖地产 (00960 HK) Company updates 公司近况 Longfor Properties exhibited strong growth in contracted sales. During Jan. to Aug. 2017, contracted sales reached RMB bn, up by 105.3% YoY, achieving 76.7% of its revising up sales target. The contracted GFA amounted to 7.43 mn sq.m, up by 100.7% YoY. The ASP was RMB15,492 per sq.m, up by 2.3% YoY. Analyst: Van Liu 刘斐凡 (86755) Buy 买入 Longfor Properties issued senior notes and medium-term notes with low yield. In Jul. 2017, the Company issued 5-year senior notes, 3-year and 5-year medium-term notes amounting to US$4.5 bn, RMB1.7 bn and RMB0.3 bn, with a coupon rate of 3.875%, 4.800% and 5.000%, respectively. 6-18m TP 目标价 : HK$26.64 Share price 股价 : HK$ Earnings comments 业绩评论 Stock performance 股价表现 Bottom-line was in line with our expectations. In 1H17, total revenue amounted to RMB bn, up by 1.2% YoY. The gross profit amounted to RMB6.793 bn, up by 32.7% YoY. As ASP increased and more GFA delivered with higher gross margins, GPM increased 8.7 ppts to 36.5% in 1H17. The underlying net profit rose 19.4% YoY to RMB3.145 bn. which was in line with our expectation. The Company s funding costs are expected to remain at a low level in a healthy financial position. In 1H17, Longfor's funding costs declined by 0.22 ppts to 4.70%. Contracted sales are expected to record double-digit growth with stable gross margins, which could result in more cash collection from contracted sales. As a result, we estimate net gearing ratios to gradually decline in and to remain below 70.0%. Valuation, catalysts & risks 估值 催化剂和风险 We believe that the Company s strong contracted sales with benign prospective fundamentals could promote its valuation. Despite policy tightening measures, Longfor's contracted sales will maintain fast growth. Its rental income is likely to grow fast. We expect Longfor to maintain sustainable revenue growth. A quality land bank, reasonable proper unit land cost and low financial costs will drive Longfor's margins to stability. Longfor will be in a healthy financial position. Therefore, we think that the positive factors justify a low NAV discount. Our current target price was HK$26.64, representing a 20% discount to its 2017E NAV, 10.4x 2017 underlying PER and 1.9x 2017 PBR. Risk factors include lower-than-expected contracted sales and absent strong rental income growth. Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % 1 M 1 个月 3 M 3 个月 YTD 年初累计 Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. 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 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) ( %) (RMB) (RMB) (%) (%) 2015A 47,423 7, A 54,799 8, F 75,380 11, F 91,225 13, F 107,543 16, Shares in issue (m) 总股数 (m) 5,891.9 Major shareholder 大股东 HSBC International Trustee 70.0% Market cap. (HK$ m) 市值 (HK$ m) 124,909.0 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 6,590.5 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 33.3 Source: the Company, Guotai Junan International. See the last page for disclaimer page 70 of 80