We expect Hang Seng Index to be highly volatile in the short term. Market Overview

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1 8 November 2018 Hang Seng Index Performance Major Market Indicators % Change Hong Kong Close 1-Day 1-Mth 6-Mth 12-Mth Hang Seng Index 26, % -0.2% -14.0% -9.5% HSCEI (H-Shares) 10, % 2.4% -12.4% -8.1% Mkt T/O ($ Mn) 97, % 26.7% 1.9% -15.5% Oversea DJIA 26, % -1.2% 7.5% 11.1% NASDAQ 7, % -2.1% 4.2% 11.5% Shanghai SE Composite 2, % -2.8% -16.5% -22.7% Shenzhen Component 7, % -3.8% -27.6% -32.3% Commodities and FX Crude Oil Futures (US$) % -16.9% -10.6% 8.7% Gold Futures (US$) 1, % 3.2% -6.6% -4.5% Baltic Dry Index 1, % -8.8% -2.6% -6.1% USD / Euro % -0.4% -3.8% -1.4% Yen / USD % -0.6% -4.0% 0.1% CNH / USD % 0.1% -8.1% -4.2% Source: Bloomberg Market Overview Hang Seng Index closed up 0.1% at 26,147. HSCEI climbed 0.1%. Heavily weighted Tencent (700) and AIA Group (1299) surged 0.5% and 1.8% respectively. HSBC (5) cut 0.2%. Gaming, airline and coal stocks outperformed the market. Sands China (1928) and Galaxy Entertainment (27) rose 0.4%-0.7%. Air China (753) and China Shenhua (1088) advanced 1.7%-1.9%. Consumption, automobile, power, insurance, PRC banking & property stocks lacked clear direction. WH Group (288), Shenzhou (2313) and Hengan (1044) soared 1.3%-2.0% while Want Want China (151) retreated 0.2%. Geely Automobile (175) and Great Wall Motor (2333) decreased 3.9%-4.9% while Guangzhou Automobile (2238) added 3.4%. China Resources Power (836) fell 1.7% while Huaneng Power (902) increased 0.7%. Zhongan Online (6060) jumped 3.0% while New China Life (1336) tumbled 1.7%. China Vanke (2202) and Shimao Property (813) increased 1.5%-1.7%. China Evergrande (3333) and Logan Property (3380) shrank 0.8%-1.0%. Postal Savings Bank (1658) rose 1.6% while China Minsheng Banking (1988) plunged 0.7%. We expect Hang Seng Index to be highly volatile in the short term HK banking, securities and telecom stocks underperformed the market. BOC Hong Kong (2388) and Hang Seng Bank (11) slid 0.7%-1.2%. China Mobile (941), China Unicom (762) and China Telecom (728) lost 1.3%, 0.8% and 0.5% respectively. Five securities stocks in HSCEI dropped an average 1.7% among which China Galaxy Securities (6881) fell 3.3%. We expect Hang Seng Index to be highly volatile in the short term.

2 Market in Focus China Traditional Chinese Medicine MKT Cap ($Bn) 26.6 Bloomberg Ticker 570 HK Equity 52-week High/Low ($) Rating BUY Free Float (%) 55.6% Target Price $6.70 3M Avg Turnover ($, Mn) 83.6 Promising growth with undemanding valuation Maintain BUY on China Traditional Chinese Medicine (570) Since our BUY commentary dated Aug 27, China Traditional Chinese Medicine (570, CTCM, $5.28) has dropped 12.4% compared with a 5.5% loss for Hang Seng Index. We believe the underperformance is partially due to weak market sentiments on the pharmaceutical sector and concerns over margin squeeze from raw materials costs. We maintain our long-term bullish view on CTCM and believe it will benefit from 1) solid industry development; 2) channel expansion in high-to-low tier hospitals; 3) the increasing penetration rate of TCM granules due to more and more provinces including TCM granules in medical insurance in the future. Fig1: 1 Year Share Price As a recap, CTCM reported a better-than-expected interim results. Revenue and net profit grew 40.1% and 27% to RMB 3.49bn and RMB 760.3mn respectively. Among which revenue from 1) TCM granules, 2) Finished drugs and 3) TCM decoction pieces grew 37.2%, 14.1% and 245.3% to RMB3.49bn, RMB 1.31bn and RMB639.5mn. Gross profit amounted to RMB2.93bn representing an increase of 35.1% as compared with approximately RMB2.17bn for the same period of last year. GPM fell 1.9ppt to 53.7% for the first half of 2018, mainly due to higher contribution from TCM decoction pieces business, whose gross profit margin was lower than other businesses. CTCM targets at revenue of RMB20bn for TCM granules, and 5bn for TCM decoction by 2020, implying a CAGR of 20 to 30%. We continue to take a positive view on TCM granule market. According to Bloomberg estimates, the company s earnings to reach RMB1.49bn in 2018 and RMB1.83bn in 2019, up approximately 26.9% and 23.1% respectively. EPS is expected to reach RMB in 2018 and RMB in Traded at 2018 P/E of 15.2x and 2019 P/E 12.6x, we believe the valuation of CTCM is attractive to long term investors. We maintain our BUY rating on CTCM with 6-month target price of $6.7 based on 2019 P/E of 16.0x. Source: Bloomberg, Mason Securities

3 Technical Ideas Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss Greentown Service Group 2869 HK Equity BUY $5.83 $6.41 $7.78 $5.54 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity % % 57% 28.5X 6.37X -92% Technical Indicator SMA RSI (14) 48.1 SMA BB (Upper) 5.89 SMA BB (Lower) 5.03 Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss CRRC Corp 1766 HK Equity BUY $7.16 $7.88 $8.10 $6.80 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity % % 50% 15X 1.41X 9% Technical Indicator SMA RSI (14) 61.9 SMA BB (Upper) 7.16 SMA BB (Lower) 6.65 Source: Bloomberg, Mason Securities

4 Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) 26/10/2018 HHS (1347) 29/10/2018 Kunlun Energy s (135) 30/10/2018 CCCC (1800) 31/10/2018 COG (581) 1/11/2018 Shimao Property (813) 2/11/2018 China Suntien (956) 5/11/2018 Galaxy Entertainment (27) 6/11/2018 ENN Energy (2688) 7/11/2018 A-Living Services (3319) Long term growth prospects remain promising Maintain BUY Hua Hong Semiconductor (1347) The underperformance is mainly driven by a slowdown in the global semiconductor industry. However, we maintain our bullish view on HHS because the company relies on the fast-growing domestic market which is highly promoted by the PRC government Benefit from sustainable LNG consumption growth in China, recommend BUY Kunlun Energy (135) We expect LNG imports will reach approximately 13% CAGR from 2018 to 2025 in China Kunlun Energy s LNG terminals and LNG processing business will benefit from the sustainable LNG import growth given its leading position in LNG industry Third-quarter financial results could be a share price catalyst Maintain BUY CCCC (1800) In order to offset the impact from escalating trade war tension between China and the U.S. and sustain economic growth, we believe the Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CCCC China Oriental Group (581): Positive read-through from peers 3Q results, Maintain BUY We expect COG s 3Q18 net profit to reach RMB+2bn and the company will announce its operating data by mid-nov COG is one of the best companies and most efficient steel producers in China in terms of profitability or execution capability Fundamental remains solid - Maintain BUY on Shimao Property (813) We expect contracted sales for 2018 to exceed RMB150bn (RMB120.8bn in first nine months of 2018) representing an increase of 50% yoy and 7% above management target of RMB140bn Cheap valuation at 2018 P/E of 5.0x and 2018 P/B of 0.7x. Upward revision on market earnings consensus is poised Maintain BUY on undemanding valuation Net profit for 9M18 increased by better-than-expected 58.4% yoy to RMB939mn. Earnings upgrade by analysts is very likely. Traded at 2019 P/E of 4.7x and 2019 P/B of 0.62x with a ROE of 14.0%, China Suntien is still undervalued. Current valuation is cheap by historical average - Maintain BUY Galaxy Entertainment (27) Underperformance of CEG is mainly due to a slowdown in Macau s gaming revenue which increased by 17.5% yoy in the first eight months of 2018 but only 2.8% yoy in September and 2.6% yoy in October Consensus growth for 2019 has been adjusted downward to a low-single digit. However, we believe the opening of the Hong Kong-Zhuhai-Macau Bridge will improve earnings outlook for gamings stocks in the medium-to-long term ENN Energy (2688) : Recent weakness offers a long-term buying opportunity at reasonable price; BUY We expect domestic production to reach nearly 6% CAGR and LNG imports to reach approximately 13% CAGR from 2018 to 2025 We believe the valuation of ENN is reasonable long term investors Attractive valuation after a deep correction in share price Maintain BUY on A-Living Services (3319) We believe the underperformance is partially due to worries about an increase in employee benefit expenses after a strict enforcement of China s social security taxes in 2019 With share price falling some 30% in three months, the negative impact on 2019 s earnings should be fully discounted in share price in our view BUY ($16.0) BUY ($10.7) BUY ($10.0) BUY ($9.50) BUY ($21.90) BUY ($2.62) BUY ($57.9) BUY ($79.4) BUY ($14.0)

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