26 th July, 2016 Hang Seng Index Performance Index Performance Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 21,993.44 29.17 0.13 8.56 2.74 HSCI 2,958.28 3.88 0.13 7.65 1.75 HSCCI (Red Chips) 3,769.89-8.73-0.23 8.28-1.50 HSCEI (H-Shares) 9,034.76 2.83 0.03 5.92 0.21 Mkt T/O ($ Mn) 49,396.88-2,576.56-4.96-50.53-11.65 Source: Bloomberg Market Outlook Eric Yuen - ericyuen@masonsec.com Hang Seng Index closed up 0.1% at 21,993. Market turnover shrank to $49.4 billion, the lowest in two weeks. Heavily weighted HSBC (5) lost 0.2%. Tencent (700) and China Mobile (941) added 1.5% and 0.5% respectively. Gaming operators Sands China (1928) and Galaxy Entertainment (27) jumped 1.9%- 2.0%. Local banking and property counters were mixed. BOC Hong Kong (2388) and New World Development (17) surged 1.1%-2.2%. Hang Seng Bank (11) and Swire Pacific (19) tumbled 0.3%-0.9%. Four largest Chinese property developers cut an average 0.7%. Lenovo (992), the worst performing index stock, plunged 2.8%. HSCEI was almost unchanged at 9,034. Dongfeng Motor (489), Anhui Conch (914) and Sinopharm (1099) soared 3.1%-4.1%, the most in HSCEI. Financial stocks had on clear direction. China Merchants Bank (3968), Haitong Securities (6837) and New China Life (1336) grew 0.9%-1.9%. CCB (939) and China Life (2628) slumped 1.7% and 0.7% respectively. Power stocks ended lower. Huaneng Power (902) and China Longyuan (916) retreated 1.1%-2.0%. Hang Seng Index may go up further in near-term, fueled by speculation of more loosening monetary policies from major central banks. However, with limited upside ahead, we suggest investors to start taking profit above 21,500. Oversea DJIA 18,493.06-77.79-0.42 6.28 2.79 NASDAQ 5,097.63-2.53-0.05 8.28 4.28 Shanghai SE Composite 3,015.83 3.01 0.10 5.66 1.72 Crude Oil Futures (US$) 43.22 0.09 0.21-9.28-1.86 Gold Futures (US$) 1,318.60-0.90-0.07-0.29 6.05 Baltic Dry Index 709.00-9.00-1.25 16.42 0.71 USD / Euro 1.0988 0.0001 0.01-0.45-2.72 Yen / USD 105.170-0.6900 0.66-3.18 5.91 HSCEI HSI 20-Day MA 8,811.30 21,158.58 50-Day MA 8,677.01 20,732.73 9-Day RSI 62.94 72.35 With limited upside ahead, we suggest investors to start taking profit above 21,500 Remarks: Mason Securities Ltd ( Mason Securities ) is licensed by the Securities and Futures Commission to carry on Types 1, 4, and 6 regulated activities in Hong Kong. Mason Futures Ltd is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong. Bullion trading service is provided by Mason Bullion Ltd. Securities Futures Bullion
Industry / Corporate News Eric Yuen - ericyuen@masonsec.com Lai Sun Development (488) on distressed valuation Hong Kong s property market witnessed a slight rebound in June/July Investors may shift attention to small caps as large property stocks have been technically Risk Level: High overbought Time Horizon: Medium Valuation of Lai Sun Development is unreasonably cheap at over 80% discount to NAV We recommended an overweight position on Hong Kong property stocks dated 6 July 2016 as we believe the U.S. Federal Reserve is unlikely to raise interest rate in the third quarter after Britain s decision to leave the European Union. Market sentiment actually improved thereafter as Hong Kong s residential price advanced 0.4% in June and 1.3% in July according to statistics from Centaline Property Agency. Nine local blue-chip property stocks in Hang Seng Index climbed an average 15.9%, 11.1% and 33.8% over the past 1-month, 3-month and 6-month periods respectively and substantially outperformed the Hang Seng Index. Leading stocks such as SHK Properties (16), Wharf (4) and New World Development (17) have been technically overbought with 9-day RSI over 80. We believe the announcement of interest rate decision by U.S. Federal Reserve on Thursday and private primary housing supply by HK government on Friday may trigger profit-taking on large-cap property stocks in near term. We do maintain our overweight position on Hong Kong property stocks but believe small caps will offer a greater upside potential due to more attractive valuation. Lai Sun Development (488, $0.142) is one of our favorite small property stocks given its unreasonably cheap valuation, heavy exposure to office/commercial market and solid financial position. Its share price jumped 21.4%, 21.4% and 54.3% over the past 1-month, 3-month and 6-month periods respectively and significantly outperformed its peers and Hang Seng Index. The company s rental portfolio is estimated to be worth over $21bn, mainly office and commercial properties in Hong Kong. Core property assets include Cheung Sha Wan Plaza, Causeway Bay Plaza II, 50% stake in CCB Tower and 10% stake in AIA Central. The company completed a 1-for-2 rights issue at $0.092 per share in January 2016 to raise approximately $900mn. Current net debt-to-equity ratio is estimated at below 20% which is healthy in our view. We forecast the company s book value at $24.6bn (or $0.81 per share) and net asset value at $22.3bn (or $0.74 per share) implying the counter is trading at P/B of 0.18x and 81% discount to NAV. Nine local blue-chip property stocks are currently trading at an average P/B of 0.68x. We recommend a on Lai Sun Development with a 6-month price target of $0.185 based on a 75% discount to NAV. Recent Recommendations Stock Pick Rating Recommendation Highlights TP China State Construction China State Construction Int l (3311) witnessed a technical breakout Maintain Int l (3311) $13.0 AAC Technologies (2018) Reiterate on AAC Technologies (2018) as its growth story remains intact $75.2 Geely Automobile (175) SELL Expensive valuation by historical standard Maintain SELL on Geely (175) $3.90 Shenzhou Int l (2313) Market concern on slowing sportswear and apparel demand seems overdone. Reiterate on Shenzhou Int l (2313) $45.7 Xinyi Glass (868) Maintain on Xinyi Glass (868) as supply-demand dynamics of glass industry continues to improve $6.64 China Lesso (2128) Reiterate on China Lesso (2128) to ride on the acceleration of urban underground pipeline construction $6.32 SMIC (981) SMIC (981) is likely to announce strong 2Q16 earnings. Maintain $0.80 Tongda Group (698) Reiterate on Tongda Group (698) as company gains metal casing market share among low- and mid-end smartphones $1.92 Hui Xian REIT (87001) Hui Xian REIT (87001) is a laggard among REITs Maintain RMB3.60 Nine Dragons Paper (2689) Reiterate on Nine Dragons Paper (2689) as paper price hikes trend should be sustainable in 2H16 $7.4
Technical Ideas SmarTone Telecom (315, $14.28) TP: $15.9 Risk: Low Time Horizon: Short SmarTone provides mobile telecommunication and related services and sells mobile telephones and accessories. Counter rose 3.3% yesterday, testing the critical resistance of $14.18. MACD showed positive crossing, indicating a bullish trend ahead.. Short-term target at $15.9. Cut loss at $12.9. Consensus FY6/16 PER: 18.1x Consensus target price: $13.83 Source: Bloomberg, Mason Securities Shenzhen Expressway (548, $7.13) TP: $7.9 Risk: Low Time Horizon: Short Shenzhen Expressway constructs, manages and operates toll highways and expressways in China. Counter consolidated along sma50 since end- June but trend remained intact. Yesterday, it rose 2.6% with expanding turnover, surpassing the upper-end of consolidating range. 9-day RSI rebounded to above 50, indicating a pick-up of momentum.. Short-term target at $7.9. Cut loss at $6.6. Consensus 2016 PER: 12.15x Consensus target price: $7.63 Source: Bloomberg, Mason Securities
RSI Indicator Overbought (9-day RSI> 80) Tickers 2, 4, 15, 16, 17, 20, 52, 62, 66, 127, 129, 215, 256, 258, 283, 440, 486, 536, 556, 557, 611, 630, 683, 881, 921, 989, 1103, 1125, 1175, 1236, 1243, 1310, 1317, 1386, 1438, 1566, 1573, 1812, 1899, 1988, 2009, 2317, 2388, 2638, 2669, 2869, 2880, 3331, 6869 Oversold (9-day RSI<20) Tickers 9, 582, 756, 856, 1132, 1192, 1321, 1421, 1583, 2268, 2348, 3322, 3369, 3823 Exceptional Turnover & Price Movements Stock Stock Last Price ($) Price Change (%) Turnover / 3-mth daily avg turnover Target price up / downside (%)* Rating*^ Value Convergence 821 1.52 17.8 16.7 N/A N/A N/A City E-Solutions 557 3.03 13.1 27.0 N/A N/A N/A Goldin Properties 283 3.90 10.5 4.1 N/A N/A N/A Amco United 630 0.80 9.6 3.8 N/A N/A N/A Hisense Kelon Electic 921 4.68 8.1 7.3-49.1 3.0 11.0 Dongfeng Motor 489 9.34 4.1 2.4 24.5 4.8 5.7 Anhui Conch 914 20.85 3.2 2.2 14.3 4.3 13.0 China Overseas Property 2669 1.56 2.6 3.4 N/A N/A N/A China Aircraft Leasing Group 1848 8.19 2.4 3.8 15.8 5.0 9.3 China Lesso 2128 4.52 2.0 2.1 19.5 5.0 6.5 Aluminum Corp Of China 2600 2.60 2.0 2.1 3.2 2.9 N/A Source: Bloomberg, Mason Securities; *Based on consensus estimates ^ The Rating indicates analysts opinions on the security. It is calculated by converting analysts recommendations into a number from 1-5 and taking the average. 5 is the best while 1 is the worst. 2016 PER*
A-H Share Premium / Discount (%) Average AH Shanghai Listed -38.2% Premium/Discount (%) Shenzhen Listed -40.8% Remark: Shenzhen-listed stocks are not included in the upcoming cross-border stock trading pilot program H Share A Share A-H Shares Shanghai Listed Company Name A Close (RMB) H Close (HKD) AH Price Gap (%) H Share A Share A-H Shares Shanghai Listed Company Name A Close (RMB) H Close (HKD) AH Price Gap (%) 1108 600876 Luoyang Glass 26.96 4.55-85 2628 601628 China Life Insurance 21.12 17.6-28 1053 601005 Chongqing Iron 7.78 1.66-82 548 600548 Shenzhen Express 8.45 7.13-27 2880 601880 Dalian Port 6.36 1.61-78 998 601998 China Citic Bank 5.85 4.94-27 187 600860 Beijing Jingcheng 11.03 3.22-75 390 601390 China Railway 6.9 5.95-26 300 600806 Shenji Machinery Group 6.55 2.25-70 1988 600016 China Group Minsheng 9.19 8.15-24 1033 600871 Kunming SSC 4.07 1.48-69 6818 601818 China Bank Everbright 3.88 3.52-22 553 600775 Nanjing Panda 16.57 6.35-67 525 601333 Guangshen Bank Railway 4.04 3.7-21 1171 600188 Yanzhou Electronics Coal 12.33 4.82-66 2196 600196 Shanghai Fosun 21.48 19.82-21 2238 601238 GAC Mining Group 23.94 9.58-66 168 600600 Tsingtao Pharm Brewery 29.77 27.55-20 995 600012 Anhui Expressway 15.05 6.04-65 1288 601288 ABC 3.1 2.87-20 2866 601866 China Shipping 4.1 1.65-65 3328 601328 BoComm 5.59 5.2-20 317 600685 Guangzhou Container 29.55 11.94-65 3988 601988 Bank of China 3.33 3.2-17 2727 601727 Shanghai Shipyard Electric 7.98 3.28-65 2607 601607 Shanghai Pharm 19.26 18.58-17 38 601038 First Tractor 9.83 4.1-64 1088 601088 China Shenhua 14.69 14.48-15 3993 603993 China Moly 4.21 1.76-64 3968 600036 China Energy Merchants 17.12 17.32-13 1065 600874 Tianjin Capital 7.94 3.67-60 2601 601601 Bank CPIC 27.1 27.55-12 991 601991 Datang Environment Intl Power 4.02 1.95-58 1398 601398 ICBC 4.29 4.38-12 2883 601808 China Oilfield 12.39 6.21-57 6030 600030 Citic Securities 16.57 16.94-12 1919 601919 China Services Cosco 5.25 2.74-55 1186 601186 CRCC 8.95 9.51-9 107 601107 Sichuan 4.72 2.67-51 939 601939 CCB 5.03 5.35-8 564 601717 Zhengzhou Expressway Coal 5.84 3.33-51 2318 601318 Ping An Insurance 32.3 36.3-3 588 601588 Beijing Mining North Star 4.24 2.44-50 386 600028 Sinopec Group 4.82 5.69 2 1072 600875 Dongfang Electric 10.21 6.18-48 3606 600660 Fuyao Glass 15.72 19.38 6 358 600362 Jiangxi Copper 15.32 9.31-48 177 600377 Jiangsu Express 8.68 10.9 8 1055 600029 China Southern 7.9 4.84-47 914 600585 Anhui Conch 16.23 20.85 11 1618 601618 MCC Air 3.81 2.4-46 Cement 670 600115 China Eastern 6.84 4.33-46 A-H Shares Shenzhen Listed 338 600688 Sinopec Airlines Shanghai 6.04 3.85-45 1057 002703 Zhejiang Shibao 33.01 9.61-75 902 600011 Huaneng Petrochem Power 7.1 4.54-45 568 002490 Shandong Molong 9.05 3.34-68 2600 601600 Chalco Intl 3.95 2.6-43 42 000585 Northeast Petroleum Electric 6.58 2.81-63 323 600808 Magang 2.63 1.78-42 719 000756 Shandong Develop Xinhua 11.45 5.5-59 1071 600027 Huadian Power 5.08 3.52-40 921 000921 Hisense Pharm Kelon 9.68 4.68-58 1336 601336 New China Intl Life 40.49 28.1-40 1157 000157 Zoomlion Heavy 4.24 2.43-51 1138 600026 China Insurance Shipping 6.17 4.4-39 895 002672 Dongjiang Industry Env 19.16 12.4-44 2009 601992 Development BBMG 4.05 2.94-38 2039 000039 China International 13.9 9.13-43 857 601857 Petrochina 7.28 5.35-37 2208 002202 Xinjiang Marine Goldwind 15.92 10.64-42 1898 601898 China Coal Energy 5.47 4.04-36 763 000063 ZTE Sci&Tec Corp 15.13 10.8-39 874 600332 Guangzhou Pharm 26.8 19.96-36 1812 000488 Shandong Chenming 8.38 6.69-31 753 601111 Air China 7.72 5.77-36 1513 000513 Livzon Paper Pharm 48.84 39.15-31 2333 601633 Great Wall Motor 9.55 7.48-33 1211 002594 BYD 60.52 51.25-27 1766 601766 CRRC Corp 9.17 7.21-32 347 000898 Angang Steel 4.22 3.75-23 1800 601800 CCCC 10.71 8.61-31 2202 000002 China Vanke 17.7 15.98-22 2899 601899 Zijin Mining 3.48 2.81-30 1776 000776 GF Securities Co Ltd 16.69 17.36-10 6837 600837 Haitong Securities 15.57 12.84-29 2338 000338 Weichai Power 8.35 9.22-5 6886 601688 Huatai Securities Co Ltd 20.03 16.6-29
HSI & HSCEI Constituents Performance Price Change (%) Index 5 D 1 M 3 M vs 3M High Hang Seng Index 1 9 3 0 Hang Seng China Ent Index -1 6 1-1 Outperform Underperform Mixed Property (HK), Utility (HK) Airlines, Coal, Securities (PRC) Automobile, Banking (HK), Cement Price Change (%) Price Change (%) Stock vs 3M Stock vs 3M Company Name 5 D 1 M 3 M Company Name 5 D 1 M 3 M High High 489 Dongfeng Group 6 19 9 0 1880 Belle Int'l 0 10-6 -6 728 China Telecom 6 15 3 0 27 Galaxy 0 7-11 -13 2333 GreatWall Motor 5 20 25-1 3328 Entertainment BOCOM 0 11 11 0 4 Wharf 5 17 22 0 11 Hang Seng Bank 0 5-3 -5 914 Anhui Conch 5 18 5 0 1288 ABC 0 6 9 0 2388 BOC Hong Kong 5 12 9 0 3988 Bank of China 0 7 8 0 17 New World Dev 5 20 14 0 998 CITIC Bank 0 8 6-1 494 Li & Fung 5 12-17 -19 2883 China Oilfield 0 6-6 -11 1113 CK Property 4 18 9 0 762 China Unicom 0 3-11 -12 2202 China Vanke 3 1-13 -15 19 Swire Pacific 'A' 0 9 9-2 941 China Mobile 3 16 9-1 101 Hang Lung Prop 0 10 8-2 2 CLP Hldgs 3 9 15 0 390 China Railway 0 4-4 -6 12 Henderson Land 3 13 5 0 3699 Dalian Wanda 0-4 -5-5 916 Longyuan Power 2 4 15-4 3968 CM Bank 0 12 8-1 1109 China Res Land 2 13 3-1 2628 China Life 0 7-2 -3 6 Power Assets 2 7-1 -4 6837 Haitong Securities -1 6 1-1 1928 Sands China 2 9 4-2 1359 China Cinda -1 5 3-1 823 Link REIT 2 15 21 0 23 Bank of E Asia -1 10 8-1 1988 Minsheng Bank 2 13 16 0 1339 PICC Group -1 2-5 -5 66 MTR Corporation 2 14 20-1 2318 Ping An -1 9 0-2 700 Tencent 2 8 18 0 1336 New China Life -1 5 8-1 16 SHK Prop 2 24 12 0 168 Tsingtao Brew -1 6-5 -7 836 China Resources 2 6-9 -9 322 Tingyi -1 1-24 -24 135 Kunlun Power Gas 2-4 -13-14 2328 PICC P&C -2-2 -13-14 1816 CGN Power 1 9-10 -10 1800 China Comm Cons -2 6-3 -8 83 Sino Land 1 16 12-1 939 CCB -2 10 15-2 1766 CRRC 1 9-4 -4 753 Air China -2 11 1-4 1 CK Hutchison 1 2-6 -6 293 Cathay Pac Air -2 6-7 -7 3 HK Hldgs & China Ltd Gas 1 7 10 0 6030 CITIC Securities -2 4-1 -3 1099 Sinopharm 1 10 12-1 6886 HTSC -2 6-1 -4 5 HSBC Hldgs 1 6-1 -3 386 Sinopec Corp -3 8 7-3 1038 CKI Holdings 1-3 -7-9 1211 BYD Company -3 14 18-3 688 China Overseas 1 13 7-1 857 PetroChina -3 3-4 -9 388 HKEx 1 5-2 -3 151 Want Want -3-4 -21-21 1299 AIA 1 9 5-1 2601 China Pacific -4 10 2-4 144 China Mer Hldgs 1 6-4 -5 1044 Hengan Insurance Int'l -4 0-2 -5 267 CITIC Ltd 1 7 0 0 1776 GF Securities -4 5 2-4 992 Lenovo 1 14-16 -17 2319 China Mengniu -4 1-2 -7 1398 ICBC 0 8 10 0 3323 CNBM Dairy -4 9-11 -11 883 CNOOC 0 7 2 0 1088 China Shenhua -4 9 14-5 902 Huaneng Power 0-5 -16-16
Upcoming Events Date Stock Company Name Event July 26 2133 China Polymetallic Mining Interim July 26 904 China Green Holdings Final July 26 2638 HK Electric Investments Interim July 26 87001 Hui Xian REIT Final July 26 526 Lisi Group Dividend July 26 318 Vongroup Ltd Final July 27 1091 CITIC Dameng Interim July 28 1299 AIA Group Interim July 28 569 China Automation Group Interim July 28 10 Hang Lung Group Interim July 28 101 Hang Lung Properties Interim July 28 243 QPL International Final July 28 1470 Tic Tac International Final Disclosures Investment Rating System Ratings Description Mason Securities Limited s investment Buy Expected positive return of > 10 % rating system is divided into investment Investment Ratings Hold Expected return range of ~ ±10 % ratings, risk rating and investment time Sell Expected negative return > 10% horizon. The rating scale is subject to change upon periodic review of market by High (H) 90-day volatility of > 50% research department. Assigned ratings are Risk Ratings Medium (M) 90-day volatility of > 30-50% based on company and sector historical Low (L) 90-day volatility of < 30% performance and analysts intrinsic Long (L) 6 12 Months valuation of the stock Investment Time Medium (M) 3 6 Months Horizon Short (S) Less than 1 Month Note: 90-day volatility is measured from the security s standard deviation of day to day logarithmic historical price changes. The 90-day price volatility equals the annualized standard deviation of the relative price change for the 90 most recent trading days closing price, expressed as a percentage Mason Securities Limited 12/F, The Center 99 Queen s Road Central Hong Kong Tel: (852) 2218-2828 Fax: (852) 2218-2992 This report is for information only and is not to be construed as investment advice or as an offer to buy or sell securities or financial instruments. Your investment decision should be based upon your personal investment objectives and should be made only after evaluating the stock s expected performance and risk. While the report is compiled using sources believed to be reliable, no assurance or guarantee is given regarding its accuracy or completeness. Neither Mason Securities Limited nor any of its affiliates, nor any employees or other persons connected with any of them, accepts any responsibility or liability arising from any use of this report. To the extent permitted under applicable law, the above-mentioned companies or individuals may have used the research materials before publication. Mason Securities Limited (or any of its affiliates) and their respective officers, directors, analysts, or employees may or may not have a position in or with respect to the securities or financial instruments covered herein, and may, as principal or agent, buy and sell such securities or financial instruments. However, it is hereby declared that the writer, at the time of writing, does not have any interest in any of the securities or financial instruments covered in this report. An employee, analyst, officer, or a director of Mason Securities Limited( or any of its affiliates), may serve as a director for companies covered in this report. Mason Securities Limited (or any of its affiliates) may from time to time perform investment banking or other services or solicit investment banking or other business for any companies covered in this report. Mason Securities Limited is licensed by the Securities and Futures Commission to carry on Types 1, 4, and 6 regulated activities in Hong Kong. Mason Futures Limited is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong. Bullion trading service is provided by Mason Bullion Limited.