14 th March, 2016 Hang Seng Index Performance Index Performance Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 20,199.60 215.18 1.08 10.26-5.21 HSCI 2,748.54 34.42 1.27 10.83-6.28 HSCCI (Red Chips) 3,694.44 79.70 2.20 13.61-6.35 HSCEI (H-Shares) 8,561.37 141.23 1.68 14.07-8.10 Mkt T/O ($ Mn) 63,271.18 9,024.72 16.64-5.44-7.48 Source: Bloomberg Market Outlook Eric Yuen - ericyuen@guoco.com Hang Seng Index closed up 1.1% at 20,200 last Friday. Market turnover increased to $63.3 billion. Heavily weighted Tencent (700) and AIA Group (1299) surged 2.1%- 2.3%. HSBC (5) was little changed. CITIC Ltd (267) jumped 9.2% after a loss of 4.7% in previous two days. Gaming operator Galaxy Entertainment (27) and Sands China (1928) climbed 2.0%-2.9%. Eight largest Chinese property developers grew an average 2.7%. Local property and consumption stocks showed mixed performance. Cheung Kong Property (1113) soared 1.2% whilst Link REIT (823) retreated 0.9%. China Resources Beer (291) added 3.7%. Tingyi (322) tumbled 2.1%. Belle Int l (1880) plunged 7.9% after reporting poor same store sales data. HSCEI advanced 1.7% led by railway, power and cement stocks. CRRC Corporation (1766) increased 10.5%. China Railway Group (390) and CCCC (1800), China Longyuan (916) and Huaneng Power (902) rose 3.7%-6.0%. Anhui Conch (914) and CNBM (3323) went up 3.8%-3.9%. Banking, insurance and securities stocks in HSCEI grew an average 2.7%, 1.9% and 0.8% respectively. China Merchants Bank (3968), the worst performing HSCEI stock, slid 1.4%. We expect Hang Seng Index to move between 19,000 and 20,500 in March whilst the risk is on the upside. Oversea DJIA 17,213.31 218.18 1.28 7.76-0.89 NASDAQ 4,748.47 86.31 1.85 9.47-4.11 Shanghai SE Composite 2,810.31 5.58 0.20 1.69-20.18 Crude Oil Futures (US$) 38.40-0.10-0.26 30.43 5.76 Gold Futures (US$) 1,253.80-5.60-0.44 1.16 17.90 Baltic Dry Index 388.00 4.00 1.04 33.33-23.62 USD / Euro 1.1159 0.0003 0.03-0.77 1.31 Yen / USD 113.753-0.1036-0.09 0.48-6.02 HSCEI HSI 20-Day MA 8,216.08 19,546.53 50-Day MA 8,337.18 19,695.38 9-Day RSI 62.60 64.55 We expect Hang Seng Index to move between 19,000 and 20,500 in March but the risk is on the upside. Remarks: GuocoCapital Ltd is licensed by the Securities and Futures Commission to carry on Types 1, 4, and 6 regulated activities in Hong Kong. GuocoCapital Futures Ltd is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong. Bullion trading services provides by GuocoCapital Bullion Ltd. Securities Futures Bullion Corporate Finance
Industry / Corporate News Eric Yuen - ericyuen@guoco.com China State Construction Int l (3311) is expected to deliver strong earnings results Maintain Maintain Acquired new contract of $15.6bn in 2M16 representing 20% completion of full year target Risk Level: Medium Traded at 2016 PER of 8.8x with projected EPS growth of 20% in 2015 and 23% in 2016, Time Horizon: Long valuation of CSCI is undervalued compared to its 5-year average forward PER of 13.7x China State Construction International (3311, CSCI, $11.54) underperformed the Hang Seng Index by 8.4% and 2.7% over the past 1 month and 3 months respectively as short-term investors chased laggards amid an improvement in market sentiment. We are not aware of any change in fundamentals of the company. CSCI remains a well-managed construction company in China with a strong execution capability and proven track record of delivering decent earnings growth. From 2011 to 2014, the company s revenue and earnings increased at a CAGR of 28.1% and 31.9% respectively. EPS CAGR during the period was 26.1% due to dilution from share placement in July 2012. Gross margin expanded from 12.2% in 2012 to 13.7% in 2013 and 13.8% in 2014. The margin improvement is partly attributable to acquisition of more projects from China which enjoys higher gross margin compared with those in Hong Kong and Macau. Net margin was relatively stable at 10.0%-10.8% in the past three financial years. CSCI s new contract value surged 32.3% in 2014 but only 16.3% in 2015 due to a slowdown of China s economy. Management s target for new contracts to be awarded in 2016 is no less than $78.0bn, representing an 11.4% increase over the actual contract value achieved in 2015. In the first two months of 2016, the company recorded new contract value of $15.6bn and hence achieved a 20% completion of the full year target. As of 29 February 2016, the company s on-hand contract value amounted to $214.3bn among which the backlog was approximately $136.5bn, equivalent to 4 times of the company s revenue in 2014. For the first nine months of 2015, the company s operating revenue grew 14% yoy to $2.56bn while the aggregate amounts of operating profit and the share of profits of joint ventures increased by 23% yoy to $3.49bn. Full year earnings results will be released on March 22. According to Bloomberg estimates, the company s earnings are expected to reach $4.23bn in 2015 and $5.21bn in 2016, up 22% and 23% yoy respectively. Traded at 2016 PER of 8.8x with projected EPS growth of 20% in 2015 and 23% in 2016, valuation of CSCI is undervalued compared to its 5-year average forward PER of 13.7x. Maintain with unchanged 12-month price target of $14.3 based on 2016 PER of 11.0x. Recent Recommendations Stock Pick Rating Recommendation Highlights TP Nine Dragons Paper (2689) Reiterate on Nine Dragons Paper (2689) on lowered forex risk and improving fundamentals $6.02 China State Construction Int l China State Construction Int l (3311) is expected to deliver strong earnings results (3311) Maintain $14.3 Lee & Man Paper (2314) Reiterate on Lee & Man Paper (2314) on solid annual results with improving containerboard industry outlook $5.8 Galaxy Entertainment (27) Recommend to on Galaxy Entertainment (27) amid solid 4Q15 earnings and improving gaming industry outlook $32.3 HKEx (388) SELL Maintain SELL on HKEx (388) due to expensive valuation $152 Xinyi Glass (868) Maintain on Xinyi Glass (868) on attractive valuation and better glass price outlook $5.38 Shenzhen Investment (604) Shenzhen Investment (604) on higher earnings visibility and lower earnings risk $3.90 China High Speed Reiterate on China High Speed Transmission (658) amid company s latest Transmission (658) positive profit alert $8.78 CAR Inc (699) HOLD Disappointing 4Q15 financial results Downgrade CAR Inc (699) to HOLD $9.30 AAC Technologies (2018) Reiterate on AAC Technologies (2018) amid the smartphone spec upgrade cycle $57.4
Technical Ideas Huaneng Renewables (958, $2.12) TP: $2.35 Risk: High Time Horizon: Short Huaneng Renewables is an alternative energy company. The company acquires and develops wind power projects in China and overseas. Counter rose 6.0% last Friday with exceptional turnover. 9-day RSI also rose above 50, indicating a strong upward momentum ahead.. Short-term target at $2.35. Cut lost at $2.00. Consensus 2016 PER: 8.4x Consensus target price: $2.82 Source: Bloomberg, GuocoCapital CRRC (1766, $8.02) TP:8.90 Risk: Medium Time Horizon: Short CRRC Corporation provides a wide range of rolling stock products and services. The company's products include locomotives, passenger carriages, freight wagons, MUs, rapid transit vehicles and key related components. Counter rose 10.5% last Friday with exceptional turnover. 9-day RSI rose above 50, indicating a strong upward momentum ahead.. Short-term target at $8.90. Cut lost at $7.30. Consensus 2016 PER: 13.5x Consensus target price: $8.98 Source: Bloomberg, GuocoCapital
RSI Indicator Overbought (9-day RSI> 80) Tickers 41, 258, 328, 341, 859, 884, 929, 1031, 1052, 1157, 1217, 1332, 1381, 2777, 3339, 3808 Oversold (9-day RSI<20) Tickers 231, 376, 460, 1103, 1365, 2326, 3788 Exceptional Turnover & Price Movements Stock Stock Last Price ($) Price Change (%) Turnover / 3-mth daily avg turnover Target price up / downside (%)* Rating*^ Newtree Group 1323 0.47 27.0 11.4 N/A N/A N/A Shifang Holding 1831 1.47 23.5 7.5 N/A N/A N/A China Huarong Energy 1101 0.25 17.7 9.2 N/A N/A N/A China Lotsynergy 1371 0.30 11.1 9.9 N/A 5.0 N/A CRRC Corporation 1766 8.02 10.5 3.8 12.0 3.8 13.5 CITIC Ltd 267 12.32 9.2 4.7 2.8 3.4 6.8 Zhaojin Mining 1818 6.59 8.6 2.8-26.5 3.0 34.9 Zoomlion Heavy Industry 1157 3.07 6.2 2.1 7.9 4.1 122.4 Guangzhou R&F Properties 2777 10.40 5.2 4.0-1.3 3.7 4.2 CIFI Holdings 884 1.87 5.1 3.4 25.0 4.8 3.3 China Machinery 1829 5.64 4.4 2.3 39.8 4.8 8.7 Carnival Group Int l 996 1.05 4.0 3.5 N/A 5.0 15.2 China Resources Beer 291 15.08 3.7 4.4-6.6 3.4 34.8 PICC P&C 2328 13.44 3.4 3.4 27.5 4.0 9.0 Pax Global Technology 327 7.52 3.0 2.4 41.9 4.7 10.7 Chinasoft Int l 354 2.55 2.4 4.2 45.6 4.8 13.1 2016 PER* Source: Bloomberg, GuocoCapital 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.
A-H Share Premium / Discount (%) Average AH Shanghai Listed -39.1% Premium/Discount (%) Shenzhen Listed -41.6% 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 27.87 4.31-87 2333 601633 Great Wall Motor 8.51 6.91-32 300 600806 Shenji Group 9.35 2.79-75 2628 601628 China Life Insurance 21.65 17.9-31 1033 600871 SSC 4.82 1.76-69 1288 601288 ABC 3.19 2.72-29 1053 601005 Chongqing Iron 2.76 1.06-68 1071 600027 Huadian Power Intl 5.3 4.65-27 3993 603993 China 3.38 1.31-68 3328 601328 BoComm 5.49 4.83-26 1171 600188 Yanzhou Coal 10.31 4.01-67 525 601333 Guangshen Railway 3.7 3.34-24 2238 601238 GAC Group 18.82 7.35-67 1088 601088 China Shenhua 13.87 12.56-24 2727 601727 Shanghai Electric 8.47 3.43-66 3988 601988 Bank of China 3.4 3.11-23 2866 601866 China Shipping 4.43 1.8-66 6837 600837 Haitong Securities 13.19 12.14-23 187 600860 Beijing Jingcheng 8.08 3.33-65 902 600011 Huaneng Power Intl 7.32 6.74-23 564 601717 Zhengzhou Coal 7.52 3.27-64 2607 601607 Shanghai Pharm 15.81 14.86-21 995 600012 Anhui Expressway 13.7 6.36-61 6818 601818 China Everbright 3.68 3.46-21 553 600775 Nanjing Panda 11.65 5.41-61 1398 601398 ICBC 4.34 4.15-20 317 600685 Guangzhou 25.66 12.06-61 3968 600036 China Merchants 15.76 15.5-18 38 601038 First Tractor 9.34 4.5-60 6030 600030 Citic Securities 15.95 16.06-16 1618 601618 MCC 4.07 2.02-58 939 601939 CCB 4.76 4.8-16 1919 601919 China Cosco 5.93 2.95-58 2196 600196 Shanghai Fosun 18.49 18.9-14 2883 601808 China Oilfield 12.64 6.41-58 6886 601688 Huatai Pharm Securities Co 14.61 15.24-13 991 601991 Datang Services Intl Power 4.12 2.18-56 2601 601601 CPIC Ltd 24.63 26.2-11 2009 601992 BBMG 8.25 4.86-51 386 600028 Sinopec 4.58 4.95-10 588 601588 Beijing North Star 4.02 2.38-50 168 600600 Tsingtao Brewery 27.13 30.05-7 323 600808 Magang 2.58 1.53-50 2318 601318 Ping An Insurance 5.7 34.75-6 338 600688 Sinopec Shanghai 6.07 3.64-50 914 600585 Anhui Group Conch 15.14 18.36 2 107 601107 Petrochem Sichuan 4.13 2.49-50 177 600377 Jiangsu Cement Express 6.7 9.77 3 2600 601600 Expressway Chalco 4.44 2.7-49 3606 600660 Fuyao Glass 13.91 17.2 4 1065 600874 Tianjin Capital Environment 7.93 4.83-49 1898 601898 China Coal Energy 5.06 3.13-48 A-H Shares Shenzhen Listed 1072 600875 Dongfang Electric 10.32 6.4-48 1057 002703 Zhejiang Shibao 25.28 7.46-75 358 600362 Jiangxi Copper 14.4 9.67-44 568 002490 Shandong Molong 8.38 2.61-74 1336 601336 New China Life 35.72 24.25-43 42 000585 Northeast Petroleum Electric 7.44 2.33-74 670 600115 China Insurance Eastern 5.64 3.97-41 921 000921 Hisense Develop Kelon 6.85 2.85-65 857 601857 Petrochina Airlines 7.69 5.42-41 719 000756 Shandong Xinhua 9.77 4.09-65 390 601390 China Railway 7.93 5.59-41 2208 002202 Xinjiang Pharm Goldwind 14.59 9.43-46 1800 601800 Group CCCC 11.41 8.1-41 895 002672 Dongjiang Sci&Tec Env 14.86 9.89-44 548 600548 Shenzhen Express 8.75 6.47-38 1157 000157 Zoomlion Heavy 4.37 3.07-41 1138 600026 China Shipping 6.52 4.91-37 2202 000002 China Industry Vanke 24.43 18.32-37 2880 601880 Development Dalian Port 3.82 2.91-36 1513 000513 Livzon Pharm 41.14 33-33 2899 601899 Zijin Mining 3.34 2.57-36 1812 000488 Shandong Chenming 7.19 5.8-32 1766 601766 CRRC Corp 10.33 8.02-35 1211 002594 Paper BYD 51.26 41.6-32 753 601111 Air China 6.42 5-35 2039 000039 China International 14.44 12.28-29 1988 600016 China Minsheng 9.12 7.13-35 347 000898 Angang Marine Steel 4.04 3.65-24 1055 600029 China Bank Southern 5.98 4.79-33 763 000063 ZTE Corp 15.06 14.16-21 874 600332 Guangzhou Air Pharm 21.44 17.26-33 2338 000338 Weichai Power 7.74 8.5-8 1186 601186 CRCC 10.78 8.69-33 1776 000776 GF Securities Co Ltd 13.83 15.48-6 998 601998 China Citic Bank 5.79 4.67-32
HSI & HSCEI Constituents Performance Price Change (%) Index 5 D 1 M 3 M vs 3M High Hang Seng Index 0 9-6 -9 Hang Seng China Ent Index 0 12-8 -14 Outperform Underperform Mixed Airline, Asset Management, Coal, Conglomerate, Gas, Global Player, Infrastructure, Oil Cement, IT hardware, Oilfield Service, Ports, Securities, Stock Exchange, Telecom, Utilities Automobile, HK bank, PRC Bank, Consumer, Power, Insurance, HK Property, PRC Property 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 2333 GreatWall Motor 8 34-27 -27 1928 Sands China 0 18 16-2 1800 China Comm Cons 7 27 1 0 2319 China Mengniu 0-1 -14-17 1766 CRRC 7 17-15 -18 27 Galaxy Dairy 0 20 17-1 390 China Railway 6 17-3 -8 941 Entertainment China Mobile 0 4-5 -5 494 Li & Fung 4 7-2 -7 836 China Resources 0 21 0-8 267 CITIC Ltd 4 18-9 -11 3 HK & Power China Gas 0 4-7 -9 688 China Overseas 3 22 0-5 2 CLP Hldgs 0 5 7 0 135 Kunlun Gas 3 12-2 -8 1113 CK Property 0 16-11 -12 2328 PICC P&C 3 13-13 -20 12 Henderson Land -1 16-3 -7 1359 China Cinda 3 15-4 -11 1288 ABC -1 5-6 -19 386 Sinopec Corp 3 21 12 0 11 Hang Seng Bank -1 10-5 -8 916 Longyuan Power 3 34-6 -15 823 Link REIT -1 3-5 -5 1299 AIA 2 13-8 -9 23 Bank of E Asia -1 19 2-7 17 New World Dev 2 20-5 -6 6 Power Assets -1 7 9-1 3699 Dalian Wanda 2 7-19 -22 2202 China Vanke -1 13-13 -20 1988 Minsheng Bank 2 11 1-8 2628 China Life -1 9-27 -31 151 Want Want 2 5-1 -3 388 HKEx -1 6-11 -15 1398 ICBC 1 9-8 -14 322 Tingyi -1-7 -31-32 1099 Sinopharm 1 21 2-3 2601 China Pacific -1 7-12 -21 1339 PICC Group 1 12-17 -22 83 Insurance Sino Land -1 15 3-1 293 Cathay Pac Air 1 24 5-2 6030 CITIC Securities -1 17-5 -15 1044 Hengan Int'l 1-5 -18-18 1109 China Res Land -2 14-6 -12 1088 China Shenhua 1 17 7-2 3323 CNBM -2 26 6-3 19 Swire Pacific 'A' 1 11-5 -8 992 Lenovo -2 2-20 -21 2388 BOC Hong Kong 1 12-8 -11 6837 Haitong Securities -2 12-3 -14 883 CNOOC 1 23 16-1 1211 BYD Company -2 22 4-5 998 CITIC Bank 1 14-2 -8 1776 GF Securities -2 7-19 -23 753 Air China 1 11-17 -23 1816 CGN Power -3 11-11 -20 902 Huaneng Power 1 15 4-2 101 Hang Lung Prop -3 8-19 -20 857 PetroChina 1 21 7 0 728 China Telecom -3 5 9-3 3328 BOCOM 1 13-9 -14 2318 Ping An -3 9-15 -21 700 Tencent 1 9 0-3 144 China Mer Hldgs -3 10-6 -12 16 SHK Prop 0 17 1-1 1336 New China Life -3 6-23 -28 3988 Bank of China 0 6-7 -11 6886 HTSC -3 14-12 -20 1 CK Hutchison 0 6-2 -5 489 Dongfeng Group -3 9-14 -15 939 Hldgs CCB Ltd 0 8-7 -12 914 Anhui Conch -5 29-12 -14 5 HSBC Hldgs 0 5-13 -17 2883 China Oilfield -5 29-2 -9 762 China Unicom 0 10 0-5 4 Wharf -5 14-4 -6 66 MTR Corporation 0 4 0-5 3968 CM Bank -6 17-11 -16 291 China Res Beer 0 23 2-9 1880 Belle Int'l -9-3 -19-19 168 Tsingtao Brew 0 7-8 -15
Upcoming Events Date Stock Company Name Event Mar 14 1768 Bracell Mar 14 Mar 14 3989 Capital Environment Mar 14 Mar 14 1816 CGN Power Mar 14 Mar 14 3318 China Flavors & Fragrances Mar 14 Mar 14 775 CK Life Sciences Int'l Mar 14 Mar 14 703 Future Bright Mar 14 Mar 14 431 Greater China Financial Mar 14 Mar 14 993 Huarong International Mar 14 Mar 14 1076 Imperial Pacific International Mar 14 Mar 14 3336 Ju Teng International Mar 14 Mar 14 848 Maoye International Mar 14 Mar 14 72 Modern Media Mar 14 Mar 14 583 SCMP Group Mar 14 Mar 14 368 Sinotrans Shipping Mar 14 Mar 14 1362 SIS Mobile Mar 14 Mar 14 2382 Sunny Optical Technology Mar 14 Mar 14 1527 Zhejiang Tengy Environmental Mar 14 Mar 14 1300 Trigiant Group Mar 14 Mar 14 382 Welling Holding Mar 14 Mar 14 2233 West China Cement Mar 14 Mar 14 2393 Yestar International Mar 14 Disclosures Investment Rating System Ratings Description GuocoCapital s investment rating system is Buy Expected positive return of > 10 % divided into investment ratings, risk rating Investment Ratings Hold Expected return range of ~ ±10 % and investment time horizon. The rating Sell Expected negative return > 10% scale is subject to change upon periodic High (H) 90-day volatility of > 50% review of market by research department. Risk Ratings Medium (M) 90-day volatility of > 30-50% Assigned ratings are based on company Low (L) 90-day volatility of < 30% and sector historical performance and analysts intrinsic valuation of the stock Long (L) 6 12 Months 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 GuocoCapital Limited 12/F, The Center, 99 Queen s Road Central, Hong Kong Tel: (852) 2218-2818 Fax: (852) 2285-3128 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 GuocoCapital nor any of its associated companies, (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. GuocoCapital (or one of its affiliates) or their officers, directors, analysts, or employees may or may not have a position in or with respect to the securities covered herein, and may, as principal or agent, buy and sell such securities or commodities. However, it is hereby declared that the writer, at the time of writing, does not have any interest in any of the securities covered in this report. An employee, analyst, officer, or a director of GuocoCapital, or its affiliates, may serve as a director for companies covered in this report. GuocoCapital (or one of its affiliates) may from time to time perform investment banking or other services or solicit investment banking or other business for any company covered in this report. GuocoCapital Ltd is licensed by the Securities and Futures Commission to carry on Types 1, 4, and 6 regulated activities in Hong Kong. GuocoCapital Futures Ltd is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong.