1 st 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 19,111.93-252.22-1.30-2.47-14.61 HSCI 2,597.82-32.20-1.22-2.17-15.63 HSCCI (Red Chips) 3,412.80-74.97-2.15-1.44-18.19 HSCEI (H-Shares) 7,916.34-117.96-1.47-2.81-20.42 Mkt T/O ($ Mn) 64,017.09 1,542.73 2.47-29.31-36.40 Source: Bloomberg Market Outlook Eric Yuen - ericyuen@guoco.com Hang Seng Index closed down 1.3% at 19,111. Market turnover increased to $64.0 billion. Heavily weighted HSBC (5) was little changed. AIA Group (1299) and China Mobile (941) shrank 2.3%-2.7%. HKEx (388) cut 2.5% on analyst downgrade. Local banking and property stocks were mixed. New World Development (17) and BOC Hong Kong (2388) advanced 1.0%-1.6%. CK Property (1113) and Hang Seng Bank (11) plunged 0.5%-1.6%. Food & beverage counters ended lower. Tingyi (322), Want Want China (151) and China Mengniu (2319) tumbled 1.9%-3.7%. Belle Int l (1880) slumped 4.9%, the most in Hang Seng Index. Decline in China s stock markets weighed on Chinese stocks. HSCEI fell 1.5% led by oil, power and railway stocks. PetroChina (857), Sinopec (386), CNOOC (883) and China Oilfield Services (2883) slid 2.3%-3.5%. China Longyuan (916), the worst performing HSCEI stock, lost 4.5%. CGN Power (1816) and Huaneng Power (902) retreated 1.8%-2.3%. China Railway Group (390), CCCC (1800) and CRRC Corporation (1766) decreased 1.7%-2.7%. Insurance, securities and banking shares in HSCEI dropped an average 2.1%, 1.6% and 1.1% respectively. We expect Hang Seng Index to trade range between 18,000 and 20,000 in March. Oversea DJIA 16,516.50-123.47-0.74 0.30-6.79 NASDAQ 4,557.95-32.52-0.71-1.21-10.78 Shanghai SE Composite 2,687.98-79.23-2.86-0.03-22.23 Crude Oil Futures (US$) 33.80 0.05 0.15 6.89-19.24 Gold Futures (US$) 1,241.90 7.50 0.61 10.10 16.77 Baltic Dry Index 329.00 2.00 0.61 3.79-43.66 USD / Euro 1.0883 0.0008 0.07 0.37 2.52 Yen / USD 112.448-0.2535-0.22-7.16-8.49 HSCEI HSI 20-Day MA 7,995.04 19,164.95 50-Day MA 8,564.03 20,024.22 9-Day RSI 44.80 47.73 We expect Hang Seng Index to trade range between 18,000 and 20,000 in March. 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 BUY Maintain BUY Risk Level: Medium Time Horizon: Long Leading construction company in China with a proven earnings record Plans to achieve new contracts of not less than $78bn in 2016, up 11.4% yoy China State Construction International (3311, CSCI, $11.94) dropped 11.3% year-to-date compared to a loss of 12.8% for Hang Seng Index and 18.1% for HSCEI over the same period. The resilience of its share price is supported by positive fundamentals. CSCI is 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 previous year. In January 2016, the company recorded new contract value of $7.84bn and hence achieved 10.1% completion of the full year target. As of 31 January 2016, the company s on-hand contract value amounted to $206.6bn among which the backlog was approximately $131.2bn, equivalent to 3.8x 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 $5.20bn in 2016, up 22% in both years. EPS growth will be 20% in 2015 and 23% in 2016. Traded at 2016 PER of 9.1x with projected EPS growth of 23% in 2016, valuation of CSCI is undervalued compared to its 5-year average forward PER of 13.7x. Maintain BUY with unchanged 12-month price target of $14.3 based on 2016 PER of 11.0x. Recent Recommendations Stock Pick Rating Recommendation Highlights TP Fairwood (52) BUY BUY Fairwood (52) on strong earnings growth momentum and high dividend yield $24.4 Shenzhou Int l (2313) BUY Reiterate BUY on Shenzhou Int l (2313) amid positive 2016 sales guidance from Adidas $45.7 Fortune REIT (778) BUY BUY Fortune REIT (778) on high dividend yield and low earnings risk $8.75 Galaxy Entertainment (27) BUY Recommend to BUY on Galaxy Entertainment (27) ahead of next week s earnings surprise $32.2 SMIC (981) HOLD Downgrade SMIC (981) to HOLD on disappointing quarterly results $0.69 China High Speed Transmission (658) BUY Reiterate BUY on China High Speed Transmission (658) on attractive valuation $8.78 ANTA Sports (2020) HOLD Downgrade ANTA Sports (2020) to HOLD due to disappointing trade fair results for 3Q16 $20.20 Techtronic Industries (669) BUY Reiterate BUY on Techtronic Industries (669) amid Home Depot s strong 4Q15 earnings and rosy 2016 outlook $34.9 Sino Land (83) BUY Sino Land (83) is well prepared to acquire cheap land bank in future $11.8 Nine Dragons Paper (2689) BUY Reiterate BUY on Nine Dragons Paper (2689) on lowered forex risk and improving fundamentals $6.02
Technical Ideas Travelsky Technology (696, $11.72) TP: $12.89 BUY Risk: Medium Time Horizon: Short Travelsky Technology provides information technology solutions for China's air travel and tourism industries. The company provides electronic travel distribution systems, or ETD, in China, develops airport passenger processing and air cargo systems, owns and operates realtime network for China's civil aviation industry, and operates Internet-based travel platform. Counter rose 0.9% yesterday. 9-day RSI surged above 50. MACD also showed positive crossing, indicating a strong upward momentum ahead. BUY. Short-term target at $12.89. Cut loss at $10.80. Source: Bloomberg, GuocoCapital Consensus 2016 PER: 17.1x Consensus target price: $15.33 Peak Sport (1968, $1.79) TP:1.60 SELL Risk: Medium Time Horizon: Short Peak Sport Products manufactures athletic shoes. Counter lost 3.8% yesterday. 9-day RSI dropped below 50 while MACD also showed negative crossing, indicating a strong downward momentum ahead. SELL. Short-term target at $1.60. Cover short at $1.90. Consensus 2016 PER: 8.2x Consensus target price: $2.65 Source: Bloomberg, GuocoCapital
RSI Indicator Overbought (9-day RSI> 80) Tickers Oversold (9-day RSI<20) Tickers 91, 687, 689, 1293, 1386, 1421, 2066, 2668, 6836, 6889 345, 460, 787, 853, 911, 1004, 1076, 1236, 1269, 1323, 2343, 2399, 3788 Exceptional Turnover & Price Movements Stock Stock Last Price ($) Price Change (%) Turnover / 3-mth daily avg turnover Target price up / downside (%)* Rating*^ EPI Holdings 689 0.24 13.8 20.7 N/A N/A N/A BYD Electronic 285 4.37 4.5 4.7 30.4 4.6 6.4 Shengjing Bank 2066 12.60 3.2 6.9-15.7 3.7 7.6 Convoy Financial 1019 0.35 2.9 2.3 N/A N/A N/A Towngas China 1083 3.96 2.8 2.3 33.8 3.3 7.6 Yanzhou Coal Mining 1171 3.32 2.4 2.0-14.7 2.0 N/A Walker Group 1386 1.99 2.0 3.9 N/A N/A N/A Suncorp Technologies 1063 0.15 2.0 3.6 N/A N/A N/A 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 -41.0% Premium/Discount (%) Shenzhen Listed -44.3% 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 27.23 4.19-87 874 600332 Guangzhou Pharm 20.24 16.2-33 1033 600871 SSC 5.92 1.66-76 1088 601088 China Shenhua 13.63 10.92-33 300 600806 Shenji Group 9.18 2.74-75 1071 600027 Huadian Power Intl 5.23 4.22-32 1171 600188 Yanzhou Coal 10.49 3.32-73 2628 601628 China Life Insurance 19.88 16.92-28 1053 601005 Chongqing Iron 2.57 0.91-70 1288 601288 ABC 2.99 2.56-28 2866 601866 China Shipping 4.21 1.5-70 3328 601328 BoComm 5.17 4.44-28 2238 601238 GAC Group 18.67 6.72-70 902 600011 Huaneng Power Intl 6.89 6.05-26 187 600860 Beijing Jingcheng 8.31 3.1-69 6818 601818 China Everbright 3.4 3.09-23 3993 603993 China 3.22 1.24-68 6837 600837 Haitong Securities 12.4 11.32-23 564 601717 Zhengzhou Coal 7.52 2.94-67 3988 601988 Bank of China 3.17 2.91-23 2727 601727 Shanghai Electric 8.48 3.33-67 2607 601607 Shanghai Pharm 15.15 14-22 1618 601618 MCC 3.9 1.71-63 525 601333 Guangshen Railway 3.61 3.43-20 317 600685 Guangzhou 23.91 10.62-63 1398 601398 ICBC 4.03 3.84-20 553 600775 Nanjing Panda 11.18 5.03-62 386 600028 Sinopec 4.35 4.33-16 2883 601808 China Oilfield 12.15 5.72-60 3968 600036 China Merchants 14.56 14.56-16 38 601038 First Tractor 9.1 4.32-60 2196 600196 Shanghai Fosun 17.95 18.02-15 1919 601919 China Cosco 5.52 2.66-59 939 601939 CCB 4.53 4.55-15 995 600012 Anhui Expressway 12.11 6.01-58 6030 600030 Citic Securities 14.28 14.96-12 991 601991 Datang Intl Power 3.89 2.03-56 168 600600 Tsingtao Brewery 26.54 28.1-11 1898 601898 China Coal Energy 4.9 2.6-55 2601 601601 CPIC 23.51 25.15-10 2009 601992 BBMG 8.15 4.36-55 6886 601688 Huatai Securities Co 13.63 14.64-10 588 601588 Beijing North Star 3.92 2.14-54 914 600585 Anhui Ltd Conch 5.7 15.44-8 338 600688 Sinopec Shanghai 6.02 3.3-54 2318 601318 Ping An Cement Insurance 29.01 32.9-4 323 600808 Petrochem Magang 2.47 1.36-54 3606 600660 Fuyao Group Glass 6.7 15.46-1 1072 600875 Dongfang Electric 10.01 5.81-51 177 600377 Jiangsu Express 7.62 9.14 1 2600 601600 Chalco 4.5 2.66-50 107 601107 Sichuan 3.85 2.32-49 A-H Shares Shenzhen Listed 358 600362 Jiangxi Expressway Copper 13.45 8.11-49 1057 002703 Zhejiang Shibao 25.28 6.82-77 1065 600874 Tianjin Capital 7.9 4.93-47 568 002490 Shandong Molong 8.49 2.41-76 670 600115 China Environment Eastern 5.56 3.65-45 42 000585 Northeast Petroleum Electric 7.44 2.13-76 1800 601800 Airlines CCCC 10.56 7-44 719 000756 Shandong Develop Xinhua 9.58 3.79-67 1336 601336 New China Life 33.82 22.5-44 921 000921 Hisense Pharm Kelon 6.56 2.68-66 390 601390 China Insurance Railway 7.29 4.91-43 1157 000157 Zoomlion Heavy 4.09 2.14-56 2333 601633 Great Group Wall Motor 8.21 5.59-43 2208 002202 Xinjiang Industry Goldwind 14.46 8.36-51 857 601857 Petrochina 7.28 4.99-42 895 002672 Dongjiang Sci&Tec Env 14.27 9.98-41 548 600548 Shenzhen Express 8.21 5.83-40 2202 000002 China Vanke 24.43 17.52-40 1055 600029 China Southern 5.86 4.36-37 1211 002594 BYD 50.51 38.6-36 2899 601899 Zijin Air Mining 3.13 2.33-37 1812 000488 Shandong Chenming 6.96 5.45-34 753 601111 Air China 6.14 4.61-37 347 000898 Angang Paper Steel 3.86 3.17-31 1988 600016 China Minsheng 8.45 6.38-36 2039 000039 China International 13.41 11.14-30 1186 601186 CRCC Bank 9.73 7.37-36 1513 000513 Livzon Marine Pharm 39.12 32.7-30 1766 601766 CRRC Corp 9.33 7.1-36 763 000063 ZTE Corp 13.68 12.68-22 1138 600026 China Shipping 5.99 4.59-35 2338 000338 Weichai Power 7.12 7.09-16 2880 601880 Development Dalian Port 3.67 2.86-34 1776 000776 GF Securities Co Ltd 12.8 14.34-6 998 601998 China Citic Bank 5.38 4.29-33
HSI & HSCEI Constituents Performance Index 5 D 1 M 3 M vs 3M High Hang Seng Index -2-3 -13-15 Hang Seng China Ent Index -4-4 -20-21 Price Change (%) Outperform Gaming, Gas, Oil Underperform Mixed Cement, Coal, Infrastructure, IT Hardware, Power, Securities, Stock Exchange, Airlines, Automobile, HK Bank, PRC Bank, Conglomerate, Global Player, 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 17 New World Dev 3 3-15 -17 3323 CNBM -3 7-17 -19 3968 CM Bank 2-2 -21-22 1044 Hengan Int'l -3-11 -21-23 823 Link REIT 2-1 -7-8 1398 ICBC -4-5 -18-20 2202 China Vanke 2 0-8 -23 3 HK & China Gas -4 0-12 -12 5 HSBC Hldgs 1-9 -20-21 168 Tsingtao Brew -4 2-19 -21 1211 BYD Company 1 10-7 -12 6030 CITIC Securities -4 0-16 -21 2388 BOC Hong Kong 0-1 -16-17 902 Huaneng Power -4-5 -13-15 293 Cathay Pac Air 0 2-9 -9 4 Wharf -4 8-12 -13 700 Tencent 0-2 -7-8 144 China Mer Hldgs -4 1-14 -17 83 Sino Land 0 9-5 -9 1766 CRRC -4-1 -28-33 2 CLP Hldgs 0 4 5-1 2883 China Oilfield -4 3-26 -27 1299 AIA 0-7 -15-18 1088 China Shenhua -4-6 -10-14 728 China Telecom 0 3-2 -3 291 China Res Beer -5 2-14 -24 12 Henderson Land 0 0-13 -14 1113 CK Property -5-4 -22-25 6 Power Assets 0 4 6-2 494 Li & Fung -5-1 -18-18 688 China Overseas -1 3-9 -16 2318 Ping An -5-6 -24-26 135 Kunlun Gas -1-4 -17-20 1816 CGN Power -5-2 -27-27 19 Swire Pacific 'A' -1 1-11 -13 992 Lenovo -5-6 -20-24 1928 Sands China -1 5 8-2 6837 Haitong Securities -5-3 -17-19 27 Galaxy -1 8 14-2 2333 GreatWall Motor -5-5 -40-44 386 Entertainment Sinopec Corp -1 0-9 -13 1339 PICC Group -5-9 -30-31 16 SHK Prop -1 4-10 -11 836 China Resources -5-4 -14-19 1109 China Res Land -1-2 -11-19 1800 China Power Comm Cons -5 3-23 -24 1359 China Cinda -2-4 -20-20 2319 China Mengniu -6 4-11 -15 883 CNOOC -2 1-6 -12 2601 China Dairy Pacific -6-8 -21-25 1099 Sinopharm -2 4-11 -16 151 Want Insurance Want -6 1-16 -17 3328 BOCOM -2-6 -19-21 1988 Minsheng Bank -6-5 -13-18 762 China Unicom -2 4-8 -8 3699 Dalian Wanda -6-14 -33-34 66 MTR Corporation -2 2 0-6 6886 HTSC -7 1-23 -24 998 CITIC Bank -2-5 -14-16 1880 Belle Int'l -7-3 -26-29 1 CK Hutchison -2-2 -7-10 916 Longyuan Power -7-7 -34-36 11 Hang Hldgs Seng Ltd Bank -2 2-7 -11 2328 PICC P&C -7-11 -31-33 857 PetroChina -2 5-10 -12 2628 China Life -7-10 -38-38 939 CCB -2-4 -15-16 914 Anhui Conch -8 2-26 -31 267 CITIC Ltd -2-3 -23-25 390 China Railway -8-11 -25-26 3988 Bank of China -3-4 -16-17 753 Air China -9-7 -27-29 101 Hang Lung Prop -3-4 -26-27 1776 GF Securities -9-8 -22-28 388 HKEx -3-1 -17-18 489 Dongfeng Group -9-1 -12-18 1288 ABC -3-7 -14-23 1336 New China Life -10-15 -29-35 23 Bank of E Asia -3 9-11 -14 322 Tingyi -14-17 -36-36 941 China Mobile -3-4 -7-9
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