13 th May, 2016 Hang Seng Index Performance Index Performance Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 19,915.46-139.83-0.70-5.88 8.71 HSCI 2,723.35-17.15-0.63-6.23 9.81 HSCCI (Red Chips) 3,534.33-0.22-0.01-8.68 8.69 HSCEI (H-Shares) 8,413.72-29.95-0.35-8.46 12.10 Mkt T/O ($ Mn) 53,901.39-5,439.66-9.17 3.87-18.33 Source: Bloomberg Market Outlook Eric Yuen - ericyuen@masonsec.com Hang Seng Index closed down 0.7% at 19,915. Market turnover decreased to $53.9 billion, the lowest since April 12. Heavily weighted Tencent (700) shrank 1.5%. HSBC (5), AIA Group (1299) and China Mobile (941) cut 0.8%, 0.6% and 0.3% respectively. HKEx (388) lost 2.3% on falling stock market turnover. Large local banks and property companies ended lower. CK Property (1113), SHK Properties (16) and Henderson Land (12) slumped 1.4%-2.2%. BOC Hong Kong (2388) and Hang Seng Bank (11) slid 0.7%-1.3%. Power Assets (6) tumbled 2.7% after the company decided not to distribute a special interim dividend. Kunlun Energy (135) and CITIC Pacific (267), the best performing index stocks, climbed 2.0%-2.6%. HSCEI declined 0.4% led by pharmaceutical, railway and large financial stocks. Sinopharm (1099) retreated 1.6%. China Life (2628) and Ping An Insurance (2318) dropped 0.6%-1.1%. ICBC (1398), CCB (939) and BOC (3988) plunged 0.7%-0.8%. China Railway Group (390) and CRRC Corporation (1766) both decreased 0.7%. Cement and automobile companies ended higher. Anhui Conch (914) and CNBM (3323) advanced 1.1%-1.8%. Dongfeng Motor (489), Great Wall Motor (2333) and BYD Company (1211) surged 0.5%-0.9%. China Oilfield Services (2883) jumped 5.3%, the most in HSCEI. Hang Seng Index may test 19,500 in near term given weak market sentiment. Oversea DJIA 17,720.50 9.38 0.05-1.05 10.93 NASDAQ 4,737.33-23.35-0.49-4.25 9.22 Shanghai SE Composite 2,835.86-1.18-0.04-7.53 2.62 Crude Oil Futures (US$) 46.33-0.37-0.79 10.94 57.37 Gold Futures (US$) 1,268.40-2.80-0.22 1.61 2.34 Baltic Dry Index 579.00 0.00 0.00 2.12 98.97 USD / Euro 1.1374-0.0012-0.11 0.77 1.95 Yen / USD 109.030 0.0800-0.07 0.17 5.16 HSCEI HSI 20-Day MA 8,883.55 20,911.93 50-Day MA 8,750.98 20,545.40 9-Day RSI 25.53 25.92 Hang Seng Index may test 19,500 in near term given weak market sentiment. 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 1Q16 earnings in line with expectation - Maintain Hua Hong Semiconductor (1347) Reiterate Expect 2Q16 revenue to grow 5%-7% qoq with a better gross margin of 29%-31% Risk Level: Medium Strong net cash of $2.76 per share Cheap valuation at 2016 P/B of 0.60x and 2016 PER of 8.8x Time Horizon: Medium Hua Hong Semiconductor (1347, HHS, $7.15) reported in-line quarterly results for 1Q16 on Wednesday. Revenue and net profits amounted to US$164.4mn and US$21.8mn, up 18.0% and 4.5% qoq respectively. First quarter revenue was 2%-3% above management forecast. Gross margin declined from 29.5% in 4Q15 to 29.2% in 1Q16 due to higher depreciation expenses but in line with management guidance of 28%-30%. Wafer shipment grew 17.8% qoq to 391,000 units with a flat ASP. Revenue from China contributed 50% of total revenue and grew 9.1% qoq to US$82mn primary due to increased demand for LED lighting, MCU, smart card and RF products. Average capacity utilization rate improved from 80.3% in 4Q15 to 94.7% in 1Q16. HHS has one of the largest 200mm wafer processing capacities in China through its three fabs in Shanghai, with a total capacity of 146,000 8-inch wafers per month by end-2015. The company plans to expand production capacity to 164,000 wafers per month by end-2016, up 12% yoy. The application of company s products include smart cards, microcontroller units, automotive ICs, smart grids, LED lighting, wearable devices and connected sensors via the Internet of Things. Management said one of the company s key bank card IC customers in China recently had been fully qualified by an international organization and was ready to ramp up in production. This will be a key driver for revenue growth in 2H16 as HHS is a leader in the bank card IC business in China. HHS s financial position is sound so that a dividend payout of 30% is sustainable in our view. As at 31 March 2016, the company had net cash of US$366mn or equivalent to $2.76 per share or 39% of its market capitalization. Management forecast company s revenue to grow 5%-7% qoq with a gross margin of 29%-31% in 2Q16. Based on this guidance, we expect net profit to be US$27.3mn in 2Q16, up 25% qoq. For the full year of 2016, we expect net profit to drop 4% to US$108.2mn assuming revenue growth of 5% and steady gross margin of 31.0%. The counter is presently trading at 2016 P/B of 0.60x, 2016 PER of 8.8x and forward dividend yield of 3.4% which is undervalued in our view. Maintain on HHS with an unchanged 12-month price target of $9.4 based on 2016 PER of 11.5x. Analysts consensus price target is $11.25. Recent Recommendations Stock Pick Rating Recommendation Highlights TP Pacific Basin (2343) Pacific Basin (2343) on distressed valuation $1.70 China High Speed Transmission (658) Reiterate on China High Speed Transmission (658) on attractive valuation $8.9 China Machinery Engineering Corporation (1829) Weakness in share price offers a good buying opportunity CMEC (1829) $6.45 Lee & Man Paper (2314) Reiterate on Lee & Man Paper (2314) on improving containerboard industry outlook $5.8 Henderson Land (12) SELL Underweight HK property stock, SELL CK Property (1113), SHK Properties (16) and Henderson Land (12) $42.0 Tongda Group (698) Initiate on Tongda Group (698) as company continues to win market share in metal handset casings $1.92 Sinopharm (1099) SELL Downgrade Sinopharm (1099) to SELL due to lower than expected quarterly earnings $29.30 AAC Technologies (2018) Upgrade AAC Technologies (2018) to as recent price weakness should have priced in the weak 2Q16 guidance of Apple $60.9 China State Construction Int l First quarter operating results on track Maintain China State Construction (3311) Int l (3311) $14.0 Techtronic Industries (669) Accumulate Techtronic Industries (669) ahead of Home Depot s upcoming quarter results $34.5
Technical Ideas SITC Int l (1308, $4.05) TP: $4.48 Risk: Medium Time Horizon: Short SITC International offers marine shipping services. The company offers container liner shipping, freight forwarding, customs clearance, shipping agency, and ship brokerage services. SITC operates in Asia. Counter rose 2.8% yesterday and surpassed sma250. 9-day RSI rebounded to above 50, implying a regain of momentum.. Short-term target at $4.48. Cut loss at $3.68. Consensus 2016 PER: 9.7x Consensus target price: $4.57 Source: Bloomberg, Mason Securities Chaowei Power (951, $5.12) TP: $5.65 Risk: Medium Time Horizon: Short Chaowei Power manufactures lead acid batteries. The company produces batteries for electric bicycles, electric cars and storage batteries for wind and solar energy installations. Counter rose 5.3% yesterday, breaking out from the downtrend since early-april. 9-day RSI surged above 50, indicating that an improved momentum.. Short-term target at $5.65. Cut loss at $4.59. Consensus 2016 PER: 9.3x Consensus target price: $5.52 Source: Bloomberg, Mason Securities
RSI Indicator Overbought (9-day RSI> 80) Tickers 508, 526, 607, 767, 932, 1389, 1462, 1673, 2317, 2967, 3683 Oversold (9-day RSI<20) Tickers 42, 85, 119, 123, 235, 242, 300, 342, 343, 434, 493, 546, 585, 656, 683, 688, 699, 763, 787, 861, 880, 891, 952, 966, 992, 1063, 1157, 1165, 1223, 1250, 1347, 1375, 1459, 1522, 1530, 1663, 1680, 1812, 1918, 1963, 2039, 2138, 2186, 2226, 2326, 2331, 2628, 2722, 2777, 2868, 3336, 3377, 3383, 3669, 3900, 6030, 6818 Exceptional Turnover & Price Movements Stock Stock Last Price ($) Price Change (%) Turnover / 3-mth daily avg turnover Target price up / downside (%)* Rating*^ China Properties Investment 736 0.27 17.8 10.8 N/A N/A N/A Dingyi Group Investment 508 0.81 17.4 14.3 N/A N/A N/A Pacific Plywood 767 0.49 11.4 4.0 N/A N/A N/A Major Holdings 1389 4.32 9.6 3.4 N/A N/A N/A Universe Int l 1046 0.98 5.4 5.0 N/A N/A N/A Blue Sky Power 6828 0.69 4.5 4.0 N/A N/A N/A AAC Technologies 2018 57.70 2.8 3.5 3.0 4.0 15.8 Truly International 732 2.91 2.1 2.4-14.5 3.0 9.7 Kingboard Chemical 148 15.68 2.1 2.2 21.2 5.0 7.9 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 -39.9% Premium/Discount (%) Shenzhen Listed -43.1% 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 26.24 4.44-86 6837 600837 Haitong Securities 14.6 12.06-31 300 600806 Shenji Group 6.7 2.21-72 2899 601899 Zijin Mining 3.09 2.57-30 2238 601238 GAC Group 24.69 8.42-71 1138 600026 China Shipping 6.14 5.2-29 187 600860 Beijing Jingcheng 8.28 3.07-69 1088 601088 China Shenhua 13.81 11.9-28 1033 600871 SSC 4.03 1.51-69 548 600548 Shenzhen Express 8.05 6.98-27 2866 601866 China Shipping 4.3 1.72-66 3328 601328 BoComm 5.25 4.61-26 553 600775 Nanjing Panda 13.9 5.57-66 2607 601607 Shanghai Pharm 19.03 16.74-26 2727 601727 Shanghai Electric 7.7 3.21-65 525 601333 Guangshen Railway 4.19 3.72-26 38 601038 First Tractor 9.6 4.07-64 1288 601288 ABC 3.05 2.71-25 3993 603993 China 3.37 1.43-64 6818 601818 China Everbright 3.55 3.23-24 1171 600188 Yanzhou Coal 8.92 4-62 3988 601988 Bank of China 3.25 3-23 1053 601005 Chongqing Iron 2.54 1.18-61 1186 601186 CRCC 9.89 9.26-21 317 600685 Guangzhou 23.87 11.68-59 168 600600 Tsingtao Brewery 30.43 28.45-22 995 600012 Anhui Expressway 11.9 5.89-58 1398 601398 ICBC 4.18 3.92-21 2883 601808 China Oilfield 12.39 6.21-58 2601 601601 CPIC 26.59 25.4-20 1919 601919 China Cosco 5.29 2.72-57 3968 600036 China Merchants 17.46 16.7-20 991 601991 Datang Intl Power 4 2.1-56 6886 601688 Huatai Securities Co 15.9 15.38-19 1065 600874 Tianjin Capital 7.59 4.01-56 939 601939 CCB 4.69 4.68-16 564 601717 Zhengzhou Coal 5.72 3.12-54 6030 600030 Citic Securities 15.6 15.58-16 1618 601618 MCC 3.8 2.1-54 2196 600196 Shanghai Fosun 18.73 19.4-13 2880 601880 Dalian Port 5.52 3.12-53 2318 601318 Ping An Insurance 31.71 34.15-10 1072 600875 Dongfang Electric 9.86 5.6-52 386 600028 Sinopec 4.62 5.14-7 588 601588 Beijing North Star 4.1 2.35-52 3606 600660 Fuyao Glass 14.09 17.08 2 338 600688 Sinopec Shanghai 6.14 3.6-51 177 600377 Jiangsu Express 8.5 10.74 6 670 600115 China Eastern 7.3 4.41-49 914 600585 Anhui Conch 14.77 18.8 7 2600 601600 Chalco 3.94 2.41-49 323 600808 Magang 2.47 1.53-48 A-H Shares Shenzhen Listed 1336 601336 New China Life 39.32 24.5-48 1057 002703 Zhejiang Shibao 25.28 7.85-74 2009 601992 BBMG 7.96 4.96-48 568 002490 Shandong Molong 7.77 2.83-69 107 601107 Sichuan 4.18 2.61-48 42 000585 Northeast Electric 6.03 2.20-69 1898 601898 China Coal Energy 4.8 3.12-45 719 000756 Shandong Xinhua 11.3 4.6-66 358 600362 Jiangxi Copper 13.02 8.73-44 921 000921 Hisense Kelon 7.1 3.66-57 2333 601633 Great Wall Motor 8.54 5.74-44 1157 000157 Zoomlion Heavy 4.11 2.25-54 1055 600029 China Southern 7.42 5.05-43 1812 000488 Shandong Chenming 8.38 5.45-45 874 600332 Guangzhou Pharm 24.02 17.6-39 895 002672 Dongjiang Env 16.12 11.08-42 902 600011 Huaneng Power 7.36 5.44-38 1211 002594 BYD 59.51 42.2-40 1071 600027 Huadian Power 5.21 3.86-38 2202 000002 China Vanke 24.43 17.62-39 857 601857 Petrochina 7.2 5.36-38 763 000063 ZTE Corp 13.71 10.28-37 753 601111 Air China 7.73 5.82-37 2039 000039 China International 13.75 10.34-37 1988 600016 China Minsheng 9.27 7.05-36 2208 002202 Xinjiang Goldwind 15.3 11.96-34 2628 601628 China Life 21.05 16.56-34 1513 000513 Livzon Pharm 44.18 36.3-31 1766 601766 CRRC Corp 9.11 7.22-34 347 000898 Angang Steel 3.84 3.31-28 1800 601800 CCCC 11.1 8.9-33 1776 000776 GF Securities Co Ltd 15.34 16.64-9 998 601998 China Citic Bank 5.57 4.55-31 2338 000338 Weichai Power 7.71 8.9-3 390 601390 China Railway 7.16 5.88-31
HSI & HSCEI Constituents Performance Price Change (%) Index 5 D 1 M 3 M vs 3M High Hang Seng Index -3-3 9-8 Hang Seng China Ent Index -2-5 12-9 Outperform Underperform Mixed Airlines, Asset Management, Conglomerate (PRC), Gaming Coal, IT Hardware, Ports, Stock Exchange Automobile, Cement, Global Player, Oil, Telecom 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 916 Longyuan Power 2-11 39-16 135 Kunlun Gas -3-9 6-12 1816 CGN Power 1-5 19-10 2883 China Oilfield -3 2 22-12 753 Air China 1-5 32-7 914 Anhui Conch -3-13 33-17 4 Wharf 1 0 19-5 1800 China Comm Cons -3-9 42-12 700 Tencent 1-4 16-7 11 Hang Seng Bank -3 0 13-6 3 HK & China Gas 1-1 6-4 1398 ICBC -3-6 5-11 728 China Telecom 1-10 5-12 168 Tsingtao Brew -3 1 2-6 823 Link REIT 1 1 10-3 998 CITIC Bank -3-3 13-9 3968 CM Bank 0 4 30-3 2319 China Mengniu -3-2 9-11 1099 Sinopharm 0-6 27-7 939 CCB -3-5 9-8 2 CLP Hldgs 0 2 11-2 3328 BOCOM -3-6 8-10 3699 Dalian Wanda 0 9 55 0 857 PetroChina -3 8 19-9 66 MTR Corporation 0 2 8-1 5 HSBC Hldgs -3 4 3-10 1339 PICC Group 0-7 12-12 1880 Belle Int'l -3-7 -13-22 1288 ABC 0-3 8-6 16 SHK Prop -3-5 13-9 1 CK Hutchison 0-6 0-10 1044 Hengan Int'l -4-7 6-11 2388 BOC Hong Kong 0-3 17-9 388 HKEx -4-2 13-10 293 Cathay Pac Air 0-4 10-11 6886 HTSC -4-13 9-18 1038 CKI Holdings -1 0-2 -7 6837 Haitong Securities -4-7 12-11 883 CNOOC -1-1 21-11 1211 BYD Company -4 1 31-8 2333 GreatWall Motor -1-5 16-18 2318 Ping An -4-4 11-11 1988 Minsheng Bank -1 0 14-6 1109 China Res Land -4-9 4-14 1928 Sands China -1-7 11-14 688 China Overseas -4-6 8-14 267 CITIC Ltd -1-7 9-11 1088 China Shenhua -4-6 12-14 1359 China Cinda -1-6 9-10 101 Hang Lung Prop -4 0 9-10 1766 CRRC -1-7 8-12 1776 GF Securities -4-12 17-15 386 Sinopec Corp -2-1 25-8 17 New World Dev -4-6 20-10 836 China Resources -2-14 9-16 12 Henderson Land -4-7 16-10 27 Galaxy -2-9 9-15 2628 China Life -4-9 1-16 2328 PICC P&C -2-4 17-10 1299 AIA -5 1 17-8 1336 New China Life -2-8 11-12 83 Sino Land -5-8 13-12 902 Huaneng Power -2-23 -5-25 144 China Mer Hldgs -6-10 6-14 489 Dongfeng Group -2-11 -7-19 3323 CNBM -6-15 19-19 23 Bank of E Asia -2 0 25-6 322 Tingyi -6-10 0-13 762 China Unicom -2-10 10-14 6030 CITIC Securities -6-15 14-18 3988 Bank of China -2-3 6-8 1113 CK Property -7-7 19-14 6 Power Assets -2-5 4-8 2202 China Vanke -7-10 12-13 2601 China Pacific -2-8 5-14 494 Li & Fung -7-8 -7-14 19 Swire Pacific 'A' -2-1 17-5 151 Want Want -7-12 3-16 390 China Railway -2-4 25-11 992 Lenovo -11-15 -20-24 941 China Mobile -3 0 4-7
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