19 th Jan, 2017 Hang Seng Index Performance Index Performance Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 23,098.26 257.29 1.13 5.80-0.89 HSCI 3,137.35 34.98 1.13 5.31-0.57 HSCCI (Red Chips) 3,773.78 51.67 1.39 5.31-2.62 HSCEI (H-Shares) 9,802.86 100.67 1.04 4.54 1.68 Mkt T/O ($ Mn) 68,471.06 17,791.88 35.11-4.50 14.31 Source: Bloomberg Market Outlook Eric Yuen - ericyuen@masonsec.com Hang Seng Index closed up 1.1% at 23,098. Market turnover increased to $68.5 billion. Heavily weighted China Mobile (941), Tencent (700) and HSBC (5) climbed 1.6%, 1.0% and 0.5% respectively. Three local banks and nine local property stocks in Hang Seng Index grew an average 1.9% and 1.4% respectively, among which BOC Hong Kong (2388), Hang Seng Bank (11), CK Property (1113) and Hang Lung Properties (101) surged 2.1%-3.4%. Eight largest Chinese property developers increased an average 1.1%. Gaming operator Sands China (1928) and Galaxy Entertainment (27) soared 1.1%-1.2%. Consumption stocks were mixed. Belle Int l (1880) jumped 4.1%, the most in Hang Seng Index. Want Want China (151) retreated 0.4%. Cathay Pacific (293), the worst performing index stock, slid 2.0%. HSCEI advanced 1.0% led by power, securities and railway stocks. China Longyuan (916) and CGN Power (1816) rose 2.3%-3.7%. China Railway Construction (1186), CCCC (1800), Zhuzhou CRRC Times Electric (3898) posted a gain of 1.4%-2.3%. Securities, insurance and banking shares in HSCEI grew an average 1.7%, 1.1% and 0.9% respectively, among which China Life (2628), Haitong Securities (6837) and GF Securities (1776) went up 1.9%-3.2%. Four largest Chinese banks added 0.6%-1.0%. Sinopharm (1099) was the worst performing HSCEI stock, down 0.3%. We believe further upside for the Hang Seng Index is limited and recommend short-term investors to take profit. Oversea DJIA 19,804.72-22.05-0.11-0.39 8.80 NASDAQ 5,555.65 16.93 0.31 1.80 5.89 Shanghai SE Composite 3,113.01 4.24 0.14-0.16 0.92 Crude Oil Futures (US$) 51.44 0.36 0.70-1.30-0.31 Gold Futures (US$) 1,202.00-10.10-0.83 5.19-5.35 Baltic Dry Index 952.00 30.00 3.25 0.63 6.97 USD / Euro 1.0629-0.0054-0.51 1.77-3.09 Yen / USD 114.660 1.2500-1.09 1.80-9.93 HSCEI HSI 20-Day MA 9,508.75 22,301.80 50-Day MA 9,583.89 22,456.63 9-Day RSI 66.55 70.94 We believe further upside for the Hang Seng Index is limited and recommend short-term investors to take profit. Remarks: Mason Securities Ltd ( Mason Securities ) is licensed by the Securities and Futures Commission to carry on Types 1, 4, 6 and 9 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. Securities Futures
Industry / Corporate News Eric Yuen - ericyuen@masonsec.com Valuation dipped below the historical average Maintain on Texhong Textile (2678) Reiterate Risk Level: Medium Time Horizon: Medium Early redemption of USD denominated debt will minimize impact of further yuan depreciation Company targets sales volume growth of 26% in 2016 and 15% in 2017 Inexpensive valuation at 2017 PER of 6.7x versus 5-year average forward PER of 7.3x Since our latest commentary dated January 3, the share price of Texhong Textile (2678, $11.50) has been unchanged whilst Hang Seng Index surged 5.0% over the same period. We believe the underperformance is mainly due to profit taking by short-term investors rather than any change in company s fundamentals. In October 2016, the company completed a placement of approximately 30.3mn new shares at $9.50 each to raise net proceeds of $281mn. The placement is expected to dilute EPS by less than 2% in 2017 but enable the company to speed up capacity expansion in Vietnam. Yesterday, the company announced that it has exercised its right to redeem in full the aggregate outstanding US$182.2mn 6.5% senior notes due 2019. This will minimize the impact of further depreciation of renminbi. We remain optimist about company s earnings outlook in the long term. As a recap, Texhong Textile is principally engaged in the manufacturing and sales of yarn, fabrics and garment fabrics with a diversified customer base. In 2015, approximately 93% of revenue came from sales of yarn and 86% of revenue was contributed by the PRC customers. In the first half of 2016, the company s revenue expanded by 20% yoy to RMB5.82bn on the back of a 20.9% yoy growth in sales volume of yarn and a 1.6% yoy decline in blended ASP. Overall gross margin improved from 17.0% to 18.2% mainly due to the drop in cotton cost. Interim earnings surged 56% yoy to RMB457mn. During the interim period, the company expanded its annual production capacity by 29% from 2.20mn spindles by end-2015 to 2.84mn spindles (Mainland China : 1.59mn, Vietnam : 1.25mn) by June 2016. Thanks to capacity expansion, the company has targeted sales volume of yarn at 600,000 tonnes in 2016 and 690,000 tonnes in 2017 representing an increase of 26% and 15% yoy respectively. Average cotton price in 2H16 is 15%-20% higher than 1H16 that should benefit the company given Texhong s cost-plus model and low-cost cotton inventory. Texhong Textile issued positive profit alert in November that earnings for the first ten months of 2016 would exceed RMB1.0bn on higher sales volume and gross margin. According to Bloomberg estimates, the company s earnings are expected to grow 96% to RMB1,158mn in 2016 and 8% to RMB1,250mn in 2017 fueled by capacity expansion and improvement in gross margin. Traded at forward PER of 6.7x in 2017 compared to its 5-year average forward PER of 7.3x, Texhong looks cheap and offers good value to long term investors considering its aggressive sales volume target in 2017. Maintain with an unchanged 6-month price target of $13.0 based on 8.4x 2017 earnings. Analysts consensus price target is $14.2. Recent Recommendations Stock Pick Rating Recommendation Highlights TP SMIC (981) HOLD No longer undervalued plus a risk of equity fund raising Downgrade SMIC (981) to HOLD $12.0 Lee & Man Paper (2314) Reiterate on Lee & Man Paper (2314) as oversupply situation of paper industry has eased $7.90 Hua Hong Semiconductor (1347) Promising industry outlook and cheap valuation - Maintain Hua Hong Semiconductor (1347) $10.7 Sunny Optical (2382) Reiterate on Sunny Optical (2382) as shipment of handset lens sets in December remains intact $42.6 Luk Fook (590) Improvement in tourist arrivals and same store sales Maintain Luk Fook (590) $24.8 Chalco (2600) on Chalco (2600) amid better alumina price trend and lower cost pressure compared to peers $4.27 CCCC (1800) Both China and U.S. are likely to accelerate infrastructure investments Maintain CCCC (1800) $10.5 Maanshan Iron (323) Reiterate on Magang (323) as China sees no signs to loosen de-capacity measures $3.07 ANTA Sports (2020) Upgrade ANTA Sports (2020) to on potential M&A and strong earnings results for 2016 $26.0 Xinyi Glass (868) Reiterate on Xinyi Glass (868) as China may accelerate de-capacity measures on glass industry $7.73
Technical Ideas Tianjin Development (882, $4.35) TP: $4.79 Risk: Low Time Horizon: Short Tianjin Development manufactures and sells consumer products such as winery products. The company's infrastructure operations include container and cargo handling, stevedoring, and toll roads construction and services. In addition, Tianjin Development operates commercial trading and property development businesses. The counter rose 4.8% yesterday with exceptional turnover, surpassing its critical resistance at $4.19 and reached its new 52-week high, indicating the counter s strong uptrend momentum ahead.. Short-term target at $4.79. Cut loss at $4.06. Source: Bloomberg, Mason Securities Consensus 2017 PER: 6.4x Consensus target price: N/A China Harmony New Energy Auto (3836, $3.20) TP: $3.52 Risk: Medium Time Horizon: Short China Harmony New Energy Auto is a dealership group that deals exclusively in luxury and ultra-luxury passenger vehicles in China. The company's dealership outlets are located in populous and affluent cities in China. The counter surged 7.7% yesterday with exceptional turnover, surpassing its critical resistance at $3.04 and SMA50, indicating the counter s further upside potential ahead.. Short-term target at $3.52. Cut loss at $2.90. Consensus 2017 PER: 6.3x Consensus target price: $4.93 Source: Bloomberg, Mason Securities
RSI Indicator Overbought (9-day RSI> 80) Tickers 106, 257, 315, 316, 336, 338, 474, 546, 565, 718, 752, 801, 805, 838, 881, 882, 992, 1076, 1129, 1182, 1193, 1234, 1268, 1293, 1299, 1499, 1566, 1622, 1658, 1728, 1803, 1833, 2018, 2086, 2333, 2382, 2662, 2688, 2888, 3311, 3669, 3708, 3836, 3996 Oversold (9-day RSI<20) Tickers 235, 559, 582, 1559, 1678, 6858 Exceptional Turnover & Price Movements Stock Stock Last Price ($) Price Change (%) Turnover / 3-mth daily avg turnover Target price up / downside (%)* Rating*^ Baoxin Auto 1293 2.62 18.0 7.6 11.7 3.4 15.7 Jutal Offshore Oil Services 3303 1.29 16.2 7.2-41.9 3.0 126.4 Besunyen 926 0.53 12.8 34.1 N/A N/A N/A China Water Industry 1129 1.46 9.8 11.4 N/A N/A N/A China Zhengtong Auto Service 1728 2.59 8.4 5.0 26.4 4.0 8.6 China Harmony New Energy Auto 3836 3.20 7.7 4.3 54.1 5.0 7.0 Orient Overseas International 316 42.10 7.3 4.8-6.2 4.4 N/A Art Group 565 1.14 6.5 2.7 N/A N/A N/A Guotai Junan International 1788 2.47 6.5 2.1 31.2 4.4 15.1 Shenzhou International 2313 52.35 5.9 2.6 10.9 4.5 22.5 Qianhai Health 911 0.14 5.2 10.4 N/A N/A N/A China Yongda Automobiles 3669 4.99 4.8 4.2-1.0 4.7 8.4 Tianjin Development 882 4.35 4.8 4.3 N/A 5.0 6.7 China Foods 506 3.55 4.4 2.6 21.7 4.3 13.9 Q Technology 1478 5.09 4.1 2.1 8.1 4.7 21.9 Zhongsheng Group 881 9.41 4.0 2.6-8.4 3.9 14.1 Pacific Basin Shipping 2343 1.35 3.8 2.3 11.6 3.3 N/A China Longyuan Power 916 6.66 3.7 2.2 16.6 4.7 13.1 ZTE Corporation 763 12.52 3.6 2.0 9.5 3.8 12.3 Wasion Group 3393 4.56 3.6 3.5 2.7 3.8 9.9 BAIC Motor Corporation 1958 7.06 3.5 4.5 27.8 4.1 8.6 GCL-Poly Energy 3800 0.99 3.1 2.2 27.0 3.7 7.3 BOC Hong Kong 2388 30.40 3.1 2.4 4.8 4.3 13.5 First Tractor 38 4.61 2.9 3.1 3.1 4.3 15.5 Dongfang Electric 1072 7.73 2.8 2.3-23.3 2.6 N/A Daohe Global 915 6.00 2.6 3.4 N/A N/A N/A China Everbright Ltd 165 14.76 2.5 2.3 33.2 5.0 6.8 Hang Lung Properties 101 18.20 2.4 2.2-1.2 3.4 14.7 Shanghai Industrial 363 22.00 2.3 2.3 15.8 4.6 8.9 Fufeng Group 546 4.46 2.3 2.9 11.8 4.8 12.3 China Resources Cement 1313 3.21 2.2 2.3 23.2 4.4 13.0 Greentown China 3900 6.25 2.1 2.3 15.6 3.9 6.3 China Agri-Industries 606 3.50 2.0 2.8 22.5 4.5 18.1 2016 PER* 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.
A-H Share Premium / Discount (%) Average AH Shanghai Listed -35.5% Premium/Discount (%) Shenzhen Listed -35.7% 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 25.61 5.18-82 2628 601628 China Life 26.1 21.6-27 811 601811 Xinhua Winshare 20.19 6.82-70 6886 601688 Huatai Securities 18.13 15.12-27 300 600806 Kunming Machine 7.63 2.64-70 1053 601005 Chongqing Iron 2.52 2.14-25 187 600860 Jingcheng 9.8 3.4-69 6837 600837 Haitong Securities 16.6 14.2-25 38 601038 First Machinery Tractor 13.12 4.61-69 1186 601186 CRCC 12.02 10.5-23 1033 600871 SSC 3.87 1.49-66 525 601333 Guangshen Railway 5.59 5.01-21 2866 601866 CSCL 4.01 1.66-64 323 600808 Magang 3.07 2.78-20 995 600012 Anhui Expressway 14.05 5.93-63 1988 600016 Minsheng Bank 9.18 8.58-18 2727 601727 Shanghai Electric 8.42 3.6-62 6818 601818 Everbright Bank 3.99 3.73-18 2238 601238 GAC Group 23.99 10.8-60 2607 601607 Shanghai Pharma 21.12 19.96-17 317 600685 COMEC 30.46 14.12-59 1088 601088 China Shenhua 17.05 16.3-16 553 600775 Nanjing Panda 15.47 7.51-57 2601 601601 CPIC 29.02 27.9-15 2880 601880 Dalian Port 2.75 1.36-56 3328 601328 BoComm 5.93 5.78-14 1065 600874 Tianjin Capital 7.99 4.04-55 168 600600 Tsingtao Brewery 29.9 29.25-14 3993 603993 China Moly 3.91 2.04-54 6030 600030 Citic Securities 16.27 16.06-13 991 601991 Datang Intl Power 3.8 2.01-53 3988 601988 Bank of China 3.51 3.54-11 1171 600188 Yanzhou Coal 10.54 5.65-53 3968 600036 CMB 18.59 19.16-9 1919 601919 China Cosco 5.41 2.94-52 2196 600196 Fosun Pharma 24.36 25.15-9 670 600115 China Eastern 6.89 3.75-52 386 600028 Sinopec 5.97 6.17-9 1618 601618 Airlines MCC 5.18 2.88-51 939 601939 CCB 5.62 5.85-8 564 601717 Zhengzhou Coal 7.63 4.28-51 1288 601288 ABC 3.15 3.28-8 588 601588 Beijing North Star 4.21 2.47-48 1398 601398 ICBC 4.53 4.77-7 1800 601800 CCCC 15.76 9.29-48 2318 601318 Ping An Insurance 36.21 40.35-2 1055 600029 China South Air 7.29 4.42-47 177 600377 Jiangsu Express 8.77 10.2 2 2883 601808 COSL 12.63 7.68-46 914 600585 Anhui Conch 18.41 23.55 13 107 601107 Sichuan Exp 4.95 3.02-46 3606 600660 Fuyao Glass 18.29 23.5 13 1138 600026 China Shipping 7.13 4.44-45 1071 600027 Huadian Power 5.05 3.34-42 A-H Shares Shenzhen Listed 1898 601898 China Coal Energy 5.8 3.84-42 1057 002703 Zhejiang Shibao 35.33 8.98-78 2009 601992 BBMG 4.25 2.82-42 568 002490 Shandong Molong 9.61 2.71-75 358 600362 Jiangxi Copper 17.69 11.96-40 42 000585 Northeast Electric 7.61 2.36-73 753 601111 Air China 7.65 5.33-39 719 000756 Xinhua Pharma 12.85 5.5-62 338 600688 Sinopec Shanghai 6.73 4.76-38 921 000921 Hisense Kelon 10.82 7.08-42 902 600011 Huaneng Power 7.23 5.16-37 895 002672 Dongjiang Env 17.56 12.6-37 1072 600875 Dongfang Electric 10.79 7.73-37 2039 000039 China Int'l Marine 15.55 11.62-34 2333 601633 Great Wall Motor 11.36 8.14-37 1812 000488 Chenming Paper 11.14 8.46-33 390 601390 China Railway 9 6.61-35 1513 000513 Livzon Pharm 57.5 43.9-33 1766 601766 CRRC Group Corp 9.95 7.31-35 2208 002202 Xinjiang Goldwind 16.48 12.86-31 857 601857 Petrochina 8.57 6.32-35 1157 000157 Zoomlion 4.48 3.7-27 998 601998 China Citic Bank 6.89 5.16-34 763 000063 ZTE Corp 14.99 12.52-26 2600 601600 Chalco 4.64 3.5-34 1211 002594 BYD 48.11 42.6-22 2899 601899 Zijin Mining 3.49 2.69-32 2202 000002 China Vanke 20.92 19.86-16 874 600332 Guangzhou Pharm 24.3 19.2-30 347 000898 Angang Steel 5.77 5.56-15 548 600548 Shenzhen Express 8.54 6.87-29 1776 000776 GF Securities 16.92 16.74-13 1336 601336 New China Life 45.75 37.8-27 2338 000338 Weichai Power 10.46 13.2 11
HSI & HSCEI Constituents Performance Price Change (%) Index 5 D 1 M 3 M vs 3M High Hang Seng Index 1 5-1 -2 Hang Seng China Ent Index 1 4 1-1 Outperform Underperform Mixed Airline, HK Bank, Oil&Gas, Power, PRC Property PRC Bank, Gaming, Global player, Insurance, PRC Securities Automobile, Consumer, IT 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 2202 China Vanke 7 3 1-17 16 SHK Prop 1 7-5 -8 489 Dongfeng Group 5 6 0 0 2601 CPIC 1-2 -5-9 2333 GreatWall Motor 5 12-9 -11 1766 CRRC 1 2 2-6 386 Sinopec Corp 5 9 6 0 1038 CKI Holdings 1 0-1 -6 836 China Res Power 5 10-1 -2 19 Swire Pacific 1 7-5 -5 914 Anhui Conch 4 6 12 0 3328 BOCOM 1 2-1 -5 2388 BOC Hong Kong 4 10 16 0 3 HK & China Gas 0 5-2 -6 2018 AAC Technologies 4 14 1-2 2 CLP Hldgs 0 4-1 -5 992 Lenovo 4 10 2 0 2318 Ping An 0 0 0-7 144 China Mer Port 3 10-1 -1 1288 ABC 0 3 0-1 1088 China Shenhua 3 8 3-6 3988 Bank of China 0 2 1-2 753 Air China 3 6 3 0 728 China Telecom 0 2-9 -10 1044 Hengan Int'l 3 7-3 -5 2628 China Life 0 5 4-5 6 Power Assets 3 6 1-2 1398 ICBC 0 4 0-2 293 Cathay Pac Air 3 6 4-2 1099 Sinopharm 0 12-7 -7 916 Longyuan Power 3 13 2 0 762 China Unicom 0-2 -7-9 3898 CRRC Times 3 6 2-1 998 CITIC Bank 0 3 1 0 168 Tsingtao Brew 2-4 -8-9 267 CITIC Ltd 0 0 2-6 857 PetroChina 2 7 17 0 66 MTR Corporation 0 2-10 -12 1880 Belle Int'l 2 12-9 -10 4 Wharf 0 11 5-4 101 Hang Lung Prop 2 8 6 0 388 HKEx 0 2-9 -10 1299 AIA 2 7-10 -10 390 China Railway 0 0 10-7 11 Hang Seng Bank 2 4 8 0 151 Want Want 0 1 1-5 883 CNOOC 2 0-4 -6 1816 CGN Power 0 0-5 -7 902 Huaneng Power 2 6 8 0 23 Bank of E Asia 0 4 1-3 941 China Mobile 2 6-7 -7 700 Tencent -1 9-6 -7 135 Kunlun Gas 2 3 3 0 1 CK Hutchison -1 2-6 -7 688 China Overseas 2 9-8 -8 6030 CITIC Securities -1-3 -7-13 83 Sino Land 1 13 1 0 27 Galaxy Entertain -1 6 19-7 5 HSBC Hldgs 1 1 11-2 1339 PICC Group -1-3 -3-7 12 Henderson Land 1 6-5 -7 6881 Galaxy Securities -1-2 0-10 3968 CM Bank 1 3 0-3 1359 China Cinda -1 4-3 -6 17 New World Dev 1 9-4 -5 939 CCB -2 5 2-2 1776 GF Securities 1-1 -2-8 823 Link REIT -2 4-6 -6 1800 China Comm Cons 1 6 8-1 1211 BYD Company -2 0-17 -20 1109 China Res Land 1 8-5 -5 6886 HTSC -2-5 -8-16 1113 CK Property 1 4-5 -10 494 Li & Fung -2-2 -10-11 1186 China Railway 1 3 7-10 1928 Sands China -2 5 2-11 1988 Minsheng Construction Bank 1 3-3 -6 2328 PICC P&C -3-4 -8-10 1336 New China Life 1 4 9-5 2319 Mengniu Dairy -5-4 -3-12 6837 Haitong Securities 1 2 3-7
Upcoming Events Date Stock Company Name Event Jan 19 626 Public Financial Holdings Final Jan 20 752 Pico Far East Holdings Final Jan 20 1928 Sands China Dividend 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 Portion 1, 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 abovementioned 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, 6 and 9 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.