Hang Seng Index Performance. Index Performance. Market Outlook

4

Sep, 2015

Hang Seng Index Performance

Index Performance

Source: Bloomberg

Abs chg % Change

Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth

Hang Seng Index 20,934.94 -250.49 -1.18 -14.24 -24.31

HSCI 2,847.94 -34.28 -1.19 -14.10 -26.72

HSCCI (Red Chips) 3,858.18 -51.65 -1.32 -11.60 -25.56 HSCEI (H-Shares) 9,301.32 -152.79 -1.62 -15.52 -34.10 Mkt T/O ($ Mn) 96,054.66 10,236.25 11.93 20.76 -36.20 Oversea DJIA 16,374.76 23.38 0.14 -6.70 -8.55 NASDAQ 4,733.50 -16.48 -0.35 -7.29 -6.44 Shanghai SE Composite 3,160.17 -6.46 -0.20 -12.77 -35.64 Crude Oil Futures (US$) 46.79 0.04 0.09 2.30 -19.33 Gold Futures (US$) 1,125.10 1.10 0.10 3.19 -4.26 Baltic Dry Index 891.00 -15.00 -1.66 -22.59 49.00 USD / Euro 1.1132 -0.0103 -0.92 1.55 -1.38 Yen / USD 119.875 -0.4616 -0.38 -3.62 -3.61 HSCEI HSI 20-Day MA 10,384.45 22,823.82 50-Day MA 11,292.82 24,278.96 9-Day RSI 21.49 23.72

Market Outlook

Eric Yuen – ericyuen@guoco.com

Hang Seng Index closed down 1.2% at 20,934. Market turnover increased to $96.1

billion. Heavily weighted

HSBC (5)

,

AIA Group (1299)

and

China Mobile (941)

cut

1.8%, 1.5% and 1.1% respectively.

Tencent (700)

was almost flat. Local property

stocks were mixed. Local banks including

BOC Hong Kong (2388)

,

Hang Seng Bank

(11)

and

Bank of East Asia (23)

shrank 1.6%-3.2%. Gaming operators tumbled on

gloomy outlook for Macau’s gaming industry.

Sands China (1928)

and

Galaxy

Entertainment (27)

lost 3.2%-4.2%. Decline in crude oil price weighted on oil

producers.

PetroChina (857)

,

CNOOC (883)

and

Kunlun Energy (135)

plunged

2.6%-4.3%.

Belle International (1880)

, the best performing index stock, advanced 1.5%.

HSCEI declined 1.6% led by banking, automobile and power stocks.

China Longyuan

(916)

,

CGN Power (1816)

,

GAC Group (2238)

and

Great Wall Motor (2333)

slumped

2.7%-4.9%. Banking shares in HSCEI dropped an average 3.0%.

China Oilfield

Services (2883)

and

Jiangxi Copper (358)

slid 5.8%-7.1%, the most in HSCEI.

Insurance stocks were little changed.

China Railway Group (390)

, the best

performing HSCEI stock, surged 3.2%. Valuation of Hong Kong’s stock market is

approaching the bottom valuation in 2008’s financial crisis. However, we believe

market outlook will remain uncertain before the Federal Reserve meeting in

mid-September.

Valuation of Hong

Kong’s stock market is

approaching the bottom

valuation in 2008’s

financial crisis. However,

we believe market

outlook will remain

uncertain before the

Federal Reserve meeting

in mid-September.

Securities

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Futures

｜

Bullion

｜

Corporate Finance

Industry / Corporate News

Becky Yuen, CFA – becky.yuen@guoco.com

We are still a buyer of Wasion Group (3393) thanks to company’s promising business outlook

Reiterate BUY

•

Interim results in line, with continuous shift to higher-end AMI and ADO segments

•

Export sales grew 66% yoy, signaling company's expansion in emerging countries is on track

•

Counter is now trading at 7.9x 2016 PER, undemanding given an EPS CAGR of 20% during

2014-2016

Risk Level: High

Time Horizon: Medium

Wasion Group (3393, $7.15) dropped 37% in last two months, underperformed HSCEI by 10%. Comment: We believe the price

weakness was mainly due to the overall bearish market sentiment and investors’ rising concern on corporate governance which

triggered capital outflow from small- and mid-cap counters. Yet, we still see Wasion as a key beneficiary of China’s smart grid

upgrade and increasing awareness on energy efficiency by industrial players to save cost.

As a recap, Wasion reported interim results on August 19, which saw revenue and earnings up 17% and 25% yoy to RMB1.63bn and

RMB253.8mn respectively. EPS was up 20.8% yoy to RMB0.261. The interim results looked solid in our view, as earnings usually are

more skewed towards second half of the year based on historical pattern. While revenue was largely in line with our estimates, gross

margin which fell 2.4ppts yoy to 31.0% was a disappointment. Yet, this was offset by a good cost control during the period, with

administrative, selling and R&D expenses to sales ratio dropped 1.4ppts, 1.1ppts and 0.5ppts to 4.2%, 7.3% and 4.3% respectively.

Product mix in 1H15 continued to skew towards higher-margin advanced distribution operations (ADO) business (revenue grew

70.6% yoy and accounted for 12% of overall sales, up from 8% in 1H14) and Advanced Metering Infrastructure (AMI) segment

(revenue grew 14.8% yoy and accounted for 52% of overall revenue). ADO gross margin deteriorated by 5ppts to 33% in 1H15, as

company adopted a more aggressive pricing strategies on its ADO projects in order to win market share. AMI gross margin

contracted 3ppts to 36%, as sales growth of lower-margin water meters and export sales were stronger (AMI for water, gas and heat

up 47% while export sales grew 66%). Management did note that even though gross margin of AMI for water, gas and heat and

export were thinner, the selling expenses involved in these products are generally less and thus will have a positive impact on

company’s overall operating margin and net profit margin. In fact, company’s OPM and NPM were up by 1ppt and 0.8ppt

respectively during the period.

We continue to see Wasion as a strong beneficiary of China’s rising demand of smart grid system at both the state and industry level,

and also the strong potential in water meters segment as China is actively promoting water escalating pricing. The company is also

leveraging on its cooperation with Siemen to win more overseas orders. We have revised down our 2015 earnings estimates by 5% to

factor in the lower than expected gross margin. Our new earnings forecast of RMB607.5mn (EPS RMB0.61) now based on a sales

growth of 36%, GPM of 32.1% and OPM of 19.0%. We also introduce 2016 earnings estimates of RMB754mn (EPS RMB0.73)

assuming a sales growth of 15%, GPM of 32.1% and OPM of 20.1%. This translates to an EPS CAGR of 20% during 2014-2016. Counter

is now trading at 7.9x 2016 PER that is not demanding in view of company’s strong growth potential in the ADO business. We

reiterate BUY with revised 6-month target price of $11.86, as we roll over to 13x 2016 PER.

Recent Recommendations

Stock Pick

Rating

Recommendation Highlights

TP

Huaneng Renewables (958) BUY Huaneng Renewables (958) reported higher than expected interim earnings –

Maintain BUY $3.85

Techtronic Industries (669) BUY Reiterate BUY on Techtronic Industries (669) as it continues to win market share in

power tools segment $32.7

HKEx (388) SELL Maintain SELL on HKEx (388) due to increasing risk of global market crash $170.0 Shenzhen Investment (604) BUY Maintain BUY on Shenzhen Investment (604) on attractive fundamental and

valuation $3.65

Shenzhou Int’l (2313) BUY Shenzhou Int’l (2313) is a beneficiary of Renminbi depreciation. Reiterate BUY $45.7 China Resources Land (1109) BUY BUY China Resources Land (1109) on impressive interim results $23.7 Sunny Optical (2382) BUY Upgrade Sunny Optical (2382) to BUY amid strong growth in handset lens segment $16.2 Henderson Land (12) BUY BUY Henderson Land (12) on cheap valuation and restructuring story $57.0 China High Speed

Transmission (658) BUY Reiterate BUY on China High Speed Transmission (658) for solid interim results $7.62 HKEx (388) SELL Maintain SELL on HKEx (388) due to increasing risk of global market crash $170.0

Technical Ideas

SJM Holdings (880, $6.46) TP: $5.81 SELL

Source: Bloomberg, GuocoCapital

Risk: Medium

Time Horizon: Short

•

SJM Holdings Limited offers amusement and

recreation services. The Company operates

casinos, hotels, and other tourism-related

facilities in Macau.

•

The counter tumbled 4.9% on Wednesday,

dropped below the decreasing trend initiated

on 9 April and reached its 52-week low of

$6.40. 9-day RSI also showed a sharp

decreasing trend below 50, indicating the

counter's strong downtrend momentum ahead.

•

SELL. Short-term target at $5.81. Cover short at

$6.87.

Consensus 2015 PER: 10.2x

Consensus target price: $9.45

Sino Biopharmaceutical (1177, $8.99) TP: $9.91 BUY

Risk: Medium

Time Horizon: Short

•

Sino Biopharmaceutical Limited, through its

subsidiaries, researches, develops, produces,

and sells biopharmaceutical products for the

medical treatment of ophthalmia, as well as

modernized Chinese medicine and chemical

medicine for the treatment of hepatitis.

•

The counter dropped a max of 31.7% from its

52-week high of $10.72 on 9 April until it found

support at $7.29. The counter rose 2.9% on

Wednesday, surpassing sma50 and sma250.

9-day RSI also showed an increasing trend above

50, indicating the counter's positive outlook

Securities

｜

Futures

｜

Bullion

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Corporate Finance

RSI Indicator

Overbought (9-day RSI> 80)

Oversold (9-day RSI<20)

Tickers Tickers 530, 1321 5, 16, 45, 64, 69, 142, 145, 148, 199, 245, 293, 322, 336, 347, 410, 511, 683, 750, 755, 805, 829, 881, 921, 990, 998, 1045, 1057, 1083, 1101, 1111, 1128, 1136, 1148, 1157, 1169, 1270, 1288, 1345, 1358, 1378, 1398, 1400, 1509, 1599, 1680, 1728, 1822, 1866, 1913, 1988, 2319, 2338, 2888, 3323, 3328, 3618, 3808, 3836, 3918, 3988, 6030, 6136, 6198

Exceptional Turnover & Price Movements

Stock

Stock

_Code

_{Price ($)}

Last

_{Change (%)}

Price

_{daily avg turnover}

Turnover / 3-mth

Target price up /

_{downside (%)*}

Rating*^

_PER*

2015

Baoxin Auto Group 1293 2.36 10.2 5.2 133.7 4.4 5.3

North Mining Shares 433 0.10 5.3 4.6 N/A N/A N/A

Source: Bloomberg, GuocoCapital; * 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 -46.0%

Remark: Shenzhen-listed stocks are not included in the upcoming cross-border stock trading pilot program

Premium/Discount (%) _{Shenzhen Listed -48.2%}

A-H Shares – Shanghai Listed

A-H Shares – Shanghai Listed

H Share Code

A Share

Code Company Name

A Close (RMB) H Close (HKD) AH Price Gap (%) H Share Code A Share

Code Company Name

A Close (RMB) H Close (HKD) AH Price Gap (%) 1108 600876 Luoyang Glass 24.67 4.75 -84 1071 600027 Huadian Power Intl 7.83 5.89 -38 2238 601238 GAC Group 16.41 4.94 -75 1336 601336 New China Life

Insurance

37.39 28.4 -38

1053 601005 Chongqing Iron 4.41 1.47 -73 1088 601088 China Shenhua Energy 16.58 12.68 -37 3993 603993 China Molybdenum 12.24 4.09 -73 3328 601328 BoComm 6.96 5.33 -37 1171 600188 Yanzhou Coal Mining 10.03 3.48 -72 6818 601818 China Everbright Bank 4.38 3.37 -37

2727 601727 Shanghai Electric 11.42 3.98 -71 3988 601988 Bank of China 4.24 3.36 -35

1033 600871 SSC 6.12 2.17 -71 548 600548 Shenzhen Express 5.89 4.69 -35

2866 601866 China Shipping Container

8.73 3.11 -71 2607 601607 Shanghai Pharm 19.05 15.22 -34

1618 601618 MCC 7.79 2.86 -70 902 600011 Huaneng Power Intl 10.31 8.49 -32

300 600806 Shenji Group Kunming 8.84 3.52 -67 6837 600837 Haitong Securities 12.3 10.32 -31 187 600860 Beijing Jingcheng Machinery 13.29 5.4 -67 1288 601288 ABC 3.37 2.96 -28 338 600688 Sinopec Shanghai Petrochem 6.89 2.81 -67 939 601939 CCB 5.92 5.26 -27

2880 601880 Dalian Port 5.65 2.32 -66 1398 601398 ICBC 4.95 4.44 -26

553 600775 Nanjing Panda Electronics

11.07 4.67 -65 6886 601688 Huatai Securities Co Ltd

14.82 13.72 -24 1919 601919 China Cosco 11.63 4.94 -65 2196 600196 Shanghai Fosun

Pharm

23.26 22.2 -22

2883 601808 China Oilfield Services

17.5 7.82 -63 2628 601628 China Life Insurance 26.43 25.75 -20 1065 600874 Tianjin Capital

Environment

8.61 3.85 -63 6030 600030 Citic Securities 14.87 14.8 -18 588 601588 Beijing North Star 4.36 2.01 -62 386 600028 Sinopec 4.89 4.98 -16 670 600115 China Eastern

Airlines

8.19 3.81 -62 168 600600 Tsingtao Brewery 34.08 35.25 -15 991 601991 Datang Intl Power 6.38 2.97 -62 3968 600036 China Merchants

Bank

16.77 17.52 -14

2600 601600 Chalco 5.05 2.45 -60 3606 600660 Fuyao Glass 12.56 14.02 -8

38 601038 First Tractor 8.58 4.17 -60 177 600377 Jiangsu Express 5.7 8.98 -3 1138 600026 China Shipping Development 11.08 5.49 -59 2601 601601 CPIC 22.93 27.75 -1 2009 601992 BBMG 8.87 4.45 -59 2318 601318 Ping An Insurance Group 6.7 36.85 1 317 600685 Guangzhou Shipyard 33.77 17.66 -57 914 600585 Anhui Conch Cement 18.26 22.9 3 323 600808 Magang 3.1 1.63 -57

2899 601899 Zijin Mining 3.56 1.9 -56

_{A-H Shares – Shenzhen Listed}

1055 600029 China Southern Air

8.18 4.46 -55 1057 002703 Zhejiang Shibao 34.07 5.41 -87 1898 601898 China Coal Energy 6.49 3.54 -55 42 000585 Northeast Electric

Develop 5.07 1.88 -70 107 601107 Sichuan Expressway 4.29 2.35 -55 568 002490 Shandong Molong Petroleum 7.05 2.77 -68 390 601390 China Railway Group 12.07 6.83 -54 719 000756 Shandong Xinhua Pharm 12.15 5 -66 564 601717 Zhengzhou Coal Mining 6.06 3.43 -54 1812 000488 Shandong Chenming Paper 6.85 2.83 -66 525 601333 Guangshen Railway 4.99 2.98 -51 921 000921 Hisense Kelon 8.58 3.91 -63

1072 600875 Dongfang Electric 13.1 8.05 -50 1157 000157 Zoomlion Heavy Industry

5.35 2.82 -57

753 601111 Air China 8.59 5.3 -49 347 000898 Angang Steel 5.75 3.04 -57

995 600012 Anhui Expressway 9.26 5.72 -49 350 000666 Jingwei Textile Machinery

17.5 11.42 -46 1800 601800 CCCC 13.86 8.72 -48 2039 000039 China International

Marine

20.57 13.56 -46

358 600362 Jiangxi Copper 14.1 9.1 -47 1211 002594 BYD 45.8 30.5 -45

2333 601633 Great Wall Motor 29.23 19.06 -47 895 002672 Dongjiang Env 16.24 10.94 -45

1766 601766 CRRC Corp 12.83 8.62 -45 1513 000513 Livzon Pharm 53.35 40 -38

874 600332 Guangzhou Pharm 26.61 18.2 -44 2338 000338 Weichai Power 10 7.93 -35 857 601857 Petrochina 8.75 6.03 -43 2208 002202 Xinjiang Goldwind

Sci&Tec

15.4 12.8 -32

1186 601186 CRCC 14.4 9.98 -43 763 000063 ZTE Corp 16.64 15.1 -26

998 601998 China Citic Bank 6.23 4.41 -42 1776 000776 GF Securities Co Ltd 14.09 13.02 -24 1988 600016 China Minsheng

Bank

Securities

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Futures

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Bullion

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Corporate Finance

HSI & HSCEI Constituents Performance

Outperform Infrastructure, Port, HK Property, PRC Property Underperform Airline, Asset Management, HK Bank, Gaming, Securities Mixed Automobile, PRC Bank, Consumer, Insurance, Oil, Telecom

Index 5 D 1 M 3 M vs 3M

High

Hang Seng Index -1 -15 -24 -24 Hang Seng China Ent Index -1 -16 -35 -35

Price Change (%) Price Change (%)

Stock

Code Company Name 5 D 1 M 3 M

vs 3M High

Stock

Code Company Name 5 D 1 M 3 M

vs 3M High

489 Dongfeng Group 15 -9 -33 -33 836 China Resources

Power 0 -11 -17 -21 883 CNOOC 10 -8 -26 -27 388 HKEx -1 -14 -39 -39 2601 China Pacific Insurance 9 -15 -32 -34 700 Tencent -1 -12 -19 -22

914 Anhui Conch 6 -5 -28 -30 1299 AIA -1 -18 -18 -21

1113 CK Property 5 -18 N/A -28 2 CLP Hldgs -1 -6 -7 -7

2628 China Life 5 -10 -30 -30 16 SHK Prop -2 -20 -29 -29

2202 China Vanke 4 -4 -9 -14 3 HK & China Gas -2 -9 -14 -14

1211 BYD Company 4 -11 -44 -49 916 Longyuan Power -2 -13 -19 -19

688 China Overseas 4 -9 -20 -22 1898 China Coal -2 -7 -28 -31

1109 China Res Land 4 -15 -25 -28 23 Bank of E Asia -2 -17 -25 -26

1044 Hengan Int'l 4 -14 -18 -21 2328 PICC P&C -2 -11 -20 -21

390 China Railway 3 3 -32 -35 5 HSBC Hldgs -2 -14 -18 -19

19 Swire Pacific 'A' 3 -16 -20 -20 293 Cathay Pac Air -2 -25 -30 -31

2333 GreatWall Motor 3 -26 -63 -63 939 CCB -2 -17 -29 -30

1880 Belle Int'l 3 -13 -31 -33 1099 Sinopharm -2 -12 -30 -31

2318 Ping An 3 -17 -35 -35 6 Power Assets -2 -10 -11 -11

144 China Mer Hldgs 3 -14 -27 -28 1088 China Shenhua -2 -14 -33 -36

1 CK Hutchison Hldgs Ltd

2 -11 -17 -17 6837 Haitong Securities -3 -26 -57 -59

83 Sino Land 2 -9 -19 -19 358 Jiangxi Copper -3 -13 -40 -40

1336 New China Life 2 -15 -43 -43 1398 ICBC -3 -17 -31 -31

3699 Dalian Wanda 2 -19 -34 -41 1928 Sands China -4 -26 -8 -31

135 Kunlun Gas 2 -30 -36 -37 322 Tingyi -4 -26 -32 -33

941 China Mobile 2 -10 -10 -12 857 PetroChina -4 -22 -33 -33

2883 China Oilfield 1 -18 -44 -44 168 Tsingtao Brew -4 -15 -32 -32

151 Want Want 1 -21 -27 -27 753 Air China -5 -32 -44 -44

3968 CM Bank 1 -13 -27 -29 1816 CGN Power -5 -15 -43 -47

291 China Resources 1 -8 0 -10 3988 Bank of China -5 -21 -33 -35

12 Henderson Land 1 -10 -17 -18 2238 GAC -5 -20 -37 -37

902 Huaneng Power 1 -10 -18 -18 1288 ABC -5 -15 -26 -26

386 Sinopec Corp 1 -15 -25 -27 998 CITIC Bank -5 -20 -33 -34

4 Wharf 0 -16 -23 -23 27 Galaxy

Entertainment

-5 -36 -35 -38

101 Hang Lung Prop 0 -21 -28 -29 3323 CNBM -6 -30 -50 -50

17 New World Dev 0 -18 -26 -27 2388 BOC Hong Kong -7 -23 -24 -28

66 MTR Corporation 0 -1 -8 -10 267 CITIC Ltd -7 -7 -13 -14

823 Link REIT 0 -9 -7 -13 728 China Telecom -8 -11 -25 -26

494 Li & Fung 0 -17 -21 -26 1988 Minsheng Bank -8 -21 -34 -35

1339 PICC Group 0 -14 -36 -36 1359 China Cinda -8 -23 -44 -44

762 China Unicom 0 -9 -25 -26 6030 CITIC Securities -9 -30 -53 -53

992 Lenovo 0 -27 -49 -49 3328 BOCOM -9 -22 -30 -37

1800 China Comm Cons 0 -12 -34 -35 2319 China Mengniu

Dairy

-16 -29 -40 -41

Upcoming Events

Date

Stock Code

Company Name

Event

Sep 9

721

China Financial Int’l Investments

Final

Sep 10

16

SHK Properties

Final

Sep 10

435

Sunlight REIT

Final

Disclosures

Investment Rating System

GuocoCapital’s investment rating system is divided into investment ratings, risk rating and investment time horizon. The rating scale is subject to change upon periodic review of market by research department. Assigned ratings are based on company and sector historical performance and analysts’ intrinsic valuation of the stock

Ratings Description

Investment Ratings

Buy Expected positive return of > 10 % Hold Expected return range of ~ ±10 % Sell Expected negative return > 10%

Risk Ratings

High (H) 90-day volatility of > 50% Medium (M) 90-day volatility of > 30-50% Low (L) 90-day volatility of < 30%

Investment Time Horizon

Long (L) 6 – 12 Months Medium (M) 3 – 6 Months 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

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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