Local News Digest. Markets & economic news. Corporate news. IPO news

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1 Equity Research Hong Kong/China Daily Asia Asia: Hong Kong/China 25 June 2010 Hong Kong indices Close % Chg HSI 20, % HSCEI 11, % HSCCI 3, % Turnover (HK$mn) 47, % Sector performance (HSCII) Properties & Construction -0.27% Financials -0.77% Information Technology +0.64% Oil & Resources -1.20% Conglomerates -0.62% Industrial Goods -1.50% Consumer Goods -0.31% Services -0.29% Utilities +0.06% Taiwan indices Close % Chg TW50 5, % TWSE 7, % China indices Close % Chg Shanghai A 2, % Shanghai B % Shenzhen A 10, % Shenzhen B % US indices Close % Chg Dow Jones 10, % NASDAQ 2, % Others US Close % Chg 10-yr Treasuries % 30-yr Treasuries % 1-mth LIBOR mth LIBOR % HK Overnight % 1-mth HIBOR % 3-mth HIBOR % Corporate/Market Notes What s inside: Local News Digest....p.2 Company Updates Ping An Insurance (2318.HK) James Liu p.3 The financial conglomerate Outperform, Share Price: HK$66.80, Target Price: HK$86.80 Market Highlights.....p.7 Buy List p.8 Dual-listed stocks: A+H shares premium/discount.... p.9 Hong Kong/China Stock Coverage.....p.10 Hong Kong indices Taiwan indices China indices HSI Index HSCCI Index HSCEI Index TWSE Index TW50 Index SZASHR Index SHASHR Index Source: Bloomberg PLEASE SEE THE BACK OF THIS REPORT FOR IMPORTANT DISCLOSURES

2 Local News Digest Markets & economic news Taipei, Beijing seal landmark trade deal to be signed on Tuesday Taiwan and the mainland yesterday finalised the details of a landmark pact that will abolish tariffs on hundreds of items traded across the Taiwan Strait. They plan to sign the Economic Co-operation Framework Agreement in Chongqing on Tuesday. (SCMP) China Bank Debt Repackaging Raises Risk of Crisis China s record loan growth and the repackaging and selling of debt by its banks has raised credit risks considerably, and might lead to another financial crisis, Fitch Ratings Ltd. said. (Bloomberg) Yuan Advances Near 1993 High as Euro Gains Boost Export Outlook The yuan rose toward its strongest level since 1993 on speculation the central bank will allow the currency to climb before this weekend s Group of 20 tallks. (Bloomberg) China to Provide Subsidies for Technology Exports China s government will provide subsidies for some technology exports, including patents and software and technology services, the Ministry of Finance said in a statement posted on its website. (Bloomberg) China May Limit Processing for Export Business China may limit businesses that process or assemble imported materials into products for export, the 21st Century Business Herald reported on its website late yesterday, citing an unidentified trade official. (Bloomberg) Corporate news China State Construction Signs HK$3 Billion Loan SAIC China State Construction International Holdings Ltd., which provides civil engineering services in Hong Kong, signed a HK$3 billion ($386 million) five-year loan to boost business development. (Bloomberg) Riversdale, Wuhan Iron Sign $800 Million Coal Deal Riversdale Mining Ltd., an Australian coal developer, signed an initial $800 million agreement with Wuhan Iron and Steel Corp. to develop a coking coal project in Mozambique s Tete province. (Bloomberg) China Construction Bank Wins Investor Approval for Rights Offfer China Construction Bank Corp won shareholder approval for a plan to raise as much as 75 billion yuan ($11billion) in a rights offer. (Bloomberg) CCB answers call for closer Taiwan ties China Construction Bank is heeding the call from Beijing for companies to extend the olive branch to Taiwan, with plans by the lender to establish operations on the island. (SCMP) Unicom in iphone, ipad talks China Unicom (0762) has started talks with the US company over sales of the latest version of the smartphone - the iphone 4 - and the ipad tablet computer. (Standard) Nan Shan buy still on China Strategic Holdings (0235) said more documents must be submitted to Taiwan regulators to gain approval for the acquisition of Nan Shan Life from America International Group. (Standard) IPO news West China Cement May Raise $300 Million in HK IPO London-listed West China Cement Ltd. may raise about $300 million in an initial public offering in Hong Kong, the Oriental Daily News said. (Bloomberg) Agricultural Bank seeks to raise HK$88b Agricultural Bank of China will seek to raise as much as HK$88.4 billion in the Hong Kong portion of its initial public offering. Agricultural Bank will offer 25.4 billion H shares in the city at HK$2.88 to HK$3.48 per share, they say. (SCMP) SINOPAC SECURITIES 2

3 Share price HK$66.8 Reason for note Recommendation Insurance Ping An Insurance (2318.HK) Outperform Target price HK$86.8 Initiate Coverage Outperform Trading data 52-week range (HK$) 52.15/76.00 Market cap. (HK$bn) 449,286 Market cap. (US$mn) 57,601 Shares outstanding (mn) 2858 Avg. daily volume (mn) 66.8 Avg. daily value (HK$mn) 1.373b Major s/h (%) HSBC 16.8 Free float (%) 37.4 Financial data FY09 Shareholders equity (RMBmn) 84,970 Price/book (x) 5.2 ROA (%) 1.9 ROE (%) 18.6 Net gearing (%) N/A Book value/share (RMB) Performance 1-mth 3-mth 12-mth Stock price HSCEI Relative performance Pingan HSCEI Index The financial conglomerate Financial conglomerate taking advantage of China s rapidly growing financial market. Ping An Insurance (2318.HK) was ranked the second largest life and P&C insurer in the PRC in terms of Gross Written Premiums (GWP) and policy fees, with market shares of 16.5% and 12.9% respectively, in Ping An s total insurance premium income grew at a CAGR of 23.0% in , and increased by 28.7% y-o-y in 4M10. Besides from conducting insurance business, Ping An also offers banking, securities and other financial services, and is one of the most direct beneficiaries of the rapidly growing financial market in China. Leveraging on the management expertise of HSBC group, its largest shareholder, Ping An is evolving into a financial conglomerate, creating synergy among its various businesses. We expect Ping An s superior management skills and diversified business strategies to better drive its operation performance going forward. Higher proportion of investment-type life insurance products. Investmenttype products (mostly universal and unit-linked products) comprised about 46.3% of Ping An s total life insurance products in terms of total GWP and policy fees (under PRC old accounting rules) in FY09, compared to less than 5% and about 20% for China Life and CPIC over the same period, respectively. Under PRC new accounting rules, majority of the premiums derived from universal and unitlinked products are not recognized as premiums, but treated as policy fees or trusted assets. However, embedded value will unlikely to be impacted by the changes in the accounting rules. As investment-type products transfer more of the investment return risks to policyholders, Ping An s embedded value and inforce value are less sensitive to changes in investment return assumption. And owing to the robust growth of first-year premiums (averaged 38.1% y-o-y for the past three years), NBV growth had averaged 32.4% in the past three years. However, due to the lower proportion of traditional regular premium products, NBV margins declined moderately in recent years. We deem rapid GWP growth and potential product mix improvement as the major growth drivers of its life insurance business going forward. Valuation & Recommendation. We derived our target price by using the SOTP method incorporating 1) 25x FY10F NBV plus FY10F EV for life insurance business; 2) 2.5x FY10F NAV or 15.1x FY10F net profit for the P&C insurance business; 3) 1.6x FY10F NAV or 16.9x FY10F net profit for the banking business; and 4) 0.6x FY10F NAV or 16.1x FY10F net profit for remaining businesses. Our derived TP is HK$86.8, representing 3.3x FY10F EV and implying 29.9% upside potential from current price. Thus, we initiate coverage of the counter with an Outperform rating. Source: Bloomberg James Liu (86) Ext 163 james.liu@sinopac.com Financial summary FYE 31 Dec (RMB mn) FY08 FY09 FY10F FY11F FY12F Net premiums earned 83, , , , ,971 % chg N/A Investment income (7,416) 32,023 37,624 45,509 54,611 % chg N/A N/A Total revenue 87, , , , ,319 % chg N/A Claims and benefits (65,392) (96,102) (127,841 (164,352 (210,105) % chg N/A Total expenses (89,144) (132,919 (174,770 (225,308 (287,873) % chg N/A Net profit 1,418 13,883 14,396 17,981 21,634 % chg N/A EPS (RMB) EPS consensus N/A N/A PER (x) DPS (RMB) Yield (%) BPS (RMB) EVPS (RMB) NBVPS (RMB) Source: Company data, SinoPac Securities estimates SINOPAC SECURITIES 3

4 Ping An Insurance (2318.HK) -cont d Turnaround in underwriting profits in P&C insurance markets. China s P&C insurance sector was hard hit in 2008 when natural disasters such as earthquake led to the surge in claims, and the CIRC lowered the premium rates and raised liability limits for compulsory auto liability insurance early in that year. Nonetheless, underwriting profits improved gradually at a slow pace in 2009, and starting from early this year, underwriting profits improved dramatically on strong premium growth, declining loss ratios and less competitive environments. China s physical wealth is expected to grow rapidly in the coming years, and we believe Ping An is well positioned to capture the growth opportunities given its strong market position. Synergy effects are evident. Ping An aims to become a financial conglomerate to achieve a seamless operation structure among various businesses, and a one-stop shop to offer comprehensive financial services, so as to operate efficiently and create crossselling opportunities. In 2009, about 14.5% of the P&C insurance business, 8% of banking business (10.5% of deposits, 5.2% of loans and 57% of credit cards) and 4.5% of trusted business were created by cross-selling opportunities. With a diversified business portfolio, Ping An is one of the most direct beneficiaries of China s growing financial market. 100% HSBC Insurance Holdings Limited 8.43% JPMorgan Chase & Co. HSBC Holdings plc 100% 8.36% The Hong Kong and Shanghai Banking Corporation Limited 6.55% Shenzhen Investment Holdings Co., Shenzhen New Horse Investment Development Co., Ltd 5.30% Ping An Insurance (Group) Company of China, Ltd. Labor Union 5.30% Yuan Trust Investment Company Ltd 5.17% Shenzhen Jingao Industrial Development Co., Ltd 4.51% Ping An Securities Company. Ltd. Labor Union 2.43% Ping An Insurance (Group) Company of China, Ltd (2318.HK) 4.51% 4.51% Ping An Trust &Investment Life Insurance P&C Insurance Banking Asset management Ping An Life Ping An Annuity Ping An Health Second largest life insurer with a market share of 16.5% in terms of GWP & Policy fees in FY09 (second to Chinalife s 36.2%) Ping An Property & Casualty Ping An Hong Kong Second largest P&C insurer with market share of 12.9% in terms of premium income in FY09 (second to PICC s 41.6%) Ping An Bank Headquartered in Shenzhen with retail and SME business focus. Ping An Trust Ping An Securities Ping An Asset management Ping An Overseas Holdings Ping An Asset Management (Hong Kong) Managing the Group s insurance funds (as much as RMB 590 billion as of FY09) and other investment assets of Ping An subsidiaries. Integrated financial platform, ensuring a seamless customer service and creating cross-selling opportunities Ping an Technology, Ping an Processing & Technology, Ping an Marketing services and Ping an Channel Development (1) Found in Shenzhen in 1988, developing into an integrated financial group providing comprehensive financial service to 53 million customers (51 million individuals and 2 million corporations). (2) Leveraging on HSBC s rich financial management expertise. (3) Listed in Hong Kong in June 2004 and in Shanghai in Mar (4) 83,000 official employees and 417,000 sales agents and 3,800 branches and service outlets as in FY09. SINOPAC SECURITIES 4

5 Ping An Insurance (2318.HK) -cont d 7,000 6,000 5,000 4,000 Ping An's P&C insurance premiums (RMBmn) 25,000 20,000 15,000 Ping An's life insurance premiums (RMBmn, under PRC old accounting rules) 3,000 2,000 1,000 10,000 5, Jan Mar May July Sep Nov Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec FY05 FY06 FY07 FY08 FY09 FY10 FY05 FY06 FY07 FY08 FY09 FY10 Under PRC new rules Life insurance GWP & Under PRC old accounting rules P&C insurance GWP Policy fees (RMBmn) (RMBmn) FY06 FY07 FY08 FY09 FY06 FY07 FY08 FY09 FY08 FY09 Ping An insurance (2318.HK) Ping An insurance (2318.HK) Participating 26,651 30,411 37,433 49,810 N/A N/A Automobile insurance 11,708 15,241 19,377 29,561 Universal 15,483 21,453 33,870 57,641 N/A N/A Non-automobile insurance 4,444 5,277 6,185 7,476 Long-term health 11,039 8,318 8,454 8,790 N/A N/A Accident and health insurance 842 1,148 1,452 1,737 Traditional life 5,733 5,249 4,943 4,964 N/A N/A Total GWP 16,994 21,666 27,014 38,774 Investment-linked 3,643 4,873 7,172 4,568 N/A N/A Annuity 4,379 4,337 5,076 2,781 N/A N/A CPIC insurance (2601.HK) Short-term accident and health 1,483 4,638 5,421 5,949 N/A N/A Automobile insurance 11,571 16,475 19,681 25,449 Total 68,411 79, , ,503 62,089 73,439 Non-automobile insurance 6,573 6,999 8,194 8,840 CPIC (2601.HK) Commercial property and engineering N/A 3,719 4,365 4,512 Traditional 15,964 15,911 15,399 N/A 15,286 15,149 Short-term accident and health N/A 1,086 1,338 1,591 Participating 17,400 12,969 33,255 N/A 29,613 43,419 Shipping insurance N/A Universal 1,430 19,173 14,600 N/A Liability insurance N/A Short-term accident 3,043 2,633 2,838 N/A 2,838 3,336 Others N/A and health Total 37,837 50,686 66,092 67,576 47,828 61,998 Total GWP 18,144 23,474 27,875 34,289 SINOPAC SECURITIES 5

6 Ping An Insurance (2318.HK) -cont d P&L (RMBmn) FY09 FY10F FY11F FY12F Life insurance (RMBmn) FY09 FY10F FY11F FY12F Gross written premiums 112, , , ,821 Gross written premiums 73,439 91, , ,540 Net earned premiums 102, , , ,971 Net earned premiums 72,117 89, , ,629 Investment income 32,023 37,624 45,509 54,611 Claims and benefits (67,854) (86,524) (104,589) (127,734) Interest income from banking operations 6,674 9,163 11,261 13,757 Acquisition cost (7,233) (8,984) (10,974) (13,402) Fees and commission income 3,179 3,432 4,451 5,780 G&A expenses and others (13,861) (13,779) (16,830) (20,555) Other income 8,640 8,500 9,550 11,200 Underwriting profit (16,831) (19,708) (22,977) (28,062) Total revenue 152, , , ,319 Gross written premiums* 134, , , ,243 Claims and benefits (84,089) (111,465) (142,241) (180,982) Single premiums 37,309 45,664 56,935 73,906 Underwriting and acquisition cost (12,013) (16,376) (22,111) (29,123) Regular premiums 97, , , ,337 Interest expense from banking operations (3,249) (3,643) (4,372) (5,628) Gross written premiums* 134, , , ,243 G&A expenses (26,025) (32,726) (43,912) (57,567) First year premiums 64,984 82,530 99, ,862 Others (7,543) (10,560) (12,672) (14,573) Renewal premiums 69,519 85, , ,381 Total expenses (132,919) (174,770) (225,308) (287,873) Value of in-force business 60,651 77,919 98, ,860 Pre-tax profit 19,919 20,235 25,255 30,446 New business value 11,805 15,268 18,322 21,619 Income tax expenses (5,437) (5,059) (6,314) (7,611) Actual capital 50,898 N/A N/A N/A Minority interests ,200 Minimum capital 22,453 N/A N/A N/A Net profit to shareholders 13,883 14,396 17,981 21,634 Solvency margin ratio (%) N/A N/A N/A Dividends 3,305 3,673 5,142 5,509 P&C insurance (RMBmn) FY09 FY10F FY11F FY12F EPS (RMB) Gross written premiums 38,774 62,038 93, ,281 DPS (RMB) Net earned premiums 30,205 46,705 70,377 99,342 ROA (%) Claims and benefits (16,235) (24,941) (37,652) (53,247) ROE (%) Acquisition cost (4,780) (7,391) (11,137) (15,721) BS (RMBmn) FY09 FY10F FY11F FY12F G&A expenses and others (9,144) (13,906) (20,884) (29,380) Investment assets of insurance funds 589, , , ,340 Underwriting profit Other assets of insurance segments 65,488 78,586 92, ,423 Gross written premiums Banking segment assets 220, , , ,966 Automobile insurance 29,561 49,688 76, ,071 Loans to customers 109, , , ,239 Non-automobile insurance 7,476 10,093 13,625 18,394 Other assets 171, , , ,962 Accident and health insurance 1,737 2,258 2,936 3,816 Total assets 935,712 1,122,854 1,324,968 1,536,963 Loss ratio (%) Insurance reserves and benefits 543, , ,907 1,091,888 Expense ratio (%) Customer deposits 140, , , ,985 Combined ratio (%) Other liabilities 160, ,840 92,569 68,497 Actual capital 7,268 N/A N/A N/A Total liabilities 843,969 1,019,807 1,208,395 1,403,370 Minimum capital 5,061 N/A N/A N/A Shareholders' equity 84,970 95, , ,659 Solvency margin ratio (%) N/A N/A N/A Minority interests 6,773 7,354 8,040 8,934 Banking (RMBmn) FY09 FY10F FY11F FY12F Total equity 91, , , ,593 Gross loans 107, , , ,239 BPS (RMB) Average earning assets 180, , , ,653 Economic value ( RMBmn) FY09 FY10F FY11F FY12F Net interest income 3,425 5,520 6,889 8,129 Adjusted net worth (Group) 94, , , ,593 Non-interest income Adjusted net worth of life insurance 40,052 50,461 63,146 78,670 Total revenue 4,014 6,039 7,520 8,926 Value of in-force business 60,651 77,919 98, ,860 Operating expenses and others (2,917) (3,741) (4,668) (5,744) Previous year's VIF 43,843 60,651 77,919 98,241 Preprovision operating profit 1,097 2,297 2,852 3,182 Expected return on VIF 5,003 2,000 2,000 2,000 Credit cost (194) (771) (782) (926) Value of one-year's sales 11,805 15,268 18,322 21,619 Net interest spread (%) Embedded value (Group) 155, , , ,453 Credit cost (%) Embedded value of life insurance 100, , , ,530 NPL ratio (%) Value of one-year's new sales 11,805 15,268 18,322 21,619 NPL coverage ratio (%) EVPS (Group,RMB) Capital adequacy ratio (%) 13.0 N/A N/A N/A EVPS (Life insurance,rmb) Core capital adequacy ratio (%) 10.9 N/A N/A N/A NBVPS (RMB) Investment Income (RMBmn) FY09 FY10F FY11F FY12F Net investment income 19,076 27,893 33,939 40,048 Breakdown by segments FY09 FY10F FY11F FY12F Realized gains/(losses) 11,563 (RMBmn) 9,730 11,570 14,563 Pretax profit 19,919 20,235 25,255 30,446 Unrealized gains/(losses) 1,814 Life insurance 13,674 13,974 17,764 20,827 Impairment losses (430) P&C insurance 1,908 2,420 3,066 3,828 Total 32,023 37,624 45,509 54,611 Banking 1,348 2,007 2,651 2,953 Investment income breakdown Others 2,989 1,834 1,774 2,837 Life insurance segments 28,668 33,682 40,741 48,890 Net assets 91, , , ,593 P&C insurance segments 1,662 1,953 2,362 2,834 Life insurance 28,876 39,285 51,970 67,494 Banking segments P&C insurance 9,161 10,963 13,153 16,006 Others 1,284 1,509 1,825 2,190 Banking 14,439 15,934 17,827 20,028 Net investment yield Others 39,267 36,865 33,623 30,065 Gross investment yield SINOPAC SECURITIES 6

7 Market highlights Table 2: Upcoming important events Economic data Items Details China 06/25/ :00 Industrial Profits YTD YoY US 06/25/ :30 GDP QoQ (Annualized) 06/25/ :30 Personal Consumption 06/25/ :30 GDP Price Index 06/25/ :30 Core PCE QoQ 06/25/ :55 U. of Michigan Confidence Results Date Code Company name Details 2010/06/ UNITED PACIFIC Interim 2010/06/ ONE MEDIA GROUP Final 2010/06/ NATURAL DAIRY Interim 2010/06/ MEDIA CHINESE Final 2010/06/ Siberian Mining Final 2010/06/ GRAND INV INTL Final Dividend Ex-date Code Company Details Payable date B/C dates for final dividend 2010/06/ THS H-SHARE ETF Int Div HKD 80cents 2010/07/ /06/ /06/ /06/ HS HSI ETF Int Div HKD 2.8yuan 2010/07/ /06/ /06/ /06/ HS FXI C25 ETF Int Div HKD 1.1yuan 2010/07/ /06/ /06/29 SINOPAC SECURITIES 7

8 Buy List Buy list Close price Target price Current EPS(RMB) PER (x) DPS Yield code Company name (HK$) (HK$) Rating FY09 FY10F FY11F FY09 FY10F FY11F FY09 FY10F FY11F FY10F Auto 0489 Dongfeng Motor OP % 2333 Great Wall Motor OP % Basic Materials 2899 Zijin Mining OP % 1818 Zhaojin Mining OP % 0358 Jiangxi Copper OP % 0893 China VTM OP % Electrical appliance 0449 Chigo OP % 0751 Skyworth Digital* OP % 1070 TCL OP % Financial 3968 China Merchants Bank OP % 1398 ICBC OP % 0939 CCB OP % F&B 0322 Tingyi** OP % 0151 Want Want China** OP % Healthcare 1099 Sinopharm OP % Heavy Truck 2338 Weichai power OP % Insurance 2318 PingAn OP % New Energy 1043 Coslight Tech OP % Machinery 0658 China High Speed OP % 0038 First Tractor OP % Power/Gas/Coal 1088 China Shenhua OP % 1898 China Coal OP % 1171 Yanzhou Coal OP % Sportswear 2331 Li Ning OP % 2020 Anta OP % Telecom/Telecom equipments 0763 ZTE OP % 0818 Hi Sun OP % 0082 VODone OP % 2369 China Wireless OP % Transportation Infrastructure 1800 China Comm. Construction OP % Source: SinoPac Securities estimates #: Year end March 31st *: EPS denominated in HK$ **: EPS denominated in US$ OP: Outperform, IL: In-line; UP: Underperform; UR: Under Review SINOPAC SECURITIES 8

9 Dual-listed Stocks: A+H shares (as of 24 June 2010) Stock Code Close Price Premium (%) Company Name H share A share H share (HK$) A share (RMB) A share (HK$) A share/h share Banks China Construction Bank % China Citic Bank % ICBC % Bank of Communication % China Merchants Bank % Bank Of China % Capital goods NE Electric % Beiren Printing % Jiaoda Hightech % Guangzhou Ship % Jingwei Textile % Dongfang Electrical % Weichai Power % Commercial services & supplies Tianjin Capital % Energy Sinopec Corp % China Petrochem % China Shenhua % Yanzhou Coal % China Oilfield % China Coal % Food & beverage Tsingtao Brew % Insurance Pingan Insurance % China Life % Industry Guangdong Kelon % Materials Maanshan Iron % Angang Steel % Shanghai Pechem % Jiangxi Copper % Anhui Conch % Yizheng Chemical % Chongqing Iron & Steel % Luoyang Glass % China Alumi % Pharmaceuticals biotechnology & life sciences Shandong Xinhua % Guangzhou Pharmaceutical % Real Estate Beijing North Star % Technology hardware equipment Nanjing Panda % ZTE % Transportation Jiangsu Express % Guangshen Railway % Shenzhen Expressway % China East Air % Air China % Anhui Expressway % China South Airlines % China Shipping Development % China Railway % China Shipping Container % China Railway Construction % Utilities Huaneng Power % Datang Power % Huadian Power % Source: Bloomberg, SinoPac securities * Assuming the exchange rate is RMB1=HK$0.90 SINOPAC SECURITIES 9

10 Hong Kong/China Stock Coverage (as of 24 June 2010) Close price Target price Current EPS(RMB) PER (x) DPS Yield code Company name (HK$) (HK$) Rating FY09 FY10F FY11F FY09 FY10F FY11F FY09 FY10F FY11F FY10F Auto 0489 Dongfeng Motor OP % 2333 Great Wall Motor OP % 0175 Geely Auto IL % Basic Materials 2899 Zijin Mining OP % 1818 Zhaojin Mining OP % 0347 Angang Steel UP % 0323 Maanshan iron& steel UP % 0358 Jiangxi Copper OP % 0893 China VTM OP % Electrical appliance 0449 Chigo OP % 0751 Skyworth Digital* OP % 1070 TCL OP % Financial 3968 China Merchants Bank OP % 1398 ICBC OP % 0939 CCB OP % 0998 China Citic Bank IL % 3328 Bank Of Comm IL % F&B 0322 Tingyi** OP % 1068 China Yurun Food* IL % 0151 Want Want China** OP % Healthcare 1099 Sinopharm OP % Heavy Truck 2338 Weichai power OP % 3808 Sinotruck IL % Insurance 2628 China Life IL % 2318 PingAn OP % New Energy 0819 Tianneng Power UP % 1043 Coslight Tech OP % Machinery 0317 Guangzhou Shipyard IL % 0658 China High Speed OP % 0038 First Tractor OP % Power/Gas/Coal 1088 China Shenhua OP % 1898 China Coal OP % 1171 Yanzhou Coal OP % 0639 Fushan Energy IL % Property/Building Materials 3323 CNBM IL % 0914 Anhui Conch IL % 0743 Asia Cement UP % Sportswear 2331 Li Ning OP % 2020 Anta OP % Telecom/Telecom equipments 0763 ZTE OP % 0818 Hi Sun OP % 0082 VODone OP % 2369 China Wireless OP % Transportation Infrastructure 1800 China Comm. Construction OP % 0390 China Railway Group IL % 1186 China Railway Construction IL % 1766 China South Locomotive IL % Transportation 1138 China Shipping Development IL % 2866 China Shipping Container UP (0.555) N/A N/A N/A N/A N/A 1919 China COSCO holdings IL (0.731) N/A N/A % Source: SinoPac Securities estimates #: Year end March 31st *: EPS denominated in HK$ **: EPS denominated in US$ OP: Outperform, IL: In-line; UP: Underperform; UR: Under Review SINOPAC SECURITIES 10

11 HONG KONG SHANGHAI SinoPac Securities (Asia) Ltd. SinoPac Securities (Asia) Limited 21 st Floor, One Peking, Suite 2405, Hua Xia Bank Tower, 1 Peking Road, Tsim Sha Tsui, Kowloon, 256 South Pudong Road, Shanghai Hong Kong PRC Tel: (852) Tel: (86 21) Fax: (852) Fax: (86 21) LONDON TAIPEI SinoPac Securities (Europe) Ltd. SinoPac Securities Corporation 5 th Floor, Habib House 18/F, 2 Chung Ching S. Road, Sec 1 42 Moorgate Taipei London EC2R 6EL Taiwan 100, R.O.C. United Kingdom Tel: (886 2) / Registered in England and Wales No Fax: (886 2) Tel: (44 20) Fax: (44 20) SINOPAC SECURITIES 11

12 ANALYST CERTIFICATION For each company mentioned in this research report, the respective analyst or analysts who cover the company certifies that all of the views expressed in this research report accurately reflect the analyst s or analysts personal views about any and all of the subject issuer(s) or securities. The analyst or analysts also certify that no part of analyst s compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. IMPORTANT DISCLOSURES This document is for information purposes only. Information has been obtained from sources believed to be reliable but SinoPac Securities (Asia) Limited or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. Opinions and estimates constitute our judgement as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. Our research is available at and Bloomberg (page: SINO). This research report has been published in accordance with our research policy stated in our General Compliance Manual. Recommendation definitions: Outperform In-line Underperform : return > 10% in excess of benchmark return in a year : return within 10% of benchmark return in a year : return > 10% below benchmark return in a year To our readers in Taiwan: This research report is made available in Taiwan through SinoPac Securities Corporation, which is regulated by Securities & Futures Bureau. Such report is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decisions. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of SinoPac Securities Corporation. Information on securities that do not trade in Taiwan is for information purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. SinoPac Securities Corporation and/or its affiliates may have an investment banking relationship with the company or companies referenced in this report. To our readers in the United Kingdom: This research report is made available in the United Kingdom through SinoPac Securities (Europe) Limited, which is regulated by the Financial Services Authority ( FSA ). Such report may only be issued or passed on to any person in the United Kingdom if that person is of a kind described in Article 19(5) or Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or otherwise pursuant to exemptions to Section 21 of the Financial Services and Markets Act 2000 ( FSMA 2000 ). In addition, no person who is an Authorised Person (as defined in the FSMA 2000) may issue or pass on this report, or otherwise promote the Company, to any person in the United Kingdom other than by the rules of the FSA applicable to such Authorised Persons. This report is confidential and is intended solely for the use of its recipient SinoPac Securities (Asia) Limited. All rights reserved. Any unauthorized use, duplication, redistribution or disclosure is prohibited by law and will result in prosecution. SinoPac Securities (Asia) Limited or its affiliates accepts no liability whatsoever arising out of, or on connection with this report. SINOPAC SECURITIES 12