Hang Seng Index Performance. Index Performance. Market Outlook

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1 4 th Sep, 2015 Hang Seng Index Performance Index Performance Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 20, HSCI 2, HSCCI (Red Chips) 3, HSCEI (H-Shares) 9, Mkt T/O ($ Mn) 96, , Source: Bloomberg Market Outlook Eric Yuen [email protected] Hang Seng Index closed down 1.2% at 20,934. Market turnover increased to $96.1 billion. Heavily weighted HSBC (5), AIA Group (1299) and China Mobile (941) cut 1.8%, 1.5% and 1.1% respectively. Tencent (700) was almost flat. Local property stocks were mixed. Local banks including BOC Hong Kong (2388), Hang Seng Bank (11) and Bank of East Asia (23) shrank 1.6%-3.2%. Gaming operators tumbled on gloomy outlook for Macau s gaming industry. Sands China (1928) and Galaxy Entertainment (27) lost 3.2%-4.2%. Decline in crude oil price weighted on oil producers. PetroChina (857), CNOOC (883) and Kunlun Energy (135) plunged 2.6%- 4.3%. Belle International (1880), the best performing index stock, advanced 1.5%. HSCEI declined 1.6% led by banking, automobile and power stocks. China Longyuan (916), CGN Power (1816), GAC Group (2238) and Great Wall Motor (2333) slumped 2.7%-4.9%. Banking shares in HSCEI dropped an average 3.0%. China Oilfield Services (2883) and Jiangxi Copper (358) slid 5.8%-7.1%, the most in HSCEI. Insurance stocks were little changed. China Railway Group (390), the best performing HSCEI stock, surged 3.2%. Valuation of Hong Kong s stock market is approaching the bottom valuation in 2008 s financial crisis. However, we believe market outlook will remain uncertain before the Federal Reserve meeting in mid- September. Oversea DJIA 16, NASDAQ 4, Shanghai SE Composite 3, Crude Oil Futures (US$) Gold Futures (US$) 1, Baltic Dry Index USD / Euro Yen / USD HSCEI HSI 20-Day MA 10, , Day MA 11, , Day RSI 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. 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 Wholly owned subsidiary of Guoco Group Limited (HKEx Stock : 53) A Member of the Hong Leong Group

2 Industry / Corporate News Becky Yuen, CFA [email protected] 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 Risk Level: High 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 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 RMB 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 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

3 Technical Ideas SJM Holdings (880, $6.46) TP: $5.81 SELL 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 $ 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. Source: Bloomberg, GuocoCapital Sino Biopharmaceutical (1177, $8.99) TP: $9.91 BUY Consensus 2015 PER: 10.2x Consensus target price: $9.45 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 sma day RSI also showed an increasing trend above 50, indicating the counter's positive outlook ahead. Source: Bloomberg, GuocoCapital BUY. Short-term target at $9.91. Cut loss at $8.21. Consensus 2015 PER: 24.0x Consensus target price: $10.44

4 RSI Indicator Overbought (9-day RSI> 80) Tickers 530, 1321 Oversold (9-day RSI<20) Tickers 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 Last Price ($) Price Change (%) Turnover / 3-mth daily avg turnover Target price up / downside (%)* Rating*^ Baoxin Auto Group North Mining Shares 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 PER*

5 A-H Share Premium / Discount (%) Average AH Shanghai Listed -46.0% Premium/Discount (%) Shenzhen Listed -48.2% 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 (%) Luoyang Glass Huadian Power Intl GAC Group New China Life Chongqing Iron China Insurance Shenhua China BoComm Energy Molybdenum Yanzhou Coal China Everbright Shanghai Mining Electric Bank Bank of China SSC Shenzhen Express China Shipping Shanghai Pharm Container MCC Huaneng Power Intl Shenji Group Haitong Securities Beijing Kunming Jingcheng ABC Sinopec Machinery Shanghai CCB Dalian Petrochem Port ICBC Nanjing Panda Huatai Securities Co China Electronics Cosco Shanghai Ltd Fosun China Oilfield China Life Pharm Insurance Tianjin Services Capital Citic Securities Beijing Environment North Star Sinopec China Eastern Tsingtao Brewery Datang Airlines Intl Power China Merchants Chalco Fuyao Bank Glass First Tractor Jiangsu Express China Shipping CPIC Development BBMG Ping An Insurance Guangzhou Anhui Group Conch Shipyard Magang Cement Zijin Mining A-H Shares Shenzhen Listed China Southern Zhejiang Shibao China Coal Air Energy Northeast Electric Sichuan Shandong Develop Molong China Expressway Railway Shandong Petroleum Xinhua Zhengzhou Group Coal Shandong Pharm Chenming Guangshen Mining Hisense Paper Kelon Dongfang Railway Electric Zoomlion Heavy Air China Angang Industry Steel Anhui Expressway Jingwei Textile CCCC China Machinery International Jiangxi Copper Marine BYD Great Wall Motor Dongjiang Env CRRC Corp Livzon Pharm Guangzhou Pharm Weichai Power Petrochina Xinjiang Goldwind CRCC ZTE Sci&Tec Corp China Citic Bank GF Securities Co Ltd China Minsheng Bank China Vanke

6 HSI & HSCEI Constituents Performance Price Change (%) Index 5 D 1 M 3 M vs 3M High Hang Seng Index Hang Seng China Ent Index Outperform Underperform Mixed Infrastructure, Port, HK Property, PRC Property Airline, Asset Management, HK Bank, Gaming, Securities Automobile, PRC Bank, Consumer, Insurance, 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 489 Dongfeng Group China Resources CNOOC Power HKEx China Pacific Tencent Anhui Insurance Conch AIA CK Property 5-18 N/A CLP Hldgs China Life SHK Prop China Vanke HK & China Gas BYD Company Longyuan Power China Overseas China Coal China Res Land Bank of E Asia Hengan Int'l PICC P&C China Railway HSBC Hldgs Swire Pacific 'A' Cathay Pac Air GreatWall Motor CCB Belle Int'l Sinopharm Ping An Power Assets China Mer Hldgs China Shenhua CK Hutchison Haitong Securities Sino Hldgs Land Ltd Jiangxi Copper New China Life ICBC Dalian Wanda Sands China Kunlun Gas Tingyi China Mobile PetroChina China Oilfield Tsingtao Brew Want Want Air China CM Bank CGN Power China Resources Bank of China Henderson Land GAC Huaneng Power ABC Sinopec Corp CITIC Bank Wharf Galaxy Hang Lung Prop Entertainment CNBM New World Dev BOC Hong Kong MTR Corporation CITIC Ltd Link REIT China Telecom Li & Fung Minsheng Bank PICC Group China Cinda China Unicom CITIC Securities Lenovo BOCOM China Comm Cons China Mengniu Hang Seng Bank Dairy

7 Upcoming Events Date Stock Company Name Event Sep China Financial Int l Investments Final Sep SHK Properties Final Sep Sunlight REIT Final Disclosures Investment Rating System Ratings Description GuocoCapital s investment rating system is Buy Expected positive return of > 10 % divided into investment ratings, risk rating Investment Ratings Hold Expected return range of ~ ±10 % and investment time horizon. The rating Sell Expected negative return > 10% scale is subject to change upon periodic High (H) 90-day volatility of > 50% review of market by research department. Risk Ratings Medium (M) 90-day volatility of > 30-50% Assigned ratings are based on company Low (L) 90-day volatility of < 30% and sector historical performance and analysts intrinsic valuation of the stock Long (L) 6 12 Months 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 GuocoCapital Limited 12/F, The Center, 99 Queen s Road Central, Hong Kong Tel: (852) Fax: (852) 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 GuocoCapital nor any of its associated companies, (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 above-mentioned companies or individuals may have used the research materials before publication. However, it is hereby declared that neither GuocoCapital nor the writer, at the time of writing, has interest in any of the securities mentioned in this report. 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.