Hang Seng Index Performance

Source: Bloomberg

Major Market Indicators

Hong Kong Close 1-Day 1-Mth 6-Mth 12-Mth

Hang Seng Index 26,063.76 -0.4% 1.8% -15.8% -9.0%

HSCEI (H-Shares) 10,369.40 -1.1% -0.6% -14.8% -8.2%

Mkt T/O ($ Mn) 98,958.38 2.1% 1.7% -6.2% -18.2%

Oversea

DJIA 24,388.95 -2.2% -6.2% -3.7% 0.2%

NASDAQ 6,969.25 -3.0% -5.9% -8.8% 1.9%

Shanghai SE Composite 2,605.89 0.0% 0.3% -15.0% -20.8%

Shenzhen Component 7,733.89 0.0% 1.1% -24.2% -29.3%

Commodities and FX

Crude Oil Futures (US$) 52.33 1.6% -13.1% -20.4% -8.8%

Gold Futures (US$) 1,254.00 0.1% 3.8% -3.7% 0.4%

Baltic Dry Index 1,372.00 2.5% 19.6% -1.4% -19.4%

USD / Euro 1.14 0.1% 1.4% -3.3% -3.3%

Yen / USD 112.54 0.2% 1.1% -2.2% 0.8%

CNH / USD 6.897 -0.2% 1.0% -7.2% -4.0%

% Change

Market Overview

Hang Seng Index closed down 0.4% at 26,063. HSCEI declined 1.1%. Heavily weighted Tencent (700) advanced 2.1%. HSBC (5) and AIA Group (1299) tumbled 1.9% and 0.2% respectively.

Pharmaceutical, technology, automobile, oil, cement, power, gaming and Chinese financial stocks underperformed the market. Sino Biopharmaceutical (1177) was the worst performing stock in Hang Seng Index, down 7.9%. CSPC Pharmaceutical (1093) and Sinopharm (1099) plunged 4.3%-4.5%. AAC Technologies (2018) and Sunny Optical (2382) shrank 1.6% and 3.8% respectively. Dongfeng Motor (489), Guangzhou Automobile (2238) and Great Wall Motor (2333) decreased 2.2%-2.9%. Three largest oil stocks retreated 2.1%-2.4%. CGN Power (1816) and Anhui Conch (914) fell 2.1%-2.2%. Sands China (1928) and Galaxy Entertainment (27) slid 1.8%-2.2%. Insurance, banking and securities stocks in HSCEI dropped an average 1.6%, 1.7% and 2.9% respectively. China Merchants Bank (3968), Zhongan Online (6030), Haitong Securities (6837) and Huatai Securities (6886) lost 3.0%-3.5%. China Minsheng Banking (1988), CITIC Bank (998), China Life (2628) and CPIC (2601) slumped 1.9%-2.2%.

Local banking, consumption, property, telecom and railway stocks lacked clear direction. BOC Hong Kong (2388) cut 2.0%. Shenzhou (2313) rose 2.0% while Want Want China (151) and WH Group (288) decreased 2.0%-2.3%. Link REIT (823) was the best performing stock in Hang Seng Index, up 2.7%. Swire Pacific (19) fell 1.0%. China Evergrande (3333) and China Resources Land (1109) climbed 2.0%-2.1%. Country Garden (2007) slid 0.9%. China Mobile (941) grew 2.0% while China Telecom (728) dropped 1.7%. China Railway Group (390) added 1.0% while CCCC (1800) tumbled 1.6%. We expect Hang Seng Index to be highly volatile this month with a trading range of 25,500 to 27,500.

10 December 2018

We expect Hang Seng Index to be highly volatile this month with a trading range of 25,500 to 27,500

Index Movers

Source: Bloomberg, Mason Securities

Name Price % Chg Points Name Price % Chg Points

Link ( 823 ) 79.35 2.7% 13.5 CITIC ( 267 ) 12.92 2.7% 2.6

CITIC ( 267 ) 12.92 2.7% 6.0 Tencent ( 700 ) 310.60 2.1% 12.4

Hang Lung Properties ( 101 ) 15.70 2.6% 2.5 China Resources Land ( 1109 ) 29.25 2.1% 2.2

Tencent ( 700 ) 310.60 2.1% 53.1 China Mobile ( 941 ) 77.55 2.0% 12.2

China Resources Land ( 1109 ) 29.25 2.1% 5.1 Shenzhou International ( 2313 ) 98.75 2.0% 1.9

China Mobile ( 941 ) 77.55 2.0% 28.1 China Gas ( 384 ) 28.35 1.4% 0.9

Shenzhou International ( 2313 ) 98.75 2.0% 4.4 Hengan International ( 1044 ) 62.55 1.1% 0.7

MTR ( 66 ) 40.90 1.2% 2.3 China Railway ( 390 ) 7.06 1.0% 0.8

Hengan International ( 1044 ) 62.55 1.1% 1.5 CRRC Corp ( 1766 ) 7.19 0.6% 0.5

CK Asset Holdings ( 1113 ) 56.80 1.1% 4.7 Guangdong Investment ( 270 ) 15.00 0.5% 0.3

CLP Holdings ( 2 ) 88.70 1.0% 5.2 BYD ( 1211 ) 54.60 0.0% 0.0

China Overseas ( 688 ) 26.45 1.0% 2.9 China Vanke ( 2202 ) 26.50 -0.2% -0.2

Power Assets ( 6 ) 53.20 0.9% 2.1 China Shenhua ( 1088 ) 17.42 -0.3% -0.6

New World Development ( 17 ) 10.70 0.9% 1.9 CCB ( 939 ) 6.49 -0.5% -4.7

Sun Hung Kai Properties ( 16 ) 113.20 0.9% 4.0 Huaneng Power International ( 902 ) 5.00 -0.8% -0.4

Hang Seng Bank ( 11 ) 181.00 0.5% 2.1 BOCOM ( 3328 ) 5.85 -1.0% -1.5

Sino Land ( 83 ) 13.72 0.3% 0.4 PICC Property & Casualty ( 2328 ) 7.86 -1.1% -1.7

Henderson Land ( 12 ) 39.85 0.1% 0.2 Huarong Asset ( 2799 ) 1.53 -1.3% -0.6

Wharf ( 1997 ) 48.75 -0.1% -0.2 Ping An Insurance ( 2318 ) 75.00 -1.3% -14.2

Hong Kong & China Gas ( 3 ) 15.94 -0.1% -0.6 New China Life ( 1336 ) 33.05 -1.3% -1.0

CK Infrastructure ( 1038 ) 58.65 -0.2% -0.2 Agricultural Bank ( 1288 ) 3.42 -1.4% -3.9

AIA Group ( 1299 ) 63.05 -0.2% -5.5 ICBC ( 1398 ) 5.47 -1.4% -15.0

China Shenhua ( 1088 ) 17.42 -0.3% -0.6 Cinda Asset Management ( 1359 ) 2.03 -1.5% -0.7

CK Hutchison ( 1 ) 78.50 -0.4% -2.9 Postal Savings Bank of China ( 1658 ) 4.47 -1.5% -1.7

CCB ( 939 ) 6.49 -0.5% -9.9 CCCC ( 1800 ) 7.42 -1.6% -1.5

Mengniu Dairy ( 2319 ) 23.85 -0.6% -1.3 Air China ( 753 ) 7.39 -1.7% -0.7

Country Garden ( 2007 ) 9.24 -0.9% -1.9 China Telecom ( 728 ) 3.96 -1.7% -2.6

HKEx ( 388 ) 229.00 -0.9% -7.2 BOC ( 3988 ) 3.31 -1.8% -13.3

China Unicom ( 762 ) 8.75 -0.9% -1.5 People's Insurance ( 1339 ) 3.19 -1.8% -1.2

BOCOM ( 3328 ) 5.85 -1.0% -1.6 CITIC Bank ( 998 ) 4.74 -1.9% -2.4

Swire Pacific ( 19 ) 81.95 -1.0% -1.3 China Minsheng Banking ( 1988 ) 5.57 -1.9% -2.0

China Resources Power ( 836 ) 14.78 -1.2% -1.1 China Life Insurance ( 2628 ) 16.44 -2.0% -7.1

Ping An Insurance ( 2318 ) 75.00 -1.3% -17.0 CITIC Securities ( 6030 ) 14.24 -2.1% -1.6

ICBC ( 1398 ) 5.47 -1.4% -18.0 CGN Power ( 1816 ) 1.86 -2.1% -1.2

AAC Technologies ( 2018 ) 50.75 -1.6% -1.8 CNOOC ( 883 ) 12.78 -2.1% -6.6

Geely ( 175 ) 14.32 -1.6% -3.9 Anhui Conch Cement ( 914 ) 38.60 -2.2% -2.9

BOC ( 3988 ) 3.31 -1.8% -14.5 China Pacific Insurance ( 2601 ) 26.80 -2.2% -4.4

Sands China ( 1928 ) 35.00 -1.8% -4.8 PetroChina ( 857 ) 5.31 -2.2% -7.1

HSBC ( 5 ) 63.70 -1.9% -49.9 Guangzhou Automobile ( 2238 ) 7.48 -2.2% -1.4

BOC Hong Kong ( 2388 ) 29.70 -2.0% -6.8 Dongfeng Motor ( 489 ) 6.90 -2.3% -1.2

WH Group ( 288 ) 5.89 -2.0% -3.2 Sinopec ( 386 ) 6.41 -2.4% -11.4

China Life Insurance ( 2628 ) 16.44 -2.0% -7.7 GF Securities ( 1776 ) 11.36 -2.7% -1.4

CNOOC ( 883 ) 12.78 -2.1% -15.2 China Galaxy Securities ( 6881 ) 4.01 -2.9% -1.2

Galaxy Entertainment ( 27 ) 48.75 -2.2% -8.0 Great Wall Motor ( 2333 ) 4.66 -2.9% -1.2

PetroChina ( 857 ) 5.31 -2.2% -7.7 Zhongan ( 6060 ) 30.45 -3.0% -0.9

Want Want China ( 151 ) 5.55 -2.3% -2.2 Huatai Securities ( 6886 ) 12.78 -3.3% -2.0

Sinopec ( 386 ) 6.41 -2.4% -12.4 CMB ( 3968 ) 31.70 -3.5% -12.5

Sunny Optical ( 2382 ) 67.30 -3.8% -5.8 Haitong Securities ( 6837 ) 8.45 -3.5% -2.8

CSPC Pharmaceutical ( 1093 ) 13.22 -4.3% -7.4 CSPC Pharmaceutical ( 1093 ) 13.22 -4.3% -3.2

Sino Biopharmaceutical ( 1177 ) 5.38 -7.9% -9.7 Sinopharm Group ( 1099 ) 35.00 -4.5% -5.5

H S C E IH S I

Market in Focus Name

Bloomberg Ticker

74.3

6.27 - 9.98

38.2%

211.0

135 HK Equity

Kunlun Energy MKT Cap ($Bn)

52-week High/Low ($)

BUY

$11.00

Rating

3M Avg Turnover ($, Mn)Target Price

Free Float (%)

Benefit from sustainable LNG consumption growth in China – Maintain BUY Kunlun Energy (135)

Since our BUY commentary dated October 29, Kunlun Energy (135, $9.20) has increased by 1.8% compared with 5.4% for Hang Seng Index over the same period. We maintain our long-term positive view on China gas market and believe the gas consumption in China will nearly triple by 2030. Among the gas supply sources, we expect domestic production will reach nearly 6% CAGR and LNG imports will reach approximately 13% CAGR from 2018 to 2025. Currently, the aggregate LNG terminal capacity in China is approximately 67mtpa and is expected to reach 80mtpa in 2020. We believe Kunlun’s LNG terminals and LNG processing business will benefit from the sustainable LNG import growth given its leading position in LNG industry.

According to the company, Kunlun’s LNG terminal loading and unloading capacity accounted for more than one-third of the domestic capacity and its LNG processing capacity accounted for more than one quarter of the domestic capacity, forming a complete LNG industrial chain from loading and unloading, gasification and trucking, processing and storage, vehicle and ship refilling.

In the first half of 2018, Kunlun recorded sales volume of LNG Processing and Terminal of 10,057 million cubic metres, representing an increase of 3,829 million cubic metres or 61.5% as compared with 6,228 million cubic metres for the same period of last year. Segment revenue reached RMB3,228 million (6.5% of total revenue vs 4.8% last year), representing an increase of 64.9% yoy. Segment profit before income tax was RMB1,726 million (23.9% of PBT vs 9.6% last year), representing an increase of 180.7% yoy. The processing volume of LNG processing plant was 618 million cubic metres, representing an increase of 112 million cubic metres or 22.1% as compared with 506 million cubic metres for the same period of last year.

According to Bloomberg estimates, the company’s revenue will reach RMB103.6bn in 2018 and RMB116.2bn in 2019, up 16.8% and 12.2% yoy respectively. Net profit will amount to RMB6.03bn in 2018 and RMB6.77bn in 2019, up 26.6% and 12.3% yoy translating into forward P/E of 11.2x and 10.0x respectively. We believe current valuation of Kunlun Energy is still attractive to long term investors and maintain our BUY recommendation with a 12-month price target of $11.0 based on 12x 2019 earnings.

Fig1: 1 Year Share Price

Source: Bloomberg, Mason Securities

Technical Ideas

Stock Code

BUY $12.92 267

$14.21 N/A CITIC Ltd (267, $12.92) TP: $14.21 BUY

$12.27 TP: $14.21

CL: $12.27375.8 16.9%

518 111

340% 467%

7.5X 0.66X

137%

SMA10 12.64 RSI (14) 56.8

SMA20 12.47 BB (Upper) 12.92

SMA100 11.50 BB (Lower) 12.01

CITIC Ltd

267 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

CITIC Ltd

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Stock Code

BUY $1.52 3998

$1.67 $1.72 Bosideng (3998, $1.52) TP: $1.67 BUY

$1.44 TP: $1.67

CL: $1.4416.2 27.9%

55 20

93% 280%

16.8X 1.41X

-43%

SMA10 1.38 RSI (14) 67.1

SMA20 1.38 BB (Upper) 1.48

SMA100 1.14 BB (Lower) 1.29

Bosideng International Holding

3998 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

Bosideng

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Source: Bloomberg, Mason Securities

Recent Recommendations

Date of Issue Stock Pick Recommendation Highlights Rating (TP)

27/11/2018 Galaxy Entertainment

(27)

Share price broke through a technical resistance - Maintain BUY Galaxy Entertainment (27)

• Share price broke through a technical resistance at $47.0. Macau’s gaming revenue increased by 17.5% yoy in the first eight months of 2018 but only 2.8% yoy in September and 2.6% yoy in October

• We believe the expectation for a low-single digit growth in Macau’s gaming revenue in 2019 has been priced in by investors

BUY ($57.9)

28/11/2018 CRG

(1193)

CRG (1193): We expect a robust growth in 3Q18 given a weak economic situation, Maintain BUY

• We expect CRG to deliver +20% volume growth in 3Q18. Besides, we expect CGR to record a yoy improvement in gas sales’ gross margin in 4Q18

• We expect CRG to beat its volume growth target of 20% in 2018

BUY ($38.4)

29/11/2018 ANTA Sports

(2020)

Valuation remains attractive to long-term investors - Maintain BUY Anta Sports (2020)

• Operational data for 3Q18 are satisfactory despite a slowdown in China’s consumption

• Valuation remains attractive with EPS growth over 20% in coming two years

BUY ($42.0)

30/11/2018 Luk Fook

(590)

Lower gross margin is a big negative surprise – Downgrade Luk Fook (590) to HOLD

• Overall gross margin declined from 26.2% to 23.7% due to gold price drop and the changes in product mix and pricing strategy of gem-set jewellery products

• We believe the decline in gross margin is a big negative surprise to the market

HOLD ($22.5)

3/12/2018 Huadian Fuxin

(816)

Huadian Fuxin (816): Improving fundamentals with undemanding valuation; BUY

• Underperformance was mainly due to a drag of hydropower generation which recorded a negative growth of 47.3% for 10M18

• Sequential improvement on the main earnings driver will serve a ST catalyst for the company

BUY ($1.84)

4/12/2018 A-Living Services

(3319)

Future M&A could be a share price catalyst – Maintain BUY on A-Living Services (3319)

• Market concern about an increase in employee benefit expenses after a strict enforcement of China’s social security taxes in 2019 has been over

• We believe market focus will place on future M&A exercise that could be a share price catalyst

BUY ($13.0)

5/12/2018 CSCI

(3311)

China’s infrastructure investment picked up in October – Maintain BUY CSCI (3311)

• Gradual recovery in China’s fixed assets investment and successful issue of US$500mn 6.0% senior guaranteed perpetual capital securities.

• Current valuation at 2019 P/E of 5.0x with 2019 EPS growth of 16% remains cheap.

BUY ($9.0)

6/12/2018 China Overseas

Property

(2669)

Current valuation remains attractive – Maintain BUY China Overseas Property (2669)

• Market concern about an increase in employee benefit expenses after a strict enforcement of China’s social security taxes in 2019 has been over

• Attractive valuation at P/E of 19.4x in 2018 and 16.0x in 2019 with a 2-year EPS CAGR of 25%.

BUY ($2.6)

7/12/2018 SMIC

(981)

Huawei incident plus industry down cycle will affect SMIC – Downgrade SMIC (981) to SELL

• According to IHS Markit, revenue growth for global semiconductor market is expected to slow from 15.8% in 2018 to 4.4% in 2019 and 4.3% in 2020

• SMIC’s net profits will cut 44% in 2018 and 48% in 2019 to US$100mn and US$52mn respectively translating into forward P/E of 49x in 2018 and 133x in 2019

SELL ($6.5)

Disclosures of Interests

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The views about any and all of the subject securities and issuers expressed in this report accurately reflect the personal views of the research analyst(s) primarily responsible for this report; and

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activities.

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Guide to stock ratings

Note: Newly issued research recommendations and target prices supersede previously published research.

BUY Based on a current 12-month view of total shareholder return (change in share price from current price + projected dividend yield), we expect a positive return

of over 10%.

HOLD Based on a current 12-month view of total shareholder return, we expect the return to range between +10% to -10%.

SELL Based on a current 12-month view of total shareholder return we expect a negative return of over 10%.

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Email: research@masonhk.com