Hang Seng Index Performance

Source: Bloomberg

Major Market Indicators

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

Hang Seng Index 27,182.04 2.5% 2.6% -12.3% -6.7%

HSCEI (H-Shares) 10,882.16 2.5% 1.8% -11.2% -5.5%

Mkt T/O ($ Mn) 129,624.98 24.5% -23.9% 7.4% -13.9%

Oversea

DJIA 25,826.43 1.1% 2.2% 4.1% 6.3%

NASDAQ 7,441.51 1.5% 1.1% -2.2% 9.8%

Shanghai SE Composite 2,654.80 2.6% -0.8% -14.1% -19.8%

Shenzhen Component 7,938.47 3.3% 0.9% -22.2% -27.9%

Commodities and FX

Crude Oil Futures (US$) 53.24 4.5% -15.7% -17.8% -7.4%

Gold Futures (US$) 1,236.10 -0.3% 0.2% -4.7% -3.3%

Baltic Dry Index 1,231.00 -3.9% -15.5% 3.2% -25.9%

USD / Euro 1.14 0.0% -0.4% -2.8% -4.1%

Yen / USD 113.58 0.0% -0.4% -3.4% -0.7%

CNH / USD 6.876 0.0% 0.6% -6.8% -3.8%

% Change

Market Overview

Hang Seng Index closed up 2.5% at 27,182. HSCEI advanced 2.5%. Heavily weighted Tencent (700), AIA Group (1299) and HSBC (5) surged 4.1%, 3.8% and 1.9% respectively. Gaming, technology, consumption, oil, airline and Chinese financial stocks outperformed the market. WH Group (288) surged 11.7%. Mengniu Dairy (2319) and Shenzhou (2313) added 3.1%-4.3%. Galaxy Entertainment (27) and Sands China (1928) climbed 9.9%-12.0%. AAC Technologies (2018) and Sunny Optical (2382) rose 4.4% and 7.7% respectively. Air China (753) went up 5.4%. Three largest oil stocks soared 3.0%-3.9%. Banking, insurance and securities stocks in HSCEI grew an average 2.5%, 3.3% and 4.9% respectively among which China Merchants Bank (3968), China Life (2628), CPIC (2601), Galaxy Securities (6881), CITIC Securities (6886) and GF Securities (1776) increased 4.2%-4.9%. Haitong Securities (6837) jumped 7.4%.

Telecom, automobile, pharmaceutical stocks lacked clear direction. China Mobile (941) shrank 3.0% while China Unicom (762) rose 0.3%. Geely Automobile (175), Great Wall Motor (2333) and Guangzhou Automobile (2238) increased 2.7%-3.2% while BYD Company (1211) tumbled 3.1%. Sino Biopharm (1177) advanced 2.4% while Sinopharm (1099) retreated 0.1%. Railway and property stocks ended higher but underperformed the market. Wharf REIC (1997), Sino Land (83), China Resources Land (1109) and Shimao Property (813) climbed 3.4%-5.2%. We expect Hang Seng Index to be highly volatile in the short term.

4 December 2018

We expect Hang Seng Index to be highly volatile in the short term

Index Movers

Source: Bloomberg, Mason Securities

Name Price % Chg Points Name Price % Chg Points

Sands China ( 1928 ) 37.90 12.0% 29.9 Haitong Securities ( 6837 ) 8.72 7.4% 5.4

WH Group ( 288 ) 6.38 11.7% 18.0 Air China ( 753 ) 7.98 5.4% 2.3

Galaxy Entertainment ( 27 ) 52.80 9.9% 34.4 China Resources Land ( 1109 ) 30.50 5.2% 5.5

Sunny Optical ( 2382 ) 81.50 7.7% 12.6 CMB ( 3968 ) 33.95 4.9% 17.4

China Resources Land ( 1109 ) 30.50 5.2% 12.7 China Life Insurance ( 2628 ) 17.62 4.9% 17.0

China Life Insurance ( 2628 ) 17.62 4.9% 18.6 China Galaxy Securities ( 6881 ) 4.39 4.5% 1.9

AAC Technologies ( 2018 ) 57.90 4.4% 5.5 CITIC Securities ( 6030 ) 15.24 4.4% 3.5

Shenzhou International ( 2313 ) 99.05 4.3% 9.3 GF Securities ( 1776 ) 12.10 4.3% 2.1

Tencent ( 700 ) 324.80 4.1% 106.3 China Gas ( 384 ) 28.00 4.3% 2.7

Sinopec ( 386 ) 6.91 3.9% 20.2 Shenzhou International ( 2313 ) 99.05 4.3% 4.0

Wharf ( 1997 ) 48.85 3.8% 6.7 China Pacific Insurance ( 2601 ) 28.85 4.2% 8.5

PetroChina ( 857 ) 5.70 3.8% 13.5 Tencent ( 700 ) 324.80 4.1% 24.7

AIA Group ( 1299 ) 66.25 3.8% 88.4 New China Life ( 1336 ) 35.60 3.9% 3.1

Sino Land ( 83 ) 13.92 3.4% 4.2 Sinopec ( 386 ) 6.91 3.9% 18.5

CITIC ( 267 ) 12.96 3.2% 7.1 PetroChina ( 857 ) 5.70 3.8% 12.4

Mengniu Dairy ( 2319 ) 24.95 3.1% 6.3 Huatai Securities ( 6886 ) 13.42 3.7% 2.2

HKEx ( 388 ) 235.00 3.1% 25.3 Anhui Conch Cement ( 914 ) 42.30 3.5% 5.0

CNOOC ( 883 ) 13.70 3.0% 21.8 PICC Property & Casualty ( 2328 ) 8.31 3.5% 5.4

China Shenhua ( 1088 ) 17.88 2.9% 5.2 Postal Savings Bank of China ( 1658 ) 4.89 3.4% 4.0

CK Asset Holdings ( 1113 ) 57.90 2.8% 12.2 Cinda Asset Management ( 1359 ) 2.17 3.3% 1.7

Geely ( 175 ) 15.84 2.7% 6.9 Great Wall Motor ( 2333 ) 5.16 3.2% 1.4

ICBC ( 1398 ) 5.71 2.7% 33.7 CITIC ( 267 ) 12.96 3.2% 3.1

New World Development ( 17 ) 10.78 2.5% 4.9 CCCC ( 1800 ) 7.84 3.2% 3.0

Ping An Insurance ( 2318 ) 77.55 2.4% 31.5 Guangzhou Automobile ( 2238 ) 8.39 3.1% 2.1

Sun Hung Kai Properties ( 16 ) 114.20 2.4% 10.7 CNOOC ( 883 ) 13.70 3.0% 9.4

Sino Biopharmaceutical ( 1177 ) 7.31 2.4% 3.6 China Shenhua ( 1088 ) 17.88 2.9% 4.7

BOC ( 3988 ) 3.50 2.3% 19.4 ICBC ( 1398 ) 5.71 2.7% 28.2

CCB ( 939 ) 6.82 2.2% 49.5 Zhongan ( 6060 ) 32.90 2.7% 0.8

CSPC Pharmaceutical ( 1093 ) 16.18 2.1% 4.2 Ping An Insurance ( 2318 ) 77.55 2.4% 26.2

BOC Hong Kong ( 2388 ) 31.10 2.0% 6.8 China Minsheng Banking ( 1988 ) 5.92 2.4% 2.6

HSBC ( 5 ) 68.20 1.9% 51.9 BOC ( 3988 ) 3.50 2.3% 17.7

Hang Seng Bank ( 11 ) 183.80 1.8% 7.5 Agricultural Bank ( 1288 ) 3.62 2.3% 6.2

Country Garden ( 2007 ) 9.79 1.8% 3.9 CCB ( 939 ) 6.82 2.2% 23.4

BOCOM ( 3328 ) 6.05 1.7% 2.7 CSPC Pharmaceutical ( 1093 ) 16.18 2.1% 1.8

Link ( 823 ) 75.65 1.5% 7.4 China Vanke ( 2202 ) 27.45 2.0% 2.0

Hang Lung Properties ( 101 ) 16.08 1.5% 1.5 BOCOM ( 3328 ) 6.05 1.7% 2.4

Henderson Land ( 12 ) 40.80 1.5% 2.4 Huarong Asset ( 2799 ) 1.63 1.2% 0.6

Hengan International ( 1044 ) 64.55 0.9% 1.3 People's Insurance ( 1339 ) 3.41 1.2% 0.8

Hong Kong & China Gas ( 3 ) 15.92 0.9% 3.9 Hengan International ( 1044 ) 64.55 0.9% 0.6

CK Infrastructure ( 1038 ) 60.00 0.8% 1.0 Huaneng Power International ( 902 ) 4.92 0.8% 0.4

China Overseas ( 688 ) 27.50 0.7% 2.3 CITIC Bank ( 998 ) 5.00 0.8% 1.1

CK Hutchison ( 1 ) 82.30 0.6% 4.1 CRRC Corp ( 1766 ) 7.34 0.5% 0.5

MTR ( 66 ) 40.80 0.5% 0.9 China Railway ( 390 ) 7.20 0.1% 0.1

CLP Holdings ( 2 ) 86.00 0.4% -1.4 Dongfeng Motor ( 489 ) 7.56 0.1% 0.1

Want Want China ( 151 ) 5.79 0.3% 0.3 CGN Power ( 1816 ) 1.94 0.0% 0.0

China Unicom ( 762 ) 9.10 0.3% 0.6 Sinopharm Group ( 1099 ) 38.50 -0.1% -0.2

Swire Pacific ( 19 ) 86.40 -0.1% -0.2 China Telecom ( 728 ) 4.17 -1.0% -1.5

Power Assets ( 6 ) 52.90 -0.2% -0.4 China Mobile ( 941 ) 75.35 -3.0% -18.7

China Resources Power ( 836 ) 14.78 -0.3% -0.2 BYD ( 1211 ) 56.85 -3.1% -3.2

China Mobile ( 941 ) 75.35 -3.0% -43.1 Guangdong Investment ( 270 ) 14.40 -4.6% -2.7

H S C E IH S I

Market in Focus Name

Bloomberg Ticker

BUY

$13.00

Rating

3M Avg Turnover ($, Mn)Target Price

Free Float (%)

14.8

8.97 - 17.08

95.3%

34.8

3319 HK Equity

A-Living Services MKT Cap ($Bn)

52-week High/Low ($)

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

Since our BUY commentary dated November 15, A-Living Services (3319, ALS, $11.1) has climbed 15.1% compared with 6.0% for Hang Seng Index. The outperformance indicates that 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.

ALS is principally engaged in property management business in China and spun off from the parent Agile Group (3383) in February 2018 at an IPO price of $12.30. Greenland Holdings, one of the largest state-owned property developers in China, is a strategic shareholder. Agile Group and Greenland Holdings currently owns 54.0% and 15.0% stake in ALS respectively. As at 30 June 2018, ALS managed 420 property projects, covering 27 provinces, municipalities and autonomous regions in China, with a total GFA under management of 109.1mn sq.m.

For the first half of 2018, ALS’s revenue surged 103% yoy to RMB1,405.7mn. Revenue from (i) property management services, (ii) value-added services to non-property owners and (iii) value-added services to property owners grew approximately 37%, 439% and 111% yoy to RMB750.3mn, RMB575.4mn and RMB79.9mn respectively accounting for 53.4%, 40.9% and 5.7% of total revenue. Thanks to higher gross margins for value-added services, overall gross margin improved from 31.9% in 1H17 to 36.3% in 1H18. Net profit attributable to shareholders therefore increased by 196% yoy to RMB332.3mn. In April and July this year, ALS acquired 51% stake in two property management companies in China for a total consideration of RMB353mn. The acquisitions were priced at attractive 2018 P/E of 10-11x reflecting strong ability to execute an M&A strategy. As at 30 June 2018, ALS had net cash of RMB4.17bn providing sufficient funds for future acquisition and expansion.

According to Bloomberg estimates, ALS’s net profits are expected to reach RMB694mn (EPS RMB0.52) in 2018 and RMB1,028mn (EPS RMB0.77) in 2019 representing an increase of 139% and 48% yoy respectively. Traded at forward P/E of 18.6x in 2018 and 12.6x in 2019 with a 2-year EPS CAGR of 48%, valuation of ALS remains attractive to long term investors. We therefore maintain our BUY rating on ALS with an unchanged 6-month price target of $13.0 based on 2019 P/E of 15.0x.

Fig1: 1 Year Share Price

Source: Bloomberg, Mason Securities

Technical Ideas

Stock Code

BUY $16.58 881

$18.24 $19.57 Zhongsheng Group (881, $16.58) TP: $18.24 BUY

$15.75 TP: $18.24

CL: $15.7537.7 22.3%

332 64

709% 516%

8.6X 1.72X

95%

SMA10 15.43 RSI (14) 54.6

SMA20 15.28 BB (Upper) 16.13

SMA100 17.23 BB (Lower) 14.43

Zhongsheng Group Holdings Ltd

881 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

Zhongsheng Group

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Stock Code

BUY $235.00 388

$258.50 $277.18 HKEx (388, $235) TP: $258.5 BUY

$223.25 TP: $258.5

CL: $223.25293.9 94.5%

1,962 1,044

279% 188%

31X 7.38X

-368%

SMA10 227.38 RSI (14) 57.4

SMA20 226.00 BB (Upper) 231.42

SMA100 222.28 BB (Lower) 220.58

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Hong Kong Exchanges & Clearing

388 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

HKEx

Source: Bloomberg, Mason Securities

Recent Recommendations

Date of Issue Stock Pick Recommendation Highlights Rating (TP)

21/11/2018 CTCM

(570)

Promising growth with undemanding valuation – Maintain BUY on CTCM (570)

• We believe CTCM will benefit from 1) solid industry development; 2) channel expansion in high-to-low tier hospitals; 3) the increasing penetration rate of TCM granules due to more and more provinces including TCM granules in medical insurance in the future

BUY ($6.70)

22/11/2018 CEG

(839)

CEG (839) is to benefit from proposed personal income tax reduction – Maintain BUY

• The proposed personal income tax reduction will be effective on 1st January 2019 and is likely to benefit CES which is a leading provider of private higher education service in China.

• Moreover, CES is also less affected by the “Draft Amendments on the Implementation Rules for the Law for Promoting Private Education” issued in August

BUY ($12.1)

23/11/2018 ENN Energy

(2688)

ENN Energy (2688) : Recent weakness offers a long-term buying opportunity at reasonable price; BUY

• Domestic production to reach nearly 6% CAGR and LNG imports to 13% CAGR from 2018 to 2025

• We believe the valuation of ENN is reasonable long term investors

BUY ($79.4)

26/11/2018 China Suntian Green

Energy

(956)

China Suntian Green Energy (956): Upward revision on market earnings consensus is poised – Maintain Buy on undemanding valuation

• 9M18 NP has already accounted for 75.8% of consensus estimate vs 63.3% of net profit last year

• We expect an upward revision on Suntien’s earnings consensus in 2018 and 2019 after the 3Q18 results

BUY ($2.62)

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)

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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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