Morning Express 25 March 2015 Focus of the Day Indices China Macro Comments on March HSBC PMI Miaoxian LI [email protected] Economics The HSBC flash China PMI for March came in at 49.2, lower than the final reading of 50.7 in February and consensus of 50.5. The slump, to a certain extent, indicated the economy is still under downside pressure. However, the March reading may have exaggerated the actual pressure, as distorted by the CNY, in the same way the higher-than-expected February reading painted an overly rosy picture of the economy. Among the components, as a result of a decline in domestic orders, New Orders fell 1.9 ppts MoM, dragging the headline reading by 0.6 ppt. Employment declined notably by 2.8 ppts, dragging the headline figure also by 0.6 ppt. The significant decline of the two indexes may have reflected the CNY factor. The February PMI survey was conducted before the CNY and its buoyant result reflected the pre-holiday production rush. In contrast, the March survey was conducted during the CNY, and reflected the impact of the holiday on manufacturing. Apart from the poor HSBC PMI, another factor that could weigh on the March economic data is that the government is planning to shut down highly polluting industries in Beijing, Tianjin and Hebei in late March, ahead of the visit of the International Olympic Committee to consider Beijing’s application to host the Winter Olympics. Similar to the “ APEC Blue ” last year, the “ Winter Olympics Blue ” could exacerbate the value-added industrial output data. Regardless of the cause, poor economic data would provide justification for further easing. We believe the PBoC would lower the RRR further in April. KWG (1813.HK) Neutral FY14 results inline; solid fundamentals with strong sales execution Philip TSE, CFA Last Closing: HK$5.15 [email protected] Upside: +35% LT BUY BUY SELL Stock Target Price: HK$6.95→ We view the FY14 set of results as solid and largely in line with our preview on March 16 and see good growth in both development and rental income. Most financial and earnings indicators, including margins, contracted sales target and gearing level, are all in good shape with reasonable growth prospect. The counter is currently trading at 3.5x FY15E PE and 0.54x FY15E book with a projected dividend yield of 9.0%, which we view as Download our reports from Bloomberg: BOCM〈enter〉 Close HSI 24,400 H Shares 12,005 SH A 3,869 SH B 309 SZ A 2,011 SZ B 1,139 DJIA 18,011 S&P 500 2,092 Nasdaq 4,995 FTSE 7,020 CAC 5,088 DAX 12,006 Source: Bloomberg 1d % -0.39 -1.42 0.10 0.16 1.01 -0.13 -0.58 -0.61 -0.32 -0.26 0.67 0.92 Ytd % 3.37 0.17 14.15 6.35 36.04 10.67 1.06 1.58 5.46 6.91 19.09 22.44 Close 55.11 1,191.97 16.93 6,120.00 119.77 1.48 1.09 3m % -8.52 1.46 7.71 -3.32 0.28 -4.63 -10.79 Ytd % -3.87 0.60 7.83 -2.86 0.01 -4.74 -9.85 bps change HIBOR 0.39 US 10 yield 1.87 Source: Bloomberg 3m -0.01 -0.39 6m 0.02 -0.63 Indicators Brent Gold Silver Copper JPY GBP EURO HSI Technical HSI 50 d MA 200 d MA 14 d RSI Short Sell (HK$m) Source: Bloomberg 24,400 24,429 23,957 53 7,888 BOCOM Int'l Corporate Access 26 Mar 27 Mar 30 Mar 30 Mar 30 Mar 1 Apr 2 Apr 2 Apr 2 Apr Yongda Auto (3669.HK) Bank of Communications (3328.HK) Shengmu Organic Milk (1432.HK) Kingsoft (3888.HK) Tiangong (826.HK) Phoenix Healthcare (1515.HK) Baoxin Auto (1293.HK) Landsea Green Properties (106.HK) Zhengtong Auto Service (1728.HK) Morning Express 25 March 2015 attractive especially when KWG does not possess key risks like many other developers such as declining margin, high gearing and loss of sales momentum. We reaffirm our BUY rating on KWG with an unchanged target price of HK$6.95, representing a discount of 45% to our estimated NAV of HK$12.64 per share. Hang Seng Index (1 year) 26,000 25,000 24,000 23,000 22,000 21,000 China Life (2628.HK) Improving structure in the individual channel with higher-than-expected growth in embedded value Neutral LT BUY Source: Company data, Bloomberg BUY SELL HS China Enterprise Index (1 year) 13,000 Stock Jerry LI Last Closing: HK$27.7 [email protected] Upside: +33.35% 12,000 11,000 Target Price: HK$36.94→ 10,000 China Life announced its FY14 results. Net profit in FY14 amounted to RMB32.2bn. (of which interest rate adjustment for reserve valuation contributed pre-tax profit of RMB4.6bn), up 30% YoY and in line with consensus. On consolidated basis, the company’s profit in FY14 was RMB71.7bn, almost 20.9x of the figure in FY13. Net assets attributable to the parent company as at the end of FY14 amounted to RMB284.1bn, up 29% YoY and met our expectation of RMB283.3bn. The growth in new business value of the company was basically in line with the consensus, while that of embedded value slightly surpassed expectation. Consolidated ROI was 7.7%. We are optimistic about the re-rating of H-share insurance stocks and maintain Buy on the counter. 9,000 8,000 Source: Company data, Bloomberg Shanghai A-shares (1 year) 4,000 3,500 3,000 2,500 2,000 Hengan (1044.HK) Neutral 2015 swing factor: Tissue and diaper sell-through Summer WANG Last Closing: HK$87.50 [email protected] Upside: 4% LT BUY Source: Company data, Bloomberg SELL BUY Stock Target Price: HK$91.00↑ In our opinion, Hengan is facing increasing challenges from Vinda (3331 HK, BUY, TP HK$15.00) in tissues and international players in baby diapers. Its under-investment in tissue/diaper R&D and new channels in previous years may gradually abate Hengan’s competitive edge. We note Hengan’s tissue and baby diapers just recorded 2%-3% sales growth YoY in 2H14, lagging behind competitors (e.g. Vinda: +21% tissue revenue growth in 2H14; Kimberly-Clark: 25% organic diaper sales in China in 2014). We think Hengan has to make sure it invests enough in innovation to lock in consumers who are trading up. The good thing is that we have seen some endeavors from Hengan, including (1) investing more in R&D, marketing and online channels against the favorable commodity cost backdrop; (2) splitting sales teams for tissue and hygiene for stronger tissue sales; and (3) hiring IBM and SAP to optimize operation in supply chain, logistics and SKU management (with the financial impact to be seen in late 2016, in our estimate). Given Hengan’s stronger position in sanitary napkin (with super-slim and 420mm night series on the way; 67% of its operating profit in 2014) and cheerful margin outlook, we are comfortable to use Hengan’s long-term average P/E (24.0x) for valuation and slightly raise TP to HK$91.00 (from HK$88.00) on our revised 2015E EPS (+19% YoY). Maintain LT-BUY (vs BUY for Vinda). Better-than-expected tissue and diaper sell-through is the biggest catalyst for the stock, in our view. Download our reports from Bloomberg: BOCM〈enter〉 Shenzhen A-shares (1 year) 2,000 1,800 1,600 1,400 1,200 1,000 Source: Company data, Bloomberg Morning Express 25 March 2015 Financial sector Internet finance should prioritize quality Qingli YANG [email protected] MP UP OP China does not lack high value-added products and services and the mechanism for creating such products, like high-quality toilet seats. What China lacks is the mechanism to select such products. Financial intermediaries are not playing their supposed role of selection. The phenomenon of “bad coins driving out good ones” has intensified over the years, and the standards by which quality is judged have become blurred or lost. There are also poor products in finance, and both consumers and industry participants suffer. The time of change has come. Disorderly expansion is not sustainable; structural change has started. Quality products and services are scarce. Finance, especially network finance, cannot pursue rampant scale expansion without any regard to quality. Internet finance needs to suit the new economy and assist the growth of small and micro enterprises. ABC (1288.HK) Neutral Earnings missed expectation Shanshan LI, CFA Last Closing: HK$3.80 BUY SELL [email protected] Upside: +13.4% LT BUY Stock Target Price: HK$4.31→ ABC reported a 8.0% YoY increase in net profit to RMB179.51bn for FY2014 with EPS of RMB0.55, lower than consensus estimate by 2.6% and our estimate by 3.4%, mainly due to higher-than-expected provision, and lower-than-expected net fee and commission income. Non-performing loan balance grew by 20.8% QoQ, a rate higher than those of 1-3Q. Full-year NPL net formation rate was 0.92%, significantly higher than 0.59% in 1H after taking write-off into account. The ratio of loans overdue for more than 90 days/NPL remained at about 75%, indicating stringent classification. Interest spread improved on both YoY and QoQ bases, mainly attributable to improved deposit-lending rate spread and bond investment yield. Small and micro loans continued to maintain a rapid growth, with continued decrease in loans to policy-restricted sectors. The proportion of demand deposits recorded QoQ growth. Net fee and commission income reported a 3.7% YoY decline, the first decline among the banks which already announced annual results. Structurally, the main reason was a larger decrease in consultancy income and settlement and clearing fee income. We cut our earnings forecasts, but maintain “Neutral” and TP of HK$4.31. Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 25 March 2015 Daphne (210.HK) Neutral Hit hard by online competition; TPG stays/exits should soon unveil Phoebe WONG Last Closing: HK$2.11 BUY SELL [email protected] Upside: -10% LT BUY Stock Target Price: HK$1.90→ Daphne reported a 47% FY14 net profit decline (2H -81% to nearly zero earnings vs. 1H -44%), in line with our expectation but 22% below market estimate, dragged by severe operating margin squeeze due to escalated selling cost on aggressive promotional activities (particularly 4Q) for stock clearance and operating de-leverage (FY14 SSS -3.4%) amplified by its high fixed cost burden (staff +0.4ppt to 14.5% of revenue and rental +0.5ppt to 25%), notwithstanding the HK$120m inventory write-back (vs. HK$245m provision). Thus far, signs of improvement remain absent. We continue to believe Daphne’s key setback is structural, with increasing market share loss amid the intense online competition, particularly for Daphne’s low-mid end footwear segment which is hit the hardest. Coupled with the sustained sluggish local consumer climate, we believe Daphne’s SSS/margin will remain challenging, with prolonged de-stocking pressure further clouding the outlook. All in all, we expect Daphne to post a further net profit decline of 17% in FY15E before stabilizing in FY16E (-2%). As for TPG’s CB, given it is now deep off the money and will expire in less than a month, we believe the chance of triggering TPG conversion is highly unlikely. In view of TPG’s already “hands-off” involvement in the company’s operation, an ultimate exit is a matter of time though we believe the impact on Daphne is minimal. Maintain Sell and TP of HK$1.9. Intime (1833.HK) Neutral FY14 in line; remain positive on earnings outlook; reiterate Buy Anita Chu Last Closing: HK$4.68 [email protected] Upside: +18% LT BUY BUY SELL Stock Target Price: HK$5.50↓ Intime’s FY14 net profit declined by 30% YoY to RMB1,121m. Excluding the disposal gains, core net profit decreased by 15% in FY14, in-line with our and market expectation. 2H core net profit decreased by 16% YoY, mainly due to negative SSS (-4%), rising operating expenses, sustained new store losses and higher tax rate. Despite the ongoing renovation of the Hangzhou Westlake store, sustained weak consumer sentiment, ongoing anti-corruption and increased competition, SSS decline stabilized at -4% in 4Q, vs. -4%/-7%/+2% in 3Q/2Q/1Q, which we attribute to the stronger promotional effort. Merchandise gross margin expanded by 0.1ppt YoY to 16.6% in 2H, thanks to the improved sales mix. Despite the rising operating costs, operating margin expanded by 0.5ppt YoY to 7.3% in 2H mainly due to the strong revenue growth driven by the sales of properties. It is worth noting that Intime generated RMB663m from sales of properties (accounting for 13% of total revenue) in FY14 and the operating profit margin for the business was 41%, well above the 26% in department stores and the loss-making shopping mall business. Looking ahead, Intime plans to hold more commercial properties in order to facilitate its expansion plan of the shopping mall business. We expect the potential ongoing sales of properties to continue to support Intime’s revenue/earnings growth, partially offsetting the sluggish growth of its core retail businesses. Further, the stock is trading at 10.5x FY15E P/E, which appears undemanding, in our view. Reiterate Buy (TP: HK$5.5). Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 25 March 2015 Henderson Land (12.HK) LT BUY Neutral FY14 results review; faster sales at lower margin Alfred LAU, CFA Last Closing: HK$53.4 BUY SELL [email protected] Upside: -10.9% Stock Target Price: HK$47.60↓ FY14 core profit rose 4.0% YoY to HK$9.3bn, with faster inventory sales offsetting the low completion volume. Nevertheless, overall HK property margin dropped to 26.5% (2013: 31.8%). We are also concerned that such trend will continue and we maintain our view that Henderson Land will be one of the major victims in case property prices correct and the hot sentiment on small units turns. We revise up our NAV forecast by 2.5% to HK$81.90 (from HK$79.90) but lower our target price from HK$48.90 to HK$47.60, based on a 60% ex-Gas NAV discount (from 55%), on concern about a slower property sales momentum along with less sellable resources in 2015. Maintain Sell. Shanghai Petrochem (338.HK) Neutral Ready to receive the benefit of lower crude oil price Fei WU Last Closing: HK$2.58 [email protected] Upside: +16% LT BUY BUY SELL Stock Target Price: HK$3.00→ Shanghai Petrochemical's FY 2014 net loss came in at Rmb692m, within the Rmb650m to Rmb750m range that the company forecasted in its profit warning at the beginning of February. Lower price and volume, external investment loss, inventory write-down and Rmb depreciation contributed to the loss. Most of the oil companies are suffering from low oil prices, but Shanghai Petrochemical, with no business in upstream E&P, becomes a net beneficiary in its downstream operation, both in refining and its chemicals business, which uses the crude-based naphtha. We reiterate our BUY call with a TP of HK$3.0, 16% upside. SPT Energy (1251.HK) Margin decline in the low oil price environment Fei WU [email protected] Last Closing: HK$1.28 Not Rated SPT Energy’s revenue dropped 9% to Rmb2,187mn in 2014 with operating profit down 51% to Rmb204mn. 2014FY net profit fell 61% to Rmb116mn, missing consensus by 13%. Revenue from the domestic and overseas markets decreased 9.5% and 8.6% YoY, respectively. And the 19% devaluation of Kazakhstan Tange in Feb 2014 brought Rmb21.5mn of exchange loss in 2014. SPT is trading at 10.3x consensus 2015 PE. Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 25 March 2015 CSPC (1093.HK) In line FY14 results; FY15 outlook remains positive Milo LIU [email protected] Last Closing: HK$6.33 Not Rated CSPC reported in-line FY14 results. Revenue came in at HK$10,955mn, +10% YoY compared with HK$9,949mn in FY13. The growth was mainly driven by the strong growth momentum in the innovative drug business (+45% YoY), due to improved market share and focus on the high-end market. The management expects the segment to continue growing at c.+40% YoY in FY15. The management also provides the upbeat guidance for FY15, which they expect the bottom-line to grow at c.+30% YoY, better than our expectation. Robust growth in the oncology drug segment. Oncology products registered HK$252mn in revenue (+226% YoY) and HK$55mn in net income contribution in FY14. The management is confident that the segment will continue growing at a fast pace, with an aim to doubling both top/bottom line in FY15, according to the company. Management expects limited pricing pressure from the provincial tenders in FY15. 1) The innovative drug segment will not be affected by the tendering; and 2) the price erosion from the generic drugs segment will be largely offset by the volume increase. On the other hand, we expect the provincial tendering to help its newly launched products to penetrate the local market. Future growth strategies: 1) To further enrich its R&D efforts on its innovative drug business; 2) to bring efficiency to the API business to further secure its market leading position; 3) to collaborate with overseas partners for international expansion; and 4) to strategically source M&As to enhance its product mix. Sinotrans Limited (598.HK) Neutral FY14 result – The DHL JV kept providing the lift Geoffrey CHENG, CFA Last Closing: HK$5.06 [email protected] Upside: +21.4 % LT BUY BUY SELL Stock Target Price: HK$6.80→ Sinotrans Limited reported a 36.2% YoY increase in net profit for FY2014. Turnover increased 0.6% YoY. Though operating margin increased 0.2 ppt during the year to grow earnings, it was the express delivery JV that provided most of the earnings growth for the year. The logistics segment continued to grow its turnover and segment profit, notwithstanding the small improvement in operating margin. We believe the improvement of the airfreight forwarding industry helped improve the freight forwarding segment margin in FY14. We keep our earnings forecasts unchanged, and reiterate our BUY recommendation and target price of HK$6.8. The results presentation is scheduled to be held on 25th March. Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 25 March 2015 Link REIT (823.HK) A milestone to cross-border investment Alfred LAU, CFA [email protected] Last Closing: HK$47.3 Not Rated The Link REIT announced its first acquisition outside Hong Kong, acquiring EC Mall Beijing for Rmb2.5bn. We believe the consideration is fair and in line with the market price and CBRE’s appraised value. The purchase represents a 2.4% increase in asset value, bringing up gearing (TD/TA) to 15.3%. While we only expect a mild 0.4%-0.8% DPS enhancement, we believe this sets a milestone to The Link REIT’s cross-border expansion and management’s commitment to exploring investment opportunities. Yongda Motor (3669.HK) Neutral Proactive development in new business areas Wei YAO Last Closing: HK$4.06 [email protected] Upside: +36.7% LT BUY BUY SELL Stock Target Price: HK$5.55→ We participated in Yongda’s FY14 results conference. Our key takeaways are as follows: 1)The company is proactive in exploring Internet business opportunities; 2) The cooperation with UBER will help its business development in all areas; 3) Financial leasing is an important area in auto finance; 4) Its network is still expanding; 5) Maintain Buy. Yongda is making ventures in new areas, such as combining traditional auto sales with the Internet, and actively developing auto finance. Auto e-commerce and auto finance are important areas for the auto market in the future. In the long run, Yongda’s efforts in these segments should support earnings growth. In the short term, store openings in recent years will support revenue growth in this year and next. Yongda also has high earnings elasticity. The stock's current valuation is still undemanding. Maintain Buy. Download our reports from Bloomberg: BOCM〈enter〉 24 March 2015 Last Closing: HK$5.15 Upside: +35.0% Target Price: HK$6.95→ KWG Property (1813.HK) Satisfactory FY14 results; solid fundamentals with strong sales execution China Property Sector UP MP OP Financial Highlights Y/E 31 Dec FY12 Revenue (Rmb m) 9,676 YoY growth (%) (4.4) Core net profit (Rmb m) 1,870 Core EPS (Rmb) 0.65 Vs. Consensus (+/- %) N/A EPS growth (%) 4.3 P/E (x) 6.5 P/B (x) 0.79 Dividend yield (%) 3.6 Source: Company, BOCOM Int’l estimates FY13 FY14 FY15E FY16E 9,468 (2.2) 2,288 0.79 N/A 22.4 5.4 0.69 7.0 10,466 10.5 2,908 1.00 N/A 26.1 4.1 0.61 8.0 16,005 22.1 3,547 1.20 3.0 20.7 3.5 0.54 9.0 18,673 16.7 4,278 1.45 3.4 20.6 2.9 0.47 10.8 Satisfactory FY14 results. On reported basis, revenue increased by 10.5% to Rmb10.5bn. On consolidated basis (for JCE projects), revenue increased 19.2% to Rmb14.9bn. Reported GP margin dropped slightly to 35.5%, in line with our expectation. Estimated core profit increased 27.1% YoY to Rmb2,908m and recognized ASP increased 7.2% YoY to Rmb11,958psm. The company proposed a final dividend of Rmb0.33 per share, representing about 8.0% dividend yield on the closing price of HK$5.15 on 24 Mar. Conservative FY15 contracted sales target of Rmb22.5bn. In 2015, KWG will have 10 brand new projects to be launched for sale and total planned saleable resources for 2015 would amount to Rmb38bn. The company sets its FY15 contracted sales target at Rmb22.5bn, a 10% YoY growth, which looks conservative, in our view. Assuming a similar sell-through to be achieved in 2015 (2014: 62%), we expect KWG can achieve sales as high as Rmb23.5bn. Stable gearing with ample cash on hand. Net debt to attributable equity was reported at 66.8%, which increased 10.5 ppts YoY but dropped 3.6 ppts HoH (2013: 56.3% and 1H2014: 70.4%). Cash level increased slightly by 7.5% HoH to Rmb10.9bn. In 2015, KWG expects a net operating cash inflow of Rmb7.84bn. Major cash inflow would be sales proceeds of Rmb21.65bn while planned major cash outflows will total Rmb13.81bn, which include construction CAPEX of Rmb6.8bn, committed land premium of Rmb0.75bn, tax of Rmb2.5bn, SG&A expenses of Rmb1.46bn and interest of Rmb2.3bn. More Tier-1 city projects acquired. KWG acquired 9 new projects in 2014 with attributable GFA of about 1.275m for a total attributable land cost of Rmb7.5bn, representing an average A.V. of ~Rmb5,872. While the average land costs of these 9 projects are higher than the overall landbank land cost (~Rmb3,200psm), 6 of these projects are located in Tier-1 cities and should be able to achieve higher profitability and faster sell-through, in our view. Valuation. We view the FY14 set of results as satisfactory and see good growth in both development and rental income. Most financial and earnings indicators, including margins, contracted sales target and gearing level, are all in good shape with reasonable growth prospect. The counter is currently trading at 3.5x FY15E PE and 0.54x FY15E book with a projected dividend yield of 9.0%, which we view as attractive especially when KWG does not possess key risks like many other developers such as declining margin, high gearing and loss of sales momentum. We maintain BUY rating on KWG with an unchanged target price of HK$6.95, representing a discount of 45% to our estimated NAV of HK$12.64 per share. LT BUY Neutral BUY SELL Stock Satisfactory FY14 results with revenue and core profit in line with expectation Conservative sales target at Rmb22.5bn, up 10% YoY More Tier-1 cities and JV projects on land replenishment in 2014 Target price remains unchanged at HK$6.95; maintain BUY. Stock data 52w High (HK$) 52w Low (HK$) Market cap (HK$m) Issued shares (m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA (HK$) 200d MA (HK$) 14-day RSI 6.49 3.94 15,173 2,946.235 5.46 4.67 (3.01) 4.97 5.30 46.44 Source: Company data, Bloomberg 1-year share price performance 60% 50% 40% 30% 20% 10% 0% -10% Mar-14 HSI Jun-14 1813.HK Sep-14 Dec-14 Source: BOCOM Int’l Philip Tse, CFA, FRM [email protected] Tel: (852) 2977 9220 Alfred Lau, CFA, FRM [email protected] Tel: (852) 2977 9235 Alfred Lau, CFA, FRM Download our reports from Bloomberg: BOCM 〈enter〉 Mar-15 25 March 2015 Last Close: HK$87.50 Upside: 4% Target Price: HK$91.00↑ Consumer Staples Sector Hengan (1044 HK) UP 2015 Swing factors: tissue and diaper sell-through In our opinion, Hengan is facing increasing challenges from Vinda (3331 HK, BUY, TP HK$15.00) in tissues and international players in baby diapers. Its under-investment in tissue/diaper R&D and new channels in previous years may gradually abate Hengan’s competitive edge. We note Hengan’s tissue and baby diapers just recorded 2%-3% sales growth YoY in 2H14, lagging behind competitors (e.g. Vinda: +21% tissue revenue growth in 2H14; Kimberly-Clark: 25% organic diaper sales in China in 2014). We think Hengan has to make sure it invests enough in innovation to lock in consumers who are trading up. The good thing is that we have seen some endeavors from Hengan, including (1) investing more in R&D, marketing and online channels against the favorable commodity cost backdrop; (2) splitting sales teams for tissue and hygiene for stronger tissue sales; and (3) hiring IBM and SAP to optimize operation in supply chain, logistics and SKU management (with the financial impact to be seen in late 2016, in our estimate). Given Hengan’s stronger position in sanitary napkin (with super-slim and 420mm night series on the way; 67% of its operating profit in 2014) and positive margin outlook, we are comfortable to use Hengan’s long-term average P/E (24.0x) for valuation and slightly raise TP to HK$91.00 (from HK$88.00) on our revised 2015E EPS (+19% YoY). Maintain LT-BUY (vs BUY for Vinda). Better-than-expected tissue and diaper sell-through is the biggest catalyst for the stock, in our view. 2H14 results beat on margins and higher other income. Hengan’s 2014 net profit grew by 5% YoY (-4%/+15% in 1H/2H14) to HK$3.9bn, beating our and consensus estimate by 6% and 4%, respectively, on stronger gross margin, lower distribution cost and higher other income. Total revenue grew by 12% YoY (+16%/+9% in 1H/2H14), led by its resilient sanitary napkin business (+24%; ASP/volume +6.6%/+17%), offsetting the weaker-than-expected performance in tissues (+5%), baby diapers (+6%) and snack food (-4%). Thanks to declining commodity costs and positive mix shift, 2H14 gross margin nicely beat (up 2.4-ppt HoH to 47.3%). Tissue gross margin widened by 2.7-ppt HoH to 35.9% in 2H14 given the lower wood pulp cost (c60% of tissue COGS) and reduced promotion; sanitary napkin reached 70% gross margin for the first time owing to mix shift and favorable 4Q14 petrochemical prices (50-60% of sanitary napkin COGS). A&P climbed to 10.9% of revenue in 2014 (vs 8.8% in 2013), due to the increased marketing for diapers and investments for new channels. Meanwhile, total staff cost grew by just 3% YoY, partly attributable to less employees (from 34,000 to 31,000) on higher level of production automation. Core operating margin (excluding other income and gain) narrowed to 19.2% (vs 20.3% in 2013). Hengan remained in a net cash position (HK$1.8bn, -10% net gearing ratio). See our detailed earnings review and forecast revision on pages 2-4. Tissue and baby diaper revenue are the swing factors. Hengan’s three new diaper series (Super Absorbent, Pull & Up, and Xiaoqinxin), which demonstrated positive sales momentum, accounted for 39% of Hengan’s diaper segment sales in 2014. This implies Hengan has to work even harder to lift their contribution level and drop off underperforming nappies asap. For tissues, the 1.4m tons of new capacity (whole industry) added in late 2014 (source: CNHPIA), combined with Hengan’s first-time reluctance to give a capacity timetable, signal a stiff competition landscape in 2015. Presently, we project 7% tissue sales growth for Hengan in 2015, vs 17% for Vinda. Download our reports from Bloomberg: BOCM [enter] MP Neutral OP LT BUY SELL BUY Stock Stock data 52w Low-High (HK$) 74.05-94.35 Market cap (US$m) 13,816 3m ADTV (US$m) 22 No. of shares (m) 1,224 Free float 60% 1m change -2% YTD change 8% Auditor PwC Source: Bloomberg, Company data Financial highlights 12-15E 12-16E 12-17E Revenue (HK$m) 26,426 29,813 33,813 Revenue YoY growth 10.9% 12.8% 13.4% Gross margin 48.7% 49.7% 50.6% Core op margin 21.8% 23.0% 24.1% Net profit (HK$m) 4,659 5,524 6,559 Diluted EPS (HK$) 3.79 4.50 5.34 EPS YoY growth 19.1% 18.6% 18.7% P/E 23.1x 19.5x 16.4x P/B 5.4x 4.8x 4.3x P/S 4.1x 3.6x 3.2x ROE (average) 24.5% 26.2% 27.8% Dividend yield 2.6% 3.1% 3.7% Source: Company data, BOCOM Int’l estimates 1-year stock performance 20% HSI Index Hengan 15% 10% 5% 0% Mar-14 -5% Jun-14 Sep-14 Dec-14 -10% Source: Bloomberg Summer Wang [email protected] Tel: +852 2977 9221 Mar-15 25 March 2015 Last Closing: HK$2.11 Downside: 10% Target Price: HK$1.90→ Consumer Discretionary Sector Daphne (210.HK) UP Hit hard by online competition; TPG stays/exits should soon be unveiled MP OP Financial Highlights Y/E Dec Revenue (HK$m) Revenue growth (%) Net profit (HK$m) vs. Consensus (%) EPS (HK$) EPS growth (%) PER (x) P/B (x) DPS (HK$) Yield (%) FY12 FY13 FY14 FY15E FY16E 10,529 23 956 na 0.58 2 3.6 0.7 0.18 8.5 10,447 -1 329 na 0.20 -66 10.6 0.7 0.08 3.8 10,356 -1 176 na 0.11 -47 19.8 0.7 0.04 1.7 9,820 -5 146 -60 0.09 -17 23.9 0.7 0.03 1.4 9,248 -6 143 -70 0.09 -2 24.3 0.7 0.03 1.4 Neutral LT BUY BUY SELL Stock Source: Company, BOCOM Int’l estimates Daphne reported a 47% FY14 net profit decline (2H -81% to nearly zero earnings vs. 1H -44%), in line with our expectation but 22% below market estimate, dragged by severe operating margin squeeze due to escalated selling cost on aggressive promotional activities (particularly 4Q) for stock clearance and operating de-leverage (FY14 SSS -3.4%) amplified by its high fixed cost burden (staff +0.4ppt to 14.5% of revenue and rental +0.5ppt to 25%), notwithstanding the HK$120m inventory write-back (vs. HK$245m provision). Thus far, signs of improvement remain absent. We continue to believe Daphne’s key setback is structural, with increasing market share loss amid the intense online competition, particularly for Daphne’s low-mid end footwear segment which is hit the hardest. Coupled with the sustained sluggish local consumer climate, we believe Daphne’s SSS/margin will remain challenging, with prolonged de-stocking pressure further clouding the outlook. All in all, we expect Daphne to post a further net profit decline of 17% in FY15E before stabilizing in FY16E (-2%). As for TPG’s CB, given it is now deep off the money and will expire in less than a month, we believe the chance of triggering TPG conversion is highly unlikely. In view of TPG’s already “hands-off” involvement in the company’s operation, an ultimate exit is a matter of time though we believe the impact on Daphne is minimal. Maintain Sell and TP of HK$1.9. Whether TPG stays or exits will soon be unveiled. TPG has CB of RMB550m, the conversion period of which was extended for 1 more year from 25 Apr 2014, and the expiry date is approaching on 24 Apr 2015. To recap, the key conversion term is if the closing price for the shares during the conversion period is equal to or higher than HK$4.25 for 14 consecutive trading days, it is compulsory for TPG to convert the CB. Given it is now deep off the money and will expire in less than a month, the chance of triggering TPG conversion is highly unlikely, in our view. Overall, in view of TPG’s already “hands-off” involvement in the company’s operation, an ultimate exit is a matter of time though we believe the impact on Daphne is minimal. While TPG had a 2.1% stake in Daphne according to Bloomberg as of 30 June 2014, no latest shareholding details are available since then. Despite the likely redemption needs, Daphne has little financial pressure. Our forecast, which already factored in the Download our reports from Bloomberg: BOCM〈enter〉 Stock data 52w High (HK$) 52w Low (HK$) Market cap (HK$m) Issued shares (m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA (HK$) 200d MA (HK$) 14-day RSI Source: Company data, Bloomberg 4.10 1.86 3,480 1,649 6.9 -3.7 -25.2 2.30 3.16 50.24 1 Year Performance chart 30% HSI 210 HK 10% -10% -30% -50% Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Source: Company data, Bloomberg Phoebe Wong [email protected] Tel: (852) 2977 9391 25 March 2015 Last Closing: HK$4.68 Upside: +18% Target Price: HK$5.50↓ Consumer Discretionary Sector Intime (1833.HK) UP FY14 in line; remain positive on earnings outlook; reiterate Buy MP OP Financial Highlights Revenue (RMBm) Revenue growth (%) Net profit (RMBm) Net profit growth (%) Net profit vs consensus (+/-%) Core net profit (RMBm) Core net profit growth % Core EPS (RMB) P/E (x) DPS (RMB) Yield (%) FY12 FY13 FY14 FY15E FY16E 3,907 25 973 18 na 819 12 0.41 9.3 0.19 5.0 4,510 15 1,594 64 na 872 7 0.43 8.5 0.21 5.7 5,251 16 1,121 -30 na 744 -15 0.36 10.4 0.22 5.9 6,009 14 1,227 9 32 795 7 0.36 10.5 0.22 5.9 6,703 12 1,323 8 34 893 12 0.40 9.2 0.24 6.4 Note: Intime restated the FY13 figures. Source: Company, BOCOM Int’l estimates Intime’s FY14 net profit declined by 30% YoY to RMB1,121m. Excluding the disposal gains, core net profit decreased by 15% in FY14, in-line with our and market expectation. 2H core net profit decreased by 16% YoY, mainly due to negative SSS (-4%), rising operating expenses, sustained new store losses and higher tax rate. Despite the ongoing renovation of the Hangzhou Westlake store, sustained weak consumer sentiment, ongoing anti-corruption and increased competition, SSS decline stabilized at -4% in 4Q, vs. -4%/-7%/+2% in 3Q/2Q/1Q, which we attribute to the stronger promotional effort. Merchandise gross margin expanded by 0.1ppt YoY to 16.6% in 2H, thanks to the improved sales mix. Despite the rising operating costs, operating margin expanded by 0.5ppt YoY to 7.3% in 2H mainly due to the strong revenue growth driven by the sales of properties. It is worth noting that Intime generated RMB663m from sales of properties (accounting for 13% of total revenue) in FY14 and the operating profit margin for the business was 41%, well above the 26% in department stores and the loss-making shopping mall business. Looking ahead, Intime plans to hold more commercial properties in order to facilitate its expansion plan of the shopping mall business. We expect the potential ongoing sales of properties to continue to support Intime’s revenue/earnings growth, partially offsetting the sluggish growth of its core retail businesses. Further, the stock is trading at 10.5x FY15E P/E, which appears undemanding, in our view. Reiterate Buy (TP: HK$5.5). Results highlights. Despite the negative SSS, overall GSP increased marginally by 1% in FY14, mainly due to the new store contribution and increased rental income. 4Q SSS decline remained stable at -4%, vs. -4%/-7%/+2% in 3Q/2Q/1Q. We expect Intime’s SSS to turn flat in FY15E from -3% in FY14 mainly due to the easier comps. Merchandise gross margin expanded by 0.1ppt YoY to 16.6% in 2H, thanks to the improved sales mix. Despite the rising operating costs, operating margin expanded by 0.5ppt YoY to 7.3% in 2H mainly due to the strong revenue growth driven by the sales of properties. Download our reports from Bloomberg: BOCM〈enter〉 Neutral LT BUY BUY SELL Stock Stock data 52w High (HK$) 10.6 52w Low (HK$) 4.2 Market cap (HK$m) 10,168 Issued shares (m) 2,173 Avg daily vol (m) 16.9 1-mth change (%) 8.8 YTD change (%) -16.7 50d MA (HK$) 4.8 200d MA (HK$) 6.2 14-day RSI 50.0 Source: Company data, Bloomberg 1 Year Performance chart HSI 30% 1833 HK 10% -10% -30% -50% -70% Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Source: Company data, Bloomberg Anita Chu [email protected] Tel: (852) 2977 9205 25 March 2015 Last Closing: HK$53.4 Upside: -10.9% Target Price: HK$47.60↓ HK Property Sector Henderson Land (12.HK) UP FY14 results review; faster sales at lower margin MP OP Financial Highlights Y/E 31 Dec FY12 FY13 FY14 FY15E FY16E Revenue (HK$ m) 15,592 YoY growth (%) 2.7 Net profit (HK$ m) 7,091 EPS (HK$) 2.70 Vs. Consensus (+/- %) EPS growth (%) 23.2 P/E (x) 19.0 P/B (x) 0.964 Dividend yield (%) 1.87 Source: Company, BOCOM Int’l estimates 23,289 49.4 8,938 3.05 23,371 0.4 9,292 3.11 13.0 16.9 0.964 1.87 2.0 16.5 1.100 2.14 24,826 6.2 9,316 3.11 0.5 16.6 1.210 2.35 25,916 4.4 9,930 3.31 1.9 6.6 15.5 1.265 2.46 LT BUY Neutral BUY SELL Stock FY14 core profit rose 4.0% YoY, with faster inventory sales offsetting the lower completion volume. Speeding up asset turnover. FY14 core profit rose 4.0% to HK$9.3bn, 3.3% above consensus forecast, mainly due to the faster inventory sales. While 2014 was a low year in terms of completion, with only one major project (Double Cove II) plus several other its inventory, including Double Cove I/The Reach, and booked property sales We are concerned the faster property sales might have come at the expense of low profit margin. (attributable) only fell by 7% YoY. However, as partly affected by the new sales Maintain Sell. single-bloc projects completed during the period, the company speeded up the sales at ordinance, overall HK property margin dropped to 26.5% (2013: 31.8%). On the other hand, mainland property margin rebounded, but was still low at 10.1% (2013: 6.7%). Rental income maintained steady growth at 7% YoY and 14% YoY in HK and mainland, Stock data respectively. 2014 DPS increased to HK$1.10 (2013: HK$1.06), or +14% YoY, including 52w High 52w Low Market cap (HK$m) Issued shares (m) Avg daily vol (m) 1-mth change(%) YTD change(%) 50d MA 200d MA 14-day RSI the bonus shares issued last year. The company also proposed bonus shares for 2014. But still not fast enough. We believe the company is on the right track to speeding up its asset turnover. However, the company has started to run out of sellable resources, with a total of 3,177 units (inventory + potential new launches) available for sale in 2015, -17% YoY, as a result of the slow landbanking/farmland conversion in the past two years. We are also concerned about the low profit margin, which we estimate at <30% at Source: Company data, Bloomberg 1 Year Performance chart Double Cove III (2015E key contributor), even at a low land cost of HK$3,650/sqft HSI (sellable), given its high selling expenses, in our view. We maintain our view that 50% Henderson Land will be one of the major victims to the potential correction in property 30% prices, especially when it is sitting on an estimated HK$30bn old building portfolio, 10% which may become difficult to monetize in case the hot sentiment on small units turns, -10% Mar-14 in our view. We revise up our NAV forecast by 2.5% to HK$81.90 (from HK$79.90), based on a higher valuation on HK&China Gas, but lower property value, due to a weaker margin outlook. Accordingly, we lower our target price from HK$48.90 to HK$47.60, based on a 60% ex-Gas NAV discount (from 55%), on concern about a slower property sales momentum along with less sellable resources in 2015. Maintain Sell. Download our reports from Bloomberg: BOCM〈enter〉 57.20 37.818 160,218 3,000.3 2.79 (1.57) (1.66) 53.48 51.27 43.16 Jun-14 Sep-14 12.HK Dec-14 Mar-15 Source: Company data, Bloomberg Alfred Lau, CFA, FRM [email protected] Tel: (852) 2977 9235 25 March 2015 Last Closing: HK$ 2.58 Upside: +16% Target Price: HK$3.00→ Petrochemical Sector Sinopec Shanghai Petrochemical (338.HK) UP Ready to receive the benefit of lower crude oil price MP OP Financial Highlights Y/E 31 Dec 2013 Revenue (Rmbm) 105,503 Revenue (% YoY) 21.0% Oper. profit (Rmbm) 2,192 Net profit (Rmbm) 2,055 EPS (Rmb) 0.19 EPS (% YoY) n.a. Consensus Net profit vs consensus (+/-%) PE (@HK$2.58) PB (@HK$2.58) Dividend yield (%) 2.5% ROAE 11.9% Source: Company, BOCOM Int’l estimates 2014 92,725 -12.1% (588) (692) (0.06) -133.7% (172) n.a n.a 1.31 2.5% -4.0% 2015E 95,496 3.0% 2,192 1,457 0.13 -310.5% 1,437 1.4% 15.1 1.23 2.0% 8.4% 2016E 98,395 3.0% 2,022 1,324 0.12 -9.1% 1,653 -19.9% 16.6 1.17 1.8% 7.3% 2017E 101,431 3.1% 2,104 1,388 0.13 4.8% 2,239 -38.0% 15.8 1.11 1.9% 7.2% Stock Losing Rmb692m in 2014 as stated in profit warning at the beginning of Feb Lower price and volume, external investment loss, inventory write-down and Rmb depreciation contributed to the loss. Revenue down 12% YoY on lower price and volume. The factors contributing to the loss were: (a) lower prices of products and the longer procurement cycle for crude oil contributing to loss in the refining sector after Q3; (b) volume decline by varying levels, dragging down profitability. Revenue declined 12% (YoY) to Rmb92.73bn (vs. up 21% YoY in 2013), with average product price down 5% to Rmb6,000/ton and sales volume down 13% to 12.8m tons. Lower crude oil cost and improving margin. Since the company completed the facility to convert higher-sulfur crude oil in 2012 (now can process sulfur-content at 2.2% vs. 0.7%), Shanghai Petrochemical’s crude cost is US$2/bbl lower than that of PetroChina and Sinopec. The quarterly margin has been moving upward as the crude inventory is about 1.5 to 2 months behind so there is a US$10/bbl saving from lower crude price used currently. BUY SELL Company lost Rmb692m in 2014, as earlier profit warning stated. Shanghai Petrochemical's FY 2014 net loss came in at Rmb692m, within the Rmb650m to Rmb750m range that the company forecasted in its profit warning at the beginning of February. External investment loss, inventory write-down and Rmb depreciation were other reasons for overall 2014 loss: (c) a sharp decrease in external investment, with Shanghai Secco seeing a decrease of Rmb73m in profit on investment; (d) provision for decline in the value of inventories, which amounted to Rmb295m, up by Rmb194m; and (e) net finance costs of Rmb360m, up by Rmb482m compared with net finance income of Rmb122m in 2013 given the depreciation of Rmb against the US dollar. LT BUY Neutral Moving toward gasoline and fuel oil from diesel Company’s downstream focus benefits from a lower crude environment Stock data 2.85 1.75 7,682 5.8 18.2 7.9 13.7 2.40 2.41 57.21 52w High (HK$) 52W Low (HK$) Market cap (US$ m) Trading value (US$ m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA ( HK$) 200d MA (HK$) 14-day RSI Source: Company data, Bloomberg 1 Year Performance chart 40% HSI 338 HK 20% 0% Product focus to move toward gasoline and jet fuel and away from diesel. Shanghai Petrochemical’s refining restructuring will see it moving from diesel to gasoline. The company noted that although refining is currently experiencing oversupply, the high-grade gasoline is not impacted. Sinopec had in its own 14FY results noted the end of industrial stage for China, where diesel product usage would top out in 2017 and gasoline usage would hit peak in 2025. Shanghai Petrochemical’s product shift also echoes the trend. One of the few beneficiaries in a low crude price environment. Most of the oil companies are suffering from low oil prices, but Shanghai Petrochemical, with no business in upstream E&P, becomes a net beneficiary in its downstream operation, both in refining and its chemicals business, which uses the crude-based naphtha. We reiterate our BUY call with a TP of HK$3.0, representing 16% upside. Download our reports from Bloomberg: BOCM〈enter〉 -20% -40% Mar-14 Jul-14 Nov-14 Source: Company data, Bloomberg Fei Wu [email protected] Tel: (852) 2977 9392 Tony Liu [email protected] Mar-15 25 March 2015 Last Closing: HK$1.22 Oil Services Sector SPT Energy (1251.HK) Not Rated Margin decline in the low oil price environment Financial Highlights YE Dec 2013 2014 2015E 2016E 2017E Revenue (Rmbm) Revenue YoY% Net profit (Rmbm) Consensus EPS (Rmb) Consensus EPS (% YoY) PE(@HK$1.22) Dividend yield (%) ROAE Source: Bloomberg 2,403 32% 300 0.20 7% 2,187 -9% 116 0.08 -61% 5% 17% 0% 6% 2,073 -5% 151 0.10 29% 10.3 1% 11% 2,319 12% 175 0.11 17% 8.8 1% 11% 2,395 3% 136 0.09 -23% 11.5 1% 10% Net profit fell 61%, missing consensus. Kazakhstan currency devaluation brought Rmb21.5mn loss. Drilling market was hit badly by oil price drop in the domestic market. Net profit fell 61% to Rmb116mn, missing consensus by 13%. Revenue dropped 9% to Rmb2,187mn with operating profit down 51% to Rmb204mn. Net profit fell 61%, slightly exceeding the 55% to 60% range that the company estimated in its profit warning in January. Most of the loss occurred in 2H last year as the upstream oil companies cut their capex. Operating profit and net profit in 2H 2014 declined 72% and 83% YoY, respectively. Also, no dividend was proposed by the company in 2014. Kazakhstan currency devaluated 19% in 2014, dragging down the company’s profit. Revenue from Kazakhstan decreased 8% to Rmb911mn in 2014, accounting for 73% of overseas revenue and 42% of total revenue. The 19% devaluation of Kazakhstan Stock data 52w High (HKD) 52W Low (HKD) Market cap (USD m) Trading value (USD m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA ( HKD) 200d MA (HKD) 14-day RSI Source: Company data, Bloomberg 4.87 1.19 252 1.8 9.3 (22.0) (10.5) 1.41 2.70 34.8 Tange in Feb 2014 resulted in Rmb21.5mn of exchange loss in 2014. Drilling business was hit badly by oil price drop in the domestic market. In the 1 Year Performance chart domestic market, revenue from the reservoir business achieved 11.4% YoY growth; 50% the well completion segment stayed at the same level as 2013, while drilling revenue 0% declined 24.4% YoY as oil companies cut their capex. For the overseas market, revenue from reservoir, well completion and drilling saw 5.9%, 18.4% and 0.8% HSI 1251.HK -50% -100% Mar-14 Jul-14 Nov-14 decrease, respectively. Overall, domestic and overseas revenue recorded 9.5% and 8.6% decrease in the year 2014, respectively. 2015 revenue is expected to slightly decline with capex increasing. For the year 2015, management expects revenue to slightly decline in the low oil price environment with Rmb200mn capex invested in the JV with Halliburton and purchase of equipments for the new contracts. As the company already has Rmb800mn order backlog in hand up to 1Q15 and no exchange loss from Kazakhstan in this year, we expect better margin in 2015. SPT is trading at 10.3x consensus 2015 PE. Download our reports from Bloomberg: BOCM〈enter〉 Source: Company data, Bloomberg Tony Liu [email protected] Tel: (852) 2977 9390 Fei Wu [email protected] Tel: (852) 2977 9392 Mar-15 25 March 2015 Last Closing: HK$5.06 Upside: +21.4 % Target Price: HK$6.80→ China Logistics Sector Sinotrans Limited (598.HK) UP MP OP FY14 result – The DHL JV kept providing the lift Financial Highlights Y/E 31 Dec 2012 2013 RS 2014 2015E 2016E Revenue (Rmb m) 47,482 YoY growth (%) 8.5 Net profit (Rmb m) 641.2 YoY growth (%) 6.5 EPS (Rmb) 0.151 BVPS (Rmb) 2.439 PER (x) 27.0 PBR (x) 1.7 Source: Company, BOCOM Int’l estimates 45,402 (4.4) 904.0 41.0 0.213 2.571 18.6 1.5 45,660 0.6 1,231 36.2 0.280 2.887 14.2 1.4 52,130 14.2 1,619 31.5 0.351 3.168 11.3 1.2 55,555 6.6 1,692 4.5 0.367 3.447 10.6 1.1 FY14 earnings in line with consensus. Neutral Stock Sinotrans Limited reported a 36.2% YoY increase in net profit for FY2014. Turnover increased 0.6% YoY. Though operating margin increased 0.2 ppt during the year to grow earnings, it was the express delivery JV that provided most of the earnings growth for the year. Net profit for FY2014 was up 36.2% YoY to consensus forecast of Rmb1,237m. Net profit of the continued operation increased The logistics segment continued to grow its turnover and segment profit, notwithstanding the small improvement in operating margin. We believe the improvement of the airfreight forwarding industry helped improve the freight forwarding segment margin in FY14. 22.6% YoY during the period. Management proposed a final DPS of Rmb0.065 (2013: Together with the interim DPS of Rmb0.02, the full year DPS payout reached 30.3%. As seen from the earnings summary table, contribution from the joint venture, effectively that of DHL-Sinotrans express delivery JV, provided much of the We keep our earnings forecasts unchanged, and reiterate our BUY recommendation and target price of HK$6.8. The results presentation is scheduled to be held on 25th March. earnings growth in FY2014. Turnover for the year Logistics segment buttressed operating performance. BUY SELL Rmb1,231m, which was in line with our forecast of Rmb1,251 m or Bloomberg Rmb0.05). LT BUY increased 0.6% YoY. According to segmental accounts, only turnover of the logistics and storage and terminal segments reported increases during the year, up 9.7% YoY and 4.1% YoY, respectively. Nevertheless, between the two segments, only the logistics segment was able to report an increase in segment profit, up 10.0% YoY as segment profit of the storage and terminal segment declined 5.5% YoY. The freight forwarding segment remained the biggest revenue contributor (about 77.6%), but only provided 51.0% of segment profit. Segment profit margin of the freight forwarding segment improved from 1.9% in FY2013 to 2.0% in FY2014, which we attribute to the general recovery of the airfreight industry. 52w High (HK$) 52w Low (HK$) Market cap (HK$m) Issued shares (m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA (HK$) 200d MA (HK$) 14-day RSI Source: Company data, Bloomberg 6.55 3.01 25,888 4,606.5 115.4 5.73 7.2 5.477 5.115 57.9 Airfreight cargo tonnage handled by Sinotrans Limited increased by 20.7% YoY in FY2014. On a HoH basis, despite a 16.7% HoH increase in turnover, operating margin declined marginally from 2.9% in 1H14 to 2.5% in 2H14. We maintain our BUY recommendation. Stock data We maintain our earnings forecasts and BUY recommendation for Sinotrans Limited at the moment. Management will host th the results presentation on 25 March, at which we expect to receive more guidance in terms of its business plan and development strategy. remains intact. Our target price of HK$6.8 1 Year Performance chart (HK$) Sinotrans Rel to HS Index 7.00 6.00 5.00 4.00 3.00 2.00 1.00 Mar-14 250 200 150 100 Jul-14 Nov-14 Source: Company data, Bloomberg Geoffrey Cheng, CFA [email protected] Tel: (852) 2977 9380 Download our reports from Bloomberg: BOCM〈enter〉 50 Mar-15 25 March 2015 Last Closing: HK$47.3 HK Property Sector Link REIT (823.HK) Not Rated A milestone to cross-border investment Financial Highlights YE Mar 2013 2014 2015E 2016E 2017E Revenue (HK$m) 6,506 Revenue YoY% 9.7 Core profit (HK$m) 3,349 EPS (HK$) 1.465 EPS (% YoY) 13.1 PE(@HK$47.3) 32.3 DPS (HK$) 1.465 Dividend yield (%) 3.10 PB(@HK$47.3) 1.33 PB Source: Company, BOCOM Int’l estimates Note: estimates based on Bloomberg consensus 7,155 10.0 3,830 1.657 13.1 28.5 1.657 3.50 1.13 7,719 7.9 4,353 1.830 10.4 25.8 1.809 3.82 1.02 8,318 7.8 4,567 2.011 9.9 23.5 1.969 4.16 1.00 8,986 8.0 4,981 2.159 7.4 21.9 2.158 4.56 1.00 First acquisition outside Hong Kong Estimated 0.4%-0.8% DPS enhancement Set a milestone to cross-border investment First acquisition outside Hong Kong. Link REIT (823 HK, NR) has signed a sales and purchase agreement to acquire EC Mall in Zhongguancun, Beijing for a consideration of Rmb2.5bn, or an ASP of Rmb45k/sqm, representing a gross/NPI yield of 6.3%/4.3% Stock data as of February 2015. The price is also in line with CBRE's valuation of Rmb2.46bn. 52w High (HKD) 52W Low (HKD) Market cap (USD m) Trading value (USD m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA ( HKD) 200d MA (HKD) 14-day RSI Source: Company data, Bloomberg Link REIT will assume the Rmb0.64bn mortgage and settle the remaining Rmb1.8bn in US Dollar by drawing new loan facilities through an offshore entity. Management estimates a proforma gearing (TD/TA) increase to only 15.3% (from 11.0%). Management expects the transaction to complete by April 2015. More than financial return. Contrary to the 2.4% increase in total assets, we 53.65 36.50 108,401 2,291.8 7.48 (5.68) (2.57) 50.20 46.58 41.44 estimate only a minimal 0.4% initial yield enhancement from the acquisition, even assuming Link REIT can fully replace the expensive mortgage by offshore new loans 1 Year Performance chart 50% at 2.4% (in line with its latest funding cost), due to the low margin/high tax in 40% mainland China. According to the announcement, the mall is only about 4 years old 30% HSI 823.HK 20% and international-branded retailers account for a significant portion of rental income. Therefore, we do not expect much room for Link REIT to profit from asset enhancement/tenant reshuffle, as it does in HK. Nevertheless, if the mall can maintain a 10%-20% increase in rental income (Feb 2015 annualised vs. FY14: +15%), 10% 0% -1 0% Mar-14 Jul-14 Nov-1 4 Source: Company data, Bloomberg we estimate the DPS enhancement can further expand to close to 1%. And apart from the financial return, we believe the transaction sets a milestone that the management is proactive in exploring investment opportunities, and opens the door to other similar acquisitions going forward. We currently have no rating on Link REIT. Download our reports from Bloomberg: BOCM〈enter〉 Alfred Lau, CFA, FRM [email protected] Tel: (852) 2977 9235 Mar-15 Morning Express 25 March 2015 Market Review Hong Kong stocks snapped gains on Tuesday, with the Hang Seng Index closing down 94 points, or 0.4%, at 24,399.60, dragged by a disappointing HSBC flash PMI. Tingyi (322.HK) fell 2.9% as the biggest blue chip decliner. Insurers retreated. China Life (2628.HK) fell 1.5%. CPIC (2601.HK) lost 3.2%. Brokers declined. CITIC Securities (6030.HK) dropped 3.4%. Haitong Securities (6837.HK) fell 3.3%. Among the gainers, Henderson Land (12.HK) was the best blue-chip performer, rising 3.7%. US stocks fell. The S&P 500 dropped 12.92 points, or 0.6%, to 2,091.50. The DJIA declined 104.9 points, or 0.6%, to 18,011.14. European stocks rose. The Stoxx Europe 600 gained 0.3% to 402.49. News Reaction Le Keqiang: hope that yuan will be included in IMF’s SDR. Chinese Premier Li Keqiang expressed China’s hope to join SDR when IMF examined SDR this year, in a bid to join the international cooperation to maintain the stability of international finance, which can also promote the further opening of China’s capital market and financial area. PBoC repurchased RMB20 bn at a lower bid rate of 3.55%. PBoc announced that it has launched the reverse purchase operations of RMB20 bn for 7 days since 24 March with the bid rate lowered from 3.65% on 19 Mar to 3.55%. MOFCOM cancelled the review of 5 administrative items. According to the latest announcement of the State Council of the PRC in respect of its decision to cancel the delegation of responsibility of review, 5 additional items were cancelled on the list of items subject to administrative review. Thus far, 8 items had been announced to be cancelled. Hence MOFCOM fully fulfilled its goal of the cancellation of 13 items subject to review from 2013 to 2014. NDRC: the import and export of coals for 2M15 dropped by 40% YoY, respectively. According to an announcement of NDRC, as the statistics of the custom department showed, a total of 32.04 mn tonnes of coal were imported in 2M15, down 45.3% YoY, while a total of 660,000 tonnes of coal were exported, down 46.4%. In 2M15, the national coal output shrunk and 360 mn coals were delivered by railways, a YoY decrease of 8.5%. 32.04 mn tonnes were imported, down 45.3%. It was reported that the time for payment of interest of commercial loans by housing fund in Guangzhou has not been determined. According to relevant insider of Guangzhou’s housing provident fund management center, the authority is still studying the proposal of interest payment with commercial banks. The initial direction of the research is to study whether interest payment can be settled out of the value-added gains of provident funds. However, it is uncertain when the new policy will be introduced. Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 25 March 2015 Economic releases for this week - USA Date Time 23-Mar 24-Mar 24-Mar 24-Mar 25-Mar 25-Mar 26-Mar Source: Bloomberg Event Existing Home sales (m) CPI (MoM) CPI ex food & energy (MoM) New Home sales (k) MBA mortgage applications Durable goods order Initial jobless claims (k) Economic releases for this week - China Survey 4.94 0.2% 0.1% 475.0 0.5% 295.0 Prior 4.82 -0.7% 0.2% 481.0 -3.9% 2.8% 291.0 Date Time 24-Mar 27-Mar Event HSBC Manufacturing PMI Industrial production(YoY) Survey 50.5 - Prior 50.7 -8.0% Source: Bloomberg BOCOM Research Latest Reports Data 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 24 Mar 2015 24 Mar 2015 24 Mar 2015 23 Mar 2015 20 Mar 2015 20 Mar 2015 20 Mar 2015 19 Mar 2015 19 Mar 2015 19 Mar 2015 19 Mar 2015 19 Mar 2015 Report Hilong Holding Limited (1623.HK) – 2014 FY results – Overseas business saves the day Baiyunshan (874.HK) – FY14 results missed; Maintain “Neutral” Sinopharm (1099.HK) – FY14 results beat with promising 2015E guidance; Reiterate “BUY” Sinopec (386.HK) – Lower crude price bit into earnings; Q1 profit warning and uncertain outlook; Downgrade to Neutral Golden Eagle (3308.HK) – FY14 in line; remain cautious on earnings outlook as margin pressure lingers Tingyi (322 HK) – Stick with cost cutting and national brand strategy China Resources Land (1109.HK) - Satisfactory FY14 results; margin bottomed out with solid financial fundamentals GOME (493.HK) – FY14 in-line; margin outlook remains stable; Reiterate Buy Property Sector - Destocking, cooperation, and growth quality China Resources Enterprise (291.HK) - Tesco JV remains a key drag; outlook of its retail and beer arms turns challenging Kingsoft (3888.HK) – 4Q14 beat; Strong 2015 revenue guidance despite margin pressure; Maintain Buy Summer Breeze「夏天小语」- Trading buy opportunity in Biostime (1112 HK) Internet Sector - MIT--Martina Internet Talk: Internet companies' crisis PR will reduce the negative impact of the 315 evening party Transportation Sector - Weekly transportation news wrap China Market Strategy - Price-to-Whatever Ratio: A Bubble Scenario Kingsoft (3888.HK) - Cheetah mobile acquired Mobpartner to build a global ad platform HK&China Gas (3.HK) - FY 2014 results on track - stable growth ahead Truly International (732.HK) - Dim outlook in handset related business Shandong Weigao (1066.HK) - Better-than-expected FY14 results; upgrade to "Neutral" Energy Sector - 2014 FY results preview - The beginning of tough times Source: Company data, BOCOM International Download our reports from Bloomberg: BOCM〈enter〉 Analyst Fei Wu Milo Liu Milo Liu Fei Wu, Tony Liu Anita Chu Summer Wang Philip Tse, CFA, FRM, Alfred Lau, CFA, FRM Anita Chu Luella Guo, Alfred Lau, CFA, FRM, Philip Tse, CFA, FRM Phoebe Wong Ma Yuan (Martina), Ph.D, Gu Xinyu (Connie), CPA Summer Wang Ma Yuan (Martina), Ph.D, Gu Xinyu (Connie), CPA Geoffrey Cheng, CFA, Fay Zhou Hao Hong, CFA Ma Yuan (Martina), Ph.D, GuXinyu (Connie), CPA Fei Wu, Tony Liu Miles XIE Milo Liu Fei Wu, Tony Liu Morning Express 25 March 2015 Hang Seng Index Constituents Company name CKH HOLDINGS CLP HOLDINGS HONG KG CHINA GS WHARF HLDG HSBC HLDGS PLC POWER ASSETS HANG SENG BANK HENDERSON LAND D HUTCHISON SHK PPT NEW WORLD DEV SWIRE PACIFIC-A BANK EAST ASIA GALAXY ENTERTAIN MTR CORP SINO LAND HANG LUNG PPT KUNLUN ENERGY CHINA MER HOLD WANT WANT CHINA CITIC CHINA RES ENTERP CATHAY PAC AIR TINGYI SINOPEC CORP-H HKEX LI & FUNG LTD CHINA OVERSEAS TENCENT CHINA UNICOM LINK REIT CHINA RES POWER PETROCHINA-H CNOOC CCB-H CHINA MOBILE LENOVO GROUP HENGAN INTL CHINA SHENHUA-H CHINA RES LAND COSCO PAC LTD AIA ICBC-H BELLE INTL SANDS CHINA LTD PING AN-H BOC HONG KONG HO CHINA LIFE-H BANKCOMM-H BANK OF CHINA-H Hang Seng Index BBG code 1 HK 2 HK 3 HK 4 HK 5 HK 6 HK 11 HK 12 HK 13 HK 16 HK 17 HK 19 HK 23 HK 27 HK 66 HK 83 HK 101 HK 135 HK 144 HK 151 HK 267 HK 291 HK 293 HK 322 HK 386 HK 388 HK 494 HK 688 HK 700 HK 762 HK 823 HK 836 HK 857 HK 883 HK 939 HK 941 HK 992 HK 1044 HK 1088 HK 1109 HK 1199 HK 1299 HK 1398 HK 1880 HK 1928 HK 2318 HK 2388 HK 2628 HK 3328 HK 3988 HK Share price (HK$) 151.40 13.22 143.00 101.40 87.50 19.28 67.10 53.40 118.50 36.20 12.26 28.95 15.06 17.76 20.80 8.84 66.75 8.71 29.85 35.45 180.80 7.42 23.55 11.62 8.17 10.34 11.36 10.34 47.90 5.58 8.84 32.05 91.05 26.95 33.15 6.50 4.41 17.68 52.10 77.15 138.90 103.60 101.60 21.35 7.89 17.76 17.22 6.03 19.00 6.38 Mkt cap (HK$m) 350,667 329,222 1,340,370 2,076,114 107,136 470,590 1,290,675 160,218 340,327 211,075 74,345 74,232 36,466 69,865 135,841 74,559 168,641 77,462 70,093 150,731 211,230 62,034 192,497 278,265 2,517,052 461,655 126,194 30,404 576,963 2,101,176 74,559 258,587 851,586 284,936 1,221,770 543,879 1,537,939 185,854 157,917 164,658 265,555 441,685 150,234 95,761 104,088 69,865 96,502 914,345 91,157 1,607,457 5d chg (%) 0.9 1.1 6.9 -0.8 1.4 -1.2 3.2 6.4 2.2 3.0 5.7 -1.2 5.3 4.2 4.1 1.4 1.8 -1.4 2.6 5.5 3.1 -6.4 8.0 -1.4 0.5 1.2 4.8 -2.5 2.6 -0.2 1.4 7.0 4.9 0.7 4.2 -1.4 0.7 2.2 4.7 2.9 2.0 0.3 -0.3 -0.9 -1.1 4.2 -5.0 -1.3 0.6 0.3 Ytd chg (%) 16.2 0.0 27.1 12.0 8.0 -16.0 -9.3 -1.7 0.2 13.8 -2.1 10.9 -7.3 5.1 1.7 1.4 -0.7 -2.4 -4.5 -18.8 5.3 2.2 2.2 11.7 -5.0 -1.0 11.4 -6.2 11.0 -1.4 1.4 -16.0 15.1 3.9 8.9 -10.2 0.9 -0.5 -7.0 2.5 7.5 16.1 0.6 -1.8 -22.8 5.1 -2.8 -3.5 -5.0 0.2 24,400 15,145,542 2.1 3.4 Source: Bloomberg Download our reports from Bloomberg: BOCM〈enter〉 –––– 52-week –––– Hi Lo (HK$) (HK$) 158.50 114.39 16.88 12.06 148.80 93.00 108.50 64.85 94.35 74.05 24.40 18.72 84.40 64.35 57.20 37.82 129.40 90.90 36.85 27.70 14.16 10.80 29.95 22.75 24.55 14.04 18.30 13.56 23.60 13.62 10.00 7.19 69.85 56.50 10.48 7.29 34.45 29.00 72.96 32.80 189.00 115.00 10.70 7.06 26.70 17.66 14.22 9.34 11.70 7.93 15.88 9.72 12.70 8.17 11.92 9.71 49.65 35.30 5.90 4.45 10.00 7.19 65.20 29.50 94.45 55.60 27.95 21.50 34.00 19.72 7.36 4.75 4.57 3.12 18.90 14.49 63.90 47.65 82.80 63.80 148.40 118.50 108.50 85.90 108.00 86.80 26.45 20.25 13.10 7.78 18.30 13.56 23.25 16.02 8.23 5.90 24.90 18.02 6.62 5.04 25,363.0 21,590.1 –––––––––– PE ––––––––––– 2014A 2015E 2016E (X) (X) (X) 6.5 10.6 10.2 9.4 6.0 5.4 44.4 34.3 26.4 15.1 14.7 14.1 27.4 23.5 20.0 7.9 9.0 8.4 12.5 10.3 9.7 9.5 16.7 16.2 10.7 15.5 14.1 13.5 20.4 20.1 9.6 14.4 13.8 16.8 17.0 15.5 N/A 72.8 32.8 22.2 10.6 9.3 8.2 9.3 7.8 N/A 13.2 12.7 15.0 15.7 14.8 6.5 10.6 9.8 10.4 11.6 10.8 14.7 16.7 14.9 40.7 31.0 27.2 14.4 14.3 12.8 7.0 7.4 6.4 18.4 16.0 13.7 9.1 11.0 20.7 6.7 7.0 16.2 17.4 17.9 14.7 13.3 10.7 10.0 21.3 19.9 17.9 5.6 5.7 5.4 N/A 13.2 12.7 13.1 15.4 14.2 14.7 13.6 12.1 12.3 11.7 10.6 27.9 21.7 18.0 6.0 6.0 5.8 5.9 6.0 5.6 26.0 24.1 22.4 4.4 13.0 11.7 2.7 18.5 18.8 17.6 13.9 13.6 6.6 13.2 11.5 13.8 14.1 12.8 8.2 14.8 15.4 21.7 18.5 17.0 22.2 10.6 9.3 31.1 23.1 20.6 11.6 15.9 11.0 9.8 7.4 7.1 5.6 5.5 5.3 10.3 11.6 10.5 Yield P/B (%) 2.4 2.0 0.3 2.8 2.3 4.8 5.7 2.1 2.8 2.2 4.1 2.7 1.8 2.0 2.4 N/A 3.9 4.8 3.7 0.0 2.2 4.6 2.3 2.2 4.9 5.5 2.1 3.0 1.0 N/A N/A 3.1 1.0 3.7 1.1 N/A 5.6 2.0 3.5 3.5 4.0 2.3 1.1 3.6 2.4 2.0 1.6 4.1 4.1 5.9 (X) 0.9 0.5 13.4 1.9 6.1 1.0 0.9 0.7 0.8 1.3 0.7 1.1 0.7 1.4 1.3 2.3 1.9 0.5 1.0 3.9 9.9 3.1 1.4 1.0 1.0 1.0 3.9 0.8 2.4 1.1 2.3 5.2 2.2 1.7 3.1 0.8 1.0 3.5 0.5 1.3 1.9 1.0 0.7 0.7 6.5 1.4 4.1 1.0 1.3 1.1 3.5 1.4 Morning Express 25 March 2015 China Ent Index Constituents Company name TSINGTAO BREW-H JIANGXI COPPER-H SINOPEC CORP-H CHINA RAIL GR-H DONGFENG MOTOR-H CHINA TELECOM-H AIR CHINA LTD-H PETROCHINA-H HUANENG POWER-H ANHUI CONCH-H CHINA LONGYUAN-H CCB-H CITIC BANK-H SHANDONG WEIG-H CHINA SHENHUA-H SINOPHARM-H BYD CO LTD-H ABC-H NEW CHINA LIFE-H PICC GROUP-H CHINA CINDA-H ICBC-H CHINA COM CONS-H CHINA COAL ENE-H MINSHENG BANK-H CHINA VANKE-H GUANGZHOU AUTO-H PING AN-H PICC P&C-H GREAT WALL MOT-H WEICHAI POWER-H GREAT WALL MOT-H CHINA PACIFIC-H CHINA LIFE-H CHINA OILFIELD-H CHINA NATL BDG-H BANKCOMM-H CM BANK-H BANK OF CHINA-H CITIC SEC-H HAITONG SECURI-H Hang Seng China Ent Indx BBG code 168 HK 358 HK 386 HK 390 HK 489 HK 728 HK 753 HK 857 HK 902 HK 914 HK 916 HK 939 HK 998 HK 1066 HK 1088 HK 1099 HK 1211 HK 1288 HK 1336 HK 1339 HK 1359 HK 1398 HK 1800 HK 1898 HK 1988 HK 2202 HK 2238 HK 2318 HK 2328 HK 2333 HK 2338 HK 2333 HK 2601 HK 2628 HK 2883 HK 3323 HK 3328 HK 3968 HK 3988 HK 6030 HK 6837 HK Share price (HK$) Mkt cap (HK$m) 5d chg (%) Ytd chg (%) 49.70 13.58 6.03 6.97 11.86 4.88 6.96 8.17 9.26 27.65 8.09 6.38 5.78 6.47 19.28 29.50 37.65 3.80 43.95 3.98 3.65 5.58 9.91 4.09 9.24 17.66 7.07 91.05 15.66 51.90 28.20 51.90 36.40 33.15 11.92 7.49 6.50 18.32 4.41 26.75 17.66 68,805 75,494 914,345 296,049 102,187 394,950 136,738 2,517,052 146,498 143,722 65,014 1,607,457 381,393 28,962 470,590 81,629 138,594 1,487,156 192,347 168,847 132,337 2,101,176 269,751 95,922 392,918 181,376 67,602 851,586 232,214 187,647 67,440 187,647 363,438 1,221,770 95,896 40,439 543,879 485,138 1,537,939 430,398 259,296 4.1 4.1 -1.3 11.7 -0.5 2.5 0.1 0.5 2.2 3.2 2.5 0.3 -1.9 6.9 -1.2 3.1 3.9 0.5 4.5 2.6 0.6 -0.2 4.9 2.8 -0.1 4.3 1.1 4.9 0.0 9.5 -0.4 9.5 -4.7 4.2 6.2 2.6 -1.4 0.2 0.7 0.8 2.9 -5.5 2.1 -3.5 9.2 8.0 7.5 11.0 -5.0 -11.6 -4.8 0.2 0.2 -7.1 3.4 -16.0 7.5 24.1 -3.1 12.3 9.6 -3.4 -1.4 6.2 -15.8 -9.4 2.1 0.1 15.1 3.8 17.7 -13.8 17.7 -7.6 8.9 -11.4 -0.7 -10.2 -5.9 0.9 -8.4 -9.5 64.0 15.2 8.2 7.0 15.2 5.2 7.5 11.7 11.6 35.7 9.1 6.6 6.3 9.9 24.4 34.5 57.8 4.1 46.5 4.1 4.5 5.9 10.2 5.4 10.7 20.4 9.9 94.5 17.1 53.4 34.9 53.4 42.0 34.0 23.4 8.4 7.4 20.0 4.6 34.0 23.2 12,005 4,974,284 1.4 0.2 12,400.4 Source: Bloomberg Download our reports from Bloomberg: BOCM〈enter〉 –––– 52-week –––– Hi Lo (HK$) (HK$) ––––––––––– PE ––––––––––– 2014A 2015E 2016E Yield P/B (X) (X) (X) (%) (X) 47.5 11.9 5.9 3.4 10.0 3.2 4.2 7.9 7.2 24.0 7.1 5.0 4.1 5.7 18.7 19.7 18.7 3.1 22.1 2.9 3.3 4.5 5.0 3.8 6.2 12.8 6.6 55.6 9.6 26.1 26.0 26.1 23.6 19.7 11.1 6.7 4.8 12.7 3.1 15.0 9.8 27.0 10.6 11.6 11.9 6.1 17.8 26.1 9.1 9.0 10.7 26.7 5.6 5.3 21.4 7.9 21.3 148.0 5.5 18.3 18.7 9.7 5.6 10.0 49.5 5.6 10.3 11.5 14.7 16.7 15.7 8.6 15.7 24.7 27.9 5.6 5.2 6.0 6.6 5.9 29.7 32.1 26.6 13.0 15.9 11.3 6.5 15.3 20.0 11.0 8.5 9.8 21.6 5.5 5.1 18.9 9.0 18.5 123.0 5.0 14.2 12.2 8.9 5.7 9.4 74.4 5.3 9.0 10.8 13.6 12.5 11.3 9.3 11.3 20.9 21.7 6.0 5.8 6.0 6.0 6.0 20.1 18.5 23.9 14.6 11.0 10.1 6.2 13.9 10.3 20.7 7.9 9.1 14.6 5.3 4.7 16.5 8.4 15.3 37.9 4.7 13.0 10.8 7.0 5.4 8.5 37.2 5.0 7.6 8.4 12.1 12.0 9.4 9.8 9.4 17.7 18.0 8.5 5.7 5.8 5.4 5.6 17.4 15.1 N/A 4.6 4.1 1.2 1.9 2.0 0.8 4.9 5.1 2.9 0.7 5.9 N/A 1.3 4.8 1.3 0.2 N/A 0.4 0.3 1.2 N/A 2.4 0.7 2.1 2.9 3.2 1.0 1.7 N/A 1.1 N/A 1.4 1.1 4.5 2.7 N/A 4.6 5.6 N/A 0.8 3.4 0.9 1.0 1.3 1.2 1.1 1.4 1.0 1.6 1.8 1.6 1.1 0.8 2.4 1.0 2.4 2.9 1.0 2.5 1.7 1.4 1.1 1.3 0.5 1.1 2.0 1.1 2.2 2.8 3.8 1.4 3.8 2.5 3.1 1.0 0.9 0.8 1.2 1.0 2.5 2.1 9,483.5 8.6 8.3 7.4 3.8 1.3 Morning Express 25 March 2015 BOCOM International 11/F, Man Yee Building, 68 Des Voeux Road, Central, Hong Kong Main: + 852 3710 3328 Fax: + 852 3798 0133 Rating System Company Rating www.bocomgroup.com Sector Rating Buy: Expect more than 20% upside in 12 months LT Buy: Expect more than 20% upside but longer than 12 months Neutral: Expect low volatility Sell: Expect more than 20% downside in 12 months Outperform (“OP”): Expect more than 10% upside in 12 months Market perform (“MP”): Expect low volatility Underperform (“UP”): Expect more than 10% downside in 12 months Research Team Head of Research @bocomgroup.com Raymond CHENG, CFA, CPA, CA (852) 2977 9393 @bocomgroup.com raymond.cheng Strategy Economics (852) 2977 9384 hao.hong (852) 2977 9212 yangqingli Fei WU (852) 2977 9392 fei.wu Shanshan LI, CFA (86) 10 8800 9788 - 8058 lishanshan Tony LIU (852) 2977 9390 xutong.liu Li WAN, CFA (86) 10 8800 9788 - 8051 Wanli Alfred LAU, CFA, FRM (852) 2977 9235 alfred.lau Philip TSE, CFA, FRM (852) 2977 9220 philip.tse Luella GUO (852) 2977 9211 luella.guo (86) 21 6065 3606 louis.sun (852) 2977 9209 lizhiwu (852) 2977 9216 miles.xie Geoffrey CHENG, CFA (852) 2977 9380 geoffrey.cheng Fay ZHOU (852) 2977 9381 fay.zhou (86) 21 6065 3675 wei.yao Hao HONG, CFA Banks/Network Financials Qingli YANG (86) 10 8800 9788 - 8043 miaoxian.li Oil & Gas/ Gas Utilities Consumer Discretionary Property Phoebe WONG (852) 2977 9391 phoebe.wong AnitaCHU (852) 2977 9205 anita.chu Consumer Staples Renewable Energy Summer WANG (852) 2977 9221 summer.wang ShawnWU (852) 2977 9386 shawn.wu (852) 2977 9387 milo.liu Healthcare Louis SUN Telecom & Small/ Mid-Caps Milo LIU Insurance & Brokerage Zhiwu LI Technology Jerry LI (852) 2977 9389 liwenbing Jennifer ZHANG (852) 2977 9250 yufan.zhang Yuan MA,PhD (86) 10 8800 9788 - 8039 yuan.ma Connie GU, CPA (86) 10 8800 9788 - 8045 conniegu (852) 2977 9243 jovi.li Internet Miles XIE Transportation & Industrial Metals & Mining Jovi LI Miaoxian LI Automobile Download our reports from Bloomberg: BOCM〈enter〉 Wei YAO Morning Express 25 March 2015 Analyst Certification The authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any and all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report; (iii) no insider information/ non-public price-sensitive information in relation to the subject securities or issuers which may influence the recommendations were being received by the authors. The authors of this report further confirm that (i) neither they nor their respective associates (as defined in the Code of Conduct issued by the Hong Kong Securities and Futures Commission) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of the report; (ii)) neither they nor their respective associates serve as an officer of any of the Hong Kong listed companies covered in this report; and (iii) neither they nor their respective associates have any financial interests in the stock(s) covered in this report. Disclosure of relevant business relationships BOCOM International Securities Limited, and/or its associated companies, has investment banking relationship with Bank of Communications, Harbin Bank Co., Ltd., Azure Orbit International Finance Limited, Hanhua Financial Holding Co., Ltd., Central China Securities Company Limited, China New City Commercial Development Limited, China Shengmu Organic Milk Limited, Broad Greenstate International Company Limited, China National Culture Group Limited, Sichuan Development Holding Co. Ltd., Austar Lifesciences Limited and BAIC Motor Corporation Limited within the preceding 12 months. BOCOM International Holdings Company Limited currently holds more than 1% of the equity securities of Shanghai Fosun Pharmaceuticals Group Co. Ltd. BOCOM International Securities Limited currently holds more than 1% of the equity securities of Sanmenxia Tianyuan Aluminum Company Limited. 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