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CLSA Fengshui 2016

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  • 2016Feng Shui Index

  • 2 3

    CONTENTS Monkeys tale Famous chimps

    The two bazi in the chart - literally eight (Chinese) characters, which change position on a 60-year cycle - guide predictions for the year.

    The Chinese monkey is an ambivalent figure. Close to man and yet

    uncontrollable. Loved for his human-like antics and disliked for his

    lack of social grace and unpredictability. The embodiment of this years

    zodiac, and the year ahead, is the character Sun Wukong, or Monkey

    King, from the Ming Dynasty saga, Journey to the West.

    The Monkeys character is so dominant that the novel is often referred

    to as his story. But its worth recalling that, after being punished for

    a long list of impish wrongdoings and consequently caged by the

    Buddha, the Monkey is entrusted to assist the monk, Xuan Zang, to

    retrieve scriptures from India for the good of humanity. And thats how

    we see the year ahead. One of impish, apeful, baboonery, but overall,

    not too bad, with many opportunities for fast movers.

    As our starting point, we look at the eight-character Bazi for the Monkey

    and compare it to the eight-character birth chart of the Earth Rooster,

    the Hang Seng Index. This is a Fire Monkey year, and in the chart Fire sits

    atop Metal, which has capacity for bringing about conflict. However,

    the Fire is relatively benign, and there is enough Water hidden in the

    Earth Roosters chart to withstand a scorching. Our forecast chart (page

    26) takes a unique turn from recent years, with a decent start after a bad

    end to the Goats reign, a big dip in the middle followed by a recovery.

    In the 60-year Stems and Branches, or fiddlesticks as we call them,

    this is a year to set things up for a stronger future. Thats good news

    for China as it sets about shoring up its One Belt, One Road strategy

    with wealth and security two guiding motives for the countrys modern

    Journey to the West. We also take a look at the fortunes of the Zodiac,

    some celebrities and offer guidance for deflecting negative energies.

    H aving pegged the Goat, how will we fare with the primate?

    We picked the Goat-path

    trajectory last year with

    eerie facility. Rising from

    February through June,

    we fingered 8 July as the

    inauspicious day when

    the Hang Seng fell nearly

    6%. From there we had the

    market dropping through

    October until the Goat found his footing and began to climb again. Alas, the influence of the

    impish ape arrived early, and our Billy was bumped off his intended path, which was to end the

    year higher than it started. See page 4 where we also compare our previous Feng Shui forecasts

    for the Monkey years of 1992 and 2004 with actual index performance.

    Monkey business

    A volatile ride as the Hang Seng goes ape OVERVIEW ................................................................... 3

    PREVIOus MONKEY YEaRs ........................................ 4

    sEctOR hIghlIghts .................................................. 6

    afflIctION dEflEctION .......................................... 8

    ZOdIac sIgN guIdE .................................................. 9

    faMOus facEs ......................................................... 21

    PROPERtY OutlOOK ............................................... 24

    clsa fENg shuI INdEx 2016 ................................... 26

    Heavenly stems

    }

    Rooster

    You

    Yin Metal

    YEARPILLAR

    Ji

    Yin Earth

    Yin Water

    Pig

    Hai

    Yin Wood

    MONTHPILLAR

    Yi

    Rabbit

    Mao

    Yin Wood

    Gui

    Yin Water

    DAYPILLAR

    Yang Metal

    Monkey

    Shen

    HOURPILLAR

    Geng

    Yang Metal

    Hang Seng Earth Rooster

    Earth

    ly br

    anch

    es }

    Bazi - Interplay determines our forecasts

    OVERVIEW

    FaMouS cHiMPS

    Our cover is a representation of one of Chinas most famous monkeys, Sun Wukong from the Ming

    Dynasty (16th Century AD) novel, Journey to The West.

    2016Feng Shui Index

    the clsa feng shui Index for the Year of the goat 2015

    GOAT

    2015Feng Shui Index

    EAR o e

    Y

    24,485

    2 feb19,88811 Jan

    Childrens favourite

    curious George

    HanumanHindu deity, and also revered in Balinese and Thai culture

    Sanbiki No SaruJapanese three wise monkeys

    BubblesMichael Jacksons pet chimp

    Sun Wukong as performed in Chinese opera

    Sun Wukong

    The MonkeesAmerican rock band

    Monkey

    Shen

    Yang Metal

    YEARPILLAR

    Bing

    Yang Fire

    Yang Wood

    Tiger

    Yin

    Yang Metal

    MONTHPILLAR

    Geng

    Dragon

    chen

    Yang Earth

    Bing

    Yang Fire

    DAYPILLAR

    Fire Monkey

    Yin Metal

    Rooster

    You

    HOURPILLAR

    Ding

    Yin Fire

  • 4 5

    The Wood Monkey lost his hold in the treetops early and by mid-May had fallen so far from the perch that the only way from there was up. It was clearly a year for paying peanuts and get-ting your moneys worth. Even if hed tried to ape anyone else, by year-end, hed only managed to change into the proboscis mon-key and finish a nose in front

    of where hed started, making monkeys of us all.

    Our Feng Shui Index forecast missed the early fall, but found the bananas by year-end.

    CLS

    A F

    eng

    Shui

    Inde

    x 20

    04

    Our Feng Shui Index forecast was a little extreme, but still tracked key market moves.

    The Water Monkey spent the first two months as the bathing

    ape, floundering around as if the

    world were a barrel of monkeys. Finally he got that off his back and changed into the grease monkey, got down to work and showed us his white tail tuft for two months. From June through November, he perfected the quadrupedal knuckle walking trick and went nowhere fast. He then lost that monkey grip in a nasty fall before finishing the year

    slightly higher than he began.

    The Metal Monkey skidded in through the savannah and spent the first month poking

    ants nests on the ground. From April through December, he lost his tail and became the climbing chimp on the monkey bars. Resting at the top, there he turned into a blue monkey and got down about things for a month or so before finishing

    the year as the alpha male of the powder monkey troop.

    The Earth Monkey Dow slipped early in the year then found his nuts and rose, gibbon it was a different day and age, to heady heights not seen before in the world of man. From May through September, the sleeping monkey did not fall off the branch, and on waking headed for the canopy to enjoy the fruits of his liking from November on. But on the way up, he left his wrench somewhere and the following two years saw the Dow lose nearly half its value.

    27 Feb: Stella Leibeck spills McDonalds coffee; awarded US$2.86m.9 Mar: PRC ratifies the Nuclear Non-Proliferation Treaty.20 Apr: Seville Expo 92 opens.23 May: Italian judge Giovanni Falcone is murdered by mafia bomb. 20 Jun: Estonia gets its own currency, ending the rule of the ruble.22 Jul: Pablo Escobar escapes from his luxury prison.3 Aug: Wang Hongwen from the Gang of Four dies.8 Sep: Japan sends troops abroad for the first time since WWII.18 Dec: Kim Young-sam wins the South Korean election.20 Jan: Bill Clinton is sworn in as the 42nd President of the USA.

    30 Jan: North Vietnam launch the Tet Offensive.16 Mar: The My Lai Massacre.29 Apr: The musical Hair opens on Broadway.29 May: De Gaulle flees Paris after the demonstrations against him.8 Jun: Chiang Kai-shek calls the CCP the origin of disasters in East Asia.27 Jul: End of Red-Guard power over the army in Cultural Revolution.21 Aug: Soviet tanks enter Prague.11 Oct: The first manned Apollo mission blasts off.9 Dec: The first demonstration of the computer mouse.20 Jan: Richard Nixon inaugurated as the 37th President of the USA.

    13,727

    22 Jan

    950

    16 Feb

    4,711

    4 Feb

    860

    30 Jan

    13,8468 Feb

    1,6514 Feb

    5,91422 Jan

    94516 Feb

    Hang Seng Index

    Hang Seng Index

    Dow Jones IndexHang Seng Index

    PREVIOUS YEARSPrevious years

    1992 Water Monkey

    1980 Metal Monkey

    1968 earth Monkey

    2004 Wood Monkey

    4 Feb: Facebook is launched.19 Mar: Shooting of Chen Shui-bian in Tainan.1 Apr: Google launches Gmail.28 Jul: The Chinese establish the Yellow River site in the Arctic.13 Aug: Opening of the Summer Olympics in Athens.21 Sep: Construction begins on the Burj Khalifa.27 Oct: Discovery of the remains of Homo Floresiensis in Indonesia.21 Nov: Crash of China Eastern Airlines flight MU5210.

    25 Feb: A military coup takes place in Suriname.4 Mar: Robert Mugabe elected Prime Minister of Zimbabwe.22 May: Pac-Man game is released in Japan.25 Jul: AC/DC release Back in Black.13 Aug: The base monthly wage in Taiwan rises to NT$12,365.10 Sep: Zhao Ziyang becomes the third Premier of the PRC.23 Oct: HK ends the Touch Base policy for illegal mainland immigrants.20 Nov: Gang of Four trial begins in the PRC.8 Dec: John Lennon shot dead.20 Jan: The hostages from the US embassy in Tehran are finally freed.

    1

  • DESTROY CYCLE

    NURTURECYCLE

    METAL

    This year is going to get better. Shipping, banking, gambling

    and retail will all make good ground. We happily announce that philosophy and arcane

    studies belong to water and that their tide is rising - good for all of us, even if these stocks are not listed.

    WATER

    WOOD

    From wood come the paper and lumber industries as well as timepieces, hairdressers and ingredients for

    medicine and the like. This year may not be as good

    as the last, but there are still some good

    trees in this forest.

    EARTH

    From our planet there is nothing

    to go ape over. From earth come construction,

    both buildings and capital, livestock rearing and real estate, all of which may not go baboon but should fare well. Leather and hotels are well indicated so expect some activity from right-wing politicians as they indulge in their primate sensibilities.

    China strategy

    Property

    Resources

    Renewables

    Healthcare/Pharma

    Retail

    It is not only gold and silver that

    should thrive this year - think autos and machinery

    (good for monkey-bar makers); lawyers (always monkeying around);

    martial arts (the drunken monkey form anyone?); and public servants (nah,

    cant think of any monkey-associated terms for them).

    Financials

    Autos/Machinery

    Its a fire year, but other elements are going to weigh it down.

    Nonetheless, no-one should lemur as there is much to look forward to. Telecoms and computing

    should not be making monkeys out of their supporters. Cosmetics, glasses and advertising may well come trooping in.

    Gaming

    Transport

    Oil & Gas

    Utilities

    Telcos/Internet

    Technology

    China pps

    Great transition 2 Switch to services softens freefall

    Special report

    September 2015

    The chains that

    bind

    Prospects for C

    hina in 2016

    Special report

    December 2015

    Chinapps

    CKI and Po

    wer Assets

    Sector out

    look

    PAH/CKI t

    rading his

    tory over p

    ast five ye

    ars

    Source: CL

    SA

    Find CLSA r

    esearch on

    Bloomberg,

    Thomson R

    euters, Fac

    tset and Ca

    pitalIQ - an

    d profit fro

    m our eval

    [email protected] prop

    rietary data

    base at cls

    a.com

    For importa

    nt disclosu

    res please

    refer to pa

    ge 32.

    1.0

    1.1

    1.2

    1.3

    1.4

    1.5

    1.6

    Oct-

    10

    Jan-

    11

    Apr-

    11

    Jul-1

    1

    Oct-

    11

    Jan-

    12

    Apr-

    12

    Jul-1

    2

    Oct-

    12

    Jan-

    13

    Apr-

    13

    Jul-1

    3

    Oct-

    13

    Jan-

    14

    Apr-

    14

    Jul-1

    4

    Oct-

    14

    Jan-

    15

    Apr-

    15

    Jul-1

    5

    (x) Power Ass

    ets px / C

    KI pxRatio

    offered

    5-yr aver

    age

    Rajesh

    Panjwani,

    CFA

    Head

    of Power R

    esearch

    rajesh.panjw

    [email protected]

    m

    +852

    2600 8271

    Shantn

    u Phutela

    +852

    2600 8483

    26 Oc

    tober 2015

    Hong Ko

    ng

    Power

    Powe

    r Assets

    6 HK

    Rec

    U-PF

    Market cap

    US$20.8bn

    Price HK$7

    6.30

    Target

    HK$72.00

    Up/downsid

    e -5.6%

    Dividend yie

    ld 3.8%

    CKI

    1038 HK

    Rec

    SELL

    Market cap

    US$23.0bn

    Price HK$7

    1.50

    Target

    HK$61.00

    Up/downsid

    e -14.7

    %

    Dividend yie

    ld 3.1%

    Merg

    er and sha

    re-price ra

    tios

    Proposed m

    erger ratio (

    revised):

    1.066

    CLSAs view

    of likely mer

    ger ratio:

    1.15-1.20

    Base-case r

    atio assumpt

    ion for our

    target prices

    : 1.18

    Current sha

    re-price rat

    io: 1.067

    www

    .clsa.com

    Dont argu

    e with Mr

    Market

    Analysing

    the argum

    ents justif

    ying 1.066

    merger ra

    tio

    The key ju

    stification

    for the 1.0

    66 merger

    ratio is th

    at it is ba

    sed on

    market pri

    ces, which

    are hard to

    argue aga

    inst, and t

    hat no pre

    mium is

    warranted

    given sign

    ificant sha

    red assets

    and cash.

    However,

    it is also

    hard to ju

    stify a larg

    e deviation

    (from 1.3

    to 1.066) i

    n fair valu

    e over

    January-Se

    ptember 2

    015 with no

    major trig

    gers. Othe

    r analyses

    provided

    also have

    shortcomin

    gs. If the

    deal fails

    Power Ass

    ets Holding

    s (PAH)

    should fall

    less and o

    utperform

    Cheung Ko

    ng Infra (C

    KI) if the

    ratio is

    raised. We

    believe CKI

    is a discip

    lined but s

    mart dealm

    aker and w

    ill do

    what is ne

    eded, with

    in limits, to

    get the de

    al done. Pre

    fer PAH ove

    r CKI.

    You cant a

    rgue with

    market pr

    ices

    CKIs core a

    rgument se

    ems to be

    that the me

    rger ratio is

    based on

    market pric

    es

    which are m

    ore objecti

    ve than an

    alyst targe

    t prices an

    d that it w

    ould be diff

    icult

    to justify a

    premium w

    hen both co

    mpanies ha

    ve substan

    tial common

    assets an

    d

    cash. It is

    also difficul

    t, however,

    to argue tha

    t the marke

    t has been

    wrong for fi

    ve

    years (1.3

    avg ratio) a

    nd arrived

    at the righ

    t fair value

    in the 30

    days prece

    ding

    8 Septembe

    r. There we

    re no majo

    r events to

    explain c.

    25% chang

    e in relativ

    e

    value from

    January to

    Septembe

    r 2015, esp

    ecially given

    shared as

    sets and ca

    sh

    form a larg

    e part of v

    alue. CKI c

    ould take

    a leaf out

    of the CSR-

    CNR merg

    er -

    mentioned

    by the indep

    endent finan

    cial adviso

    r (IFA) in th

    e circular -

    and justify

    a

    higher ratio

    than one b

    ased on th

    e past aver

    age.

    Contributio

    n and com

    parative a

    nalyses ov

    erlook som

    e core issu

    es

    The IFAs a

    nalyses of

    contributio

    n and co

    mparable c

    ompanies

    result in lo

    w

    merger ratio

    s because th

    e valuation

    methods eit

    her do not

    give any va

    lue to PAH

    s

    cash stash

    or use 15x

    PE for PAH

    s UK busin

    ess while u

    sing 20.4x f

    or CKIs or

    end

    up effective

    ly valuing c

    ash on PAH

    s balance s

    heet at 1x b

    ut debt at a

    s high as 3x

    .

    The IFA hi

    ghlights CK

    Is higher e

    arnings (tho

    ugh EPS w

    ould have

    been a bet

    ter

    measure) a

    nd dividen

    d growth a

    s a reason

    for the de

    cline in sha

    re-price ra

    tios.

    While this

    argument h

    olds some

    water it do

    es not just

    ify such a

    sharp mov

    e in

    2015. Som

    e factors th

    at favoured

    CKIs high

    er growth (

    lower earn

    ings base, l

    ow

    debt) and h

    indered PAH

    s growth (d

    rag from H

    KEs flat pro

    fit) are no l

    onger valid

    .

    Life with or

    without t

    he deal

    CKIs pro-fo

    rma net de

    bt/equity is

    lower than

    our estim

    ate but du

    e to US$6.1

    bn

    goodwill cre

    ation from

    asset revalu

    ation. The

    deal would

    be at high

    risk if ISS

    advises aga

    inst it. We b

    elieve the r

    atio could b

    e revised u

    p in that eve

    nt. If the de

    al

    fails both C

    KI and PAH

    (and even

    CKH) stock

    s may fall a

    nd investors

    with may b

    e

    better off s

    elling both.

    On a relativ

    e basis, we

    prefer PAH

    given low

    er ex-cash

    valuations,

    stronger bal

    ance sheet

    and continu

    ed expecta

    tion of a sp

    ecial dividen

    d.

    Connecting

    friends

    Tencen

    t vs Fac

    ebook

    Special re

    port

    April 2015

    Lenovo

    HK$13.16

    - BUY

    Financials

    Year to 31

    March

    13A 14A

    15CL

    16CL

    17CL

    Revenue (U

    S$m)

    33,873

    38,707

    46,821

    56,404

    62,651

    Rev forecas

    t change (%

    )

    - -

    (0.2) (8.3)

    (4.9)

    Net profit (

    US$m)

    635 817

    920 1,225

    1,802

    NP forecas

    t change (%

    )

    - -

    34.5 63.1

    56.1

    EPS (US)

    6.1 7.8

    8.5 11.1

    16.3

    CL/consens

    us (32) (EP

    S%) -

    - 110

    123 136

    EPS growth

    (% YoY)

    32.8 27.3

    9.6 30.0

    47.1

    PE (x)

    27.7 21.8

    19.9 15.3

    10.4

    Dividend yie

    ld (%)

    1.4 1.8

    1.3 1.9

    3.0

    ROE (%)

    25.3 28.8

    26.0 28.3

    36.0

    PB (x)

    6.6 5.9

    4.5 4.1

    3.4

    Source: CL

    SA

    Find CLSA r

    esearch on

    Bloomberg,

    Thomson R

    euters, Fac

    tset and Ca

    pitalIQ - and

    profit from

    our [email protected]

    tor propriet

    ary databas

    e at clsa.co

    m

    For importa

    nt disclosu

    res please

    refer to pa

    ge 44.

    Nicolas

    Baratte

    nicola

    [email protected]

    lsa.com

    +852

    2600 8325

    Cher C

    hen

    +852

    2600 8631

    7 Ma

    y 2015

    Hong Ko

    ng

    Techn

    ology

    Reute

    rs 0992.

    HK

    Bloom

    berg 992 H

    K

    Price

    d on 6 Ma

    y 2015

    HK HS

    I @ 27,640

    .9

    12M

    hi/lo HK$

    13.56/8.34

    12M

    price targe

    t HK$17.7

    5

    % p

    otential

    +35%

    Share

    s in issue

    10.2m

    Free

    float (est.)

    58.5%

    Mark

    et cap

    US$18,860

    m

    3M a

    verage dai

    ly volume

    HK$5

    28.8m

    (US$68.2m)

    Forei

    gn s'holdi

    ng 65.0%

    Majo

    r sharehol

    ders

    Legen

    d Holding Li

    mited 30.6

    %

    Stock

    performan

    ce (%)

    1M 3M

    12M

    Absol

    ute 17.5

    14.4 50.7

    Relati

    ve 7.4

    2.2 19.9

    Abs (

    US$) 17.5

    14.5 50.8

    Sourc

    e: Bloombe

    rg

    www

    .clsa.com

    90100

    110120

    130140

    150160

    170180

    7

    8

    9

    10

    11

    12

    13

    14

    15

    May 13

    Jan 14

    Sep 14

    May 15

    Lenovo (LH

    S)

    Rel to HSI

    (HK$)

    (%)

    Firing on th

    ree

    Three grow

    th engines

    are better

    than one

    We see Len

    ovos grow

    th drivers e

    volving from

    PCs to Ser

    vers, and f

    urther

    ahead, Mob

    ile. We exp

    ect Lenovo

    s PC divis

    ion to drive

    growth in

    FY16

    but for this

    to be repla

    ced by the

    Enterprise

    Server se

    gment, wh

    ich will

    become the

    primary d

    river in FY

    17-18, and

    have low

    expectation

    s of the

    Mobile bus

    iness until

    FY18. We

    revise up fo

    recasts as

    these three

    drivers

    compound

    overall gr

    owth warr

    anting an

    upgrade to

    BUY from

    U-PF and

    an increase

    in target f

    rom HK$11

    .48 to HK$1

    7.75, imply

    ing 35% u

    pside.

    PC consoli

    dation to c

    ontinue bu

    t less marg

    ins upside

    We expect

    that the

    PC market

    will continu

    e to contra

    ct slowly (

    -3% Cagr

    2014-17) a

    nd to cons

    olidate till

    HP and Len

    ovo comma

    nd 25% ma

    rket share

    each. This

    will drive f

    urther mar

    gin expans

    ion but the

    low-hangi

    ng fruit are

    behind us;

    we expec

    t Lenovos

    PC operatin

    g margins

    to plateau

    at 4.8%

    (FY18). As

    market shar

    e gains and

    margin exp

    ansion slow

    down, we f

    orecast

    the PC will d

    rive the bu

    lk of profit g

    rowth in FY

    16 (79%) b

    ut not beyo

    nd.

    LenoIBM E

    nterprise g

    old mine

    We do not e

    xpect a tur

    naround of

    the Enterpr

    ise (IBM x8

    6 Server) d

    ivision in

    FY16 as en

    terprise qua

    lifications a

    re lengthy.

    We believe t

    hat LenoIBM

    can regain

    most lost m

    arket share

    (IBM had

    12% share

    in FY11,

    now 5.4%)

    and that

    margin reco

    very potenti

    al is undere

    stimated by

    the market.

    We forecast

    LenoIBM

    market shar

    e to double

    over the n

    ext 4 year

    s to 10% in

    FY18 and

    operating

    margins to

    reach 8.5

    % (FY18).

    As a result

    , we expec

    t Enterprise

    to be the

    largest cont

    ributor to Le

    novos profit

    growth fro

    m FY17-18

    at 47%.

    LenoMoto

    Mobile no

    t material

    to earning

    s till FY18

    We believe

    Lenovo bou

    ght Motorol

    a as an insu

    rance policy

    against Con

    sumer PC

    decline con

    tinuing. The

    acquisition

    is also ackn

    owledgeme

    nt that mos

    t PC brands

    have failed

    to become s

    martphone

    brands. We

    think that

    LenoMotos s

    trategy will

    remain pro

    fitless in th

    e low ASP m

    ass-market

    until consoli

    dation start

    s, possibly

    from 2017-1

    8. We forec

    ast Mobile p

    rofit from F

    Y17 and 1.3

    % OPM in F

    Y18.

    BUY for str

    ong growth

    outlook

    Lenovo will

    report end o

    f May a we

    ak March-15

    quarter tha

    t we expect

    to be the

    trough of e

    arnings. We

    do not ex

    pect a rap

    id recovery

    in June q

    uarter as

    integration

    costs usuall

    y linger for

    longer than

    expected.

    Besides, the

    re is no

    quick fix for

    the loss-ma

    king Enterpr

    ise and Mob

    ile divisions

    . Beyond a t

    urbulent

    2-3 quarter

    s, we forec

    ast EPS to

    increase by

    30% in FY

    16, 47% in

    FY17 and

    23% in FY1

    8. We base

    our HK$17.

    75 price tar

    get on 14x F

    Y17CL Non-

    GAAP EPS,

    equivalent to

    4.2x price/

    book for a 3

    6% ROE.

    Global automak

    ers

    Sector outlook

    We forecast 8.2

    % passenger-v

    ehicle shipmen

    t growth for 20

    15

    Source: CLSA, C

    AAM

    Find CLSA resear

    ch on Bloomberg

    , Thomson Reut

    ers, Factset and

    CapitalIQ - and

    profit from our e

    [email protected] proprie

    tary database a

    t clsa.com

    For important d

    isclosures pleas

    e refer to page

    95.

    (20)

    (10)

    0

    10

    20

    30

    40

    50

    60

    0

    5,000

    10,000

    15,000

    20,000

    25,000

    30,000

    35,000

    2007 2008 2009

    2010 2011 2012

    2013 2014 15C

    L 16CL17CL 18

    CL

    PV (LHS)

    CV (LHS)

    PV - YoYCV - YoY

    (%)

    (k units)

    Alexious Le

    e

    alexious.lee

    @clsa.com

    +852 2600

    8722

    Geoff Boyd

    +65 6416 7

    853

    Ben Xu, CFA

    +86 21 202

    0 5807

    6 May 20

    15

    Global

    Autos

    China in

    itiations

    Dongfeng Moto

    r 489 HK

    Rec

    BUY

    Market cap

    US$14.4bn

    Price HK$12.9

    4

    Target HK$19.5

    9

    Up/downside

    +51%

    Great W

    all Motor 2333

    HK

    Rec

    U-PF

    Market cap

    US$24.9bn

    Price HK$59.1

    5

    Target HK$59.6

    0

    Up/downside

    +1%

    Guangz

    hou Auto 223

    8 HK

    Rec

    SELL

    Market cap

    US$11.0bn

    Price HK$8.45

    Target HK$7.99

    Up/downside

    -5%

    Global p

    layers

    Ford Motor

    F US

    Rec

    O-PF

    Target US$18.0

    0

    Genera

    l Motors GM

    US

    Rec

    O-PF

    Target US$40.0

    0

    Hyunda

    i Motor 005380

    KS

    Rec

    BUY

    Target 211,000

    won

    Honda M

    otor 7267 JP

    Rec

    BUY

    Target 4,900

    Nissan

    Motor 7201 JP

    Rec

    BUY

    Target 1,600

    Toyota

    Motor 7203 JP

    Rec

    O-PF

    Target 9,200

    www.clsa.c

    om

    New roadmap

    Policy risk is lo

    w, but competit

    ion is high

    We are positive

    on Chinas auto

    sector, forecas

    ting a 7.2% un

    it-shipment

    Cagr over 2015

    -17. While pollu

    tion and conges

    tion are concern

    s, the risk of

    government polic

    y to curb sales is

    low. Chinas eco

    nomy is slowing

    but cars

    are more affor

    dable due to n

    ew payment te

    rms and more

    entry-level

    models. SUVs w

    ill be the main g

    rowth drivers, a

    s this segment i

    s relatively

    immune to mac

    ro uncertainty.

    We reinitiate co

    verage on Dong

    feng with a

    BUY, Great Wal

    l with an Underp

    erform and Guan

    gzhou Auto with

    a SELL.

    SUVs - Protect

    ed drivers help

    Dongfeng

    SUVs should con

    tinue to outperf

    orm in the pass

    enger-vehicle (PV

    ) segment.

    Their larger size

    and better driv

    er vision appeal

    to new drivers,

    as well as

    second-time buye

    rs upgrading from

    sedans. SUV pe

    netration should p

    ass 30% in

    the next five yea

    rs, similar to Ko

    rea in 2003. Do

    ngfeng Motor (DF

    G) is likely to

    be the biggest be

    neficiary due to i

    ts new product c

    ycle in 2H15 and

    2016.

    Domestic brand

    s winning mor

    e share

    We expect dome

    stic brands to co

    ntinue their turn

    around as a new

    subsidy of

    Rmb3,000/unit

    for environment

    ally friendly PV

    s (engines unde

    r 1.6L) helps

    lift market share

    , especially in p

    rice-sensitive re

    gions. Japanese

    brands will

    continue to strug

    gle in FY15/16 a

    nd this could dra

    g on Guangzhou

    Automobile

    (GAC) as 80% o

    f its shipments c

    ome from relate

    d JVs with Japan

    ese brands.

    No light at the

    end of the tun

    nel for GAC

    The Chinese ar

    e buying more

    PVs in the entr

    y-level small-cl

    ass segment

    (1L to 1.6L) as

    incremental dem

    and shifts to po

    orer western pr

    ovinces and

    government sub

    sidies make the

    se models more

    affordable. GAC

    downscale

    strategy (from B

    to A class) is no

    t working out as

    it continues to lo

    se share. If

    the situation per

    sists, we believe

    consensus will c

    ut EPS forecasts

    due to price

    and margin dete

    rioration.

    Top pick speed

    s ahead

    We reinitiate on

    the sector with

    DFG as our top

    pick because w

    e expect its

    pipeline to benef

    it from SUV trend

    s. Great Wall is

    profitable but fa

    ces market-

    share and mar

    gin pressure a

    mid stiff comp

    etition, despite

    its upscale

    strategy. We are

    most negative o

    n GAC due to its

    downscale strat

    egy and see

    risk to consens

    us EPS forecast

    s. We base ou

    r HK$19.59, H

    K$59.6 and

    HK$7.99 target p

    rices for the thre

    e stocks on 9.0x

    , 10.5x and 9.0x

    16CL PE.

    Three-part

    Global automak

    ers

    report package

    Phoenix Healthcare

    HK$12.00 - BUY

    Financials

    Year to 31 December

    13A 14A 15

    CL 16CL 17CL

    Revenue (Rmbm)

    887 1,206 1,43

    1 1,869 2,216

    Net profit (Rmbm)

    90 230 25

    4 372 443

    Adjusted EPS (fen)

    24.1 22.5 3

    0.0 44.3 53.

    1

    Adj EPS growth (% YoY)

    34.7 (6.7) 3

    3.2 47.9 19.

    8

    CL/consensus (7) (EPS%)

    - - 94

    108 104

    PE (x) 39.4

    42.2 31.7 21

    .5 17.9

    PB (x) 3.4

    4.9 4.3 3.

    7 3.2

    Dividend yield (%)

    0.6 0.4 0.

    6 0.9 1.1

    FCF yield (%)

    2.7 3.0 3

    .8 4.9 5.

    7

    ROE (%) 8.6 1

    4.2 14.7 18.

    8 19.2

    Source: CLSA

    Find CLSA research on Blo

    omberg, Thomson Reuter

    s, Factset and CapitalIQ -

    and profit from our [email protected]

    tor proprietary database a

    t clsa.com

    For important disclosures

    please refer to page 38.

    Serena Shao

    [email protected]

    m

    +852 2600 8278

    Sisi Liu +852 2

    600 8212

    30 July 2015

    China Healthca

    re

    Reuters 1

    515.HK

    Bloomberg 1

    515 HK

    Priced on 28 July 2

    015

    HS CEI @ 11,173.0

    12M hi/lo HK$16.

    50/10.72

    12M price target

    HK$16.44

    % potential

    +37%

    Shares in issue

    830.9m

    Free float (est.)

    60.3%

    Market cap US

    $1,291m

    3M av

    erage daily volume

    HK$60.2m (

    US$7.8m)

    Major

    shareholders

    Speed Key 30.0%

    Stock performance

    (%)

    1M 3M

    12M

    Absolute (20.0

    ) (24.2) 3.8

    Relative (6.3

    ) (0.2) 2.9

    Abs (US$) (20.0

    ) (24.3) 3.8

    Source: Bloom

    berg

    www.clsa.com

    0

    50

    100

    150

    200

    250

    300

    789

    1011121314151617

    Nov 13 Jun 14 Jan

    15 Jul 15

    Phoenix Healthcare

    Rel to CEI (RHS)

    (HK$)(%)

    We appreciate your suppo

    rt in the Asiamoney Brok

    ers Poll.

    Please click here to view o

    ur voting matrix for this ye

    ar.

    Sound prognosis

    Leading healthcare refor

    mer amid industry reorg

    anisation

    Phoenix Healthcare (PHG

    ) is Chinas largest private

    -hospital group, with a

    first-mover advantage in

    capitalising on new oppor

    tunities in the sector

    amid government reform

    s which welcome capital

    inflows. It is a pioneer

    of invest-operate-transfe

    r agreements in the ind

    ustry and one of Asia

    Pacifics few listed comp

    anies in the space. We in

    itiate coverage on the

    stock with a BUY and HK$

    16.44 target which implie

    s 37% upside.

    A key reform target

    Chinas healthcare sector is

    undergoing tremendous re

    form, particularly in the

    services segment, which we

    expect to grow at 23% pe

    r annum over 2014-20,

    outperforming mid-teens

    expansion for the overall

    industry. In 2009, the

    central government re

    leased policies that s

    upport private-hospital

    development, welcoming

    investor capital into the

    public sector to enhance

    medical services, thus pro

    viding PHG with further de

    velopment opportunities.

    Policy-backed reforms

    Based in Beijing, PHG is C

    hinas largest private-hosp

    ital group by number of

    beds, with 11 hospitals a

    nd 28 community clinics

    under management. We

    expect the group to bene

    fit from its established ne

    twork by sharing doctors

    and centralising procurem

    ent among its facilities as

    it further expands in the

    Beijing-Tianjin-Hebei area

    . The region has a large

    population and rapidly-

    growing demand for health

    care services.

    Scarcity value

    Asia-Pacific hospital and h

    ealthcare-services groups

    are trading at an average

    premium of 100% to globa

    l peers in developed coun

    tries. This is mainly due

    to the regions limited me

    dical resources relative to

    its ageing population and

    also strong demand. Ther

    e are only a few such liste

    d companies operating in

    Hong Kong and China. We

    expect this trend to conti

    nue for at least the next

    five years, given the lengt

    hy timeframe required to c

    onstruct hospitals.

    BUY for sustainable grow

    th

    We initiate coverage on PH

    G with a BUY rating and H

    K$16.44 target, using an

    average EV/Ebitda of 1

    8.6x 16CL of listed As

    ia-Pacific hospital and

    healthcare-services groups

    , which equates to 28x 1

    6CL PE. The valuation is

    justifiable, given near-term

    profit growth of 34%/48%

    (adjusted) in 15/16CL,

    sustainable long-term expa

    nsion and our DCF analysi

    s of 9.1% WACC and 4%

    perpetual growth rate.

    Haier Electronics HK$22.40 - BUY

    Financials Year to 31 December 13A

    14A 15CL

    16CL 17CL

    Revenue (Rmbm) 62,263 67,134 73,174 80,286 90,404

    Net profit (Rmbm) 2,037

    2,447 2,854

    3,264 3,783

    CL/consensus (9) (NP%) -

    - 100

    97 95

    EPS (Rmb)

    0.72 0.86

    0.99 1.13

    1.31

    EPS growth (% YoY) 20.2

    20.1 14.7

    14.3 15.9

    PE (x)

    24.7 20.6

    17.9 15.7

    13.5

    Dividend yield (%)

    0.4 0.5

    0.6 0.7

    0.8

    FCF yield (%)

    3.2 4.1

    3.3 4.8

    5.2

    PB (x)

    6.5 4.4

    3.4 2.9

    2.3

    ROE (%)

    30.7 25.5

    21.6 19.9

    18.8

    Net cash per share (HK$) 2.9

    4.0 3.9

    4.9 6.4

    Source: CLSA

    Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our [email protected] proprietary database at clsa.com

    For important disclosures please refer to page 50.

    Dawei Feng, CFA [email protected] +852 2600 8172 Xiaopo Wei, CFA

    +852 2600 8639

    19 May 2015 China Consumer Reuters 1169.HK

    Bloomberg 1169 HK

    Priced on 15 May 2015 HS CEI @ 14,009.8

    12M hi/lo HK$25.75/18.00

    12M price target HK$27.80

    % potential +24%

    Shares in issue 2,835.0m

    Free float (est.) 54.4%

    Market cap

    US$8,073m

    3M average daily volume

    HK$182.4m (US$23.5m)

    Major shareholders

    Qingdao Haier 45.6%

    Stock performance (%)

    1M 3M 12M

    Absolute (2.4) 8.7 21.6

    Relative 1.3 (6.9) (13.6)

    Abs (US$) (2.4) 8.9 21.6

    Source: Bloomberg www.clsa.com

    90

    110

    130

    150

    170

    190

    210

    10

    12

    14

    16

    18

    20

    22

    24

    26

    28

    May 13 Jan 14 Sep 14 May 15

    Haier ElectronicsRel to CEI (RHS)

    (HK$)

    (%)

    Home-run hit Logistics and rural expansion back sustainable growth

    Strong brand equity, leading logistics services and an expansive rural

    distribution network are the key drivers for Haiers long-term sustainable

    growth. A clear leader in Chinas bulky-item logistics space, the

    potential recovery in the countrys property market and soft input costs

    could also be near-term catalysts. We forecast a 15% three-year Ebit

    Cagr over 2015-17. Our HK$27.80 SOTP-based target implies the

    company can deliver a 25% return and we initiate coverage with a BUY.

    Logistics powerhouse Haier is the leader in Chinas bulky-item logistics segment with unmatched scale

    and top-notch service. This category differs from parcel delivery as it requires

    special handling and meticulous planning, including warehousing, transport and

    last-mile operations. Replicating Haiers advantages would not be easy and

    these core competencies will support the expansion of its integrated channel

    services (ICS) business and allow it to profit from the e-commerce boom.

    Rural expansion Haier is among the few operators with a deep, yet tightly managed, distribution

    network. This differentiates it from peers such as Midea or Gree, which heavily

    rely on distributors for fulfilment. We see upside to rural consumption, given it

    is about 10 years behind urban levels. Under Haiers partnership with Alibaba,

    we see more innovation and cooperation in its rural expansion.

    Cash cow We expect manufacturing to remain the cash cow supporting long-term

    growth in logistics expansion and rural penetration. We assign tremendous

    value to the Haier brand and favour its relatively stable competitive

    landscape. In addition, Euromonitor data suggest that retail prices for white

    goods in China are still low, even compared with emerging markets like Brazil

    and the Philippines, implying premiumisation upsides.

    Initiate with a BUY In the near term, the potential recovery of Chinas residential property market

    and the soft input costs are positive for earnings. We value the manufacturing

    and ICS units at 12x and 16x EV/Ebit against 11% and 20% Ebit Cagrs during

    2015-17. Our sum-of-the-parts-based (SOTP) target price of HK$27.80

    implies 19x 16CL fully-diluted EPS. Our DCF valuation of HK$31.60 supports

    this target and we initiate coverage with a BUY.

    CGN Power HK$3.20 - UNDERPERFORM

    Financials Year to 31 December 12A 13A 14CL 15CL 16CL

    Revenue (Rmbm) 17,325 17,110 20,125 20,867 28,101

    Net profit (Rmbm) 4,145 4,195 5,504 6,048 7,502

    EPS (Rmb) 0.17 0.15 0.12 0.13 0.17

    CL/consensus (5) (EPS%) - - 100 95 97

    EPS growth (% YoY) (42.7) (7.2) (21.0) 9.9 24.0

    PE (x) 20.9 19.0 15.4

    Dividend yield (%) 1.7 2.1

    FCF yield (%) (6.5) (8.4) (4.7) (11.0) (7.3)

    PB (x) 2.9 2.2 2.2 2.1 1.9

    ROE (%) 24.6 21.3 14.7 11.3 12.9

    Net debt/equity (%) 304.3 229.4 91.9 161.1 162.0

    Source: CLSA Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our [email protected] proprietary database at clsa.com

    Rajesh Panjwani [email protected] +852 2600 8271 Johnny Lau +852 2600 8175

    16 January 2015

    China Power Reuters 1816.HK Bloomberg 1816 HK Priced on 15 January 2015 HS CEI @ 12,190.5

    12M hi/lo HK$3.62/2.78 12M price target HK$3.25 % potential +2%

    Shares in issue 11,163.6m Free float (est.) 22.0% Market cap US$18,756m 3M average daily volume HK$1,160.7m (US$149.7m)

    Foreign s'holding 22.0% Major shareholders CGNPC 64.2% Hengjian Investment 7.5%

    Stock performance (%) 1M 3M 12M Absolute (10.1) 0.0 0.0 Relative (17.3) 0.0 0.0 Abs (US$) (10.1) 0.0 0.0

    Source: Bloomberg

    www.clsa.com

    95

    100

    105

    110

    115

    120

    125

    130

    135

    2.82.93.03.13.23.33.43.53.63.73.8

    9 Dec 14 27 Dec 14 14 Jan 15

    CGN Power (LHS)Rel to CEI

    (HK$)(%)

    Growth at a price Earnings stability and expansion already priced in Nuclear-power operator CGN offers something few companies in China do - earnings stability, a long-term growth theme and an antipollution angle.

    However, the stock seems to have already priced these in. Chinas rapid

    nuclear-capacity expansion amid slowing power demand puts CGNs

    utilisation hours at risk. Earnings could also fall if there are further delays

    in its Taishan project or if tariffs are insufficient. We initiate with an

    Underperform rating and a HK$3.25 target. Earnings stability and growth Fluctuations in uranium prices (c.6% of tariffs) have little impact on CGN

    Powers earnings. It also does not face big swings in utilisation hours like wind

    or hydro. Over 20GW of nuclear capacity that started construction in 2008-10

    will be commissioned in 2014-16. CGNs attributable capacity will rise from

    6.2GW in 2013 to 13GW in 2016, driving an 18% EPS Cagr over 14-17CL. Risk of lower utilisation hours Chinas nuclear capacity is likely to rise by 150% during 2013-17, but its

    power-demand growth is at a multiyear low. Thus, despite priority of

    dispatch, nuclear plants utilisation hours will probably come under pressure.

    New plants in Fujian and Liaoning will have much lower utilisation. We expect

    utilisation of consolidated plants to decline from 89% to 84% over the next

    few years. Each 1ppt decline in CGNs utilisation hours reduces EPS by c.3%. Taishan overhang; slow growth from 2017 Taishans cost/MW is 70% higher than CGNs other projects. We assume a

    Rmb0.5/kWh tariff for Taishan, versus Rmb0.43 for other plants in Guangdong;

    however, there is no guarantee that CGN will get a higher tariff. Given their

    larger size, Taishans EPR reactors may also get lower dispatch. While CGN will

    add 3.3-5.6GW of gross capacity annually in 2014-16, additions fall to 1.1GW

    per annum over 2017-19. Any new construction starts will be commissioned

    only after 2021, implying much slower earnings growth after 2017. Positives priced in CGN is one of the most expensive power utilities in Asia and seems to have

    priced in the earnings stability and growth potential. Lower utilisation hours

    and delays or lower tariffs for Taishan pose a risk to earnings and valuations.

    We initiate with an Underperform rating as our HK$3.25 DCF-based target

    price, using 7% WACC and a 3% terminal growth rate, implies little upside.

    Novem

    ber 2

    01

    5

    Ch

    ina on

    -dem

    and

    - O2

    O d

    igitisin

    g th

    e service ind

    ustry

    China on-demand O2O digitising the service industry Special report

    November 2015

    5 M

    ay 2

    01

    5

    Ch

    ina b

    an

    ks - N

    ot to

    o b

    ig to

    fail

    China banks

    Sector outlook

    - Overweight

    Find CLSA rese

    arch on Bloomb

    erg, Thomson R

    euters, Factset

    and CapitalIQ -

    and profit from

    our [email protected]

    proprietary data

    base at clsa.co

    m

    For important

    disclosures pl

    ease refer to p

    age 84.

    Patricia Ch

    eng

    Head of

    China Financia

    l Res

    patricia.ch

    [email protected]

    +852 260

    0 8683

    Marco Yau

    +852 260

    0 8555

    5 May 20

    15

    China

    Financial se

    rvices

    Top BU

    Ys

    CCB 939.HK

    Price HK$7.55

    Target HK$10.0

    0

    TSR 38%

    ICBC

    1398.HK

    Price HK$6.74

    Target HK$8.70

    TSR 34%

    BOC

    3988.HK

    Price HK$5.33

    Target HK$6.30

    TSR 23%

    Stocks

    to SELL

    Minsheng

    1988.HK

    Price HK$11.3

    8

    Target HK$10.1

    0

    TSR (9%)

    CMB

    3968.HK

    Price HK$23.4

    5

    Target HK$22.3

    0

    TSR (1%)

    Underp

    erform

    ABC 1288.HK

    Price HK$4.38

    Target HK$4.70

    TSR 13%

    Bocom

    3328.HK

    Price HK$7.97

    Target HK$8.30

    TSR 8%

    www.clsa.com

    Not too big to

    fail

    Escalating risk

    s in the bond m

    arket

    CHINAS PLANS FOR REGIONAL INTEGRATION

    SILK BELT SEA ROAD

    AND

    H SHARES AND REGIONAL STOCKS

    ONE BELT ONE ROAD

    OBOR

    Produced by CLSA in cooperation with CITIC Securities

    15

    Sep

    temb

    er 20

    15

    Ch

    ina b

    anks - M

    imic an

    d g

    imm

    ick

    China banks

    Sector outlook -

    Underweight

    Find CLSA resear

    ch on Bloomberg

    , Thomson Reut

    ers, Factset and

    CapitalIQ - and

    profit from our e

    [email protected] proprie

    tary database a

    t clsa.com

    For important d

    isclosures pleas

    e refer to page

    84.

    Patricia Che

    ng

    Head of Ch

    ina Financial Re

    s

    [email protected]

    clsa.com

    +852 2600

    8683

    Marco Yau

    +852 2600

    8555

    Lloyd Xu

    +852 2600

    8401

    15 Septem

    ber 2015

    China

    Financial se

    rvices

    CCB

    939 HK

    Rec BUY

    Market cap U

    S$176.1bn

    Price HK$5.41

    Target HK$6.70

    Up/downside

    +24%

    ICBC

    1398 HK

    Rec BUY

    Market cap U

    S$240.0bn

    Price HK$4.70

    Target HK$5.40

    Up/downside

    +15%

    ABC

    1288 HK

    Rec U-PF

    Market cap U

    S$156.9bn

    Price HK$3.04

    Target HK$3.10

    Up/downside

    +2%

    Bank of

    China 3988 HK

    Rec U-PF

    Market cap U

    S$168.5bn

    Price HK$3.57

    Target HK$3.60

    Up/downside

    +1%

    Bocom

    3328 HK

    Rec SELL

    Market cap

    US$63.6bn

    Price HK$5.54

    Target HK$4.90

    Up/downside

    -12%

    CMB

    3968 HK

    Rec SELL

    Market cap

    US$66.6bn

    Price HK$18.8

    4

    Target HK$14.1

    0

    Up/downside

    -25%

    Minshen

    g 1988 HK

    Rec SELL

    Market cap

    US$46.4bn

    Price HK$7.30

    Target HK$6.00

    Up/downside

    -18%

    www.clsa.c

    om

    Mimic and gimm

    ick

    Muted response

    to internet fin

    ance

    15

    September 2

    01

    5

    Ch

    inese ph

    arma - W

    eighin

    g the gain

    s

    Chinese pharma Sector outlook - Overweight

    Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our [email protected] proprietary database at clsa.com

    For important disclosures please refer to page 120.

    Serena Shao

    [email protected]

    +852 2600 8278 Sisi Liu +852 2600 8212

    15 September 2015

    China Healthcare

    Top picks

    Fosun Pharma 2196 HK

    Rec

    BUY

    Market cap US$8,351m

    Price

    HK$23.25

    Target HK$28.40

    Up/downside +22%

    Luye Pharma

    2186 HK

    Rec

    BUY

    Market cap US$3,103m

    Price

    HK$7.24

    Target HK$9.32

    Up/downside +29%

    Others

    CSPC

    1093 HK

    Rec

    BUY

    Market cap US$5,070m

    Price

    HK$6.65

    Target

    HK$8.22

    Up/downside +24%

    Sino Biopharm 1177 HK

    Rec

    O-PF

    Market cap US$5,988m

    Price

    HK$9.39

    Target HK$11.04

    Up/downside +18%

    www.clsa.com

    Weighing the gains

    R&D spending and experience pay

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    2014 CLSA Limited (for res

    earch compiled by non-Taiwan analyst(s)) and/or Credit

    Agricole Securities Taiwan Co., Ltd (for research

    compiled by Taiwan analyst(s)).

    Key to CLSA/CAST investment rankings: BUY: Total stock

    return (including dividends) expected to exceed 20%; O-PF

    : Total expected return

    below 20% but exceeding market return; U-PF: Total expected

    return positive but below market return; SELL: Total expected

    return to be negative.

    For relative performance, we benchmark the 12-month total f

    orecast return (including dividends) for the stock against the

    12-month forecast return

    (including dividends) for the market on which the stock trade

    s. We define as Double Baggers stocks we expect to yield

    100% or more (including

    dividends) within three years.

    03/09/2014

    CLSA is certified ISO14001:2004

    CLEANGREEN&

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    At CLSA we supportsustainable development.

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    -DG3

    Octo

    ber 2

    01

    4

    Ch

    ino

    rmo

    us: E

    -com

    merce

    - New

    them

    es a

    nd

    develo

    pm

    en

    ts

    Chinormous E-commerce - New th

    emes and developments

    Special report

    October 2014

    Meet the Boss Sector outlook

    Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our [email protected] proprietary database at clsa.com

    For important disclosures please refer to page 3.

    Nicole [email protected]+852 2600 8207

    10 December 2015ChinaProperty

    www.clsa.com

    China State Construction

    Rethinking housing market destocking

    China State Construction Chairman Zhou Yong was the second speaker at

    our Meet the Boss luncheon 2015. From the eyes of a property analyst,

    the most interesting takeaway from the event was that Mr. Zhou was the

    second speaker to question the markets current understanding of the

    rate of housing market destocking. But it is not all gloom and doom for

    the China economy, as FAI may be supported by urban infra projects

    which are accelerating.Rethink on destocking

    q One key area of interest during the lunch was whether the China housing market

    destocking can happen quickly through government buyout for social housing

    purposes, or by handing cash to residents that need to be resettled due to urban

    redevelopment. q Mr. Zhou cautioned that this thought may be over-simplifying the issue, as excess

    housing stock does not always exist in cities with population/economic growth with

    redevelopment needs, or local government with a strong balance sheet.

    q And even when a local government does have the balance sheet for redevelopment

    and need for housing for resettlement, the private housing stock may not fit if they

    are built too big (which we note is quite common) or to an overly luxurious

    standard, and this will cause fairness issues.

    q To dole out cash directly to families who need resettlement is difficult too as the

    negotiation of a fair price may lengthen the process.

    Non-housing FAI to pick up

    q But while the real estate FAI may not reaccelerate soon, it is not all gloom and

    doom.q The Central government, through reallocation of local government debt, and

    funding platforms, such as the public private partnership scheme, is aiming to

    accelerate a category of FAI that can be described as urban infrastructure

    investment, which include: 1) city redevelopment, 2) underground railway

    construction, 3) other mid-sized public facility projects such as hospitals, schools,

    water treatment plants and electricity plants.

    q This would probably cushion the social housing portion of the real estate FAI, which

    may not grow at the breakneck rate of 2009-12, but should remain steady, as

    much of the social housing is built for resettlement purposes.

    q Indeed the company is now getting two visits per week from local governments

    who are interested to commence a new project, up from less than one visit per

    week earlier this year.Funding the currency mismatch

    q The company currently has about 60% of its debt in foreign currency.

    q RMB depreciation risk is a reason to further adjust the ratio.

    q The good news is, funding via the domestic bond market is getting significantly

    easier and significantly cheaper.

    q And it is now possible to channel domestically raised funding to repay offshore

    debt. In fact some RMB1.4bn of offshore debt was repaid this way.

    Hong Kong construction Severe labour shortage

    q The company expects steady growth in Hong Kong and Macau construction in the

    next 5 years due to infrastructure project commencement. This will keep Hong

    Kong construction labour cost high as importing labour is difficult for HK.

    q A professional cement stirrer is earning HK$80-120k per month for example. But is

    still difficult to hire.q From the eye of a property analyst this means continuing cost pressure for HK

    developers.

    Blue Books Experts views for expert investors

    Find CLSA U products and event listings on www.clsau.com or email [email protected] CLSA U - Experts views for expert investors

    Global Power

    18 March 2015

    Charles Yonts Head of Sustainable Research

    [email protected]

    +852 2600 8539 Guest author Chet Lyons Founder and Principal, Energy Strategies Group

    www.clsau.com

    Battery ram Storage set to shake things up

    Watch Charles on CLSA TV

    China property

    Sector outlook

    Find CLSA research

    on Bloomberg, Tho

    mson Reuters, Cap

    IQ and themarkets

    .com - and profit fr

    om our [email protected]

    proprietary databa

    se at clsa.com

    Nicole Wong

    Head of Property

    Research

    [email protected]

    com

    +852 2600 8207

    Jackson Hui

    +852 2600 8723

    Susanna Leung

    +852 2600 8597

    5 May 2014

    China

    Property

    Coli

    688 HK

    Rec BUY

    Market cap US$

    20.16bn

    Price HK$18.66

    Target HK$25.50

    Up/downside

    +37%

    CR Land

    1109 HK

    Rec BUY

    Market cap US$

    11.93bn

    Price HK$15.56

    Target HK$23.00

    Up/downside

    +48%

    Longfor

    960 HK

    Rec BUY

    Market cap US

    $7.31bn

    Price HK$10.22

    Target HK$13.10

    Up/downside

    +28%

    Shimao

    813 HK

    Rec BUY

    Market cap US

    $7.17bn

    Price HK$15.42

    Target HK$20.20

    Up/downside

    +31%

    Vanke

    200002 CH

    Rec BUY

    Market cap US$

    14.47bn

    Price HK$12.62

    Target HK$17.40

    Up/downside

    +38%

    www.clsa.co

    m

    Lively ghost cities

    Busting the vaca

    ncy myth

    Includes our in-d

    epth

    study on housing

    vacancy rates

    China cleantech

    Sector outlook

    Find CLSA research

    on Bloomberg, Tho

    mson Reuters, Fact

    set and CapitalIQ -

    and profit from ou

    r [email protected] propr

    ietary database at

    clsa.com

    For important dis

    closures please r

    efer to page 104.

    Charles Yont

    s

    Head of Su

    stainable Re

    search

    [email protected]

    a.com

    +852 2600 8

    539

    Johnny Lau

    +852 2600 8

    175

    16 Septemb

    er 2015

    China

    Power

    Winners

    Solar ma

    nufacturers

    Xinyi Solar

    968.HK

    Battery m

    akers

    LG Chem 0

    51910.KS

    Samsung SDI 0

    06400.KS

    Renewab

    le operators

    Longyuan

    916.HK

    Huadian Fuxin

    816.HK

    Huaneng Ren

    958.HK

    Losers

    Power-eq

    uipment names

    Shanghai Ele

    ctric 2727.HK

    Dongfang Elec

    tric 1072.HK

    IPPs

    Huaneng

    902.HK

    Huadian

    1073.HK

    Datang 991.HK

    www.clsa.co

    m

    Andrew Driscoll

    Charles Yonts

    Nicole Wong

    Francis Cheung

    Patricia Cheng

    Alexious Lee

    Nicolas Baratte

    Rajesh Panjwani

    Elinor Leung

    Nelson Wang

    Aaron Fischer

    Serena Shao

    Dawei Feng

    BHP Billiton A$31.11 - BUY

    Financials Year to 30 June

    13A 14A 15CL 16CL 17CL

    Revenue (US$m) 65,848 67,206 56,175 60,373 63,481

    Net profit (US$m) 12,655 13,446 7,720 8,878 9,678

    EPS (US) 229.6 244.0 140.1 161.1 175.6

    CL/consensus (20) (EPS%) - - 88 105 92

    EPS growth (% YoY) (32.6) 6.3 (42.6) 15.0 9.0

    PE (x) 13.9 11.5 17.2 14.7 13.3

    Dividend yield (%) 3.6 4.3 5.1 5.3 5.3

    FCF yield (%) (2.0) 4.9 2.3 4.6 5.0

    PB (x)

    2.4 1.8 1.5 1.4 1.4

    Net debt/equity (%) 41.2 30.3 33.2 33.1 32.2

    EV/Ebitda (x) 7.1 5.5 6.5 6.2 5.7

    Source: CLSA Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our [email protected] proprietary database at clsa.com

    For important disclosures please refer to page 50.

    Andrew Driscoll, CFA Head of Resources Research [email protected] +852 2600 8528 Dylan Kelly +61 2 8571 4263 Dave Thompson +61 2 8571 4267

    27 March 2015 Australia Materials

    Reuters BHP.AX Bloomberg BHP AU Priced on 25 March 2015 ASX200 @ 5,973.3 12M hi/lo A$39.68/26.90 12M price target A$36.00 % potential +16%

    Shares in issue 5,564.4m Free float (est.) 100.0%

    Market cap US$128,658m

    3M average daily volume A$278.8m (US$220.1m) Major shareholders BlackRock 7.1%

    Stock performance (%) 1M 3M 12M Absolute (7.1) 7.4 (13.4) Relative (7.6) (3.0) (22.6) Abs (US$) (6.6) 4.3 (25.3)

    Source: Bloomberg

    www.clsa.com

    75

    80

    85

    90

    95

    100

    105

    110

    115

    25

    27

    29

    31

    33

    35

    37

    39

    41

    Mar 13 Nov 13 Jul 14 Mar 15

    BHP Billiton (LHS)Rel to ASX200

    (A$)(%)

    Souths silver lining Opportunities and threats for Cannington In the second of our series of reports on South32s assets, we review BHPs Cannington mine, which generated 14% of 1HFY15 underlying

    Ebitda. We see opportunities for cost out, particularly labour costs, and

    potential for mine-life extension on underground ore additions, an open-

    cut opportunity and tailings processing. The key challenge is combating

    the declining grade profile, which could see production fall by one-third.

    We expect the South32 demerger to create value and rate BHP a BUY. Earnings contributor The Cannington mine is one of 10 assets that BHP will spin off to form

    South32. It is one of three first-quartile industry cost mining assets, and

    contributed 14% and 19% to South32 assets underlying Ebitda and Ebit in

    1HFY15. This was behind only the GEMCO and Hillside operations. Cannington

    represents about 9% of our preliminary NPV for South32 of US$15.5bn.

    High-grade silver-lead mine We commissioned industry expert Louis Louwrens to review the Cannington

    operations. The asset is located in Queensland, Australia and comprises an

    underground mining and processing facility, as well as rail-loading and port

    infrastructure. It is one of the worlds largest and lowest-cost silver-lead mines,

    which produced about 187kt of lead, 58kt of zinc and 25Moz of silver in FY14.

    Opportunities and threats The key opportunity appears to be higher labour productivity and costs savings,

    as labour has doubled in the past 14 years and we estimate now represents 24%

    of total costs. There is potential for more staff cuts than tabled in the

    Independent Competent Persons Report. We believe the open-cut development

    will be reviewed again and see potential for reclaiming tailings (waste material)

    to add mine life. The key challenge is the declining grade profile, which will weigh

    on costs and could result in production falling by a third over the next six years.

    Demerger to unlock value The demerger is progressing, with the shareholder vote on 6 May, ahead of

    South32s listing in early June. This should create value by simplifying BHPs

    portfolio to enable greater productivity benefits, and by providing a more

    appropriate capital structure and operating model for South32s assets. BHPs

    valuations are attractive at 0.8x P/NPV and 6.2x 16CL EV/Ebitda, while the 5%

    dividend yield provides support. We rate BHP a High-Conviction BUY.

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    2015 CL

    SA Limited and/or

    Credit Agricole Secu

    rities Taiwan Co., Lt

    d.

    Key to CLSA/CLSA

    Americas/CA Taiwa

    n investment rankin

    gs: BUY: Total stock

    return (including div

    idends) expected to e

    xceed 20%; O-PF:

    Total expected return

    below 20% but excee

    ding market return; U

    -PF: Total expected r

    eturn positive but bel

    ow market return; SE

    LL: Total expected

    return to be negative

    . For relative perform

    ance, we benchmark

    the 12-month total fo

    recast return (includin

    g dividends) for the s

    tock against the 12-

    month forecast return

    (including dividends

    ) for the market on w

    hich the stock trades

    . For example, in the

    case of US stock, the

    recommendation is

    relative to the expe

    cted return for S&P

    of 10%. Exception

    s may be made de

    pending upon preva

    iling market conditio

    ns. We define as

    Double

    Baggers stocks we e

    xpect to yield 100%

    or more (including d

    ividends) within three

    years. "High Convic

    tion" Ideas are not n

    ecessarily stocks with

    the most upside/down

    side but those where

    the Research Head/S

    trategist believes the

    re is the highest like

    lihood of positive/neg

    ative returns. The lis

    t

    for each market is mo

    nitored weekly.

    16/04/2015

    CLSA is certified ISO1

    4001:2004

    CLEAN GREEN&TM

    At CLSA wesupport

    sustainabledevelopmen

    t.

    We print onpaper sourc

    ed from

    environmentally conser

    vative

    factories that only use fi

    bres

    from plantation forests.

    Please recycle.

    -DG3

    15

    Jun

    e 20

    15

    Blu

    e Books - G

    uin

    ea gold

    Blue Books

    Experts views for e

    xpert investors

    Find CLSA U produ

    cts and event listing

    s on www.clsau.com

    or email [email protected]

    a.com. CLSA U

    - Experts views fo

    r expert investors

    For important disclo

    sures please refer to

    page 92.

    Global

    Materials

    15 June 2015

    Andrew Driscoll, CF

    A

    Head of Resources

    Research

    [email protected]

    com

    +852 2600 8528

    Guest author

    Michael Komesarof

    f

    Principal,

    Urandaline Investm

    ents

    www.clsau.com

    Guinea gold

    Awaiting the next m

    ining boom

    Social pressures

    Chinese tourists k

    eep exploring

    Special report

    January 2015

    Special report January 2016 FIRE

    Sinopec

    HK$4.48 -

    BUY

    Financials

    Year to 31

    December

    13A 14A

    15CL

    16CL

    17CL

    Revenue (R

    mbm)

    2,880,311

    2,825,914

    2,079,073

    2,160,354

    2,293,726

    Net profit (

    Rmbm)

    66,132

    46,466

    42,838

    54,705

    68,646

    EPS (fen)

    54.6 38.4

    35.4 45.2

    56.7

    CL/consens

    us (28) (EP

    S%)

    - -

    101 103

    109

    EPS growth

    (% YoY)

    3.5 (29.7

    ) (7.8)

    27.7

    25.5

    PE (x)

    6.5 9.3

    10.5 8.2

    6.5

    Dividend yie

    ld (%)

    6.8 5.6

    4.9 4.9

    6.1

    FCF yield (

    %)

    (7.7)

    (1.5)

    1.6 7.6

    12.8

    PB (x)

    0.8 0.7

    0.6 0.6

    0.6

    ROE (%)

    12.2 8.0

    6.6 7.6

    9.1

    Net debt/e

    quity (%)

    47.4 49.5

    29.4 26.4

    21.4

    Source: CL

    SA

    Find CLSA r

    esearch on

    Bloomberg,

    Thomson R

    euters, Fac

    tset and Ca

    pitalIQ - an

    d profit fro

    m our eva

    [email protected] prop

    rietary dat

    abase at cls

    a.com

    For importa

    nt disclosu

    res please

    refer to pa

    ge 69.

    Nelson

    Wang

    nelso

    [email protected]

    a.com

    +852

    2600 8589

    Irina B

    evza

    +852

    2600 8462

    2 Oct

    ober 2015

    China

    Petro/

    Chems

    Reute

    rs 0386.

    HK

    Bloom

    berg 386 H

    K

    ADR

    SNP.N

    Price

    d on 29 Se

    ptember 2

    015

    HS CE

    I @ 9,230.

    5

    12M

    hi/lo HK$

    7.63/4.46

    12M

    price targ

    et HK$6.0

    0

    % p

    otential

    +34%

    Share

    s in issue

    121,071.2m

    Free

    float (est.)

    26.0%

    Mark

    et cap

    US$88,371

    m

    3M a

    verage dai

    ly volume

    HK$5

    96.9m

    (US$77.0m

    )

    Forei

    gn s'holdi

    ng 15.0%

    Majo

    r sharehol

    ders

    Sinop

    ec Group 7

    4.0%

    Stock

    performa

    nce (%)

    1M 3M

    12M

    Absol

    ute (13.5

    ) (31.4)

    (34.7)

    Relati

    ve (8.6)

    (5.6) (26.1

    )

    Abs (

    US$) (13.5

    ) (31.4)

    (34.6)

    Source: Blo

    omberg

    www

    .clsa.com

    75

    85

    95

    105

    115

    125

    135

    4.04.5

    5.05.5

    6.06.5

    7.07.5

    8.08.5

    Oct 13

    Jun 14

    Jan 15

    Sep 15Sinop

    ec (LHS)

    Rel to CEI

    (HK$)

    (%)

    Beyond pe

    troleum

    Non-fuel b

    usiness to

    drive grow

    th

    Sinopecs n

    on-fuel bu

    siness is s

    et for 25-f

    old sales gr

    owth over

    the next

    decade. Th

    e flagship

    Easy Joy c

    onvenience

    stores are

    transition

    ing from

    kiosk-like

    stores to

    being inte

    grated on

    e-stop ser

    vice provi

    ders. The

    online-to-

    offline bus

    iness, in p

    artnership

    with e-co

    mmerce h

    eavyweight

    s,

    will provid

    e much-ne

    eded traffi

    c for the c

    ompany to

    monetise

    its 30,000

    fuel station

    s nationwi

    de, the big

    gest retail

    network in

    China. Th

    e IPO of

    Sinopecs m

    arketing ar

    m next year

    should be

    attractively

    priced. BU

    Y.

    Sweet spo

    t from low

    oil prices

    Being a do

    wnstream

    player, Sin

    opec is mu

    ch better p

    ositioned t

    han domes

    tic

    rivals Petro

    China and

    CNOOC am

    id a low-oi

    l-price env

    ironment, w

    hich looks

    to be the

    new norm

    for the in

    dustry. Ro

    bust and s

    ustainable

    downstream

    earnings co

    uld offset

    upstream

    weakness.

    With our

    Brent assu

    mption fall

    ing

    in the rang

    e of US$5

    4-65/bbl in

    this and t

    he next tw

    o years, th

    e company

    has a swee

    t spot to m

    aximise pro

    fits.

    Non-fuel b

    usiness se

    t for rapid

    growth

    With multip

    le strategic

    investors o

    n board, w

    e expect th

    e company

    s non-fuel

    revenue to

    enjoy a 33

    % Cagr an

    d gross pro

    fit a 30% C

    agr over 2

    015-25. Th

    e

    non-fuel b

    usiness is

    moving tow

    ards being

    an integr

    ated one-s

    top service

    provider wi

    th auto an

    d catering

    services, d

    iversified f

    inancial se

    rvices, the

    internet of

    vehicles se

    rvices, etc.

    All this sh

    ould under

    pin fast gro

    wth in the

    next decad

    e with marg

    in expansio

    n due to hi

    gh operatin

    g leverage.

    From onlin

    e to 30,000

    + offline o

    utlets

    With over

    30,000 fue

    l stations

    in China a

    s potential

    offline ou

    tlets, the

    company i

    s seeking

    to ramp up

    the online-

    to-offline b

    usiness in

    partnership

    with leadin

    g e-comme

    rce players

    such as A

    libaba, Tenc

    ent and Yih

    aodian. We

    are positiv

    e on this m

    ove as it w

    ill add tra

    ffic to the

    Easy Joy s

    tores and

    significantl

    y improve t

    he fuel to

    non-fuel cu

    stomer conv

    ersion ratio

    .

    Marketing

    IPO to un

    lock value

    We expect

    Sinopecs

    marketing

    business IP

    O to take

    place mid-

    2016. It wa

    s

    slightly de

    layed due

    to the c

    hange in

    chairman. T

    he public

    listing is

    irreversible

    as it is pa

    rt of the b

    roader stat

    e-owned-en

    terprise re

    form that

    Beijing init

    iated. We

    expect the

    deal to g

    o ahead at

    18x PE, v

    aluing the

    business a

    t US$86bn

    . The IPO

    will unloc

    k significa

    nt value f

    or Sinopec

    shareholde

    rs. We rem

    ain BUYers

    . We have

    adjusted o

    ur target

    price from

    HK$7.0 to

    HK$6.0, im

    plying upsid

    e of 34%.

    Part of ou

    r China

    Oil & Gas

    package

    Rajani Khetan

    China TransportSector outlook

    PMI of new export orders vs Chinese exports

    Source: WIND, CLSA Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our [email protected] proprietary database at clsa.com

    For important disclosures please refer to page 7.

    30

    35

    40

    45

    50

    55

    60

    65

    70

    (40)

    (30)

    (20)

    (10)

    0

    10

    20

    30

    40

    07 08 09 10 11 12 13 14 15

    (index)

    (%)Export YoY (LHS) PMI - new export orders

    Daniel [email protected]+852 2600 8355

    Rajani Khetan+852 2600 8137

    9 December 2015

    ChinaTransport

    www.clsa.com

    Ports: Sliding into 2016Expect throughput to fall. Downgrade China Merchants to SELLWe lower our expectation for Chinese container throughput in 2016 from 2% growth to a 1% decline. The PMI for export orders has been fallingand is below 50; container throughput in the Pearl River Delta fell at a sharp 5% YoY in the past two months and we expect PRD to lead in the volume decline, as it did in late 2008. We downgrade China Merchants to SELL from O-PF, as we expect consensus downgrades and a de-rating; our target price on the stock has fallen to HK$22.00 from HK$30.00.We expect container throughput to fall in 2016q The PMI index for new export orders has been falling in the past 14 months and has remained below 50, which should lead to a continuous weakening in exports and,hence, soft container throughput at Chinese ports. q We lower our forecast for Chinese container throughput in 2016 from 2% growth to a 1% decline, on weak demand from Europe and Asia. q We also lower our expectation of container handling ASP from low-single-digit growth to a low-single-digit decline. Pearl River Delta again leading in volume declineq Throughput at ports in Pearl River Delta (PRD) fell at a sharp ~5% YoY in the past

    two months and we expect it to lead the volume decline, as it did in late 2008.q Processing trades, which change faster than normal trades, account for a larger

    proportion of exports from the PRD. q Throughput at other regions lagged the PRD by about four months in 2008. Downgrade China Merchants to SELLq We downgrade our recommendation on China Merchants from O-PF to SELL.q We expect its share price to be under pressure, with earnings downgrades and a

    likely de-rating. q We factor in lower volume and container handling ASP assumptions for 2016-17 which leads to an 11% decrease in our earnings forecast for both years.

    q Our SOTP-based target falls from HK$30.00 to HK$22.00, implying a 12.6x 16CL PE, which is equal to its five-year average.

    Qingdao Port stands out among single-port operatorsq Among the single-port operators (all not rated by us), Qingdao Port and Xiamen

    Port look better positioned given their larger exposures to logistics services, as the

    companies are taking market share from traditional logistics companies. q On consensus valuations, Qingdao Port is also the cheapest, at a 7.3x 2015 PE.

    14

    Janu

    ary 20

    16

    Ch

    ina/H

    K A

    irlines - N

    ot a good

    hig

    h

    China/HK Airlines Sector outlook - Underweight

    Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our [email protected] proprietary database at clsa.com

    For important disclosures please refer to page 75.

    Rajani Khetan [email protected] +852 2600 8137

    14 January 2016 Hong Kong Transport Air China

    753 HK Rec SELL Market cap US$12,840m Price

    HK$5.08 Target HK$4.90 TSR

    -2% China Eastern 670 HK Rec

    SELL Market cap US$11,863m Price HK$3.77 Target HK$3.30 TSR

    -10% China Southern 1055 HK Rec

    SELL Market cap US$10,333m Price HK$4.87 Target HK$4.00 TSR

    -16% Cathay Pacific 293 HK Rec

    U-PF Market cap US$6,546m Price HK$12.76 Target HK$12.90 TSR +6%

    www.clsa.com

    Not a good high Currency drags on oil gains

    Feb M

    ar Ap

    r Ma

    y Ju

    n J

    ul

    Aug

    Sep

    O

    ct

    Nov

    D

    ec

    Jan

    Feb Mar Apr May Jun Jul Aug Sep Oct

    Nov

    Dec

    Jan

    Feb Mar Apr M

    ay Jun Jul Aug Sep O

    ct Nov Dec Jan

    Feb Mar Apr May Jun Jul A

    ug Sep Oct N

    ov Dec Jan

    Feb Mar Apr May Jun Jul Aug Sep Oct N

    ov De

    c Ja

    n

    6 7

    From 2013 through 2015, the elements stayed in relatively similar positions. Not so this year, metal and water - which have not been so strong for the past few years - make inroads. They completely dominate the beginning of the year, and both finish strongly. Earth is still quite decent and has a strong late period. While it is the Fire-Monkey year, that element flares through the middle of the year but otherwise is not as strong as it was. Wood runs to around the same level as water, but the fire is scorching some of it.

    Elementary analysisSector selection based on five phases

    SECTOR HIGHLIGHTS

    Generating cycle

    Overcoming cycle

    Great: Bananas

    Good: Coconuts

    Not so bad: Peanuts

    Avoid: Toadstool

  • 8 9

    Its your year, so time to don your red socks and smalls. But youve got the Tai Sui and some other nasties crowding in. Youll want to watch out for squabbles in the branches about you at work and the patterns on the ground - if the contract says five bananas for free, check the fine print. At

    some point youll be back brooding in a cave, but a weekly audit of your candles and rations will see you through.

    Health February and August would be a good time not to monkey around with your cell phone while driving. Lots of liquid will keep the gremlins and Tai Sui at bay: brush your teeth, shower once a month and juice those bananas. The Jianfeng star is also threatening, so those who work in timber mills may want to avoid the bandsaw.

    Wealth You know those nuts you put away for a rainy day? Dont make any big jungle calls or you might find yourself huddled in a cave nibbling

    your final stash - peanuts in, peanuts out is your motto for the year. If

    youre t


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