Hang Seng Index Performance

Source: Bloomberg

Major Market Indicators

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

Hang Seng Index 25,416.00 1.7% -6.3% -17.3% -10.9%

HSCEI (H-Shares) 10,279.32 1.4% -4.4% -15.7% -11.4%

Mkt T/O ($ Mn) 118,887.13 11.8% 40.9% 27.0% 7.9%

Oversea

DJIA 25,380.74 1.1% -5.2% 6.1% 7.9%

NASDAQ 7,434.06 1.8% -7.1% 4.7% 10.7%

Shanghai SE Composite 2,606.24 0.1% -7.6% -15.4% -23.0%

Shenzhen Component 7,567.80 1.1% -9.9% -26.8% -33.0%

Commodities and FX

Crude Oil Futures (US$) 63.60 -0.1% -15.5% -6.4% 16.6%

Gold Futures (US$) 1,234.70 -0.3% 2.3% -5.4% -3.4%

Baltic Dry Index 1,490.00 -1.5% -5.1% 10.7% 0.5%

USD / Euro 1.14 -0.1% -1.3% -4.7% -2.2%

Yen / USD 112.83 -0.1% 0.8% -2.6% 1.1%

CNH / USD 6.921 -0.1% -0.5% -8.0% -4.4%

% Change

Market Overview

Hang Seng Index closed up 1.7% at 25,416. HSCEI advanced 1.4%. Heavily weighted Tencent (700), AIA Group (1299) and HSBC (5) surged 4.0%, 3.3% and 1.0% respectively. Gaming, technology, railway, securities, cement and PRC property stocks outperformed the market. Sunny Optical (2382) and AAC Technologies (2018) jumped 7.4%-7.9%. Ten largest Chinese property developers grew an average 6.9% among which Country Garden (2007), Sunac China (1918) and Shimao Property (813) rose 8.2%-8.9%. Five securities stocks in HSCEI grew an average 5.2% among which Haitong Securities (6837) added 7.2%. China Railway Group (390) and CCCC (1800) increased 5.9% and 3.5% respectively. Anhui Conch (914) went up 5.7%. Sands China (1928) and Galaxy Entertainment (27) climbed 2.9%-3.2%.

Telecom, HK banking and property stocks ended higher but underperformed the market. Nine local property stocks in Hang Seng Index grew an average 1.2% among which CK Asset (1113) soared 2.7%. Hang Seng Bank (11) and BOC Hong Kong (2388) climbed 0.9%-1.7%. Consumption, insurance, PRC banking, automobile, oil, power and pharmaceutical stocks lacked clear direction. Mengniu Dairy (2319) surged 3.0% while WH Group (288) shrank 3.8%. China Merchants Bank (3968) and Zhongan Online (6060) rose 2.5%-3.6%. PICC P&C (2328), Bank of Communications (3328) and ABC (1288) cut 0.3%-0.8%. Geely Automobile (175) climbed 2.4% while BYD Company (1211) retreated 3.1%. Sino Biopharm (1177) advanced 5.0% while Sinopharm (1099) dropped 2.6%. We expect Hang Seng Index to maintain a technical rebound in near term.

2 November 2018

We expect Hang Seng Index to maintain a technical rebound in near term

Market in Focus Name

Bloomberg Ticker

7.6

1.68 - 2.96

85.9%

15.5

956 HK Equity

China Suntien Green Energy MKT Cap ($Bn)

52-week High/Low ($)

BUY

$2.62

Rating

3M Avg Turnover ($, Mn)Target Price

Free Float (%)

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

Since our BUY commentary dated Aug 28, China Suntian Green Energy (956, $2.04,” Suntien”) has dropped 6.0% compared with a loss of 10.1% for Hang Seng Index over the same period.

Suntien announced its 3Q18 financial results last Friday after market close. Net profit for the first nine months of 2018 reached RMB939.4mn vs RMB593.1mn compared with the same period last year, representing an increase of 58.4% yoy and the results was better than our and market expectations. The net profit came in at RMB117.2mn in 3Q18 vs net loss of RMB8.2mn in 3Q17. Net profit for the first nine months has already accounted for 75.8% of Bloomberg consensus estimate this year vs 63.3% of net profit last year. Normally, net profit in the fourth quarter made up 30%-40% of full year net profit and then we expect an upward revision on Suntien’s earnings consensus in 2018 and 2019 after the 3Q18 results.

As a recap, total power generation for the first nine months of 2018 grew 18.85% yoy to approximately 5,483,011MWh of which 4,539,631MWh was contributed by wind power and 73,859 MWh by solar power, representing an increase of 18.5% and 38.6% yoy respectively. Sales volume of the gas segment amounted to approximately 17.12bn cubic meters, up 45.9% yoy. We expect Suntien’s net profit growth to sustain in 2018 to 2019 given its plenty of approved projects on hand to be developed and improving wind turbine utilization due to favorable policy.

According to Bloomberg estimates, Suntien’s net profit is expected to reach RMB1,240mn (EPS RMB0.334) and RMB1,429mn (EPS RMB0.384) in 2018 and 2019, up approximately 32.0% and 15.3% respectively. Net asset value is expected to reach RMB9.44bn (BPS RMB2.65) and RMB10.39bn (BPS RMB2.92). Traded at 2019 P/E of 4.71x and 2019 P/B of 0.62x with a ROE of 14.0%, valuation of Suntien is still undervalued in our view. We therefore reiterate our BUY rating on Suntien and maintain our P/B-based 12-month target price of $2.62 based on 2019 P/B of 0.8x.

Fig1: 1 Year Share Price

Source: Bloomberg, Mason Securities

Technical Ideas

Stock Code

BUY $9.16 2007

$10.08 $15.81 Country Garden (2007, $9.16) TP: $10.08 BUY

$8.70 TP: $10.08

CL: $8.7198.5 35.4%

1,095 577

243% 190%

5.1X 1.43X

45%

SMA10 8.22 RSI (14) 40.9

SMA20 8.51 BB (Upper) 9.65

SMA100 11.67 BB (Lower) 7.38

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Country Garden Holdings Co Ltd

2007 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

Country Garden

Stock Code x

BUY $7.41 390

$8.15 $8.23 China Railway Group (390, $7.41) TP: $8.15 BUY

$7.04 TP: $8.15

CL: $7.04187.0 92.1%

358 171

246% 210%

8.1X 0.92X

32%

SMA10 6.98 RSI (14) 45.3

SMA20 7.31 BB (Upper) 8.11

SMA100 6.69 BB (Lower) 6.51

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

China Railway Group Ltd

390 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

China Railway Group

Source: Bloomberg, Mason Securities

Recent Recommendations

Date of Issue Stock Pick Recommendation Highlights Rating (TP)

22/10/2018 China Oilfield Services

(2883)

Recent share price weakness offers a buying opportunity – Maintain Buy on China Oilfield Services (2883) for short term trading purpose

• We expect the international crude oil spot price to maintain at a relatively high level which incentivize the oil explorer to increase their capex

• Current valuation of COSL is attractive because the P/B ratio historically ranged between 1x and 2x during the CNOOC’s capex upcycle

BUY ($9.20)

23/10/2018 CEG

(839)

Major beneficiary from proposed personal income tax reduction – Upgrade China Education Group (839) to BUY

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

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

BUY ($12.1)

24/10/2018 CRG

(1193)

CRG (1193): Focus on long-term trend, Good entry point for long-term investors, Maintain BUY

• We maintain our long-term positive views on China gas market and expect the gas consumption in China to nearly triple by 2030

• Recent share price weakness offers a buying opportunity for long term investor

BUY ($38.4)

25/10/2018 Luk Fook

(590)

BUY Luk Fook (590) ahead of strong interim results

• We believe the outperformance was mainly driven by satisfactory same store sales growth for 2Q FY19 and anticipation of strong interim earnings to be released in late November

• We anticipate a strong interim earnings to be released in late November

BUY ($30.5)

26/10/2018 HHS

(1347)

Long term growth prospects remain promising – Maintain BUY Hua Hong Semiconductor (1347)

• The underperformance is mainly driven by a slowdown in the global semiconductor industry.

• However, we maintain our bullish view on HHS because the company relies on the fast-growing domestic market which is highly promoted by the PRC government

BUY ($16.0)

29/10/2018 Kunlun Energy’s

(135)

Benefit from sustainable LNG consumption growth in China, recommend BUY Kunlun Energy (135)

• We expect LNG imports will reach approximately 13% CAGR from 2018 to 2025 in China

• Kunlun Energy’s LNG terminals and LNG processing business will benefit from the sustainable LNG import growth given its leading position in LNG industry

BUY ($10.7)

30/10/2018 CCCC

(1800)

Third-quarter financial results could be a share price catalyst – Maintain BUY CCCC (1800)

• In order to offset the impact from escalating trade war tension between China and the U.S. and sustain economic growth, we believe the Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CCCC

BUY ($10.0)

31/10/2018 COG

(581)

China Oriental Group (581): Positive read-through from peers’ 3Q results, Maintain BUY

• We expect COG’s 3Q18 net profit to reach RMB+2bn and the company will announce its operating data by mid-Nov

• COG is one of the best companies and most efficient steel producers in China in terms of profitability or execution capability

BUY ($9.50)

1/11/2018 Shimao Property

(813)

Fundamental remains solid - Maintain BUY on Shimao Property (813)

• We expect contracted sales for 2018 to exceed RMB150bn (RMB120.8bn in first nine months of 2018) representing an increase of 50% yoy and 7% above management target of RMB140bn

• Cheap valuation at 2018 P/E of 5.0x and 2018 P/B of 0.7x.

BUY ($21.90)

Disclosures of Interests

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Guide to stock ratings

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

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

of over 10%.

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

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

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Research Team,

Mason Securities Limited,

Portion 1, 12/F, The Center,

99 Queen’s Road Central, Hong Kong

Tel: (+852) 2218 2818

Email: research@masonhk.com