Hang Seng Index Performance

Source: Bloomberg

Major Market Indicators

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

Hang Seng Index 24,812.04 0.4% -10.7% -19.5% -12.4%

HSCEI (H-Shares) 10,012.63 -0.5% -9.1% -18.8% -13.4%

Mkt T/O ($ Mn) 94,664.63 -1.0% 12.2% -2.9% -5.2%

Oversea

DJIA 24,442.92 -1.0% -7.6% 1.2% 4.7%

NASDAQ 7,050.29 -1.6% -12.4% -0.2% 5.2%

Shanghai SE Composite 2,542.10 -2.2% -9.9% -17.5% -25.0%

Shenzhen Component 7,322.24 -2.4% -12.8% -29.1% -35.3%

Commodities and FX

Crude Oil Futures (US$) 66.67 -0.6% -9.0% -2.8% 23.1%

Gold Futures (US$) 1,232.40 0.4% 3.4% -6.6% -3.5%

Baltic Dry Index 1,519.00 0.2% -1.4% 13.3% -1.0%

USD / Euro 1.14 -0.1% -1.7% -6.0% -2.2%

Yen / USD 112.37 0.1% 1.4% -2.9% 0.7%

CNH / USD 6.973 -0.1% -1.3% -9.5% -4.8%

% Change

Market Overview

Hang Seng Index closed up 0.4% at 24,812. HSCEI retreated 0.5% at 10,013. Heavily weight HSBC ( 5 ) and AIA Group ( 1299 ) was up 5.0% and 0.3% respectively. HSBC ( 5 ) was the best performer in HSI. Tencent ( 700 ) had no change. HK banking, power and utilities stocks outperformed the market. BOC Hong Kong ( 2388 ) climbed 1.0%. China Resources Power ( 836 ) and Huaneng Power International ( 902 ) increased 3.4% and 3.2%. Guangdong Investment ( 270 ) and CLP Holdings ( 2 ) added 2.2% and 1.9%.

Consumption, insurance, securities, telecom, automobile and pharmaceutical stocks underperformed the market. WH Group ( 288 ) and Hengan International ( 1044 ) cut 2.6% and -1.5%. Seven insurance stocks and five securities stocks in HSCEI slid an average 1.4% and 0.9% among which New China Life ( 1336 ) and China Pacific Insurance ( 2601 ) fell 3.1% and 2.7%, China Galaxy Securities ( 6881 ) and Haitong Securities ( 6837 ) slid -2.6% and -1.9%. China Mobile ( 941 ) and China Unicom ( 762 ) lost 1.7% and 1.6%. Great Wall Motor ( 2333 ) and Guangzhou Automobile ( 2238 ) decreased 8.1% and 4.3%. Great Wall Motor ( 2333 ) was the worst performer in HSCEI. Sino Biopharmaceutical ( 1177 ) and CSPC Pharmaceutical ( 1093 ) fell 3.2% and 1.7%.

Gaming, PRC property, local property, technology and PRC banking lacked clear direction. Sands China ( 1928 ) added 0.3% while Galaxy Entertainment ( 27 ) decreased 1.2%. China Overseas ( 688 ) and China Resources Land ( 1109 ) increased 1.9% and 1.1% while China Evergrande ( 3333 ) and Logan Property ( 3380 ) lost 3.4% and 2.2%. AAC Technologies ( 2018 ) increased 3.0% while Sunny Optical ( 2382 ) slid 1.4%. Bank of Communications ( 3328 ) and Postal Savings Bank of China ( 1658 ) added 2.1% and 0.4% while China Merchants Bank ( 3968 ) and Agricultural Bank ( 1288 ) slid 2.9% and 0.6%. Railway and oil stocks moved in line with Hang Seng Index. We expect Hang Seng Index to have a technical support at 24,000.

30 October 2018

We expect Hang Seng Index to have a technical support at 24,000.

Market in Focus Name

Bloomberg Ticker

BUY

$10.00

Rating

3M Avg Turnover ($, Mn)Target Price

Free Float (%)

189.1

6.96 - 9.93

100.0%

149.3

1800 HK Equity

CCCC MKT Cap ($Bn)

52-week High/Low ($)

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

Since our BUY commentary dated October 2, CCCC (1800, $7.22) has dropped 9.8% compared with a loss of 10.7% for Hang Seng Index over the same period. We believe the outperformance is mainly driven by speculation that China will increase infrastructure spending in the fourth quarter. China’s fixed assets investment growth improved from record low of 5.3% yoy in the first eight months of 2018 to 5.4% yoy in the first nine months of 2018. 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.

For the six months ended 30 June 2018, CCCC reported revenue of RMB207.6bn from continuing operations and net profits of RMB8,257mn representing an increase of 16.1% and 4.9% yoy respectively. Revenue from overseas markets surged 24.1% yoy to RMB43.0bn accounting for 20.7% of the total revenue. Gross margin was unchanged at 13.4%. Operating margin decreased from 7.9% to 7.2% due to rising administrative expenses. Unfinished contract value amounted to RMB1,546.7bn as at 30 June 2018 or equivalent to 3.4x revenue for 2017.

In 2018, CCCC targets to achieve an 8% growth in new contracts value to RMB950bn and 6.5% growth in revenue to RMB490bn. However, the company’s new contracts value declined 4% yoy to RMB583bn in the first nine months of 2018 and needs to increase 35% yoy to RMB367bn in the fourth quarter in order to meet its full year target. CCCC will announce third-quarter financial results today that could be a share price catalyst in near term.

According to Bloomberg estimates, CCCC’s net profits from continuing operations are expected to reach RMB21.3bn in 2018 and RMB24.3bn in 2019. Traded at 2019 P/B of 0.5x and 2019 P/E of 4.5x compared to 5-year average forward PER of 6.3x, CCCC is undervalued in our view. We therefore maintain our BUY rating on CCCC with a 12-month price target of $10.0 based on 2019 PER of 6.3x, same as the historical average.

Fig1: 1 Year Share Price

Source: Bloomberg, Mason Securities

Technical Ideas

Stock Code

BUY $2.75 1071

$3.03 $3.74 Huadian Power International (1071, $2.75) TP: $3.03 BUY

$2.61 TP: $3.03

CL: $2.6140.2 95.0%

17 37

75% 46%

10.7X 0.55X

212%

SMA10 2.72 RSI (14) 39.2

SMA20 2.80 BB (Upper) 3.03

SMA100 3.14 BB (Lower) 2.58

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Huadian Power International Co

1071 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

Huadian Power International

Stock Code x

BUY $9.67 1776

$10.64 $12.12 GF Securities (1776, $9.67) TP: $10.64 BUY

$9.19 TP: $10.64

CL: $9.1995.0 81.0%

98 44

127% 223%

10X 0.74X

90%

SMA10 9.14 RSI (14) 49.0

SMA20 9.38 BB (Upper) 10.17

SMA100 10.55 BB (Lower) 8.59

GF Securities Co Ltd

1776 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

GF Securities

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Source: Bloomberg, Mason Securities

Recent Recommendations

Date of Issue Stock Pick Recommendation Highlights Rating (TP)

16/10/2018 A-Living Services

(3319)

Attractive valuation after a 35% drop in share price – Maintain BUY on A-Living Services (3319)

• We believe the underperformance is partially due to worries about an increase in employee benefit expenses after a strict enforcement of China’s social security taxs in 2019

• The negative impact on 2019’s earnings should be fully discounted in share price in our view

BUY ($14.30)

18/10/2018 ENN Energy

(2688)

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

• Management guided a +20% yoy volume growth on natural gas sold and high-single-digit new connection growth for the next 2-3 years.

• Valuation of ENN is still reasonable long term investors

BUY ($79.4)

19/10/2018 China Overseas

Property

(2669)

Attractive valuation after a 33% drop in share price – Maintain BUY China Overseas Property (2669)

• The underperformance is partially due to worries about an increase in employee benefit expenses after a strict enforcement of China’s social security taxs in 2019

• As at 30 June 2018, COPH owned net cash of $2.20bn or equivalent to $0.67 per share that should enable it to continue its strategy of expansion through acquisition

BUY ($2.60)

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 ($10.70)

Disclosures of Interests

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the analysts are paid in part based or the profitability of Mason Securities Limited (“MSL”) and its affiliates (collectively called “Mason Group”) which includes revenue from investment banking

activities.

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Guide to stock ratings

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

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

of over 10%.

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

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

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Research Team,

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Portion 1, 12/F, The Center,

99 Queen’s Road Central, Hong Kong

Tel: (+852) 2218 2818

Email: research@masonhk.com