Hang Seng Index Performance

Source: Bloomberg

Major Market Indicators

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

Hang Seng Index 26,120.96 0.7% -1.7% -12.7% -8.7%

HSCEI (H-Shares) 10,632.64 0.8% 1.0% -10.6% -7.7%

Mkt T/O ($ Mn) 81,231.07 -12.1% 5.7% -17.9% -27.3%

Oversea

DJIA 25,461.70 0.8% -3.7% 4.9% 8.1%

NASDAQ 7,328.85 -0.4% -5.9% 1.7% 8.0%

Shanghai SE Composite 2,659.36 -0.2% -5.7% -14.0% -21.5%

Shenzhen Component 7,791.25 -0.6% -7.3% -25.3% -31.5%

Commodities and FX

Crude Oil Futures (US$) 62.92 -0.3% -15.4% -9.8% 9.7%

Gold Futures (US$) 1,235.70 0.3% 2.5% -6.0% -3.6%

Baltic Dry Index 1,428.00 -2.0% -7.0% 3.2% -3.1%

USD / Euro 1.14 0.2% -0.5% -4.3% -1.6%

Yen / USD 113.24 -0.1% -0.3% -3.7% 0.5%

CNH / USD 6.917 0.0% 0.2% -8.1% -4.2%

% Change

Market Overview

Hang Seng Index closed up 0.7% at 26,121. Market turnover decreased to $ 81.2Bn. HSCEI climbed 0.8% at 10,633. Heavily weight Tencent ( 700 ) dropped 0.1%. HSBC ( 5 ) and AIA Group ( 1299 ) closed up 0.8% and 0.5% respectively. Local property, telecom, railway, consumption, oil and pharmaceutical stocks outperformed the market. Swire Pacific ( 19 ), Sun Hung Kai Properties ( 16 ), New World Development ( 17 ) and CK Asset Holdings ( 1113 ) advanced 2.2%-2.8%. China Telecom ( 728 ) and China Unicom ( 762 ) added 2.0%-2.1%. Railway stocks rose 1.5%-1.8%. CNOOC ( 883 ) and PetroChina ( 857 ) climbed 2.8% and 2.2%. CNOOC ( 883 ) was the best performer in HSCEI. Sino Biopharmaceutical ( 1177 ) and CSPC Pharmaceutical ( 1093 ) increased 3.5% and 2.4%. Sino Biopharmaceutical ( 1177 ) was the best performer in HSI. Mengniu Dairy ( 2319 ) and Want Want China ( 151 ) added 1.8% and 1.6%.

Macau gaming, technology, PRC banking and automobile stocks underperformed the market. Galaxy Entertainment ( 27 ) and Sands China ( 1928 ) decreased 1.6% and 1.3%. Sunny Optical ( 2382 ) and AAC Technologies ( 2018 ) decreased 3.5%-3.8%. Nine PRC banking in HSCEI added an average 0.4% among which Agricultural Bank ( 1288 ), China Minsheng Banking ( 1988 ) and CCB ( 939 ) added 1.1%, 0.9% and 0.8% respectively but ICBC ( 1398 ) and CITIC Bank ( 998 ) added 0.2% only. Geely ( 175 ) and Great Wall Motor ( 2333 ) decreased -2.9% and -1.8%. Insurance stocks moved in line with Hang Seng Index.

HK banking, PRC property and securities stocks lacked clear direction. BOC Hong Kong ( 2388 ) and Hang Seng Bank ( 11 ) decreased 0.6%-0.7. Logan Property ( 3380 ) and China Resources Land ( 1109 ) increased 2.4%-2.5% while Guangzhou R&F Properties ( 2777 ) and China Evergrande ( 3333 ) lost 2.8% and 1.3%. We expect Hang Seng Index to be highly volatile in the short term.

7 November 2018

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

Market in Focus Name

Bloomberg Ticker

BUY

$14.00

Rating

3M Avg Turnover ($, Mn)Target Price

Free Float (%)

13.6

8.97 - 17.08

95.3%

48.0

3319 HK Equity

A-Living Services Co Ltd MKT Cap ($Bn)

52-week High/Low ($)

Attractive valuation after a deep correction in share price – Maintain BUY on A-Living Services (3319)

Since our BUY commentary dated October 16, A-Living Services (3319, ALS, $10.20) has climbed 2.1% compared with a 2.7% increase for Hang Seng Index. 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 taxes in 2019. With share price falling some 30% in three months, the negative impact on 2019’s earnings should be fully discounted in share price in our view.

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

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

According to Bloomberg estimates, ALS’s net profits are expected to reach RMB694mn (EPS RMB0.52) in 2018 and RMB1,040mn (EPS RMB0.77) in 2019 representing an increase of 139% and 50% yoy respectively. Traded at forward P/E of 17.2x in 2018 and 11.6x in 2019 with a 2-year EPS CAGR of 48%, valuation of ALS looks attractive to long term investors. We therefore maintain our BUY rating on ALS with a 6-month price target of $14.0 based on 2019 P/E of 16.0x.

Fig1: 1 Year Share Price

Source: Bloomberg, Mason Securities

Technical Ideas

Stock Code

BUY $13.90 883

$15.29 $16.86 CNOOC (883, $13.9) TP: $15.29 BUY

$13.21 TP: $15.29

CL: $13.21620.6 35.6%

635 1,050

50% 60%

9.6X 1.34X

8%

SMA10 13.52 RSI (14) 42.7

SMA20 14.04 BB (Upper) 15.16

SMA100 13.47 BB (Lower) 12.91

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

CNOOC Ltd

883 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

CNOOC

Stock Code x

BUY $6.59 581

$7.25 $9.38 China Oriental Group (581, $6.59) TP: $7.25 BUY

$6.26 TP: $7.25

CL: $6.2624.5 27.9%

76 75

102% 102%

4.1X 1.2X

-16%

SMA10 6.16 RSI (14) 54.6

SMA20 6.09 BB (Upper) 6.42

SMA100 6.14 BB (Lower) 5.75

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

China Oriental Group Co Ltd

581 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

China Oriental Group

Source: Bloomberg, Mason Securities

Recent Recommendations

Date of Issue Stock Pick Recommendation Highlights Rating (TP)

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)

2/11/2018 China Suntien

(956)

Upward revision on market earnings consensus is poised – Maintain BUY on undemanding valuation

• Net profit for 9M18 increased by better-than-expected 58.4% yoy to RMB939mn. Earnings upgrade by analysts is very likely.

• Traded at 2019 P/E of 4.7x and 2019 P/B of 0.62x with a ROE of 14.0%, China Suntien is still undervalued.

BUY ($2.62)

5/11/2018 Galaxy Entertainment

(27)

Current valuation is cheap by historical average - Maintain BUY Galaxy Entertainment (27)

• Underperformance of CEG is mainly due to a slowdown in Macau’s gaming revenue which increased by 17.5% yoy in the first eight months of 2018 but only 2.8% yoy in September and 2.6% yoy in October

• Consensus growth for 2019 has been adjusted downward to a low-single digit. However, we believe the opening of the Hong Kong-Zhuhai-Macau Bridge will improve earnings outlook for gamings stocks in the medium-to-long term

BUY ($57.9)

6/11/2018 ENN Energy

(2688)

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

• We expect domestic production to reach nearly 6% CAGR and LNG imports to reach approximately 13% CAGR from 2018 to 2025

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

BUY ($79.4)

Disclosures of Interests

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The views about any and all of the subject securities and issuers expressed in this report accurately reflect the personal views of the research analyst(s) primarily responsible for this report; and

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,

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Tel: (+852) 2218 2818

Email: research@masonhk.com