Hang Seng Index Performance

Source: Bloomberg

Major Market Indicators

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

Hang Seng Index 25,654.43 -0.5% 0.8% -17.6% -11.1%

HSCEI (H-Shares) 10,405.16 -0.7% 2.6% -16.4% -8.8%

Mkt T/O ($ Mn) 79,367.93 -12.7% -28.6% -25.6% -26.7%

Oversea

DJIA 25,080.50 -0.8% -0.7% 1.5% 7.8%

NASDAQ 7,136.39 -0.9% -4.0% -2.9% 6.4%

Shanghai SE Composite 2,632.24 -0.9% 2.5% -17.5% -22.6%

Shenzhen Component 7,908.55 -0.7% 6.2% -26.4% -31.0%

Commodities and FX

Crude Oil Futures (US$) 55.97 -0.5% -22.0% -21.5% 1.2%

Gold Futures (US$) 1,211.60 0.1% -1.5% -6.1% -5.2%

Baltic Dry Index 1,064.00 -5.4% -32.8% -27.5% -22.6%

USD / Euro 1.13 0.2% -2.3% -4.7% -4.1%

Yen / USD 113.62 0.0% -1.6% -2.9% -0.5%

CNH / USD 6.944 0.0% -0.3% -8.4% -4.5%

% Change

Market Overview

Hang Seng Index closed down 0.5% at 25,654. HSCEI declined 0.7%. Heavily weighted Tencent (700) and AIA Group (1299) dropped 0.8% and 1.9% respectively. HSBC (5) climbed 0.8%. Oil and pharmaceutical stocks underperformed the market. Three largest oil companies tumbled 2.3%-4.7%. CSPC Pharmaceutical (1093) and Sino Biopharm (1177) slid 5.5% and 4.5% respectively.

Consumption, telecom, automobile, power, HK property and PRC financial stocks lacked clear direction. Want Want China (151) added 1.1% while Shenzhou (2313) and Hengan (1044) plunged 1.3%-1.6%. Link REIT (823) surged 1.9% while SHK Properties (16) retreated 0.2%. China Telecom (728) soared 2.3% while China Unicom (762) cut 0.1%. Great Wall Motor (2333) jumped 2.1% while Geely Automobile (175) decreased 1.6%. Zhongan Online (6060) surged 4.2%. PICC Group (1339), Ping An Insurance (2318) and New China Life (1336) slumped 1.0%-1.5%. CITIC Bank (998) climbed 0.8%. Postal Savings Bank (1658) and China Merchants Bank (3968) fell 1.5% and 1.1% respectively.

Railway, airline, gaming, PRC property and HK utilities stocks outperformed the market. China Railway Group (390) and CRRC Corporation (1766) advanced 1.6% and 1.0% respectively. Air China (753) rose 4.2%. Logan Property (3380), Longfor Group (960) and Sunac China (1918) soared 2.7%-3.4%. Sands China (1928) and Galaxy Entertainment (27) rose 0.6%-0.7%. CLP Holdings (2), HK & China Gas (3) and Power Assets (6) advanced 0.1%-0.4%. We expect Hang Seng Index to be highly volatile in the short term.

15 November 2018

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

Index Movers

Source: Bloomberg, Mason Securities

Name Price % Chg Points Name Price % Chg Points

Link ( 823 ) 73.65 1.9% 8.7 Air China ( 753 ) 7.69 4.2% 1.8

Henderson Land ( 12 ) 37.65 1.2% 1.8 Zhongan ( 6060 ) 31.25 4.2% 1.2

Want Want China ( 151 ) 5.74 1.1% 1.0 China Telecom ( 728 ) 4.00 2.3% 3.3

China Overseas ( 688 ) 25.30 1.0% 2.9 Great Wall Motor ( 2333 ) 4.82 2.1% 0.9

CITIC ( 267 ) 12.26 1.0% 2.1 China Railway ( 390 ) 7.48 1.6% 1.3

Wharf ( 1997 ) 49.45 0.9% 1.7 CITIC ( 267 ) 12.26 1.0% 0.9

Swire Pacific ( 19 ) 85.45 0.9% 1.1 CRRC Corp ( 1766 ) 7.25 1.0% 0.9

Country Garden ( 2007 ) 8.95 0.8% 1.6 Huaneng Power International ( 902 ) 4.75 0.8% 0.4

HSBC ( 5 ) 65.25 0.8% 20.0 CITIC Bank ( 998 ) 4.89 0.8% 1.1

Galaxy Entertainment ( 27 ) 44.40 0.7% 2.2 China Vanke ( 2202 ) 25.85 0.8% 0.7

Sands China ( 1928 ) 31.70 0.6% 1.5 BYD ( 1211 ) 53.80 0.7% 0.7

CLP Holdings ( 2 ) 87.40 0.4% 2.0 People's Insurance ( 1339 ) 3.44 0.6% 0.4

New World Development ( 17 ) 10.30 0.4% 0.7 GF Securities ( 1776 ) 11.34 0.5% 0.3

HKEx ( 388 ) 225.60 0.4% 2.9 Guangdong Investment ( 270 ) 14.14 0.4% 0.2

CK Infrastructure ( 1038 ) 57.90 0.3% 0.4 Guangzhou Automobile ( 2238 ) 7.99 0.3% 0.2

Hong Kong & China Gas ( 3 ) 15.10 0.3% 1.1 BOCOM ( 3328 ) 5.90 0.2% 0.2

BOCOM ( 3328 ) 5.90 0.2% 0.3 CCCC ( 1800 ) 7.63 0.1% 0.1

Sino Land ( 83 ) 12.64 0.2% 0.2 China Mobile ( 941 ) 75.10 0.0% 0.0

MTR ( 66 ) 38.95 0.1% 0.2 ICBC ( 1398 ) 5.36 0.0% 0.0

Power Assets ( 6 ) 53.05 0.1% 0.2 Anhui Conch Cement ( 914 ) 42.05 -0.1% -0.2

Sunny Optical ( 2382 ) 73.95 0.0% 0.0 China Minsheng Banking ( 1988 ) 5.77 -0.2% -0.2

China Mobile ( 941 ) 75.10 0.0% 0.0 BOC ( 3988 ) 3.33 -0.3% -2.2

ICBC ( 1398 ) 5.36 0.0% 0.0 CCB ( 939 ) 6.42 -0.3% -3.1

CK Asset Holdings ( 1113 ) 54.10 0.0% 0.0 Haitong Securities ( 6837 ) 8.19 -0.4% -0.3

China Unicom ( 762 ) 8.51 -0.1% -0.2 Huatai Securities ( 6886 ) 13.30 -0.4% -0.3

Hang Lung Properties ( 101 ) 14.84 -0.1% -0.1 China Galaxy Securities ( 6881 ) 4.06 -0.5% -0.2

WH Group ( 288 ) 6.21 -0.2% -0.3 Cinda Asset Management ( 1359 ) 2.01 -0.5% -0.2

Sun Hung Kai Properties ( 16 ) 102.70 -0.2% -0.8 CGN Power ( 1816 ) 1.96 -0.5% -0.3

BOC ( 3988 ) 3.33 -0.3% -2.4 Agricultural Bank ( 1288 ) 3.47 -0.6% -1.5

CCB ( 939 ) 6.42 -0.3% -6.6 China Shenhua ( 1088 ) 18.36 -0.6% -1.1

BOC Hong Kong ( 2388 ) 29.15 -0.3% -1.1 China Pacific Insurance ( 2601 ) 30.30 -0.7% -1.5

China Resources Power ( 836 ) 14.64 -0.4% -0.4 Huarong Asset ( 2799 ) 1.51 -0.7% -0.3

CK Hutchison ( 1 ) 79.95 -0.5% -3.3 China Resources Land ( 1109 ) 27.85 -0.7% -0.7

Hang Seng Bank ( 11 ) 178.60 -0.5% -2.1 China Life Insurance ( 2628 ) 16.34 -0.7% -2.5

AAC Technologies ( 2018 ) 52.90 -0.6% -0.7 Dongfeng Motor ( 489 ) 7.53 -0.8% -0.5

Mengniu Dairy ( 2319 ) 24.60 -0.6% -1.3 Tencent ( 700 ) 272.20 -0.8% -4.3

China Shenhua ( 1088 ) 18.36 -0.6% -1.2 Sinopharm Group ( 1099 ) 39.15 -0.9% -1.2

China Resources Land ( 1109 ) 27.85 -0.7% -1.7 PICC Property & Casualty ( 2328 ) 8.25 -1.0% -1.5

China Life Insurance ( 2628 ) 16.34 -0.7% -2.7 Ping An Insurance ( 2318 ) 76.55 -1.1% -12.1

Tencent ( 700 ) 272.20 -0.8% -18.3 CMB ( 3968 ) 31.45 -1.1% -3.8

Ping An Insurance ( 2318 ) 76.55 -1.1% -14.5 China Gas ( 384 ) 25.60 -1.2% -0.7

Shenzhou International ( 2313 ) 92.75 -1.3% -2.9 Shenzhou International ( 2313 ) 92.75 -1.3% -1.2

Hengan International ( 1044 ) 63.00 -1.6% -2.2 New China Life ( 1336 ) 36.70 -1.5% -1.3

Geely ( 175 ) 14.86 -1.6% -3.9 Postal Savings Bank of China ( 1658 ) 4.57 -1.5% -1.7

AIA Group ( 1299 ) 63.50 -1.9% -46.0 CITIC Securities ( 6030 ) 14.20 -1.5% -1.2

Sinopec ( 386 ) 6.51 -2.3% -11.7 Hengan International ( 1044 ) 63.00 -1.6% -1.0

PetroChina ( 857 ) 5.67 -3.6% -13.5 Sinopec ( 386 ) 6.51 -2.3% -10.7

Sino Biopharmaceutical ( 1177 ) 7.72 -4.5% -7.6 PetroChina ( 857 ) 5.67 -3.6% -12.4

CNOOC ( 883 ) 12.70 -4.7% -33.8 CNOOC ( 883 ) 12.70 -4.7% -14.6

CSPC Pharmaceutical ( 1093 ) 17.70 -5.5% -12.9 CSPC Pharmaceutical ( 1093 ) 17.70 -5.5% -5.6

H S C E IH S I

Market in Focus Name

Bloomberg Ticker

BUY

$13.00

Rating

3M Avg Turnover ($, Mn)Target Price

Free Float (%)

12.9

8.97 - 17.08

95.3%

42.2

3319 HK Equity

A-Living Services MKT Cap ($Bn)

52-week High/Low ($)

Weakness in share price presents a good buying opportunity – Maintain BUY on A-Living Services (3319)

Since our BUY commentary dated November 7, A-Living Services (3319, ALS, $9.64) has declined 5.5% compared with a 1.8% drop for Hang Seng Index. The underperformance is mainly triggered by unexpected resignation of the CEO that raised investors’ concerns over the company’s operations and earnings outlook. We believe investors have been over-reacted and the weakness in share price is a good buying opportunity for long-term investors.

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 acquisitions 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 RMB1,028mn (EPS RMB0.77) in 2019 representing an increase of 139% and 48% yoy respectively. Traded at forward P/E of 16.3x in 2018 and 11.1x 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 $13.0 based on 2019 P/E of 15.0x.

Fig1: 1 Year Share Price

Source: Bloomberg, Mason Securities

Technical Ideas

Stock Code

BUY $2.11 2669

$2.32 $3.04 China Overseas Property (2669, $2.11) TP: $2.32 BUY

$2.00 TP: $2.32

CL: $26.9 38.8%

23 21

256% 105%

17.5X 6.12X

-284%

SMA10 2.02 RSI (14) 52.3

SMA20 1.97 BB (Upper) 2.18

SMA100 2.37 BB (Lower) 1.76

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

China Overseas Property Holdin

2669 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

China Overseas Property

Stock Code x

BUY $10.86 853

$11.95 $11.90 Microport Scientific (853, $10.86) TP: $11.95 BUY

$10.32 TP: $11.95

CL: $10.3217.2 45.2%

71 31

252% 233%

46.3X 4.66X

21%

SMA10 10.26 RSI (14) 61.4

SMA20 9.73 BB (Upper) 10.95

SMA100 9.42 BB (Lower) 8.50

Microport Scientific Corp

853 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

Microport Scientific

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)

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 Sep and 2.6% yoy in Oct

• 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)

7/11/2018 A-Living Services

(3319)

Attractive valuation after a deep correction 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 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

BUY ($14.0)

8/11/2018 CTCM

(570)

Promising growth with undemanding valuation – Maintain BUY on CTCM (570)

• We believe CTCM will benefit from 1) solid industry development; 2) channel expansion in high-to-low tier hospitals; 3) the increasing penetration rate of TCM granules due to more and more provinces including TCM granules in medical insurance in the future

BUY ($6.70)

9/11/2018 China Overseas

Property

(2669)

Attractive valuation after a deep share price correction – Maintain BUY China Overseas Property (2669)

• Recent outperformance indicates that market concern about an increase in employee benefit expenses after a strict enforcement of China’s social security taxes in 2019 has been over

• We remain optimistic about the growth prospects of COPH given strong support from parent company and ongoing industry consolidation

BUY ($2.60)

12/11/2018 China Gas

(384)

Focus on long-term trend – Maintain BUY China Gas Holdings (384)

• Recent rally in share price was mainly due to concerns relieved about city connection fee cut of Chinese downstream gas sector

• The valuation of China Gas is still reasonable to long term investors

BUY ($30.40)

13/11/2018 Hua Hong

Semiconductor

(1357)

Substantial 2019 EPS dilution from share placement – Downgrade Hua Hong Semiconductor (1347) to HOLD

• The outperformance is mainly driven by better-than-expected quarterly results, completion of share placement and bullish management guidance for the fourth quarter

• EPS growth will be 19.2% in 2018 and -13.9% in 2019 due to dilution from the share placement

HOLD ($17.0)

14/11/2018 PetroChina

(857)

Main beneficiary of gas price hike; A good entry opportunity today after international oil price slump – BUY PetroChina (857) for short-term trading purpose

• We expect more cities to raise the gas price for non-residential use during the heating season. PetroChina is the main beneficiary of the price hike given its high earnings sensitive to gas price

BUY ($6.54)

Disclosures of Interests

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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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Email: research@masonhk.com