Hang Seng Index Performance

Source: Bloomberg

Major Market Indicators

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

Hang Seng Index 27,936.57 -1.5% -2.1% -8.5% 2.5%

HSCEI (H-Shares) 10,766.51 -1.6% 0.2% -12.2% 0.6%

Mkt T/O ($ Mn) 83,460.15 -1.5% -1.2% -35.2% -40.1%

Oversea

DJIA 25,187.70 -0.5% 0.7% 1.2% 14.5%

NASDAQ 7,819.71 -0.2% -0.1% 9.5% 23.3%

Shanghai SE Composite 2,785.87 -0.3% -1.6% -12.9% -13.9%

Shenzhen Component 8,844.86 0.4% -5.2% -15.2% -15.9%

Commodities and FX

Crude Oil Futures (US$) 67.38 0.3% -5.1% 11.2% 41.6%

Gold Futures (US$) 1,195.00 0.1% -3.7% -12.0% -7.1%

Baltic Dry Index 1,691.00 -0.2% 1.5% 54.4% 46.4%

USD / Euro 1.14 0.1% -2.6% -8.2% -3.3%

Yen / USD 110.75 0.0% 1.4% -3.3% -1.2%

CNH / USD 6.90 0.1% -2.8% -8.4% -3.1%

% Change

Market Overview

Hang Seng Index closed down 1.5% at 27,937. HSCEI lost 1.6%. Heavily weighted Tencent (700), AIA Group (1299), and HSBC (5) dropped 2.4%, 1.6% and 0.7% respectively. Gaming, technology, Chinese financial, telecom, energy, airline and Chinese property underperformed the market. Galaxy Entertainment (27) and Sands China (1928) lost 1.8%-2.6%. AAC Technologies (2018) and Sunny Optical (2382) tumbled 2.7% and 4.2% respectively. Four largest Chinese banks dropped 1.0%-1.7%, CMB (3918) and PSBS (1658) dropped 2.8% and 3.3% respectively. Five securities and seven insurance stocks had an average drop of 2.3% and 2.6% respectively, among which PICC Group (1339), Zhongan Online (6060) and GF Securities (1776) lost 3.5%-4.1%. China Mobile (941) and China Telecom (728) dropped 1.9% and China Unicom (762) lost 2.9%. Three largest oil companies lost 1.5%-2.0%. Ten largest Chinese property developers dropped an average 3.6% among which China Evergrande (3333) and Shimao Property (813) slumped 6.0% and 5.3% respectively. Air China (753) lost 4.4%, making it the worst performing stock in HSCEI. Huaneng Power (902) and China Resources Power (836) both fell 1.9%

Local banking and property stocks ended lower. Bank of East Asia (23) dropped 5.8%, making it the worst performing stock in HSI. Utilities and pharmaceutical stocks outperformed the market. Sinopharm (1099) and CSPC Pharmaceutical (1093) rose 0.1% and 0.7%. Consumption, automobile and railway related stocks lacked clear direction. Want Want China (151) dropped 3.7% while Shenzhou Int’l (2313) advanced 2.0%, making it the most performing stock in HSI. Greely Auto (175) lost 1.9% while Guangzhou Auto (2238) added 1.5%, making it the most performing stock in HSCEI. CRRC (1766) added 0.6% while China Railway Group (390) dropped 1.3%. We expect Hang Seng Index to test 27,000 in the worst scenario.

14 August 2018

We expect Hang Seng Index to test 27,000 in the worst scenario.

Market in Focus Name

Bloomberg Ticker

BUY

$18.00

Rating

3M Avg Turnover ($, Mn)Target Price

Free Float (%)

19.2

8.98 - 17.08

95.3%

98.2

3319 HK Equity

A-Living Services MKT Cap ($Bn)

52-week High/Low ($)

Better than expected interim earnings results – Maintain BUY on A-Living Services (3319)

Since our upgrade on July 27, A-Living Services (3319, ALS, $14.40) has declined 1.4% compared with a 2.9% drop for Hang Seng Index over the same period. On August 8, the company announced better-than-expected earnings results for the first half of 2018.

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 RMB710mn (EPS RMB0.53) in 2018 and RMB1,055mn (EPS RMB0.79) in 2019 representing an increase of 145% and 49% yoy respectively. Traded at forward P/E of 23.9x in 2018 and 15.9x in 2019 with a 2-year EPS CAGR of 51%, valuation of ALS looks attractive to long term investors. We therefore maintain our BUY rating on ALS and raise our 6-month price target from $17.5 to $18.0 based on 2019 P/E of 20.0x.

Fig1: 1 Year Share Price

Source: Bloomberg, Mason Securities

Technical Ideas

Stock Code

BUY $8.50

$9.35 $9.64

$8.08

18.6 79.7%

202 104

183% 195%

25.5X 3.01X

-48%

SMA10 8.33 RSI (14) 41.2

SMA20 8.58 BB (Upper) 9.31

SMA100 8.79 BB (Lower) 7.85

Li Ning Co Ltd

2331 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

Li Ning

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Stock Code

BUY $48.15

$52.97 $46.48

$45.74

56.6 100.0%

173 131

82% 132%

17X 2.51X

-20%

SMA10 46.46 RSI (14) 66.5

SMA20 44.52 BB (Upper) 49.25

SMA100 40.25 BB (Lower) 39.80

Zhuzhou CRRC Times Electric Co

3898 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

Zhuzhou CRRC Times Electric

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)

31/7/2018 Colour Life Services

(1788)

Valuation remains cheap compared to peers – Maintain BUY Colour Life Services (1778)

• Current valuation of CLS is still attractive for long term investors given strong earnings growth for 2018 fueled by M&A

• Organic growth in existing business and maiden contribution from WXM will ensure strong earnings growth for 2018

BUY ($9.75)

1/8/2018 Angang Steel

(347)

Angang Steel (347): A growing consensus on different cycle, re-rating on sustainable profitability

• The overall steel price and margin staying at a relatively high level which have proved our previous thoughts

• Growing consensus on different cycle this time serve as valuation re-rating catalysts in short-term

BUY ($9.60)

2/8/2018 Wisdom Education

(6068)

Capacity expansion for flagship schools in Dongguan will boost earnings for FY19 – Mainain BUY Wisdom Education (6068)

• We continue to take a positive view on China’s education services industry given a fast-growing middle class and rising demand for quality education service.

BUY ($7.50)

3/8/2018 CRG

(1193)

China Resources Gas (1193): Downside risks driven by China economy and industrial activities slowdown in 2H18 ; Downgrade to HOLD

• Valuation does not fully factor in downside risks driven by China economy and industrial activities slowdown and property floor space completion decline

• The factors mentioned above will pose a negative impact on CRG and limit upside risks in 2H18

HOLD ($38.9)

6/8/2018 China Maple Leaf

(1317)

Share price weakness presents a good buying opportunity – Maintain BUY China Maple Leaf (1317)

• We reiterate our BUY rating on MLES given its good earnings track record and continued expansion through acquisition

• We are optimistic about the private education industry in China and believe current valuation of MLES is attractive to long term investors

BUY ($7.10)

7/8/2018 CRP

(836)

China Resources Power (836): Defensive player with fundamental turnaround this year; Maintain Buy

• Thermal coal prices have already peaked out

• Valuation of CRP remains attractive to long term investors in our view given its stable dividend, lower coal price in 2018 and good track record of management and execution ability

BUY ($17.5)

8/8/2018 CSCI

(3311)

Robust new contract value growth for 1H18 – Maintain BUY China State Construction (3311)

• Outperformance of CSCI is mainly driven by speculation on the increase in China’s infrastructure investments in the second half of 2018 and company’s robust growth in new contract value in the first half of 2018

• CSCI looks cheap compared with its historical valuation at 5-year average forward P/E of 10.4x

BUY ($10.5)

9/8/2018 Suntien Green Energy

(956)

China Suntien Green Energy (956): Solid growth in coming years; reiterate BUY

• Tariff cut overhang is removed

• Traded at 2019 P/E of 5.48x and 2019 P/B of 0.72x with a ROE of >13%, valuation of Suntien is still undervalued in our view

BUY ($2.80)

10/8/2018 China Overseas

Property

(956)

Room for further expansion through acquisition – Maintain BUY China Overseas Property (2669)

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

• Thanks to the acquisition of CITIC Property Service, the GFA under management of COPH increased by 37.3% in 2017 to 128.3mn sq.m.

BUY ($3.20)

13/8/2018 CTCM

(570)

China Traditional Chinese Medicine (570): Bullish on the industry growth, Maintain BUY

• 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 consumption upgrade more and more provinces including TCM granules in medical insurance in the future

BUY ($8.20)

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,

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Portion 1, 12/F, The Center,

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Tel: (+852) 2218 2818

Email: research@masonhk.com