china / hong kong market focus strategist's blog outlook. our 3 month and 12 month hsi targets...
TRANSCRIPT
![Page 1: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/1.jpg)
www.dbsvickers.com
sa- AH
Three themes for rest of the year • China FAI plays and property are sweet spots in our
investment theme matrix
• China banks and autos are attractive laggards
• Adding Bocom, CRCC, GAC, and ZTE to top ten picks
Tick shaped market. Fed rate futures indicate only a 28% probability for a Fed rate hike later this week (pg 2). Although a rate hike delay is likely, we believe the Hong Kong market will not re-rate strongly due to other overhangs. But we do not expect large market downside based on index P/BV and several market-fear measurements (pg 3-5). We also believe Hang Seng Index PE comparisons to past troughs are not reliable due to component changes since 1998 and 2009 (pg 7-8). We believe the market to be tick-shaped, with a substantial rebound coming in the medium term if: 1) A-shares fall back to pre-rally PE valuations, 2) China rolls out more pro-growth policies, and 3) there is more clarity on Fed rate outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively (pg 9).
Three themes for rest of year. We have mapped out relevant macro trends that will impact the market in the coming months (pg 13). In this environment, we prefer 1) companies that can benefit from expected macro policies and growth initiatives (pg 14), 2) companies that can benefit from expected monetary policies and currency trends (pg 15), and 3) value and laggard picks (pg17). We believe China fixed asset investment and properties are sweet spots in the market as they fit into multiple themes (pg 20). ZTE and TK Group also score well. In addition, we like China banks and China autos as laggard picks with turnaround potential.
Upgraded CH property, CH construction, and CH materials;
downgraded HK banks, healthcare, and coal. We have upgraded China property and China railway and construction from Neutral to Overweight. Both sectors have lagged, but will benefit from lower Rmb interest rates and fiscal support. We have also upgraded materials to Neutral. However, we have downgraded Hong Kong banks to Neutral on slower USD rate hike and macro uncertainties. We have also downgraded healthcare on valuation grounds and coal on poor fundamentals (pg 21). Adding four stocks to top ten. We are adding BoCom (3328.HK), China Railway Construction (1186.HK), Guangzhou Automobile (2238.HK), and ZTE (763.HK) into our top ten picks as they fit into our three investment themes. We have taken out Far East Horizon (3360.HK), Yestar (2393.HK), Dah Sing Financial (440.HK), and CR Land (1109.HK) (pg 22).
HSI : 21,455
Analyst Alexander LEE CFA, +852 2971 1930 [email protected] Ian Chui [email protected]
China/Hong Kong Research Team · (852) 2820 4844 · [email protected]
DBSV top picks performance (market cap weighted)
90
100
110
120
130
140
150
160
170
180
Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15
DBSV top picks - market cap weightedHSI
(28 Feb 2014 = 100)
Source: DBS Vickers
DBSV top ten
Closing Tgt
T ick er price PBV PER y ield ROE Price(HK$) (X ) (X ) (%) (%) (HK$)
BOCOM 3328.HK 5.56 0.6 4.8 6.7 12.5 9.34COLI 688.HK 22.75 1.0 6.8 3.0 15.5 38.96CH Railway Constr 1186.HK 11.08 0.9 8.5 1.8 11.6 17.00GZ Automobile 2238.HK 5.61 0.7 5.4 5.5 12.9 8.30Nexteer Auto 1316.HK 7.88 2.4 9.7 2.1 26.9 8.75Sinopharm Group 1099.HK 28.00 1.9 15.0 1.8 13.4 34.00Tencent 700.HK 131.20 7.2 23.4 0.5 31.4 184.00Value Partners 806.HK 7.14 2.5 9.4 6.3 27.6 14.20Wasion Group 3393.HK 8.22 1.4 9.0 4.0 16.8 12.50ZTE 763.HK 17.02 1.8 14.4 1.7 13.4 24.00
F Y16F
Source: DBS Vickers
Based on 15 September 2015 closing prices
DBS Group Research . Equity 16 September 2015
China / Hong Kong Market Focus
Strategist's Blog
Refer to important disclosures at the end of this report
![Page 2: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/2.jpg)
Market Focus
Strategist's Blog
Page 2
Delay in rate hike is more likely. Fed Fund Futures are pricing in a 28% probability for a rate hike decision this week. This has declined from 60% at the start of the year. Market expectations for a first hike in or before December is still fairly high at 60% probability. But this too, has been dropping from 80% at the start of the year. Weighing in arguments for and against a rate hike now, we believe the ‘against’ arguments dominate this round:
Arguments for a hike now:
- Monthly non-farm payrolls since 2014 have improved by 84% from 2010-2011 levels (240,600 compared to 131,000).
- Unemployment rate has declined to 5.1% from the peak of 10%. This is below the original unemployment target of 6.5%.
Arguments for waiting:
- Core PCE inflation is below the 2% Fed target at 1.2%.
- Unemployment rate, if adjusted for current low labor participation rate of 62.6% (vs. 66% before crisis), would be quite high at 10%.
- Macro uncertainty of emerging markets. According to the IMF, emerging and developing economies account for almost half of 2014 US exports.
ADP employment change
US unemployment rate (reported and adjusted)
(1,000)
(800)
(600)
(400)
(200)
0
200
400
03 04 05 06 07 08 09 10 11 12 13 14 15
(k)
0
2
4
6
8
10
12
14
16
03 04 05 06 07 08 09 10 11 12 13 14 15
Assuming 66% labor participation
Reported
(%)
Sources: Bloomberg Finance L.P., DBS Vickers
Probability of rate hike according to Fed Fund Futures
0%
20%
40%
60%
80%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep
Probability of rate hike in or before Dec 2015Probability of rate hike in or before Sept 2015
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 3: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/3.jpg)
Market Focus
Strategist's Blog
Page 3
Several gauges suggest market is near bottom. Although the HSI 12 month forward PE is higher than past trough levels, we believe HSI membership and weighting changes since 2009 make an apple-to-apple comparison difficult. Instead, we have explored other market indicators to gauge potential downside.
We find several indicators which suggest limited downside from current levels.
Price to book. The HSI trailing P/BV is now at 1.14, which is just slightly above 2009’s trough of 1.1x. Meanwhile, the HSCEI P/BV of 0.94 is already below the 2009 trough of 1.05.
HSI trailing P/B
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
HSI 1yr trailing P/B +2 stdev 10 yr mean -2 stdev(x)
1.14 1.10 0.94
Sources: Bloomberg Finance L.P., DBS Vickers
HSCEI trailing P/B
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
02 03 04 05 06 07 08 09 10 11 12 13 14 15
HSCEI 1yr trailing P/B +2 stdev 10 yr mean -2 stdev(x)
0.94 1.050
Sources: Bloomberg Finance L.P., DBS Vickers
Measurements of market fear. The China telecom sector’s PE relative to the market is near 2 standard deviations above mean. This implies de-risking action by investors have already been carried out for some time. This relative measure was high in 3Q13, 3Q14, and 1Q15, which were favorable entry points. Similarly, the Hang Seng Utilities Index has already outperformed the HSI strongly in recent months. Meanwhile,
the HSI volatility index has also spiked to 41% in early September, a level not seen since 2009. In addition, HSBC’s forward dividend yield spiked to above 6% (pg 5). This is assuming HSBC can payout US$0.5 per share in DPS in 2015 and 2016. Such high yields only occur during crisis times and market performance in the subsequent year after such high yields have usually been positive.
![Page 4: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/4.jpg)
Market Focus
Strategist's Blog
Page 4
China telecom operators PE vs. HSI PE HS Utilities Index performance relative to HSI
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
China telecom / HSI 2yr mean-2 stdev +2 stdev
x
10,000
15,000
20,000
25,000
30,000
35,000
0.4
0.6
0.8
1.0
1.2
1.4
05 06 07 08 09 10 11 12 13 14 15
HSU vs. HSI HSI (RHS)(1/1/'03 = 1.0)
HSI volatility index
0
10
20
30
40
50
60
70
80
07 08 09 10 11 12 13 14 15
(%)
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 5: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/5.jpg)
Market Focus
Strategist's Blog
Page 5
HSBC forward dividend yield (top), Hang Seng Index (middle), and HSBC share price (bottom)
-
2.0
4.0
6.0
8.0
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
(%)
Buy signals
Sell signals
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
-
20
40
60
80
100
120
140
160
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
(HK$)
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 6: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/6.jpg)
Market Focus
Strategist's Blog
Page 6
HSI PE comparison to past troughs is unreliable. In contrast to above gauges, HSI PE levels suggest there is still large downside if we were to reach 2009 crisis levels. The HSI 12 month forward PE is 10x, still significantly higher than 2009’s trough of 7.7x. However, we believe HSI member and weighting changes since 2009 have raised the PE levels of the HSI.
More high PE members in current HSI compared to 2009 and 1998. We tried to reconstruct the HSI PE charts using only current members or past members, but this is technically
challenging. Also, some current members were not listed in the past. Instead, we have calculated the weighted index PE using current members, 2009 members, and 1998 members using current valuations. The weighted average PE using current HSI members is 14.6x, which is higher than the 12.4-12.8x average when using past HSI members and weightings in 2009 and 1998. This confirms HSI PE comparison to the past is not an apples-for-apples comparison. We believe the HSCEI PE bands serve as a better trading range indicator for the market.
HSI 12 month forward P/E
-
5
10
15
20
25
30
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
HSI 1yr forward P/E 5yr mean -2 stdev +2stdev(x)
10.05 7.70
6.08
Sources: Bloomberg Finance L.P., DBS Vickers
HSCEI 12 month forward P/E
-
5
10
15
20
25
30
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
HSCEI 1yr forward P/E 5yr mean -2 stdev +2 stdev(x)
6.63 6.83
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 7: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/7.jpg)
Market Focus
Strategist's Blog
Page 7
Current weighted PE using current HSI weightings
Current weighted PE using 2009 HSI weightings
Current Current
Index Bloomberg Weighted
Current members weight (%) Est . PE PE (x )
Weighted average PE 14.61
HSBC Holdings PLC 11.5 9.7 1.12
Tencent Holdings Ltd 10.1 32.2 3.25
China Mobile Ltd 7.9 13.5 1.06
AIA Group Ltd 7.2 17.0 1.22
China Construction Bank 6.2 4.8 0.30
ICBC 4.7 5.0 0.23
CK Hutchison Holdings Ltd 4.0 11.9 0.48
Bank of China Ltd 3.8 4.9 0.19
HKEx 2.9 25.6 0.74
China Life Insurance Co Ltd 2.8 13.2 0.36
Ping An Insurance 2.7 10.0 0.27
CNOOC Ltd 2.2 13.8 0.31
Sun Hung Kai Properties Ltd 2.1 11.5 0.25
Cheung Kong Property 2.1 13.4 0.28
PetroChina Co Ltd 1.8 16.9 0.30
Sinopec 1.7 12.8 0.22
CLP Holdings Ltd 1.7 14.9 0.25
Hang Seng Bank Ltd 1.5 12.3 0.19
Hong Kong & China Gas 1.4 22.3 0.32
Power Assets Holdings Ltd 1.4 19.2 0.26
Link REIT 1.3 20.9 0.28
China Overseas Land 1.3 7.1 0.09
BOC Hong Kong 1.2 9.8 0.12
CITIC Ltd 0.9 6.6 0.06
Sands China Ltd 0.9 17.1 0.16
China Unicom 0.8 15.8 0.13
Hengan International 0.8 21.0 0.18
Wharf Holdings Ltd/The 0.8 11.3 0.09
Henderson Land Dev 0.8 15.6 0.12
Galaxy Entertainment 0.8 15.8 0.12
MTR Corp Ltd 0.7 18.8 0.13
Swire Pacific Ltd 'A' 0.7 12.1 0.08
Belle International 0.7 9.4 0.06
Want Want China 0.7 17.8 0.12
Lenovo Group Ltd 0.7 34.3 0.23
Bank of Communications 0.7 5.2 0.04
China Resources Land Ltd 0.7 8.6 0.06
China Shenhua Energy Co Ltd 0.6 8.2 0.05
New World Development 0.6 9.6 0.06
Hang Lung Properties Ltd 0.5 12.8 0.07
Bank of East Asia Ltd/The 0.5 11.1 0.06
China Mengniu Dairy Co Ltd 0.5 16.3 0.08
China Resources Power 0.5 6.9 0.03
Sino Land Co Ltd 0.5 12.5 0.06
China Merchants Holdings 0.4 13.9 0.06
China Resources Ent 0.4 73.5 0.30
Li & Fung Ltd 0.4 13.2 0.05
Tingyi 0.3 20.4 0.06
Kunlun Energy Co Ltd 0.3 11.2 0.03
Cathay Pacific Airways Ltd 0.2 8.6 0.02
2009 Current
Index Bloomberg Weighted
2009 members weight (%) Est . PE PE (x )
Weighted average PE 12.39
China Mobile Ltd 14.1 13.5 1.99
HSBC Holdings PLC 13.1 9.7 1.33
China Construction Bank Corp 5.9 4.8 0.30
ICBC 5.7 5.0 0.30
China Life Insurance Co Ltd 5.3 13.2 0.74
PetroChina Co Ltd 4.4 16.9 0.78
CNOOC Ltd 3.9 13.8 0.57
Cheung Kong Holdings Ltd 3.1 11.9 0.39
Sun Hung Kai Properties Ltd 3.0 11.5 0.36
CLP Holdings Ltd 2.7 14.9 0.43
Sinopec 2.4 12.8 0.32
HKEx 2.4 25.6 0.64
Bank of Communications 2.4 5.2 0.13
Hang Seng Bank Ltd 2.3 12.3 0.30
Bank of China Ltd 2.1 4.9 0.11
China Unicom Hong Kong Ltd 2.1 15.8 0.34
Power Assets Holdings Ltd 1.7 19.2 0.34
China Shenhua Energy Co Ltd 1.7 8.2 0.15
Ping An Insurance 1.6 10.0 0.17
Tencent Holdings Ltd 1.5 32.2 0.50
Swire Pacific Ltd 'A' 1.5 12.1 0.18
Hong Kong & China Gas 1.4 22.3 0.33
China Overseas Land 1.3 7.1 0.10
Hang Lung Properties Ltd 1.1 12.8 0.15
BOC Hong Kong 1.0 9.8 0.10
Li & Fung Ltd 1.0 13.2 0.13
Henderson Land Dev 0.9 15.6 0.15
Wharf Holdings Ltd/The 0.9 11.3 0.10
Bank of East Asia Ltd/The 0.8 11.1 0.09
MTR Corp Ltd 0.7 18.8 0.15
Sino Land Co Ltd 0.6 12.5 0.08
New World Dev 0.6 9.6 0.06
China Merchants Holdings 0.5 13.9 0.07
China Resources Ent 0.5 73.5 0.37
CITIC Ltd 0.3 6.6 0.02
Cathay Pacific Airways Ltd 0.3 8.6 0.03
Yue Yuen Industrial 0.3 12.6 0.04
COSCO Pacific Ltd 0.3 11.7 0.03
F IH Mobile Ltd 0.2 13.1 0.03
Hutchison Whampoa Ltd 2.5 n.a.
Esprit Holdings Ltd 1.4 n.a.
Aluminum Corp of China Ltd 0.5 n.a.
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 8: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/8.jpg)
Market Focus
Strategist's Blog
Page 8
Current weighted PE using 1998 HSI weightings
Current weighted PE using 1998 HSI weightings (con’t)
1998 Current
Index Bloomberg Weighted
1998 members weight Est . PE PE (x )
Weighted average PE 12.76
HSBC Hldgs plc 26.9 9.7 2.92
China Telecom 7.6 13.5 1.15
Hang Seng Bank 7.0 12.3 0.96
CLP Hldgs 6.2 14.9 1.04
SHK Prop 5.6 11.5 0.72
Cheung Kong 5.4 11.9 0.71
HK Electric 3.3 19.2 0.71
Swire Pacific 'A' 3.0 12.1 0.41
CITIC Pacific 2.8 6.6 0.21
HK & China Gas 2.8 22.3 0.69
Henderson Land 2.6 15.6 0.46
New World Dev 2.1 9.6 0.23
CKI Hldgs 1.6 16.3 0.29
Wharf (Hldgs) 1.5 11.3 0.19
Cathay Pac Air 1.4 8.6 0.14
Bank of E Asia 1.1 11.1 0.13
19 98 Curren t
Index B loomberg W eigh t ed
1998 members w eigh t Est . PE PE (x )
Amoy Prop 1.0 12.8 0.14
China Resources 0.9 73.5 0.76
Shanghai Ind Hldgs 0.8 7.3 0.07
Wheelock 0.8 6.9 0.06
Hy san Dev 0.8 14.3 0.13
Hang Lung Dev 0.8 9.6 0.08
Shangri-La Asia 0.6 29.3 0.19
TV B 0.5 8.6 0.05
F irst Pacific 0.4 8.1 0.04
Sino Land 0.4 12.5 0.06
HK & S Hotels 0.4 18.9 0.08
Guangdong Inv 0.4 16.5 0.07
Hopewell Hldgs 0.3 12.4 0.04
Great Eagle Hldgs 0.2 9.3 0.02
HK Telecom 0.0 12.5 0.01
Hutchison 9.7 n.a.
Henderson Inv 1.0 n.a. Sources: Bloomberg Finance L.P., DBS Vickers
Some key overhangs need to be lifted for sustainable rebound. Although we do not expect downside for the market, meaningful re-rating can only come when more overhangs are lifted. Firstly, the A-share market overhang needs to be addressed. We believe A-shares will continue to correct back to pre-rally PE valuations. This implies 12% downside for the SHCOMP. CSRC said it has cleaned up 60% of the grey market margin financing in the system, while the official margin financing amount has also declined from the peak. This paves the way for the final phase of the A-share market correction without repurcussions to the financial sector. This
concern was why there was frantic response in July to halt the A-share decline.
Secondly, there needs to be higher confidence in corporate earnings. Current market earnings forecasts point to an earnings recovery scenario for 2016, thanks to low base effect. 2016 earnings growth projections for the HSI and HSCEI are 7.7% and 7.4% respectively. But weak macro conditions and potential CNY depreciation can trim earnings outlooks. More pro-growth policies from China and more clarity on CNY trends will help stabilize earnings expectations.
SHCOMP still needs to fall 12% to 2,650, to return to pre-rally PE level of 10x
-
1,000
2,000
3,000
4,000
5,000
6,000
05 06 07 08 09 10 11 12 13 14 15 16
SHCOMP 5 yr mean of 1 yr forward P/E +1 std -1 std +2 std -2 std
17.1x
14.7x
12.3x
10.0x
7.6x
Sources: DBS Vickers
![Page 9: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/9.jpg)
Market Focus
Strategist's Blog
Page 9
HSI earnings forecasts (index points) HSCEI earnings forecasts (index points)
1,800
1,900
2,000
2,100
2,200
2,300
2,400
2,500
2,600
2,700
Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15
2014 2015 2016
1,200
1,300
1,400
1,500
1,600
1,700
1,800
Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15
2014 2015 2016
CNY / USD CSI300 earnings forecasts (index points)
6.006.056.106.156.206.256.306.356.406.456.50
Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15
200 220 240 260 280 300 320 340 360 380 400
Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15
2015 2016
Sources: Bloomberg Finance L.P., DBS Vickers
More bullish index targets in the medium term. We expect the market will remain in low valuations in the near term due to macro uncertainties and overhang from A-shares. This is reflected in our 3 month index targets, which only offer small upside. But we anticipate the medium term return for the market can be substantial. This is assuming China will roll out
more pro-growth policies, CNY depreciation will stabilize, and A-shares will become less of a drag on the Hong Kong market. Upside will be driven by slight PE re-rating and earnings recovery from a low base in China banks, China telecom, commodities, and gaming.
Hang Seng Index 3 month and 12 month targets
15,000
17,000
19,000
21,000
23,000
25,000
27,000
29,000
10 11 12 13 14 15 16
HSI 3M target 12M target
25,440
22,332
Tgt PE =10.5x
Tgt PE =11x
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 10: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/10.jpg)
Market Focus
Strategist's Blog
Page 10
HSI PE bands
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
08 09 10 11 12 13 14 15 16 17
HSI 5 yr mean of 1 yr forward P/E +1 std -1 std +2 std -2 std
12.7x
11.6x
10.5x
9.3x
8.2x
Sources: Bloomberg Finance L.P., DBS Vickers
HSCEI 3 month and 12 month targets
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
10 11 12 13 14 15 16
HSCEI 3M target 12M target
11,773
9,926
Tgt PE =7.8x
Tgt PE =7.1x
Sources: Bloomberg Finance L.P., DBS Vickers
HSCEI PE bands
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
HSCEI 5 yr mean of 1 yr forward P/E +1 std -1 std +2 std -2 std
5.8x
11.3x
9.9x
8.5x
7.1x
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 11: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/11.jpg)
Market Focus
Strategist's Blog
Page 11
Consensus earnings outlook for HSI components
HSI 2014 2015 2016 2015 2016China banks BoCom HK3328 1.12 1.07 1.09 -4.7% 2.2%
BOC HK3988 0.77 0.72 0.75 -6.2% 4.4%ICBC HK1398 0.98 0.95 0.98 -3.6% 3.8%CCB HK939 1.15 1.13 1.17 -2.2% 3.8%
HK banks BEA HK23 2.72 2.35 2.47 -13.7% 5.0%BOCHK HK2388 2.30 2.48 2.73 7.8% 10.2%Hang Seng Bank HK11 7.91 11.85 10.08 49.8% -15.0%HSBC HK5 5.35 6.20 6.31 15.9% 1.7%HKEX HK388 4.44 7.10 7.89 59.9% 11.1%
Insurance China Life HK2628 1.43 2.03 2.24 42.2% 9.9%Ping An HK2318 3.10 3.87 4.07 24.8% 5.3%AIA HK1299 2.25 2.48 2.76 10.0% 11.3%
Telcos China Mobile HK941 6.77 6.68 7.05 -1.3% 5.5%China Unicom HK762 0.68 0.64 0.70 -5.4% 9.3%
Oil PetroChina HK857 0.74 0.34 0.46 -54.6% 37.5%Sinopec HK386 0.50 0.40 0.49 -19.6% 22.9%CNOOC HK883 1.70 0.62 0.79 -63.7% 27.9%
Coal China Shenhua HK1088 2.45 1.54 1.59 -37.1% 3.2%China Coal HK1898 1.54 1.62 1.87 5.3% 15.3%
Gas Kunlun Energy HK135 0.70 0.52 0.63 -26.3% 22.3%Towngas HK3 0.61 0.67 0.72 10.0% 7.3%
Power CLP HK2 4.44 4.35 4.56 -2.0% 4.6%China Res Power HK836 1.94 2.64 2.70 36.2% 2.2%Power Assets HK6 7.88 3.69 3.77 -53.2% 2.4%
HK property MTR HK66 2.13 1.86 1.60 -12.8% -13.8%Cheung Kong HK1 16.30 8.75 9.80 -46.3% 12.0%SHK Land HK16 8.53 7.36 8.73 -13.7% 18.6%Henderson Land HK12 5.11 2.84 3.09 -44.4% 8.6%New World Development HK17 1.37 0.80 0.90 -41.3% 12.4%Hang Lung Property HK101 2.29 1.39 1.36 -39.4% -2.2%Sino Land HK83 1.01 0.85 0.92 -15.9% 8.6%Llink REIT HK823
China property COLI HK688 3.39 3.20 3.59 -5.6% 12.0%China Resources Land HK1109 1.94 2.16 2.45 11.3% 13.4%
Conglomerates China Resources HK291 (0.07) 0.34 0.45 -584.3% 33.6%Citic Pacific HK267 1.60 2.15 2.11 34.6% -1.9%China Merchants HK144 1.59 1.80 1.96 12.9% 9.3%Swire HK19 7.36 7.10 7.30 -3.5% 2.8%Wharf HK4 3.46 3.79 4.07 9.5% 7.5%
Gaming Galaxy HK27 2.44 1.40 1.60 -42.5% 14.3%Sands China HK1928 2.45 1.49 1.51 -39.1% 1.1%
Tech Lenovo HK992 0.60 0.64 0.20 7.3% -69.7%Tencent HK700 3.25 4.07 5.28 25.2% 29.8%
Transport Cathay Pacific HK293 0.80 1.65 1.82 105.9% 10.3%Cosco Pacific HK1199 0.78 0.86 0.93 10.5% 7.9%
Commerce Li & Fung HK494 0.41 0.38 0.43 -6.8% 11.5%Consumer Hengan HK1044 3.19 3.51 3.95 10.0% 12.4%
Belle Int'l HK1880 0.67 0.68 0.70 1.5% 3.1%Want Want HK151 0.36 0.37 0.42 2.5% 13.0%Tingyi HK322 0.56 0.57 0.68 2.3% 18.8%
EPS (HK$) EPS growth
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 12: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/12.jpg)
Market Focus
Strategist's Blog
Page 12
Consensus earnings outlook for HSCEI components
2014 2015 2016 2015 2016
Banks BOC HK3988 0.77 0.73 0.76 -5.6% 4.5%
BoCom HK3328 1.12 1.06 1.09 -5.1% 2.2%
CCB HK939 1.15 1.14 1.18 -1.2% 3.9%
CMB HK3968 2.79 2.92 3.22 4.5% 10.3%
ICBC HK1398 0.98 0.95 0.99 -3.6% 4.3%
ABC HK1288 0.69 0.68 0.71 -1.9% 4.9%
Citic Bank HK998 1.10 1.07 1.13 -2.9% 5.5%
Minsheng HK1988 1.65 1.62 1.72 -1.8% 5.9%
Insurance China Life HK2628 1.43 1.98 2.17 38.3% 9.8%
PICC Group HK1339 0.39 0.45 0.47 15.4% 3.3%
CPIC HK2601 1.54 2.09 2.30 36.0% 9.9%
PICC P&C HK2328 1.34 1.49 1.52 10.9% 2.5%
Ping An HK2318 3.10 3.62 3.85 16.6% 6.4%
Brokers and AM Citic Securities HK6030 1.30 1.86 2.01 42.9% 8.3%
Haitong HK6837 1.01 1.55 1.58 53.7% 1.7%
China CINDA HK1359 0.42 0.52 0.61 23.1% 17.8%
Telcos China Telecom HK728 0.28 0.29 0.32 3.6% 9.7%
Oil and serv ices PetroChina HK857 0.74 0.37 0.54 -50.4% 46.6%
Sinopec HK386 0.50 0.40 0.51 -20.4% 29.1%
China Oilfield HK2883 1.98 0.69 0.89 -65.3% 29.7%
China property Dalian Wanda HK3699 4.88 4.81 5.97 -1.4% 24.1%
China Vanke HK2202 1.80 1.97 2.29 9.6% 15.9%
Power Huaneng Power HK902 0.96 1.08 1.18 12.8% 8.9%
China Longyuan HK916 0.40 0.58 0.67 44.5% 16.3%
CGN Power HK1816 0.21 0.17 0.20 -20.0% 19.6%
Construction and China Railway HK390 0.61 0.67 0.75 9.7% 12.0%
machinery China Comm Cons HK1800 1.08 1.15 1.29 6.1% 12.5%
Cement Anhui Conch HK914 2.61 2.10 2.32 -19.6% 10.7%
CNBM HK3323 1.38 0.82 0.94 -40.8% 15.5%
Coal China Coal HK1898 0.08 (0.19) (0.09) -341.0% -54.3%
China Shenhua HK1088 2.45 1.52 1.58 -37.9% 3.9%
Autos BYD HK1211 0.23 0.95 1.10 314.3% 15.8%
GAC Group HK2238 0.62 0.69 0.84 11.1% 21.8%
Dongfeng Motors HK489 1.88 1.69 1.85 -10.1% 9.2%
Greatwall Motor HK2333 3.32 3.94 4.52 18.6% 14.7%
Others Tsingdao HK168 1.85 1.87 2.05 1.1% 9.5%
Sinopharm HK1099 1.40 1.60 1.91 14.5% 19.3%
Air China HK753 0.39 0.78 0.79 99.0% 1.3%
J iangxi Copper HK358 1.06 0.66 0.80 -37.6% 20.4%
EPS (HK$) EPS growth
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 13: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/13.jpg)
Market Focus
Strategist's Blog
Page 13
Expected macro environment and their impacts
IndexAlready occurredOngoing eventsExpected eventsImpacts
MSCI did not include A‐shares
Desperate scramble to
prevent domino effect on margin
China's macro outlook remains
weak
Rmb depreciation t rend
Fiscal action to help
transformation
IMF SDR basket review delayed until
3Q16
China's interest rate cut cycle is
lengthening
China's real interest rate dipping to zero
Fear of impact to financial system due to excess leverage
Overhang for A‐share market from eventual exit plan
China can let market forces sort
itself
Domestic fisca l plan to prop up jobs in near term
Accelerate reforms and new
economy
China' s five year plan for 2016‐
2020
Winded down most toxic
leverage products
A‐shares not as appealing until
MSCI talks resume
Domestic property appetite to increase
FAI through Private Public Partnership
One belt one road to export excess
capacity
Increase tech and automation in manufacturing
Investment in infra and green
sectors
Exports to find some relief
IT and automation solution providers to benefit
Railway, construction,
telecom and power equipment to benefit
Water, alternative energy, waste management to
benefit
China property developers to benefit
Exporters and Chinese companies with overseas
revenues to benefit
Sources: DBS Vickers
![Page 14: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/14.jpg)
Market Focus
Strategist's Blog
Page 14
Three investment themes
China’s macro outlook remains lacklustre. We have mapped out the expected macro environment companies face on the next page. China’s macro trends are still weak despite rate cuts since November 2014. The official data are well circulated so we will not repeat their publication here. If we look at
other economic gauges, they point to an even more drastic slowdown than what the official figures suggest. In this environment, we recommend companies that can benefit from expected macro and monetary policies. We also favor laggards with turnaround potential.
Electricity production
Railway freight
-10%
0%
10%
20%
30%
40%
50%
0
100
200
300
400
500
600
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Electricity production yoy% (RHS)
(kWh bn)
-20%
-10%
0%
10%
20%
30%
170,000 180,000 190,000 200,000 210,000 220,000 230,000 240,000 250,000 260,000 270,000
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Railway freight ton km m yoy% (RHS)
(Ton km m)
Sources: CEIC, Bloomberg Finance L.P., DBS Vickers
Theme 1: Companies that benefit from macro policies and initiatives
China to accelerate reforms and new initiatives. China will roll out its next five year plan for 2016-2020 in coming months. We expect the plan will focus on accelerating reforms and new initiatives, to prop up new industries and wean China from its reliance on traditional FAI and cheap exports. Hence, we believe the upcoming five year plan will reiterate a lot of initiatives that were rolled out in the government work report earlier this year. These include encouraging companies to go global, partly through the “one belt one road” scheme. China
will also upgrade its manufacturing sector, combat pollution, and continue SOE reforms to improve efficiency.
We expect infrastructure companies and equipment providers to benefit from the go-global initiative, especially for companies with track record of winning overseas contracts. Meanwhile, IT and automation solution providers will see continued growth opportunities in China’s economic shift. Similarly, environmental and alternative energy sectors should see faster growth than China’s GDP given pollution initiatives. Lastly, SOEs earmarked for reform and restructuring can potentially benefit from efficiency or bargaining power gains.
![Page 15: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/15.jpg)
Market Focus
Strategist's Blog
Page 15
Some anticipated policies of upcoming five-year plan
Polic ies Benef ic iaries
F inancialreforms
Rely less on SOE banks to channel country's sav ings Insurance, brokerages, asset managers
Go globalst rategy
Encourage Chinese companies to go global, particularly forrecommended sectors. Silk road plan complements thisstrategy.
Railways, electric power, communications,engineering machinery, automobile, aircraft,electronics
"Made inChina 2025"
Upgrade manufacturing to German model, with moreautomation and design. China will also promotebreakthroughs in ten sectors
Automation, information technology, railwayequipment, energy-sav ing cars, high-end medicalequipment
SOE reform Introducing mixed ownership to SOEs, through divestmentsand employee share incentives.
SOEs with restructuring possibilities. Ie COFCOgroup, Everbright Ltd, Sinopharm, CNBM.
Combatpollut ion
Energy and water conservation, increase renewable energysources, emission controls.
Water companies, alternative energy, waste toenergy operators
Promotedesiredconsumpt ion
Encourage development of in healthcare, information goods,and leisure serv ices and goods
Healthcare, airlines, theme parks, internet
Sources: DBS Vickers
Theme 2: Companies that benefit from monetary and currency trends
China’s real interest rate decline to benefit property and FAI. We expect Chinese policy makers will continue to cut interest rates. We expect another 50bps in benchmark rate cuts to come before mid-2016. This will help lower funding cost for investments. Combined with lower funding hurdles for
infrastructure projects enacted by the NDRC recently, we expect FAI will gradually pick up. Further interest rate cuts will also push China’s real deposit rates towards zero. This should further help property pre-sales recovery, especially when A-shares is less appealing as an asset class. Thus we expect China property and fixed asset investment plays to benefit from China’s interest rate cycle.
Falling real interest rates in China
China property monthly pre-sales
(6)
(4)
(2)
0
2
4
6
8
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
(%)
1 yr real lending rate 1 yr real deposit raterate hikes rate cuts
0100,000200,000300,000400,000500,000600,000700,000800,000900,000
1,000,000
Jan-
06Ju
n-06
Nov
-06
Apr
-07
Sep-
07Fe
b-08
Jul-0
8D
ec-0
8M
a y-0
9O
ct-0
9M
ar-1
0A
u g-1
0Ja
n-11
Jun-
11N
ov-1
1A
pr-1
2Se
p-12
Feb-
13Ju
l-13
Dec
-13
Ma y
-14
Oct
-14
Mar
-15
Au g
-15
Rmb m
Sources: Bloomberg Finance L.P., DBS Vickers
USD strength to help exporters. Our DBS currency team forecasts continued USD strength in the coming 12 months, and foresee substantial EUR weakness and moderate weakness in CNY and Asian currencies. We believe Chinese
exporters can benefit from a weaker CNY, but we favor companies that export more to the US rather than to Europe. On the flip side, Chinese companies with HKD or USD borrowing stand to lose from USD strength.
![Page 16: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/16.jpg)
Market Focus
Strategist's Blog
Page 16
DBS house currency forecasts
EUR usd/ usd/ usd/ usd/ usd/ usd/ usd/ usd/ usd/ usd/
/usd JPY CNY HKD TWD KRW SGD MYR THB IDR PHP
9-Sep 1.1204 120.48 6.3778 7.7509 32.480 1191 1.4162 4.3230 36.068 14,260 46.900
4Q15 1.10 119 6.42 7.76 32.6 1,204 1.42 4.34 36.0 14,470 47.9
1Q16 1.08 120 6.45 7.76 33.0 1,223 1.43 4.35 36.5 14,850 48.4
2Q16 1.06 121 6.49 7.76 33.4 1,242 1.45 4.36 36.9 15,230 48.8
3Q16 1.04 122 6.52 7.76 33.8 1,262 1.47 4.37 37.4 15,610 49.3
4Q16 1.04 122 6.50 7.76 33.7 1,257 1.46 4.37 37.3 14,640 49.1
Sources: DBS Vickers
Winners and losers from Rmb depreciation
Sector Companies Impact
Posit iv e Exporters Techtronic (669.HK)
TK Group (2283.HK)
Shenzhou Int'l (2313.HK)
Pacific Textiles (1382.HK)
Vtech (303.HK)
Samson (531.HK)
T echnology Lenovo (992.HK)
ASM (522.HK)
AAC Acoustics (2018.HK)
A utos and Minth (425.HK) 30% of sales are from overseas while costs are largely Rmb
others Guangdong Investment (270.HK) Water sales to HK are fixed in HK$ but costs are in Rmb
ZTE (763.HK) Margins or competitiveness for overseas business to improve
Negat iv e A irlines Air China (753.HK), China EasternAirlines (670.HK), China SouthernAirlines (1055.HK)
Revenues are in Rmb, but majority of debt and some costs areUS$ based
Paper L&M Paper (2314.HK) Rmb revenues but forex cost base; HK$/US$ liabilities
Nine Dragons (2689.HK) Rmb revenues but forex cost base; HK$/US$ liabilities
Chinaproperty
COGO (81.HK), COLI (688.HK),Agile (3383.HK)
Has HKD/USD liabilities
HK bank s BEA (23.HK) Rmb depreciation will have negative translation effect. Moreimpact for BEA given larger portion of Rmb assets.
HK retail Slightly lower purchasing power of mainland tourists in HK$terms
Gaming Slightly lower spending power of mainland tourists
Others Texhong (2678.HK) 90% revenues are in Rmb but 65% of COGS is in USD
Brilliance China (1114.HK) Slight negative as some engines are imported from Germany
Value Partners (806.HK) Translation of A-shares to fund NAVs for performance fees
China Unicom (762.HK) Offshore debt translation
Baosteel (600019) USD debt translation to hit Rmb EPS
Far East Horizon (3360.HK) Offshore funding
Maanshan Iron & Steel (323.HK) USD/EUR debt is 30% of total debt
Sinopharm (1099.HK) Some procurement of overseas drugs for sale in China
Majority of costs are in Rmb while sales are largely in foreigncurrencies.
Sales are primarily denominated in USD, while costs are largely inRmb.
Sources: DBS Vickers
![Page 17: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/17.jpg)
Market Focus
Strategist's Blog
Page 17
Theme 3: Value and laggard picks
Chinese banks and autos as laggard picks. Airlines, oil, global banks, gaming, Chinese brokers, banks, and autos are key laggards since the A-share collapse on July 8, 2015. Among these, we believe China banks and China autos are attractive bottom fishing targets. Both sectors’ ROE vs. P/BV relationships are on the cheap side. China banks’ PB hit 2 standard deviations below mean, which is only justified if
there is systemic risk in the system. We also expect Chinese banks’ earnings growth recovery next year can be a catalyst. Earnings confidence for the sector will be higher with more pro-growth initiatives from China. Meanwhile, we have seen improving m-o-m auto sales in August, and this should continue in 4Q thanks to new models and seasonality. Our PEG screen also contained many auto companies which have low PEGs.
Sector performance since July 8th
-30%
-20%
-10%
0%
10%
20%
30%
Tran
spor
t (ai
rlin
es)
Oil
Ban
ks -
Glo
bal
Gam
ing
Bro
kers
-Ch
ina
Ban
ks -
Chi
naA
uto
s an
d p
arts
HSC
EIC
onsu
mer
(ret
aile
rs)
Coa
lSt
eel &
alu
min
ium
Con
sum
er (h
ouse
hol
d)H
SIPr
ope
rtie
s -H
KC
onsu
mer
(lux
urie
s)G
asPr
oper
ties
-Chi
naFo
od
and
bev
erag
esB
anks
-H
KSo
ftw
are
& IT
ser
vice
sC
ong
lom
erat
es -
HK
Har
dwar
e &
equ
ipIn
sura
nce
Pow
er -
Chi
naRE
ITC
emen
tTe
leco
m -
HK
Tele
com
-C
hina
Phar
mac
eutic
als
Wat
er, e
nvi
ron
men
tal
Ind
ustr
ial
Tran
spo
rt (t
oll
road
s)Tr
ansp
ort
(por
ts)
Con
sum
er (a
ppa
rel)
Con
sum
er (p
erso
nal)
Pow
er, i
nfr
a &
uti
litie
sA
ltern
ativ
e en
erg
yRa
il &
co
nstr
uctio
nTr
ansp
ort
(shi
ppin
g)C
onsu
mer
(spo
rtsw
ear)
Sources: DBS Vickers
China banks’ P/BV
China autos PE relative to market PE
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
x
0.78
'13 trough =0.86
'13 max =1.31
14 max = 0.99
14 trough = 0.76
0.0
0.5
1.0
1.5
2.0
2.5
3.0
08 09 10 11 12 13 14 15
Auto / HSI 2yr mean-2 stdev +2 stdev
x
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 18: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/18.jpg)
Market Focus
Strategist's Blog
Page 18
P/B vs. ROE
China banks
China non-bank financials
China property
EnvironmentalRailway and construction
Apparel and footwear
China auto and parts
China IPPs
China materials
China telecom carriers
China telecom equipment
Hong Kong banks
Hong Kong property
Hong Kong telecom
Pharmaceutical & healthcare
Textiles
China coal
China F&B
Oil
Retailers
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0
(2016F ROE)
(201
5P/
B)
Sources: PBOC, DBS Vickers
Stocks with earnings growth improvement in 2016 and reasonable valuations (2016F PE < 10x or PEG < 1x)
EPS CA GR
T icker Company 2015F 2016F change 2014 2015F 2016F 14-16 PEG
173 K. Wah Intl -6% 93% 100% 12.8 13.7 7.1 34.5% 0.37
3333 Evergrande Real Estate -50% 37% 87% 4.4 8.8 6.4 -17.3% (0.25)
311 Luen Thai -7% 65% 72% 8.0 8.5 5.2 24.3% 0.33
817 Franshion Properties -47% 24% 71% 3.4 6.5 5.2 -18.9% (0.18)
1114 Brilliance China -22% 28% 51% 7.2 9.3 7.2 -0.1% (50.0)
570 China Traditional Chinese Medicine 16% 73% 57% 27.8 24.0 13.9 41.6% 0.67
1300 Trigiant Group -37% 13% 50% 3.8 6.0 5.2 -15.2% (0.25)
3377 Sino-Ocean Land -21% 26% 47% 5.8 7.4 5.9 -0.4% (13.8)
1117 China Modern Dairy -26% 20% 45% 7.2 9.6 8.0 -5.6% (1.27)
1378 China Hongqiao Group -14% 30% 44% 3.6 4.2 3.2 5.7% 0.63
1109 China Resources Land -28% 16% 43% 7.4 10.2 8.8 -8.6% (0.85)
6136 Kangda International -4% 38% 41% 10.1 10.4 7.6 15.2% 0.66
1313 China Resources Cement -24% 4% 29% 5.7 7.5 7.2 -11.3% (0.50)
2007 Country Garden -20% 8% 27% 4.1 5.1 4.7 -7.0% (0.59)
1366 J iangnan Group -1% 23% 24% 6.4 6.4 5.2 10.3% 0.62
489 Dongfeng Motor Group 1% 10% 9% 5.1 5.0 4.5 5.8% 0.88
2202 China Vanke 8% 17% 8% 9.6 8.9 7.6 12.3% 0.79
998 China CITIC Bank 1% 8% 7% 4.3 4.2 3.9 4.6% 0.92
EPS growth PE
Sources: DBS Vickers
![Page 19: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/19.jpg)
Market Focus
Strategist's Blog
Page 19
Lowest PEG ratios in DBSV universe
EPS CA GR
T icker Company 2015F 2016F 2014 2015F 2016F 14-16 PEG
881 ZhongSheng 70% 35% 7.0 4.1 3.0 51.8% 0.13
165 China Everbright Ltd 71% 61% 11.5 6.7 4.2 65.6% 0.18
2678 Texhong Textile Group 70% 64% 12.3 7.2 4.4 67.1% 0.18
1728 China ZhengTong 34% 21% 6.4 4.8 3.9 27.3% 0.23
2333 Great Wall Motor 36% 22% 6.8 5.0 4.1 28.3% 0.24
337 Greenland (Hong Kong) 328% 207% 69.8 16.3 5.3 262.5% 0.27
1148 Xinchen China Power Hldgs 14% 32% 6.9 6.1 4.6 22.2% 0.31
311 Luen Thai -7% 65% 8.0 8.5 5.2 24.3% 0.33
2238 Guangzhou Automobile 33% 16% 8.4 6.3 5.4 24.1% 0.35
2342 Comba 105% 15% 19.0 9.3 8.0 53.8% 0.35
173 K. Wah Intl -6% 93% 12.8 13.7 7.1 34.5% 0.37
175 Geely Automobile 77% 12% 16.8 9.5 8.5 40.6% 0.41
3777 China F iber Optic Network 5% 19% 5.5 5.2 4.4 11.8% 0.47
605 China F inancial Serv ices 12% 13% 5.9 5.3 4.7 12.6% 0.47
3618 Chongqing Rural Bank 12% 7% 4.7 4.2 3.9 9.6% 0.49
2283 T K Group 30% 18% 11.8 9.1 7.7 23.8% 0.50
EPS growth PE
Sources: DBS Vickers
Barbell strategy – buy policy beneficiaries and laggards. No sector fit into all of the three themes, mainly because it is hard for a stock to lag the market when its fundamentals should benefit from ongoing interest rate cuts and expected fiscal policies. Hence we believe the sweet spot to be the
overlapping area between beneficiaries of macro and monetary policies. These would include China property and fixed asset investment plays. At the same time, we also recommend laggards with turnaround potential, being Chinese banks and Chinese autos.
![Page 20: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/20.jpg)
Market Focus
Strategist's Blog
Page 20
Matrix for stock selection
Can benefit from Can benefitexpected fis ca l initia tives from monetary pol ic ie s or
currency trends
China railway and construction China property (net +ve)Environmental companies CH property China railway and constructionOther infra and FAI plays China railway and Environmental companies
IT and automation solutions construction HK banks (net +ve for non-CNH)Environmental
SOE reform: COFCO, Sinopharm, ZTE 763 Exporters: Techtronic 669, Vtech 303, CNBM, Unicom, COSCO Pac Textile 1382, Shenzhou 2313,
Sinopec Samson 531
Offshore revenues:Lenovo 992, Minth 425
GD Inv 270Sinopec 386 TK Group 2283
China banksChina autos and parts
Airlines, global banks, oilChinese brokers, gaming
Screen - growth improvement with cheap valuations:CTCM 570, Kangda 6136, Luen Thai 311China Modern Dairy 1117, Jiangnan 1366
Laggards and va lue picks
Sources: DBS Vickers
![Page 21: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/21.jpg)
Market Focus
Strategist's Blog
Page 21
Recommended sector weightings
Overweight on China banks, property, railway and construction, environmental, and IT. We have upgraded China property and China railway and construction from Neutral to Overweight. Both sectors have lagged, but will benefit from lower Rmb interest rates and fiscal support. We were lukewarm towards China banks during the results season and took out our China banking picks from our top ten. But we are now more positive as valuations have hit 2 standard deviations below mean. We like banks with low dilution risk and strong ability to pay dividends even in the face of rising NPLs. We also like environmental and IT and e-commerce
companies, as they will likely be featured in the coming five year plan.
Underweight on China coal, F&B, HK property, HK REITs, and HK retailers. Hong Kong is entering a structural downturn. We do not see a turnaround for HK retail, and HK property outlook is clouded by USD rate changes and poor capital market performance in recent weeks. For these reasons, we have downgraded Hong Kong banks to Neutral. We still expect HK banks to benefit from USD rate hikes, but macro uncertainties and CNH funding pressures can offset the benefit. We also downgraded China coal to underweight due to poor profitability and earnings revisions.
Latest recommended sector weightings
Sector Weight ing Change Rat ionale
China banks Overweight Trough valuations; earnings recovery from low base to be catalyst
China property Overweight Upgraded Expecting sales recovery due to rate cut, HPR and mortgage policies
Railway and construction Overweight Upgraded Lower borrowing rates, domestic fiscal spending, and overseas contracts
Environmental Overweight Pollution control to be featured in 5 yr plan; prefer smaller caps
Internet and e-commerce Overweight E-commerce continues to gain market share; IT to be featured in 5-year plan
Apparel and footwear Neutral Prefer sportswear companies; avoid companies with large HK exposure
China airlines Neutral Earnings upgrades thanks to falling oil price, but hurt by CNY depreciation
China appliances Neutral Outlook to improve on back of expected rebound in property sales
China auto and parts Neutral Slow car sales balances cheaper commodity input costs
China coal Neutral Documentary "Under the Dome" is scary; structurally unattractive
China IPPs Neutral Helped by lower coal prices; prefer operators with more alternative exposure
China materials Neutral Upgraded Fundamentals can improve slightly if domestic FAI picks up moderately
China non-bank financials Neutral We look to rev isit this sector when SZ-HK stock connect kicks off
China retailers Neutral Prefer players with strong O2O initiatives or defense against e-commerce
China telecom carriers Neutral VAT reform will no longer negatively drag earnings in 2016
China telecom equipment Neutral 4G network capex to slow slightly in 2015; prefer overseas exposure
Gaming Neutral Worst seems to be over for y-o-y gaming revenue declines
Hong Kong banks Neutral Downgraded A rare sector that can benefit from USD interest rate normalisation
Hong Kong telecom Neutral Industry consolidation should help pricing in the future
Oil Neutral Oil price remains weak on both demand and supply concerns
Pharmaceutical + healthcare Neutral Downgraded Positive long term drivers, but pricey valuations limit upside in current mkt
Textiles Neutral Profitability is normalizing in 2015 thanks to cotton prices
China coal Underweight Downgraded Documentary "Under the Dome" is scary; structurally unattractive
China F&B Underweight High valuations cap upside, particularly with earnings downgrades
Hong Kong property Underweight US interest rate cycle and HK political pressure are key risks
HK REITs Underweight Rising risk appetite and US$ interest rate normalization are key risks
HK retailers Underweight Unfavorable structural change in mainland tourist spending behavior
Sources: DBS Vickers
![Page 22: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/22.jpg)
Market Focus
Strategist's Blog
Page 22
Top ten picks
Adding BoCom, CRCC, GAC, and ZTE. We are adding these stocks as they fit into our three investment themes. We took out China banking picks in early 3Q due to macro uncertainty and an extension in China’s interest rate cut cycle. We believe the sector is now oversold and see value re-emerging. Thus we are adding BoCom (3328.HK) back into our top ten picks. Aside from China banks, we also like China autos as another laggard play. We like Guangzhou Automobile (2238.HK) as its sales YTD have fared well, while seasonality and new models should lift 4Q sales.
We are also adding in ZTE. The company stands to benefit from Rmb depreciation. Overseas contracts should also grow as China accelerates its go-global and “one belt one road” initiatives as part of its 2016-2020 five year plan. Similarly, we
believe CRCC (1186.HK) will benefit from overseas contract wins and a pick up in domestic FAI.
Taking out Yestar, Dah Sing, Far East Horizon, and CR Land. Yestar has gained 33% since we highlighted it as an oversold play and included it in our top ten. We believe its risk-reward is less appealing than before and we opt for larger caps in our top ten list. Meanwhile, we are taking out Far East Horizon as an extension of China’s interest rate cut cycle will hurt its interest margins. The de-rating of pure play healthcare service companies also dampens FEH’s sentiment. For Dah Sing Financial, we still like the stock, but we believe large caps may be in focus in the first leg of a market recovery. Lastly, we are also replacing CR Land, largely to make room for more diversified picks. We leave COLI to represent China properties, which we like as a sweet spot for the market.
GAC sales
BoCom P/BV bands
0 20,000 40,000 60,000 80,000
100,000 120,000 140,000 160,000 180,000 200,000
Jan
Feb
Mar
Apr
May Jun Jul
Aug Se
p
Oct
Nov
Dec
2012 2013 2014 2015
unit
2
3
4
5
6
7
8
9
10
11
12
07 08 09 10 11 12 13 14 15 16
HK$
0.62x
0.71x
0.80x
0.89x
0.98x
Sources: Bloomberg Finance L.P., DBS Vickers
DBSV top picks performance (simple average)
DBSV top picks performance (market cap weighted)
90
100
110
120
130
140
150
160
Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15
DBSV top picks HSI
(28 Feb 2014 = 100)
90
100
110
120
130
140
150
160
170
180
Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15
DBSV top picks - market cap weightedHSI
(28 Feb 2014 = 100)
Sources: Bloomberg Finance L.P., DBS Vickers
![Page 23: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/23.jpg)
Market Focus
Strategist's Blog
Page 23
DBSV top ten BUYs
EPS
Clo s ing DBSV T g t CA G RT ic k er p ric e rat in g Pric e F Y 15F F Y 16F 14 - 16 F Y 1 5F F Y 16F F Y 15F F Y 16F F Y 15 F F Y 1 6F
T o p p ic k s (HK $ ) (HK $ ) (X ) (X ) (% ) (% ) (% ) (X ) (X ) (% ) (% )BOCOM 3328.HK 5.56 BUY 9.34 5.0 4.8 2.7 13.4 12.5 0.6 0.6 6.3 6.7
COLI 688.HK 22.75 BUY 38.96 7.3 6.8 -0.7 17.2 15.5 1.0 1.0 2.8 3.0
CH Railway Constr. 1186.HK 11.08 BUY 17.00 9.2 8.5 6.2 12.2 11.6 1.0 0.9 1.6 1.8
GZ Automobile 2238.HK 5.61 BUY 8.30 6.3 5.4 24.1 12.3 12.9 0.7 0.7 4.8 5.5
Nexteer Auto 1316.HK 7.88 BUY 8.75 12.1 9.7 27.1 27.2 26.9 2.9 2.4 1.7 2.1
Sinopharm Group 1099.HK 28.00 BUY 34.00 17.4 15.0 16.3 12.8 13.4 2.1 1.9 1.6 1.8
Tencent 700.HK 131.20 BUY 184.00 30.1 23.4 32.1 31.8 31.4 9.5 7.2 0.4 0.5V alue Partners 806.HK 7.14 BUY 14.20 9.5 9.4 29.2 32.3 27.6 2.8 2.5 6.2 6.3
Wasion Group 3393.HK 8.22 BUY 12.50 10.7 9.0 21.5 16.4 16.8 1.6 1.4 3.3 4.0
ZTE 763.HK 17.02 BUY 24.00 16.4 14.4 21.7 13.1 13.4 2.0 1.8 1.5 1.7
Simp le av erage 13 .2 11 .3 19 .7 19 .5 18 .8 2 .6 2 .2 2 .7 3 .0
* consensus estimates
PER RO E Div y ieldPB V
Sources: DBS Vickers
Our updated top ten list:
Bank of Communications (3328.HK) 2Q NPL and NPL formation trends were better than other SOE banks. The bank has higher exposure to Yangtze River Delta,
which has hurt the bank in the past. But NPL pressure is now higher in Western, Central, and Northeast China. BoCom was approved by the State Council to conduct mixed-ownership reform. Better ownership structure and internal
reforms (e.g. employee stock ownership plan, performance-driven compensation system) will help to align interest and improve efficiency and profitability.
Allowed to acquire Huaying Securities, and can have headstart in leveraging its bank network on new non-bank financial businesses.
China Overseas Land (688.HK)
Recently revised up sales targets after gaining market share from smaller peers
Impact of Rmb depreciation is not as bad as feared since 2/3 of foreign liabilities are hedged by foreign cash and investments
Can benefit from falling real interest rates and a lukewarm equity market
China Rail Construction (1186.HK) Chinese policy makers are helping infrastructure funding by lowering borrowing costs and project capital requirements, and
this will help domestic demand. Company can win overseas contracts as part of China’s “one belt one road” strategy. Decline in borrowing costs to help high gearing companies like CRCC.
GAC Group (2238.HK) Has lagged the market on slowing sales concerns; current valuation is attractive against new growth profile (PEG of 0.35). New models and seasonality should help 4Q sales. Parent company Guangzhou Automobile Industry Group has been buying H-shares.
Nexteer (1316.HK)
Nexteer is the world's leading electronic power steering producer
Push for fuel-efficiency is triggering shift from hydraulic power steering to electronic systems
Traditionally strong in the US, Nexteer is expanding to China to augment growth
![Page 24: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/24.jpg)
Market Focus
Strategist's Blog
Page 24
Sinopharm (1099.HK)
Healthcare is highlighted as a focus area in China's government work report; parent company is also pilot for SOE reform
Aging population and rising wealth underpin the industry's demand growth
Large drug distributors like Sinopharm has been gaining market share with its reliability in supply and ability to extend credit
Tencent (700.HK)
New advertising offerings help drive revenue growth; Tencent only has 5% market share in online ads
We foresee Tencent can better monetize its >800m users through new ad offerings and new apps
We project Tencent can grow its revenues by 50% CAGR during FY14-16
Value Partners (806.HK)
We do not foresee large downside risk to AUM given market valuations and past redemption patterns, while P/AUM is already at trough levels
The fund house is still in a performance fee cycle, because watermark levels are attainable
Company will also benefit from trend of mainland wealth diversifying to offshore assets and asset managers
Wasion (3393.HK)
Energy metering and energy efficiency management company. Customers include the State Grid, the Southern Grid, various industries and local governments in China, Egypt, Indonesia, Thailand, Vietnam, Brazil.
The company has been winning overseas contracts to augment growth. Latest contract wins include a US$9.4m AMI contract in Tanzania. It has also won Rmb68m and Rmb10m AMI contracts in Mexico and Brazil through partnership with Siemens. Total overseas contract value amounts to >Rmb300m YTD.
China’s power grid needs upgrading to minimize energy loss as part of China’s conservation plans. The company benefits from increasing ADO sales orders.
ZTE (763.HK)
Beneficiary of Rmb depreciation thanks to overseas revenues and Rmb cost base.
4G network buildout in China supports strong growth in the near-term.
Beneficiary of “one belt one road” and “go global” initiatives.
![Page 25: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/25.jpg)
Market Focus
Strategist's Blog
Page 25
DBSV universe comparison table
St ockcode St ock name
M k tCap
(US$m)
SharePric e
(HK $)
T argetPric e
(HK $)upside
(% ) RemdPE (x )
15FPE (x )
16FPB (x )
15FY ld (% )
15FRO E (% )
15FA ut o manuf ac t urers & dealers
1114 Brilliance China 6,083 9.38 12.60 34 B 9.3 7.2 1.8 1.4 22.01728 China ZhengTong 830 2.91 5.50 89 B 4.8 3.9 0.6 4.2 12.31828 Dah Chong Hong 671 2.84 3.70 30 B 7.4 6.4 0.5 4.0 7.3
489 Dongfeng Motor Group 10,184 9.16 11.35 24 B 5.0 4.5 0.8 2.6 16.4175 Geely Automobile 3,759 3.31 3.30 0 H 9.5 8.5 1.2 1.6 13.7
2333 Great Wall Motor 8,793 22.40 48.10 115 H 5.0 4.1 1.3 7.0 28.9601633 Great Wall Motor-A @@@ 9,818 25.01 49.65 99 H 7.1 5.8 1.8 6.3 28.5
2238 Guangzhou Automobile 4,658 5.61 8.30 48 B 6.3 5.4 0.7 4.8 12.3425 Minth Group 2,073 14.52 15.00 3 B 10.4 9.0 1.4 3.8 14.5
1316 Nexteer Automotiv e Group 2,540 7.88 8.75 11 B 12.1 9.7 2.9 1.7 27.21148 Xinchen China Power Hldgs 292 1.76 3.30 88 B 6.1 4.6 0.7 0.0 11.8
881 ZhongSheng 845 3.05 6.70 120 B 4.1 3.0 0.4 4.9 11.0Bank ing and F inance (Ch ina- A ) @ @ @
601288 Agricultural Bank of China-A 145,894 3.16 4.04 28 H 5.7 5.6 0.9 5.8 16.7601988 Bank of China-A 180,725 3.91 5.11 31 H 6.6 6.4 0.9 5.9 15.0601328 Bank of Comm-A 74,856 6.42 8.16 27 B 7.2 7.0 0.9 3.6 13.4601998 China CITIC Bank-A 45,104 6.14 7.26 18 S 7.0 6.6 1.0 3.8 14.6601939 China Construction Bank-A 216,288 5.51 7.39 34 H 6.0 5.9 1.0 4.2 17.3600036 China Merchants Bank-A 71,314 18.01 23.42 30 B 7.3 6.6 1.2 4.2 18.3600016 China Minsheng Bank-A 51,786 9.04 10.64 18 FV 6.6 6.1 1.1 2.3 17.9601398 ICBC-A 254,052 4.54 6.37 40 B 5.7 5.6 0.9 5.8 17.4
Bank ing and F inance (Ch ina)1288 Agricultural Bank of China 127,401 3.04 4.63 52 H 4.4 4.2 0.7 7.6 16.73988 Bank of China 135,607 3.57 5.86 64 B 4.8 4.5 0.7 6.7 15.03328 Bank of Communications 53,277 5.56 9.34 68 B 5.0 4.8 0.6 6.3 13.4
998 China CITIC Bank 28,072 4.65 8.31 79 B 4.2 3.9 0.6 7.1 14.6939 China Construction Bank 175,167 5.43 8.47 56 B 4.7 4.5 0.8 7.0 17.3605 China F inancial Serv ices 259 0.52 0.92 77 B 5.3 4.7 0.6 4.7 12.5
3968 China Merchants Bank 60,397 18.56 26.82 45 B 5.9 5.3 1.0 5.1 18.31988 China Minsheng Bank 34,837 7.40 12.19 65 H 4.3 3.9 0.7 3.5 17.93618 Chongqing Rural Bank 5,136 4.28 7.50 75 B 4.2 3.9 0.7 6.5 17.11398 ICBC 217,520 4.73 7.30 54 B 4.7 4.5 0.8 7.0 17.4
Bank ing and F inance (HK )2388 Bank of China HK 33,287 24.40 26.40 8 B 9.7 8.8 1.4 4.1 14.6
23 Bank of East Asia 8,813 26.10 33.50 28 H 9.0 8.7 0.8 4.6 9.6165 China Everbright Ltd 3,792 17.44 23.84 37 B 6.7 4.2 0.9 5.9 12.6
2356 Dah Sing Banking Group 2,652 14.66 14.90 2 B 9.7 9.2 1.0 2.6 10.43360 Far East Horizon 3,114 6.11 7.92 30 B 6.5 6.0 0.8 3.5 14.1
11 Hang Seng Bank (1) 35,868 145.40 143.80 -1 B 13.9 16.5 2.2 4.1 16.65 HSBC Holdings 151,696 60.10 93.70 56 B 8.2 8.1 0.7 7.0 9.4
Cement 914 Anhui Conch Cement 16,274 23.80 28.96 22 B 10.9 9.7 1.4 2.9 13.5
600585 Anhui Conch Cement-A @@@ 12,629 18.47 23.20 26 B 10.3 9.1 1.3 3.7 13.53323 China Nat'l Bldg Mat 3,253 4.67 4.45 -5 FV 5.5 5.6 0.4 2.7 8.01313 China Resources Cement 3,085 3.66 4.26 16 H 7.5 7.2 0.8 2.7 10.8
691 Shanshui Cement 2,743 6.29 2.20 -65 FV 38.6 35.8 1.6 0.4 3.9Chemicals
2283 T K Group 235 2.20 3.50 59 B 9.1 7.7 2.7 4.4 33.5
Source: DBS Vickers
(1) TP and/or Rec under review
@@@ denominated in RMB
![Page 26: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/26.jpg)
Market Focus
Strategist's Blog
Page 26
DBSV universe comparison table (con’t)
St oc kc ode St oc k name
M k tCap
(US$m)
SharePric e
(HK $)
T argetPric e
(HK $)upside
(% ) RemdPE (x )
15FPE (x )
16FPB (x )
15FY ld (% )
15FRO E (% )
15FCong lomerat es- HK
4 Wharf Holdings # 16,700 42.70 53.00 24 B 11.4 10.4 0.5 4.5 3.620 Wheelock # 8,966 34.20 41.40 21 B 6.9 6.7 0.7 3.4 5.1
F ood and Bev erages600597 Bright Dairy & F ood@@@ 2,429 15.30 19.70 29 B 26.6 21.3 3.9 2.3 15.2
506 China F oods 1,335 3.70 3.95 7 B 31.4 25.1 1.7 0.0 5.42319 China Mengniu 6,694 26.45 36.90 40 B 16.4 14.0 1.8 1.4 11.61117 China Modern Dairy 1,410 2.06 3.10 50 B 9.6 8.0 0.5 0.0 7.9
322 Tingy i Holding 8,460 11.70 13.20 13 H 21.8 18.5 2.6 2.3 12.4168 Tsingtao Brewery 6,066 34.80 31.90 -8 H 23.0 24.0 2.3 1.3 10.5
600600 Tsingtao Brewery -A @@@ 5,355 30.72 26.20 -15 F V 24.8 25.8 2.5 1.2 10.5220 Uni-President China 3,957 7.10 7.75 9 H 24.9 23.1 2.1 1.2 9.0345 V itasoy 1,588 11.80 12.30 4 H 32.8 28.8 6.4 2.1 20.3151 Want Want China 11,200 6.61 7.00 6 H 18.7 17.2 4.6 1.5 26.6
Hardw are & Equ ipment552 China Comm Serv ices 2,636 2.95 4.50 53 B 7.5 6.8 0.7 4.0 9.4
3777 China F iber Optic Network 434 1.57 2.90 85 B 5.2 4.4 0.8 0.0 16.22342 Comba 372 1.56 1.90 22 H 9.3 8.0 0.7 2.7 8.22618 TCL Communication 860 5.29 5.50 4 H 5.8 5.8 1.4 6.0 25.61300 Trigiant Group 305 1.51 2.30 52 B 6.0 5.2 0.8 9.4 14.6
856 V ST Holdings 419 2.13 3.00 41 B 5.4 5.0 0.7 5.5 13.8303 V Tech 3,029 93.45 110.00 18 B 12.8 12.0 5.0 7.7 39.7763 ZTE 9,059 17.02 24.00 41 B 16.4 14.4 2.0 1.5 13.1
000063 ZTE -A @@@ 7,936 14.91 24.00 61 H 17.9 15.8 2.2 1.4 13.1Househo ld /Personal (Ch ina/HK )
1880 Belle Int'l 7,139 6.56 11.50 75 B 9.3 8.8 1.8 11.2 18.92111 Best Pacific Int'l Hldgs 422 3.20 4.40 38 B 10.2 9.1 1.7 2.9 18.16388 Coach @ ^^^ 821 23.00 48.10 109 H 7.9 7.4 2.8 5.0 36.7
210 Daphne International 366 1.72 1.35 -22 H 657.6 20.1 0.6 0.0 0.11169 Haier Electronics 4,607 12.78 18.41 44 B 9.2 8.2 1.8 1.1 21.51044 Hengan 11,667 73.85 87.50 18 H 21.4 19.1 4.7 3.0 22.8
494 Li & F ung 5,429 5.00 11.30 126 B 8.8 7.7 2.1 8.0 24.52331 Li Ning 890 3.66 4.80 31 B 201.5 17.3 1.8 0.0 1.0
311 Luen Thai 172 1.29 1.80 40 B 8.5 5.2 0.4 3.6 5.21382 Pacific Textile 2,053 11.00 12.50 14 B 14.8 14.1 4.6 7.3 28.91913 Prada 10,202 30.90 33.18 7 H 20.0 22.1 3.0 3.1 15.8
531 Samson Holding 397 1.01 1.24 23 B 16.0 14.9 0.8 11.9 5.11910 Samsonite Int'l ^^ 4,466 24.55 26.54 8 B 21.6 18.6 3.2 2.2 15.51023 Sitoy Group 486 3.76 4.05 8 H 9.1 8.7 1.8 6.1 20.11836 Stella International 1,968 19.20 20.80 8 H 14.8 13.0 2.0 4.9 13.72678 Texhong Textile Group 594 5.20 8.50 63 B 7.2 4.4 1.0 4.1 14.2
321 Texwinca 1,350 7.57 9.00 19 B 13.5 11.2 1.7 7.4 12.8
Source: DBS Vickers
# P/NAV ; '@ denominated in USD ; @@@ denominated in RMB; ^^^ Valuation based on US-listed share; ^^ Core profit and EPS
![Page 27: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/27.jpg)
Market Focus
Strategist's Blog
Page 27
DBSV universe comparison table (con’t)
Stockcode Stock name
Mk tCap
(US$m)
SharePrice
(HK$)
TargetPrice
(HK$)upside
(%) RemdPE (x )
15FPE (x )
16FPB (x )
15FY ld (%)
15FROE (%)
15FIndust rials
517 Cosco International 868 4.39 5.20 18 B 19.3 17.7 0.8 2.6 4.41366 J iangnan Group 805 1.53 2.20 44 B 6.4 5.2 1.0 3.9 17.5179 Johnson Electric 3,068 27.00 27.20 1 H 15.1 13.7 1.7 2.1 11.5
2314 Lee and Man Paper 2,638 4.45 5.50 24 H 8.9 7.9 1.1 4.0 12.62689 Nine Dragons 2,577 4.28 4.50 5 FV 12.6 11.1 0.6 1.6 5.23393 Wasion Group 1,089 8.22 12.50 52 B 10.7 9.0 1.6 3.3 16.4
Inf rast ructure152 Shenzhen International 2,634 10.76 14.04 30 B 10.1 9.5 1.1 3.0 11.1
Inv estment Serv ices (China / HK)806 Value Partners Group 1,701 7.14 14.20 99 B 9.5 9.4 2.8 6.2 32.3
Media 752 Pico Far East 301 1.91 2.98 56 B 8.3 7.4 1.3 6.4 16.6511 TVB 1,509 26.70 35.09 31 FV 6.5 10.3 1.3 7.4 20.2
Pharmaceut ical & Health Care2877 China Shineway 991 9.29 9.50 2 H 8.8 8.6 1.2 4.5 14.1570 China Traditional Chinese Med 3,042 5.50 11.30 105 B 24.0 13.9 1.8 0.0 10.0
1681 Consun Pharmaceutical 632 4.90 6.80 39 B 14.9 11.9 2.5 0.7 17.6000999 CR Sanjiu Medical & Pharm@@ 3,527 22.95 36.20 58 B 18.8 16.8 3.0 1.9 16.7
853 Microport Scientific 564 3.07 1.95 -36 FV n.a. 69.5 1.7 0.0 -2.11498 PuraPharm Corporation 119 4.10 7.20 76 B 20.0 13.0 2.0 0.0 15.21066 Shandong Weigao 3,107 5.38 5.10 -5 H 17.9 15.9 1.9 1.7 10.81099 Sinopharm Group 9,997 28.00 34.00 21 B 17.4 15.0 2.1 1.6 12.8
600535 Tasly Pharmaceutical Group 6,005 35.40 32.00 -10 H 21.8 19.4 6.0 1.6 30.7300026 Tianjin Chase Sun Pharm@@@ 2,380 16.63 21.40 29 H 27.3 22.1 3.3 0.4 15.2
2393 Yestar International 822 2.93 4.27 46 B 27.4 18.2 4.4 1.7 23.6Propert ies (China) (2)
3383 Agile Property # 1,900 3.76 3.66 -3 H 3.5 3.9 0.2 7.1 8.8832 Central China # 451 1.43 1.89 32 B 3.8 3.5 0.2 7.8 11.1
1224 CC Land # 631 1.89 2.06 9 H 4.3 20.8 0.7 4.6 7.481 China Overseas Grand Oceans 710 2.41 4.30 78 B 3.4 2.3 0.3 2.1 12.5
688 China Overseas # 28,945 22.75 38.96 71 B 7.3 6.8 0.9 2.8 17.21109 China Resources Land # 16,580 18.54 24.98 35 B 10.2 8.8 0.7 2.7 11.02202 China Vanke 23,806 16.70 23.41 40 B 8.9 7.6 0.7 3.9 18.2
000002 China Vanke-A @@@ 18,561 13.02 19.31 48 B 8.4 7.2 0.7 4.2 18.22007 Country Garden # 7,898 2.71 4.86 79 B 5.1 4.7 0.6 6.4 15.43333 Evergrande Real Estate # 8,519 4.55 5.35 18 H 8.8 6.4 0.5 2.8 5.7fsg sp F irst Sponsor Group @@ 1 1.23 1.57 28 B 13.4 11.8 0.6 1.4 5.9
817 Franshion Properties # 2,575 1.87 2.97 59 B 6.5 5.2 0.4 4.6 7.9813 Shimao Property # 5,027 11.22 13.50 20 B 4.3 4.0 0.4 8.0 15.2272 Shui On Land # 1,750 1.69 1.97 17 H n.a. n.a. 0.3 0.5 -1.5
3377 Sino-Ocean Land # 4,041 4.16 6.70 61 B 7.4 5.9 0.5 4.5 8.3410 Soho China # 2,006 2.99 3.60 20 FV 46.6 28.0 0.3 1.1 0.7337 Greenland (Hong Kong) # 1,153 3.58 8.28 131 B 16.3 5.3 0.6 0.0 7.7
Yllg sp Yanlord Land # @@ 1,453 1.05 1.54 47 B 10.5 7.2 0.5 1.3 4.6123 Yuexiu Property # 1,968 1.23 1.49 21 H 7.4 6.4 0.4 5.6 5.7
Source: DBS Vickers
@@ denominated in SGD; # P/NAV
(2) core net profit
![Page 28: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/28.jpg)
Market Focus
Strategist's Blog
Page 28
DBSV universe comparison table (con’t)
St oc kcode St oc k name
M k tCap
(US$m)
SharePric e
(HK $)
T argetPric e
(HK $)upside
(% ) RemdPE (x )
15FPE (x )
16FPB (x )
15FY ld (% )
15FRO E (% )
15FPropert ies (HK )
1113 CK Property 28,362 56.95 75.20 32 B 13.7 12.1 0.6 2.4 6.541 Great Eagle # 2,020 23.55 28.60 21 H 9.9 10.0 0.3 3.1 3.010 Hang Lung Group # ^ 4,703 26.90 42.25 57 H 10.0 9.8 0.5 3.0 4.8
101 Hang Lung Properties # ^ 10,270 17.70 25.05 42 B 13.8 13.5 0.5 4.3 4.312 Henderson Land # ^ 20,534 48.15 51.15 6 B 16.7 15.8 0.6 2.4 3.9
HKL SP Hongkong Land ^ # @ 15,764 6.70 9.32 39 B 17.5 17.2 0.6 2.8 3.214 Hy san Dev elopment # 4,391 32.00 39.40 23 B 14.7 14.5 0.5 4.0 3.4
173 K. Wah Intl # 1,125 3.11 4.66 50 B 13.7 7.1 0.3 4.8 2.6683 Kerry Properties # 4,058 21.75 29.80 37 B 8.5 8.1 0.3 3.7 4.5488 Lai Sun Dev elopment # 332 0.13 0.26 105 B 11.3 12.2 0.1 2.0 1.1
66 MTR ^ # 26,415 35.00 36.60 5 H 18.7 23.1 0.9 3.0 6.517 New World Dev # 8,974 7.73 11.74 52 B 10.2 9.2 0.4 5.4 4.016 SHK Properties # ^ 37,267 100.40 140.00 39 B 14.3 11.5 0.5 3.3 4.683 Sino Land # 0 11.54 13.98 21 B 13.2 13.2 0.5 4.3 4.6
1972 Swire Properties # 16,418 21.75 28.20 30 B 17.1 17.0 0.6 3.1 3.588 Tai Cheung # 490 6.15 8.65 41 B 6.9 10.9 0.3 4.9 8.2
369 Wing Tai Properties # 737 4.26 5.24 23 B 14.0 17.7 0.3 3.2 1.8Railw ay & Const ruc t ion
1800 China Comm Construction 20,244 9.70 15.80 63 B 8.1 7.3 1.0 2.8 12.6601800 China Comm Construction-A @@@ 24,126 11.56 25.30 119 H 12.1 10.9 1.4 2.4 12.6
1186 China Railway Construction 19,414 11.08 17.00 53 B 9.2 8.5 1.0 1.6 12.2601186 China Railway Construction-A @@@ 24,355 13.90 26.90 94 H 14.4 13.4 1.6 1.3 12.2
390 China Railway Group 21,075 7.15 11.45 60 B 10.2 9.2 1.1 1.5 11.9601390 China Railway Group-A@@@ 33,013 11.20 22.90 104 H 19.4 17.9 2.2 0.9 12.2
1766 CRRC Corp 33,098 9.40 18.40 96 B 15.5 12.8 2.2 1.9 15.3601766 CRRC Corp-A @@@ 43,908 12.47 33.50 169 H 25.7 21.2 3.6 1.5 15.3
3311 China State Construction 5,551 10.72 12.20 14 H 9.9 8.6 1.8 3.0 19.9Real Est at e Inv est ment T rust
2778 Champion REIT 2,845 3.82 4.78 25 B nmf nmf 0.5 5.1 2.3778 F ortune REIT 1,803 7.42 9.18 24 B nmf nmf 0.6 6.2 3.7
6139 J inmao Inv estment 1,213 4.70 5.49 17 B nmf nmf 1.1 9.5 3.9808 Prosperity REIT 514 2.78 3.06 10 B nmf nmf 0.6 6.2 3.6435 Sunlight REIT 821 3.89 4.23 9 B nmf nmf 0.5 5.7 2.9823 Link REIT 12,157 41.75 47.10 13 B nmf nmf 0.8 4.4 25.4
Rest au rant s538 Ajisen China 445 3.16 5.40 71 F V 10.6 9.7 1.0 5.6 9.9341 Cafe de Coral 1,890 25.15 28.60 14 H 24.7 21.9 4.0 2.7 15.9
Ret ailers814 Beijing J ingkelong 96 1.80 1.50 -17 H 18.9 15.6 0.4 6.7 2.0653 Bonjour Holdings 134 0.31 0.38 25 H 2.2 10.2 0.9 3.4 53.5116 Chow Sang Sang 1,357 15.54 20.33 31 B 7.8 8.6 1.1 4.9 14.9330 Esprit Holdings 1,618 6.45 6.70 4 F V n.a. 133.4 0.9 0.5 -20.6709 Giordano 778 3.84 4.25 11 H 13.2 12.1 2.0 7.2 15.5
3308 Golden Eagle % 1,929 8.68 8.54 -2 H 12.7 12.6 2.1 2.9 17.6493 Gome Elec Appliances % 2,583 1.18 1.26 7 H 12.2 11.0 0.9 3.3 7.8
3389 Hengdeli 648 1.05 0.94 -10 H 10.4 9.6 0.7 2.9 6.51833 Intime Department Store 2,327 8.24 10.00 21 B 12.7 11.1 1.4 4.3 10.9
J D US J D.com ^^@ 34,552 24.98 40.40 62 B 595.0 107.5 6.2 0.0 -4.6980 Lianhua Supermarket 563 3.90 4.14 6 H 158.2 132.6 1.1 0.0 0.7
Source: DBS Vickers
^ EPS and Net Profit exclude fair value changes on investment properties; % - Fully Diluted EPS; # P/NAV; ^^Core profit and EPS; '@ denominated in USD
![Page 29: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/29.jpg)
Market Focus
Strategist's Blog
Page 29
DBSV universe comparison table (con’t)
Stockcode Stock name
MktCap
(US$m)
SharePrice
(HK$)
TargetPrice
(HK$)upside
(%) RemdPE (x )
15FPE (x )
16FPB (x )
15FYld (%)
15FROE (%)
15FRetailers (cont 'd)
1212 Lifesty le 2,378 11.48 13.69 19 H 8.6 8.6 1.5 5.3 18.9590 Luk Fook 1,476 19.42 28.00 44 B 7.1 7.4 1.3 5.7 20.0825 New World Dept Stores 318 1.46 1.93 32 H 9.2 9.1 0.4 5.4 4.1
1438 Nirvana Asia Ltd 662 1.90 3.05 61 B 12.9 11.2 1.9 3.9 15.3398 Oriental Watch 78 1.06 1.56 47 H 134.2 37.7 0.3 0.9 0.2
3368 Parkson 360 1.03 0.90 -13 FV 44.9 13.7 0.4 5.9 1.0178 Sa Sa 1,138 3.10 2.90 -6 H 10.5 13.8 3.6 7.6 35.0
1700 Springland Int'l 655 2.08 2.33 12 H 7.7 7.3 0.8 5.2 10.76808 Sun Art Retail Group 7,546 6.13 5.20 -15 FV 19.4 18.8 2.3 2.2 12.2891 Trinity Ltd 146 0.65 1.00 54 H n.a. 15.4 0.3 n.a. -0.2
1025 Wumart ^^ 581 3.50 3.57 2 H 12.8 12.7 0.8 0.0 7.0Sof tware & Computer Serv ices
268 Kingdee 996 2.65 3.80 43 B 26.9 20.6 1.8 0.6 8.5700 Tencent ^^ 159,146 131.20 184.00 40 B 30.1 23.4 9.5 0.4 31.8
600588 Yonyou Network Tech@@@ 5,045 22.02 17.00 -23 FV 63.1 48.5 5.5 0.9 10.1Steel, aluminium & copper
347 Angang Steel 3,062 3.28 5.73 75 B 66.5 38.2 0.4 0.4 0.6000898 Angang Steel-A @@@ 4,294 4.60 4.99 8 H 113.1 65.0 0.7 0.2 0.6600019 Baoshan Iron & Steel Co-A@@@ 14,662 5.67 9.09 60 B 22.8 15.5 0.8 3.2 3.6
1378 China Hongqiao Group 3,164 3.85 4.45 16 H 4.2 3.2 0.5 6.2 13.9323 Maanshan I & S 1,779 1.79 1.32 -26 FV nm nm 0.6 0.0 -10.0
600808 Maanshan I & S-A @@@ 2,971 2.99 1.45 -52 FV nm nm 1.1 0.0 -10.0486 United Co RUSAL PLC 6,881 3.51 7.00 99 B 6.1 4.9 1.1 0.0 27.0
Telecom Serv ices (China)941 China Mobile 238,168 90.15 129.00 43 B 13.7 13.0 1.6 3.1 12.5762 China Unicom 31,455 10.18 12.60 24 B 16.1 14.4 0.9 2.4 5.4728 China Telecom 41,667 3.99 5.00 25 B 14.0 12.5 0.9 2.3 6.4
Telecom Serv ices (HK)1883 CITIC Telecom 1,060 2.43 3.60 48 B 10.5 10.1 1.2 4.7 11.56823 HKT Trust 8,754 8.96 9.50 6 H 19.8 19.2 1.8 6.0 9.1215 Hutchison Telecom 1,872 3.01 3.70 23 H 14.6 14.0 1.2 5.1 8.7315 SmarTone 1,948 14.26 17.00 19 B 16.0 17.0 3.9 4.2 26.6
T ransportat ion - Port s & A irport s694 Beijing Capital Intl Airport 4,208 7.53 6.35 -16 B 16.1 14.5 1.4 2.5 9.1144 China Merchants Hldgs 8,328 24.95 36.60 47 B 12.1 11.2 0.9 3.1 7.6
1199 COSCO Pacific 3,805 10.03 13.00 30 B 12.6 11.8 0.8 3.2 6.3Ut it ilies
1816 CGN Power 18,003 3.07 4.60 50 B 18.7 15.4 2.1 1.6 10.7Warehouse
925 Beijing Properties 393 0.45 0.70 56 B n.a. n.a. 0.6 0.0 -1.4600340 China Fortune Land Dev@@@ 9,430 22.70 31.60 39 B 12.6 10.1 4.4 0.8 40.9
1668 China South City 1,973 1.91 2.96 55 B 3.9 7.1 0.6 7.3 16.6200053 Shenzhen Chiwan Petroleum 581 12.87 21.48 67 B 22.9 24.8 0.6 0.4 6.0
Source: DBS Vickers
@@ denominated in SGD; @@@ denominated in RMB
^^Core profit and EPS
![Page 30: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/30.jpg)
Market Focus
Strategist's Blog
Page 30
DBSV universe comparison table (con’t)
Stockcode Stock name
MktCap
(US$m)
SharePrice
(HK$)
TargetPrice
(HK$)upside (%) Remd
PE (x )15F
PE (x )16F
PB (x )15F
Y ld (%)15F
ROE (%)15F
Water Inf rast ructure, Env ironmental371 Beijing Enterprises Water % 6,097 5.42 6.50 20 B 20.1 16.3 2.6 1.5 14.0
1381 Canvest Environment Protection 883 3.42 4.00 17 B 29.5 18.3 2.7 0.0 9.5257 China Everbright Intl 6,028 10.42 13.80 32 B 22.1 16.8 2.6 1.4 12.3
CEWL SP China Everbright Water @@ 1,200 0.65 0.80 24 B 18.9 13.8 1.4 0.0 7.41363 CT Environmental Group 1,768 2.24 2.90 29 B 18.9 15.3 4.4 1.1 28.56136 Kangda International 542 2.03 2.60 28 B 10.4 7.6 1.1 0.0 11.0
SIIC SP SIIC Environment @@ 1,296 0.16 0.18 10 H 22.1 17.9 1.7 0.0 8.3967 Sound Global 7,521 7.00 10.71 53 B 11.5 9.0 1.9 0.0 18.3
1065 Tianjin Cap Environmental 748 4.06 3.50 -14 S 13.0 12.1 1.1 1.5 8.5600874 Tianjin Cap Environmental-A @@@ 1,370 7.44 7.50 1 S 29.0 27.0 2.4 0.7 8.5
CEL SP CITIC Envirotech @@ 1,219 1.52 1.70 12 B 23.5 23.8 2.1 0.3 12.2
Source: DBS Vickers
@@ denominated in SGD; @@@ denominated in RMB
% - Fully Diluted EPS
![Page 31: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/31.jpg)
Market Focus
Strategist's Blog
Page 31
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSVHK”), a direct wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVHK and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVHK accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVHK, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVHK and/or DBSVH (and/or any persons associated with the aforesaid entities), that:
a. such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
b. there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his / her spouse and/or relatives and/or associate who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
![Page 32: China / Hong Kong Market Focus Strategist's Blog outlook. Our 3 month and 12 month HSI targets are 22,332 and 25,440 respectively ... points. Similarly, the Hang Seng Utilities Index](https://reader035.vdocuments.us/reader035/viewer/2022081615/5fda4069678f360994354bff/html5/thumbnails/32.jpg)
Market Focus
Strategist's Blog
Page 32
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended in this report as of the date the report is
published. 2. DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates beneficially own a total of 1% or more of any class of common equity
securities of Fortune Real Estate Investment Trust (778 HK) mentioned in this document as of the latest available date of the updated information.
3. Compensation for investment banking services: DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Bank Of China Limited (3988 HK), Best Pacific International (2111 HK), Franshion Properties (817 HK), Yuexiu Property (123 HK), Jinmao Investments (6139 HK), Nirvana Asia (1438 HK), Purapharm Corporation (1498 HK) and Link REIT(823 HK) mentioned in this document.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or
located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This document is being distributed in Australia by DBSVHK, which is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 [“CA”] in respect of financial services provided to the recipients. DBSVHK is regulated by the Securities and Futures Commission under the laws of Hong KONG, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United Kingdom
This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.
Dubai
This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSV US, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBS Vickers Securities (USA) Inc (“DBSVUSA”) directly and not its affiliate.
Other jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Vickers (Hong Kong) Limited
18th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong
Tel: (852) 2820-4888, Fax: (852) 2868-1523