Hang Seng Index Performance

Source: Bloomberg

Major Market Indicators

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

Hang Seng Index 27,788.52 0.3% -0.4% -7.7% 0.9%

HSCEI (H-Shares) 11,017.87 0.7% 1.3% -8.2% 1.0%

Mkt T/O ($ Mn) 84,401.10 8.6% -6.8% -40.8% -5.3%

Oversea

DJIA 26,651.21 0.7% 2.6% 12.7% 18.1%

NASDAQ 8,037.30 -0.1% -0.9% 17.0% 23.3%

Shanghai SE Composite 2,821.35 1.1% 3.5% -11.0% -15.8%

Shenzhen Component 8,401.09 0.8% -0.8% -22.7% -24.2%

Commodities and FX

Crude Oil Futures (US$) 75.44 0.2% 8.1% 19.7% 49.1%

Gold Futures (US$) 1,192.80 0.1% -0.7% -11.4% -6.5%

Baltic Dry Index 1,540.00 1.0% -2.5% 46.0% 16.0%

USD / Euro 1.16 0.1% -0.4% -5.8% -1.4%

Yen / USD 113.96 0.0% -2.5% -7.0% -1.1%

CNH / USD 6.89 0.0% -0.7% -8.9% -3.2%

% Change

Market Overview

Hang Seng Index closed up 0.3% at 27,788. HSCEI advanced 0.7%. Heavily weighted Tencent (700) and HSBC (5) cut 0.7% and 0.3% respectivley. AIA Group (1299) rose 1.3%. Railway, consumption, telecom and oil stocks outperformed the market. China Railway Group (390), CRRC Corporation (1766) and CCCC (1800) increased 0.6%-1.0%. China Mengniu Dairy (2319) and Shenzhou Int’l (2313) soared 2.1%-2.4%. China Mobile (941) and China Telecom (728) jumped 1.5% and 3.2% respectively. Three largest oil companies rose 1.8%-3.7%.

Gaming, technology, automobile, power, pharmaceutial, HK property and Chinese financial stocks lacked clear direction. Sands China (1928) climbed 0.4% while Galaxy Entertainment (27) slid 1.3%. BYD Co (1211), Guangzhou Automobile (2238) and Dongfeng Motor (489) surged 2.4%-4.6% while Geely Automobile (175) shrank 0.4%. Link REIT (823) grew 0.6% whilst CK Asset (1113) and Wharf REIC (1972) lost 2.1%-2.7%. Sinopharm (1099) increased 1.5%. Sino Biopharm (1177) and CSPC Pharmaceutical (1093) retreated 1.4%-2.0%. Bank of Communications (3328), PICC Group (1339), PICC P&C (2328), CITIC Securities (6030) and Huatai Securities (6886) climbed 1.2%-1.9%. New China Life (1336) and Haitong Securities (6837) plunged 1.3%-1.4%.

Ten largest Chinese property developers dropped an average 3.3% among which China Evergrande (3333), Sunac China (1918) and Country Garden (2007) tumbled 8.8%, 6.8% and 5.3% respectively. We expect Hang Seng Index to hover between 27,000 and 28,800 but the risk is on the upside.

2 October 2018

We expect Hang Seng Index to hover between 27,000 and 28,800 but the risk is on the upside.

Market in Focus Name

Bloomberg Ticker

BUY

$9.20

Rating

3M Avg Turnover ($, Mn)Target Price

Free Float (%)

206.1

6.96 - 10.24

100.0%

169.6

1800 HK Equity

CCCC MKT Cap ($Bn)

52-week High/Low ($)

China’s infrastructure investments is likely to increase in 4Q18 – Maintain BUY CCCC (1800)

Since our BUY commentary dated September 18, CCCC (1800, $8.00) has climbed 9.4% and outperformed Hang Seng Index by 6.0% over the same period. We believe the outperformance is mainly driven by speculation that China will increase infrastructure spending in the fourth quarter. China’s fixed assets investment growth decelerated from 7.2% in 2017 to 5.3% yoy in the first eight months of 2018. In order to offset the impact from escalating trade war tension between China and the U.S. and sustain economic growth, we believe the Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CCCC.

For the six months ended 30 June 2018, CCCC reported revenue of RMB207.6bn from continuing operations and net profits of RMB8,257mn representing an increase of 16.1% and 4.9% yoy respectively. Revenue from overseas markets surged 24.1% yoy to RMB43.0bn accounting for 20.7% of the total revenue. Gross margin was unchanged at 13.4%. Operating margin decreased from 7.9% to 7.2% due to rising administrative expenses. The value of new contracts increased 23.2% in 2017 but only 1.7% yoy in 1H18. Backlog amounted to RMB1,546.7bn as at 30 June 2018 or equivalent to 3.4x revenue for 2017. In 2018, CCCC targets to achieve an 8.0% growth in new contracts value to RMB970bn and 6.5% growth in revenue to RMB490bn. We believe the annual targets are achievable.

According to Bloomberg estimates, CCCC’s net profits from continuing operations are expected to reach RMB20.9bn in 2018 and RMB24.0bn in 2019 representing an increase of 17% and 15% yoy respectively. Traded at 2018 PER of 5.5x compared to 5-year average forward PER of 6.3x, CCCC is undervalued in our view. We therefore maintain our BUY rating on CCCC with an unchanged 6-month price target of $9.20 based on 2018 PER of 6.3x, same as the historical average.

Fig1: 1 Year Share Price

Source: Bloomberg, Mason Securities

Technical Ideas

Stock Code

BUY $11.80 293

$12.98 $14.16 Cathay Pacific Airways (293, $11.8) TP: $12.98 BUY

$11.21 TP: $12.98

CL: $11.2146.4 15.1%

90 34

184% 269%

40.9X 0.75X

97%

SMA10 11.24 RSI (14) 41.5

SMA20 11.37 BB (Upper) 11.83

SMA100 12.33 BB (Lower) 10.91

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

Cathay Pacific Airways Ltd

293 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

Cathay Pacific Airways

Stock Code

BUY $2.18 956

$2.40 $3.03 China Suntien Green Energy (956, $2.18) TP: $2.4 BUY

$2.07 TP: $2.4

CL: $2.078.1 88.1%

39 17

214% 230%

5.8X 0.72X

160%

SMA10 2.08 RSI (14) 44.8

SMA20 2.14 BB (Upper) 2.36

SMA100 2.37 BB (Lower) 1.92

Technical Indicator

Name

Rating / Last Closing Price

MKT Cap ($Bn) / Free Float

Turnover / 30D Avg ($Mn)

Our TP / Bloomberg TP

China Suntien Green Energy Cor

956 HK Equity

Cut Loss

Net Debt (Cash) / Equity

Forward PER / PBR

Turnover vs 5D & 30D Avg

China Suntien Green Energy

Source: Bloomberg, Mason Securities

Recent Recommendations

Date of Issue Stock Pick Recommendation Highlights Rating (TP)

13/9/2018 Anta Sports

(2020)

Earnings dilution from a possible acquisition of Amer Sports has been fully discounted in share price - Maintain BUY Anta Sports (2020)

• The sell-off is mainly due to concerns about a slowdown in revenue growth and earnings dilution from a possible acquisition of Amer Sports Corporation (ASC)

• We believe the potential earnings dilution effect has been fully discounted in share price

BUY ($42.0)

17/9/2018 Luk Fook

(590)

SSSG for Mainland China market is likely to improve in 2Q FY19 - Maintain BUY Luk Fook (590)

• Industry data for July and August suggests that Luk Fook’s SSSG in the Mainland China market may improve in 2Q FY19.

• Luk Fook is currently trading at FY19 P/E of 11.0x with EPS growth of 7.4% which is undervalued in our view.

BUY ($35.0)

18/9/2018 CCCC

(1800)

China’s infrastructure investments is likely to increase in 2H18 – Maintain BUY CCCC (1800)

• We believe the weakness in share price is mainly due to disappointment in interim earnings and new contracts acquisition

• We believe the Chinese government will substantially increase infrastructure spending in the second half of the year that will certainly benefit CCCC

BUY ($9.20)

19/9/2018 CRG

(1193)

China Resources Gas (1193): Better-than-expected interim results, Maintain BUY

• We continue to take a long-term positive view on the CRG given the industry’s long-term and stable growth.

• Traded at 2018 P/E of 17.9x and 2019 P/E 15.9x, we believe the valuation of CRG is fair.

BUY ($40.9)

20/9/2018 Shimao Property

(813)

Robust contracted sales growth for 8M18 - Maintain BUY on Shimao Property (813)

• We believe the underperformance is mainly driven by macro factors such as renminbi depreciation and worries about a slowdown in property sales in China. However, the fundamentals of Shimao remain solid

• Shimao’s contracted sales target of RMB140bn, up 39% yoy in 2018, is highly achievable

BUY ($24.50)

21/9/2018 COG

(581)

China Oriental Group (581): Re-rating on sustainable profitability, Maintain BUY

• We believe COG is one of the best companies and most efficient steel producers in China in terms of profitability or execution capability

• We expect an upward revision on COG earnings consensus in 2018 and 2019 after its strong interim results

BUY ($9.50)

24/9/2018 CSCI

(3311)

China’s infrastructure investment is likely to increase in 4Q18 – Maintain BUY CSCI (3311)

• Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CSCI

• Taking into account its good track record, we believe full year new contracts value for 2018 is likely to exceed management’s target

BUY ($10.0)

26/9/2018 ENN Energy

(2688)

ENN Energy (2688) : 1H18 core profit beat, maintain our LT bullish view on China gas operator; BUY

• We continue to take a positive view on China gas consumption market

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

BUY ($83.0)

27/9/2018 Galaxy Entertainment

(27)

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

• We believe the opening of the Hong Kong-Zhuhai-Macau Bridge in the fourth quarter of 2018 will improve earnings outlook for gamings stocks in the medium-to-long term

• We maintain our bullish view on the gaming sector and believe any share price correction is a good buying opportunity for long-term investors

BUY ($59.3)

28/9/2018 China Oilfield Services

(2883)

Capture CNOOC’s capex upcycle: BUY China Oilfield Services (2883) for short term trading purpose

• Capital flows into sectors which benefit from the investment theme of stagflation in China, such as oil related players

• COSL is a good proxy to capture the upcycle of CNOOC’s capex in coming years

BUY ($9.20)

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,

Mason Securities Limited,

Portion 1, 12/F, The Center,

99 Queen’s Road Central, Hong Kong

Tel: (+852) 2218 2818

Email: research@masonhk.com