3 June 2014

Page | 1 MCI (P) 046/11/2013 Ref. No.: SG2014_0013

Report Review of May 2014

Hong Kong | INVESTNOTES REPORTS REVIEW Industry: Software (Kay Ng), Mainland financial, Utilities (Xingyu Chen), Mainland Telecom (Fanguohe), Mainland property, Oil and gas service (Chengeng), Air, Automobiles, Infrastructure (ZhangJing), New energy & Environmental Goods (Zhang Kun)

Software (Kay Ng) On the last trading day of May, major software and services stocks rebounded, ranking from 1.9% to 5.8%. Although the software sector generally followed the market in May, that rebound failed to compensate the degree of previous adjustment. The gap was still more than 20%, the highest reached 45%. Mobile gaming stocks performed weak, traded nearly the bottom during the month, while those with non-gaming business bottom out since the market was risk on in second half of May. During the month, market news released as PRC Government changed their attitude on foreign software and services companies. The state was concerning for the impact on IBM’s server business to country’s information security, while prohibiting government departments to install Microsoft Windows 8. For individual stocks, BOYAA announced its 1Q14 results with good performance, revenue grew 48%; Forgame’s acquisition of “Tower of Saviors" developer existed variables, the company could not confirm whether to continue the acquisition; Kingsoft and NetDragon 1Q14 results were published, Kingsoft quarterly revenue growth slowed sharply to 1%, office software business even regressed 30%, large sold off in a single day and price dropped more than 10%; NetDragon quarterly results went a slightly backwards. We are still expecting a long-term growth on software sector that it will be benefited well from state policies and market demand. However, mid-term price performance will depend more on market risk appetite. And we believe the individual stock performance will be more consistent with the sector. Mainland Financial (Xingyu Chen) The market was quite stable in May, HSI moved from 22,200 to 23,200. Most of Chinese banks’ prices went up this month. Domestic banks announced first quarterly reports of 2014, and the banks’ profits increased stably, in line with expectations. Although the banks’ interest incomes grew stably, impairment losses increased significantly due to the obvious deterioration of the asset quality. We expect the banks’ asset quality will continue to go down with the increase of impairment losses. Additionally, the banks’ CAR decreased obviously due to the implementation of new method from last year, representing the increase of the capital pressure, currently, both ABC and BOC announced the issuance of the preferred stock, with the amount of RMB80 and 100 billion respectively. We believe the capital pressure will be reduced through the issuance of the preferred stock, and there are more banks going to issue the preferred stock in future. According to the share price, BOC and ICBC recorded the better performance among the peers this month, the prices increased by 6.7% and 9.7% respectively compared with the end of last month. Overall, the banks’ operating performance meets our expectation, and we maintain Accumulate rating to the sector.

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Mainland Telecom (Fanguohe) In terms of industrial policy, State-owned Assets Supervision and Administration Commission (SASAC) requires three operators to reduce mobile phone terminal subsidy; the total subsidy reduced by three operators will be RMB 10 billion Yuan, among which China Mobile reduces RMB 5 billion Yuan, China Unicom RMB 2.5 billion Yuan and China Telecom RMB 2.5 billion Yuan respectively. China Mobile has taken the lead in the 4G technology. According to the statistics of April, the number of users of 4G of China Mobile increases 2.005 million, with the total number of 4.798 million users. Meanwhile, its total net user increase in single month is 3.531 million, which is higher than that of China Unicom (with an increase of 0.895 million) and China Telecom (with a net decrease of 1.03 million). The increasing number of new users of China Unicom falls to the record low in recent five years. Generally, China Mobile begins to regain market share and 4G business starts to break into the fast lane. We believe that the cut of mobile phone subsidy is structural, the subsidy for high-end 3G mobile phone will decrease but the 4G mobile phone will be focus on. In addition, China Mobile can maintain its advantages in short time period but with a limited extent, because mass production of 4G chip of Media Tek has to wait in the last half year, when sales of 4G LTE domestic mobile phones will increase dramatically. In 2014, the estimated overall CAPEX of operators will be RMB 406.4 billion Yuan with a growth of 12%, among which wireless investment will increase by 30%. Therefore, we believe that there will be a significant growth in production of wireless equipment, radio frequency/antenna, so we recommend ZTE and Mobi Development. In addition, more attention should be paid to manufacturers and component suppliers who master core technology such as Tongda Group and Coolpad Group. Mainland Property & Oil/Gas service (Chengeng) In May, 2014 I wrote three research reports on Samsonite, CSCI and Shimao Property, which got success by unique operation model. We recommend “CSCI”. We believe that, driven by the amount of adequate uncompleted contracts and robust new orders, the profit growth of CSCI in 2014 is expected to speed up. We expect that the profit growth of the company will respectively reach 50% in 2014 and 36% in 2015, and the compound average growth rate from 2011 to 2015 will reach 38%. With the deepened understanding by the market over the accelerated performance of CSCI and its features that distinguish it from common domestic-funded real estate stocks, the company's stock price is expected to recover after this round of adjustment. We give a “Buy” evaluation to CSCI, that the 12-month target price is 15.80 Hong Kong dollars, which equals to 17 times of price earnings ratio in 2014 and 15 times of price earnings ratio in 2015.

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Automobile & Air & Infrastructure (ZhangJing) This month we released 3 reports: updated Weichai(2338.HK), Dongfeng(489.HK), and Brilliance(1114.HK), which show good return from the day we recommended in May, especially Weichai’s +10% and Dongfeng’s +15.7%. The schedule for the implementation of China IV Emission Standards is to be clarified, and there is a large possibility that the performance will rebound in 2014. China IV Emission Standards for diesel vehicles is to be implemented nationwide on 1st Jan 2015, eliminating the market’s worries for the delay of the implementation. Based on the current process, the power of execution is larger than expectation, and Weichai will significantly be benefited from its leading position in SCR technology and product R&D as a large domestic diesel engine manufacturer, investors are suggested to accumulate the stock. Though it seemed to be lack of the sustainability of the strong recovery for Dongfeng’s main models in the Japanese JVs, the Group is planning to introduce 10 new passenger vehicles among which four of them focus on the current popular SUV market, including Dongfeng Nissan’s new X-Trail, Venucia’s new model of SUV, Dongfeng PSA’s SUV2008, the self-owned brand, Fengshen’s SUVG29. We hope the launch of these new models will accelerate sales of Dongfeng in the future, and suggested investors to accumulate the stock. BMW Brilliance's 14Q1 reported record profit, reaching the half of the total of 2013. With the rapid increase in production capacity and in the context of downward luxury cars in China, it is expected that BMW Brilliance is still riding on the fast track in China. We maintain accumulative rating. New energy & Environmental Goods (Zhang Kun) We updated three reports in this month, they were GCL Poly(3800HK), Goldwind Tech(2208HK) and Suntien Green Energy(956 HK). We recommend GCL Poly. The company has expanded its production line and operated well. The company will cooperate in new energy area with China Minsheng Investment, and it will provide fund support to GCL with lower cost. In 1st half, the development of distributed photovoltaic was large lower than expected and government is finding the way to solve the problems related to installment. We expect new policy will be published in the near future. The distributed photovoltaic industry has huge upside potential in the long run and GCL will benefit from that. In addition, the Shanghai-Hong Kong-Link that is available in October will support higher stock price by improving valuation level.

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Fig 1. Performance of Recommended Stocks

Time Ticker Company Analyst Rating

Price onRecommendation Date

TargetPrice

Expected Return

Last MonthClosingPrice

LastMonthReturn

ClosingPrice2M ago

1M PriceChg

2014-5-5 3800 HK Equity GCL-Poly ZK Buy 2.37 3.75 58.23% 2.41 1.69% 2.32 3.88%2014-5-7 765 HK Equity China Tianyi XY Buy 1.1 1.45 31.82% 0.85 -22.73% 0.87 -2.30%2014-5-8 1910 HK Equity Samsonite CG Buy 25.2 31 23.02% 24.35 -3.37% 24.6 -1.02%2014-5-9 2338 HK Equity Weichai ZJ Accumulate 26.25 29.7 13.14% 28.95 10.29% 27 7.22%2014-5-12 3888 HK Equity Kingsoft KN Neutral 22 21.42 -2.64% 23.45 6.59% 23.73 -1.18%2014-5-13 2208 HK Equity Goldwind ZK Accumulate 7.95 8.94 12.45% 8.74 9.94% 8.32 5.05%2014-5-14 941 HK Equity China Mobile GH Neutral 75.15 72.4 -3.66% 75.85 0.93% 72.16 5.11%2014-5-15 3968 HK Equity CMB XY Buy 13.88 17.2 23.92% 14.28 2.88% 13.84 3.18%2014-5-16 3311 HK Equity China State Con CG Buy 13.16 15.8 20.06% 13.42 1.98% 12.94 3.71%2014-5-19 489 HK Equity Dongfeng ZJ Accumulate 10.28 12.3 19.65% 11.9 15.76% 10.34 15.09%2014-5-20 434 HK Equity Boyaa KN Neutral 9.07 8.62 -4.96% 9.19 1.32% 7.94 15.74%2014-5-21 698 HK Equity Tongda GH Buy 0.93 1.26 35.48% 0.99 6.45% 0.88 12.50%2014-5-22 1988 HK Equity CMBC XY Accumulate 7.81 9.3 19.08% 7.96 1.92% 7.8 2.05%2014-5-23 813 HK Equity Shimao CG Neutral 15.42 14.8 -4.02% 15.62 1.30% 15.3 2.09%2014-5-26 1114 HK Equity Brilliance ZJ Accumulate 12.6 13.6 7.94% 12.86 2.06% 11.98 7.35%2014-5-27 956 HK Equity Suntien ZK Accumulate 2.85 3.3 15.79% 2.64 -7.37% 2.62 0.76%2014-5-28 1297 HK Equity Sinosoft KN Accumulate 2.47 2.8 13.36% 2.55 3.24% 2.33 9.44%2014-5-29 285 HK Equity BYD Elec GH Accumulate 5.06 6 18.58% 5.08 0.40% 4.78 6.28%2014-5-30 3618 HK Equity CRCB XY Buy 3.57 4.75 33.05% 3.58 0.28% 3.4 5.29%

Source: Company, Phillip Securities Research

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PHILLIP RESEARCH STOCK SELECTION SYSTEMS

We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation GENERAL DISCLAIMER This publication is prepared by Phillip Securities (Hong Kong) Ltd (“Phillip Securities”). By receiving or reading this publication, you agree to be bound by the terms and limitations set out below. This publication shall not be reproduced in whole or in part, distributed or published by you for any purpose. Phillip Securities shall not be liable for any direct or consequential loss arising from any use of material contained in this publication. 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Total Return Recommendation Rating Remarks >+20% Buy 1 >20% upside from the current price

+5% to +20% Accumulate 2 +5% to +20%upside from the current price -5% to +5% Neutral 3 Trade within ± 5% from the current price -5% to -20% Reduce 4 -5% to -20% downside from the current price

<-20% Sell 5 >20%downside from the current price

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Contact Information (Regional Member Companies)

SINGAPORE

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250, North Bridge Road #06-00 Singapore 179101

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Website: www.poems.com.sg

MALAYSIA

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Number 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur

Tel (603) 21628841 Fax (603) 21665099

Website: www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

Exchange Participant of the Stock Exchange of Hong Kong 11/F United Centre 95 Queensway

Hong Kong Tel (852) 22776600 Fax (852) 28685307

Websites: www.phillip.com.hk

JAPAN

PhillipCapital Japan K.K. Nagata-cho Bldg.,

8F, 2-4-3 Nagata-cho, Chiyoda-ku, Tokyo 100-0014

Tel (81-3) 35953631 Fax (81-3) 35953630

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INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta 10220 – Indonesia

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CHINA

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Green Tech Tower Unit 604, Postal code 200070

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THAILAND Phillip Securities (Thailand) Public Co. Ltd

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak,

Bangkok 10500 Thailand Tel (66-2) 6351700 / 22680999

Fax (66-2) 22680921 Website www.phillip.co.th

FRANCE

King & Shaxson Capital Limited 3rd Floor, 35 Rue de la Bienfaisance 75008

Paris France Tel (33-1) 45633100 Fax (33-1) 45636017

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UNITED KINGDOM

King & Shaxson Capital Limited 6th Floor, Candlewick House,

120 Cannon Street, London, EC4N 6AS

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UNITED STATES

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AUSTRALIA

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Melbourne, Victoria 3000, Australia Tel (613) 96188238 Fax (613) 92002272

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