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Market Report Summary - 2 June 2015

Core Content

This report provides an overview of the financial performance and outlook for several sectors and specific companies, including Belle International, City Commercial Banks, the China Oil & Gas Sector, and the TMT Sector. It also includes market data and valuation statistics for the listed companies.

Key Sectors and Companies

Belle International (1880.HK)

• Rating: BUY
• Target Price (TP): HK$12.00
• Upside Potential: 15.2%
• Recent Performance: Reported inline FY15 results with 8.7% YoY revenue growth and 8.2% YoY earnings growth.
• Key Drivers: Sportswear sector showed strong growth (10.9% SSSG), while the footwear sector declined (4.2% SSSG in FY4Q15).
• Market View: The market has been overly bearish on Belle's long-term growth, but the company's solid fundamentals and premium brand positioning support its long-term potential.
• Valuation: Trading at 14.1x FY16 P/E, below its historical average of 22.3x and international peers at 18-20x.
• Outlook: The company is expected to maintain growth in the sportswear sector while the footwear sector may continue to decline.

City Commercial Banks

• Rating:
  • Bank of Chongqing (1963.HK): BUY
  • Huishang Bank (3698.HK): HOLD
• Target Price (TP):
  • Bank of Chongqing: HK$9.11 (upgraded from HK$7.71)
  • Huishang Bank: HK$4.31 (revised from HK$3.62)
• Upside Potential:
  • Bank of Chongqing: 18.3%
  • Huishang Bank: 3.6%
• Positive Factors:
  • LGFV Debt Replacement: Expected to benefit city commercial banks.
  • NPL Trends: Overdue loans peaked in 1Q2015 and have slowed, indicating potential for NPL improvements.
  • Chongqing Economic Growth: High GDP growth rate and strong macroeconomic environment.
  • Fee Income: Strong fee income business to support earnings growth.
• Valuation and Financials:
  • Bank of Chongqing: Shows consistent revenue and profit growth, with improved net interest income and fee income.
  • Huishang Bank: Revenue and profit growth expected, with a focus on fee and commission income and asset growth.

China Oil & Gas Sector

• Key Development: Private oil refineries have been granted crude oil import quotas, indicating government relaxation of import controls.
• Impact:
  • Earnings Boost: Expected to increase earnings for private oil companies.
  • Capacity Restructuring: Accelerate phase-out of outdated capacities and promote restructuring.
  • Market Coupling: Encourage multiple-channel financing and further liberalization of the domestic refined oil market.

TMT Sector

• Highlights:
  • Enlight Media has formed a strategic partnership with Alibaba.
  • Baidu's Ad Income is expected to rise.
  • Priceline Group announces additional $250M investment in Ctrip.
  • Lvmama secures $80M funding for growth in the tourism market.
  • IMAX plans an IPO for its China unit in Hong Kong.

Market Performance Overview

Hong Kong Equities

• Hang Seng Index (HSI): Price = 27,597, Abs change = +173, % change = +0.6%
• H-Share Index: Price = 14,299, Abs change = +196, % change = +1.4%
• Turnover: HK$164.8 billion, % change = -19.5%
• -% from HSI: 21.7%
• -% CBBC, wrnt: 23.3%

China Equities

• CSI 300 Index: Price = 5,076, Abs change = +236, % change = +4.9%
• Shanghai Composite Index: Price = 16,918, Abs change = +817, % change = +5.1%
• Shenzhen Composite Index: Price = 2,927, Abs change = +134, % change = +4.8%

Asian Equities

• Nikkei 225: Price = 20,570, Abs change = +7, % change = 0.0%
• Korea KOSPI: Price = 2,102, Abs change = -12, % change = -0.6%
• Taiwan TWSE: Price = 9,626, Abs change = -75, % change = -0.8%
• India Sensex 30: Price = 27,849, Abs change = +21, % change = +0.1%

US/European Equities

• DJIA: Price = 18,040, Abs change = +30, % change = +0.2%
• S&P 500: Price = 2,112, Abs change = +4, % change = +0.2%
• NASDAQ: Price = 5,083, Abs change = +13, % change = +0.3%
• UK FTSE 100: Price = 6,954, Abs change = -31, % change = -0.4%
• Germany DAX: Price = 11,436, Abs change = +22, % change = +0.2%
• France CAC40: Price = 5,025, Abs change = +17, % change = +0.3%

Other Indicators

• WTI oil: $60.20, Abs change = -0.1, % change = -0.2%
• Gold: $1,191.20, Abs change = +2.1, % change = +0.2%
• Copper futures: $6,024.00, Abs change = +9.0, % change = +0.1%
• Aluminum futures: $1,762.00, Abs change = +22.0, % change = +1.3%
• CRB futures: 223.5, Abs change = +0.3, % change = +0.1%
• Baltic Dry Index: 589.0, Abs change = 0.0, % change = 0.0%
• UST yield 3m: 0.00%
• UST yield 10y: 2.18%
• HIBOR 3m: 0.39%
• USD LIBOR 3m: 0.28%

HK Listco ADR US (Top Ten)

• Petrochina: ADR cls HK$ eqv. = 9.11, HK cls HK$ = 9.17, Chg % = -0.65%
• China Mobile: ADR cls HK$ eqv. = 102.52, HK cls HK$ = 103.30, Chg % = -0.75%
• HSBC: ADR cls HK$ eqv. = 73.63, HK cls HK$ = 73.85, Chg % = -0.30%
• China Life: ADR cls HK$ eqv. = 37.33, HK cls HK$ = 37.95, Chg % = -1.62%
• Sinopec Corp: ADR cls HK$ eqv. = 6.76, HK cls HK$ = 6.82, Chg % = -0.84%
• Hutchison Whampoa: ADR cls HK$ eqv. = 115.09, HK cls HK$ = 115.00, Chg % = +0.08%
• China Telecom: ADR cls HK$ eqv. = 5.18, HK cls HK$ = 5.22, Chg % = -0.74%
• Sun Hung Kai: ADR cls HK$ eqv. = 132.96, HK cls HK$ = 132.90, Chg % = +0.05%
• China Unicom: ADR cls HK$ eqv. = 13.22, HK cls HK$ = 13.22, Chg % = +0.02%
• Cheung Kong: ADR cls HK$ eqv. = 176.90, HK cls HK$ = 122.70, Chg % = +44.17%

Note: ADRs account for 33.2% weighting of HSI and 22.3% of H-share Index.

Peer Valuation Comparisons

Financial Highlights of Belle International

Financial Highlights of Bank of Chongqing

Financial Highlights of Huishang Bank

Key Ratios for Bank of Chongqing

Key Ratios for Huishang Bank