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Global Equity Research

UBS Investment Research

Asia Pacific Ex. JP Sectors in this Issue

Hong Kong & China Daily Comment

Global Strategy Market Comment China A-Share Strategy - Affordable housing may benefit many sectors in the medium/long term Market Comment China Market Strategy - Who looks oversold? Economics China Economic Comment - Tao Wang , China's Imports from Japan and the Rest of the World Rating and Recommendation Changes Giordano, 0709.HK Benefit from unseasonably cold weather 12-month rating: Prior: Neutral => Buy, FY10E HK$0.28=>HK$0.31, FY11E HK$0.29=>HK$0.32, PT Prior: HK$4.90/US$0.63 => HK$5.07/US$0.65, Mkt Cap HK$6.00bn/US$0.77bn Estimate/Price Target Revisions China Life, 2628.HK Stock reaches an 18 month low 12-month rating: Buy (Unchanged), FYE -, PT Prior: HK$38.50/US$74.02 => HK$34.50/US$66.33, Mkt Cap HK$803bn/US$104bn Company Update CLP Holdings, 0002.HK Unwarranted nuclear sell-off 12-month rating: Buy (Unchanged), FY10E HK$3.83, FY11E HK$4.34, PT HK$80.00/US$10.25, Mkt Cap HK$147bn/US$18.8bn CSCI, 3311.HK Results saved by mainland market [Erratum] 12-month rating: Neutral (Unchanged), FY10E HK$0.32, FY11E HK$0.47, PT HK$7.40/US$0.95, Mkt Cap HK$21.2bn/US$2.71bn Jiangsu Expressway, 0177.HK In-line net profit, but dividends missed 12-month rating: Buy (Unchanged), FY10E Rmb0.49, FY11E Rmb0.54, PT HK$9.88/US$1.27, Mkt Cap HK$40.5bn/US$5.19bn Sino-Ocean, 3377.HK Long-term growth strategy unchanged 12-month rating: Buy (Unchanged), FY10E Rmb0.44, FY11E Rmb0.41, PT HK$5.60/US$0.72, Mkt Cap HK$24.4bn/US$3.12bn Haiyun Zhang p.41 Robin Xu p.36 Hubert Tang, CFA p.32 Stephen Oldfield p.27 Stephen Andrews, CFA p.22 Erica Poon Werkun, CFA p.13 John Tang p.3 Li Chen p.1

21 March 2011

http://www.ubs.com/investmentresearch

Sector (See Below)

Consumer, Cyclical Equity Strategy Financial Industrial Utilities

UBS This package has been prepared by UBS Securities Asia Limited ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN AT THE END OF THE NOTES UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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UBS Investment Research China A-Share Strategy

Affordable housing may benefit many sectors in the medium/long term

This is a report on China affordable housing If large scale affordable housing construction kicks off as planned, we think it may benefit many sectors on the related industrial chains over the medium/long term. These include steel, cement, construction, engineering machinery and coal sectors. Steel mills producing more structural steel should benefit significantly We expect newly added affordable housing construction will drive 2% YoY growth in steel demand. Steel mills producing more structural steel should benefit significantly. Cement sector to benefit from rapid affordable housing construction Considering the risk of temporary shortage of affordable and commodity housing starts during the preparatory phase of affordable housing policy implementation, we recommend Conch Cement and Huaxin Cement for their relative valuation advantage. Given the sector's continuous improvement in the next 2 years, we recommend Conch Cement (for its potential for M&A) and Jidong Cement (for its significant profitability improvement potential) for the long run. Positive on "construction + property" companies The faster pace of affordable housing construction will favour regional affordable housing construction enterprises with high turnover and "construction + property" companies focused on affordable housing construction.

Global Equity Research

China Equity Strategy Market Comment

18 March 2011

www.ubssecurities.com

Li Chen

Strategist S1460511010003 [email protected] +8621-3866 8856

This is a summary of a Chinese research note published by UBS Securities Co Ltd on 18 March 2011. A full translation will be made available at a later date

This report has been prepared by UBS Securities Co. Limited UBS 1 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

China A-Share Strategy 18 March 2011

Statement of Risk We think the greatest risk associated with affordable housing construction arises from the reluctance of local government participation, particularly in regard to the need of cheap or free land provision by the local governments for construction of economic housing, public rental home and cheap rental home.

UBS 2

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UBS Investment Research China Market Strategy

Who looks oversold?

Global Equity Research

China Equity Strategy Market Comment

18 March 2011 Weak sentiment since Japan earthquake The MSCI China Index dropped 5% from 11 to 17 March after the Japan earthquake, tsunami and nuclear incident. We are cautious on the H-share market in Q211, given tight domestic liquidity, destocking risks, a potential sharp decline in property sales and global uncertainties. However, the latest selloff looks a little overdone, especially considering that the earthquake's economic impact on China is quite limited, while the nuclear situation should be clearer in the next few days. A screen for the biggest underperformers We did a screen on large cap Chinese companies that have underperformed the most in the past five trading days. Among the results, we highlight five companies that UBS analysts believe are likely to be oversold and could rebound in the near term. We believe the 22% share price drop for Shanghai Electric is unjustified, as we estimate the nuclear segment will account for only 5% of its sales in 2011. Even assuming no more nuclear orders from 2011, our analyst estimates Shanghai Electric would only experience a decline in EPS from 2013, and our DCF valuation indicates a price target of HK$4.20, above the current level. We also believe that the fundamentals for Gome, Lenovo Group, Daphne International and COSCO Pacific remain intact and the recent sell-off provides a good opportunity to buy.

www.ubs.com/investmentresearch

John Tang

Strategist [email protected] +852-2971 8396

Jocelyn Chen

Associate Analyst [email protected] +852-2971 7096

Oversold stocks

Mkt cap Ticker HK2727 HK0493 HK0992 HK0210 HK1199 Name Shanghai Electric Gome Lenovo Group Daphne International COSCO Pacific Last price Price target 3.53 2.37 3.93 5.8 14 5.55 3.5 6.2 10.6 15.8 PE PB 2010E 2011E 2012E 1.4 3.2 3.1 3.6 1.3 1.3 2.8 2.8 2.8 1.3 1.2 2.4 2.5 2.2 1.2 Dividend Yield 2010E 2011E 2.3 0.9 1.3 1.4 3.0 2.7 2.1 2.7 2.1 3.6

(USD bn) 2010E 2011E 2012E 7 5 6 2 4 13.5 17.8 41.5 13.9 16.9 11.2 14.5 18.9 9.7 13.8 10.3 12.2 12.8 8.2 12.2

Above prices as at 17 March 2011. Source: UBS

This report has been prepared by UBS Securities Asia Limited UBS 3 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

China Market Strategy 18 March 2011

Who experienced an excessive sell-off?

We screened Hong Kong-listed Chinese stocks with: 1) a market cap over US$1bn; and 2) a 10%+ share price drop during 11-17 March. The stock highlights are on Table 2. Looking through the list, some of the names on top look justified, in our view. For example, L'Occitane's share price declined 14.6% during the period, likely because 25% of its sales are from the Japanese market. The aftermath of the earthquake is likely to have a significant impact on its sales in 2011. That said, we do see companies whose selloffs were not fully justified by fundamentals, in our opinion. Among them, we would like to highlight five stocks that we believe have been the most oversold. Shanghai Electric Shanghai Electric's share price dropped 22.4% from 11 to 17 March, due mainly to worries of delay and cancellation of nuclear equipment orders after the Japan nuclear incident. UBS analyst Patrick Dai estimates the nuclear sector will account for 4%/5%/11% of its 2010/11/12 revenue. The company has a nuclear order backlog of more than Rmb30bn that should be executed for nuclear plants under construction. Assuming a worst-case scenario where there are no new nuclear orders from 2011, Patrick estimates Shanghai Electric would only experience a decline in EPS from 2013, and our DCF valuation indicates a price target of HK$4.20, above the current price. COSCO Pacific COSCO Pacific's share price declined 10% on investor concern that a potential slowdown in China-Japan trade would negatively impact throughput in ports. According to UBS transport analyst Robin Xu, the major Japanese ports are mainly located in central Japan and have been less affected by the catastrophe. All major ports are already back in operation. He estimates that the long-term impact to COSCO Pacific should be less than 2%, and in the medium term expects the company to benefit from higher volume due to reconstruction in Japan. Moreover, we expect the 2010 annual results to beat consensus estimates. Gome Gome's share price fell 15% from 11-17 March, amid the Japan crisis as well as negative newsflow of the removal of the government `Old-for-New' program qualification for three of its Beijing stores due to sales practice violations. UBS consumer analyst David Lau estimates the impact of the removal of the three stores will be about 1% of sales in 2011. Moreover, the Japan earthquake should have no material impact on home appliances sales for Gome, given nearly all of the Japanese branded home appliances are made in China. Mr Chen Xiao stepping down as Chairman implies that the Huang family might have gained control over the board. We think the stability of the new management and a potential set of good 2010 results could boost investor sentiment in the near term.

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China Market Strategy 18 March 2011

Daphne Daphne's share price dropped 12% from 11-17 March. We like Daphne for its mass market exposure and wide footprint in lower-tier cities. We believe Daphne could benefit from higher growth in lower-tier cities, as 70% of its stores are located outside tier 1 and tier 2 cities. We also think the Shoebox and Full Pearl portfolio should boost earnings growth as core brand Daphne gradually matures. We believe valuation is attractive at 9.7x and 8.2x 2011/12E PE. Lenovo Lenovo's share price dropped 14% from 11-17 March. However, according to UBS tech analyst Arthur Hsieh, the impact of the Japan earthquake on Lenovo should be quite limited. The Japanese market currently forms about 3% of Lenovo's sales and the NEC PC business will not be booked into Lenovo's financial statements until end-June. More importantly, Arthur believes the PC food chain should be little impacted and there is a two to three month inventory level across suppliers. In addition, we think Lenovo could potentially benefit from the reconstruction efforts after the disaster. Companies and households will need to purchase PCs after the crisis, and global PC makers are better positioned than domestic companies as they experience less production disruption.

Table 1: Oversold stocks

Mkt cap Ticker HK2727 HK0493 HK0992 HK0210 HK1199 Name Shanghai Electric Gome Lenovo Group Daphne International COSCO Pacific Last price Price target 3.53 2.37 3.93 5.8 14 5.55 3.5 6.2 10.6 15.8 PE P/BV 2010E 2011E 2012E 1.4 3.2 3.1 3.6 1.3 1.3 2.8 2.8 2.8 1.3 1.2 2.4 2.5 2.2 1.2 Dividend Yield 2010E 2011E 2.3 0.9 1.3 1.4 3.0 2.7 2.1 2.7 2.1 3.6

(US$ bn) 2010E 2011E 2012E 7 5 6 2 4 13.5 17.8 41.5 13.9 16.9 11.2 14.5 18.9 9.7 13.8 10.3 12.2 12.8 8.2 12.2

Above prices as at 17 March 2011. Source: UBS

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China Market Strategy 18 March 2011

Table 2: Biggest underperformers in the past five days (11-17 March)

Market cap Price Ticker HK2727 HK1072 HK0751 HK1133 HK1308 HK0806 HK1068 HK0493 HK2331 HK0973 HK0682 HK0992 HK0175 HK0670 HK0371 HK2378 HK1055 HK0590 HK0330 HK2318 HK0210 HK1828 HK0700 HK1698 HK0489 HK2328 HK3818 HK0589 HK246 HK2038 HK0179 HK0669 HK1044 HK0008 HK0317 HK1199 Name Shanghai Electric Dongfang Electric Skyworth Digital Harbin Power SITC Int'l Value Partners China Yurun Food Gome Electrical Li Ning L'Occitane Chaoda Modern Lenovo Group Geely Automobile China Eastern Airline BJ Enterprise Water Prudential China Southern Luk Fook Esprit Ping An Insurance Daphne Int'l Dah Chong Hong Tencent Holdings Boshiwa Dongfeng Motor PICC China Dongxiang Ports Design Real Gold Mining Foxconn Int'l Johnson Electric Techtronic Hengan Int'l PCCW Guangzhou Ship-H COSCO Pacific (US$ m) 13501 8441 1446 1525 1487 1584 5246 5412 1844 3287 1747 5141 2814 8731 2204 28885 9853 1499 5621 62854 1249 1965 45604 1264 14139 12556 2034 1316 1282 4440 2087 2048 8758 2974 1885 4874 Performance 2008 trough 12m fwd PE 12m fwd PE 11.7 12.7 8.3 10.3 9.8 12.5 13.6 13.0 12.7 18.6 2.3 12.9 9.2 6.5 20.7 10.9 6.3 11.6 10.7 19.6 10.8 10.4 25.8 16.2 7.5 12.3 8.1 13.9 7.9 42.4 9.8 11.2 20.8 11.4 8.0 12.9 6.4 5.1 1.6 5.4 na 14.8 6.9 10.1 8.9 na 1.9 -13.0 1.4 24.7 11.1 na 15.8 2.5 8.1 11.2 5.8 2.3 11.7 na 1.6 10.0 5.8 7.4 na 39.9 192.9 5.0 11.2 13.0 2.8 5.7 Neutral Buy Sell Buy 72 3.75 13.13 15.8 30% 21% -8% 13% Sell (CBE) 5 2% Buy 27.2 55% Sell 5.9 -32% Buy Buy 236 8 22% 71% Buy Neutral Buy 45 101 10.6 34% 36% 83% Buy 6.2 58% Neutral Buy Neutral Buy 27 3.5 15 25.4 22% 48% 6% 52% Buy 12.6 55% UBS rating Target price Upside Buy Buy 5.55 46.15 57% 83%

(HK$) 11-17 March 3.53 25.25 4.13 8.15 4.2 6.73 22.05 2.37 14.14 16.66 3.98 3.93 2.79 2.93 2.48 86.3 3.2 20.6 33.6 74.3 5.8 8.17 193.2 4.69 12.26 8.73 2.78 17.54 10.88 4.9 4.25 9.57 55.2 3.11 14.22 14 -22.4 -20.3 -18.7 -17.8 -17.3 -15.5 -15.2 -15.1 -15.0 -14.6 -13.9 -13.6 -13.4 -13.3 -13.0 -12.7 -12.6 -12.5 -11.9 -11.7 -11.6 -11.5 -11.5 -11.3 -11.2 -10.9 -10.9 -10.8 -10.7 -10.6 -10.5 -10.2 -10.2 -10.1 -10.1 -10.0

Source: Bloomberg, UBS

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China Market Strategy 18 March 2011

Statement of Risk We believe there are many uncertainties with equity investing, including but not limited to: 1) macroeconomic environment; 2) policy changes; and 3) financial market volatility.

UBS 7

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UBS Investment Research China Economic Comment

China's Imports from Japan and the Rest of the World

Global Economics Research

China Hong Kong

21 March 2011

www.ubssecurities.com

Tao Wang

As Japan continues to battle against the devastation of the earthquake and resulting nuclear crisis, many investors have asked questions about the trade links between China and Japan. More generally, how has China's strong domestic demand growth affected its imports from the rest of the world? It's with these questions in mind that we publish the 2011 installment of our China export exposure chart book (attached). First, on the importance of Sino-Japanese trade links. Japan is China's 3 largest trading partner, after EU and the US, a destination of 8% of Chinese exports, and origin of about 14% of Chinese imports. Chinese exports to Japan agricultural products, textiles, electronics and lower-end machinery and instruments and parts, and imports from Japan mainly capital goods such as machinery and vehicles, and key parts and components in the electronics and machinery/equipments production chain (Charts 1 & 2).

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Economist S1460511010018 [email protected] +8610-5832 8922

Gao Xu

Economist [email protected] +8610-5832 8413

Harrison Hu

Associate Economist S1460511010008 [email protected] +8610-5832 8847

China's exports to Japan are expected to be affected by the earthquake and nuclear crisis in the short run, although the post-quake reconstruction later on should help boost Japanese demand. Given the importance of Japan in the supply chain of some electronics, chemicals and machinery products, which are affected by power disruptions, we expect China's related exports to the world might be affected as well. However, it is too early to estimate the magnitude of the impact given the uncertainties on when power might be fully restored. We did revise down China's 2011 export growth forecast on March 16th, taking into account the downward revision of UBS' US growth forecast and the impact from Japan. Second, China's imports in general. With overall imports growing by 39% in 2010 and imports from all major trading partners rising strongly, China was the second largest importer in the world. Commodities and capital goods continued to dominate China's imports, though imports of vehicles and agricultural products also increased rapidly in 2010. About half of China's imports are processing components that get re-exported ­ and these imports, including electronics and textiles, saw solid growth as global demand recovered in 2010. Taiwan, Korea and Australia remained the top three economies with most of their exports destined for China. However, when it comes to judging an economy's direct exposure to China, we have to take into account the final usage of its exports ­ are they mainly used for China's domestic demand, or are they used as components in processing exports? With these considerations in mind, China's importance to commodity exporters such as Australia, Vietnam and Brazil, and capital goods exporters such as Japan, rises. Please see more details in the accompanying chart book.

This report has been prepared by UBS Securities Co. Limited ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 3.

China Economic Comment 21 March 2011

Chart 1: 2010 structure of China's exports to Japan

Chart 2: 2010 structure of China's imports from Japan

Minerals & fuels 1% Chemical 8% Plastic & rubber 7% Textile 2% Metals & materials 13%

Instruments 9% Machinery & vehicles 20%

Agriculture 11%

Minerals & fuels 2% Chemical 6% Plastic & rubber 3%

Agriculture 2% Instrument s 9%

Textile 20% Electronics 22% Metals & materials 7%

Machinery & vehicles 33%

Electronics 25%

Source: CEIC, UBS estimates

Source: CEIC, UBS estimates

Chart 3: Japan's share in China's imports by products

Japan's share in China 2010 total imports (%) 25 20 15 10 5 0 Machinery and vehicles Metals & materials Chemicals Plastic and Electronics Instruments rubber Textile Agriculture Minerals and f uels Total

Source: CEIC, UBS estimates

UBS 2

China Economic Comment 21 March 2011

Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

UBS 3

China Economic Comment 21 March 2011

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Issuer Name Brazil China (Peoples Republic of) 2, 4 Commonwealth of Australia Japan Korea (Republic of) Taiwan Vietnam Source: UBS; as of 20 Mar 2011. 2. 4. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.

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China Economic Comment 21 March 2011

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UBS 5

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UBS Investment Research Giordano

Benefit from unseasonably cold weather

Brisk sales of winter clothing drive sales and gross margin It has been unseasonably cold in Giordano's key markets in China and Hong Kong in recent months. Winter clothing sales have been brisk and discounting benign. We think Q410 sales grew in the mid-teens despite tougher comps. And we believe Q4 gross margin edged up to 58.0% from a strong Oct and Dec. OpEx assumptions could be overly conservative We think we might have been overly conservative with our 2010 operating costs forecast previously. While staff costs rose by around an estimated 9% in 2010, it should remain around 16% of sales. Rental hikes have been significant in some key markets. But we believe Giordano was able to keep rents within 18-19% of sales. Revise up earnings; 2010 results preview We raise our 2010-12 EPS estimates by 10-12% from HK$0.28/0.29/0.30 to HK$0.31/0.32/0.34. For 2010 results due 24 March, we look for sales of HK$4,713m, net profit of HK$463m, EPS of HK$0.31, and 84% dividend payout. Valuation: upgrade PT from HK$4.90 to 5.07, rating from Neutral to Buy Recent share weakness puts Giordano on 12.4x 2011E PE, and we think presents an attractive buying opportunity. Should Giordano report stronger-than-expected gross margin or exhibit better cost control, there exists upside potential to our revised 2010 earnings forecast. Higher dividend payout and upbeat outlook could also serve as positive catalysts. We derive our price target from a DCF-based methodology and explicitly forecast long-term valuation drivers with UBS's VCAM tool. We assume WACC of 9.2% (was 8.8%).

Global Equity Research

China Retailers, Apparel 12-month rating 12m price target Price

RIC: 0709.HK BBG: 709 HK

Buy

Prior: Neutral

HK$5.07/US$0.65 Prior: HK$4.90/US$0.63 HK$4.02/US$0.52

21 March 2011

Trading data (local/US$) 52-wk range Market cap. Shares o/s Free float Avg. daily volume ('000) Avg. daily value (m) Balance sheet data 12/10E Shareholders' equity P/BV (UBS) Net Cash (debt) Forecast returns Forecast price appreciation Forecast dividend yield Forecast stock return Market return assumption Forecast excess return EPS (UBS, HK$) From 0.14 0.15 0.28 0.29 12/10E To 0.14 0.17 0.31 0.32 Cons. 0.28 0.29 12/09 Actual 0.03 0.16 +26.1% 6.6% +32.7% 10.1% +22.6% HK$2.24bn 2.7x HK$0.82bn HK$4.97-2.46/US$0.64-0.32 HK$6.00bn/US$0.77bn 1,492m (ORD) 97% 2,604 HK$11.8

Highlights (HK$m) Revenues EBIT (UBS) Net Income (UBS) EPS (UBS, HK$) Net DPS (UBS, HK$) Profitability & Valuation EBIT margin % ROIC (EBIT) % EV/EBITDA (core) x PE (UBS) x Net dividend yield %

12/08 4,710 330 273 0.18 0.10 5-yr hist av. 9.6 42.5 9.6 20.0 5.2

12/09 4,233 320 288 0.19 0.16 12/09 7.6 31.0 4.9 10.1 8.2

12/10E 4,713 590 463 0.31 0.26 12/10E 12.5 58.0 6.8 12.9 6.5

12/11E 5,101 595 483 0.32 0.26 12/11E 11.7 58.7 6.8 12.4 6.6

12/12E 5,493 616 503 0.34 0.28 12/12E 11.2 59.7 6.5 11.9 6.9

H1 H2E 12/10E 12/11E

Performance (HK$)

5.00 4.00 3.00 2.00 1.00 0.00 Stock Price (HK$) Rel. Hang Seng 160 140 120 100 80 60 40 20

01/08

04/08

07/08

10/08

01/09

04/09

07/09

10/09

01/10

04/10

07/10

10/10

Price Target (HK$) (LHS) Rel. Hang Seng (RHS)

Stock Price (HK$) (LHS)

Source: UBS

Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$4.02 on 18 Mar 2011 23:38 HKT

www.ubssecurities.com

Erica Poon Werkun, CFA

Analyst S1460511010017 [email protected] +8621-3866 8865

Linda Zhao

Analyst S1460511020005 [email protected] +8621-3866 8903

This report has been prepared by UBS Securities Co. Limited UBS 13 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

01/11

0

Giordano 21 March 2011

Unseasonably cold weather helps sales and GM

In Giordano's key markets--China and Hong Kong--it has been unseasonably cold in recent months. Winter clothing that generally carries higher retail prices and gross margins has been selling well. Discounting has been benign, and we believe that is due partly to strong consumption demand and partly to the company's efforts to uphold its pricing integrity.

Table 1: Average temperature in key cities

(in Celsius) Beijing Diff. in temp. Shanghai Diff. in temp. Shenzhen Diff. in temp. Guangzhou Diff. in temp. Hong Kong Diff. in temp. Note: (a) 1-17 March only. Source: Bloomberg 27 19 17 23 25 24 26 . 26 18 13 23 26 25 19 15 23 25 24 22 5 2 9 12 16 Oct-09 7 Nov-09 4 Dec-09 -9 Jan-10 1 Feb-10 1 Mar-10 12 Oct-10 12 5 14 (8) 20 (6) 19 (7) 21 (6) Nov-10 -1 (5) 13 8 22 3 21 3 22 3 Dec-10 -6 3 0 (2) 16 1 13 0 16 (1) Jan-11 -1 (2) 2 (7) 13 (10) 12 (11) 13 (10) Feb-11 1 0 4 (8) 22 (3) 21 (5) 21 (4) Mar-11 (a) 6 (6) 9 (7) 18 (6) 16 (9) 18 (6)

We believe the brisk winter/spring sales have resulted in higher revenue and gross margin in Q410 and Q111 than we previously forecasted. Despite tougher comparison, we think sales growth of Q410 managed to keep at similar levels as Q310's mid-teens. This is higher than our previous assumption of high-single digit growth. Q310 gross margin (56.7%) was one of the highest in Giordano's history. We believe with a strong October and December, gross margin for Q4 could come in stronger sequentially, although the relatively warm and slow November had likely restrained the advance. We are keeping our Q4 gross margin forecast of 58.0%.

OpEx assumption could be overly conservative

Having reviewed our 2010 operating costs forecast, we think we might have been overly conservative previously. While staff costs rose by around an estimated 9% in 2010, they should remain around 16% of sales. Rental hikes have been significant in HK, Singapore and 1st tier cities in China. But we believe Giordano was able to keep rents within 18-19% of sales. After we adjust our assumptions, we raise our 2010-12 EPS by 10-12% (see Table 2). For 2010 results due 24 March, we look for sales of HK$4,713m, net profit of HK$463m, EPS of HK$0.31, and 84% dividend payout.

Upgrade to Buy rating

We continue to derive our price target using DCF-based methodology, explicitly forecasting long-term valuation drivers using UBS's VCAM tool.

UBS 14

Giordano 21 March 2011

A higher RFR (from 4.8% to 5.1%) has led to a higher WACC assumption of 9.2% (was 8.8%). However, upward revisions in our financial model have more than offset the higher WACC. We raise our 12-month price target from HK$4.90 to HK$5.07, which implies 15.7x 2011E PE. Giordano share price has had a remarkable recovery along with improvements in fundamentals this past year. Until recent market events, Giordano hovered around the upper band of its PE and P/BV ranges (see Charts 1-2). Recent share weakness puts Giordano on 12.4x 2011E PE, and we think presents attractive buying opportunities. Should Giordano report stronger-than-expected gross margin or exhibit better cost control, there exists upside potential to our revised 2010 earnings forecast. Higher dividend payout and upbeat outlook could also serve as positive catalysts.

Chart 1: Giordano forward PE band Chart 2: Giordano trailing P/BV band

7 6 5 4 3 2 1 0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

20x HK$ 15x 10x 5x

6 5 4 3 2 1 0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

3.0x 2.5x 2.0x 1.5x 1.0X

Source: Bloomberg, UBS estimates

HK$

Source: Bloomberg, UBS estimates

UBS 15

Giordano 21 March 2011

Table 2: Giordano major assumption changes

New (HK$m) China Hong Kong Taiwan Singapore Australia Other Retail sales Manufacturing sales Total sales Sales growth China Hong Kong Taiwan Singapore Australia Other Retail sales Total sales Sales breakdown China Hong Kong Taiwan Singapore Australia Other Retail sales Total sales Gross profit Gross margin EBIT EBIT margin Net profit (pre-X) EPS (pre-X, HK$) Net margin DPS (HK$) Payout Source: UBS estimates 38% 18% 13% 8% 4% 12% 92% 100% 2,731 57.9% 590 12.5% 463 0.31 9.8% 0.26 84% 38% 17% 12% 8% 4% 13% 92% 100% 2,936 57.6% 595 11.7% 483 0.32 9.5% 0.26 81% 39% 16% 12% 8% 3% 13% 92% 100% 3,161 57.6% 616 11.2% 503 0.34 9.2% 0.28 82% 38% 18% 13% 8% 4% 12% 92% 100% 2,690 57.9% 537 11.6% 422 0.28 9.1% 0.23 82% 38% 17% 12% 8% 4% 13% 92% 100% 2,869 57.1% 534 10.6% 434 0.29 8.6% 0.25 85% 39% 16% 12% 8% 3% 13% 92% 100% 3,089 57.1% 550 10.2% 448 0.30 8.3% 0.26 86% 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 2% 0pts 10% 1pts 10% 10% 1pts 12% 2pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 2% 0pts 11% 1pts 11% 11% 1pts 7% -3pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 2% 0pts 12% 1pts 12% 12% 1pts 7% -4pts 9% 9% 5% 16% -5% 24% 10% 11% 10% 3% 5% 8% 5% 15% 8% 8% 10% 3% 5% 8% 5% 10% 8% 8% 7% 7% 5% 13% -5% 24% 9% 10% 10% 3% 5% 8% 5% 15% 8% 8% 10% 3% 5% 8% 5% 10% 8% 8% 2pts 2pts 0pts 2pts 0pts 0pts 2pts 2pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 0pts 2010E 1,779 841 605 358 171 568 4,323 390 4,713 2011E 1,956 867 636 387 179 654 4,679 423 5,101 2012E 2,152 893 668 418 188 719 5,038 455 5,493 2010E 1,750 830 587 351 171 568 4,257 384 4,642 Old 2011E 1,925 855 616 379 179 654 4,608 416 5,024 2012E 2,117 880 647 410 188 719 4,962 448 5,410 2010E 2% 1% 3% 2% 0% 0% 2% 2% % change 2011E 2% 1% 3% 2% 0% 0% 2% 2% 2012E 2% 1% 3% 2% 0% 0% 2% 2%

UBS 16

Giordano 21 March 2011

Table 3: UBS-VCAM Valuation Summary for Giordano [0709.HK]

Relative year Fiscal year EBIT D&A* Capex Chg. in wkg. cap. Tax (operating) Other Free Cash Flow growth +1E 2011E 595 95 (100) (42) (149) (12) 387 +2E 2012E 616 98 (100) (17) (154) (12) 432 11.5% +3E 2013E 637 99 (100) (47) (159) (13) 417 -3.4% +4E 2014E 658 100 (100) (22) (164) (14) 457 9.6% +5E 2015E 638 144 (143) (39) (159) (15) 426 -6.8% +6E 2016E 688 156 (154) (41) (172) (16) 460 8.0% +7E 2017E 736 167 (166) (43) (184) (17) 494 7.4% +8E 2018E 786 180 (178) (44) (196) (17) 529 7.1% +9E 2019E 837 192 (190) (46) (209) (18) 565 6.9% +10E 2020E 890 205 (203) (47) (222) (19) 603 6.6%

Valuation

PV of explicit cash flow PV of terminal value (yr. 15) Enterprise Value % terminal Associates & other - Minority interests Surplus cash** - Debt*** Equity value Shares outstanding [m] Equity per share (HK$/sh) Cost of equity Dividend yield 1-year Price Target (HK$/sh) Figures in HK$ m, unless noted otherwise. * Depreciation and non-goodwill amortization ** The portion of cash not required to maintain operations 3,961 2,323 6,284 37% 482 85 771 74 7,378 1,491.7 4.95 9.18% 6.67% 5.07 Fiscal year EV / EBITDA EV / EBIT FCF Yield P / E (PV) P / E (Target) Relative year Sales growth EBIT margin Capex/sales ROIC

Long Term Assumptions

+10E 6.8% 9.1% 2.1% 30.7% +15E 5.0% 8.0% 2.1% 29.6% +25E 5.0% 5.0% 2.1% 22.3% ERP Beta

WACC

Risk free rate 5.10% 5.0% 0.82 1.2% 25.0% 9.18% 5.10% 9.18%

Debt / equity*** Marg. tax rate Cost of equity Cost of debt

Valuation-Implied Metrics

2011E 9.1x 10.6x 6.2% 15.3x 15.7x 2012E 8.8x 10.2x 6.9% 14.7x 15.0x 1-yr Fwd. 9.0x 10.5x 6.3% 15.1x 15.5x

WACC

Terminal Assumptions

VCH (years) Impl. FCF gr. Incr. ROIC 15 0.9% 8.1%

*** Assumes market value of equity and includes market value/seasonal adjustments for debt and debt-deemed obligations.

Source: UBS-VCAM

UBS 17

Giordano 21 March 2011

Chart 3: UBS-VCAM Sensitivities for Giordano [0709.HK]

Price versus WACC

+30.0% 7.14% +20.0% +10.0% 0.0% 7.1% -10.0% -19.3% 7.70% 8.37% 9.18% 9.1% HK$6.43 HK$5.93 HK$5.44 HK$4.95 13.2% HK$4.45 +30.0% +20.0% 10.2%

Price versus Sales Growth

HK$6.43 11.6% HK$5.93

+10.0% 0.0% -2.1% -10.0% -19.3% -20.0% -2.1% -30.0% 1.6% 0.2% 2.5% 4.8% 4.5% 6.7% 7.0%

8.6%

HK$5.44 HK$4.95 11.6% HK$4.45 HK$3.96

8.1%

10.1% 10.19%

11.1%

12.2%

9.3%

-20.0% -30.0%

11.46%

HK$3.96

Present Value for Given WACC

HK$3.46 13.15% Market Price rel. to VCAM Present Value

Present Value for Given Sales Growth

HK$3.46 Market Price rel. to VCAM Present Value

Price versus EBIT Margin

+30.0% +20.0% +10.0% 0.0% 4.4% -10.0% -20.0% -19.3% 5.5% 7.8% 7.8% 9.0% 10.1% 11.3% HK$6.43 HK$5.93 HK$5.44 HK$4.95 11.3% HK$4.45 HK$3.96 HK$3.46 Market Price rel. to VCAM Present Value +30.0% +20.0% +10.0%0.4% 0.0% 0.4% -10.0% -20.0% -30.0% -19.3% 2.1% 2.1%

Price versus Capex / Sales [%]

HK$6.43 HK$5.93 HK$5.44 HK$4.95 7.0% HK$4.45 5.4% HK$3.96

5.5%

6.7% 6.7%

9.0%

10.1%

3.7% 3.7%

5.4%

-30.0%4.4% Notes:

Present Value for Given EBIT Margin

Present Value for Given Capex/Sales

7.0%HK$3.46 Market Price rel. to VCAM Present Value

Sensitivities are derived from assuming Sales Growth, EBIT Margin, or Capex / Sales is flat annually for years 5 through the VCH (year 15). Explicit estimates in years 1 through 4 do not vary, and always represent the assumptions on the Inputs Page. For each chart, one parameter is varied while the others are held constant. Those held constant are set as they appear on the Inputs Page.

Source: UBS-VCAM

UBS 18

Giordano

Income statement (HK$m)

Revenues Operating expenses (ex depn) EBITDA (UBS) Depreciation Operating income (EBIT, UBS) Other income & associates Net interest Abnormal items (pre-tax) Profit before tax Tax Profit after tax Abnormal items (post-tax) Minorities / pref dividends Net income (local GAAP) Net Income (UBS) Tax rate (%) Pre-abnormal tax rate (%)

12/05

4,413 (3,867) 646 (128) 518 31 (1) 0 548 (117) 431 0 (25) 406 406 21 23

12/06

4,372 (3,986) 500 (124) 376 16 (1) 0 391 (173) 218 0 (13) 205 205 44 46

12/07

4,429 (4,018) 517 (136) 381 35 (1) 0 415 (112) 303 0 (9) 294 294 27 29

12/08

4,710 (4,360) 491 (161) 330 36 (2) 0 364 (82) 282 17 (9) 290 273 23 25

12/09

4,233 (3,877) 466 (146) 320 44 (1) 0 363 (64) 299 0 (11) 288 288 18 20

12/10E

4,713 (4,115) 711 (121) 590 51 (1) 0 641 (159) 482 0 (18) 463 463 25 27

% ch

11.4 6.1 52.7 -17.2 84.5 16.2 -2.6 76.5 148.5 61.1 65.1 60.9 60.9 40.8 36.8

12/11E

5,101 (4,534) 689 (95) 595 66 (1) 0 660 (165) 495 0 (12) 483 483 25 28

% ch

8.2 10.2 -3.1 -21.8 0.7 28.8 0.0 3.0 3.7 2.7 -34.9 4.2 4.2 0.7 1.2

12/12E

5,493 (4,911) 714 (98) 616 72 (1) 0 687 (172) 515 0 (12) 503 503 25 28

% ch

7.7 8.3 3.5 3.7 3.5 9.5 0.0 4.1 4.1 4.1 5.0 4.1 4.1 0.0 0.6

Per share (HK$)

EPS (local GAAP) EPS (UBS) Net DPS Cash EPS BVPS

12/05

0.27 0.27 0.27 0.36 1.47

12/06

0.14 0.14 0.27 0.22 1.33

12/07

0.20 0.20 0.22 0.29 1.29

12/08

0.19 0.18 0.10 0.29 1.24

12/09

0.19 0.19 0.16 0.29 1.42

12/10E

0.31 0.31 0.26 0.39 1.50

% ch

60.9 60.9 62.7 34.7 6.0

12/11E

0.32 0.32 0.26 0.39 1.57

% ch

4.2 4.2 1.3 -1.2 4.2

12/12E

0.34 0.34 0.28 0.40 1.64

% ch

4.1 4.1 4.7 4.0 4.4

Balance sheet (HK$m)

Net tangible fixed assets Net intangible fixed assets Net working capital (incl. other assets) Other liabilities Operating invested capital Investments Total capital employed Shareholders' equity Minority interests Total equity Net debt / (cash) Other debt-deemed items Total capital employed

12/05

569 0 477 (92) 954 434 1,388 2,122 93 2,215 (827) 0 1,388

12/06

568 0 484 (103) 949 476 1,425 1,987 103 2,090 (665) 0 1,425

12/07

598 0 561 (109) 1,050 502 1,552 1,927 99 2,026 (474) 0 1,552

12/08

553 0 612 (99) 1,066 386 1,452 1,855 51 1,906 (454) 0 1,452

12/09

488 0 608 (97) 999 437 1,436 2,118 68 2,186 (750) 0 1,436

12/10E

447 0 687 (97) 1,037 473 1,510 2,245 83 2,328 (818) 0 1,510

% ch

-8.4 13.0 0.0 3.8 8.3 5.2 6.0 22.3 6.5 9.0 5.2

12/11E

452 0 635 (97) 991 514 1,505 2,339 92 2,431 (927) 0 1,505

% ch

1.2 -7.5 0.0 -4.5 8.6 -0.4 4.2 10.6 4.5 13.3 -0.4

12/12E

454 0 716 (97) 1,073 561 1,634 2,442 101 2,543 (908) 0 1,634

% ch

0.4 12.7 0.0 8.3 9.2 8.6 4.4 10.2 4.6 -2.0 8.6

Cash flow (HK$m)

Operating income (EBIT, UBS) Depreciation Net change in working capital Other (operating) Operating cash flow (pre tax/interest) Net interest received / (paid) Dividends paid Tax paid Capital expenditure Net (acquisitions) / disposals Other Share issues Cash flow (inc)/dec in net debt FX / non cash items Balance sheet (inc)/dec in net debt Core EBITDA Maintenance capital expenditure Maintenance net working capital Operating free cash flow, pre-tax

12/05

518 128 (42) (9) 595 (1) (368) (105) (119) 0 23 113 138 0 138 646 (119) (42) 485

12/06

376 124 (53) (15) 432 (1) (401) (125) (110) 0 15 4 (186) 24 (162) 500 (110) (53) 337

12/07

381 136 18 0 535 (2) (407) (190) (139) 0 (14) 2 (215) 24 (191) 517 (139) 18 396

12/08

330 161 (39) 6 458 (3) (348) (108) (107) 0 3 0 (105) 85 (20) 491 (107) (39) 345

12/09

320 146 (45) (2) 419 (1) (78) (36) (57) 0 (211) 0 36 260 296 466 (57) (45) 364

12/10E

590 121 (95) (18) 598 (1) (340) (143) (80) 0 33 0 68 0 68 711 (80) (95) 537

% ch

84.5 -17.2 110.7 812.0 42.8 -2.6 335.6 297.6 40.4 88.0 -77.1 52.7 40.4 110.7 47.4

12/11E

595 95 35 (9) 716 (1) (391) (148) (100) 0 34 0 109 0 109 689 (100) 35 625

% ch

0.7 -21.8 -51.1 19.6 0.0 15.1 3.7 25.0 2.0 61.2 61.2 -3.1 25.0 16.4

12/12E

616 98 (98) (10) 606 (1) (404) (155) (100) 0 35 0 (18) 0 (18) 714 (100) (98) 516

% ch

3.5 3.7 12.2 -15.4 0.0 3.2 4.1 0.0 3.2 3.5 0.0 -17.4

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Note: For some companies, the data represents an extract of the full company accounts.

UBS 19

Global Equity Research

China Retailers, Apparel 12-month rating 12m price target

Giordano

Buy

HK$5.07

Valuation (x)

P/E (local GAAP) P/E (UBS) P/CEPS Net dividend yield (%) P/BV EV/revenue (core) EV/EBITDA (core) EV/EBIT (core) EV/OpFCF (core) EV/op. invested capital

5Yr Avg

19.8 20.0 13.7 5.2 3.0 1.2 9.6 12.7 14.5 5.4

12/08

14.6 15.5 9.7 3.4 2.3 0.8 7.6 11.3 10.8 3.5

12/09

10.1 10.1 6.7 8.2 1.4 0.5 4.9 7.2 6.3 2.2

12/10E

12.9 12.9 10.3 6.5 2.7 1.0 6.8 8.2 9.0 4.7

12/11E

12.4 12.4 10.4 6.6 2.6 0.9 6.8 7.9 7.5 4.6

12/12E

11.9 11.9 10.0 6.9 2.5 0.8 6.5 7.5 9.0 4.5

Company profile

Giordano retails casual apparel under five product lines: Giordano, Giordano Junior, Giordano Ladies, Giordano Concepts, and BSX. Its core markets are China, Hong Kong, Singapore, and Taiwan. It has over 2,000 outlets.

Enterprise value (HK$m)

Average market cap + minority interests + average net debt (cash) + pension obligations and other - non-core asset value Core enterprise value

12/08

4,223 51 (464) 0 (81) 3,729

12/09

2,902 68 (602) 0 (79) 2,289

12/10E

5,997 83 (784) 0 (473) 4,823

12/11E

5,997 92 (872) 0 (514) 4,702

12/12E

5,997 101 (918) 0 (561) 4,619

Value (EV/OpFCF & P/E)

12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x 12/08 12/09 12/10 EV/OpFCF (LHS) 12/11E P/E (RHS) 20.0x 15.0x 10.0x 5.0x 0.0x 12/12E

Growth (%)

Revenue EBITDA (UBS) EBIT (UBS) EPS (UBS) Cash EPS Net DPS BVPS

5Yr Avg

4.1 -5.2 -9.5 -9.0 -4.4 -19.8 -2.1

12/08

6.3 -5.0 -13.4 -7.2 0.9 -55.8 -3.8

12/09

-10.1 -5.1 -3.0 5.5 0.0 68.4 14.2

12/10E

11.4 52.7 84.5 60.9 34.7 62.7 6.0

12/11E

8.2 -3.1 0.7 4.2 -1.2 1.3 4.2

12/12E

7.7 3.5 3.5 4.1 4.0 4.7 4.4

Margins (%)

EBITDA / revenue EBIT / revenue Net profit (UBS) / revenue

5Yr Avg

12.7 9.6 7.2 5Yr Avg 42.5 16.0 5Yr Avg 1.1 107.2 NM 5Yr Avg 4.4 7.4 21.1 5Yr Avg 0.9 2.8 0.9 5Yr Avg (31.6) (46.2) (12.3)

12/08

10.4 7.0 5.8 12/08 31.2 23.4 14.4 12/08 NM 1.9 51.9 NM 12/08 4.5 8.2 17.1 12/08 1.0 2.3 0.7 12/08 (24.5) (32.4) (12.4)

12/09

11.0 7.6 6.8 12/09 31.0 24.8 14.5 12/09 NM 1.2 82.9 NM 12/09 4.1 8.1 14.5 12/09 1.1 1.3 0.4 12/09 (35.4) (54.8) (26.3)

12/10E

15.1 12.5 9.8 12/10E 58.0 42.1 21.2 12/10E NM 1.2 83.8 NM 12/10E 4.6 10.1 14.0 12/10E 0.9 1.7 0.7 12/10E (36.4) (57.3) (16.3)

12/11E

13.5 11.7 9.5 12/11E 58.7 42.4 21.1 12/11E NM 1.2 81.4 NM 12/11E 5.0 11.3 14.6 12/11E 1.1 2.0 1.1 12/11E (39.6) (65.6) (18.5)

12/12E

13.0 11.2 9.2 12/12E 59.7 43.0 21.0 12/12E NM 1.2 81.9 NM 12/12E 5.3 12.1 15.1 12/12E 0.8 1.8 1.0 12/12E (37.2) (59.3) (19.9)

Profitability

13.00% 12.00% 11.00% 10.00% 9.00% 8.00% 7.00% 6.00% 12/08 12/09 12/10(E) 12/11(E) ROIC (RHS) 12/12(E) 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0%

Return on capital (%) EBIT ROIC (UBS) ROIC post tax Net ROE Coverage ratios (x) EBIT / net interest Dividend cover (UBS EPS) Div. payout ratio (%, UBS EPS) Net debt / EBITDA Efficiency ratios (x) Revenue / op. invested capital Revenue / fixed assets Revenue / net working capital Investment ratios (x) OpFCF / EBIT Capex / revenue (%) Capex / depreciation Capital structure (%) Net debt / total equity Net debt / (net debt + equity) Net debt (core) / EV

EBIT margin (LHS)

ROE v Price to book value

22.00% 20.71% 19.43% 18.14% 16.86% 15.57% 14.29% 13.00% 12/08 12/09 ROE (LHS) 12/10(E) 12/11(E) 12/12(E) 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x

Price to book value (RHS)

Growth (UBS EPS)

5500 5000 4500 4000 3500 70.0% 58.6% 47.1% 35.7% 24.3% 12.9% 1.4% 12/08 12/09 Revenue (LHS) 12/10(E) 12/11(E) UBS EPS Growth (RHS) 12/12(E) -10.0%

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$4.02 on 18 Mar 2011 23:38 HKT Market cap(E) may include forecast share issues/buybacks.

Erica Poon Werkun, CFA

Analyst S1460511010017 [email protected] +8621-3866 8865

Linda Zhao

Analyst S1460511020005 [email protected] +8621-3866 8903

UBS 20

Giordano 21 March 2011

Giordano Giordano retails casual apparel under five product lines: Giordano, Giordano Junior, Giordano Ladies, Giordano Concepts, and BSX. Its core markets are China, Hong Kong, Singapore, and Taiwan. It has over 2,000 outlets.

Statement of Risk Key risks include 1) rising rental rates and the inability to offset these with price increases, 2) intense competition in the casual wear retail apparel sector, and 3) occurrence of adverse macro events.

UBS 21

ab

UBS Investment Research China Life Insurance

Stock reaches an 18 month low

Loss of market share in a structural growth market China Life is a leading player in one of the world's fastest growing markets. Its key issue remains its loss of market share which in our opinion is likely to persist (a c30% share of the life industry new premiums in China looks unsustainable given increasing competition). We have lowered our VNB growth forecasts to 13-14% for the next 2-3 years to reflect continued market share loss. EV and VNB the key metrics to watch The group is due to release its full year results on the 22nd March. Key numbers will be EV which we see at RMB 310bn and VNB which we expect to be RMB 20.1bn. This implies a slight recovery in the VNB growth rate in H2 (+16% yoy) Vs what was a disappointing H1 (+12% yoy). As a pure life play the group has not benefitted from the buoyant P&C market in 2010. Equally it will not suffer as a result of a potential weakening in P&C momentum that we expect in 2011. Self funding from a capital perspective Unlike many peers China Life is self sustaining from a capital perspective and thus is unlikely to suffer from share price weakness related to a need to raise funds. It may however continue to suffer as a source of funds as equity placings/ the IPO pipeline in the sector are likely to be significant in H2 2011. Valuation: Valuation dips below 15x 2011E VNB As a result of our lowered VNB growth forecasts we have lowered our appraisal value derived target price to HK$34.5, from HK$38.5 prior (we include the group EV + 25 years VNB discounted at 11%). At our Fair value the stock would trade on 2.7x YE 10E EV.

Global Equity Research

China Insurance, Life 12-month rating 12m price target Price

Buy

Unchanged

HK$34.50/US$66.33 Prior: HK$38.50/US$74.02 HK$28.40/US$54.95 (ADR)

RIC: 2628.HK BBG: 2628 HK

21 March 2011

Trading data (local/US$) 52-wk range Market cap. Shares o/s ADR ratio Free float Avg. daily volume ('000) Avg. daily value (m) Balance sheet data 12/10E Shareholders' equity Financial debt Total invested assets Forecast returns Forecast price appreciation Forecast dividend yield Forecast stock return Market return assumption Forecast excess return EPS (UBS, Rmb) From 0.64 0.55 1.19 1.44 12/10E To 0.64 0.56 1.19 1.44 Cons. 1.19 1.44 12/09 Actual 0.59 0.57 +21.5% 1.6% +23.1% 10.1% +13.0% Rmb222bn Rmb1,354bn HK$38.20-28.40/US$74.54-54.95 HK$803bn/US$104bn 28,265m (ORD)/1,884m (ADR) 1 ADR:15 ORD 23% 41,825/3 HK$1,277.3/US$0.2

Highlights (Rmbm) Pre-ex PBT Net Income (UBS) Pre-ex EPS (UBS, Rmb) Reported EPS (Rmb) Adj NAV/share (UBS, Rmb) Profitability & Valuation Adjusted ROE % ROE % Pre-ex PE (UBS) x PE x P/Adj Nav x

12/08 19,959 19,137 0.68 0.68 8.49 5-yr hist av. 15.0 15.0 23.1 23.1 2.3

12/09 41,745 32,881 1.16 1.16 10.09 12/09 17.1 17.1 23.2 23.2 2.7

12/10E 41,591 33,727 1.19 1.19 10.99 12/10E 15.6 15.6 20.2 20.2 2.2

12/11E 50,944 40,565 1.44 1.44 12.37 12/11E 17.1 17.1 16.7 16.7 1.9

12/12E 62,366 49,678 1.76 1.76 13.93 12/12E 18.4 18.4 13.6 13.6 1.7

H1E H2E 12/10E 12/11E

Performance (HK$)

50.0 40.0 30.0 20.0 10.0 0.0 Stock Price (HK$) Rel. Hang Seng 140 120 100 80 60 40 20 01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10 10/10 01/11 0

Price Target (HK$) (LHS) Rel. Hang Seng (RHS)

Stock Price (HK$) (LHS)

Source: Company accounts, Thomson Reuters, UBS estimates. Valuations: based on an average share price that year, (E): based on a share price of HK$28.40 on 18 Mar 2011 23:38 EST

Source: UBS

www.ubs.com/investmentresearch

Stephen Andrews, CFA

Analyst [email protected] +852-2971 7821

Steve Ho

Analyst [email protected] +852-2971 8235

This report has been prepared by UBS Securities Asia Limited UBS 22 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

China Life Insurance 21 March 2011

Chart 1: China Life insurance companies relative performance since start of FY 10

150.0 140.0 130.0 120.0 110.0 100.0 90.0 80.0 70.0 60.0 Sep-10 Mar-10 May-10 Nov-10 Mar-11 Jan-10 Jan-11 Jul-10

Chart 2: China Life value of new business (RMB mn)

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 H1 09 H2 09 H1 10 H2 10E

China Life

Source: Thomson Datastream Financial

Ping An

CPIC

Source: Company data, UBS estimates

Chart 3: China Life has suffered a consistent loss of China life insurance premium market share in recent years

60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Chart 4: China Life quarterly net profit progression

12,000 10,000 8,000 6,000 4,000 2,000 0 Q4 10E H2 10E

UBS 23

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10 H1 10

Source: CIRC

Source: Company data, UBS estimates

Chart 5: China Life investment portfolios asset mix YE 10E

4% 13%

Chart 6: China Life Group solvency ratio

350.0% 300.0%

31% 20%

250.0% 200.0% 150.0%

2% 14% Gov bonds Sub. bonds/debt Term deposits 6%

10% Gov agency bonds Total equity Cash/deposits Corp. bonds Loans

100.0% 50.0% 0.0% H2 08 H1 09 H2 09

Source: Company data, UBS estimates

Source: Company data, UBS estimates

Q3 10

China Life Insurance 21 March 2011

Table 1: China Life forecast movement in Embedded Value

(RMB mn) EV start of the year Expected return on EV - As % of start of year EV VNB - As % of start of year EV New business margin Core return on EV Core RoEV Op. experience variance Invest. experience variance - As % of start of year EV Assumption changes Market value adjustment Exchange gains or losses Dividend distribution - % of EV Captial inflow Other EV end of period US$ mn Source: Company data, UBS estimates 2008 252,568 18,494 7.3% 13,924 5.5% 28.0% 284,986 12.8% -1,527 -33,651 0 -1,631 4,897 -905 -11,873 4.7% 0 -209 240,087 35,190 2009 240,087 21,123 8.8% 17,713 7.4% 33.6% 278,923 16.2% -560 19,590 0 -1,155 -4,283 -28 -6,500 2.7% 0 -757 285,229 41,775 2010E 285,229 23,674 8.3% 20,122 7.1% 32.1% 329,025 15.4% 3,086 -3,000 0 31 1,353 -78 -19,785 6.9% 0 -241 310,391 46,675 2011E 310,391 25,762 8.3% 22,761 7.3% 31.9% 358,914 15.6% 0 0 0 0 0 0 -10,741 3.5% 0 0 348,174 52,357 2012E 348,174 28,550 8.2% 25,770 7.4% 31.7% 402,494 15.6% 0 0 0 0 0 0 -12,719 3.7% 0 0 389,774 58,613 2013E 389,774 31,572 8.1% 29,121 7.5% 31.5% 450,467 15.6% 0 0 0 0 0 0 -14,980 3.8% 0 0 435,486 65,487 8.8% 12.2% 11.9% 11.7% 204.4% -45.7% 18.4% 17.8% 18.0% 9.1% 12.1% 11.9% 13.6% 13.1% 13.2% 13.0% 10/09 18.8% 11/10 8.8% 12/11 12.2% 13/12 11.9%

UBS 24

China Life Insurance 21 March 2011

Table 2: China Life summary P&L forecasts

(RMB mn) First year premiums Single First year regular APE Renewal business % of total Gross written premiums US$ mn less premiums ceded to reinsurers Net written premiums Net change in unearned prem. reserves Net premium earned Total Investment income Other income Total revenues US$ mn Insurance claims and benefits Investment contract benefits Policyholder div from profit participation Total benefits and claims Underwriting &policy acquisition costs Admin expenses Other operating expenses Total benefits claims and expenses As % of revenue Associates PBT Tax Tax rate Minorities Net profit US$ mn Source: Company data, UBS estimates 2008 178,740 143,347 35,393 49,728 86,916 32.7% 265,656 38,938 -156 265,500 -323 265,177 31,788 3,420 300,385 44,029 -231,949 -1,931 -1,671 -235,551 -24,200 -16,652 -3,967 -280,370 93.3% -56 19,959 -685 3.4% -137 19,137 2,805 2009 170,541 130,830 39,711 52,794 105,429 38.2% 275,970 40,419 -158 275,812 -735 275,077 61,583 2,630 339,290 49,693 -237,038 -2,142 -14,487 -253,667 -22,936 -18,719 -2,927 -298,249 87.9% 704 41,745 -8,709 20.9% -155 32,881 4,816 2010E 190,807 142,358 48,449 62,685 127,579 40.1% 318,386 47,878 -99 318,287 -100 318,187 64,373 2,583 385,143 57,916 -280,611 -3,386 -13,590 -297,587 -24,241 -20,034 -3,361 -345,223 89.6% 1,650 41,570 -7,690 18.5% -170 33,710 5,069 2011E 209,855 153,894 55,961 71,350 149,270 41.6% 359,125 54,004 -117 359,009 -113 358,896 75,249 2,747 436,892 65,698 -314,203 -3,764 -15,812 -333,778 -27,593 -22,447 -3,650 -387,468 88.7% 1,782 51,206 -10,241 20.0% -190 40,775 6,132 2012E 234,724 170,480 64,244 81,292 173,901 42.6% 408,625 61,447 -137 408,488 -127 408,361 88,387 2,927 499,676 75,139 -355,128 -4,345 -18,565 -378,037 -31,438 -25,333 -4,062 -438,870 87.8% 1,925 62,730 -12,546 20.0% -215 49,969 7,514 2013E 262,420 188,859 73,561 92,447 201,726 43.5% 464,146 69,796 -162 463,984 -142 463,842 103,049 3,110 570,001 85,714 -400,224 -5,041 -21,646 -426,911 -35,760 -28,575 -4,500 -495,747 87.0% 2,156 76,410 -15,282 20.0% -240 60,888 9,156 2.5% 21.0% 22.5% 21.9% -0.4% 23.2% 22.5% 21.8% 15.7% 12.2% 13.3% 13.0% 17.3% 12.2% 13.3% 12.9% 13.5% 13.4% 14.4% 14.1% 15.7% 4.5% 12.8% 16.9% 13.8% 17.5% 13.6% 16.6% 15.4% 12.8% 13.8% 13.6% 21.0% 17.0% 16.5% 16.0% 10/09 11.9% 11/10 10.0% 12/11 11.9% 13/12 11.8%

UBS 25

China Life Insurance 21 March 2011

China Life Insurance China Life Insurance Company Limited (China Life) is a life insurance company, established in Beijing on 30 June 2003. The company is the largest life insurance company in China. It has the largest and most extensive distribution force and network in the life insurance sector in China, with a presence in most administrative regions and at the county level. Its distribution network includes exclusive agents, direct sales representatives, and dedicated and non-dedicated agencies.

Statement of Risk We think the major investment risks for China insurers are: 1) volatile investment returns, which affect margins for insurance products; 2) uncertainties on changes of insurance accounting rules in China; 3) unfavorable changes to the regulatory pricing of insurance products, such as the liberalization of investment assumptions; and 4) declining premium growth as insurance products may become less attractive investment vehicles.

UBS 26

ab

UBS Investment Research CLP Holdings

Unwarranted nuclear sell-off

Shares down nearly 5.4%, because of nuclear concerns CLP's shares are down HK$3.5, or 5.4%, since 14 March (Monday). There has been no news and we believe the underperformance vs. Power Assets (shown in Chart 1) is purely because it owns a 25%-stake in the Daya Bay nuclear power plant, which is in Shenzhen and supplies 70% of its power to Hong Kong. We think this is totally unwarranted ­ Daya Bay is not exposed to the same earthquake/tsunami risk as Fukushima Daiichi nuclear power station in Japan. Nearly all of the value of Daya Bay written off by the market We estimate CLP's stake in Daya Bay is worth about HK$8.5b, which is about HK$3.5 per share. If we assume the share price decline is attributable to the nuclear concerns, the market has just written-off almost all of the value of Daya Bay. Fukushima Daiichi uses boiling water reactors and Daya Bay uses pressurised water reactors. In both technologies, the reactor will continue to produce heat even after the nuclear reaction stops, but Daya Bay is not in an earthquake zone. Strong growth outlook in Hong Kong and elsewhere Whether Hong Kong uses more gas-fired or nuclear power generation in the future, the move from coal-fired technology is an earnings growth opportunity for CLP over the next 10 years. We think a possible IPO of CLP Australia would be a positive event for the share price too. Valuation: DCF-based price target of HK$80.0; Maintain Buy rating Our target is based on explicit cash flow forecasts to 2015, a 3% terminal growth rate and a 7.5% terminal return on capital, discounted at a 6% WACC.

Global Equity Research

Hong Kong Electric Utilities 12-month rating 12m price target Price

Buy

Unchanged

HK$80.00/US$10.25 Unchanged HK$61.10/US$7.81 (ADR)

RIC: 0002.HK BBG: 2 HK

18 March 2011

Trading data (local/US$) 52-wk range Market cap. Shares o/s ADR ratio Free float Avg. daily volume ('000) Avg. daily value (m) Balance sheet data 12/10E Shareholders' equity P/BV (UBS) Net Cash (debt) Forecast returns Forecast price appreciation Forecast dividend yield Forecast stock return Market return assumption Forecast excess return EPS (UBS, HK$) 12/10E H1 H2E 12/10E 12/11E UBS 1.87 1.95 3.83 4.34 Cons. 4.29 4.34 12/09 Actual 1.51 1.96 +30.9% 4.3% +35.2% 7.8% +27.4% HK$75.4bn 1.9x (HK$58.2bn) HK$64.65-54.30/US$8.38-6.87 HK$147bn/US$18.8bn 2,406m (ORD)/2,406m (ADR) 1 ADR:1 ORD 72% 2,690/0 HK$170.6/US$0.0

Highlights (HK$m) Revenues EBIT (UBS) Net Income (UBS) EPS (UBS, HK$) Net DPS (UBS, HK$) Profitability & Valuation EBIT margin % ROIC (EBIT) % EV/EBITDA (core) x PE (UBS) x Net dividend yield %

12/08 54,297 13,307 9,382 3.90 2.48 5-yr hist av. 25.0 15.8 9.2 13.2 4.9

12/09 50,668 10,847 8,342 3.47 2.48 12/09 21.4 11.4 10.0 15.1 4.7

12/10E 57,598 11,965 9,212 3.83 2.48 12/10E 20.8 11.5 10.6 16.0 4.1

12/11E 81,679 14,575 10,452 4.34 2.65 12/11E 17.8 12.2 9.5 14.1 4.3

12/12E 90,795 17,141 11,911 4.95 3.02 12/12E 18.9 13.1 8.6 12.3 4.9

Performance (HK$)

100 80 60 40 20 0 Stock Price (HK$) Rel. Hang Seng 250 200 150 100 50 0

01/08

04/08

07/08

10/08

01/09

04/09

07/09

10/09

01/10

04/10

07/10

10/10

Price Target (HK$) (LHS) Rel. Hang Seng (RHS)

Stock Price (HK$) (LHS)

Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$61.10 on 17 Mar 2011 23:38 HKT

Source: UBS

www.ubs.com/investmentresearch

Stephen Oldfield

Analyst [email protected] +852-2971 7140

David Pow, CFA

Analyst [email protected] +852 2971 7516

Yuxiao Peng

Associate Analyst [email protected] +852-2971 7526

This report has been prepared by UBS Securities Asia Limited UBS 27 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

01/11

CLP Holdings 18 March 2011

Chart 1: Share price performance since 14 March, CLP vs. Power Assets

0% Mar-14 -1% Mar-15 Mar-16 Mar-17

-2%

-3%

-4%

-5%

-6% CLP Power Assets/Hongkong Electric

Source: Datastream

UBS 28

CLP Holdings

Income statement (HK$m)

Revenues Operating expenses (ex depn) EBITDA (UBS) Depreciation Operating income (EBIT, UBS) Other income & associates Net interest Abnormal items (pre-tax) Profit before tax Tax Profit after tax Abnormal items (post-tax) Minorities / pref dividends Net income (local GAAP) Net Income (UBS) Tax rate (%) Pre-abnormal tax rate (%)

12/05

38,584 (26,993) 11,591 (2,896) 8,695 968 (1,489) 2,271 10,445 922 11,367 0 1 11,368 9,097 0 0

12/06

45,702 (28,622) 17,135 (4,968) 12,167 2,394 (4,624) 656 10,593 (683) 9,910 0 (10) 9,900 9,244 6 9

12/07

50,789 (34,957) 17,954 (4,650) 13,304 1,731 (4,881) 1,294 11,448 (837) 10,611 0 (3) 10,608 9,314 7 10

12/08

54,297 (37,662) 17,362 (4,055) 13,307 1,556 (4,121) 1,041 11,783 (1,349) 10,434 0 (11) 10,423 9,382 11 15

12/09

50,668 (35,642) 15,179 (4,332) 10,847 2,561 (3,408) (146) 9,854 (1,665) 8,189 0 7 8,196 8,342 17 22

12/10E

57,598 (40,885) 16,713 (4,749) 11,965 2,298 (4,216) 1,410 11,457 (841) 10,615 0 7 10,622 9,212 7 11

% ch

13.7 14.7 10.1 9.6 10.3 -10.3 23.7 16.3 -49.5 29.6 0.0 29.6 10.4 -56.5 -51.5

12/11E

81,679 (61,878) 19,800 (5,226) 14,575 3,192 (5,069) 0 12,698 (2,253) 10,445 0 7 10,452 10,452 18 24

% ch

41.8 51.3 18.5 10.0 21.8 38.9 20.2 10.8 167.8 -1.6 0.0 -1.6 13.5 141.7 118.3

12/12E

90,795 (68,044) 22,751 (5,610) 17,141 3,175 (5,593) 0 14,722 (2,818) 11,904 0 7 11,911 11,911 19 24

% ch

11.2 10.0 14.9 7.4 17.6 -0.6 10.3 15.9 25.1 14.0 0.0 14.0 14.0 7.9 3.0

Per share (HK$)

EPS (local GAAP) EPS (UBS) Net DPS Cash EPS BVPS

12/05

4.72 3.78 2.38 4.98 20.83

12/06

4.11 3.84 2.41 5.90 23.19

12/07

4.40 3.87 2.48 5.80 26.53

12/08

4.33 3.90 2.48 5.58 26.19

12/09

3.41 3.47 2.48 5.27 29.41

12/10E

4.41 3.83 2.48 5.80 31.34

% ch

29.6 10.4 0.0 10.2 6.6

12/11E

4.34 4.34 2.65 6.52 33.10

% ch

-1.6 13.5 6.8 12.3 5.6

12/12E

4.95 4.95 3.02 7.28 35.17

% ch

14.0 14.0 14.0 11.8 6.2

Balance sheet (HK$m)

Net tangible fixed assets Net intangible fixed assets Net working capital (incl. other assets) Other liabilities Operating invested capital Investments Total capital employed Shareholders' equity Minority interests Total equity Net debt / (cash) Other debt-deemed items Total capital employed

12/05

63,049 7,949 (957) (11,347) 58,694 18,926 77,620 50,159 111 50,270 27,350 0 77,620

12/06

85,653 7,326 5,967 (11,306) 87,640 19,751 107,391 55,838 78 55,916 51,475 0 107,391

12/07

88,609 8,135 6,006 (10,167) 92,583 19,210 111,793 63,901 95 63,996 47,797 0 111,793

12/08

89,123 6,324 5,377 (10,043) 90,781 20,020 110,801 63,017 105 63,122 47,679 0 110,801

12/09

98,858 8,105 3,060 (10,354) 99,669 24,491 124,160 70,761 107 70,868 53,292 0 124,160

12/10E

108,652 7,880 3,369 (11,742) 108,159 25,601 133,760 75,416 100 75,516 58,244 0 133,760

% ch

9.9 -2.8 10.1 13.4 8.5 4.5 7.7 6.6 -6.5 6.6 9.3 7.7

12/11E

122,785 17,150 3,045 (12,326) 130,655 26,077 156,732 79,644 93 79,737 76,996 0 156,732

% ch

13.0 117.6 -9.6 5.0 20.8 1.9 17.2 5.6 -7.0 5.6 32.2 17.2

12/12E

125,443 16,925 1,734 (12,427) 131,675 26,961 158,635 84,619 86 84,705 73,930 0 158,635

% ch

2.2 -1.3 -43.1 0.8 0.8 3.4 1.2 6.2 -7.5 6.2 -4.0 1.2

Cash flow (HK$m)

Operating income (EBIT, UBS) Depreciation Net change in working capital Other (operating) Operating cash flow (pre tax/interest) Net interest received / (paid) Dividends paid Tax paid Capital expenditure Net (acquisitions) / disposals Other Share issues Cash flow (inc)/dec in net debt FX / non cash items Balance sheet (inc)/dec in net debt Core EBITDA Maintenance capital expenditure Maintenance net working capital Operating free cash flow, pre-tax

12/05

8,695 2,896 499 3,296 15,386 (908) (5,587) (1,085) (5,289) 0 (13,121) 0 (10,604) (492) (11,096) 11,591 (2,830) 0 8,761

12/06

12,167 4,968 (589) 2,974 19,520 (4,264) (5,876) (1,009) (5,982) 0 (885) 0 1,504 (25,629) (24,125) 17,135 (4,803) 0 12,332

12/07

13,304 4,650 (641) 2,393 19,706 (4,778) (5,954) (1,026) (6,920) 0 4,710 0 5,738 (2,060) 3,678 17,954 (4,452) 0 13,502

12/08

13,307 4,055 (1,158) 2,388 18,592 (3,942) (5,973) (810) (7,271) 0 (558) (101) (63) 181 118 17,362 (3,833) 0 13,529

12/09

10,847 4,332 (51) 2,827 17,955 (3,299) (5,967) (924) (7,925) 0 (1,988) 0 (2,148) (3,465) (5,613) 15,179 (4,107) 0 11,072

12/10E

11,965 4,749 943 1,300 18,956 (4,097) (5,968) (802) (10,771) 0 1,276 0 (1,406) (3,547) (4,952) 16,713 (4,524) 0 12,190

% ch

10.3 9.6 -54.0 5.6 24.2 0.0 -13.2 35.9 -34.6 2.4 -11.8 10.1 10.1 10.1

12/11E

14,575 5,226 (201) 2,950 22,549 (4,942) (6,224) (1,255) (25,887) 0 (250) 0 (16,009) (2,742) (18,751) 19,800 (5,001) 0 14,800

% ch

21.8 10.0 126.9 19.0 20.6 4.3 56.4 140.3 1039.0 -22.7 278.6 18.5 10.5 21.4

12/12E

17,141 5,610 (392) 2,632 24,990 (5,570) (6,936) (1,114) (6,794) 0 (263) 0 4,314 (1,249) 3,066 22,751 (5,385) 0 17,366

% ch

17.6 7.4 94.8 -10.8 10.8 12.7 11.4 -11.2 -73.8 5.0 -54.5 14.9 7.7 17.3

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Note: For some companies, the data represents an extract of the full company accounts.

UBS 29

Global Equity Research

Hong Kong Electric Utilities 12-month rating 12m price target

CLP Holdings

Buy

HK$80.00

Valuation (x)

P/E (local GAAP) P/E (UBS) P/CEPS Net dividend yield (%) P/BV EV/revenue (core) EV/EBITDA (core) EV/EBIT (core) EV/OpFCF (core) EV/op. invested capital

5Yr Avg

11.8 13.2 9.3 4.9 2.2 3.1 9.2 12.3 12.2 2.0

12/08

14.0 15.6 10.9 4.1 2.3 3.2 10.0 13.1 12.9 1.9

12/09

15.4 15.1 10.0 4.7 1.8 3.0 10.0 14.0 13.7 1.6

12/10E

13.8 16.0 10.5 4.1 1.9 3.1 10.6 14.8 14.5 1.7

12/11E

14.1 14.1 9.4 4.3 1.8 2.3 9.5 12.9 12.7 1.6

12/12E

12.3 12.3 8.4 4.9 1.7 2.2 8.6 11.4 11.3 1.5

Company profile

CLP is an integrated electric utility servicing Kowloon and the New Territories of Hong Kong. The business is regulated by a scheme of control agreement with the Hong Kong government, which permits it to earn a pre-determined return on average net fixed assets. The power generation assets of the Hong Kong business are 40%-owned, with the remainder owned by Exxon Mobil. Faced with a mature and low-growth business, the company is diversifying overseas, with power generation or retailing assets in Australia, China, India, Taiwan, and Southeast Asia.

Enterprise value (HK$m)

Average market cap + minority interests + average net debt (cash) + pension obligations and other - non-core asset value Core enterprise value

12/08

146,161 100 47,738 0 (20,020) 173,979

12/09

126,111 106 50,486 0 (24,491) 152,212

12/10E

147,015 104 55,768 0 (25,601) 177,286

12/11E

147,015 97 67,620 0 (26,077) 188,654

12/12E

147,015 90 75,463 0 (26,961) 195,607

Value (EV/OpFCF & P/E)

15.0x 20.0x 15.0x 10.0x 5.0x 5.0x 0.0x 12/12E

Growth (%)

Revenue EBITDA (UBS) EBIT (UBS) EPS (UBS) Cash EPS Net DPS BVPS

5Yr Avg

15.2 14.0 14.4 3.4 5.8 2.7 9.3

12/08

6.9 -3.3 0.0 0.7 -3.8 0.0 -1.3

12/09

-6.7 -12.6 -18.5 -11.0 -5.6 0.0 12.3

12/10E

13.7 10.1 10.3 10.4 10.2 0.0 6.6

12/11E

41.8 18.5 21.8 13.5 12.3 6.8 5.6

12/12E

11.2 14.9 17.6 14.0 11.8 14.0 6.2

10.0x

0.0x 12/08 12/09 12/10 EV/OpFCF (LHS) 12/11E P/E (RHS)

Margins (%)

EBITDA / revenue EBIT / revenue Net profit (UBS) / revenue

5Yr Avg

33.7 25.0 21.2 5Yr Avg 15.8 17.3 5Yr Avg 5.5 1.6 63.8 2.6 5Yr Avg 0.6 0.6 NM 5Yr Avg 1.0 14.0 1.6 5Yr Avg 68.8 40.7 25.8

12/08

32.0 24.5 17.3 12/08 14.5 12.4 14.8 12/08 3.6 1.6 63.6 2.7 12/08 0.6 0.6 NM 12/08 1.0 13.4 1.8 12/08 75.7 43.1 27.4

12/09

30.0 21.4 16.5 12/09 11.4 8.8 12.5 12/09 3.9 1.4 71.5 3.5 12/09 0.5 0.5 NM 12/09 1.0 15.6 1.8 12/09 75.3 43.0 33.2

12/10E

29.0 20.8 16.0 12/10E 11.5 10.3 12.6 12/10E 3.4 1.5 64.8 3.5 12/10E 0.6 0.5 NM 12/10E 1.0 18.7 2.3 12/10E 77.2 43.6 31.5

12/11E

24.2 17.8 12.8 12/11E 12.2 9.3 13.5 12/11E 3.5 1.6 61.0 3.9 12/11E 0.7 0.6 NM 12/11E 1.0 NM 5.0 12/11E 96.7 49.2 35.8

12/12E

25.1 18.9 13.1 12/12E 13.1 9.9 14.5 12/12E 3.6 1.6 61.0 3.2 12/12E 0.7 0.6 NM 12/12E 1.0 7.5 1.2 12/12E 87.4 46.6 38.6

Profitability

25.00% 23.71% 22.43% 21.14% 19.86% 18.57% 17.29% 16.00% 12/08 12/09 12/10(E) 12/11(E) ROIC (RHS) 12/12(E) 15.00% 14.00% 13.00% 12.00% 11.00% 10.00%

Return on capital (%) EBIT ROIC (UBS) ROIC post tax Net ROE Coverage ratios (x) EBIT / net interest Dividend cover (UBS EPS) Div. payout ratio (%, UBS EPS) Net debt / EBITDA Efficiency ratios (x) Revenue / op. invested capital Revenue / fixed assets Revenue / net working capital Investment ratios (x) OpFCF / EBIT Capex / revenue (%) Capex / depreciation Capital structure (%) Net debt / total equity Net debt / (net debt + equity) Net debt (core) / EV

EBIT margin (LHS)

ROE v Price to book value

15.00% 14.50% 14.00% 13.50% 13.00% 12.50% 12.00% 11.50% 12/08 12/09 ROE (LHS) 12/10(E) 12/11(E) Price to book value (RHS) 12/12(E) 2.4x 2.3x 2.2x 2.1x 1.9x 1.8x 1.7x 1.6x

Growth (UBS EPS)

100000 90000 80000 70000 60000 50000 40000 12/08 12/09 Revenue (LHS) 12/10(E) 12/11(E) UBS EPS Growth (RHS) 12/12(E) 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0%

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$61.10 on 17 Mar 2011 23:38 HKT Market cap(E) may include forecast share issues/buybacks.

Stephen Oldfield

Analyst [email protected] +852-2971 7140

David Pow, CFA

Analyst [email protected] +852 2971 7516

Yuxiao Peng

Associate Analyst [email protected] +852-2971 7526

UBS 30

CLP Holdings 18 March 2011

CLP Holdings CLP is an integrated electric utility servicing Kowloon and the New Territories of Hong Kong. The business is regulated by a scheme of control agreement with the Hong Kong government, which permits it to earn a pre-determined return on average net fixed assets. The power generation assets of the Hong Kong business are 40%-owned, with the remainder owned by Exxon Mobil. Faced with a mature and low-growth business, the company is diversifying overseas, with power generation or retailing assets in Australia, China, India, Taiwan, and Southeast Asia.

Statement of Risk Earnings under the Scheme of Control Agreements with the Hong Kong government could be lower than expected. This could be because of lower-thanexpected capital expenditure; or an insufficient balance in the Development Fund to make up any deficit between actual earnings and the permitted return. Non-Scheme of Control earnings could also be lower than expected.

UBS 31

abc

UBS Investment Research First Read: CSCI

Results saved by mainland market [Erratum]

Results beat consensus on back of acquisition and mainland business CSCI 2010 revenue was HK$11,983m, up 23% from restated 2009 but missing consensus by 9%. EPS/net profit were HK$0.35/HK$1,036m, beating both consensus and UBSe by 10% mainly on back of 1) strong mainland business and 2) acquisition of Yangwu Expressway and China Overseas Technology Holdings which owns 65% of Nanjing Changjiang Second Bridge. The company also announced a planned rights issue of about 597.4m shares (c20% of the existing share capital) at a price of HK$6.00 per share to raise not less than HK$3,580m. Growth in mainland partly offset by overseas business Revenue from mainland China grew 126% YoY to HK$4,825m in 2010 and accounted for 40% of the total revenue as CSCI benefited from its strategy of refocusing on mainland China. However, the growth was partly offset by the 5% YoY decline in revenue from Hong Kong, Macau and overseas markets combined. CSCI signed total new contract of HK$24.9bn in 2010 and year-end backlog reached HK$35.5bn or 3.0x of its 2010 revenue. Margin recovery in line with industry trend Gross margin recovered to 11.0% in 2010 from 7.7% in 2009. Hong Kong and mainland delivered gross margin improvement of 1.2 ppt and 2.0 ppt, respectively. We believe this is in line with the industry trend. We believe there is room for further margin improvement for CSCI and other China construction names. Valuation: Neutral rating and a PT of HK$7.40 We apply an EV/EBITDA multiple of 11.5x to CSCI's construction and related businesses. Our price target implies 15.8x PE with 25.5% ROE in 2011E. ***This note replaces an earlier version which inadvertently omitted the company's announcement of a planned share issue.***

Highlights (HK$m) Revenues EBIT (UBS) Net Income (UBS) EPS (UBS, HK$) Net DPS (UBS, HK$) Profitability & Valuation EBIT margin % ROIC (EBIT) % EV/EBITDA (core) x PE (UBS) x Net dividend yield % 12/08 11,021 498 489 0.19 0.00 5-yr hist av. 12/09 11,342 627 613 0.23 0.00 12/09 5.5 75.5 5.6 10.9 0.0 12/10E 13,392 1,139 943 0.32 0.00 12/10E 8.5 139.2 13.1 22.6 0.0 12/11E 17,406 1,684 1,387 0.47 0.00 12/11E 9.7 157.9 8.9 15.4 0.0 12/12E 20,677 2,252 1,852 0.63 0.00 12/12E 10.9 169.5 6.4 11.5 0.0

Global Equity Research

Hong Kong Heavy Construction 12-month rating 12m price target Price

RIC: 3311.HK BBG: 3311 HK

Neutral

Unchanged

HK$7.40/US$0.95 Unchanged HK$7.20/US$0.92

18 March 2011

Trading data (local/US$) 52-wk range Market cap. Shares o/s Free float Avg. daily volume ('000) Avg. daily value (m) Balance sheet data 12/10E Shareholders' equity P/BV (UBS) Net Cash (debt) Forecast returns Forecast price appreciation Forecast dividend yield Forecast stock return Market return assumption Forecast excess return EPS (UBS, HK$) 12/10E H1 H2E 12/10E 12/11E UBS 0.14 0.18 0.32 0.47 Cons. 0.32 0.47 12/09 Actual 0.12 0.12 +2.8% 0.0% +2.8% 7.8% -5.0% HK$4.96bn 4.3x HK$1.35bn HK$8.48-2.26/US$1.09-0.29 HK$21.2bn/US$2.71bn 2,938m (ORD) 37% 9,427 HK$70.8

Performance (HK$)

8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10 10/10 01/11 0.00 50 0 200 150 100 Stock Price (HK$) Rel. Hang Seng 300 250

Price Target (HK$) (LHS) Rel. Hang Seng (RHS)

Stock Price (HK$) (LHS)

Source: UBS

Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$7.20 on 17 Mar 2011 23:38 HKT

www.ubssecurities.com

Hubert Tang, CFA

Analyst S1460511010020 [email protected] +8621-3866 8858

This report has been prepared by UBS Securities Co. Limited UBS 32 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CSCI

Income statement (HK$m)

Revenues Operating expenses (ex depn) EBITDA (UBS) Depreciation Operating income (EBIT, UBS) Other income & associates Net interest Abnormal items (pre-tax) Profit before tax Tax Profit after tax Abnormal items (post-tax) Minorities / pref dividends Net income (local GAAP) Net Income (UBS) Tax rate (%) Pre-abnormal tax rate (%)

12/05

6,863 (6,664) 199 (40) 158 (7) 25 0 177 (30) 147 0 (16) 131 131 17 18

12/06

10,295 (10,047) 248 (43) 205 9 58 0 271 (49) 222 0 0 222 222 18 19

12/07

10,168 (9,657) 512 (88) 423 34 73 0 530 (82) 448 0 (43) 405 405 16 16

12/08

11,021 (10,391) 630 (132) 498 64 9 0 571 (66) 504 0 (15) 489 489 12 12

12/09

11,342 (10,602) 740 (114) 627 103 (7) 0 722 (110) 613 0 0 613 613 15 15

12/10E

13,392 (12,130) 1,262 (123) 1,139 45 (16) 0 1,168 (175) 992 0 (50) 943 943 15 15

% ch

18.1 14.4 70.5 8.1 81.8 -56.2 130.0 61.7 59.9 62.0 53.9 53.9 -1.1 -1.5

12/11E

17,406 (15,589) 1,817 (133) 1,684 53 (20) 0 1,718 (258) 1,460 0 (73) 1,387 1,387 15 15

% ch

30.0 28.5 44.0 8.0 47.9 17.8 19.3 47.1 47.1 47.1 47.1 47.1 47.1 0.0 -0.2

12/12E

20,677 (18,282) 2,395 (143) 2,252 60 (18) 0 2,294 (344) 1,950 0 (97) 1,852 1,852 15 15

% ch

18.8 17.3 31.8 7.4 33.7 13.2 -5.9 33.5 33.5 33.5 33.5 33.5 33.5 0.0 -0.2

Per share (HK$)

EPS (local GAAP) EPS (UBS) Net DPS Cash EPS BVPS

12/05

0.06 0.06 0.00 0.08 0.43

12/06

0.10 0.10 0.00 0.12 0.49

12/07

0.18 0.18 0.00 0.22 0.90

12/08

0.19 0.19 0.00 0.24 1.03

12/09

0.23 0.23 0.00 0.28 1.47

12/10E

0.32 0.32 0.00 0.36 1.68

% ch

35.9 35.9 29.6 14.5

12/11E

0.47 0.47 0.00 0.51 2.01

% ch

47.1 47.1 42.6 19.6

12/12E

0.63 0.63 0.00 0.67 2.44

% ch

33.5 33.5 31.2 21.8

Balance sheet (HK$m)

Net tangible fixed assets Net intangible fixed assets Net working capital (incl. other assets) Other liabilities Operating invested capital Investments Total capital employed Shareholders' equity Minority interests Total equity Net debt / (cash) Other debt-deemed items Total capital employed

12/05

55 0 (874) 0 (820) 41 (778) 837 0 837 (1,616) 0 (778)

12/06

97 0 (880) 0 (783) 57 (727) 974 0 974 (1,701) 0 (727)

12/07

972 0 (229) (186) 556 105 662 2,156 0 2,156 (1,494) 0 662

12/08

1,107 0 108 (237) 979 681 1,660 2,523 0 2,523 (863) 0 1,660

12/09

1,121 10 (177) (274) 681 1,205 1,886 4,305 0 4,305 (2,419) 0 1,886

12/10E

1,193 10 52 (300) 955 2,713 3,668 4,965 50 5,014 (1,346) 0 3,668

% ch

6.4 0.0 9.6 40.3 125.2 94.5 15.3 16.5 -44.4 94.5

12/11E

1,255 10 213 (300) 1,178 3,723 4,901 5,936 123 6,058 (1,157) 0 4,901

% ch

5.2 0.0 309.2 0.0 23.3 37.2 33.6 19.6 147.1 20.8 -14.0 33.6

12/12E

1,308 10 462 (300) 1,479 4,738 6,217 7,232 220 7,452 (1,235) 0 6,217

% ch

4.2 0.0 116.7 0.0 25.5 27.3 26.8 21.8 79.5 23.0 6.8 26.8

Cash flow (HK$m)

Operating income (EBIT, UBS) Depreciation Net change in working capital Other (operating) Operating cash flow (pre tax/interest) Net interest received / (paid) Dividends paid Tax paid Capital expenditure Net (acquisitions) / disposals Other Share issues Cash flow (inc)/dec in net debt FX / non cash items Balance sheet (inc)/dec in net debt Core EBITDA Maintenance capital expenditure Maintenance net working capital Operating free cash flow, pre-tax

12/05

158 40 (22) (4) 173 (25) 0 (53) (36) 5 0 501 199 (40) 0 158

12/06

205 43 (28) (7) 213 (58) (89) (32) (74) (98) 126 7 (3) 89 85 248 (43) 0 205

12/07

423 88 (837) (15) (341) (73) (104) (34) (94) 10 (955) 998 (594) 387 (207) 512 (88) 0 423

12/08

498 132 (352) (22) 257 (9) (200) (22) (202) (33) (491) (9) (711) 80 (631) 630 (132) 0 498

12/09

627 114 454 (69) 1,126 7 (187) (70) (124) (483) 1,548 1,358 3,174 (1,618) 1,556 740 (114) 0 627

12/10E

1,139 123 (175) 45 1,132 (16) (283) (175) (195) (1,503) 64 0 (977) (96) (1,073) 1,262 (123) 0 1,139

% ch

81.8 8.1 0.5 51.6 148.4 57.2 211.0 -95.9 -94.0 70.5 8.1 81.8

12/11E

1,684 133 (101) 53 1,769 (20) (416) (258) (195) (1,010) (60) 0 (189) 0 (189) 1,817 (133) 0 1,684

% ch

47.9 8.0 -42.3 17.8 56.3 19.3 47.1 47.1 0.0 -32.8 -80.6 -82.4 44.0 8.0 47.9

12/12E

2,252 143 (189) 60 2,266 (18) (556) (344) (195) (1,010) (65) 0 78 0 78 2,395 (143) 0 2,252

% ch

33.7 7.4 86.8 13.2 28.1 -5.9 33.5 33.5 0.0 0.0 8.3 31.8 7.4 33.7

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Note: For some companies, the data represents an extract of the full company accounts.

UBS 33

Global Equity Research

Hong Kong Heavy Construction 12-month rating 12m price target

CSCI

Neutral

HK$7.40

Valuation (x)

P/E (local GAAP) P/E (UBS) P/CEPS Net dividend yield (%) P/BV EV/revenue (core) EV/EBITDA (core) EV/EBIT (core) EV/OpFCF (core) EV/op. invested capital

5Yr Avg

-

12/08

11.5 11.5 9.1 0.0 2.1 0.3 5.4 6.9 6.9 4.5

12/09

10.9 10.9 9.2 0.0 1.7 0.4 5.6 6.6 6.6 5.0

12/10E

22.6 22.6 20.0 0.0 4.3 1.2 13.1 14.6 14.6 NM

12/11E

15.4 15.4 14.0 0.0 3.6 0.9 8.9 9.7 9.7 NM

12/12E

11.5 11.5 10.7 0.0 2.9 0.7 6.4 6.8 6.8 NM

Company profile

China State Construction International (CSCI), which was established in 1979 and listed on the Hong Kong stock exchange in 2005, is one of the major overseas subsidiaries of China State Construction Engineering Corporation (CSCEC). The company provides construction services, including building, civil engineering and other related operations in Hong Kong, Macau, mainland China and some overseas markets, mostly in India and the UAE. Its primary business is construction, which contributed 95% to total revenue in 2009.

Enterprise value (HK$m)

Average market cap + minority interests + average net debt (cash) + pension obligations and other - non-core asset value Core enterprise value

12/08

5,286 0 (1,179) 0 (681) 3,427

12/09

6,957 0 (1,641) 0 (1,205) 4,111

12/10E

21,152 25 (1,883) 0 (2,713) 16,582

12/11E

21,152 86 (1,252) 0 (3,723) 16,264

12/12E

21,152 171 (1,196) 0 (4,738) 15,390

Value (EV/OpFCF & P/E)

15.0x 25.0x 20.0x 10.0x 15.0x 10.0x 5.0x 0.0x 12/08 12/09 12/10 EV/OpFCF (LHS) 12/11E P/E (RHS) 0.0x 12/12E

Growth (%)

Revenue EBITDA (UBS) EBIT (UBS) EPS (UBS) Cash EPS Net DPS BVPS

5Yr Avg

-

12/08

8.4 23.1 17.5 4.3 8.9 15.2

12/09

2.9 17.5 25.9 23.3 15.1 41.6

12/10E

18.1 70.5 81.8 35.9 29.6 14.5

12/11E

30.0 44.0 47.9 47.1 42.6 19.6

12/12E

18.8 31.8 33.7 33.5 31.2 21.8

5.0x

Margins (%)

EBITDA / revenue EBIT / revenue Net profit (UBS) / revenue

5Yr Avg

5Yr Avg 5Yr Avg 5Yr Avg 5Yr Avg 5Yr Avg -

12/08

5.7 4.5 4.4 12/08 64.8 57.2 20.9 12/08 NM 12/08 14.4 10.6 NM 12/08 1.0 1.8 1.5 12/08 (34.2) (52.0) (34.4)

12/09

6.5 5.5 5.4 12/09 NM 63.8 17.9 12/09 NM NM 12/09 13.7 10.1 NM 12/09 1.0 1.1 1.1 12/09 (56.2) NM (39.9)

12/10E

9.4 8.5 7.0 12/10E NM NM 20.3 12/10E NM NM 12/10E 16.4 11.5 NM 12/10E 1.0 1.5 1.6 12/10E (27.1) (37.2) (11.4)

12/11E

10.4 9.7 8.0 12/11E NM NM 25.5 12/11E NM NM 12/11E 16.3 14.1 NM 12/11E 1.0 1.1 1.5 12/11E (19.5) (24.2) (7.7)

12/12E

11.6 10.9 9.0 12/12E NM NM 28.1 12/12E NM NM 12/12E 15.6 16.0 NM 12/12E 1.0 0.9 1.4 12/12E (17.1) (20.6) (7.8)

Profitability

11.00% 9.86% 8.71% 7.57% 6.43% 5.29% 4.14% 3.00% 12/08 12/09 12/10(E) 12/11(E) ROIC (RHS) 12/12(E) 180% 160% 140% 120% 100% 80% 60% 40%

Return on capital (%) EBIT ROIC (UBS) ROIC post tax Net ROE Coverage ratios (x) EBIT / net interest Dividend cover (UBS EPS) Div. payout ratio (%, UBS EPS) Net debt / EBITDA Efficiency ratios (x) Revenue / op. invested capital Revenue / fixed assets Revenue / net working capital Investment ratios (x) OpFCF / EBIT Capex / revenue (%) Capex / depreciation Capital structure (%) Net debt / total equity Net debt / (net debt + equity) Net debt (core) / EV

EBIT margin (LHS)

ROE v Price to book value

30.0% 25.0% 20.0% 15.0% 10.0% 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 12/08 12/09 ROE (LHS) 12/10(E) 12/11(E) Price to book value (RHS) 12/12(E) 1.0x

Growth (UBS EPS)

22000 20000 18000 16000 14000 12000 10000 8000 12/08 12/09 Revenue (LHS) 12/10(E) 12/11(E) UBS EPS Growth (RHS) 12/12(E) 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$7.20 on 17 Mar 2011 23:38 HKT Market cap(E) may include forecast share issues/buybacks.

Hubert Tang, CFA

Analyst S1460511010020 [email protected] +8621-3866 8858

UBS 34

First Read: CSCI 18 March 2011

China State Construction International China State Construction International (CSCI), which was established in 1979 and listed on the Hong Kong stock exchange in 2005, is one of the major overseas subsidiaries of China State Construction Engineering Corporation (CSCEC). The company provides construction services, including building, civil engineering and other related operations in Hong Kong, Macau, mainland China and some overseas markets, mostly in India and the UAE. Its primary business is construction, which contributed 95% to total revenue in 2009.

Statement of Risk As CSCI undertakes more and more BT/BOT projects, its capital requirements will increase. This would generate additional need for capital to support CSCI's new contract growth. The BT/BOT project contracts CSCI signs on the mainland require its own upfront capital. Local governments will repay CSCI only after these projects are completed and transferred to them. As such, the creditworthiness of local governments is critical. Meanwhile, the financial details of local government funding vehicles (LGCVs) are generally not available, and this is an additional risk.

UBS 35

abc

UBS Investment Research First Read: Jiangsu Expressway

In-line net profit, but dividends missed

FY10 result (IFRS): revenue +18%, net profit +23% Jiangsu Expressway (JSE) reported FY10 revenue of Rmb6.6bn (+18% YoY), among which toll revenue amounted to Rmb4.8bn (+16% YoY). Core ShanghaiNanjing Expressway (SNE) delivered 10%/17% YoY traffic and toll revenue growth in 2010, contributing 83% of total toll revenue. Net profit came in at Rmb2.5bn (+23% YoY), 2% ahead of both our estimate and consensus. DPS of Rmb0.36 (71.7% payout) missed our estimate (76.5% payout) by 5%. Outlook for toll roads JSE see the opening of Shanghai-Beijing high-speed railway (June 2011) being of limited impact to SNE. However management does expect execution of Green Passage policy to lead to more exempted toll road charge on all toll roads. We are less concerned as this will have little impact to the existing travellers although encouraging new "free" travellers (previously on low-class highways). Updates on the property development We are happy to see no further expansion plan on the property business. Huaqiao: one residential project with GFA for sale of 42k sqm started pre-sale in 2011, one commercial project with GFA for sale of 54k sqm will start construction in H111 and the rest still in design stage; Suzhou: 28k sqm developing area to start pre-sale mid-2011; and Jurong: still in the preliminary preparation stage. Valuation ­ Buy, PT of HK$9.88 Our DCF based (WACC of 8.67%) HK$9.88 PT implies 16.2x PE and 4.7% div. yld in 2011E. We will follow up with more details after the result NDR on 22 Mar.

Global Equity Research

China Transportation Services 12-month rating 12m price target Price

RIC: 0177.HK BBG: 177 HK

Buy

Unchanged

HK$9.88/US$1.27 Unchanged HK$8.04/US$1.03

21 March 2011

Trading data (local/US$) 52-wk range Market cap. Shares o/s Free float Avg. daily volume ('000) Avg. daily value (m) Balance sheet data 12/10E Shareholders' equity P/BV (UBS) Net Cash (debt) Forecast returns Forecast price appreciation Forecast dividend yield Forecast stock return Market return assumption Forecast excess return EPS (UBS, Rmb) 12/10E H1 H2E 12/10E 12/11E UBS 0.26 0.24 0.49 0.54 Cons. 0.49 0.54 12/09 Actual 0.20 0.21 +22.9% 6.0% +28.9% 10.1% +18.8% Rmb16.0bn 2.1x (Rmb6.62bn) HK$9.66-6.78/US$1.25-0.87 HK$40.5bn/US$5.19bn 5,038m (ORD) 25% 4,067 HK$34.5

Highlights (Rmbm) Revenues EBIT (UBS) Net Income (UBS) EPS (UBS, Rmb) Net DPS (UBS, Rmb) Profitability & Valuation EBIT margin % ROIC (EBIT) % EV/EBITDA (core) x PE (UBS) x Net dividend yield %

12/08 5,134 2,532 1,592 0.32 0.27 5-yr hist av. 51.0 10.5 12.1 22.2 4.0

12/09 5,587 2,952 2,052 0.41 0.31 12/09 52.8 14.3 9.2 13.0 5.8

12/10E 6,429 3,461 2,488 0.49 0.38 12/10E 53.8 16.5 9.3 13.8 5.5

12/11E 6,976 3,719 2,696 0.54 0.41 12/11E 53.3 18.0 8.4 12.6 6.0

12/12E 8,751 4,454 3,283 0.65 0.50 12/12E 50.9 22.4 6.9 10.4 7.4

Performance (HK$)

10.0 8.0 6.0 4.0 2.0 0.0 Stock Price (HK$) Rel. Hang Seng 140 120 100 80 60 40 20 01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10 10/10 01/11 0

Price Target (HK$) (LHS) Rel. Hang Seng (RHS)

Stock Price (HK$) (LHS)

Source: UBS

Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$8.04 on 18 Mar 2011 23:38 HKT

www.ubssecurities.com

Robin Xu

Analyst S1460511010012 [email protected] +8621-3866 8872

This report has been prepared by UBS Securities Co. Limited UBS 36 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

First Read: Jiangsu Expressway 21 March 2011

UBS 37

Jiangsu Expressway

Income statement (Rmbm)

Revenues Operating expenses (ex depn) EBITDA (UBS) Depreciation Operating income (EBIT, UBS) Other income & associates Net interest Abnormal items (pre-tax) Profit before tax Tax Profit after tax Abnormal items (post-tax) Minorities / pref dividends Net income (local GAAP) Net Income (UBS) Tax rate (%) Pre-abnormal tax rate (%)

12/05

2,105 (707) 1,430 (415) 1,014 139 (162) 0 991 (290) 701 0 (33) 668 668 29 34

12/06

3,926 (1,122) 2,833 (755) 2,078 130 (445) 0 1,762 (549) 1,213 0 (39) 1,174 1,174 31 34

12/07

5,069 (1,485) 3,635 (820) 2,815 139 (504) 0 2,450 (770) 1,680 0 (38) 1,642 1,642 31 33

12/08

5,134 (1,811) 3,342 (811) 2,532 151 (543) 0 2,140 (502) 1,638 0 (45) 1,592 1,592 23 25

12/09

5,587 (1,893) 3,712 (760) 2,952 187 (386) 0 2,753 (650) 2,103 0 (50) 2,052 2,052 24 25

12/10E

6,429 (2,189) 4,266 (805) 3,461 234 (376) 0 3,318 (772) 2,546 0 (58) 2,488 2,488 23 25

% ch

15.1 15.7 14.9 5.9 17.2 24.7 -2.6 20.5 18.7 21.1 14.8 21.2 21.2 -1.5 -0.9

12/11E

6,976 (2,432) 4,570 (851) 3,719 237 (356) 0 3,600 (841) 2,759 0 (63) 2,696 2,696 23 25

% ch

8.5 11.1 7.1 5.7 7.5 1.6 -5.2 8.5 8.9 8.4 8.9 8.4 8.4 0.3 0.0

12/12E

8,751 (3,431) 5,345 (892) 4,454 259 (319) 0 4,394 (1,034) 3,360 0 (78) 3,283 3,283 24 25

% ch

25.4 41.1 17.0 4.8 19.7 9.3 -10.5 22.0 22.9 21.8 22.9 21.7 21.7 0.7 0.0

Per share (Rmb)

EPS (local GAAP) EPS (UBS) Net DPS Cash EPS BVPS

12/05

0.13 0.13 0.14 0.22 2.62

12/06

0.23 0.23 0.19 0.38 2.71

12/07

0.33 0.33 0.27 0.49 2.85

12/08

0.32 0.32 0.27 0.48 2.91

12/09

0.41 0.41 0.31 0.56 3.07

12/10E

0.49 0.49 0.38 0.65 3.19

% ch

21.2 21.2 21.9 17.1 3.8

12/11E

0.54 0.54 0.41 0.70 3.31

% ch

8.4 8.4 8.4 7.7 3.9

12/12E

0.65 0.65 0.50 0.83 3.46

% ch

21.7 21.7 21.7 17.7 4.6

Balance sheet (Rmbm)

Net tangible fixed assets Net intangible fixed assets Net working capital (incl. other assets) Other liabilities Operating invested capital Investments Total capital employed Shareholders' equity Minority interests Total equity Net debt / (cash) Other debt-deemed items Total capital employed

12/05

21,725 1,283 (2,729) 0 20,280 1,580 21,859 13,208 417 13,625 8,235 0 21,859

12/06

21,223 1,208 (1,794) 0 20,638 1,593 22,231 13,651 428 14,079 8,152 0 22,231

12/07

1,598 19,954 (1,283) (1) 20,268 1,609 21,877 14,337 429 14,766 7,111 0 21,877

12/08

1,502 19,310 (518) (1) 20,293 1,884 22,177 14,635 439 15,074 7,103 0 22,177

12/09

1,340 18,709 1,061 (4) 21,106 2,082 23,188 15,464 450 15,914 7,274 0 23,188

12/10E

1,263 18,181 1,517 (4) 20,957 2,179 23,136 16,049 468 16,517 6,619 0 23,136

% ch

-5.8 -2.8 42.9 0.0 -0.7 4.7 -0.2 3.8 4.0 3.8 -9.0 -0.2

12/11E

1,178 17,615 1,606 (4) 20,395 2,285 22,681 16,682 491 17,173 5,508 0 22,681

% ch

-6.7 -3.1 5.9 0.0 -2.7 4.9 -2.0 3.9 4.8 4.0 -16.8 -2.0

12/12E

1,085 17,016 1,196 (4) 19,293 2,413 21,706 17,454 527 17,981 3,726 0 21,706

% ch

-7.9 -3.4 -25.6 0.0 -5.4 5.6 -4.3 4.6 7.4 4.7 -32.4 -4.3

Cash flow (Rmbm)

Operating income (EBIT, UBS) Depreciation Net change in working capital Other (operating) Operating cash flow (pre tax/interest) Net interest received / (paid) Dividends paid Tax paid Capital expenditure Net (acquisitions) / disposals Other Share issues Cash flow (inc)/dec in net debt FX / non cash items Balance sheet (inc)/dec in net debt Core EBITDA Maintenance capital expenditure Maintenance net working capital Operating free cash flow, pre-tax

12/05

1,014 415 18 90 1,538 (422) (745) (247) (4,003) 0 155 0 (3,724) (7) (3,732) 1,430 (100) (15) 1,315

12/06

2,078 755 28 1 2,863 (455) (772) (471) (1,210) 0 129 0 83 0 83 2,833 (100) (15) 2,718

12/07

2,815 820 52 68 3,754 (512) (949) (595) (837) 83 94 0 1,038 2 1,041 3,635 (100) (15) 3,520

12/08

2,532 811 (24) 69 3,387 (464) (1,347) (621) (827) (185) 78 0 21 (13) 8 3,342 (100) (15) 3,227

12/09

2,952 760 (1,266) 48 2,494 (439) (1,346) (695) (260) 4 77 0 (165) (6) (171) 3,712 (200) (15) 3,497

12/10E

3,461 805 (456) 12 3,822 (383) (1,903) (772) (200) 0 92 0 655 0 655 4,266 (200) (15) 4,051

% ch

17.2 5.9 -64.0 -75.5 53.2 -12.7 41.4 11.0 -23.1 18.2 14.9 0.0 0.0 15.8

12/11E

3,719 851 (90) 12 4,492 (368) (2,063) (841) (200) 0 91 0 1,111 0 1,111 4,570 (200) (15) 4,355

% ch

7.5 5.7 -80.3 -1.4 17.5 -3.9 8.4 8.9 0.0 -0.9 69.7 69.7 7.1 0.0 0.0 7.5

12/12E

4,454 892 411 23 5,779 (343) (2,511) (1,034) (200) 0 90 0 1,782 0 1,782 5,345 (200) (15) 5,130

% ch

19.7 4.8 102.2 28.7 -6.9 21.7 22.9 0.0 -0.9 60.3 60.3 17.0 0.0 0.0 17.8

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Note: For some companies, the data represents an extract of the full company accounts.

UBS 38

Global Equity Research

China Transportation Services 12-month rating 12m price target

Jiangsu Expressway

Buy

HK$9.88

Valuation (x)

P/E (local GAAP) P/E (UBS) P/CEPS Net dividend yield (%) P/BV EV/revenue (core) EV/EBITDA (core) EV/EBIT (core) EV/OpFCF (core) EV/op. invested capital

5Yr Avg

22.2 22.2 14.3 4.0 1.8 8.3 12.1 16.1 12.7 1.7

12/08

17.8 17.8 11.8 4.8 1.9 6.9 10.6 14.0 11.0 1.8

12/09

13.0 13.0 9.5 5.8 1.7 6.1 9.2 11.6 9.8 1.7

12/10E

13.8 13.8 10.4 5.5 2.1 6.2 9.3 11.4 9.8 1.9

12/11E

12.6 12.6 9.6 6.0 2.0 5.5 8.4 10.3 8.8 1.9

12/12E

10.4 10.4 8.2 7.4 2.0 4.2 6.9 8.3 7.2 1.9

Company profile

Jiangsu Expressway operates Shanghai Nanjing Expressway and National Highway 312, as well as Guangjing and Xicheng Expressways, Jiangying Yangtze Bridge, the Nanjing section of Nanjing Lianyuan Expressway, and Sujiahang Expressway. The Shanghai Nanjing Expressway is the company's main revenue contributor.

Enterprise value (Rmbm)

Average market cap + minority interests + average net debt (cash) + pension obligations and other - non-core asset value Core enterprise value

12/08

27,966 439 7,107 5 (5) 35,512

12/09

26,688 450 7,107 5 (5) 34,245

12/10E

34,339 468 6,946 5 (2,179) 39,579

12/11E

34,107 491 6,063 5 (2,285) 38,380

12/12E

34,107 527 4,617 5 (2,413) 36,842

Value (EV/OpFCF & P/E)

12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x 12/08 12/09 12/10 EV/OpFCF (LHS) 12/11E P/E (RHS) 20.0x 15.0x 10.0x 5.0x 0.0x 12/12E

Growth (%)

Revenue EBITDA (UBS) EBIT (UBS) EPS (UBS) Cash EPS Net DPS BVPS

5Yr Avg

14.8 15.0 15.1 12.9 13.5 16.8 2.5

12/08

1.3 -8.0 -10.1 -3.1 -2.4 0.0 2.1

12/09

8.8 11.1 16.6 28.9 17.0 14.8 5.7

12/10E

15.1 14.9 17.2 21.2 17.1 21.9 3.8

12/11E

8.5 7.1 7.5 8.4 7.7 8.4 3.9

12/12E

25.4 17.0 19.7 21.7 17.7 21.7 4.6

Margins (%)

EBITDA / revenue EBIT / revenue Net profit (UBS) / revenue

5Yr Avg

68.3 51.0 31.6 5Yr Avg 10.5 8.8 5Yr Avg 7.2 1.2 86.7 2.7 5Yr Avg 0.2 0.2 NM 5Yr Avg 1.3 NM 3.8 5Yr Avg 50.8 33.7 19.8

12/08

65.1 49.3 31.0 12/08 12.5 9.3 11.0 12/08 4.9 1.2 85.4 2.1 12/08 0.3 0.2 NM 12/08 1.3 16.1 1.0 12/08 48.5 32.7 20.0

12/09

66.4 52.8 36.7 12/09 14.3 10.7 13.6 12/09 8.1 1.3 76.1 2.0 12/09 0.3 0.3 21.0 12/09 1.2 4.7 0.3 12/09 47.0 32.0 20.8

12/10E

66.4 53.8 38.7 12/10E 16.5 12.3 15.8 12/10E 9.8 1.3 76.5 1.6 12/10E 0.3 0.3 5.0 12/10E 1.2 3.1 0.2 12/10E 41.2 29.2 17.6

12/11E

65.5 53.3 38.7 12/11E 18.0 13.5 16.5 12/11E 11.1 1.3 76.5 1.2 12/11E 0.3 0.4 4.5 12/11E 1.2 2.9 0.2 12/11E 33.0 24.8 15.8

12/12E

61.1 50.9 37.5 12/12E 22.4 16.8 19.2 12/12E 14.8 1.3 76.5 0.7 12/12E 0.4 0.5 6.3 12/12E 1.2 2.3 0.2 12/12E 21.3 17.6 12.5

Profitability

54.00% 53.00% 52.00% 51.00% 50.00% 49.00% 48.00% 12/08 12/09 12/10(E) 12/11(E) ROIC (RHS) 12/12(E) 24.0% 22.0% 20.0% 18.0% 16.0% 14.0% 12.0% 10.0%

Return on capital (%) EBIT ROIC (UBS) ROIC post tax Net ROE Coverage ratios (x) EBIT / net interest Dividend cover (UBS EPS) Div. payout ratio (%, UBS EPS) Net debt / EBITDA Efficiency ratios (x) Revenue / op. invested capital Revenue / fixed assets Revenue / net working capital Investment ratios (x) OpFCF / EBIT Capex / revenue (%) Capex / depreciation Capital structure (%) Net debt / total equity Net debt / (net debt + equity) Net debt (core) / EV

EBIT margin (LHS)

ROE v Price to book value

20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 12/08 12/09 ROE (LHS) 12/10(E) 12/11(E) Price to book value (RHS) 12/12(E) 2.2x 2.1x 2.0x 1.9x 1.8x 1.7x 1.6x

Growth (UBS EPS)

9000 8000 7000 6000 5000 4000 12/08 12/09 Revenue (LHS) 12/10(E) 12/11(E) UBS EPS Growth (RHS) 12/12(E) 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0%

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$8.04 on 18 Mar 2011 23:38 HKT Market cap(E) may include forecast share issues/buybacks.

Robin Xu

Analyst S1460511010012 [email protected] +8621-3866 8872

UBS 39

First Read: Jiangsu Expressway 21 March 2011

Jiangsu Expressway Jiangsu Expressway operates Shanghai Nanjing Expressway and National Highway 312, as well as Guangjing and Xicheng Expressways, Jiangying Yangtze Bridge, the Nanjing section of Nanjing Lianyuan Expressway, and Sujiahang Expressway. The Shanghai Nanjing Expressway is the company's main revenue contributor.

Statement of Risk Major traffic risk comes from the opening of high speed railway between Shanghai and Nanjing. The company also exposes itself to diversification risk as it is investing into the property sector.

UBS 40

abc

UBS Investment Research First Read: Sino-Ocean

Long-term growth strategy unchanged

Achieved 55% revenue growth and 67% core profit growth Sino-Ocean reported turnover of Rmb13.7bn (+55% yoy) and core net profit of Rmb1.9bn (+67% yoy). Property development revenue increased 56% to Rmb12.8bn. Total GFA booking was 1.22m sqm (+40% yoy) at an ASP of Rmb10,456 psm (+10% yoy) vs. UBS-e of 1.38m sqm at Rmb11,301 psm. The full year dividend was Rmb0.11/sh, representing 36% core dividend payout ratio. Rmb30bn contract sales target for 2011; Capex will amount to Rmb26bn For Jan-Feb, the company achieved Rmb4.7bn contract sales, or 16% of its full year target. Total GFA under construction will be 10m sqm, and 2m sqm is expected to be completed this year. Mgmt indicated the company will improve its asset turnover in 2011, and projects available for sale will amount to Rmb70bn Total cash outflow for 2011 is expected to be Rmb26bn, including Rmb10bn construction cost, Rmb2bn SG&A, and Rmb4bn other cost. Net gearing is still maintained at a healthy level of 46%. Increasing profit contribution from invest. property is the long-term goal Mgmt is targeting to increase revenue/profit contribution from investment property, which will account for 20%/30% out of total by end-2015. In addition, the company will strategically landbank in lower-tier cities to diversify policy risk, where policy towards residential market is milder comparing to 1st-tier cites. Valuation: Trading at 42% discount to 11E NAV and 10.6x 11E PE We derive our price target by applying a 35% discount to our 2011 NAV estimate of HK$8.4. Our price target implies 12.2x 11E PE and 0.8x P/BV. Buy.

Global Equity Research

China Real Estate 12-month rating 12m price target Price

RIC: 3377.HK BBG: 3377 HK

Buy

Unchanged

HK$5.60/US$0.72 Unchanged HK$4.32/US$0.55

18 March 2011

Trading data (local/US$) 52-wk range Market cap. Shares o/s Free float Avg. daily volume ('000) Avg. daily value (m) Balance sheet data 12/10E Shareholders' equity P/BV (UBS) Net Cash (debt) Forecast returns Forecast price appreciation Forecast dividend yield Forecast stock return Market return assumption Forecast excess return EPS (UBS, Rmb) 12/10E H1E H2E 12/10E 12/11E UBS 0.00 0.00 0.44 0.41 Cons. 0.45 0.41 12/09 Actual 0.00 0.00 +29.6% 3.1% +32.7% 10.1% +22.6% Rmb31.7bn 0.7x (Rmb21.8bn) HK$7.27-4.32/US$0.94-0.55 HK$24.4bn/US$3.12bn 5,637m (ORD) 70% 27,738 HK$145.4

Highlights (Rmbm) Revenues EBIT (UBS) Net Income (UBS) EPS (UBS, Rmb) Net DPS (UBS, Rmb) Profitability & Valuation EBIT margin % ROIC (EBIT) % EV/EBITDA (core) x PE (UBS) x Net dividend yield %

12/08 6,487 1,728 1,151 0.26 0.09 5-yr hist av. 18.6 -

12/09 8,824 1,772 825 0.15 0.07 12/09 20.1 7.8 16.0 40.1 1.2

12/10E 16,198 3,750 2,506 0.44 0.11 12/10E 23.2 10.4 7.8 8.2 3.0

12/11E 16,905 3,878 2,290 0.41 0.10 12/11E 22.9 6.9 11.3 9.0 2.8

12/12E 20,962 4,759 2,676 0.47 0.12 12/12E 22.7 8.2 8.0 7.7 3.3

Performance (HK$)

10.0 8.0 6.0 4.0 2.0 0.0 Stock Price (HK$) Rel. Hang Seng 160 140 120 100 80 60 40 20 01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10 10/10 01/11 0

Price Target (HK$) (LHS) Rel. Hang Seng (RHS)

Stock Price (HK$) (LHS)

Source: UBS

Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$4.32 on 17 Mar 2011 23:38 HKT

www.ubssecurities.com

Haiyun Zhang

Analyst S1460511010016 [email protected] +8621-3866 8816

This report has been prepared by UBS Securities Co. Limited UBS 41 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

First Read: Sino-Ocean 18 March 2011

UBS 42

Sino-Ocean Land Holdings

Income statement (Rmbm)

Revenues Operating expenses (ex depn) EBITDA (UBS) Depreciation Operating income (EBIT, UBS) Other income & associates Net interest Abnormal items (pre-tax) Profit before tax Tax Profit after tax Abnormal items (post-tax) Minorities / pref dividends Net income (local GAAP) Net Income (UBS) Tax rate (%) Pre-abnormal tax rate (%)

12/05

2,711 (2,332) 380 (16) 364 (1) (88) 348 623 (195) 427 0 (53) 374 121 31 36

12/06

3,708 (3,033) 676 (12) 663 1 (132) 330 861 (265) 597 0 (26) 570 262 31 46

12/07

5,750 (4,512) 1,239 (23) 1,216 (15) 37 1,359 2,596 (804) 1,792 0 (70) 1,722 405 31 61

12/08

6,487 (4,735) 1,752 (24) 1,728 (2) 1 237 1,964 (519) 1,445 0 (57) 1,388 1,151 26 30

12/09

8,824 (7,032) 1,792 (20) 1,772 (54) (156) 758 2,321 (681) 1,639 0 (56) 1,583 825 29 42

12/10E

16,198 (12,432) 3,767 (16) 3,750 0 (381) 0 3,369 (842) 2,527 0 (20) 2,506 2,506 25 25

% ch

83.6 76.8 110.2 -17.5 111.6 144.8 45.2 23.6 54.1 -64.0 58.3 203.8 -14.9 -40.7

12/11E

16,905 (13,012) 3,893 (15) 3,878 0 (637) 0 3,241 (810) 2,430 0 (141) 2,290 2,290 25 25

% ch

4.4 4.7 3.4 -5.0 3.4 67.1 -3.8 -3.8 -3.8 596.0 -8.7 -8.7 0.0 0.0

12/12E

20,962 (16,189) 4,773 (15) 4,759 0 (655) 0 4,104 (1,026) 3,078 0 (402) 2,676 2,676 25 25

% ch

24.0 24.4 22.6 -5.0 22.7 2.8 26.6 26.6 26.6 185.2 16.9 16.9 0.0 0.0

Per share (Rmb)

EPS (local GAAP) EPS (UBS) Net DPS Cash EPS BVPS

12/05

0.09 0.03 0.02 0.03 0.34

12/06

0.13 0.06 0.06 0.06 0.85

12/07

0.38 0.09 0.11 0.10 3.54

12/08

0.31 0.26 0.09 0.26 3.72

12/09

0.28 0.15 0.07 0.15 4.15

12/10E

0.44 0.44 0.11 0.45 5.62

% ch

58.3 203.8 51.5 198.7 35.6

12/11E

0.41 0.41 0.10 0.41 5.92

% ch

-8.7 -8.7 -8.7 -8.6 5.2

12/12E

0.47 0.47 0.12 0.48 6.29

% ch

16.9 16.9 16.9 16.7 6.3

Balance sheet (Rmbm)

Net tangible fixed assets Net intangible fixed assets Net working capital (incl. other assets) Other liabilities Operating invested capital Investments Total capital employed Shareholders' equity Minority interests Total equity Net debt / (cash) Other debt-deemed items Total capital employed

12/05

625 13 3,511 (93) 4,057 637 4,694 1,434 516 1,950 2,744 0 4,694

12/06

266 17 6,987 (323) 6,948 1,577 8,525 3,607 541 4,148 4,376 0 8,525

12/07

293 757 17,409 (1,076) 17,383 2,311 19,694 15,825 1,054 16,879 2,815 0 19,694

12/08

305 735 21,957 (790) 22,207 2,295 24,501 16,654 1,130 17,785 6,717 0 24,501

12/09

325 663 23,168 (999) 23,157 4,950 28,107 23,368 519 23,886 4,220 0 28,107

12/10E

309 663 48,979 (900) 49,051 4,950 54,001 31,683 539 32,222 21,779 0 54,001

% ch

-5.0 0.0 111.4 -9.9 111.8 0.0 92.1 35.6 3.9 34.9 416.0 92.1

12/11E

293 663 62,609 (900) 62,665 4,950 67,615 33,346 680 34,026 33,589 0 67,615

% ch

-5.0 0.0 27.8 0.0 27.8 0.0 25.2 5.2 26.1 5.6 54.2 25.2

12/12E

279 663 52,784 (900) 52,825 16,350 69,175 35,450 1,081 36,531 32,644 0 69,175

% ch

-5.0 0.0 -15.7 0.0 -15.7 230.3 2.3 6.3 59.1 7.4 -2.8 2.3

Cash flow (Rmbm)

Operating income (EBIT, UBS) Depreciation Net change in working capital Other (operating) Operating cash flow (pre tax/interest) Net interest received / (paid) Dividends paid Tax paid Capital expenditure Net (acquisitions) / disposals Other Share issues Cash flow (inc)/dec in net debt FX / non cash items Balance sheet (inc)/dec in net debt Core EBITDA Maintenance capital expenditure Maintenance net working capital Operating free cash flow, pre-tax

12/05

364 16 0 94 473 (88) (74) 0 (111) 0 233 0 433 (1,643) (1,210) 380 (11) 0 369

12/06

663 12 (2,777) (559) (2,660) (132) (104) 0 (302) 1 73 1,621 (1,503) (129) (1,632) 676 (9) 0 667

12/07

1,216 23 (9,638) (1,538) (9,937) 37 (249) 0 (42) 3 714 10,784 1,309 252 1,561 1,239 (13) 0 1,226

12/08

1,728 24 (3,460) (1,113) (2,821) 1 (621) 0 (27) 9 (270) (168) (3,897) (4) (3,902) 1,752 (18) 0 1,734

12/09

1,772 20 (552) (1,586) (346) (156) (298) 0 (25) 9 (1,551) 5,127 2,760 (264) 2,497 1,792 (19) 0 1,773

12/10E

3,750 16 (25,811) (842) (22,887) (381) (248) 0 0 0 (99) 6,057 (17,558) 0 (17,558) 3,767 (16) 0 3,750

% ch

111.6 -17.5 4576.8 -46.9 6514.8 144.8 -16.7 -93.6 18.1 110.2 -13.7 111.5

12/11E

3,878 15 (13,630) (810) (10,547) (637) (627) 0 0 0 0 0 (11,810) 0 (11,810) 3,893 (15) 0 3,878

% ch

3.4 -5.0 -47.2 -3.8 -53.9 67.1 152.5 -100.0 -32.7 -32.7 3.4 -5.0 3.4

12/12E

4,759 15 (2,375) (1,026) 1,373 (655) (572) 0 0 800 0 0 945 0 945 4,773 (15) 0 4,759

% ch

22.7 -5.0 -82.6 26.6 2.8 -8.7 22.6 -5.0 22.7

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Note: For some companies, the data represents an extract of the full company accounts.

UBS 43

Global Equity Research

China Real Estate 12-month rating 12m price target

Sino-Ocean Land Holdings

Buy

HK$5.60

Valuation (x)

P/E (local GAAP) P/E (UBS) P/CEPS Net dividend yield (%) P/BV EV/revenue (core) EV/EBITDA (core) EV/EBIT (core) EV/OpFCF (core) EV/op. invested capital

5Yr Avg

-

12/08

14.9 18.0 17.7 2.0 1.2 3.7 13.7 13.9 13.9 1.2

12/09

20.9 40.1 39.2 1.2 1.4 3.2 16.0 16.1 16.1 1.3

12/10E

8.2 8.2 8.2 3.0 0.7 1.8 7.8 7.8 7.8 0.8

12/11E

9.0 9.0 8.9 2.8 0.6 2.6 11.3 11.3 11.3 0.8

12/12E

7.7 7.7 7.6 3.3 0.6 1.8 8.0 8.1 8.1 0.7

Company profile

Sino-Ocean Land was originally established in 1993 as a subsidiary of COSCO Group. The company was previously purely focused in Beijing and entered into Tianjin market in 2004, Zhongshan and Dalian in 2006, and Shenyang in 2007. Its diversified products include residential, economic housing, offices, hotels and retail spaces. As of 15 March 2010, it had 15.4m sqm total landbank in 9 cities, spreading 80.1%/12.3%/6.7% across Pan-Bohai Rim (PBR), Pearl River Delta (PRD) and Yangtze River Delta (YRD) respectively.

Enterprise value (Rmbm)

Average market cap + minority interests + average net debt (cash) + pension obligations and other - non-core asset value Core enterprise value

12/08

20,487 1,130 4,766 0 (2,295) 24,088

12/09

27,564 519 5,469 0 (4,950) 28,601

12/10E

20,644 539 13,000 0 (4,950) 29,232

12/11E

20,524 680 27,684 0 (4,950) 43,937

12/12E

20,524 1,081 33,116 0 (16,350) 38,371

Value (EV/OpFCF & P/E)

20.0x 15.0x 10.0x 20.0x 5.0x 0.0x 12/08 12/09 12/10 EV/OpFCF (LHS) 12/11E P/E (RHS) 10.0x 0.0x 12/12E 50.0x 40.0x 30.0x

Growth (%)

Revenue EBITDA (UBS) EBIT (UBS) EPS (UBS) Cash EPS Net DPS BVPS

5Yr Avg

36.1 58.1 59.6 85.8 80.2 51.1 93.1

12/08

12.8 41.5 42.2 184.7 174.9 -19.1 5.2

12/09

36.0 2.3 2.5 -43.2 -43.0 -19.3 11.4

12/10E

83.6 110.2 111.6 NM 198.7 51.5 35.6

12/11E

4.4 3.4 3.4 -8.7 -8.6 -8.7 5.2

12/12E

24.0 22.6 22.7 16.9 16.7 16.9 6.3

Margins (%)

EBITDA / revenue EBIT / revenue Net profit (UBS) / revenue

5Yr Avg

19.1 18.6 8.2 5Yr Avg 5Yr Avg 1.4 84.1 4.2 5Yr Avg 5Yr Avg 1.0 2.9 6.8 5Yr Avg 47.0 32.0 -

12/08

27.0 26.6 17.7 12/08 8.7 6.1 7.1 12/08 2.8 35.3 3.8 12/08 0.3 6.2 0.3 12/08 1.0 0.4 1.1 12/08 40.3 28.7 19.8

12/09

20.3 20.1 9.3 12/09 7.8 4.5 4.1 12/09 11.0 2.0 50.1 2.4 12/09 0.4 8.7 0.4 12/09 1.0 0.3 1.3 12/09 18.1 15.3 19.1

12/10E

23.3 23.2 15.5 12/10E 10.4 7.8 9.1 12/10E 9.8 4.0 25.0 5.8 12/10E 0.4 16.5 0.5 12/10E 1.0 0.0 0.0 12/10E 68.7 40.7 44.5

12/11E

23.0 22.9 13.5 12/11E 6.9 5.2 7.0 12/11E 6.1 4.0 25.0 8.6 12/11E 0.3 17.5 0.3 12/11E 1.0 0.0 0.0 12/11E NM 50.2 63.0

12/12E

22.8 22.7 12.8 12/12E 8.2 6.2 7.8 12/12E 7.3 4.0 25.0 6.8 12/12E 0.4 22.1 0.4 12/12E 1.0 0.0 0.0 12/12E 92.1 47.9 86.3

Profitability

27.00% 25.86% 24.71% 23.57% 22.43% 21.29% 20.14% 19.00% 12/08 12/09 12/10(E) 12/11(E) ROIC (RHS) 12/12(E) 11.00% 10.00% 9.00% 8.00% 7.00% 6.00% 5.00%

Return on capital (%) EBIT ROIC (UBS) ROIC post tax Net ROE Coverage ratios (x) EBIT / net interest Dividend cover (UBS EPS) Div. payout ratio (%, UBS EPS) Net debt / EBITDA Efficiency ratios (x) Revenue / op. invested capital Revenue / fixed assets Revenue / net working capital Investment ratios (x) OpFCF / EBIT Capex / revenue (%) Capex / depreciation Capital structure (%) Net debt / total equity Net debt / (net debt + equity) Net debt (core) / EV

EBIT margin (LHS)

ROE v Price to book value

10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 12/08 12/09 ROE (LHS) 12/10(E) 12/11(E) Price to book value (RHS) 12/12(E) 1.6x 1.4x 1.2x 1.0x 0.8x 0.6x 0.4x 0.2x

Growth (UBS EPS)

25000 20000 15000 10000 5000 0 12/08 12/09 Revenue (LHS) 12/10(E) 12/11(E) UBS EPS Growth (RHS) 12/12(E) 200% 150% 100% 50% 0% -50%

Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of HK$4.32 on 17 Mar 2011 23:38 HKT Market cap(E) may include forecast share issues/buybacks.

Haiyun Zhang

Analyst S1460511010016 [email protected] +8621-3866 8816

UBS 44

First Read: Sino-Ocean 18 March 2011

Sino-Ocean Land Holdings Sino-Ocean Land was originally established in 1993 as a subsidiary of COSCO Group. The company was previously purely focused in Beijing and entered into Tianjin market in 2004, Zhongshan and Dalian in 2006, and Shenyang in 2007. Its diversified products include residential, economic housing, offices, hotels and retail spaces. As of 15 March 2010, it had 15.4m sqm total landbank in 9 cities, spreading 80.1%/12.3%/6.7% across Pan-Bohai Rim (PBR), Pearl River Delta (PRD) and Yangtze River Delta (YRD) respectively.

Statement of Risk With significant demand for property across China the government may step in and issue tightening policies again, in an attempt to avoid further property price increases. The government measures could limit companies' access to capital resources, reduce market demand and increase operating costs. More stringent measures might slow property development in China and have negative implications to developers' sales and financial performance. In addition, there have been a large number of related party transactions.

UBS 45

Hong Kong & China Daily Comment 21 March 2011

Required Disclosures

This package has been prepared by UBS Securities Asia Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. This package contains summaries of UBS research content. For a complete copy of the non-summarized version, please contact your UBS sales representative. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS Investment Research: Global Equity Rating Allocations UBS 12-Month Rating Buy Neutral Sell Rating Category Buy Hold/Neutral Sell Coverage[1] 49% 42% 8% IB Services[2] 40% 35% 21%

UBS Short-Term Rating Rating Category Buy Buy Sell Sell

Coverage[3] less than 1% less than 1%

IB Services[4] 14% 0%

1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. Source: UBS. Rating allocations are as of 31 December 2010. UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Buy Neutral Sell Definition FSR is > 6% above the MRA. FSR is between -6% and 6% of the MRA. FSR is > 6% below the MRA.

UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from Buy the time the rating was assigned because of a specific catalyst or event. Sell: Stock price expected to fall within three months from Sell the time the rating was assigned because of a specific catalyst or event. KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES

UBS

Hong Kong & China Daily Comment 21 March 2011

UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Company Disclosures Company Name Anhui Conch Cement - A China Life Insurance

4, 5, 16a, 16b

Reuters 600585.SS 2628.HK 3311.HK 0002.HK 1199.HK 0210.HK 0709.HK 0493.HK 600801.SS 0177.HK

2, 4

12-mo rating Buy Buy Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Buy Buy Buy Buy

Short-term rating N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Price Rmb35.32 HK$28.40 HK$7.20 HK$61.10 HK$14.00 HK$5.80 HK$4.02 HK$2.37 Rmb42.54 HK$8.04 HK$16.66 HK$3.93 HK$3.53 HK$4.32 Rmb24.98

Price date 17 Mar 2011 18 Mar 2011 17 Mar 2011 17 Mar 2011 17 Mar 2011 17 Mar 2011 18 Mar 2011 17 Mar 2011 17 Mar 2011 18 Mar 2011 17 Mar 2011 17 Mar 2011 17 Mar 2011 17 Mar 2011 17 Mar 2011

China State Construction 16b International CLP Holdings

5, 16a, 16b

COSCO Pacific Daphne International Giordano Gome Electrical Appliances Huaxin Cement - A Jiangsu Expressway Lenovo Group Ltd

16b 2, 4, 5, 16a, 16b 2, 4 16b

L'Occitane International S.A. Shanghai Electric Group

0973.HK 0992.HK 2727.HK 3377.HK 000401.SZ

Sino-Ocean Land Holdings Tangshan Jidong Cement

Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date 2. 4. 5. 16a. 16b. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months. UBS Securities (Hong Kong) Limited is a market maker in the HK-listed securities of this company. UBS Securities LLC makes a market in the securities and/or ADRs of this company.

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. ANALYST CERTIFICATION Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Publishing Administration.

Additional Prices: Power Assets/Hongkong Electric, HK$51.05 (17 Mar 2011); Source: UBS. All prices as of local market close.

UBS

Hong Kong & China Daily Comment 21 March 2011

Global Disclaimer

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