Morning Notes:China/Hong Kong

Morning Notes China/Hong Kong China & HK Research Team (852) 2600 8593 Monday, 15 February 2016 Please see important notice on last page Page 1 of 2 Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com Conviction callsTickerCompanyRecTargetreturnP/E(x)EPSg(%)Yield(%)P/B(x)ROE(%)1MYTD1299 HKAIABUY7114.015.01.91.511.0(13.6)(20.1)BIDU USBaiduBUY6718.040.3nm3.522.0(8.0)(19.2)1800 HKCCCCBUY1173.921.15.00.513.0(5.9)(21.1)JD USJD.comBUY5165.5nmnm4.67.6(14.6)(28.3)1033 HKSinopec OFSSELL429.6nm1.40.82.8(13.0)(24.1)6808 HKSun ArtSELL2215.4(3.6)2.01.49.7(17.9)(28.7)1913 HKPradaSELL(1)18.21.22.52.011.18.6(5.8)3968 HKCMBSELL124.314.97.00.615.7(19.3)(29.8)2727 HKShanghai ElectricSELL(5)15.2(6.9)2.00.74.7(13.4)(26.3)2600 HKChalcoSELL(22)(19.6)nmnm1.0(5.2)0.4(9.7)Performance(%)Valuations 15CL MSCI China vs MSCI Asia ex-JapanChina & HK IndicesLast1D1M3MHSCEI7,505(2.0)(8.9)(26.3)HSCCI3,252(0.7)(5.6)(20.9)Shanghai A2,892(0.6)(13.3)(23.1)Shanghai B3540.2(8.6)(4.1)Shenzhen A1,830(1.2)(11.5)(18.7)Shenzhen B1,141(0.4)(8.8)(3.6)HSI18,320(1.2)(6.2)(18.2) Finance24,027(2.3)(11.1)(23.0) Properties24,572(0.2)(7.2)(19.1) Utilities48,9251.2(0.5)(5.9) Comm & Ind.11,077(0.6)(0.8)(13.9)Yesterday's top five gainers and losers% changeTop gainersTicker1D1MYTDMelco CrownMPEL US10.8(0.4)(15.6)Chow Tai Fook1929 HK9.417.22.0SouFunsfun us9.2(18.1)(34.4)BaiduBIDU US8.2(11.3)(19.2)JumeiJMEI US7.4(26.6)(39.4)Top losersPrada1913 HK(10.5)7.3(5.8)SPT Energy1251 HK(8.5)(17.8)(31.7)Haier Electronics1169 HK(8.4)(13.3)(29.3)Sinotruk3808 HK(6.1)(1.6)(20.2)UCD1599 HK(5.9)(16.1)(29.5)Upcoming Key Economic Data18-FebJan18-FebJan01-MarFeb01-MarFeb01-MarFeb03-MarFebUpcoming CLSA Events15-16 FebHK17-19 FebHK22-24 FebHK23-26 FebHK1 FebHKHSI vs CSI300 vs HSCEIHSBC Flash Manuf PMIIndonesia: The stage is set - Sarina LesminaCITIC Analyst Roadshow - DAI Jiaxian (F&B/wine/spirits /others, Senior Analyst)Singapore Market: The Search for Hope - Jonathan Galligan% changeConsumer Price IndexProducer Price IndexNBS Non-manuf PMICITIC Analyst Roadshow - TIAN Liang & TONG Chengdun (Brokers & Insurance)CRR Roadshow: Mr and Mrs China 2016 + latest property and materials trends NBS Manufacturing PMIHSBC Services PMI(45)(30)(15)015304560Feb-15May-15Aug-15Nov-15Hang SengHSCEICSI 300(%)(40)(30)(20)(10)0102030Feb-15May-15Aug-15Nov-15MSCI ChinaMSCI Asia x Japan(%)What’s inside: • Baidu Inc (BIDU US - BUY). Management buying iQiyi. • Wynn Macau (1128 HK – BUY). Volume gain. • Sector Outlook – HK retail. Not much “lai see” spending. • Sector Outlook – China insurance. Pain but no gain. Baidu Inc (BIDU US - BUY). Management buying iQiyi. Baidu announced the receipt of a management buyout offer for its online video business Qiyi for US$2.8bn, valuing the business at about 2.3x 16CL EV/sales. We believe the move is positive for Baidu’s investors, as iQiyi will likely remain loss making in the near term given intense competition from Tencent and Alibaba-backed Youku. If the deal goes through, Baidu will deconsolidate iQiyi, and its non-GAAP Ebit margin could rebound to c.26% in 16CL. We maintain our High-conviction BUY rating with a US$255 target price. Wynn Macau (1128 HK – BUY). Volume gain. Wynn Resorts’ pre-release last month meant that there were few surprises in 4Q15. However, we are encouraged that low win rates meant a beat on volumes; rolling chip volumes saw their first sequential gain for seven quarters. 1Q16 is also off to a strong start, with January the operator’s “best month in a long time” and CNY off to a solid start, reaffirming our view that this will be a year of stabilisation for Macau. We make minor changes to Ebitda. Wynn remains our top pick in Macau. Maintain BUY. Sector Outlook - HK retail. Not much “lai see” spending. Preliminary statistics and channel checks showed softness. Mainland tourist flow was down 11% over the first four days of the CNY holidays (Feb 7-11). Meanwhile, we believe that local consumption which accounts for 60% of the retail market will start to weaken due to macro volatility as well as sluggish stock and property market performance. With tourist consumption continuing to deteriorate and the local segment turning more cautious, we maintain our negative view on HK retail. Sa Sa remains our top SELL. Sector Outlook - China insurance. Pain but no gain. Regulatory clampdown on insurance purchases by Chinese individuals in Hong Kong is set to put a brake on the city’s strong growth. Single-premium policies of this customer group average almost HK$5m and drove a 52% Cagr in new individual business in 2009-14. Yet, HK’s loss does not mean gains for Chinese insurers as these customers seek overseas asset diversification. We reiterate our UW stance on the sector. News headlines Chinese spend 1.2 trln yuan overseas in 2015 Chin