``

Sinocorp Resources (476 HK)

Metamorphosing into moth or butterfly ?

Share price has risen by more than 40% since last December

Acquired two new businesses since February: a EV bus and a mine

Metamorphosing into two moths or two butterflies, or one each?

Electric bus venture. Sinocorp Resources made a voluntary announcement on

24th February that a 75% owned subsidiary of it received an official confirmation

from the Hong Kong Productivity Council (HKPC) that it had won the tender for

the design, supply and fabrication of a Permanent Magnet Synchronized Motor

and Power Battery System for electric buses, which are the key components for

the new electric bus project that was awarded to Green Dynamic EV by the

HKPC. On 5th March, the company made another voluntary announcement that it

has agreed to buy 51% of the holding company of Green Dynamic EV.

Beijing Car City Investment Management Company. This Beijing company is

owned by the Shunyi County of Beijing, and is the holding company of the 19

square kilometers Beijing Car City near the Beijing International Airport. On 4th

March, Sinocorp Resources agreed to place 450m shares to six investors, one of

which is this Beijing company, which has entered into an arrangement with the

company to become a potential investor in these new shares.

Acquired a glauberite mine for HK$3bn. On 28th February, the Company

completed the acquisition of 100% of a glauberite mine owned by its Chairman

and Deputy Chairman, for HK$3bn, by issuing 120m new shares at HK$0.75

each and 3,880m convertible zero-coupon bonds at the same price. The HK$3bn

valuation is based on HK$13/tone for the 236m tone estimated thenardite

reserves. Industrial grade thenardite currently sells for about Rmb 500/ton.

Metamorphosis The Company was engaged in the trading of iron ores, which

was loss-making in the past decade. The two new businesses acquired this year

let it metamorphosing into two totally different businesses, one in EV technology

and the other in specialty mining, both could fly high when successful. However,

owing to their early development stages, no financial projection can be produced.

Wed, 12 Mar 2014

Equity Research

Auto/Mining

Henry Kwong

Analyst

+852 2135 5820

henry.kwong@oriental-patron.com.hk

OP Express

NOT RATED

Close price: HK$1.09

Key Data

HKEx code 476

12 Months High (HK$) 1.10

12 Month Low (HK$) 0.42

3M Avg Dail Vol. (mn) 21.75

Issue Share (mn) 2,110.25

Market Cap (HK$mn) 2,300.17

Fiscal Year 03/2013

Major shareholder (s) Cheung Ngan (15%)

Source: Company data, Bloomberg, OP Research

Closing price are as of 11/3/2014

Price Chart

1mth 3mth 6mth

Absolute % 60.3 62.7 127.1

Rel. MSCI CHINA % 59.1 71.1 132.3

Company Profi le

Listed in 1996, Sinocorp was initially

engaged in garment design and retailing.

The present Chairman, Mr. Cheung Ngan,

acquired control in 1998m and turned the

company into copper mining and iron-ore

trading. It now ventures into two new

businesses, one engages in EV bus

production and the other in glauberite

mining.

Exhibit 1: Historical P/L and Valuation Year to Mar (HK$ mn) FY09A FY10A FY11A FY12A FY13A

Revenue 284.6 389.8 312.4 144.2 261.6

Growth (%) n.a. 37% -20% -54% 81%

Net Profit (20.5) (25.2) (43.1) (21.3) (23.2)

Growth (%) n.a. n.a. n.a. n.a. n.a.

Diluted EPS (HK$ Cents) (0.97) (1.19) (2.04) (1.01) (1.10)

EPS growth (%) n.a. n.a. n.a. n.a. n.a.

Consensus EPS (RMB) n.a. n.a. n.a. n.a. n.a.

ROE (%) n.a. n.a. n.a. n.a. n.a.

P/E (x) n.a. n.a. n.a. n.a. n.a.

P/B (x) 16.3 14.0 11.9 13.6 15.3

DPS (HK$) 0.000 0.000 0.000 0.000 0.000

Source: Bloomberg, OP Research

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Mar/13 Jun/13 Sep/13 Dec/13 Mar/14

HK$476 HK MSCI CHINA

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 2 of 14

Electric Bus New Venture

A 'Made by Hong Kong' pure electric bus funded by the HKPC

On 4th October 2013, the Hong Kong Productivity Council (HKPC) announced

that it had picked Green Dynamic Electric Vehicle Limited (Green Dynamic) as its

co-sponsoring partner for the development of a ‘Made by Hong Kong’ electric bus

(see Exhibit 2 below for the artwork of the proposed prototype), for a total budget

of about HK$40m, which will be funded equally by Green Dynamic and by the

Innovation and Technology Fund of the HKSAR Government through the HKPC.

On the day of the announcement, Green Dynamic suggested the prototypes will

be ready for road test in early 2015, and the estimated selling price for each bus

will be about HK$3m, much less than the US$1m currently asked for by the

foreign brands. Moreover, following the successful development, Green Dynamic

will own the IP for the core technologies comprising the overall vehicle design, the

electronic and mechanical vehicle system controller systems, and the remote

diagnosis system that transmits the bus’s operating data to the headquarters

instantly for vehicle monitoring and fleet management.

Exhibit 2: Artwork of the proposed prototype eclectic bus made by HK

Source: Hong Kong Productivity Centre

Green Dynamic initiated the project and gained HKPC's full support

Green Dynamic EV is founded by Mr. Andrew Yung, an entrepreneur with long

experience in the auto market in Hong Kong. Mr. Yung and his R&D team brought

the design concept of their so-called "mission critical core technologies" for the

controller systems of the proposed electric bus to the HKPC, suggesting they

have the local expertise to develop electric buses with high standard compliance,

which will also fulfill the unique driving condition and traffic requirements of Hong

Kong. Understandingly, such a proposal meets the goal of the HKPC in raising

the local productivity standard for the manufacturing and servicing sectors. As

such, after months of studies, HKPC arranged the Innovation and Technology

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 3 of 14

Fund of the HKSAR Government to finance one half of the estimated project cost.

Following another long period in screening the potential suppliers for the critical

components from mainland China and overseas, including the chassis, bus body,

electric motor and the batteries, HKPC made the above announcement in

October last year, and also disclosed their preferred specifications for the

proposed bus that we have extracted in Exhibit 3 below.

Exhibit 3: Specification of HKPC’s ‘Made by Hong Kong Electric Bus

Length Not exceeding 12 meters

Maximum capacity 69 passengers (45 seated and 24 standing)

Maximum speed (full loaded) 80 km per hour

Longest travelling distance when fully charged

(full loaded)

300 km

Motor

Type Permanent Magnet Synchronous Motor (PMSM)

Weight: (using 180KW/1500RPM as an

example for comparison with induction

motor)

450 kg (44% of induction motor)

Size Slightly bigger than a domestic microwave oven

(46% of induction motor)

Bus body material Aluminum alloy (6082-T6 Grade)

Net body weight 12.5 Tonnes

Charging time 4 hours

Battery safety Two sets of batteries, one on the roof and

the other in the rear, each fitted with steel

plates

Collision safety protection, flooding

protection, power leakage protection, short

circuit protection

Intelligent design/ Strength Advanced vehicle system controller

Remote diagnosis system

Aluminum alloy bus body and PMSM can

slow down battery usage and enable longer

travel distance

Localized design reduces the chance of

incompatibility

Source: Hong Kong Productivity Centre

Sinocorp Resources won the tender for the battery system

Tenders were than set out for the potential suppliers to compete for the supply of

the critical components. It turned out Sinocorp Resources' 75% owned subsidiary,

天津中銅新能源科技有限責任公司, won the tender for the battery systems by

providing its proprietary Polymer Lithium-ion Battery Systems. Surprising, the

Company has never made known that it had invested in such a technology which

is totally different from the iron ore trading and copper mining business that the

company has been engaged since 2002.

In winning the tender, 天津中銅新能源科技有限責任公司 has joined with 深圳市

匯元自動控制技術有限公司 which provides the PMSM systems. We goggled the

latter company and found it is one of the one of the more established PMSM

system suppliers in China, and have been supplying such systems for certain

electric bus models of the King Long Motor Group and the FAW Jiefang

Automotive Company, and some models of these buses are serving certain

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 4 of 14

routes in the major cities such as Guangzhou, Zhuhai and Xiamen, using battery

systems provided by several other suppliers.

Sinocorp Resources' battery system weighs about 2.7 ton

We checked the tender documents sent out by the HKPC, which was closed on

31st December 2013, it required the successful tenderer to produce, by the end

2014, four sets of battery pack systems each of >600 ampere-hours, of weight

less than 4 tons and of rated voltage of >=500 volts DC. Besides, such battery

packs will have to come with a battery management system and onboard charger,

and is able to drive a Permanent Magnet Synchronized Motor (PMSM) systems,

including the motor and the motor controller, that work for the prototype electric

bus at full loading at 18 tons for a maximum speed of 80km/hour and at climb

angle greater than 12%. Besides, acceleration time form 0 to 50km/hour of less

than 12 seconds.

The tender also specified the total weight for the battery system be less than 4

tons, implying for the gravimetric energy density of 75 watt-hour/kg. However, the

system provided by Sinocorp Resources is weighing about 2.7 tons only, implying

a much higher energy density of 110 watt-hour/kg, which is typical with the

polymer lithium ion batteries that usually range from 100-130 watt-hour/kg. Apart

from weighing much less, polymer lithium ion batteries is also better than liquid

lithium ion batteries in terms of safely and can have more flexible form factors.

Proprietary polymer lithium technology for the battery system

Sinocorp Resources acquired its proprietary polymer lithium technology from the

engineer, Mr. Zhang Yufei ("Zhang"), who has been focusing on the development

of lithium batteries for use under extremely low temperature environment of up to

-70oC, and has successfully produced such battery types for the Chinese

Academy of Meteorological Sciences (see Exhibit 4, left hand side). Zhang's

other achievements include the development of specialty battery systems for use

by the army for the igniting the engines of tanks of the People's Army in 2012 (see

Exhibit 4, right hand side). Sinocorp bought out Zhang's entire development work

and IP by forming 天津中銅新能源科技有限責任公司, in which Mr. Zhang retains

25% share.

Polymer lithium ion is a matured battery technology now widely used in lab top

computers. Zhang's new input seems to be on the low-temperature capabilities

as well as high energy density (lesser weight) and higher instant power delivery

that allows it to ignite the tank engines. From the publication CN103224644A of

Zhang's patent application CN201310103888, Zhang claims his invention in his

battery system is developed bases on "a large-power lithium-porous polymeric

membrane can be electrically isolated from cell processing method, characterized

in that the electrically insulating film in an isolated cell membrane treatment is

soaked in the slurry after the drying process, the slurry process of the insulating

film the following components are formulated by weight ratio: ethyl acetate 85 to

90% acetone 6-8% 3-5% plasticizer, the adhesive I ~ 2.5%." The patent

application also described the isolated cell membrane treatment in details.

However, as the patent was applied in China in March 2013, it will take a few

years to examine and may not be allowed if judged to be not inventive.

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 5 of 14

Exhibit 4: Left: Contract for a low temperature battery work Right: Battery for use to ignite a tank for the People’s Army

Source: Company data

Has yet to overcome the production hurdles

Sinocorp Resources has not yet mass produced its proprietary battery systems,

which were only made in a laboratory-like mode in a small factory in Shijiazhuang

near Beijing. The Company has however obtained new factory space in Tianjin

and has recently tendered for the supply and installation of its first production line,

which is to cost about Rmb50m for an annual capacity of 100,000 ampere hours

(to fit for 150 buses). Apart from the difficulties in phase shifting to mass

production mode, the company also has to overcome the cost issues, as polymer

lithium ion batteries usually cost much more than then liquid lithium ion ones, and

the latter are now down to below Rmb1,000 per ampere hour.

The IP issue will only have positive surprises

As polymer lithium ion technology is long matured, there should be no IP conflicts

with the existing car battery manufacturers. If the company is able to patent its

claimed inventive enhancements that has already attracted the endorsement of

HKPC's experts, it will provide a mega bonus to the Company's shareholders.

Acquired 51% in Green Dynamic EV

On 5th March, the company made a voluntary announcement that it has agreed

to buy 51% of the holding company of Green Dynamic EV for HK$20m of cash.

As described in the above, Green Dynamic EV is the initiator and co-sponsor of

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 6 of 14

the electric bus project that was endorsed by the HKPC. With its own funding of

about HK$20m and a sponsorship of HK$20m from the HKSAR government, it

undertook to produce 4 electric bus prototypes for road testing by the HKPC in

early 2015. Following the successful development, Green Dynamic will owns the

IP right of the core technologies comprising the overall vehicle design, the

electronic and mechanical vehicle system controller systems, and the remote

diagnosis system for instantly vehicle monitoring and fleet management.

Late last year, Green Dynamic EV signed a MOU with the Wulong county (south

east of Chongqing) to establish a production base for its electric car, which will

involve investing Rmb1bn for an annual capacity of 1,500 buses in a 1.5 sq

kilometer site. However, this planned production base is likely to be shifted to

the Beijing Car City after the new potential investor described below has agreed

to become a strategic shareholder of Sinocorp Resources, and after Green

Dynamic EV become the latter's 51% owned subsidiary.

Beijing Car City Investment Mgmt Company as a strategic investor

Apart from HKPC's endorsement, Sinocorp Resources has also convinced the

Beijing Car City Investment Management Company to invest up to HK$350m to

become a 17.5% owned strategic shareholder, as the Company had announced

on 4th March 2014. This strategic stake is likely to be diluted to about 8% after

the 2.9bn convertible shares owned by the Chairman and Deputy Chairman in

relation to the acquisition of the glauberite mine (announced on 28th February

2014) is fully converted.

Beijing Car City Investment Management Company is a owned by the Shunyi

County of Beijing, and is the holding company owing the 19 square kilometers

Beijing Car City (see Exhibit 5) near the Beijing International Airport, of which

about 6 square kilometers of core area have been developed, and one-half of this

developed area is occupied by the three factories of the Beijing Hyundai Motor

Company (see Exhibit 6) , and from which more than 5m Hyundai vehicles have

been produced since 10 years ago. The Beijing Car City is aimed to become the

largest car production base of Beijing, and it also aims to become one of the

largest aerospace component logistic centers in China, for its proximity to the

Beijing International Airport.

Apart from leasing/selling factory land in the Beijing Car City to the major car

manufacturers, Beijing Car City Investment Management Company also invests

in many enterprises related to car and car component manufacturing, aero space

related companies as well as logistic companies. It also develop some

neighboring sites of the Beijing Car City for commercial and domestic housing. As

such, it is a cash rich investment company owned by the local government of the

Shunyi County. We believe Sinocorp will benefit from the HK$350m cash to

injected from this strategic investor, which will also provide future support for the

Company to establish its electric bus production base in the capital city.

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 7 of 14

Exhibit 5: Headquarters of the Beijing Car City

Source: Google, OP research

Exhibit 6: Selected pictures of the Beijing Hyundai Motor Company in the Beijing Car City

Source: Google, OP research

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 8 of 14

New Acquisition of a Glauberite Mine

Acquired 100% of the Taowei glauberite mine

On 28th February, the Company completed the acquisition of 100% of a

glauberite mine in Taowei, which is about 60km east of Nanning in the Guangxi

Province (see Exhibit 7). The Taowei glauberite mine is 100% owned by its

Chairman and Deputy Chairman, and it was valued by SRK Consulting

(Australasia) Pty Ltd (“SRK”) at HK$3.72bn as of June 2013, and the company

has acquired it for HK$3bn, by issuing 120m new shares at HK$0.75 each and

3,880m convertible zero-coupon bonds at the same price. When the 3,880m

convertible bonds are fully converted, it will increase the total existing issued

shares of by 152% from the existing 2.56bn shares to 6.44bn shares, and will

create a dilution factor of 0.4 for all the per share data.

Exhibit 7: Location of the Taowei Glauberite Mine 60km east of Nanning

Source: Chengdu University of Technology May 2011

Total estimated sodium sulfate (thenardite) reserves of 236m tones

The Taowei glauberite mine is covering an aggregate area of approximately 8.6

square kilometers. Based on the exploration report prepared in 1994 in

accordance with the Grading and Classification Standards of Solid Mineral

Exploration of the PRC, the Glauberite Mine was estimated to have about 98.6

million tones of sodium sulfate (Na2SO4). The Glauberite Mine, which has

completed the exploration process, is currently pending for the capital injection for

the commencement of exploitation process.

However, according to the SRK, the estimated resources of sodium sulfate (sold

in the market under the common name of thenardite ”元明粉”) of the glauberite

mine was 236 million tones in compliance with the JORC Code, which is

significantly different with the estimation of 98.6 million tones from the above PRC

Classification Standards. The estimation on 98.62 million tones was based on

previous work performed in 1994 from the drilling holes of 4,768 meters, together

with detailed exploration work from 2004 to 2005 to collect the geological data. In

2009, SRK confirmed previous works performed by the PRC expert and provided

recommendations to convert the Chinese-classified Resources to the JORC

Code. SRK then conducted a site visit, drilling additional holes with a total length

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 9 of 14

of 4,987 meters and assaying additional samples in 2011. Accordingly, they

re-calculate the mining resources and advised that the estimated sodium sulfate

based on JORC Code was 236 million tones.

The HK$3bn valuation is about 4% of total production cost per ton

SRK also estimated the total capital cost for achieving the production volume of

3.45m tons of thenardite per annum will be about Rmb417m, of which about

Rmb120m will have to be spent in the first year. At the full production rate starting

from the sixth year after the first phase is completed in 2020 (see Exhibit 8), SRK

estimated the total extraction and production cost will be about Rmb277/ton. As

such, the valuation of HK$3bn (Rmb2.4bn) which the company paid for the mine

is adding about Rmb10/ton to the total cost, and the initial capex of Rmb417m will

also add depreciation cost of Rmb2/ton, raising the total production cost to just

below Rmb290/ton, which is about 60% of the low end of the current market price

range of Rmb500-600 for industrial grade thenardite.

Exhibit 8: Forecast thenardite production for Sinocorp (2015-2037)

Source: Company’s circular dated 11 October 2013 for the VSA of the Glauberite Mine

Transportation cost is crucial to the gross margin

Transportation cost for dragging the final thenardite products from the mine site to

the market would be highly significant for many glauberite mines. For those in the

mountains that depends mainly on road transport, such costs could be as high as

Rmb150-200 per ton, reducing the gross margin before selling and admin

expenses to below 15%. For the Company’s Taowei mine, it is only 60km from

the main city of Nanning, so road transport will be just about 1 hour, and after

reaching Nanning, shipping to the final customer by rail or ship would be much

cheaper. As such, we estimate the Company would be able to achieve more than

25% gross margin even only targeting at the lower end industrial market, and it

could target for export to the Southeast Asian countries both by ship and by rail.

Many industrial products require thenardite as raw material

Thenardite is an important raw material used in chemical and light industries and

is used extensively in the manufacture of powder detergents, textiles, glass and

pharmaceutical products. Besides, thenardite is classified by its purity, color,

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

(Tonnes per annum)

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 10 of 14

density, pH content and inclusion of other minerals. It can be processed into

different forms for different end-use requirements.

Detergents. Thenardite is used in powder laundry and dishwasher

detergents as a processing aid. Powder detergents account for 25% to 30%

of the total demand for thenardite and is the largest market for thenardite in

the world. Recently, the demand for thenardite has increased due to the

following reasons:

Textiles. In the textile industry, thenardite is used in the dye baths to drive

the dye from the solution onto the textile fibers. Unlike sodium chloride,

thenardite does not corrode the stainless steel vessels and as a leveling

agent, it also allows the dyes to penetrate evenly into the fibers.

Glass. Thenardite helps remove small air bubbles in molten glass and

prevents scum formation on the surface of the molten glass in the refining

stage. The glass industry and consequent consumption of thenardite

depends on the demand in the construction and automobile industries.

Paper and pulp. Thenardite is used in the Kraft process (sulfate process) of

wood pulp manufacturing, during which wood chips are impregnated with

thenardite and then heated to cause the thenardite to reduce into sodium

sulfide, so that the bond in the wood cellulose will break, making it malleable.

Drying and thermal storage. In the laboratory, thenardite is often used as

an inert drying compound for organic materials. Another main use of it is in

thermal storage for its high heat storage capacity, doesn’t liquefy until 32˚C.

As such, it is used to store heat in thermal tiles, and in solar-heated water

storage tanks.

Food and medical. Thenardite is used as a food ingredient and also in

medicines because of its mild laxative properties and anti-inflammatory

properties. Medical thenardite requires the purity of at least 99.0%. Quality

control standards on the production of both food and medical thenardite are

high. Manufacturing is also certified, regulated and closely monitored by

government agencies. Owing to the huge extra capital cost, Sinocorp

Resources will not target food and medical for its thenardite products.

China is the world’s biggest consumer and producer of thenardite

Glauberite is one of the abundant non-marine evaporates in the PRC. Glauberite

is highly soluble and when mixed with water transforms into mirabilite. Mirabilite is

an aqueous mixture that is then dehydrated and processed into thenardite. China

has abundant thenardite supply. In 2010, it produced about 8.5 million tons of

thenardite, of which 5.6m tons are domestically consumed and exported the

remaining 2.9m tons. Within China, the Sichuan Province is the largest producer

of thenardite, accounting for about one half of the nation’s total production. Exhibit

9 below shows the projected production of thenardite in China for 2016-2035F as

prepared by the Chengdu University of Technology in 2011.

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 11 of 14

Exhibit 9: Thenardite consumption projection for the PRC (2016-2034)

Source: Chengdu University of Technology May 2011

Thenardite price trend and fluctuations

According to the US Geological Survey (USGS), the average world selling price

of sodium sulfate has remained stable at approximately US$134 per ton from

2007 to 2010. The estimated average selling price is slightly increased to

approximately US$140 (Rmb 840) per ton in 2011.

In China, the most reliable price data for thernadite is available from the annual

reports of Lumena (stock code 67.HK), which is the biggest medical and industrial

grade thernadite producer in China. For the industrial grade, Lumena had report

falling ASP each year, down from Rmb702/ton in 2010 to Rmb670/ton in 2011

and Rmb500/ton in 2012. For 1H 2013, the ASP fell further to Rmb453m/ton. In

reverse, Lumena’s medical grade thernadite had reported price gains every years,

up from Rmb2,636/ton in 2010 to Rmb3,064/ton in 2011 and Rmb3,376/ton in

2012. For 1H 2013, the ASP for medical grade rise further to Rmb3,522/ton.

Implications for Sinocorp Resources

If the latest ASP of Rmb453/ton of Lumena’s industrial grade thernadite continues

to stay, the estimated margin for the Company’s Taowei mine will only about 35%

ex-factory, i.e., before transportation and selling costs, which would require at

least 20% of ASP. With gross margin of less than 15%, it would be too risky for

the company to commence construction of the Rmb460m plant for the newly

acquired Taowei mine. As such, we believe over the next two to three years,

Sinocorp Resources should focus on developing its new electric bus business,

which is likely to have a bigger chance of success given the support from the

HKSAR/HKPC, and the help form the Beijing Car City Investment Management

Company Limited. After all, the long-term demand for thernadite is very strong

(see Exhibit 9 in the above), but large scale (over 100m tons) glauberite mine are

quite rare in China. As such, the Taowei mine is probably still a pretty good

longer-term investment for the Company.

15.4

18.5 19.8

21.8

24.4

27.2

29.4 30.6

32.0 32.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2016E 2018E 2020E 2022E 2024E 2026E 2028E 2030E 2032E 2034E

(mn tonne)

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 12 of 14

Recent Fund Raisings

After a series of four placements for a total of about 605m new shares at HK$0.60

per share during the last few months, Sinocorp has already secured about

HK$350 of new cash. Furthermore the placement of 450m new shares to be

placed to the Beijing Car City Investment Management Limited and other

investors at HK$0.73 to HK$0.83 per share would bring another HK$350m of

cash if concluded at the mid-price of HK$0.78. With these new cash, Sinocorp

can construct at least a couple of new production lines for its polymer lithium ion

batteries, and also start constructing its bus assembly plants in Beijing.

Risks

Battery production may not succeed The company is lack of

manufacturing experience in the past. Mass production of battery systems

would require stringent quality control and sophisticated automation

equipment, which will take time to acquire. It is fortunate now that the

Company has acquired sufficient cash to pay for the needed expertise and

equipment.

Fierce competitions in the EV market Almost every major and second

tier cities in China have their own electric bus acquisition program, many of

which are not wholly commercially driven. For Sinocorp Resources, the

blessing form the HKSAR and the HKPC would certainly put the company in

a strong and competitive position if it is able to deliver the prototype cars in

time and also to complete the road tests satisfactorily.

Thenardite prices are still falling At current price levels for the industrial

grade thenardite, it would be highly risky to start construction of the new

glauberite extraction and processing plants. However, the company has big

advantage for its short transport distance to the Nanning where its products

can be further transported cheaply by ship or by rail. As such, when

thenardite prices start improving, the company will become highly

competitive.

Lack of profitable track record Owing to the water supply issue with its

copper mine in Chile, the company has never been able to start selling the

copper ore. Its iron ore trading business was also merely cash breakeven in

the past. In fact, the company reported losses every year since 1998 when

the current management took over from the previous ones, with total

accumulated losses of HK$762m.

Valuation

Despite the above mentioned risks and lack of profitable track record, we believe

the new electric bus acquisition could allow the Company to enter into the exciting

EV market, particularly given the blessings of the HKPC and the Beijing Car City.

After all, Hong Kong has a huge bus fleet size of almost 6,000 franchised buses

and a couple of thousands non-franchised ones. The newly acquired glauberite

mine is one of the rarely founded large scale thenardite reserves, which is good

for long term investments given the strong overall demand for thenardite by the

many different industries.

Wed, 12 Mar 2014

Sinocorp Resources (476 HK)

Page 13 of 14

Our recent reports

Date Company / Sector Stock Code Title Rating Analyst

10/03/2014 PAX Global 327 Getting bigger and stronger BUY Vivien Chan

07/03/2014 TCL Multimedia 1070 Weak demand remains HOLD Yuji Fung/ Cindy Li

07/03/2014 TCL COMM 2618 Good headway in 2014 BUY Yuji Fung/ Cindy Li

06/03/2014 Century Sunshine 509 FY13 results beat, strong growth momentum expected BUY Min Li/ Jose Xu

05/03/2014 Youyuan 2268 Growth remain intact BUY Vivien Chan

04/03/2014 Meidong Auto 1268 Selling Cars the MIT Way BUY Vivien Chan

26/02/2014 Hutchtel 215 FY13 results miss SELL Yuji Fung/ Cindy Li

26/02/2014 TCL COMM 2618 FY13 result beat BUY Yuji Fung/ Cindy Li

25/02/2014 TCL Multimedia 1070 FY13 result miss; transition in business model yet to

come

HOLD Yuji Fung/ Cindy Li

18/02/2014 China Animal Healthcare 940 Favorable acquisitions BUY Min Li/ Jose Xu

14/02/2014 Smartone 315 Disappointing FY1H14 result is expected HOLD Yuji Fung/ Cindy Li

29/01/2014 Century Sunshine 509 IFC onboard BUY Min Li/ Jose Xu

22/01/2014 Meidong Auto 1268 Profit Does Matter NR Vivien Chan

20/01/2014 Sunny Optical 2382 Further invest into technology HOLD Yuji Fung/ Cindy Li

17/01/2014 Antonoil 3337 4Q13 operational data inline BUY Min Li/ Jose Xu

16/01/2014 JUTAL 3303 Site visit takeaway BUY Min Li/ Jose Xu

15/01/2014 Great Wall Motor 2333 Correction provides entry point BUY Vivien Chan

13/01/2014 China Fiber Optic Network 3777 Reiterate BUY on promising FY13 and better outlook

in FY14

BUY Yuji Fung

10/01/2014 Tiangong 826 It is the company's titanium times now BUY Vivien Chan/ Henry

Kwong

08/01/2014 TCL Multimedia 1070 FY13 TV sales in-line HOLD Yuji Fung/ Cindy Li

08/01/2014 TCL COMM 2618 FY13 handset sales beat BUY Yuji Fung/ Cindy Li

06/01/2014 Youyuan 2268 Taking advantages of de-inked pulp BUY Vivien Chan

23/12/2013 Paradise Entertainment 1180 Two engines to drive growth in 2014 BUY Min Li/ Jose Xu

23/12/2013 PAX Global 327 Payment Solution Pioneer BUY Vivien Chan

18/12/2013 Sunny Optical 2382 Shipment recovered from flood HOLD Yuji Fung/ Cindy Li

17/12/2013 Ju Teng Intl 3336 Promising outlook, reiterate BUY BUY Yuji Fung/ Cindy Li

17/12/2013 Sinomedia 623 Stable yet postponed growth BUY Yuji Fung/ Cindy Li

TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

By accepting this report, you represent and warrant that you are entitled to receive such report in accordance with the restrictions set forth below and agree to be bound by the limitations contained herein. Any failure to comply with these limitations may constitute a violation of law or termination of such services provided to you.

Disclaimer

Research distributed in Hong Kong is intended only for institutional investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not an institutional investor must not rely on this communication.

The information and material presented herein are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Oriental Patron Securities Limited (“OPSL”) and/or its associated companies and/or its affiliates (collectively “Oriental Patron”) to any registration or licensing requirement within such jurisdiction.

The information and material presented herein are provided for information purposes only and are not to be used or considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities, investment products or other financial instruments, nor to constitute any advice or recommendation with respect to such securities, investment products or other financial instruments.

This research report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. This report is not to be relied upon in substitution for the exercise of independent judgment. Oriental Patron may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them. You should independently evaluate particular investments and you should consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities mentioned in this report.

Information and opinions presented in this report have been obtained or derived from sources believed by Oriental Patron to be reliable, but Oriental Patron makes no representation as to their accuracy or completeness and Oriental Patron accepts no liability for loss arising from the use of the material presented in this report where permitted by law and/or regulation. Further, opinions expressed in this report are subject to change without notice. Oriental Patron does not accept any liability whatsoever whether direct or indirect that may arise from the use of information contained in this report.

The research analyst(s) primarily responsible for the preparation of this report confirm(s) that (a) all of the views expressed in this report accurately reflects his or their personal views about any and all of the subject securities or issuers; and (b) that no part of his or their compensation was, is or will be, directly or indirectly, related to the specific recommendations or views he or they expressed in this report.

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance.

Oriental Patron, its directors, officers and employees may have investments in securities or derivatives of any companies mentioned in this report, and may make investment decisions that are inconsistent with the views expressed in this report.

General Disclosure

Oriental Patron, its directors, officers and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. Oriental Patron may, to the extent permitted by law, act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors, officers and/or employees of Oriental Patron may be a director of the issuers of the securities mentioned in this report. Oriental Patron may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment or investment banking service to the issuers of the securities mentioned in this report.

Regulatory Disclosures as required by the Hong Kong Securities and Futures Commission

Oriental Patron (inclusive of OPSL) which is carrying on a business in Hong Kong in investment banking, proprietary trading or market making or agency broking is not a market maker in the securities of the subject companies mentioned in this report. Unless otherwise specified, Oriental Patron does not have any investment banking relationship with the companies mentioned in this report within the last 12 months. As at the date of this report, Oriental Patron does not have any interests in the subject company(ies) aggregating to an amount equal to or more than 1% of the subject company(ies) market capitalization.

Analyst Certification:

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Rating and Related Definitions

Buy (B) We expect this stock outperform the relevant benchmark greater than 15% over the next 12 months. Hold (H) We expect this stock to perform in line with the relevant benchmark over the next 12 months. Sell (S) We expect this stock to underperform the relevant benchmark greater than 15% over the next 12 month. Relevant Benchmark Represents the stock closing price as at the date quoted in this report.

Copyright © 2014 Oriental Patron Financial Group. All Rights Reserved

This report is being supplied to you strictly on the basis that it will remain confidential. Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of Oriental Patron. Oriental Patron accepts no liability whatsoever for the actions of third parties in this respect.

CONTACT

27/F, Two Exchange Square, www.oriental-patron.com.hk Tel: (852) 2135 5820

8 Connaught Place, Central, Hong Kong henry.kwong@oriental-patron.com.hk Fax: (852) 2135 0295