qrw 20050724 banks

7/31/2019 QRW 20050724 Banks

1/21

July 25, 2005

This week .

Banks have drastically underperformed property

stocks this year despite growing loan books and

margin stabilization. Victor Tsang weighs up the

best opportunities in the sector. See page

Table of contents

Broker Roundup 2

What we hear 2

Weekly Outlook 3

Featured research 6

Earnings tables 11

Appendix 16

Pop Quiz

Which regional market hit a

10 high last week?

a) New Zealandb) Malaysiac) Korea

See page 2 for answer

Page 2 Highlights

The Fed outsources its monetary policy toChina? (What we hear ..)

''As we predicted'' .. brokers all pile in tosay they called the yuan (Broker

roundup )

Headline of the Week

$711 bln forex reserves, is that big?,A headline inthe People's Daily, referring to the size of China's foreign

reserves. Hmmm perhaps just a little big.

.

QuamResearch Weekly 1

7/31/2019 QRW 20050724 Banks

2/21

7/31/2019 QRW 20050724 Banks

3/21

QuamResearch Weekly Weekly Outlook

Results Preview

Tuesday, July 26

ASM (522), a leading global semiconductor equipmentmanufacturer, will be announcing its first half results

ended June 30, 2005. We expect ASM's clients to orderat a measured pace as new plants come online in FY05.The new capacity in FY04 could mean FY05 could bemodest before a splurge of new capacity in FY06. Theshare price has zoomed in recent months on Intel'sbullish semiconductor forecasts. This share has beenone of our star performers and has met our share pricetarget of $40. At the moment it is trading at $38.90 on aprospective PE of 17.1x. We have a medium-risk holdrating on the share. We await insight on thesemiconductor industry on the group's announcement.

Automated Systems (771) a Hong Kong based ITsolutions provider, will be announcing its first quarterresults ended June 30, 2005. Automated Systems (AS)reported positive fiscal year ended March 31, 2005results that saw its net profit increase 86% YOY to $34M.The earnings growth was achieved on aggressivemanagement of its direct costs (e.g. cost of goods sold;billable hours, etc.). Over 51% of the group's totalrevenues come from the public sector, mainly Hong Konggovernment entities and educational institutions. Thegroup had major contract wins in FY05 including projectsfor 82 primary and secondary schools, The Open

University of Hong Kong, the Hong Kong HousingAuthority and Social Welfare Department. We suspectthat these contract wins should bring in modest profits in1Q06. At $1.87, AS is trading on a prospective FY06 PEof around 15.2x.

Thursday, July 28

HK & Shanghai Hotels (45) will announce on the 28thJuly final results for the fiscal year ended March 2005.Due to the disposal of Kowloon Hotel, group sales &recurring profit probably remained flat last year, but

reported profit was probably boosted by the one-off profit on disposal of the Kowloon Hotel lastyear. This fiscal year, recurring profit should continue to improve, subject to competition from thesoon to open Four Seasons Hotel, & higher administrative expenses. Just like other asset plays,this counter probably experienced an upward revaluation of its equity, for at current share price,both historic & prospective valuations are now very demanding. Given the low return on equity,share price is still at a considerable discount to book value, but speculative interest could bid upshare price & narrow the discount.

HSI Sub-indices:

HSI:Finance 27,259.64 0.83%

HSI:Utilities 30,906.07 0.44%

HSI:Prop. 19,082.47 3.16%HSI:Comm 6,814.47 2.87%

China Ent Idx 5,139.10 5.62%

China Affil Idx 1,731.52 3.39%

Results Announcements:

Mon HK Price/volume TradeStats

May

US existing home sales June

Tue HK External Trade Stats June

US consumer confidence July

ASM Pacific (522) results 1H05

Wed

Thu SMIC (981) results 1H05

HK & Shanghai Hotels FY05

Fri HK Business TendencySurvey

3Q05

US GDP-Adv 2Q05

AV Concept (595, AVC), a manufacturer of MP3 players, assembler of printed circuit boards anddistributor of semiconductor products for Samsung Electronics and Fairchild Semiconductor, will


7/31/2019 QRW 20050724 Banks

4/21


unveil its fiscal year results ended March 31, 2005. Back in May, AVC announced that it plans tosell its manufacturing arm for at least US$20M ($156M) to Canadian EMS (electronicmanufacturing services) manufacturer BreconRidge (BR). AVC will swap a 50% stake in itsmanufacturing arm for an 8.45% stake in BR. The manufacturing unit will be a joint venturebetween AVC and BR until BR can list on a North American stock exchange within two years ofthe agreement. Earnings prospects have paled recently on poor semiconductor trading profits.

We have a high-risk hold rating on the share.

Semiconductor Manufacturing International Corporation (981, SMIC), a leading globalmanufacturer of semiconductors, will unveil its first half results ended June 30, 2005. Q105results ended March 31, 2005 were abysmal on DRAM pricing declines and industry softness.Net profit plummeted to a net loss of US$30M on decreased chip shipments and lower averageselling prices (ASPs). Based on its published guidance, SMIC believes its shipments will decline16-18% QoQ. Blended ASP is expected to decline in the single digits and there will be furtherpressure on its margins. As such, we believe SMIC will have a difficult FY05. We have beentelling investors to avoid the share since its IPO and we reiterate our rating.

Changes in Earnings and Recommendations

We have made the following changes last week:

1) HSBC (5): We modified the earnings under the new IFRS system. Yet we also reviseddownward its earnings projection in light of deterioration in asset quality in the U.K..

Accordingly, we also lowered our DPS forecast.

2) BEA (23): We upgraded BEA to Buy from Hold amid the recovery of the earnings cycle. Givenits scale and the expansion in the PRC, BEA deserves a higher PB.

3) CIFH (183): We downgraded the PRC-affiliated banks to High-risk in light of concerns onadvancing to privately-owned shares.

4) WHB (302): We upgraded earnings for WHB as loan growth picks up especially outside HK.

5) Sun Hing (125): We downgraded its risk rating from MEDIUM to HIGH as the earning volatilityis estimated to be higher in face of inflated raw material costs and other operating expenses.

6) Chen Hsong (57): We downgraded its rating from BUY to HOLD as we worry that the weakorder in the 2nd half may extend to the coming year and the accumulation of working capitalmay give further pressure to its cashflow.

7) Herald (114): We downgraded its rating from BUY to HOLD as we believe that the timepiecedivision may have some business consolidations and its toy and gift division may suffer from

higher raw material costs.

8) Dynasty (828): We revised downward the earnings projection to $162 million on rising grapecosts.

9) Texwinca (321): Forecast revised following results announcement

10) Victory City (539): Forecast revised following results announcement


7/31/2019 QRW 20050724 Banks

5/21


Hong Kong Banks - The Laggards

Property counters were stars in the first half. Riding on solid economic recovery, the propertymarket, one of the pillars of the local economy, has shown its strength against rising interest rates.

According to the Centaline property index, property prices have already rebounded by over 50%from their trough, and some luxury units have even doubled. We expect property prices tocontinue to rise together with transaction volume, at least for the primary market sales.

Banks have lagged the market. Being also one of the pillars of Hong Kong, the performance ofbanks was disappointing in the first half. Although the Hang Seng Index was relatively resilient,banks were the neglected laggards when compared with property developers. Index constituentsBEA (23) fell 2% in the first half, against stellar performances by Sino Land (83) and New WorldDevelopment (17). With lower unemployment rates and higher wages, it is interesting that banksunderperformed most sectors in the economy.

The story in 2004 was credit-driven. The sharp increases in profits were mainly due to

substantial write-backs and asset revaluations, as exemplified by BOCHK (2388). Operatingresults were disappointing -- pre-provisioning operating profit retreated 11% for the local arm ofBank of China. Yet BOCHK wrote back $1.6 billion in provisions, against provisions of $1.7 billionin 2003. Additionally, realized and unrealized gains on fixed assets were $2.1 billion, againstlosses of $1.1 billion in 2003. This helped boost BOCHK's pre-tax profit by 64%. This, however, isunlikely to repeat.

The picture in 2005 will be loan growth and margins stabilization. Despite softening growthfor trade finance, one can expect mortgage lending to continue to advance on the back of therevival of the property market. Since mortgages accounted for around a third of total advances,bottoming mortgage loans are essential for banks to boost their income. This is especially truethat banks have started cutting, or even ceding, cash rebates since February this year.

Valuations are inexpensive, and re-rating in the sector is possible. Most banks are currentlytrading at 20% below the upper PB bands for the past five years. We believe using the PB bandsfor the past five years is conservative in a depressed environment. As long as the economycontinues to improve, banks deserve to trade at higher PBs in particular for those having superiormanagement quality. We like HSBC (5), BEA, and WHB (302). Adventurous investors may alsofind PRC-affiliated banks such as CIFH (183) and ICBC (Asia) (349) attractive.


7/31/2019 QRW 20050724 Banks

6/21


Exhibit 1: Sluggish performance in 1H05

31/12/2004 30/06/2005 % change

HSBC (5) 129.8 125 -3.7%

HSB (11) 105 106 1.0%

BEA (23) 23.35 22.95 -1.7%

WLB (96) 61.02 58.5 -4.1%

CIFH (183) 3.375 3.3 -2.2%

WHB (302) 53.07 50.75 -4.4%

ICBC (349) 10.79 9.55 -11.5%

LCHB (1111) 11.3 11.75 4.0%

DSBG (2356) 15.72 14.45 -8.1%

BOCHK (2388) 14.455 14.7 1.7%

StanChart (2888) 140.85 144.5 2.6%

Average -2.4%

Hang Seng 0.2%

Source: Quam Stock Library

Loan Growth: Gearing UpNegatively impacted by the continual fading property market and the sluggish economy, totalloans and advances retreated 17% between 2000 and 2003. The multiplying effect furtheramplified the decline. Fortunately, the economy has started to pick up since 2003, and loangrowth has returned to the positive territory. Total loans and advances grew 6% year-on-year in2004. What is more encouraging is that with respect to the end of 2004 it expanded 2.9% to$2,218 billion for the first five months of 2005, or 7% annually. From our angle, loan growth is oneof the most important factors driving the profitability for banks.

Exhibit 2: Domestic loans by economic sectors

-40

-30

-20

-10

0

10

20

30

40

1998

Q1 Q3

1999

Q1 Q3

2000

Q1 Q3

2001

Q1 Q3

2002

Q1 Q3

2003

Q1 Q3

2004

Q1 Q3

2005

Q1

(%) Manufacturing Property

Wholesale and retail Trade f inancing

Source: HKMA


Over the past few years, trade financing has been the catalysts; growth, however, decelerated inthe past two quarters. Loans for manufacturing has also grew admirably since the second quarterof 2003. Nevertheless, the combine of trade financing, manufacturing, and wholesale andretailing accounted for merely a third of property lending. As such, what really matters is theproperty market.

7/31/2019 QRW 20050724 Banks

7/21


Exhibit 3: Expanding property lending

510

515

520

525

530

535

540

545

Jun-02

Aug-02

Oct-02

Dec-02

Feb-

03

Apr-0

3

Jun-03

Aug-03

Oct-0

3

Dec-03

Feb-

04

Apr-0

4

Jun-04

Aug-04

Oct-0

4

Dec-04

Feb-

05

Apr-0

5

billion

0

2

4

6

8

10

12

14

16

18

20

outstanidng mortgages new mortgage loans

Source: HKMA

While new mortgage loans bottomed in February 2003, the crucial figure should be the totalamount of outstanding mortgage lendings. Yet the outstanding mortgage amount was relativelystagnant between August 2003 and October 2004 despite the revival of the property market. Thiswas because the preternaturally low interest rates caused homeowners to refinance theirmortgages at lower rates, and the new mortgages lending were priced mostly at low mortgagerates. The existing homeowners were also repaying faster than the new mortgage lending.

As such, banks rely heavily on mortgages were hurt. BOCHK and HSB, two of the biggestproperty lenders, posted 13% and 5% declines in net interest income respectively in 2004.Fortunately, the outstanding mortgage lendings rose 3% year-on-year to $540 billion in May 2005,and the recovery also helped lifted construction and related loans. We expect a continualimprovement in this area.

Austerity measures: Opportunities or challenges?In order to cool economic growth, the PRC government implemented austerity measures lastyear. This hammered PRC property developers and constructors. They could not easily obtainloans from PRC banks. This, however, is a golden chance for local banks to extent their footstepinto the PRC. After transfer of risk, the PRC business accounted for 9% of BEA's loan bookcompared with only 5% in 2003. Despite dull loan growth in HK, BEA's loan portfolio in the PRCexpanded 50% in 2004. Growth for the PRC market is likely to remain strong in 2005.

Are rising interest rates a threat?As we emphasized in the past, a low interest rates environment is not necessarily a positive tothe economy. History tells us that a robust economy is accompanied with high interest rates. Thisis because the movements of interest rates should be a result of supply and demand for funds.

Abnormally low interest rates in the past year were mainly due to the influx of capital betting onthe potential revaluation of the yuan.

Yet interest rates have begun normalizing since late 2004. The 3-month HIBOR has surged fromnearly 0% to around 3.4% recently, resulting in a significant squeeze in the loan spread (primerate minus 3-month HIBOR). This will undoubtedly pressure banks' margins in the short-run,especially for small banks relying on the interbank market for loans.


7/31/2019 QRW 20050724 Banks

8/21


Exhibit 4: 3-month HIBOR has surged since late 2004

0

0.5

1

1.5

2

2.5

3

3.5

4

Jan-0

2

Mar-02

May-0

2

Jul-02

Sep-0

2

Nov-0

2

Jan-0

3

Mar-03

May-0

3

Jul-03

Sep-0

3

Nov-0

3

Jan-0

4

Mar-04

May-0

4

Jul-04

Sep-0

4

Nov-0

4

Jan-0

5

Mar-05

May-0

5

Jul-05

(%)

Source: HKAB

Exhibit 5: Normalizing HIBOR/LIBOR spread

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

Jan-0

0

Apr-00

Jul-00

Oct-00

Jan-0

1

Apr-01

Jul-01

Oct-01

Jan-0

2

Apr-02

Jul-02

Oct-02

Jan-0

3

Apr-03

Jul-03

Oct-03

Jan-0

4

Apr-04

Jul-04

Oct-04

Jan-0

5

Apr-05

Jul-05

(%)

Source: HKAB, QuamResearch

Additionally, given the low interest rates environment, banks may find it difficult to gain higheryields on securities. In 2004, HSB's net interest margin declined 24 basis points; yet 10 basispoints were related to the re-pricing of higher yielding securities. Yields for these securities risemuch more slowly than HIBOR rises. Banks with a relatively high exposure in debt securities mayface more pressure.


7/31/2019 QRW 20050724 Banks

9/21


Exhibit 6: Proportion of securities to total assets

% 2004 % 2004 % 2004

31.4 BOCHK 23.8 BEA 11.8

29.9 WHB 21.3 LCHB 9.5

25.5 WLB 18 ICBC 9.3

Source: Company

Nonetheless, on top of directly increasing the prime rates, Hong Kong banks had lifted theirmortgage rates by adjusting the pricing formula from prime minus 2.75%-3% to prime minus 2%-2.25%. Mortgage rates for new homeowners are now essentially 75 basis points higher than inthe past. This helps compensate for the upsurge in HIBOR. Additionally, prime at 6.5% is now up1.5% points.

Credit enhancement is not the spotlight in 2005Banks were hammered by escalating bad debts during the economic downturn. HSB is one of the

most prudent banks in the Hong Kong universe. However, its bad debt charges quadrupled to$792 million in 2003 within four years, offsetting most of the increase in operating profit. In 2004,property prices rebounded and unemployment rates peaked. Simultaneously, banks alsotightened their credit card approval procedures. The credit card charge-off rate improved to only3.18% in 1Q05 from 4.7% in 2004 and 10% in 2003; the delinquency ratio for mortgage lendinghad been declining from 1.32% since 2000 to 0.24% in May 2005. As such, banks benefited frommaterial write-backs last year.

We expect bad debt charges to normalize in 2005. Although some banks are still able to writeback some of the bad debts in 2005, the amount of write-backs are unlikely to be material. Overthe next few years, we should focus on operating income growth.

Exhibit 7: Improving NPL ratios% 2003 2004

WLB 2.49 0.83

HSBC HK 1.6 0.87

HSB 2.3 0.9

DSBG 1.5 0.96

BEA 245 1.16

ICBCA 1.7 1.3

LCHB 2.14 1.49

WHB 2.98 1.68BOCHK 5.78 2.95

CIFH 6.51 4.41

Source: Company


7/31/2019 QRW 20050724 Banks

10/21


Declaring higher dividends to cheer investorsHaving said that, banks are still thriving to boost their net profit. Even though they may be able toimprove their operating income, net profit growth could be subdued due to the absences ofmaterial write-backs. Under the new risk-assessment systems, banks can free up more capital fordividend payments due to their high capital adequacy ratios. With razor-thin deposit rates andlimited imminent growing opportunities, they have increased dividend payouts. Some banks are

not offering 4.5%-plus dividend yields, making them the new utilities. Overall, we remain upbeaton the banking sector.

Exhibit 8: Higher dividend payouts

2004 2005 2005

payout (A) payout (E) DPS (E)

HSB 87.2% 88.0% $5.91

LCHB 71.3% 67.7% $0.65

BEA 65.8% 66.3% $1.08

BOCHK 63.2% 75.3% $0.72

HSBC 52.8% 55.1% $5.46

ICBC 56.3% 56.0% $0.46

WLB 55.4% 56.9% $2.46

CIFH 50.0% 59.3% $0.16

WHB 49.4% 49.8% $2.10

StanChart 47.5% 48.7% $4.84

DSBG 47.1% 53.5% $0.61

Source: Company, QuamResearch

HSBC: Remains an excellent long-term investment ($126.7; Buy, Low-risk)No one will probably argue that HSBC is a wonderful long-term investment. The bank achievedits target to double shareholders' value in 5 years between 1998 and 2003. The global bankinggiant has set another ambitious 5-year plan: from value to growth. The new crowns will be theemerging markets, and HSBC will apply the Household model in these markets in order tostrengthen its consumer finance business.

On an ex-dividend basis, the share price of HSBC was approximately $19 each in mid 1996.Compared to the current price, this represents a 10-year compound annual growth rate of 20.8%.In the mean time, we encountered a number of crises including the Asian economic turmoil, the

bursting of the IT bubble, and the SARS epidemic. HSBC has not only been able to weather thestorm but also to ride on the wave.

In late June, a brokerage house downgraded HSBC in light of deteriorating asset quality in theU.K, falling margins, and stronger dollar. We share some of these worries, and we adjusteddownward the bank's earnings due to slower economic growth in Europe in particular the U.K.. Achange in bankruptcy laws also lifted credit costs, which we originally underestimated it.

Earnings growth is likely to slow this year -- we expect cash EPS to advance only 1% in 2005 dueto rising credit costs. Nevertheless, the prospects will be the emerging markets: Mexico, Brazil,


7/31/2019 QRW 20050724 Banks

11/21


India, and the PRC. These markets should be the future drivers for HSBC, although imminentprofit contributions are immaterial. HSBC owns 19.9% of Bank of Communications (3328) andPing An Insurance (2318). Pre-tax profit from the PRC was only US$44M in 2004. As such,investing in HSBC should take a longer-term perspective. As we explained earlier, the change inaccounting standards should have limited impact on the bank.

Priced at 12.8x FY05 cash PE and 4.3% dividend yield, HSBC remains an attractive Buy.

Exhibit 9: HSBC's results summary

PPOP* Cash EPS yoy PE Dividend(US$mil) Profit (US$) (%) (x) yield (%)

2002 11641 7102 0.76 20.6 21.3 3.3

2003 18540 10359 0.99 30.3 16.5 3.7

2004 22898 13658 1.25 26.3 13 4.1

1H05E 13609 7376 0.66 0.3

2005E 27250 14208 1.27 1.2 12.8 4.3

Source: Company, QuamResearch; *-pre-provisioning operating profit

BEA: A high-yield PRC play ($23.65; Buy, Low-risk)Management quality has long been a concern for BEA. However, BEA appears to be positionedfor growth in the future. The drivers are: 1) lower cost:income ratio after relocating its back officeat Millennium City 5, 2) a high exposure in the PRC, and 3) robust fee income from its corporateservices and securities and asset management.

BEA's expensive purchase of First Pacific Bank in 2000 was ill-timed. The acquisition was pricedat a demanding 1.5x PB, given First Pacific Bank's inferior asset quality. Nevertheless, it also

gave BEA the platform and to diversify into the PRC market, after fulfilling the requirements tostep into the PRC. Despite that, the acquisition has started to pay off. The PRC is likely tobecome a meaningful profit contributor to the group.

On the cost side, the 8% increase in operating expenses for 2004 was disappointing. Thisrepresented a cost:income ratio of 49.5%, a relatively high ratio for banks (HSB: 26.3%; BOCHK:34.7%; WHB: 42.2%). The bank expected higher operating expenses to be only temporary, andthe cost savings of the migration would be gradually reflected this year. We expect thecost:income ratio to drop to 45% this year. Chairman Dr. Li expected to reach a 40% cost:incomeratio within two to three years.

We upgrade BEA to Buy from Hold to Buy in light of the undemanding valuation and solid growth

in the PRC. Over the past five years, BEA has been trading at 1.03x to 2.05x PB. The current PBis a fair 1.6x. Yet if the economy continues to improve, BEA could deserve a higher PB.

The risk is that BEA fails to lower its cost:income ratio in the future. Additionally, the slow down ofthe PRC economy will result in tepid growth of its PRC business.


7/31/2019 QRW 20050724 Banks

12/21


Exhibit 10: BEA's results summary

PPOP Profit EPS yoy PE Dividend

($ mil) ($) ($) (%) (x) yield (%)

2002 11641 1270 0.895 -20 26.4 2.4

2003 18540 1922 1.322 47.7 17.9 3.6

2004 22898 2424 1.639 24.0 14.4 4.6

1H05E 1523 1207 0.8 18.1

2005E 3141 2431 1.62 -1.4 14.6 4.6


WHB: Diversifying outside HK ($55.05; Buy, Medium-risk)We applaud management's vision to diversify outside HK. WHB was the pioneer of expandinginto Macau and the PRC. These two markets are expected generate meaningful returns to thebank. Gross advances for use in Macau and others, probably the PRC, rose 2% and 25%

respectively for 2004. Net profit for Banco Weng Hang in Macau rose 9% to 146 million Macaupatacas, or 12% of total profit last year. Leveraging on the booming Macau market, profit thisyear could be even more promising.

The timely acquisition of Chekiang First Bank also helped lift WHB's profitability. Synergisticeffects have been gradually reflected in the bank's results. The group posted $80 million synergygains last year -- half from the cost side and half from the revenue side. Despite that, itscost:income ratio changed to 42.2% from 35.1% before the acquisition due to poor cost/income ofChekiang. In 2005, the bank expects further synergy gains of $80 million. This can likely to cut itscost:income ratio to below 40%.

A risk is that the group may face continual margin pressure when interest rates rise. The net

interest margin was squeezed 32 basis points to 1.99% last year, principally due to mortgage re-pricing. Additionally, we wonder whether the interest rate hike may put pressure on its securitiesportfolio.

From a positive angle, as WHB focuses mainly on the relatively riskier clientele, it will benefitmore when the economy perks up. As such, it is a preferred banking play for those who arepositive on the banking sector. At $55.05, WHB is priced at 13x PE with a 3.8% dividend yield.The current PB of 2.1x is not particularly attractive, but it could be re-rated given superiormanagement quality.

Exhibit 11: WHB's results summary


($ mil) ($) ($) (%) (x) yield (%)

2002 1242.1 669 2.28 -14.2 24.1 3.3

2003 1319.3 863.9 2.94 29 18.7 2.6

2004 1406.3 1168 3.97 35.1 13.9 3.6

1H05E 735 602 2.05 13.7

2005E 1526 1235 4.21 6 13 3.8Source: Company, QuamResearch


7/31/2019 QRW 20050724 Banks

13/21


ICBC (Asia): Leveraging on the parent ($10.35; Buy, Medium-risk)ICBC (Asia) is the local subsidiary of ICBC, one of the "Big-Fours" in the PRC. We originallyexpected the bank to deliver decent growth after the acquisition of Belgian Bank; however, whilea one-off $44 million disposal loss partially negatively impacted its results, operating profit lastyear was far below our expectations. The culprit was higher operating costs.

Before the acquisition, ICBC (Asia) principally focused solely on syndicated loans. Consideringthe competitiveness of the business, the margins for syndicated loans have been marginal.Therefore, the expansion into the retail business through the acquisition of Belgian Bankappeared to be a sensible move. Yet, it seems that ICBC (Asia) needs more time to integrateBelgian Bank, and thus lowering its growth rate in the meantime.

Another growth driver could be the acquisition of China Mercantile Bank, a subsidiary of its parent.After the purchase, ICBC (Asia) could tap into the lucrative RMB business in the PRC. Theycould be able to get a RMB license this year. A swing factor, however, is its 25% investment inTai Ping Insurance. This is because Tai Ping Insurance and Tai Ping Life (held under CIIH (966))are both at the initial investment stages.

At $10.35, ICBC (Asia) is capitalized at $10.9 billion for 12.6x forward PE. The 4.4% dividendyield could compensate for the slower growth. If there are positive surprises, the group should bea bargain among second-tier banks.

Exhibit 12: ICBC (Asia)'s results summary


($ mil) ($) ($) (%) (x) yield (%)

2002 737.2 474.6 0.69 25 15.1 3.4

2003 794.8 522.1 0.71 2.9 14.5 3.7

2004 900.9 760.4 0.8 12.7 12.9 4.4

1H05E 542.6 451.6 0.43 2.62005E 1105 859 0.82 2.4 12.6 4.4


CIFH: The worst is over ($3.15; Hold, High risk)Thanks to an 85% decline in provisions for bad and doubtful debts, the 2004 results for CIFHwere above our expectations. Despite the absence of $125 million gains on the disposal of held-to-maturity securities, net profit jumped 37% to $901 million. As such, the asset quality for PRC-related loans might not be as bad as we originally expected.

Nevertheless, CIFH faces another challenge: interest rates hike. Exhibit 6 shows that CIFH had

the highest exposure to debt securities. As such, rising interest rates should hurt its profitability.Although most of them are intended to held-to-maturity, CIFH still has some volatile treasuryoperations. We also expect net interest income to decline in the year -- loan growth is unable tooffset narrowing net interest margins. The bad news, however, may have been already reflectedin the share price.

The risk remains its asset quality. Clouded by uncertainties with advances to P-shares such asWah Sang Gas (8035) and Far East Pharmaceuticals (399), provisions could rise again in thefuture. Despite an improving NPL ratio, the figure was far higher than the less than 2% for mostlocal banks. Therefore, its low valuation is justifiable.


7/31/2019 QRW 20050724 Banks

14/21


At $3.15, CIFH is trading at 11.7x PE and 1.21x PB. Its recurring profit is likely to fall 5% to $856million. This could partly explain its undemanding valuations. We have Hold and Medium-riskratings on the PRC-affiliated play, considering the risk incurred. Investors may find that theperformance of CIFH is closely related to the HSCCI over the past year. CIFH rose 23% againsta 28% increase for the HSCCI. For those who are upbeat on the index, and are willing to take risk,

CIFH could be a nice alternative.

Exhibit 13: CIFH's results summary


($ mil) ($) ($) (%) (x) yield (%)

2002 1134 538.6 0.178 -23.6 17.7 5.1

2003 1005.4 656.6 0.21 17.9 15 2.9

2004 1038.9 901.3 0.282 34.5 11.2 4.5

*1H05E 537.5 626.9 0.196 47.4

#2005E 1100 856 0.27 -5.1 11.7 5.1Source: Company, QuamResearch*including a $227 million disposal gain of Ka Wah Bank Centre#excluding the disposal gain

Exhibit 14: Comparative PBs

(X) PB between 2001 and 2004 current

HSBC 1.83-2.72 2.1

HSB 3-5.38 4.7

BOCHK* 1.41-2.97 2.4ICBCA 0.81-1.84 1.27

BEA 1-1.97 1.62

WLB 0.83-1.7 1.49

WHB 1.09-2.61 2.18

DSBG* 1.92 1.81

CIFH 0.82-1.89 1.21

LCHB 0.43-0.97 0.84Source: Bloomberg, Quam Stock Library

Disclosure : Victor Tsang (SFC CE Number: AGI780) , the author of this document declares thatas at the date of the publication of this report, he doesn't hold an interest in the companiesmentioned in this report.


7/31/2019 QRW 20050724 Banks

15/21

Price

(22/07/05)Rating Risk levels

Market cap

(HK$M)

Profit A

(HK$M)

Profit E

(HK$M)

EPS E

(HK$)

EPS

growth

(%)

DPS E

(HK$)

PB A

(x)**

ROE A

(%)PE E (x)

Yield E

(%)

5 HSBC 126.7 Buy Low 1,417,773 106,501 110,822 9.90 16.5% 5.46 2.1 14.4 12.8 4.3%

11 Hang Seng Bank 107.2 Hold Low 204,945 11,395 11,307 5.91 -0.8% 5.2 4.7 27.6 18.1 4.9%

23 Bank of East Asia 23.65 Buy Low 35,307 2,424 2,431 1.63 -0.7% 1.08 1.6 11.9 14.5 4.6%

53 Guoco 80.8 Buy Med 26,543 2,440 3,000 9.13 22.9% 3.63 0.9 8.2 8.8 4.5%

96 Wing Lung Bank 61.5 Hold Low 14,280 1,032 1,004 4.32 -2.6% 2.46 1.5 11.4 14.2 4.0%

183 CIFH 3.15 Hold High 10,073 901.3 856 0.27 -5.1% 0.16 1.2 11.2 11.8 5.1%

302 Wing Hang Bank 55.05 Buy Med 16,174 1,168 1,235 4.20 5.9% 2.1 2.2 16.6 13.1 3.8%

349 ICBC (Asia) 10.35 Buy Med 10,846 760.4 859 0.82 2.5% 0.46 1.3 10.2 12.6 4.4%

388 HKEX 23.2 Hold High 24,592 1,057 1,063 1.00 0.3% 0.91 5.8 26.1 23.1 3.9%

440 Dah Sing Financial 54.85 Hold Med 13,636 2,033 1,088 4.38 -46.8% 2.08 1.7 24.6 12.5 3.8%

626 JCG 8.05 Hold High 5,698 412.9 425 0.60 3.0% 0.24 2.6 15.1 13.4 3.0%

665 Tai Fook 1 Buy High 585 70 80 0.14 7.9% 0.06 0.6 7.1 7.3 6.0%

1111 LCH Bank 11.95 Buy High 5,198 349 418 0.96 20.1% 0.65 0.8 5.8 12.4 5.4%

2356 Dah Sing Banking Group 15.2 Hold Med 13,981 1,120 1,045 1.14 -12.0% 0.61 1.8 10.8 13.4 4.0%

2388 BOCHK 15.55 Hold Med 164,407 11,963 10,012 0.95 -16.2% 0.715 2.4 18.6 16.4 4.6%

2888 Standard Chartered 159.5 Buy Med 206,872 11,536 12,893 9.94 5.3% 4.84 3.1 20.1 16.0 3.0%

3328 Bank of Communications 2.875 Hold High 129,161 1,513 7,428 0.17 N.A. N.A. 2.0 4.5 17.4 N.A.

945 Manulife 391.6 Buy Low 312,418 16,204 21,362 26.78 16.1% 7.58 1.8 16.1 14.6 1.9%

2318 Ping An Insurance 12.9 Hold Med 79,916 2,940 3,679 0.59 0.1% 0.156 2.3 15.1 21.7 1.2%

2328 PICC 1.95 N.R. High 21,807 208 1,810 0.16 751.9% 0 N.A. 1.3 12.0 0.0%

2628 China Life 5.65 Buy High 151,719 6,765 7,830 0.29 14.5% 0.045 1.8 11.1 19.4 0.8%

1 Cheung Kong 84.35 Hold High 195,371 9,815 11,600 5.01 -6.4% 1.8 1.1 7.0 16.8 2.1%

10 Hang Lung Group 15.4 Hold Med 20,447 987 1,910 1.44 93.4% 0.56 1.1 5.5 10.7 3.6%

12 Henderson Land 39.3 Hold Med 71,314 3,059 4,000 2.20 28.9% 1.00 1.2 5.4 17.8 2.5%

14 Hysan 17.85 Sell High 18,743 609 600 0.57 -1.8% 0.40 1.0 3.0 31.2 2.2%

16 Sun Hung Kai 80.95 Hold Med 194,353 6,923 11,000 4.58 59.1% 1.8 1.4 5.4 17.7 2.2%

17 New World 10.2 Sell High 35,265 (976) 2,300 0.67 N.A. 0.14 0.6 (2.0) 15.3 1.4%

34 Kowloon Development 9 Buy High 5,101 303 535 0.94 74.8% 0.47 1.2 8.0 9.5 5.2%

41 Great Eagle 23.3 Sell High 13,747 312 500 0.85 59.9% 0.47 1.0 2.0 27.5 2.0%

49 Wheelock Properties 5.05 Buy Med 10,451 1,743 570 0.28 -67.3% 0.08 0.7 11.6 18.3 1.6%

83 Sino Land 9.5 Sell High 40,907 1,409 1,808 0.42 28.4% 0.47 1.3 5.0 22.6 4.9%

101 Hang Lung Properties 12.65 Hold Med 46,590 2,065 3,600 0.98 42.7% 0.47 1.3 7.5 12.9 3.7%

173 K. Wah 2.35 Hold High 5,177 234 4,800 2.18 1762.3% 0.1 U.R. 8.9 1.1 4.3%

194 LCH Investment 7.7 Buy Med 2,915 104 200 0.53 88.7% 0.2 0.5 1.8 14.6 2.6%

289 Wing On 11.2 Buy Med 3,307 311 292 0.99 -5.8% 0.56 0.7 6.2 11.3 5.0%

683 Kerry Properties 20.2 Hold Med 24,462 1,955 1,700 1.40 -14.0% 0.5 1.1 9.1 14.4 2.5%

1200 Midland 4.95 Sell High 3,487 357 370 0.53 3.6% 0.19 4.2 50.9 9.4 3.9%

688 China Overseas 1.78 Hold High 11,330 1,075 786 0.12 -27.8% 0.06 1.1 11.6 14.4 3.4%

983 Shui On 9.2 Hold High 2,478 148 480 1.78 221.1% 0.48 1.8 11.4 5.2 5.2%

1109 CR Land 1.66 N.R. High 2,505 103 167 0.11 10.8% 0.03 0.6 3.7 15.0 1.8%

2777 Guangzhou R&F 11.55 Sell High 8,497 514 981 1.33 N.A. 0.52 2.0 27.1 8.7 4.5%

27 K.Wah Construction 5.4 Sell High 16,927 33 U.R. U.R. U.R. U.R. U.R. 2.3 N.A. N.A.

712 CR Cement 1.65 Sell High 619 89 63 0.16 -32.4% 0.040 0.6 8.3 10.0 2.2%

914 Anhui Conch 7.3 Sell High 9,169 961 500 0.38 -48.1% 0.057 1.8 19.9 19.3 0.8%

45 HK & S Hotels 8.5 Sell High 11,920 574 508 0.36 -11.4% 0.12 0.7 2.8 23.5 1.4%

51 Harbour Centre 13.35 U.R. U.R. 4,205 251 U.R. U.R. U.R. U.R. 0.8 4.6 N.A. N.A.

69 Shangri-la 13.25 Sell High 31,853 1,104 1,350 0.56 19.2% 0.21 1.4 4.9 23.6 1.6%

71 Miramar 12.45 Hold Med 7,186 321 326 0.56 1.6% 0.37 1.0 4.4 22.0 3.0%

105 Associated Hotels 7.5 Hold Low 2,700 155 120 0.33 -22.5% 0.08 0.6 2.8 22.5 1.1%

308 China Travel 2.4 Hold Med 10,205 902 770 0.18 -14.6% 0.11 2.6 10.8 13.3 4.6%

2 CLP 44.7 Buy Low 107,647 7,687 8,634 3.59 0.1% 2.230 2.4 20.4 12.5 5.0%

3 HK Gas 16.05 Hold Low 90,971 3,052 5,246 0.93 71.4% 0.590 5.2 18.0 17.3 3.7%

6 HK Electric 36.05 Hold Low 76,942 6,280 6,286 2.95 0.2% 1.710 2.0 17.2 12.2 4.7%

1038 CKI 24.1 Hold Low 54,321 3,556 3,784 1.68 6.3% 0.840 1.7 11.8 14.4 3.5%

836 CR Power 4.325 Buy High 16,470 590 1,462 0.38 11.8% 0.090 1.6 13.7 11.3 2.0%

902 Huaneng 5.65 Hold Med 68,116 5,324 5,352 0.44 5.7% 0.250 2.0 15.2 12.7 4.2%

991 BJ Datang 6.05 Hold Med 31,236 1,810 2,431 0.47 34.5% 0.210 2.1 14.0 12.8 3.5%

1071 Huadian 2.3 Sell High 13,848 1,045 1,148 0.19 33.3% 0.046 1.3 11.0 12.1 2.0%

2380 China Power 2.6 Sell High 8,151 607 552 0.18 -32.8% 0.020 1.4 10.3 14.8 0.8%

8 PCCW 5.15 Hold High 34,608 1,638 1,250 0.19 N.A. 0.15 N.A. N.A 27.7 2.9%

13 Hutchison 76.1 Buy High 324,445 16,128 16,500 3.87 2.4% 1.73 1.1 6.2 19.7 2.3%

142 First Pacific 2.775 Buy Med 8,841 1,053 1,100 0.35 10.6% 0.05 3.9 45.7 8.0 1.8%

Insurance

China Properties

Construction

China Power

Hotels, Travel

HK Power

HK Telecom

QuamResearch Weekly

Finance and banking

Company

Earnings Forecasts

Properties

7/31/2019 QRW 20050724 Banks

16/21

Price


Market cap

(HK$M)

Profit A

(HK$M)

Profit E

(HK$M)

EPS E

(HK$)

EPS

growth

(%)

DPS E

(HK$)

PB A

(x)**

ROE A

(%)PE E (x)

Yield E

(%)

QuamResearch Weekly

Company

Earnings Forecasts

315 Smartone 8.7 Hold Med 5,072 467 290 0.50 -37.8% 0.31 1.5 10.6 17.5 3.6%

1063 SunCorp 2.125 Buy High 691 96 120 0.37 23.1% 0.09 3.8 52.5 5.8 4.2%

1137 CTI 0.9 Hold High 553 50 (75) (0.12) N.A. 0.00 0.5 4.2 N.A. 0.0%

728 China Telecom 2.925 Buy Med 238,388 28,023 28,585 0.35 3.2% 0.071 1.6 18.1 8.3 2.3%

762 China Unicom 6.7 Hold High 84,165 4,387 4,340 0.35 5.0% 0.096 1.2 6.2 19.4 1.4%

906 China Netcom 12.05 Hold High 79,458 9,248 9,434 1.43 N.A. 0.29 1.9 18.8 8.4 2.4%

941 China Mobile 30.95 Buy Low 609,777 39,626 45,283 2.30 14.1% 0.75 2.8 19.5 13.5 2.4%2342 Comba 2.95 Buy High 2,457 255 280 0.34 12.0% 0.10 2.2 23.2 8.8 3.4%

4 Wharf 30.25 Hold Med 74,037 3,767 3,890 1.59 3.3% 0.70 1.1 5.8 19.0 2.3%

19 Swire A 77.1 Hold Med 118,048 6,544 6,544 4.27 0.0% 2.00 1.6 7.5 18.0 2.6%

20 Wheelock 13.65 Buy Med 27,737 4,167 2,100 1.03 -49.6% 0.11 0.8 11.5 13.2 0.8%

25 Chevalier 9 Buy Med 2,481 282 230 0.83 -17.5% 0.42 0.9 9.9 10.8 4.7%

87 Swire B 13.95 Hold Med 106,794 6,544 6,544 0.85 0.0% 0.40 1.4 7.5 16.3 2.9%

97 Henderson Investment 11.25 Hold Med 31,695 1,825 1,956 0.69 6.8% 0.24 1.5 9.1 16.2 2.1%

267 CITIC Pacific 22.8 Hold Med 49,934 3,581 3,500 1.60 -2.3% 1.2 1.2 9.5 14.3 5.3%

291 China Resources 12.5 Buy Med 26,738 1,603 1,700 0.79 4.6% 0.28 1.7 10.2 15.7 2.2%

363 Shanghai Industrial 16.4 Buy Med 15,721 1,383 1,079 1.13 -22.4% 0.57 1.0 8.9 14.6 3.5%

392 Beijing Enterprises 10.75 Hold High 6,692 503 500 0.80 -0.8% 0.3 0.8 6.4 13.4 2.8%

659 NWS 12.4 U.R. U.R. 22,407 1,538 2,498 1.38 60.4% 0.4 2.3 16.1 9.0 3.2%

882 Tianjin Development 3.025 Buy High 2,753 564 280 0.31 -61.6% 0.08 0.6 10.8 9.8 2.6%

386 Sinopec 3.25 Sell High 281,785 33,911 34,621 0.40 2.0% 0.193 1.5 18.7 8.1 5.9%857 PetroChina 6.45 Hold Med 1,134,039 97,101 115,521 0.66 11.4% 0.310 2.8 24.2 9.8 4.8%

883 CNOOC 4.75 Sell High 195,011 15,270 16,499 0.40 8.6% 0.190 3.6 28.5 11.8 4.0%

1088 Shenhua 7.9 Sell High 140,502 8,429 16,499 0.93 65.1% N.A. 4.0 35.2 8.5 N.A.

1171 Yanzhou 6.45 Sell High 19,827 2,975 3,443 1.12 12.0% 0.160 1.4 23.7 5.8 2.5%

2883 China Oilfield 2.75 N.R. N.R. 10,986 662 579 0.14 U.R. U.R. 1.6 9.9 N.A. N.A.

338 Shanghai Pet 2.675 Sell High 19,260 3,971 3,585 0.50 -4.3% 0.186 1.1 21.6 5.4 7.0%

408 Yip's Chemical 2.1 Hold Med 993 96 132 0.28 37.9% 0.140 1.4 14.2 7.4 6.7%

1128 Zhenhai 7.5 Sell High 18,929 2,465 1,447 0.57 -41.5% 0.170 1.8 22.9 13.1 2.3%

270 Guangdong Investment 2.375 Hold High 13,229 1,150 1,150 0.21 0.6% 0.06 1.4 11.5 11.5 2.5%

1065 Tianjin Capital 2.55 Hold High 3,392 305 326 0.25 6.6% 0.100 1.8 14.5 10.4 3.9%

203 Denway 2.95 Hold Med 22,143 2,062 2,070 0.28 -4.2% 0.08 4.0 29.6 10.7 2.6%

1114 Brilliance 1.39 Sell High 5,096 936 U.R. U.R. N.A. U.R. 0.8 0.7 N.A. N.A.2333 GW Auto 2.75 Hold High 2,597 403 430 0.46 13.0% 0.10 0.9 12.8 6.0 3.8%

2338 Weichai 18.35 Hold Med 6,083 508 640 1.93 16.8% 0.330 N/A 25.0 9.5 1.8%

323 Maanshan 2.65 Sell High 17,106 3,374 3,202 0.50 -5.2% 0.310 1.2 21.1 5.3 11.7%

347 Angang 3.9 Sell Med 11,556 1,696 1,817 0.61 0.5% 0.300 1.2 17.9 6.4 7.7%

358 Jiangxi Copper 4.075 Sell High 10,856 1,045 1,442 0.54 30.1% 0.166 1.9 18.6 7.5 4.1%

1053 Chongqing Iron 2.625 Sell High 2,793 796 468 0.44 -52.1% 0.080 0.8 22.0 6.0 3.0%

2600 Chalco 4.625 U.R. U.R. 51,037 5,872 7,220 0.65 92.4% 0.196 2.7 22.9 7.1 4.2%

124 Kingway Brew 2.8 Hold High 3,905 166 194 0.14 15.9% 0.03 2.4 10.1 20.1 1.1%

168 Tsingtao 8.7 Sell High 9,222 269 331 0.31 22.9% 0.160 2.8 8.0 27.9 1.8%

322 Tingyi 2.35 Hold High 13,134 2,226 663 0.12 -70.2% 0.000 2.1 35.9 19.8 0.0%

506 COFCO 3.6 Hold Med 6,332 301 411 0.23 37.4% 0.089 1.5 7.0 15.4 2.5%

708 People's Food 4 Hold High 4,533 1,133 654 0.58 6.9% 0.208 1.5 19.2 6.9 5.2%

809 Global Bio-chem 4.325 Sell High 9,186 815 800 0.38 -3.4% 0.208 2.3 19.6 11.5 4.8%

828 Dynasty 2.85 Hold Med 3,548 166 162 0.13 -31.2% 0.07 N.A. 19.6 21.9 2.5%1044 Hengan International 6 Hold Med 6,486 298 331 0.31 9.4% 0.240 3.1 14.3 19.6 4.0%

2317 Vedan 0.96 N.R. High 1,454 190 116 0.08 -39.0% 0.076 0.8 10.4 12.6 7.9%

2319 Mengniu 5.4 Sell Med 6,506 301 313 0.26 -22.9% 0.050 N/A 16.3 20.8 0.9%

560 Chu Kong Shipping 1 Buy Med 750 84 90 0.12 31.9% 0.03 0.8 8.2 8.3 3.2%

562 Baltrans 3.2 Buy Med 965 53 102 0.34 93.3% 0.13 1.8 10.1 9.5 4.2%

598 Sinotrans 2.375 Hold High 10,091 758 790 0.19 4.5% 0.063 1.6 11.8 12.8 2.7%

44 HAECO 50.25 Sell Low 8,357 438 470 2.83 7.3% 1.13 2.6 14.1 17.8 2.2%

293 Cathay 14.6 Hold High 49,231 4,417 4,295 1.27 -2.5% 0.64 1.5 13.4 11.5 4.4%

670 China Eastern 1.36 Sell High 6,619 485 550 0.11 13.0% 0.02 1.1 7.5 12.0 1.5%

753 Air China 2.725 U.R. U.R. 25,705 2,250 U.R. U.R. U.R. U.R. 1.6 14.4 N.A. N.A.

1055 China Southern 2.475 Sell High 10,826 (338) 532 0.12 N.A, 0.023 1.1 N.A. 20.3 0.9%

1110 CNAC 1.97 Sell High 6,527 367 440 0.13 19.6% 0.019 2.2 12.4 14.8 0.9%

China Telecom

Airlines

Metals

Energy

Automobiles

China Foods

Logistics

Petrochemical

Conglomerates

Water and Sewage

7/31/2019 QRW 20050724 Banks

17/21

Price


Market cap

(HK$M)

Profit A

(HK$M)

Profit E

(HK$M)

EPS E

(HK$)

EPS

growth

(%)

DPS E

(HK$)

PB A

(x)**

ROE A

(%)PE E (x)

Yield E

(%)

QuamResearch Weekly

Company

Earnings Forecasts

357 Meilan Airport 4.525 Hold High 2,140 175 170 0.36 -2.9% 0.171 1.6 12.7 12.6 3.8%

694 BCIA 3.375 Hold Med 12,980 707 874 0.23 23.5% - 1.8 9.8 - -

696 TravelSky 7.05 Hold Med 6,260 424 470 0.53 11.0% 0.22 2.1 13.9 14.1 2.9%

54 Hopewell 20 Hold Med 17,980 1,454 1,730 1.92 16.6% 0.577 1.2 10.2 10.4 2.9%

62 KMB 45.7 Sell Low 18,445 731 600 1.49 -17.9% 1.49 4.3 17.2 30.7 3.3%

66 MTRC 16.15 Hold Low 87,065 4,496 4,489 0.83 -0.9% 0.42 1.4 7.1 19.4 2.6%

177 Jiangsu Expressway 4.175 Hold Med 21,034 941 971 0.19 2.0% 0.137 1.7 7.5 21.7 3.3%

525 Guangshen Rail 2.725 Sell Med 11,816 535 864 N.A. N.A. N.A. 1.2 5.5 N.A. N.A.

548 Shenzhen Expressway 3.025 Hold Med 6,597 395 448 0.21 7.0% 0.10 1.1 6.9 15.6 3.2%

576 Zhejiang Expressway 5.7 Sell Med 24,755 1,157 1,403 0.32 21.4% 0.22 2.4 11.4 17.6 3.9%

737 HHI 5.45 Hold Med 15,723 735 944 0.33 24.9% 0.25 1.7 8.0 16.7 4.5%

995 Anhui Expessway 5.45 Sell Med 9,042 459 563 0.34 22.5% 12% 2.0 10.1 16.1 2.1%

1052 GZI Transport 2.925 Buy High 3,259 276 300 0.27 8.6% 0.092 0.9 7.9 10.9 3.0%

1098 Roadking 6.2 Buy High 3,649 369 439 0.75 18.4% 0.413 0.7 7.4 8.3 6.3%

144 China Merchants 15.5 Hold Med 33,248 2,057 2,350 1.10 14.1% 0.49 2.4 14.8 14.1 3.2%

716 Singamas 4.975 N.R. Med 3,040 312 406 0.66 16.0% 0.19 2.2 21.9 7.5 3.7%

1199 COSCO Pacific 15.6 Hold Med 34,180 1,607 2,254 1.03 38.6% 0.59 3.0 14.0 15.2 3.8%

316 OOIL 34.1 Hold High 21,347 5,229 5,398 8.62 2.3% 2.16 1.5 37.1 4.0 6.3%

1138 China Shipping Dev 5.9 Hold High 19,623 1,742 2,453 0.74 41.0% 0.20 2.4 21.3 8.0 3.4%

2866 CSCL 3.325 Hold High 20,050 3,794 4,717 0.78 3.6% 0.23 1.5 28.1 4.3 7.1%

116 Chow Sang Sang 5.3 Hold Med 2,658 200 199 0.40 -0.6% 0.218 1.4 10.2 13.4 3.9%

178 Sa Sa 3.95 Hold Med 5,158 216 243 0.19 12.2% 0.18541 6.0 24.7 21.2 4.7%

330 Esprit 55.7 Hold Med 66,712 2,003 3,264 2.73 62.1% 1.75 12.3 37.0 20.4 3.1%

393 Glorious Sun 3.4 Buy High 3,407 220 225 0.23 3.8% 0.137 2.5 14.9 14.9 4.0%

533 Goldlion 1.2 Buy High 1,125 69 98 0.10 117.9% 0.079 0.8 4.6 11.5 6.6%

590 Luk Fook 2.375 Buy Med 1,142 77 125 0.26 61.4% 0.09 2.0 13.2 9.1 3.8%

653 Bonjour 3.575 Hold High 783 58 55 0.25 14.7% 0.099 7.8 42.3 14.2 2.8%

709 Giordano 5.95 Hold Med 8,610 393 421 0.29 4.7% 0.272 4.8 20.1 20.5 4.6%

980 Lianhua 8.5 U.R. U.R. 5,287 203 U.R. U.R. U.R. U.R. 3.2 12.5 N.A. N.A.

984 Aeon Stores 8.4 Hold Med 2,184 80 106 0.41 N.A. 0.168 4.4 14.9 20.6 2.0%

1173 Veeko 0.31 Sell Med 513 75 69 0.04 18.0% 0.0145 2.2 25.2 7.4 4.7%

1179 Mirabell 2.35 Hold Med 598 76 76 0.30 -0.5% 0.091 1.6 17.7 7.9 3.9%

8052 CRA 2.65 Sell Med 1,778 67 69 0.10 13.7% 0.08 4.0 15.1 25.6 3 .0%

8277 Wumart 12.5 U.R. U.R. 3,550 102 U.R. U.R. U.R. U.R. 3.2 9.3 N.A. N.A.

321 Texwinca 5.7 Hold Med 7,551 468 556 0.42 18.8% 0.259 3.1 17.2 13.6 4.5%

333 Top Form 2.35 Hold Med 2,530 157 173 0.16 10.1% 0.07 7.6 47.4 14.6 3.0%

350 Jingwei Textile Machinery 1.94 Sell High 1,171 143 115 0.19 -23.8% 0.04 2.3 5.9 10.2 2.1%

420 Fountain Set 3.825 Buy High 3,037 180 230 0.29 27.0% 0.1859 1.1 6.7 13.2 4.9%

518 Tungtex 2.925 Hold Med 1,030 71 82 0.23 15.9% 0.208 1.8 13.8 12.6 7.1%

539 Victory City 2.425 N.R. -- 1,353 204 231 0.39 7.8% 0.0978 1.5 17.1 6.2 4.0%

551 Yue Yuen 24.15 Sell Med 39,268 2,366 2,365 1.45 -0.2% 0.69 2.8 17.2 16.6 2.9%

608 High Fashion 1.72 Hold High 563 72 66 0.20 -8.4% 0.07 0.9 11.1 8.5 4.1%

641 Fong's 5.7 Sell High 3,192 235 253 0.45 7.9% 0.26 4.5 29.7 12.6 4.6%

928 Tack Fat 0.94 Buy High 1,395 121 155 0.10 18.7% 0.032 2.5 22.3 9.0 3.4%

1170 Kingmaker 2.05 Sell Med 1,342 82 74 0.11 -15.8% 0.1049 2.0 15.6 18.1 5.1%

1223 Symphony 1.68 Hold Med 1,864 164 184 0.17 12.0% 0.111 2.0 17.6 10.1 6.6%

2698 Weiqiao 10.15 Buy High 8,885 779 988 1.13 23.3% 0.3 1.6 13.6 9.0 3.0%

52 Fairwood 4.05 Sell High 502 38 26 0.21 -31.6% 0.121 2.1 15.7 19.6 3.0%

192 Saint Honore 2.575 Hold High 546 59 38 0.18 -35.4% 0.09 2.9 24.3 14.4 3.5%

341 Cafe de Coral 8.85 Hold Low 4,744 285 302 0.56 7.7% 0.288 2.9 16.7 15.7 3.3%

345 Vitasoy 2.75 Hold Low 2,744 124 161 0.16 29.1% 0.185 2.2 9.3 17.0 6.7%

125 Sun Hing 2.65 Hold High 655 71 62 0.25 -32.0% 0.142 1.4 19.8 10.5 5.4%

1120 Arts Optical 2.6 Buy Med 980 102 100 0.27 21.2% 0.16 1.7 17.3 9.8 6.2%

148 Kingboard 22.2 Hold High 15,973 1,104 1,400 1.95 16.5% 0.39 2.9 20.1 11.4 1.8%

167 IDT 1.03 Sell High 2,148 130 73 0.04 -43.5% 0.08 1.8 10.9 29.4 7.8%

303 Vtech 20.4 Hold High 4,631 444 473 2.08 7.5% 1.023 2.9 28.5 9.8 5.0%

328 Alco 3.15 Hold High 1,758 239 250 0.45 4.2% 0.23 1.4 13.6 7.0 7.3%

332 Ngai Lik 1.46 Sell High 1,157 60 50 0.06 -17.0% 0.045 1.1 22.3 23.1 3.1%

522 ASM 38.9 Hold Med 14,988 1,003 880 2.28 64.3% 1.6 6.9 46.0 17.0 4.1%

595 AV Concept 0.93 Hold High 377 126 35 0.09 -74.0% 0.06 1.1 41.1 10.8 6.5%

710 Varitronix 6.55 Buy High 2,070 193 210 0.66 8.9% 0.41 1.3 12.4 9.9 6.3%

732 Truly 9.65 Buy High 4,391 527 620 1.36 15.5% 0.48 2.9 37.4 7.1 5.0%

903 TPV 5.1 Buy High 7,150 845 858 0.61 56.9% 0.16 3.1 26.6 8.3 3.1%

Airports

Highways & Railways

Shipping

Ports and Containers

Electronics

Retailers

Textile and Garment

Culinary

Optical

7/31/2019 QRW 20050724 Banks

18/21

Price


Market cap

(HK$M)

Profit A

(HK$M)

Profit E

(HK$M)

EPS E

(HK$)

EPS

growth

(%)

DPS E

(HK$)

PB A

(x)**

ROE A

(%)PE E (x)

Yield E

(%)

QuamResearch Weekly

Company

Earnings Forecasts

981 SMIC 1.64 Sell High 2,990 700 733 0.40 931.0% N.A. 1.2 2.9 4.1 N.A.

1070 TCL 1.45 Sell High 4,118 317 N.A. N.A. N.A. NA 0.9 10.8 N.A. N.A.

2633 Nam Tai 2.4 Buy Med 2,117 180 218 0.25 7.5% 0.13 2.2 20.7 9.7 5.4%

57 Chen Hsong 4.5 Hold High 2,786 261 249 0.40 -3.2% 0.178 1.7 15.6 11.2 4.0%

179 Johnson Electric 7.3 Hold Med 26,820 1,105 1,219 0.33 10.2% 0.171 4.2 17.3 22.0 2.3%

229 Raymond 2.325 Sell High 863 123 51 0.14 -58.8% 0.16 1.2 16.3 16.9 6.9%

255 Lung Kee 5.65 Buy High 3,497 220 256 0.41 15.5% 0.18 3.5 22.2 13.7 3.2%

387 Leeport 2.15 U.R. U.R. 439 43 U.R. U.R. U.R. U.R. 2.5 25.3 N.A. N.A.

669 Techtronic 18.7 Hold High 25,339 938 1,291 0.95 36.1% 0.17 9.8 27.3 19.6 0.9%

1050 Karrie International 3.1 Buy High 1,268 150 165 0.40 8.5% 0.24 3.1 24.1 7.7 7.7%

1198 Chitaly 5.75 Hold High 1,415 108 139 0.57 25.3% 0.28 6.0 47.0 10.2 4.9%

114 Herald 0.89 Hold High 546 96 78 0.13 -19.1% 0.065 1.0 17.1 7.0 7.3%

348 Lung Cheong 0.445 Hold High 215 37 35 0.07 -12.9% 0.01 0.5 9.5 6.2 2.2%

566 RBI 1.4 Sell High 521 54 50 0.13 -7.3% 0.07 0.9 9.2 10.4 5.0%

494 Li & Fung 16 Hold Med 46,640 1,530 1,750 0.60 14.1% 0.67 9.6 31.6 26.7 4.2%

752 Pico Far East 1.56 Buy High 879 45 66 0.12 45.1% 0.05 1.9 9.6 13.3 3.2%

915 Linmark 2.025 Buy High 1,328 115 120 0.18 5.8% 0.074 2.7 22.6 11.1 3.7%

2387 IDS 5.4 U.R. U.R. 1,669 82 U.R. U.R. U.R. U.R. 2.7 13.1 N.A. N.A.

861 Digital China 2.7 Buy Med 2,327 210 230 0.27 9.2% 0.093 1.5 2.5 10.1 3.4%

992 Lenovo 2.525 Hold High 23,273 1,120 (325) (0.04) -125.0% 0 N.A. 23.5 (71.6) 0.0%

55 Chung Tai 1.27 Hold High 422 49 51 0.15 -8.1% 0.088 0.9 9.8 8.3 6.9%

403 Starlite 0.82 Buy High 349 63 72 0.17 13.4% 0.046 1.1 20.6 4.9 5.6%

450 Hung Hing 5.55 Hold Med 3,175 240 247 0.43 2.8% 0.305 1.8 13.3 12.9 5.5%

2320 Hop Fung 1.4 Hold High 515 67 74 0.20 9.9% 0.06 1.8 23.5 7.0 4.3%

731 Samson Paper 0.73 Sell High 313 57 48 0.11 -14.9% 0.04 0.5 9.2 6.5 5.5%

2314 L & M Paper 6.9 U.R U.R. 6,645 418 U.R. U.R. U.R. U.R. N.A. 15.0 N.A. N.A.

18 Oriental Press 2.1 Hold Med 5,036 301 350 0.15 16.8% 0.1 1.9 16.3 14.4 4.8%

100 Clear Media 7 Hold Med 3,514 104 420 0.84 349.8% N.A. 2.5 6.7 8.4 N.A.

282 Next Media 3.4 Buy Med 8,194 104 420 0.17 149.0% 0 2.4 N.A. 19.5 0.0%

511 TVB 45.5 Hold Med 19,929 719 820 1.87 14.2% 1 5.4 19.6 24.3 2.2%

583 SCMP 3.5 Buy Med 5,464 317 255 0.16 -18.3% 0.13 3.2 18.8 21.4 3.7%

1000 BJ Youth Media 18.15 Hold Med 3,576 183 198 1.01 -18.9% 0.4 9.1 62.0 18.1 2.2%

2383 Tom Group 1.43 Hold High 5,563 860 200 0.05 -76.6% N.A. 2.2 34.7 27.8 N.A.

874 Guangzhou Phar 3.075 Hold High 2,494 138 80 0.10 -45.5% 0.06 1.1 1.7 31.2 2.0%

1093 China Pharmaceutical 1.52 Buy High 2,338 245 240 0.16 -52.7% N.A. 1.2 10.9 9.7 N.A.

1177 Sino Biopharmaceutical 1.51 Hold High 3,419 168 220 0.10 -22.9% 0.08 6.0 36.8 15.5 5.3%

8069 Tong Ren Tang 13.85 Buy High 2,532 194 205 1.12 18.0% 0.43 3.7 26.4 12.4 3.1%

*

1 USD = 7.8 HKD

**

Downgrad

New

Buy The share is underpriced and represents long-term growth potential

Hold The share is fairly priced and investors could continue to hold the share unless the share price changes substantially

Sell The share is overpriced and investors should sell it

N.R. Not rated

U.R.

N.A. Not available

Computers

Toys

Paper

Trading

Change in ratings:

Rating Scale:

Pharmaceuticals

1 CAD = 6.32 HKD

Upgrade, change

1 HKD = 1.06 RMB

Electrical & Mechanical

Media

Printing

P/embedded value for 945, 2318, 2628

Under revision

7/31/2019 QRW 20050724 Banks

19/21


Appendix I: Results Highlights

Oriental Watch (398)Watch retailer Oriental Watch announced final results for the fiscal year ended March 2005. Netprofit was $74.0M, up 7.9% YOY, or$0.2688 per share, on sales of$2,042M, up 8.8% YOY. Afinal dividend of $0.045 per share was declared, total dividends declared for the year were $0.065per share, up 8.3% YOY. It is not known if profit included securities trading profit or not. Grossmargin was 9.6%, up 0.8% points YOY. Operating profit was $90.9M, up 11.7% YOY. Interestcharge was $2.4M, up 107% YOY but was still very low. Sales growth accelerated during secondhalf to 14% YOY, so was growth in operating profit. HK was still the dominant market,contributing 90% of total sales, but was stagnant as expected, while China contributed $305M ofsales, up 48% YOY. Oriental opened 10 retail shops across China. Financials worsenedsomewhat but were still solid, cash on hand was $147M, down 27% YOY, investment securitieswas $29.2M, up 132% YOY, total debt was $82.3M, up 279% YOY, inventory was $543M, up27% YOY. Oriental probably borrowed more debt to finance its inventory & China expansion. Itobtained approval to set up regional headquarters in Luwan, Shanghai. Oriental warned thathigher rents & operating expenses related to further China expansion could dampen profit growth.Current share price of$1.55 implies a historic P/E of only 5.8 times & a historic dividend yield of4.2%. Under-valuation is obvious but management quality is an important concern.

Digital China (861): Solid TurnaroundDigital China, the PRC's largest IT distributor, posted admirable fiscal year ended March 31, 2005results which stamped its comeback as a profitable concern after it shed itself of its loss-makingmobile handset market last year. The group increased net profit by 520% YOY to $210M.Revenue increased 8.3% YOY to $15.5B. The group declared a final and full year dividend of$0.0853 (FY04: none).

The positive results were driven by its distribution business, which thrived in the sustainedrecovery in the consumer electronics and IT industries. Consumer electronics, data projectors,PC servers and accessories were all the rave in FY05. Gross margin rebounded to 5.57% from3.34% last year. The recovery in the aforementioned sectors should also sustain the group'sprospects in FY3/2006. Digital China is currently trading at $2.55 on a historical P/E of10.5x.Detailed analysis will follow.

Chen Hsong Holdings (57)Plastic injection machine manufacturer Chen Hsong announced stable FY 3/2005 results. Due toacquisition of minority interests in subsidiaries, net profit for the year was $260M, up 22% YOY,or$0.35 per share. The group declared the payment of a final dividend of 14 cents, making atotal distribution of19 cents for the whole year. Turnover increased to $1,867.5M, up 14.2% YOY.During the period, the demand of plastic injection machines was curbed by the austeritymeasures and inflated oil prices. Internally, production costs increased as a result of rising steelprices. Therefore, gross profit margin was squeezed from 34.3% to 32.2%. Due to the lower

gross profit, operating profit only increased a marginal 1.2% YOY to $292M. Current share priceof$4.475 implies a historic P/E of a very full & fair12.8 times. Detailed analysis will follow.

Texwinca (321): The Struggle ContinuesVTurnover rose 17.74% to $7.3BVGross profit rose a higher 19.97% to $2.17B due to margin expansion in yarnVOperating profit rose 11% to $525.1M: culprit was higher costs for the China retailVEPS up 10.7% to $0.353, for a historical P/E of 17.8x at $6.3 per shareVDPS grew only 5% to $0.21, for a yield of 3.3%Texwinca's enjoyed a considerable operating margin expansion in the 2H on its yarn and garment


7/31/2019 QRW 20050724 Banks

20/21


exporting, to 11.1% from 9.8% in the hard-hit 1H and 10.7% in 2H04. However sales growth wasnegligible, at 2.14% YOY in the 2H. This pales to the average 23% sales growth over theprevious four half-year periods. The performance of the retail division went from bad to worse:operating margins, at 2.06% is similar to that of fast-food vendors. Yet we are not convincedBaleno can sell as many T-shirts as McDonald's can burgers. Texwinca explained that theproblem was the costs of adding another 1,000 stores/selling points in China, which should bring

the total to about 2,750, making it one of the biggest fashion chains. Yet this 57% expansion innumber of outlets gained them just a 19% growth in sales derived from China last year. (Theentire retail division enjoyed 24% YOY growth in sales for FY05.) Texwinca avers that thechickens will finally come home to roost in the coming year: ''Only about 100 new stores will beopened in the coming fiscal year. As the business has established a strong foundation, aremarkable improved performance is expected in the next year.''

The firm also offered a favorable forecast for the yarn business, saying that the textile trade warshave not hurt order flow and that the stabilization in cotton prices has helped margins.Nevertheless, sales growth did falter in the 2H. Still, we should all heave a big sigh of relief for themargin expansion. Detailed analysis will follow.

Chung Tai Printing (55)Chung Tai announced stable FY 3/2005 results. Net profit for the year was $54.3M, up 11.9%YOY, or$0.1635 per share. The group declared the payment of a final dividend of 6 cents,making a total distribution of8.8 cents for the whole year. Turnover increased to $572.6M, up13.9% YOY. Due to the general rising of material costs, gross profit margin was squeezed to23.8%, down 1.4% YOY. But the group had prudent control over its distribution andadministrative expenses which partially offset the impact of margin squeeze. Operating profitgrew moderately to $62.1M, up 11% YOY. We see even more improvements of operating profitmargin in the 2nd half. Current share price of$1.28 implies a historic P/E of7.8 times. Detailedanalysis will follow.


Alco Holdings (328): Robust Results A Cut Above The RestAlco, a manufacturer of audio/ visual consumer electronic products, reported robust earningsduring the fiscal year period ended March 31, 2005 that outperformed peers such as Ngai Lik(332). Alco saw net profit surge 60% YOY to $239M. Sales similarly climbed 41% YOY to $5.4B.The group declared a final dividend of $0.12 and a special dividend of $0.04, bringing the full yeardividend to $0.21 (FY04: $0.14).

The strong results were driven by continued shipments of the group's next generation highervalue portable DVD players with TFT-LCD screens. The group has also widened its productoffering by making new products to cover home-use TFT-LCD TV and CVD recorder products.

Alco said that its traditional audio products, such as its 20-CD home audio systems, micro audiosystems and personal CD players, continued to generate stable orders despite severe pricingpressure. The group anticipates that its traditional low-end products will eventually be all phasedout. As such, we believe gross margins will erode for its line of traditional products in FY3/2006.

At $3.175 per share, Alco is valued at a historic P/E of7.3x. Detailed analysis will follow.

Ngai Lik (332): Continues to Lag Behind AlcoNgai Lik, a manufacturer of audio/ visual consumer electronic products, reported earnings duringthe fiscal year period ended March 31, 2005 that looked paled compared to Alco's. Ngai Lik sawnet profit plunge 76% YOY to $60M. Sales grew a slight 3.6% YOY to $3.4B. The group loweredits final dividend to $0.01 (FY04: $0.085), bringing its full year dividend to $0.045 (FY04: $0.155).

The poor results were expected because NL issued a profit warning in mid-June saying that itexpected profit to erode on 1) sales decline from intense competition, 2) insignificant contribution

7/31/2019 QRW 20050724 Banks

21/21


of its higher value added products and 3) higher raw material costs. The comparison between NLand Alco is like night and day. NL lacks innovative products that it can command a higher grossmargin. Its products are mainly run-of-the-mill "me-too" commodity audio-visual products. NLlacks a competitive advantage and economies of scale. We don't believe it can come up with hitnew products in time to stem its profit erosion into FY3/2006. At $1.40 per share, Ngai Lik isvalued at a prospective P/E of a very dear22.2x. Detailed analysis will follow.

Shui On Construction (983)The results for PRC Property developer and cement operator Shui On were in-line withexpectations. Net profit was $483M, or$1.8 per share, UP 224% YOY, on consolidated sales of$3,088M, down 28% YOY.. DPS was $0.6. Nevertheless, most of the profits were exceptionalgains. The group booked gains of $346M from the disposal of Rui Hong Xin Cheng (Rainbow City)and $221M from venture capital investments. The group's property development business isprincipally under Shui On Group, which has over 8 M.m2 in gross floor area in the PRC. ShuiOnhad net debt of $1.2 B as at 31 March, 2005, and its gearing ratio deteriorated slightly to 61%from 56% a year ago. Net assets amounted to $1.96 B, or $7.3 per share. Current price of$8.95represents a P/B of1.2x.

qrw 20050724 banks

Documents