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                                                                                                       November 3, 2011




Market Highlights                                                         Haitong International Research
 Market Dynamics
	 China property sector: Home prices started to drop in the mainland
	 Brilliance China Automotive : Accelerating Localization to Drive       Market Statistics
   Growth                                                                  Indices                    Day Hi   Day Lo Close       Change
                                                                           HSI (Blue Chips)           19,745   19,024 19,734 +364(+1.9%)
                                                                           HSCCI (Red Chips)           3,822    3,643 3,822 +83(+2.2%)
Market Dynamics                                                            HSCEI (H-shares)           10,447    9,954 10,446 +261(+2.6%)
                                                                           GEMI (GEM)                    476      463    476 +4(+0.8%)
Analyst : Edward Huang
                                                                           Total Mkt Turnover ($m):     74,268 YTD Daily Avg: 71,348
Global markets were surprised by Greek Prime Minister George               Main Board                   74,158 100%          71,082
Papandreou’s decision of putting the bailout plan to a national vote,       HSI (Blue Chips)            22,873   31%
                                                                            HSCCI (Red Chips)            6,015    8%
which might put European’s rescue plan in jeopardy. As a result, Hong       HSCEI (H-shares)            17,711   24%
Kong stock market opened low on Wednesday. However, signs of a             GEM Board                       110    0%            273
‘loan thaw’ from mainland China boosted the market greatly. The Hang      Moving Average          10-day         50-day         250-day
Seng Index surged significantly at the ending of trading day. It closed   HSI                     19,149         18,901         22,179
at 19733.71 points, up by 363.75 points, or 1.88%. As a matter of fact,   HSCEI                   10,038          9,841         12,127
HSI went up over 700 points from its intraday low. Turnover climbed to
HK$74.158bn. All sectors rose, ranging from 0.95% to 3.36%. Industrial
                                                                          Other Key Asian Market Indexes
Goods came out the best, followed by Materials and Information
                                                                           Indexes                             Close         Change
Technology. These three sectors all managed to rise over 3%.               AOI (Australia)                     4,185       -48 (-1.1%)
                                                                           Composite Index (Kuala Lumpur)      1,471        -5 (-0.3%)
There were rumors that the size of new loan from ICBC, ABC, BOC and        CSI 300                             2,742       +45 (+1.7%)
CCB was more than RMB140bn over the past month. Moreover, the              KOSPI (Korea)                       1,898       -12 (-0.6%)
estimated size of new loan during 10/21 and 10/25 surged to RMB60bn,       Nikkei 225 (Japan)                  8,640      -195 (-2.2%)
                                                                           SET Index (Thailand)                  965        +8 (+0.8%)
which showed signs of credit loosening. This stimulated the market.        Shanghai A-shares                   2,623       +36 (+1.4%)
Furthermore, Premier Wen Jiabao mentioned that China would stick           Shenzhen A-shares                    1,111      +20 (+1.8%)
to and implement the policy of expanding domestic demand. Recently,        Straits Times Index (Singapore)     2,835       +45 (+1.6%)
                                                                           TAIEX (Taiwan)                      7,598       -24 (-0.3%)
he hosted a state council executive meeting and claimed that nation’s
construction projects should be prevented to be uncompleted, thus         Source: Bloomberg
Ministry of Railways whose liability exceeded RMB2tn, would receive an
RMB200bn financial support. It can be observed that monetary policy is
likely to be adjusted, and the market was responding to it.
An upcoming catalyst for the market would be the opening of G20
summit. Market would be looking forward to its detailed outcome. In
addition, Fed Chairman Ben Bernanke stated that the Fed was ready
to ease monetary policy further if it’s necessary, and the central bank
was prepared to take actions. Moreover, European leaders demanded
Greece to decide whether it still wanted to stay in the euro-zone, and
suspended an 8bn Euros aid to Athens.
China’s market benefited from the bullish news as well. The Shanghai
Composite ended at 2504.11 points, up by 34.09 points, or 1.38%.




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China property sector: Home prices started to drop in the mainland
Analyst: Hugo Hou / Katie Chan
The China government’s restrictive policies on the residential property market have started to take effect.
According to the China Real Estate Index System, the overall home prices in 100 cities in the mainland
dropped slight 0.23% mom in October for two consecutive months, even during the traditional peak season
for property transactions (mainly September and October). Overall home prices in the top 10 largest cities
dropped more by 0.42% mom in October. In particular, those in Beijing and Shanghai decreased within 0.5%
mom while those in Guangzhou and Chongqing dropped even more by 0.5%-1.5% mom.
However, the price rectification in major cities is far less than the expectations of the government and the
public. Some large developers such as China Vanke, and Longfor (0960 HK) have started to aggressively
cut the selling prices of some of their projects in 1st and 2nd- tier cities. This will trigger more developers to
follow in the coming months for capital reflow, in our view. The restrictive policies on the mainland property
market are very unlikely to be eased in the short term, unless a more significant drop in home prices in large
cities, say over 10%. Evergrande (3333 HK) remains our top pick in the sector, given its extensive exposure
in developing cities which makes it less impacted by the current cooling measures.


Brilliance China Automotive (1114.HK): Accelerating Localization to
Drive Growth
Analyst: Liang Yonghuo
Leading luxury car and minibus maker. The company is a leading luxury cars and minibus automaker. It
currently holds 50% stake in Brilliance BMW, sharing brand and key technology with BMW Group. The BMW
JV is becoming the company’s major profit contributor as its operating profits grow at a CAGR of 82% in
FY07-11F, contributing 75% of the total profits. The company’s minibus obtains the largest market share of
29% in China, thanks to its superior technology which is based on the Toyota Hiace platform.
BMW JV accelerating localization. BMW JV accounts for 44% of total BMW’s sales in China or 16% of
BMW global sales, but currently suffers from supply shortage that caused by fast growing demand. BMW
is accelerating localization through: 1) improving its localization rate from 50% to over 55% by FY13; 2)
planning to expand capacity to 100k and 200k units by the end of FY11 and FY12; 3) enriching product
portfolio by launching new models of X1 and the new 3 Series; and 4) further expanding sales network to
exploit potential market.
Highly visible long-term growth. Luxury car segment is expected to grow at a CAGR of nearly 30% in next
two years, well outperforming the auto sector. China’s strong demand on luxury cars is mainly driven by the
growing new rich population and their improving affordability. The luxury car owners usually have a stronger
brand loyalty and are less price-sensitive than low-end and mid-end car owners. China’s luxury car market
share is as low as 6.2%, far behind 13-18% of the developed countries’. We expect China luxury car market
share to rise to over 10% in next three years.
Earnings and valuation. We forecast BMW JV sales to grow 53% YoY and 32% YoY to 108k and 142k
units in FY11 and FY12 respectively, and predict minibus sales to drop 6.1% YoY and grow 8.4% YoY to 89k
and 97k units in FY11 and FY12 respectively. We forecast FY11 and FY12 EPS of RMB0.37 and RMB0.50
respectively. We recommend BUY for the company. Our target price of HK$10.10 is derived from a 22.3x
FY11 P/E or 16.6x FY12 P/E, higher than sector average. We believe the company deserves a premium due
to its solid growth potential and status as the only listed China luxury carmaker.




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Ten Largest Gainers                                         Ten Largest Losers                                     Ten Most Active
SEHK                              Price Change              SEHK                            Price Change           SEHK                                    PriceTurnover
Code Stock                           ($)   (%)              Code Stock                         ($)    (%)          Code Stock                                 ($)   ($m)
8198 Melcolot                     0.115 +25.0               810 Opes Asia                   0.040   -16.7          939 CCB                                  5.83 1670.0
198 SMI Corp                      0.340 +23.6               8120 China Medical              1.300   -11.0          1398 ICBC                                4.94 1667.0
707 Co-Prosperity                 0.180 +20.0               8103 Tai Shing                  0.031    -8.8          941 China Mobile                        76.45 1661.0
970 Sparkle Roll                  0.940 +19.0               8041 Ch Post E-Comm             0.141    -8.4          3988 Bank of China                       2.74 1428.0
120 Cosmopol Int'l                0.074 +17.5               322 Tingyi                     21.000    -8.1          5    HSBC                               67.45 1406.0
8189 Teda Biomedical              0.690 +16.9               8003 Great World                0.147    -7.5          3323 CNBM                               10.50 1337.0
339 Earnest Inv                   0.520 +16.9               295 Kong Sun Hldgs              0.130    -7.1          2823 X iShares A50                      11.60 1206.0
8022 TLT Lotto-new                0.500 +16.3               348 Lung Cheong                 0.260    -7.1          883 CNOOC                               15.08 1015.0
982 iOne Hldgs                    0.076 +15.2               8007 Digitalhongkong            0.930    -7.0          388 HKEx                               135.50 980.1
3898 CSR Times Elec              20.450 +14.9               258 Tomson Group                1.770    -6.8          688 China Overseas                      14.52 886.0
Source: Etnet                                               Source: Etnet                                          Source: Etnet



Tracking of HSI Constituents                                                            Tracking of HSCEI Constituents
SEHK    Stock           Close    Change   Turnover   P/E     Yield    Index Weighting   SEHK    Stock           Close     Change    Turnover   P/E      Yield    Index Weighting
Code                     ($)      (%)       ($m)     (x)      (%)    Change    (%)      Code                     ($)       (%)        ($m)      (x)      (%)    Change    (%)
      Finance                                                                   45.3    168 Tsingtao Brew       40.50       3.7       84.2     30.3     0.5         2.1   0.6
5     HSBC Hldgs        67.45      0.4    1405.7     11.9     4.2      11.4     15.6    358 Jiangxi Copper      19.18       4.9      558.6     10.2     1.2         6.0   1.2
11    Hang Seng Bank 99.45       (0.1)     312.2     12.8     5.2     (0.1)      1.4
23    Bank of E Asia    28.85    (0.7)     155.3     15.0     3.3     (1.1)      0.8    386 Sinopec Corp         7.52       2.2      543.7      7.6     3.3       12.9    5.8
388   HKEx             135.50      5.5     980.1     29.0     3.1     25.6       2.5    390 China Railway        2.92       9.0      340.3      7.0     2.2         4.6   0.5
939   CCB                5.83      3.0    1669.7      8.8     4.4     36.0       6.3    489 Dongfeng Group      12.74       1.0      372.6      8.4     1.7         1.6   1.6
1299  AIA               24.00    (0.8)     722.4     14.0     0.0     (5.9)      3.6    728 China Telecom        4.80       1.1      329.9     21.2     1.8         3.3   3.1
1398  ICBC               4.94      4.0    1666.6      8.7     4.4     43.6       5.7
2318  Ping An           59.20      5.2     878.3     21.7     1.1     17.9       1.8    753 Air China            6.05       3.1       99.7      4.9     2.3         2.0   0.6
2388  BOC Hong Kong 18.56          1.4     306.9     12.1     5.2       3.4      1.2    763 ZTE                 22.70       3.0       93.8     19.6     1.3         2.0   0.7
2628  China Life        20.35      2.1     794.9     14.4     2.3     10.8       2.7    857 PetroChina          10.04     (0.2)      832.3     11.1     4.0       (2.0)   9.7
3328  Bankcomm           5.37      4.3     179.8      6.8     2.3       5.7      0.7    902 Huaneng Power        3.41     (1.7)       34.8     10.3     7.0       (0.9)   0.5
3988  Bank of China      2.74    (0.4)    1428.0      5.9     6.3     (2.2)      3.1
      Utilities                                                                  5.7    914 Anhui Conch         29.50       9.1      728.9     21.4     0.8       14.5    1.7
2     CLP Hldgs         70.80      1.6     240.9     16.5     3.5       7.0      2.3    916 China Longyuan       6.21     (1.0)       94.1     19.4     1.0       (0.6)   0.5
3     HK & China Gas 17.92         0.2     105.3     25.3     1.8       0.7      1.5    939 CCB                  5.83       3.0     1669.7      8.8     4.4       32.3 10.6
6     Power Assets      59.85      0.9     288.8     17.8     3.5       2.7      1.5    998 CITIC Bank           4.25       4.2      270.6      6.7     0.0         6.7   1.6
836 China Res Power 13.38        (2.3)      86.9     12.7     2.5     (2.1)      0.5    1088 China Shenhua      36.05       2.6      391.8     15.8     2.5       14.7    5.6
      Properties                                                                 9.3
1     Cheung Kong       95.50      2.4     610.0      8.4     3.1      11.0      2.4    1099 Sinopharm          20.45       0.5       61.3     32.5     0.9         0.4   0.7
12 Henderson Land 43.40            3.5     146.2      5.9     2.3       4.8      0.7    1138 China Ship Dev      5.82     (0.9)       75.8      9.7     3.5       (0.3)   0.4
16 SHK Prop            107.10      2.4     492.7      5.7     3.1     13.6       3.0    1157 Zoomlion           10.78       0.4      464.6     12.3     2.8         0.3   0.7
83 Sino Land            11.00      3.8      72.1      5.9     3.7       4.1      0.6    1171 Yanzhou Coal       20.20       3.4      471.6      9.0     3.5         6.2   1.8
101 Hang Lung Prop 28.05         (0.9)     212.8     21.1     2.5     (2.2)      1.2
688 China Overseas      14.52      6.1     886.0      9.6     1.9     12.1       1.1    1186 China Rail Cons     5.36     10.5       194.6     13.1     2.2         4.8   0.5
1109 China Res Land     11.64      3.9     286.8      9.7     2.7       2.9      0.4    1211 BYD Company        19.10     (5.0)      223.2     14.5     0.0       (2.5)   0.5
      Com & Ind                                                                 39.6    1288 ABC                 3.55       2.3      867.4      9.1     1.8         8.9   3.8
4     Wharf (Hldgs)     41.70      3.7   302.3   3.2          2.4       8.0      1.1    1398 ICBC                4.94       4.0     1666.6      8.7     4.4       40.1 10.0
13 Hutchison            72.05      2.1   615.8 15.3           2.7      11.3      2.7
17 New World Dev         7.91      1.3   153.5   3.8          3.5       1.3      0.5    1800 China Comm Cons     6.08       2.9      161.6      7.7     3.1         3.6   1.2
19	 Swire	Pacific	‘A’	 92.45	      2.2		 376.6	  3.6	         3.8	      5.0		    1.2    1898 China Coal         10.08       3.6      314.2     15.1     1.8         6.6   1.8
66 MTR Corporation 25.75           1.6    78.7 12.3           2.3       2.0      0.7    1919 China COSCO         4.04       7.2      103.3      5.1     2.7         3.3   0.5
144 China Mer Hldgs 24.30          0.6   124.8 10.2           4.2       0.7      0.5    1988 Minsheng Banking    6.37       5.8      336.8      8.1     1.9         6.9   1.2
267	 CITIC	Pacific	     13.80	     1.2		 105.8	  5.7	         3.3	      0.7		    0.3
291 China Resources 28.70          2.9    96.0 25.6           1.8       3.4      0.6    2238 GAC GROUP           7.51       0.1       72.4      6.9     3.1         0.1   0.8
293 Cathay Pac Air      14.22      2.9    63.2   4.0          7.8       1.7      0.3    2318 Ping An            59.20       5.2      878.3     21.7     1.1       24.4    4.7
330 Esprit Hldgs        11.18      0.2    96.1 186.3          8.9       0.1      0.3    2328 PICC P & C         10.92       2.3      260.5     19.7     0.0         2.8   1.2
386 Sinopec Corp         7.52      2.2   543.7   7.6          3.3       9.5      2.3    2338 Weichai Power      40.90       6.2      191.9      8.5     1.3         4.7   0.8
494 Li & Fung           15.36      1.1   337.8 27.5           2.9       3.2      1.6
700 Tencent            183.90      3.6   702.7 35.0           0.3     24.9       3.6    2600 CHALCO              4.36       6.3      147.2     61.3     0.3         4.9   0.8
762 China Unicom        16.14      2.5   568.1 83.3           0.6       6.6      1.4    2601 CPIC               23.70       1.3      198.2     19.9     1.8         2.5   1.9
857 PetroChina          10.04    (0.2)   832.3 11.1           4.0     (1.5)      3.8    2628 China Life         20.35       2.1      794.9     14.4     2.3       14.6    7.0
883 CNOOC               15.08      3.3 1014.6 10.4            3.1     30.2       4.8    2883	 China	Oilfield	   12.66		     2.1		    120.7	    11.6		   1.7		       1.9		 0.9
941 China Mobile        76.45      1.8 1661.0 10.8            3.9     28.6       8.2
1044	 Hengan	Int’l	     71.35	     2.5		 153.8	 35.8	         1.8	      4.9		    1.0    2899 Zijin Mining        3.41       4.0      116.1     13.1     2.3         3.8   0.9
1088 China Shenhua      36.05      2.6   391.8 15.8           2.5     10.8       2.2    3323 CNBM               10.50       5.4     1336.6     13.3     1.1         7.5   1.4
1199	 COSCO	Pacific	    10.52	     1.2		  65.0	 12.4	         4.2	      0.7		    0.3    3328 Bankcomm            5.37       4.3      179.8      6.8     2.3         7.7   1.8
1880	 Belle	Int’l	      15.48	     1.6		 199.9	 32.1	         2.3	      3.9		    1.3    3968 CM Bank            15.42       4.5      600.2     10.6     2.2       12.4    2.8
1898 China Coal         10.08      3.6   314.2 15.1           1.8       4.8      0.7
2600 CHALCO              4.36      6.3   147.2 61.3           0.3       3.6      0.3    3988 Bank of China       2.74     (0.4)     1428.0      5.9     6.3       (3.0)   7.9
Source: Bloomberg, HSI Services Ltd.                             Source: Bloomberg, HSI Services Ltd.
Note: Announced historical figures are used in computing yield and P/E




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Disclaimer
Issued by Haitong International Research Limited (“HTIRL”) licensed corporation to carry on Type 4 (advising on securities) regulated activity for the purpose of the
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which this document may be received, as to their accuracy, completeness or correctness. All opinions expressed herein are subject to change without notice. This
document is for information purpose only. Descriptions of any companies or their securities mentioned herein are not intended to be complete and this document is
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Investment rating system
                      Rating                     Remark
                      Strong Buy                 Target price +20% or more above the current price
    Stock             Buy                        Target price within +10% to +20% of the current price
 (12 months)          Hold                       Target price within -10% to +10% of the current price
                      Sell                       Target price within -10% to -20% below the current price
                      Strong Sell                Target price -20% or more below the current price
 	                    Overweight	                Relative	performance	over	Hang	Seng	Index	≥10%
     Sector           Neutral                    Relative performance within Hang Seng Index -10% to +10%
 	                    Underweight	               Relative	performance	below	Hang	Seng	Index	≤-10%


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