Navigator by liuhongmeiyes

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									                                                                                              Navigator
                                                                                                                           HK/China Equities
                                                                                                                                                                                     31 May 2011



                                                                               HSI and HSCEI - 12M
Market Highlights                                                               26000                                                                                                                15000

4 China airline sector: Fuel surcharge hike anticipated                         25000

4 Hong Kong banking sector: HKMA pressure may slow loan growth
                                                                                                                                                                                                     14000

                                                                                24000
                                                                                                                                                                                                     13000

Daily Spotlights                                                                23000

                                                                                                                                                                                                     12000
4 Hong Kong hotel sector                                                        22000


                                                                                21000                                                                                                                11000


                                                                                20000
                                                                                                                                                                                                     10000


Market Highlights                                                               19000
                                                                                                                                                                                                     9000
                                                                                18000

China airline            sector:       Fuel      surcharge           hike       17000
                                                                                                                                                                                                     8000


anticipated                                                                     16000                                                                                                                 7000
                                                                                  5/30/2010 7/1/2010 8/2/2010 9/3/2010 10/5/2010 11/6/2010 12/8/2010 1/9/2011 2/10/2011 3/14/2011 4/15/2011 5/17/2011
What’s new: A number of domestic airlines have increased their fuel                                                               HSI Index PX_LAST            HSCEI Index PX_LAST




surcharge by about 30% on domestic routes in the past few days. The
                                                                               Market Statistics
per ticket surcharge on route lengths of 800 km or below was increased
                                                                                Indices                                           Day Hi                    Day Lo Close                     Change
from Rmb60 to Rmb80 and raised from Rmb110 to Rmb140 on those
                                                                                HSI (Blue Chips)                                  23,258 23,086 23,184 +66(+0.3%)
above 800 km.                                                                   HSCCI (Red Chips)                                  4,283 4,237 4,261 -0(-0.0%)
                                                                                HSCEI (H-shares)                                  13,054 12,940 13,004 +43(+0.3%)
Our analysis and comments: The collection of a fuel surcharge is a              GEMI (GEM)                                           732    718    732 +11(+1.6%)
common practice adopted by airlines worldwide and the most direct
                                                                                Total Mkt Turnover ($m):                                              50,884 YTD Daily Avg: 70,919
method of mitigating the impact of the fuel cost hike, though there is          Main Board                                                            50,398   99%         70,563
normally a certain time lag between the hike in fuel prices and the              HSI (Blue Chips)                                                     13,357   26%
                                                                                 HSCCI (Red Chips)                                                     3,843    8%
implementation of surcharge adjustments.                                         HSCEI (H-shares)                                                      8,356   16%
                                                                                GEM Board                                                                486    1%            374
The fuel surcharge mechanism for domestic routes changed in
                                                                               HSI Futures                                        Hi       Lo   Close                                       Change
November 2009, whereby the National Development and Reform
                                                                               May                                              23,231 23,071 23,198                                          +59
Commission loosened control and granted mainland airlines autonomy to              Vol / Open int.                              14,716 / 26,945
impose surcharges, which allows for more timely adjustments. Carriers          Jun                                              23,135 22,940 23,102                                          +97
                                                                                   Vol / Open int.                              54,748 / 90,196
can now pass on a maximum of 80% of a hike in fuel costs, if domestic
                                                                               HSCEI Futures                                      Hi       Lo   Close                                       Change
fuel prices are higher than Rmb4,140/tonne. Locally-listed mainland            May                                            13,035 12,936 13,017    +42
airlines admitted that they managed to recover about 70% of the fuel cost          Vol / Open int.                            12,231 / 36,238
                                                                               Jun                                            12,921 12,789 12,880    +50
hike from the collection of a fuel surcharge last year.                            Vol / Open int.                            41,717 / 108,916
In terms of business performance, the mainland airlines have registered        Moving Average                                 10-day       50-day  250-day
solid operating statistics so far this year on the heels of the muscular       HSI                                             22,967                         23,373                      22,515
                                                                               HSCEI                                           12,820                         13,070                      12,537
upsurges last year. After 19% and 40% yoy leaps in 2010, the mainland
carriers enjoyed 11% and 2% yoy growth in their passenger and cargo            Other Key Asian Market Indexes
traffic during 1Q11, respectively. Air China (0753.HK, $7.88, BUY)              Indexes                                                                      Close                       Change
remains our top pick amid its superior management quality and the               AOI (Australia)                                                             4,668                    -17 (-0.4%)
resilient earnings contribution by its strategic partner Cathay Pacific         Composite Index (Kuala Lumpur)                                              1,543                      -6 (-0.4%)
                                                                                CSI 300                                                                     2,955                      -9 (-0.3%)
(0293.HK, $18.40, BUY).                                                         KOSPI (Korea)                                                               2,094                      -6 (-0.3%)
Analyst: Cho Fook Tat (852-3723 2923, ft.cho@htisec.com)                        Nikkei 225 (Japan)                                                          9,505                    -17 (-0.2%)
                                                                                SET Index (Thailand)                                                        1,074                      +7 (+0.7%)
                                                                                Shanghai A-shares                                                           2,835                      -4 (-0.1%)
                                                                                Shenzhen A-shares                                                           1,141                     -11 (-1.0%)
Hong Kong banking sector: HKMA pressure                                         Straits Times Index (Singapore)                                             3,141                      +5 (+0.2%)
                                                                                TAIEX (Taiwan)                                                              8,824                    +14 (+0.2%)
may slow loan growth
                                                                               Source: Bloomberg
What’s new: The HKMA has ordered local banks to undergo a stress test
to gauge their ability to survive a potential outflow of some $690b in funds
over the next 6-12 months. Since the end of 2008 total customer deposits
in Hong Kong have grown about $1.38t. The HKMA stress test assumes
that half of the deposit growth since the end of the financial tsunami will
reverse if US monetary policy begins to tighten in the months ahead.




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                                                                                                      Navigator Report

Our analysis and comments: The move represents              switch out of the local currency into higher yielding
another precautionary measure by the local banking          foreign currencies, including renminbi deposits that
regulator to minimize potential risks to the Hong Kong      grew a whopping 43.3% qoq during 1Q11 to account
banking system in the event of a capital flight out of      for 7.6% of total bank deposits in Hong Kong. Given
Asia after QE2 expires if no further steps are taken by     that a portion of the new Hong Kong dollar and US
the US Federal Reserve to ease liquidity. This comes        dollar loan growth has been tied to expectations of a
after the banking regulator asked local banks in April to   further decline of the US dollar, particularly against
submit their business plans and funding strategies for      the renminbi, we expect competition for Hong Kong
the rest of the year.                                       dollar deposits will intensify even as banks continue to
                                                            re-price their loans upwards to reflect higher funding
We think increasingly tight scrutiny by the HKMA
                                                            costs.
will lead to slower loan growth for local banks going
forward. By March 2011 the Hong Kong dollar                 We also think that smaller banks will bear the
loan/deposit ratio had already risen 3.7 ppts qoq to        brunt of the funding cost increase due to their
80.9% despite the overall loan/deposit ratio remaining      weaker deposit base. We continue to recommend
low at just 63.6%. The surging Hong Kong dollar             investors to switch out of the smaller banks into
loan/deposit ratio is due to: 1) a growing portion of       large banks with strong deposit franchises such as
new loans that since last year have been used on            Hang Seng Bank (0011.HK, $123.80, BUY) and
the mainland, leading to capital outflows from the          BOCHK (2388.HK, $23.60, BUY).
local banking system; and 2) little overall growth in       Analyst: Paul Lee
Hong Kong dollar deposits as depositors increasingly        (852-3723 2916, paul.kh.lee@htisec.com)



Daily Spotlights
Hong Kong hotel sector                                      Analyst: Donald Cheng
                                                            (852-3723 2926, donald.kk.cheng@htisec.com)
4 Following a robust 1Q11, the upsurge of visitor               yoy in April to lift the January-April figure to $1,335,
  arrivals to Hong Kong accelerated to 20% yoy for a            a yoy hike of 17% on solid occupancy of 88%.
  total of some 3.3m in April 2011, with the mainland           Revenue per available room (RevPAR) was up
  the leading source market posting a 29% yoy hike              21% yoy in 4M11, with the Medium Tariff hotels
  to account for 64% of arrivals and driving up the             category leading with a 26% yoy increase, followed
  January-April 2011 arrivals figure to some 13m, a             by High Tariff B and High Tariff A hotels posting
  rise of 14% yoy.                                              yoy growth of some 23% and 20%, respectively.
4 The volume of overnight visitors, a key force                 Mid-market locations continue to be in demand
  behind hotel demand, remained buoyant in                      by travellers looking for economical alternatives
  January-April, reaching approximately 6.9m that               and we expect them to remain a major beneficiary
  increased roughly 8% yoy to represent 53% of all              bolstered by a growing mainland visitor base
  arrivals. The mainland China market contributed               that allocates a comparatively small portion of
  60% of total overnight arrivals, recording solid              spending to accommodation and the majority
  growth of 10% yoy under the backdrop of a                     to consumption. Though mainland visitors, on
  growing economy with the rising consumption                   average, spend relatively less on accommodation,
  power of its citizens and the appreciation of                 their overall spending is bolstered by their lengthier
  the renminbi against the Hong Kong dollar that                stay of 3.9 nights in 2010 (2009: 3.4 nights),
  furthered consumption spending, outbound travel               compared to all regions’ 3.6 (2009: 3.2 nights).
  and demand for leisure-related services. The long         4 We maintain our optimistic outlook for 2011 and
  and short-haul markets, the remaining contributors,         reiterate our Buy recommendations on mid-market
  also contributed, edging up some 3% and 4% yoy,             operators Magnificent Estates (0201.HK, $0.33,
  respectively.                                               BUY) and Shangri-La Asia (0069.HK, $20.15,
4 The achieved room rate average across the Hong              BUY), which target the premium end of the market.
  Kong Tourism Board’s hotel categories grew 16%




www.htisec.com                                                                                                Page 2
                                                                  Navigator Report

Revenue per available room (RevPAR) and occupancy rate




Source: Hong Kong Tourism Board, Haitong International Research



Overnight visitor spending on accommodation
and length of stay




Source: Hong Kong Tourism Board, Haitong International
Research




www.htisec.com                                                            Page 3
                                                                                                                                                                      Navigator Report

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                                                                        45.4        168    Tsingtao Brew          45.45       1.5      38.3      34.0    0.5         1.0    0.5
5      HSBC Hldgs           80.65       0.0      688.1     14.2      3.5       0.0    14.2        347    Angang Steel            8.44     (1.8)     102.8      25.0    2.1       (0.8)    0.4
11     Hang Seng Bank      123.80     (0.2)      159.6     15.9      4.2     (0.6)     1.6        358    Jiangxi Copper         26.00     (0.4)     234.7      13.8    0.9       (0.7)    1.4
23     Bank of E Asia       33.15       0.6       72.4     17.3      2.8       1.3     0.9
388    HKEx                170.30       0.3      505.3     36.4      2.5       2.0     2.9        386    Sinopec Corp            7.61     (0.4)     269.5       7.7    3.2       (2.5)    4.9
939    CCB                   7.23       0.3      727.0     10.9      3.5       4.6     7.2        390    China Railway           3.89     (1.0)      39.3       9.3    1.7       (0.8)    0.6
1398   ICBC                  6.38       0.6      593.9     11.2      3.4       9.3     6.4        489    Dongfeng Group         13.76       1.3     306.5       9.1    1.6         2.4    1.4
2318   Ping An              81.50       0.1      328.6     29.8      0.8       0.3     2.3        728    China Telecom           4.59       0.7     241.3      20.3    1.9         2.1    2.4
2388   BOC Hong Kong        23.60       0.6      148.6     15.4      4.1       2.1     1.4
2628   China Life           26.90       0.9      677.1     19.0      1.8       7.1     3.3        753    Air China               7.88     (1.4)      40.1       6.4    1.8       (1.2)    0.7
3328   Bankcomm              7.90     (0.4)      104.7      9.1      1.8     (0.8)     0.9        763    ZTE                    27.25       2.1     154.9      23.6    1.1         1.7    0.7
3988   Bank of China         4.25       0.5      618.6      9.2      4.1       4.8     4.4        857    PetroChina             10.94       0.0     576.7      12.1    3.7         0.0    8.8
       Utilities                                                                       5.1        902    Huaneng Power           4.51     (0.7)      23.8      13.6    5.3       (0.5)    0.6
2      CLP Hldgs            65.35       0.2       95.2     15.2      3.8      0.7      1.9        914    Anhui Conch            34.50       3.1     402.0      25.0    0.7         6.4    1.6
3      HK & China Gas       17.68       0.0       85.7     25.0      1.8      0.0      1.4
6      Power Assets         54.60       0.0       68.0     16.2      3.9      0.0      1.3        916    China Longyuan          8.18     (1.0)      46.0      25.5    0.8       (0.8)    0.6
836    China Res Power      15.48       0.1       54.5     14.7      2.1      0.1      0.5        939    CCB                     7.23       0.3     727.0      10.9    3.5         3.7   10.2
       Properties                                                                     10.0        998    CITIC Bank              5.52       0.2     108.1       8.4    0.0         0.3    1.4
1      Cheung Kong         118.50     (0.8)      205.1     10.4      2.5     (4.8)     2.7        1088   China Shenhua          37.45       0.7     372.6      16.4    2.4         4.2    4.8
12     Henderson Land       51.80     (1.4)      163.2      7.1      1.9     (3.1)     0.9        1099   Sinopharm              27.40       0.6      21.4      43.5    0.7         0.5    0.7
16     SHK Prop            119.00       0.2      192.1     10.9      2.3       1.2     3.0
83     Sino Land            13.14     (0.2)       34.5     10.5      3.0     (0.2)     0.6        1138   China Ship Dev          7.72     (1.7)      24.6      12.9    2.6       (0.8)    0.4
101    Hang Lung Prop       31.80       0.3      280.2      5.9      2.2       0.9     1.3        1171   Yanzhou Coal           31.05       1.6     328.4      13.8    2.3         4.8    2.3
688    China Overseas       15.54     (0.8)      159.8     10.3      1.7     (1.9)     1.1        1186   China Rail Cons         6.90     (1.4)      44.0      16.9    1.7       (1.0)    0.5
1109   China Res Land       13.62     (0.9)       63.2     11.4      2.3     (0.9)     0.4        1211   BYD Company            25.15     (1.4)      69.8      19.1    0.0       (0.9)    0.5
       Com & Ind                                                                      39.6
4      Wharf (Hldgs)        56.20       2.1      280.6       4.3     1.8       6.7     1.4        1288   ABC                     4.67       1.1     347.2      11.9    1.4         5.7    4.1
13     Hutchison            85.70     (0.2)      651.3      18.2     2.2     (1.6)     3.0        1398   ICBC                    6.38       0.6     593.9      11.2    3.4         8.3   10.2
17     New World Dev        12.88       0.0      129.1       4.3     3.0       0.0     0.6        1800   China Comm Cons         6.96     (0.9)      56.3       8.8    2.7       (1.3)    1.2
19     Swire Pacific ‘A’   116.60       0.3       95.9       4.6     3.0       1.1     1.4        1898   China Coal             10.22       0.8     216.3      15.4    1.8         1.6    1.6
66     MTR Corporation      28.10       0.4       28.7      13.4     2.1       0.6     0.7        1919   China COSCO             7.04     (0.3)      41.2       8.8    1.5       (0.3)    0.7
144    China Mer Hldgs      33.35     (1.6)       70.5      14.0     3.1     (2.3)     0.6
267    CITIC Pacific        21.75       0.2       93.3       8.9     2.1       0.2     0.5        1988   Minsheng Banking        7.27     (1.4)      50.2       9.3    1.7       (2.0)    1.1
291    China Resources      30.95     (0.5)       86.1      27.6     1.7     (0.7)     0.6        2238   GAC GROUP               8.63     (1.2)      24.1       7.9    2.7       (1.1)    0.7
293    Cathay Pac Air       18.40     (0.2)       31.1       5.2     6.0     (0.2)     0.4        2318   Ping An                81.50       0.1     328.6      29.8    0.8         0.4    5.3
330    Esprit Hldgs         28.45     (0.5)       94.8       8.5     5.0     (0.7)     0.6        2328   PICC P & C             11.16     (0.5)      73.2      20.1    0.0       (0.7)    1.0
386    Sinopec Corp          7.61     (0.4)      269.5       7.7     3.2     (1.9)     2.1
2909   Li & Fung            16.82       3.8      480.8      30.1     2.7     13.3      1.6        2600   CHALCO                  6.70       0.2     163.4      94.2    0.2         0.2    1.0
700    Tencent             218.20       1.4      817.1      41.5     0.3      11.6     3.6        2601   CPIC                   31.80     (1.4)     136.8      26.8    1.3       (2.8)    1.5
762    China Unicom         17.28       2.9      592.2      89.2     0.6       8.6     1.3        2628   China Life             26.90       0.9     677.1      19.0    1.8         9.2    7.6
857    PetroChina           10.94       0.0      576.7      12.1     3.7       0.0     3.8        2777   R&F Properties         10.54       0.0      49.6       6.6    5.6         0.0    0.4
883    CNOOC                19.10       0.2      947.2      13.2     2.4       2.7     5.6
941    China Mobile         69.90     (0.2)      820.9       9.9     4.3     (3.5)     6.9        2883   China Oilfield         15.12     (0.8)      53.1      13.8    1.4       (0.9)    0.9
1088   China Shenhua        37.45       0.7      372.6      16.4     2.4       3.2     2.1        2899   Zijin Mining            5.77       0.0      33.0      14.7    2.1         0.0    0.9
1199   COSCO Pacific        14.86     (1.2)       68.9      17.6     3.0     (1.1)     0.4        3323   CNBM                   15.52       1.6     480.8      19.7    0.7         3.4    1.7
1880   Belle Int’l          15.98       2.3      245.7      33.1     2.3       6.4     1.2        3328   Bankcomm                7.90     (0.4)     104.7       9.1    1.8       (1.0)    2.0
1898   China Coal           10.22       0.8      216.3      15.4     1.8       1.3     0.7
2038   FIH                   4.16       0.7       20.6     -17.5     0.0       0.3     0.2        3968   CM Bank                19.42       0.4     136.3      13.3    1.8         1.5    2.9
2600   CHALCO                6.70       0.2      163.4      94.2     0.2       0.2     0.4        3988   Bank of China           4.25       0.5     618.6       9.2    4.1         6.1   10.0
Source: Bloomberg, HSI Services Ltd.                                 Source: Bloomberg, HSI Services Ltd.
Note: Announced historical figures are used in computing yield and P/E ratio.
Ten Largest Gainers                                                Ten Largest Losers                                              Ten Most Active
SEHK                                   Price Change                SEHK                                  Price Change              SEHK                                   PriceTurnover
Code Stock                                ($)   (%)                Code Stock                               ($)    (%)             Code Stock                                ($)   ($m)
204 Temujin Int'l                      0.700 +44.3                 2917 Media China Rts                  0.010   -23.1             1299 AIA                               27.45 989.8
30   ABC Comm.                         0.500 +23.5                 986 Ch Env Energy                     0.044   -13.7             883 CNOOC                              19.10 947.2
1058 Guangdong Tann                    0.475 +14.5                 8156 China Vanguard                   0.320   -13.5             941 China Mobile                       69.90 820.9
2618 TCL Comm                          6.420 +14.4                 8290 Tianjin Tianlian                 1.280   -12.3             700 Tencent                           218.20 817.1
1003 21 Hldgs                          0.112 +13.1                 835 Asia Coal                         0.179   -10.5             939 CCB                                 7.23 727.0
919 Modern Beauty                      1.140 +12.9                 362 C Zenith Chem                     0.114   -10.2             3800 GCL-Poly Energy                    3.96 701.5
8176 China Au Group                    0.280 +12.0                 273 Willie Int'l                      0.540   -10.0             5    HSBC                              80.65 688.1
1178 Vitop Bioenergy                   0.490 +11.4                 8387 Finet Group                      0.650    -9.7             2823 X iShares A50                     12.90 682.8
1172 Midas Int'l                       0.141 +11.0                 768 UBA Inv                           0.104    -9.6             2628 China Life                        26.90 677.1
2308 EVOC                              0.960 +10.3                 61   North Asia Res                   0.770    -9.4             2909 Li & Fung                         16.82 658.8
Source: Etnet                                                      Source: Etnet                                                   Source: Etnet
Notes: (1) "$" refers to HK dollars throughout this report unless otherwise stated.               (2) Share prices and indices are as of 30 May 2011 (HSI: 23,184)
Recommendation Policy
BUY if current price is more than 10% below AFV.                                                  AFV (Assessed Fair Value) is arrived at based on various appropriate valuations,
HOLD if current price within +/-10% from AFV.                                                     including P/E, Yield, NAV, DCF, EV/EBITDA, and management quality, etc, with
SELL if current price is more than 10% above AFV.                                                 regard to prevailing interest rates and comparative valuations.
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 Securities and Futures
Ordinance (Cap. 571), approved for distribution by: Haitong International Securities Company Limited (“HTISCL”) and/or Haitong International Investment Services Limited (“HTIIS”) (both
are licensed corporations to carry on Type 1 (dealing in securities) regulated activity) in Hong Kong. The information and opinions contained in this document have been compiled or arrived
at from sources believed to be reliable and in good faith but no representation or warranty, express or implied, is made by HTIRL, HTISCL, HTIIS or any other members of the Haitong
International Securities Group (“HTISG”) from 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
not, and should not be construed expressly or impliedly as, an offer to buy or sell securities. Neither HTIRL, HTISCL, HTIIS nor HTISG accepts any liability whatsoever for any direct or
consequential loss arising from any use of the materials contained in this document. This document is for the use of intended recipients only and may not be reproduced, distributed or
published for any purpose without prior consent of HTIRL. Each analyst who is primarily responsible for the content of this research is licensed under the Securities and Futures Ordinance
and certifies that all of the views represent accurately his or her personal views about the securities and issuers covered in the research. An affiliated company(ies) of Haitong International
Research Limited make(s) a market in the securities herein covered and/or any warrants or options on these securities herein covered.

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