Definitive agreement reached with JD According to the 2Q15 results announcement from JD.com (JD.OQ, US$32.81,Hold) on 7 August 2015, Yonghui entered into definitive agreements with JDon the same day. For reference, trading in Yonghui’s stock has beensuspended since 31 July. Yonghui will place c.479m new shares at a price ofRMB9.00/share, or an 11% discount to its 30 July closing price of RMB10.15.The total consideration will be RMB4.31bn. Upon completion, JD will hold a10% stake in Yonghui and have the right to nominate two directors (includingone independent director) to Yonghui's board of directors. Strategic partnership – joint procurement and O2O Yonghui and JD will form a strategic partnership to strengthen supply chainmanagement through joint procurement, and will continue to exploredevelopment opportunities in O2O initiatives and other areas of potentialstrategic cooperation. Deutsche Bank comments After the deal, Dairy Farm’s stake (subscribed in April 2015 at RMB7/share, adiscount of 22% to JD) will be diluted from 19.9% to 17.88% and the majorshareholder’s stake from 31.94% to 28.58%. While we believe this strategicpartnership will help strengthen Yonghui’s online operation and digitalmarketing capability, there is no detail in the announcement. Procurement isone of YH’s key strengths, especially for fresh products, and it also has leadingmarket share in areas like Fujian and Chongqing; we believe these are thereasons why JD is interested in investing in YH. That said, we have not seenany successful O2O business model in the industry so far and both companieswill need to explore its potential and execute correctly. We believe there will bemore updated information with Yonghui’s announcement.

Placement of 15% new shares to JD, DF and Mr. Zhang family; trading toresume on 10 August。 After the announcement earlier on 7 August by JD.com (JD.OQ, US$32.07,Hold) regarding subscribing shares of Yonghui (YH) (please refer to our note“Strategic partnership with JD.com” published on 7 August), YH announced acomplete placement plan later the same day. YH will place 718m new shares,18% of existing or 15% dilution of enlarged issued shares (718/4,785mshares=15%). In addition to JD’s subscription of 479m shares, Mr. Zhangfamily/Dairy Farm (DF) will subscribe 96m/143m shares, with a lock-up periodof three years. After the placement, DF’s stake will remain unchanged at19.99%, while Mr. Zhang family’s stake will fall to 29.15% from 31.94%. Strategic framework agreement with JD。 YH will ally with JD in its online platform, O2O business, warehouse &logistics, and internet finance business. YH plans to build up its O2O businessmodel, integrate its on/offline business and fulfill the last mile delivery service,leveraged by JD’s experience in e-commerce. It plans to introduce traffic fromonline to its offline stores. YH believes the partnership with JD will improvecustomers’ shopping experience and enhance customer loyalty. The jointprocurement is expected to pare down the purchase cost. RMB6.5m proceeds mainly to be used in store network and logistics。 YH will use the total proceeds of RMB6.5bn to strengthen its store network(RMB5.5bn), upgrade its cold chain logistics (RMB500m) and build up a DC inFuzhou (RMB460m). Total investment in these three projects is budgeted atRMB7.8bn. It plans to open 225 new stores in its covered provinces during2015-18 (vs. previous target of 180-200 new stores in three years from 2014 to2016). To recap, it operated 351 stores in 17 provinces as at end-June 2015.

We expect additional policy supports on property and infrastructure. At current attractive valuations, we see CSCEC as: 1) a cheaper proxy to CSCI(with its stake in CSCI and bigger non-CSCI construction businesses); and 2)more solid alternative to private developers with its more superior propertyportfolio from COLI. We also expect positive catalysts from additionalgovernment policy supports on property market and infrastructure investment. Increasingly attractive valuations vs. other construction and property names. Comparing current valuations of CSCEC with key construction companieslisted on the HK stock market, we see CSCEC generally trading at meaningfullylower PE and PB, despite its leadership position in the China constructionmarket. For example, CSCEC is trading at 2015E/16E PE of 8.8x/7.3x, wellbelow the average of 9.9x/8.5x 2015E/16E P/E for the group. Set against thebig-cap property developers, CSCEC now trades at 46% NAV discount, deeperthan the group’s average of 14%. On PE and PB, CSCEC is also meaningfullycheaper than the group’s average. Compared with other mid-cap developers(which do not have the same quality property portfolio as COLI, which isCSCEC’s subsidiary), CSCEC’s 46% NAV discount is meaningfully deeper thanCountry Garden (31%), Shimao (37%) and Evergrande (1% premium). Better-than-industry new contracts performance in 1H15. In 1H15, commodity housing new starts in the whole country declined 15.8%,while commodity residential new starts fell 17.3% YoY. However, despite thebroad market weaknesses, CSCEC has been able to achieve better-thanindustrynew contracts performance due to the rising market share in theproperty construction market. As a reference, in 1H15, CSCEC achievedcontinued solid performance for its housing construction businesses, with newcontracts awarded down only 3.7% YoY – meaningfully outperforming theoverall market. In addition, new contracts from infrastructure constructionsshowed a better-than-expected performance, with 11% growth YoY. With this,overall new contracts for CSCEC in 1H15 were down only 2.1% YoY. In ourview, this reflected the strong execution ability of CSCEC. At the end of 1H15,the total area under construction amounted to 859.46msm, up 10.3% YoY. This strong growth in the total area under construction and new starts shouldallow for continued solid growth in earnings for CSCEC over the next 2-3 years. Attractive valuations at 42% NAV discount, 8.6x 15E P/E and 7.1x 16E P/E. Our new TP of RMB10.97 (lowered from RMB12.18) is based on 10% discountto our NAV of RMB12.19, down from RMB13.53 as we factored in our new estimates for COLI and new assumptions on property constructions. Key risks:unexpected policy/economic volatility, and risks on collection of receivables.

Strong core ancient town business Albeit a 17% decline in overall net profit, CYTS’s core ancient town businesscontinued to deliver strong growth with Wuzhen’s net profit increasing 26%yoy to RMB 215m (i.e. with 66% ownership, net profit attributable to CYTScame in at RMB 142m.) Wuzhen and Gubei each reported 27% yoy and 135%yoy revenue growth in 1H15, respectively. The drop in earnings is due mainlyto seasonality effect in business exhibition and continuous investment inaoyou.com. We will attend CYTS’ 1H15 result conference call tomorrow (6-Aug) at 10am HK time, and bring further updates on CYTS’ 2H15 outlook. Growth driver – Wuzhen and Gubei Ancient Town Revenue from Wuzhen increased 27% yoy to RMB 539m, driven by 25% yoygrowth in number of visitors to 3.9 million. Tourism volume to east and westzone increased 17% and 34% yoy, respectively. West zone outperformed theeast as consumers’ needs on “leisure tourism” continue to rise, in our view.Gubei generated revenue of RMB 157m (up 135% yoy,) as the companybrought in more content to the site and continued to push forward marketingcampaigns. Entertainment shows recorded in Gubei and the new night-tourinitiative also helped attract more traffic. Going forward, we believe winning ofthe Winter Olympic right could be another catalyst for Gubei. Don’t be misled by the seasonality Total revenue decreased 2.5% yoy to RMB 4,772m, due primarily to a 32% yoydecline in the seasonal business exhibition segment. In our view, thesegment’s 2015E full year performance should still see positive growth, asmore large-scale events are expected to be held in the second half of the year.SG&A increased 22% yoy, as CYTS invested in aoyou.com following its“Aoyou+” strategy which aims for long-term sustainable growth. As a result,adjusted net profit came in at RMB 144m, down 17% yoy. Reported net profitdecreased 34% yoy, because of a RMB 63m non-recurring investment gain onGubei in 1H14. Aoyou.com introduced rushitour.com On 29 July, aoyou.com introduced its outdoor event platform “rushitour.com”(如是外), a project under CYTS’s “Aoyou+” strategy. Rushitou.com will beinitially focusing on organizing marathon, riding, hiking, snowboarding andother sports events. Rushi has introduced its first sport event, Wuzhen FunRun, which is a 4.2km mini marathon to take place in Wuzhen Ancient Townon 16 August. We believe Rushi enables CYTS to penetrate into this emergingniche market, and will also help bring additional tourism traffic to CYTS’ twoancient towns.

SJ disposed Jiangyin Tianjiang at RMB2.33bn, contributing RMB1.79bn gain. Shanghai Jahwa (SJ) announced a supplementary agreement about thedisposal of Jiangyin Tianjiang Pharmaceutical Company (Jiangyin Tianjiang). Pursuant to this announcement, SJ will dispose 23.8% interest of JaingyinTianjiang to China Traditional Chinese Medicine Co.(0570.HK) (ChinaTraditional Chinese Medicine) at a consideration of RMB2.33bn. This implied15x2014PE of Jiangyin Tianjiang, which is line with the initial announcementmade on 5 January 2015. After the deal closed, Jiangyin Tiajiang will not be anassociate company of SJ anymore. This disposal is expected to contributeRMB1.79bn (ex tax) one-off gain in 2015, doubled 2014 NP of RMB874m. Jiangyin Tianjiang will cease its contribution to SJ’s P&L since September. Established in 1998, Jiangyin Tianjiang is the leader of traditional Chinesepharmaceutical ingredient manufacturer in China. It recordedRMB652m/RMB182m net profit in 2014/1Q15, respectively. China TraditionalChinese Medicine is a HK-listed company which specializes at pharmaceuticalmanufacturing, R&D and sales. In line with five-year strategy. This disposal is also in line with SJ’ five-year strategy that cleared beauty care,personal care and household care are the three major areas for SJ. Thecompany will focus on five main brands i.e. Herborist, Liushen, Maxam, GFand Giving to cover five respective segment markets, i.e. mid/high women skincare, mass market personal care, mass market women skin care, men’sgrooming and baby care. Based on this guidance, other less relevant assetswill be gradually disposed. SJ started to invest in Jiangyin Tianjiang since2002 and intended to seek synergy of its traditional Chinese medicine R&Dwith SJ’ Hanfang herbal cosmetics development, which eventually proved tobe a failure. SJ also developed its own R&D center afterwards. Hence, JiangyinTiajiang’s business has become irrelevant with SJ’ business development. Deutsche Bank. Based on the preliminary announcement in January, we already factored inthe exceptional gain in our P&L and cashflow, while there is a difference as weassumed that Jiangyin Tianjiang ceased contribution to SJ since 2H vs. inreality this started from September, the impact will be minor though. Wemaintain our Buy call on Shanghai Jahwa.

Ex-factory price lifted by 8%. Wuliangye (WLY) lifted ex-factory price of its standard 52% Abv-“Wuliangye”from RMB609 to RMB659 (500ml/bottle), and the company’s Chairman,Zhongguo LIU, said in an interview with Securities Journal that WLY is strivingto complete channel destocking in the Mid-Autumn Festival-peak season. To recall, WLY lowered the ex-factory price from RMB729 to RMB609 in May2014. Currently, the retail price quoted by online yihaodian, jd and jiuxianstores is RMB609-659, and we believe distributors can only make money fromrebates. Prior to the price hike, WLY offered distributors to place additional50% order at RMB509 upon meeting sales targets, i.e. effective ex-factoryprice is RMB576. Now, distributors will get rebates periodically based on salesperformance. No change to achieved price forecast, but pricing discipline reaffirmed. As we have yet to see a reasonable retail margin, we don’t see the price hikeas a signal of completion of WLY destocking or a strong recovery of the baijiumarket, but WLY’s reaffirmed commitment to pricing discipline, which ispositive to the development of the entire supreme baijiu market. As to WLY,we have not changed our forecast, as we think the price hike should notchange the achieved price (net of rebate) until we see a reasonable retailmargin. We keep our Buy rating on WLY, as we are looking for a NPAT recovery andworking capital improvement in 2016, as well as SOE reform to help thecompany transforming into a brand portfolio manager, mainly by introducingstrategic partners and management incentive scheme. WLY has beensuspended since 29 July 2015, and we are not sure if it is related to progressof SOE reform. Our DCF-based target price (9.5% WACC and 0% TG) isRMB31/share, equivalent to 20.8x 2015E PE; ex-cash it would be 18.9x 2015EPE. Key downside risks include: prolonged destocking, slowing cashconversion.

What’s new. Lijiang announced its 1H15 unaudited earning snapshot today with net profitincreasing 29.2% yoy to RMB 108m. 1H15 EPS came in at RMB 0.26. Revenuegrew 7% yoy to RMB 350m. Total tourist volume (to the three cable cars)increased 13.3% yoy to 1.64 million, with the main Jade Dragon SnowMountain cable car reporting 56.5% tourist volume growth to 0.94 million. The1H15 earning was in line with our estimate, and accounted for 48% of our2015E full year forecast. DB’s view. We believe earnings growth was driven primarily by the strongperformance in Jade Dragon Snow Mountain cable car. Performance show business (i.e. Lijiang Impression) reported 1.1% yoydecline in revenue and 16.8% yoy drop in net profit, which was mainly dueto the intensified competition as Songcheng (300144.SZ, Buy, CNY60.29)introduced the Romantic Show of Lijiang in March 2014. Revenue from hotel business decreased 17.5% yoy to RMB 42m, which islikely due to 1) anti-corruption measures which negatively impact theluxury hotel business (Lijiang Tourism has three luxury hotels with averageroom rate of RMB 800-1,200); and 2) an increasing number of low-end innsand B&B (average room rate of RMB 100-400) opened in Old Town ofLijiang. We reiterate our Buy rating on Lijiang Tourism, supported by its good earningsgrowth coupled with our recent channel checks in Lijiang which suggest asustainable growth potential in the Lijiang area.

Ping An Trust transfers 28% SJ to Ping An Life Shanghai Jahwa (SJ) announced that Ping An New Capital, the controllingshareholder of Shanghai Jahwa Group (SJ’s parent company), has agreed totransfer 100% of Shanghai Shanghai Ping Pu Investment (wholly ownsShanghai Jahwa Group, which in turn owns 28% of Shanghai Jahwa United(listed company)) to Ping An Life Insurance Co. SJ announced that its shares will be suspended from 28 July. It will resumetrading and announce further details in three days. Deutsche Bank’s View We believe that after this move, Ping An will become a mid/long-term investorof SJ rather than a short-term investor, as Ping An Trust has the possibility ofdivestment someday. This is also in line with the agreement made by Ping Anin 2011 that Ping An will not transfer Jahwa’s equity within five years. According to management, some trust products that were used to acquireShanghai Jahwa in 2011 will expire in 2016. Local news reports also citedmarket concerns that Ping An Trust might exit its investment in Jahwa as itneeds to repay the trust product investors.

Trading remains suspended Shanghai Jahwa (SJ) announced on 21 July that its share trading will remainsuspended. To recap, trading has been suspended since 7 Jul 2015.This is mainly related to a strategic share increase of a major shareholder andpossible changes in shareholding structure. The major shareholder status ascontrolling shareholder will remain unchanged, however. As this is still under discussion, the company will resume trading and make anannouncement after the deal is concluded. Deutsche Bank view Ping An owns 27.9% of Jahwa and management 0.4%. We believe there are 2possibilities based on the public announcement: 1) Ping An simply increased its stake in the company from the market,showing support for the company; or 2) Ping An and a strategic partner both subscribed to new shares.We believe scenario 1 would be a non-event to the share price, while scenario 2 might be a positive move if the strategic partner can help develop thebusiness of Jahwa. In Jahwa’s 5-year plan, although there is no mention ofstrategic investors, it does intend to seek M&A opportunities. We will keep investors posted on the latest developments.Recap of 5-year plan: Five-year target to achieve sales of RMB12bn by 2018with “5+1” brand focus Management’s target implies a CAGR of 22.5% for 2014-18 or 17.1% exacquisition. The company aims to achieve RMB12bn sales, including RMB10bnfrom self-owned brands and RMB2bn from M&A. It also aims to be rankedNo.5 in terms of market share, vs. No.10 currently. Its sales target implies asales CAGR of 22.5% for 2014-2018 (or 17.1% ex acquisition), much higherthan the industry average of 12%. The anticipated drivers are 1) the marketgrowing at a healthy CAGR of 12%; 2) an increase in SJ’s market share; and 3)successful M&A.

News Ping An released a profit alert today indicating that its 1H15 net profit willincrease by ~62% yoy thanks to the stable development of each businesssegment and yoy increase in investment yields. This implies a 2Q15 net profitof Rmb14,642mn (+39% yoy, vs. +85% yoy in 1Q15) and 1H15 net profit ofRmb34,606mn. It accounts for 76% of our 2015 full year estimate and 65% ofBloomberg consensus. DB view We believe the substantial growth in net profit should be expected by themarket given Ping An’s strong 1Q15 yoy growth of 85%. We noted that PingAn realized most of its investment gains in 1Q15, resulting in higher 1Q15growth than 2Q15 (+39%) while CPIC realized most in 2Q15, leading to higher2Q15 growth of +72% (vs. +53% in 1Q15). We maintain our Buy rating on Ping An – A with the stock currently trading at1.4x 2015E P/EV and 4.2x 2015E NB multiples assuming 0% A-share gains. Webelieve its diversified business model and continuous focus on internet financestrategy are likely to generate synergies in the long run.

TP adjusted to RMB275.4. Kweichow Moutai announced distribution of scrip (1 for 10) and cash(RMB4.37/share) dividend for 2014, and accordingly, we change our TP fromRMB303 to RMB275.4 to reflect the share capital adjustment. Our TP is derived from DCF, factoring in 9.5% WACC and 0% TG, in line withour assumptions for Chinese consumer stocks. It is equivalent to 21.1x 2015EPE and ex-cash 19.4x 2015E PE. We have a Buy rating on the stock. Key downside risks: non-core investments and non-supreme spirits expansioncould dilute return and incur unnecessary risk, slowing cash conversion.

1H15 earnings tracking in-line with expectation. Yonghui Superstores (YH) reported preliminary unaudited 1H15 gross salesand net profit of RMB20.8bn and 527mn, respectively. 1H15 sales accountedfor 46% of DBe full-year sales, which is 1-2% lower than historical average. 1H15 earnings represent 53% of DBe 2015 net profit, which is in line with ourexpectation and historical seasonality (1H earnings accounted for 54%/53% offull-year in 2013 and 2014). The announcement implies a 2Q15 net profit ofRMB163mn, up 11% YoY. We note that YH recognized an RMB34mn gain in2Q14 from the fair value changes of its investment in Wuhan Zhongbai. Withthe investment now categorized under equity investment, we think the markto-market gain did not recur in 2Q15. While we believe the 2Q performance issatisfactory, we have yet to check if there is any exceptional item. We expect solid performance for YH’s core operation, reiterate buy. In the announcement, management attributes profit growth to improved grossmargin, a significant reduction in financial costs as well as prudent expensecontrol. We believe this is the result of less promotion into 2Q15 as well as acontinued improvement in logistics, echoing our positive thesis. We plan toprovide more updates with result release. Reiterate Buy.

Management expects volume recovery at a more modest pace than past cyclesWe met with management at its headquarters in Shenzhen. In summary,management expects overall ASPs to see a gradual, rather than sharp, declineas developers generally have better financial positions than in 2008/2011. Moreover, land prices have yet to see a meaningful decline, so developers havelittle justification for bigger price cuts, as land replenishment will still berelatively expensive. Meanwhile, management expects sales volume to recoverat a more modest pace, driven by pent-up demand, but a ‘V-shaped’ recovery(as in 2009/12) is unlikely, given a less favorable macro and monetaryenvironment. Buy, with upside implied by our TP. Margin compression to be modest, as ASPs still higher YoY, post price cutsManagement acknowledged that Vanke has stepped up its incentive offers innew project launches (for example, via e-coupons with E-House), rather thanthrough sharp ASP cuts. Nevertheless, effective ASPs are still above those ofthe same period a year ago, even after the latest round of price cuts. Hence,management expects an adverse impact on profit margins to be modest. Moreover, Vanke has an unbooked sales balance of Rmb200bn, which carriesa gross margin of 25%. Hence, management expects this to be a cushion tooffset the adverse impact from the recent round of price cuts. Management aims to increase foreign borrowing to lower overall funding costFollowing the H-share listing (first trading day on 25 June 2014), managementintends to increase foreign borrowing via more bond issues. Specifically, itaims to raise the proportion of foreign debt from 10% of total gross debtcurrently to about 25%. By doing so, it expects to lower the average fundingcost to 7% (from 7.5% currently). Nevertheless, Vanke would still target a netdebt-to-equity gearing ceiling of 40%. Target price at a 20% discount to our estimated NAV of Rmb16.7/share; risksOur target price is based on a 20% discount to our estimated NAV ofRmb16.7/share, which implies a 2014/15E PER of 8x/7x. Our target discount ishigher than that for the large state-owned peers like COLI but at a premium toother privately owned peers, which we believe is appropriate, given thecompany’s proven execution track record. We adopt NAV as our primaryvaluation metric, in line with peers under our coverage. Key risks: tighteningpolicies; margin compression.

Cooperation with Xiaomi to tap 25-30mn potential customers; Buy。 BOBJ announced after market close today that it has entered into acooperative contract with Beijing Xiaomi Technology Co (Xiaomi), a leadingmobile internet company in China, to cooperate in mobile payment, lendingand distribution of WMPs. While the direct earnings contribution in the shortterm should be marginal (only 3% of FY14E NPAT), we believe the cooperationshould potentially help the bank to tap a broader customer base (10mn existingretail customers at BOBJ, compared to 25-30mn existing smartphone users atXiaomi) and to reduce operating cost. With its lowest exposure to risky nonstandardizedassets (5.4% of total assets vs. sectors’ 19.2%) and solid depositfranchise in Beijing area, we believe the bank’s fundamental remains strongand has not been fully priced in the current valuation of 0.75x FY14E P/B. Maintain Buy and the top pick among A-share city commercial banks.。 Cooperation on mobile payment, lending and WMP distributionAccording to the statement released by BOBJ, it will work jointly with Xiaomion: 1) promotion of standardized personal loan products; 2) distribution ofWMPs, insurance products and money market funds; 3) mobile paymentbased on Near Field Communication (NFC) function. Leveraged on Xiaomi’sfast-growing customer base (18.7mn smartphones sold in 2013 vs.7.2mn in2012), the bank should be able to generate more cross-selling opportunities. Marginal earnings impact from the cooperation in the short term。 In the short term, we see limited direct earnings impact. Firstly, if we assume1% of Xiaomi’s smartphone uses converted to customers of BOBJ’sconsumption loan products (average loan size of Rmb50k and loan yield at9%), the accretion to FY14E earnings should be around 3%. Secondly, webelieve the bank’s cooperation with Xiaomi should be nonexclusive, asevidenced by past experiences where Alibaba and Tencent had cooperatedwith multiple banks, suggesting potential margin squeeze due to competitions.

Market consolidation favours Vanke; reinstating with Buy We reinstate China Vanke with a Buy rating and a target price of Rmb12.60. Inrecent years, we have seen intense market consolidation among propertydevelopers. The top developers, like Vanke, have benefited from thisconsolidation and gained market share at a faster pace than the small listeddevelopers. Vanke is currently in a development stage 2-5 years ahead of othernationwide developers. We believe this gives Vanke a significant first-moveradvantage to benefit from the consolidation and gain valuable experience incoping with a mega sales base. With this report we are also transferringprimary coverage of China Vanke from Tony Tsang to Albert Tam. Consolidation favours large developers Better funding and land acquisition capabilities widen the divergence betweenlarge developers versus small developers. The market share of the top 20developers we track doubled to 14.7% in 9M13, from 8.7% in 2008. Inparticular, the top 6 developers’ market share was 1.9x the rest of top 20developers’ share in 9M13, indicating a great leap forward for the top 6, as thetwo groups had similar market shares in 2009. Vanke’s growth has further upside potential Vanke’s growth has been attributable to both market share expansion and theproperty sector growth. Its contracted sales have continued to maintaindouble-digit growth in the past two years, achieving 33% YoY growth in 9M13. We find this remarkable given that Vanke has the largest sales base in thecountry. We do not share the view that Vanke’s growth potential is limited andconsider there is further potential upside. Moreover, we continue to see marketshare expansion in over 60% of the cities under its coverage in 9M13. Target price at a 20% discount to our estimated NAV of Rmb15.76/share; risks Our target price is based on a 20% discount to our estimated NAV ofRmb15.76/share, which implies a 2013/14E PER of 6.9x/5.6x. Currently, thecounter is trading at a 40% discount to NAV, which is very attractive in view ofVanke’s leading position and the continued growth momentum exhibited in itssales. Risks: government tightening policies; economic uncertainty.