The first adjustment since HSR tariffs were deregulated: Chinese news agencyCaixin recently reported that China Railway Corporation (CRC) may raise tariffs on200km/h high speed rail (HSR) services in the southeast coastal area from April 2017. According to the news report, Class II seat ticket prices would increase by 25-30%while Class I seat ticket prices would increase by 65-70%. The report also mentionedthat the operating speed of the HSR services would be raised back to the originaldesigned speed limit of 250km/hr (the speed was lowered to 200km/hr after a majorHSR accident in 2011). We have not yet seen a formal announcement from CRC. Butthe report stated that the new ticket prices would start to appear on the official railticket reservations website 12306.cn from 22 March 2017. Guangshen Railwaymanagement has confirmed it is making preparations for a ticket price change. In2015, NDRC deregulated HSR tariffs, allowing CRC to set HSR tariffs based onmarket forces. This would be the first time since then CRC has raised its HSR tariff. A potential 5% earnings boost for Guangshen Railway: The company operatesGuangzhou-Shenzhen and Guangzhou-Chaoshan 200km/h intercity services inGuangdong province. We think the potential tariff increase in April 2017 would onlybenefit the Guangzhou-Chaoshan line, which accounts for about 14% of GuangshenRailway daily service revenue. We estimate the potential impact to FY17 earningscould be about 6.3%. The company has tariff setting autonomy on its Guangzhou-Shenzhen intercity line but may not adjust tariffs on this service in April. The tariffincrease supports our view that rail industry reform is set to speed up in 2017. Depending on the public reaction to the tariff increase, we think this could be the startof a broader programme of passenger tariff adjustments. Earnings impact summary: We increase our revenue forecasts for FY17 and FY18by 1.3% to reflect the potential tariff adjustment on the Guangzhou-Chaoshanintercity line. Given the tariff adjustment is unlikely to lead to additional costs, weexpect the increase in revenue to result in a 5.2% after-tax earnings impact. Ourtarget prices for the H/A shares also rise to HKD6.30/RMB5.9. Additional tariff increases could be a catalyst: Maintain Buy on the H-shares andHold rating on the A-shares. We think the likelihood of further tariff increasesfollowing this initial adjustment could continue to support share price momentum andimprove ROE. CRC’s plan to introduce mixed asset ownership could lead to potentialasset injection opportunities.

Remove conglomerate discount after our two-year reappraisalof Ping An’s business model Ping An is the ‘quality’ play in the high-growth-potential ChineseFinancial services industry Upgrade H- and A-shares to Buy (from Hold) and raise TPs by24% to HKD56 / RMB47, implying 35% / 34% upside Upgrade Ping An-H/A from Hold to Buy and raise TPs 24%, to HKD56 / RMB47,implying 35% / 34% upside. Our upgrade is driven by our decision to remove the 20%conglomerate discount that has been a consistent feature of our valuation. We originallyincluded a discount as the Integrated Financial Services (IFS) model Ping An waspursuing was tried, was tested and largely failed in a developed market. DevelopedmarketIFS players not only burdened investors with added complexity (note: Ping Anstill has work to do here), but failed to deliver much touted benefits. Our decision toremove the conglomerate discount is based on a two-year reappraisal of Ping An’sbusiness model spanning three stages discussed in this report: (1) A rare one-on-onemeeting with Ping An’s chairman in September 2014 kick-started our reappraisal whenthe founder explained reasons for pursuing the IFS model that were different from thoseespoused by developed-market IFS peers (see our report of 12 September 2014,Feedback from our meeting with Ping An Group Chairman). (2) Our detailed study ofChinese e-finance over the past 18 months has helped us to appreciate that theenvironment in which Ping An now operates is far more conducive to IFS success (interms of big data, Internet, etc) than when IFS was spawned in developed markets15-20 years ago. (3) At 1H16 results, we saw Ping An’s evolving ‘Integrated Finance+ Internet’ model delivering tangible benefits, i.e., 36% of new customers came fromthe four closed-loop Internet ecosystems Ping An has created. Plentiful other reasons to like Ping An Group. Firstly, Ping An boasts best-in-classLife and P&C businesses accounting for 52% of profits. Secondly, Ping An’s solvencyratios are substantially above newly lowered regulatory minimums, with ample scopeto boost them using expanded sub-debt/ hybrid capacity limits. Thirdly, Ping Anbenefits from one of the most dynamic, innovative and value-oriented financial servicesmanagement teams. Fourthly, Ping An not being an SOE is a far bigger positivedifferentiator now than in the past given the risk of expanded national service (e.g. commercial health, NPL ABS) coupled with waves of regulatory liberalisation thatpromote innovation. Fifthly, Ping An Bank is less of a relative deterrent to Ping An’sequity story than it once was versus Chinese peers that are newly acquiring ‘minority’stakes in Chinese banks. Sixthly, Ping An shares are inexpensive on an absolute,relative and historical basis. We have also marked-to-market our model, which resulted in slight estimate changes.

Strong trends in fee income growth and cost-efficiencyimprovement driving pre-provision earnings growth of 21%y-o-y Margins fell as loan book de-risking continues but pace inNPL rise has stabilised to peer-average level; tier-1 ratio fallof 15bp q-o-q in 3Q15 a puzzle We maintain our Buy ratings with H-/A-share target prices ofHKD12.80 / RMB10.70 our estimates are unchanged 3Q15 profit of RMB11.6bn, up 3% y-o-y, slightly down from 2Q’s 4%. 9M15 profitsaccount for 80% of HSBC’s FY15 estimates (vs 83% in 9M14). What we liked: (i) 3Q15 fee growth was 37% y-o-y, up from 2Q15’s 35%, driven by bankcard, trust and agency services and investment banking; (ii) cost-to- income ratio improved by2.7ppt y-o-y to 35% in 9M15. Expense growth was only 1% y-o-y in 3Q15. (iii) NPLcoverage remained flat q-o-q (162%) and loan loss reserve ratio was up 15bp q-o-q to 2.35%. What we disliked: (i) net interest margins (NIM) fell by 16bp q-o-q in 3Q vs. 2Q’s 4bpfall. We think this was driven by downward pressure on asset yields, which has fallen asMinsheng continues to de-risk its loan portfolio. In 1H15, its small-micro-enterprise loanmix fell by 1.6ppt h-o-h to 21%, while its mortgage mix rose by 0.7ppt, which helpedcontribute to its average loan yield falling by 50bp h-o-h. (ii) Tier-1 ratio fell 15bp q-o-q(from up 35bp in 2Q) to 9.02%. Other points of interest: (i) NPL ratio rose 10bp q-o-q in 3Q15 to 1.45%, slower than2Q15’s 13bp rise. Adjusted for write-off and disposals, NPL ratio rose by 41bp q-o-q in3Q15, in line with the average of mid-sized banks. Credit cost was up another 27bp q-o-qor 62bp y-o-y to 200bp in 3Q15; (ii) Loan to deposit ratio fell 1ppt q-o-q to 73%. Buy rating on Minsheng-H with TP of HKD12.80; maintain Buy and TP ofRMB10.70 on Minsheng-A: We use a discounted Gordon Growth model valuation,valuation & risks on p.2.

Better-than-expected NPL ratio helps slow the fall in theprovisioning coverage ratio, which at 158% is not far abovethe regulatory minimum 3Q15’s fee income growth was impressive, with growthaccelerating to 23% y-o-y Maintain our Buy rating with H-/A-share target prices ofHKD9.50 / RMB7.90, estimates unchanged 3Q15 NPAT of RMB72.7bn was up 1% y-o-y, vs. 2Q15’s 0% y-o-y. 9M15 NPATaccounted for 80% of HSBC’s FY15 estimates (vs. 80% in 9M14). What we liked: (i) Core Tier 1 ratio of 12.4%, up 28bp q-o-q and 62bp y-o-y and thesecond highest of the banks. Their strong capital buffers sees them as well placed toweather the continued worsening of asset quality in the system; (ii) NPL ratio was only up4bp q-o-q in 3Q15 to 1.44% vs. 2Q15’s 12bp q-o-q rise. Like some of its peers, this smallrise was better-than-expected. We estimate that the 3Q15’s adjusted NPL ratio rose 18bpq-o-q, better than 2Q15’s adjusted 26bp q-o-q rise, again mirroring a trend at the other bigbanks; (iii) Fee income was up an impressive 23% y-o-y, the best of large-bank peers, andan acceleration from 2Q15’s 12% y-o-y; (iv) Net interest margins (NIM) fell 4bp q-o-q to2.58%, less than 2Q15’s 14bp q-o-q fall; (v) 3Q15’s cost-to-income ratio fell 2ppt y-o-y to31%, with 9M15’s cost-to-income ratio falling 2ppt y-o-y to 30%; (vi) pre-provisioningoperating-profit (PPOP) growth rose to 13% y-o-y in 3Q15, vs. 2Q15’s 9%, and the bestof large bank peers. What we disliked: (i) Provisioning coverage ratio fell 6ppt q-o-q in 3Q15 to 158% vs. 2Q15’s 17ppt q-o-q fall. The regulatory minimum requirement is 150%; (ii) Depositgrowth was relatively weak at 1% q-o-q, though in-line with the other big banks. Other points of interest: (i) The demand deposit mix was virtually unchanged q-o-q,with 3Q15’s mix of 47.3% vs. 2Q15’s mix of 47.2%; (ii) Credit costs (provisioningexpense/ average loans) was 66bp, down 8bp q-o-q, but up 35bp y-o-y. Buy rating on ICBC-H with a TP of HKD9.50 (92% upside); we also maintain our Buyrating and TP of RMB7.90 on ICBC-A (73% upside): We use a discounted GordonGrowth model valuation; see valuation & risks on p.2.

Pace of NPL rise has stabilized and NPL coverage rose to249% (highest among non-city Chinese banks we cover) Completion of trust license acquisition by share placementwould boost Shanghai government holding by 5%, to 27% Maintain our Buy rating with target price of RMB24.70,estimates unchanged 3Q15profit of RMB13.3bn, up 9% y-o-y, (vs 2Q’s 6%): PDB is the only bank that hasprofit growth noticeably trending up among our China Banks coverage. 9M15NPATaccounted for 72% of HSBC’s FY15estimates (vs. 74% in 9M14). What we liked: (i) The pace of NPL ratio rise was steady at 9bp q-o-q in 3Q15to 1.36% vs2Q15’s 10bp. Credit cost was also virtually flat q-o-q at 195bp in 3Q15. Both the NPLcoverage ratio and loan loss reserve ratio improved q-o-q to 249% (up 3ppt q-o-q) and3.39% (up 26bp) respectively; (ii) Cost income ratio improved by 3ppt y-o-y to 27% in9M15; (iii) PDB benefitted from significant demand deposit migration (+5ppt mix q-o-q to37%), which we believe could be due to withdrawal of funds from stock accounts back intobanks. It is unclear why this trend was so much stronger at PDB compared to other banks.What we disliked: (i) 3Q15fee growth rose 24% y-o-y, slowing from 2Q15’s 44% rise; (ii) Special mention loans, an early asset quality indicator, rose by 7% q-o-q, and its ratiorose by 15bp to 2.85%. This compares to a rise of 8% q-o-q in NPLs. Other points of interest: (i) We estimate net interest margin (NIM) was flat q-o-q in3Q15vs. 2Q15’s 17bp rise; (ii) Growth in loans and deposits slowed at 0-1% q-o-q; (iii)company level Tier-1ratio was 9.38% in 3Q; (iv) loan to deposit ratio was flat q-o-q at73%; (v) PDB obtained approvals from shareholders, CSRC and CBRC to issue shares atRMB16.36per share (1.08x 2015e PB) and acquire Shanghai International TrustCompany. After the transaction, the Shanghai government would boost its largestshareholding position by a further 5.09% to 27.2%. Buy rating on PDB-A with a TP of HKD24.70. We use a discounted Gordon Growthmodel valuation, valuation & risks on p.2.

Cement sales volume to resume growth from 2H15: Gross profit contribution at theCement & RMC segment in 1H15 dropped to 14% from 20% in 1H14 due to falling salesvolume and declining ASPs. Management guides for an improving sales outlook,forecasting a 3% y-o-y increase in sales volume in 2H15, and over 10% growth in 2016. We estimate ASPs to remain flat and cement and clinker sales volumes to increase 10%and 14% for FY16 and FY17, respectively. The increase in sales will be driven byprojects from the Beijing-Tianjin-Hebei unification as well as the Beijing WinterOlympics in 2022. Cement & RMC makes up c36% of our FY15e revenue contribution. Improving property margins offset declining sales area: Property sales area declined in1H15 by 49%, but this was offset by improvement in GP margin, which increased to 45%in 1H15 from 37% in 1H14, resulting in overall gross profit in property developmentremaining at the same level as 1H14. We expect this margin improvement to sustain as thecompany focuses more on high-margin commodity housing developments. Thepercentage of total GFA from commodity housing has more than doubled to 92% in 1H15vs. 45% in 1H14. Property makes up c37% of our FY15e revenue contribution. Raise H share TP to HKD7.7 from HKD6.2 and upgrade to Buy from Hold: We havelowered our FY15-17 adjusted earnings estimates by 2%, 19%, and 18%, respectively. Our adjusted FY15-17 earnings estimates are -11%, -15%, and 7% compared toconsensus. We now value BBMG on a FY16e forward PB multiple of 0.67x based on anadjusted FY16e ROE of 6.6% instead of using a 0.51x FY15e PB based on 6.4%unadjusted FY15e ROE. We value all cement peer companies using this methodology toavoid penalising the company for the 1H15 trough. With 73% upside to our fair valuetarget price, we upgrade the H share to Buy from Hold. We have a Reduce rating on Ashare with a new TP of RMB6.4 (prior RMB5.0), and our A-share TP is converted fromthe H-share TP based on HSBC FX team’s 2015e HKD/RMB rate of 1.20.

1H15 profit was RMB26.8bn, up 5% y-o-y, with 2Q15 +4% y-o-y and 1Q15 +6%. 1H15comprised 56% of our FY15e profit (1H14 was 57% of FY14). What we liked: (i) Fee growth remained strong despite slowing to 35% y-o-y in 2Q from 38%in 1Q. Financial advisory fees (+154% y-o-y in 1H), trust service fees (+40%) and bank cardfees (+31%) were key drivers; (ii) Net interest margin fell 4bp q-o-q in 2Q, slowing from the16bp fall in 1Q; (iii) 1H cost/income ratio improved 1.9ppt y-o-y to 34%; (iv) Minsheng isrelatively conservative in investing in opaque non-standard credit assets, which rose only 1ppth-o-h to 8% of assets (vs peers 20% average). What we disliked: (i) NPL ratio rose 13bp q-o-q to 1.36% in 2Q, up from 1Q’s +6bp. Writeoffadjusted NPL ratio rose 71bp h-o-h, second fastest among our coverage. 1H credit costpicked up 76bp y-o-y to 160bp. While the bank maintained a loan loss reserve ratio of 2.2%(flat q-o-q), NPL coverage dropped 18ppt q-o-q to 162% (near regulatory minimum 150%). This will make the bank more passive in provisioning new NPLs and filter directly intoearnings; (ii) Overdue loan ratio rose 114bp h-o-h to 3.88% (overdue <90D loans +31bp to1.78%), with special mention loan ratio up 144bp h-o-h to 3.42%, indicating pressure on NPLformation going forward. It kept micro loans flat h-o-h and loan mix fell 1.6ppt to 21%. Other points: (i) Tier-1 ratio rose 58bp h-o-h to 9.17%, mainly on the RMB20.5bn equityincrease from the conversion of CBs (66bp to Tier-1); (ii) Loan and deposit growth trendremained stable at 15% / 9% y-o-y in 2Q; (iii) Demand deposit mix fell 4.4ppt h-o-h to 30.5%;(iv) According to Caixin (30 July), Mr Zheng Wanchun, currently the VP of a SOE bank, isconfirmed to take Minsheng’s President position, which has been vacant for over half a year. Buy rating on Minsheng-H with a TP of HKD12.80 (from HKD13.20 on FX assumptionchange); upgrade Minsheng-A to Buy (from Hold) on valuation, RMB10.70 TP unchanged.

1H15 profit was RMB27.7bn, up 8% y-o-y, with 2Q15 +5% y-o-y and 1Q15 +11%. 1H15 comprised 54% of our FY15e profit (1H14 was 54% of FY14). What we liked: (i) Strong net interest income growth of 22% y-o-y in 1H15 is faster thanmost reported peers, driven by the fast rise in non-standard credit assets (rose by 7ppt h-ohto 33% of assets). Management said they are utilizing cheaper interbank liabilities tofund investment opportunities in 2Q (note 7D repo rate fell from 4.4% in 1Q to 2.5% in2Q), but expect the growth to slow down in 2H; (ii) Fee growth trended faster to 26% y-oyin 2Q from 4% in 1Q. Consultancy fees (+29% y-o-y in 1H) and credit guarantee fees(+62% y-o-y) are the key drivers. What we disliked: (i) Overdue loan ratio rose 112bp h-o-h to 3.37% (overdue <90Dloans +21bp to 1.44%), with the special mention loan ratio up 92bp h-o-h to 2.73%, bothfaster than peers, indicating larger pressure in NPL rise going forward; (ii) Demanddeposit mix fell 6.2ppt h-o-h to 41.2%. Other points of interest: (i) NPL ratio rose 5bp q-o-q to 1.29% in 2Q, slower than 1Q’s14bp rise. The write-off adjusted NPL ratio rose 64bp h-o-h to 1.74%. 1H credit costreached 160bp (+37bp y-o-y). Loan loss reserve ratio was stable at 2.85% (+3bp h-o-h)and NPL coverage was slightly down 6ppt to 221%; (ii) 1H cost income ratio slightly up22bp y-o-y to 29.0%; (iii) Net interest margin fell by 14bp q-o-q to 2.37% in 2Q (fasterthan 1bp fall in 1Q). Management sees 2H margin to trend mildly down as most repricingwere done in 2Q and loan-deposit spread has limited room for compression; (iv) Loan anddeposit growth was stable at 3% / 2% q-o-q in 2Q; (v) Core tier-1 ratio fell by 50bp q-o-qto 8.15%, due to the fast asset growth of 14% q-o-q in 2Q. Total tier-1 ratio rose by 3bp ho-h mainly due to the RMB12.9bn preference shares issuance which added 40bp. Maintain Buy rating on INDB with a TP of RMB23.90: We use a discounted GordonGrowth model to value INDB. See pg. 2 for valuation & risks.

1H15 NPAT was RMB37.3bn, up 1% y-o-y. NPAT growth in 2Q15 remained slow at1% y-o-y, the same rate as 1Q15. 1H15 NPAT tracked 58% of our FY15e. What we liked: (i) Solid fee income growth of 23% y-o-y in 1H15 (2Q15’s y-o-y was18%, 1Q15’s y-o-y was 29%), primarily driven by investment banking (49% y-o-y) andmanagement services (39% y-o-y). While capital markets have weakened, there should nolonger be drag on fee growth from a high base caused by tougher fee regulationsintroduced in Aug. 2014; (ii) 1H15’s cost-to-income ratio improved 1ppt y-o-y to 36%;(iii) Risk weighted assets to total assets ratio dropped 3ppt q-o-q to 63%. What we disliked: (i) Tier 1 ratio fell 44bp h-o-h (-35bp q-o-q) to 10.86% due to the2014 final dividend payment; (ii) 1H15 ROE remains relatively low at 15.6%, down 1.6%y-o-y; (iii) Demand deposit mix fell 0.9ppt q-o-q to 43.8%, driven by 2.9ppt drop incorporate demand deposit mix. Other points of interest: (i) 2Q15 credit costs rose 5bp q-o-q vs. 1Q15’s 16bp q-o-q rise;(ii) Provisioning coverage ratio was down 2ppt q-o-q to 170%. The loan loss reserve ratiorose 6bp q-o-q to 2.30%; 2Q15’s net interest margin (NIM) fell 4bp q-o-q to 2.25% vs. 1Q15’s 4bp q-o-q rise; (ii) NPL ratio rose 5bp q-o-q to 1.35% vs 1Q15’s 5bp rise. Thespecial mention loan ratio rose 8bp q-o-q to 3.24%. Overdue loans ratio rose 61bp h-o-hto 1.91%; (iii) Loans to micro, small and medium enterprises (MSME) rose 1% q-o-q, lessthan the 3% q-o-q rise in total loans, with its ratio to total loans down 1ppt q-o-q to 35%. Buy rating on BoCOM-H with a TP of HKD9.50 (cut 2% from HKD9.80 on a lowerCNYHKD assumption); upgrade BOCOM-A to Buy and maintain TP of RMB7.90. Weuse a discounted Gordon Growth model to value BoCOM. See pg. 2 for valuation & risks.

1H15 NPAT was RMB149bn, up 0.7% y-o-y, with 2Q15 flat y-o-y vs. 1Q15’s +1% y-oy. 1H15 comprised 54% of our FY15E NPAT (1H14 was 54% of FY14 NPAT). What we liked: (i) Net fee income growth of 12% y-o-y was stronger than 1Q15’s -1% yo-y. 1H15’s net fees rose 5% y-o-y, driven by personal wealth management and privatebanking services, up 88% y-o-y (benefiting from strong 1H15 capital markets) andcomprising 22% of fee income. Growth of corporate wealth management fees was solid at+31% y-o-y. While capital markets have weakened recently, ICBC no longer faces a largedrag on fee growth from a high base effect caused by tougher fee regulations introducedin Aug. 2014; (ii) Cost to income ratio fell 2ppt y-o-y in 2Q15 to 31% and 1ppt y-o-y in1H15 to 30%; (iii) Risk weighted assets to total assets ratio fell 3.2ppt h-o-h to 57.4%; (iv)A strong sector-leading Tier 1 ratio of 12.4%, up 21bp h-o-h, but down 11bp q-o-q due tothe payment of 2014’s final dividend. What we disliked: (i) Net interest margins (NIM) fell 14bp q-o-q to 2.46% in 2Q, morethan 1Q15’s 12bp q-o-q fall; (ii) While credit costs was flat q-o-q at 74bp, this seemed tobe at the expense of the provisioning coverage ratio, which fell 17ppt q-o-q to 163% andthe loan-loss-reserve (LLR) ratio, which fell 3bp q-o-q to 2.29%. Other points of interest: (i) the NPL ratio rose 12bp q-o-q to 1.40% in 2Q15, less than1Q15’s 16bp q-o-q; the h-o-h rise was thus 28bp. The h-o-h rise was driven by theWestern region (+44bp), Yangtze River Delta (+39bp) and Bohai Rim (+27bp). Addingback writeoffs, the adjusted NPL ratio was 1.67%, up 54bp h-o-h (2H14’s equivalent risewas 37bp h-o-h). The overdue loan ratio was up 57bp h-o-h, while the special mentionloan ratio was up 71bp h-o-h to 3.61%; (ii) Both loans and deposits were up 3% q-o-q; (ii)The demand deposit mix of total deposits was 47% in 2Q15, flat h-o-h. Buy rating on ICBC-H with lower TP of HKD9.50 (cut 3% from HKD9.80 on a lowerCNYHKD FX assumption); Maintain Buy with TP of RMB7.90 on ICBC-A: We use adiscounted Gordon Growth model to value ICBC. See pg. 2 for valuation & risks.

汇丰将2015及2016年之纯利预期分别下调20%及23%,以反映更低的煤销售量,并将其H股目标价由27元降至22.85元,维持“增持”评级。 根据神华全年的营运目标,公司目标是将其煤销售及自产煤量分别下调11%及10%,发电量则增加7%,资本开支则降至370亿元人民币(6.2583, 0.0038, 0.06%),对比去年为500亿元人民币。该行认为削减幅度进取,但证明了公司更着重於供应纪律,尽管销售降低将会影响纯利,惟在行业下行周期,减产及降低资本开支以保护利润率及现金流是理智的选择,而其先行减产,可能对行业有示范作用,令供过於求的市场更快回到平衡。

The company announced it intended to issue 1.38bn newA-shares at a price not less than RMB7.2 per share; at thatprice the total new issue size would be circa RMB9.9bn Share trading will resume on 17 December for both A- andH-shares We have a Neutral rating on the H-share (TP HKD9.20) andan Underweight rating on the A-share (TP RMB7.40) Potential 10% EPS dilution – After market closed today, the company announced moredetails regarding the proposed A-share private placement. Share trading will resume inboth the A- and H-shares tomorrow. The company will issue 1,380m new A-shares whichcould lead to 10% EPS dilution. The placement price will be no less than RMB7.2 pershare and the placement could raise up to Rmb9.936bn. The placement is subject toregulatory approval and an H-shareholder EGM is expected to be held on 5 February2015. The parent company, CRCC Group (unlisted), does not intend to participate in theplacement so its shareholding could be diluted from 61.3% to 55.2%. The use of proceedswill be existing Chinese BT (build-transfer)/BOT (build-operate-transfer) projects forsubways and expressways, repayment of bank loans and for general working capital. Catch 22 situation – The general feedback from A-share investors is that the proposedplacement could help the company to improve its balance sheet and help with future newcontract growth. Since October 2014, CRCC’s H-share price has strengthened by about30% and the A-share price by about 80%. We think this was driven by the expectationthat the company could benefit from government’s support for domestic infrastructuredevelopment in order to help economic growth, and the government policy to encouragethe export of infrastructure development expertise to overseas countries. While we haveconcerns over the profitability of the overseas construction projects, we think the potentialnewsflow on overseas projects may see the share price momentum remain positive in theshort-to-medium term.