More resilient growth during macro slow down Yanghe is the largest brand in premium liquor (Rmb300-600/bottle) in China. Near term, we expect its growth to be more resilient than other liquor brands, helped by its “value for money” nature, flat channels and rapid market response. Yanghe exhibited its resilience in the last downcycle in 2013-14. Long term, we expect it to consolidate the premium liquor sector through increased penetration and improved product mix. Risk/reward is attractive at 15x 2019E P/E with a 22% earnings CAGR over FY18-20E. Initiate Buy. Premium liquor sector: fast-growing sales and improving consolidation The premium segment accounted for 9% of liquor volume and 20% of liquor sales in 2017. Premium liquor has good branding and reasonable pricing catered to the social and business demand. With middle-class consumers trading up, the premium segment is expected to have the highest growth among all categories in Baijiu, and estimated to have a 16% sales CAGR in 2018-20 by Euromonitor. Meanwhile, in view of consumers’ increased brand awareness, we expect leading brands to gain market share in the segment. Yanghe: well positioned to scale up in the premium sector Yanghe takes a 30% market share by volume in the premium segment and we expect it to continue to consolidate the segment. Compared to other premium peers, Yanghe has a wider distribution channel, better brand awareness and more diversified products. Management also has high incentives with a significant interest in the company. We expect Yanghe to gain market share through increased penetration and improved product mix in the long term. Initiating with Buy; Target price RMB150 Yanghe’s shares have fallen 30% (MSCI China staples index: -23%) since June due to weak market sentiment, but we believe the story of market share gains in the premium segment is intact. The stock trades at 15x 2019E P/E with a 22% earnings CAGR in 2018-20E. We initiate on Yanghe with a Buy rating. Our target price of RMB150 is based on DCF (9.5% WACC and 2% terminal growth). Downside risk: macro slowdown, channel destocking of Moutai and food safety. (See pages 17 & 18).

New duty-free concession rate of 42.5% Shanghai Airport announced the results of the duty-free concession auction on 21 Jul. The winning bid was from Sunrise Duty Free Group (Shanghai), an associate of CITS and the current duty-free operator of Pudong Airport. Sunrise (Shanghai) offered a 42.5% concession rate and total guaranteed revenue of RMB41bn over the expected contract term from 1 Jan 2019 to 31 Dec 2025. The operating areas include Pudong Airport T1, T2 and the new satellite concourse, which is expected to open mid-2019. The new contract terms are expected to come into effect from 1 Jan 2019 for T2, from 1 Jan 2022 for T1 and from the commencement of operations in mid-2019 for the satellite concourse. Shanghai Airport and Sunrise (Shanghai) are finalizing further details of the contract. Adjusted forecasts to factor in traffic growth and concession rate changes We have increased our 2018E NP forecast by 7% to take into account the better-than-expected traffic growth YTD (our 2018 forecast now assumes 6% pax traffic growth compared to 5.4% previously) and cut our 2019-2020E NP forecasts by 10% due to the lower concession rate assumption of 38%, compared to our previous assumption of 45%. The adjusted NP forecasts for 2018-2020E are RMB4,453m, RMB5,549m, and RMB5,937m respectively. We cut our TP by 6% to RMB70; maintaining Buy. 1H18 results expected on 25 Aug In 1Q18, Shanghai Airport reported NP of RMB 1,017m up 28.6% yoy, supported by a 5.5% yoy increase on total passenger traffic and the new airport fee standards. For the first half of 2018, total passenger traffic was 36.69m (up 7.5% yoy) and international pax traffic growth was 12.6% yoy. We are forecasting RMB 2,064m NP for 1H18, representing 22% yoy growth.

Near-term risks should have been priced in In-line 2Q18 results Hikvision reported in-line 2Q18 results and expected 1-3Q18 profit to grow in the same range of 15-35% YoY. Despite a continued negative impact from the Chinese government’s deleveraging policy and political/economic uncertainties in overseas markets, we believe Hikvision’s short-term softness is temporary and order momentum could pick up again, with uncertainties easing over time and a healthier industry dynamic in the domestic market. Maintaining Buy. In-line 2Q18 results Hikvision reported 2Q18 EPS and operating profit of CNY0.25 (+28% QoQ, +29% YoY) and CNY2.0bn (-3% QoQ, +1%YoY), on sales of CNY11.5bn (+23% QoQ, +22% YoY). Sales/gross profit were broadly in line with DB/consensus estimates, as the market has already factored in the political impacts. However, expenses rose in 2Q18, due to 1) rising recruitment fees for sales people and R&D engineers, 2) higher exhibition fees and 3) one-time expense for the third phase of industrial park opening in Hangzhou. With help from a non-op gain, net profit slightly missed DBe by 4%. Slower 1-3Q18 guidance but long-term outlook remains intact Hikvision expects 1-3Q18 net profit to rise 15%-35% YoY, implying 3Q18 net profit of CNY2.9bn-4.2bn, or a midpoint of CNY3.5bn (+24% YoY). Although a solid figure, this guidance trails Bloomberg consensus (CNY3.8bn) by 8%, due to 1) the economic/political uncertainties in overseas markets, 2) the continual impact of the Chinese government’s deleveraging policy, and 3) the small public security projects being squeezed by the nationwide projects in the short run. Aside from this, Hikvision remains positive on its 2018 and long-term outlook, noting: 1) the innovation business posted 80% YoY growth in 1H18 and the high growth will continue; 2) a rising contribution from the Sky Net/Sharp Eyes projects as Hikvision is the key beneficiary of the Chinese government’s efforts to build a nationwide security surveillance system; and 3) its rising AI system integration can drive long-term ASP upside.

Speeding up on hotel upgrades - Buy RevPAR and earnings growth should significantly improve in 2019E We reiterate Buy on BTG and raise our target price by 9% on a like-for-like basis to RMB32. In our view, BTG’s HomeInns lagged behind China Lodging (HTHT) on 1) upgrading its economy hotels and 2) opening more mid-scale hotels in 2017, which will likely result to slower RevPAR growth in 2018. This is reflected in its valuation discount to HTHT, in our view. However, a few factors have not been factored in: 1) HomeInns should speed up to upgrade 20-25% of its LO hotels in 2018; 2) HomeInns has the highest percentage of LO hotels - thus, we see high operating leverage in 2019 after the upgrade and 3) 50% of the newly opened hotels in 2018 are set to be mid-high-scale hotels. RevPAR and earnings growth should significantly improve in 2019E We increase our 2019 earnings forecast by 13%. We estimate that HomeInns’ upgraded economy hotels only accounted for 3-5% of its total hotels, and mid-high-scale hotels accounted for 17.4%. This is much lower than HTHT’s numbers (38% of economy hotels have been upgraded and mid-high scale hotels accounted for 32% of the total). BTG guided to upgrade 20-25% of its economy hotels (of which 200 hotels are to be leased and owned hotels). In addition, of the 450-500 new hotels set to open in 2018, HomeInns aim to open at least 50% for mid-high-scale hotels. Thus, we believe that RevPAR growth and operating leverage will lead to strong earnings growth in 2019E. Valuation and risks We raise our target price to RMB38 and adjust it down to RMB32 in order to reflect the recent 12-for-10 stock split. Our primary valuation method remains a DCF (8.2% WACC and 3% TGR, unchanged). BTG Hotels trades at only 9x EV/EBITDA, much lower than HTHT (20x 2019E EV/EBITDA). Our target price translates into a target EV/EBITDA of 12x. We believe that the valuation gap between the two companies is widening due to accelerating RevPAR growth for HTHT, based on its first-mover advantage in upgrading its hotels. Yet, through the tailwind of hotel upgrades, HomeInns should also see significant improvement in RevPAR growth - which should lead to a re-rating, in our view. Downside risks include: 1) lower tourism demand, 2) a stronger RMB leading to an increase in outbound travel and 3) government policy changes.

Robust growth in 2017, bottom-line beat consensus and our number - Buy We reiterate Buy on Focus Media (FM) and raise our PT by 13.7% to RMB18.2. FM’s 2017 bottom-line beat our number by 10% and consensus by 3%, basedon its preliminary results. We have seen more traditional consumer andeducation companies investing more via FM’s ad channels. In addition, FM hasoperating leverage as its cost of rent for each screen/post frame is fixed. 2018 outlook: we expect robust growth to continue on further penetration We forecast 23% top-line and 25% bottom-line growth in 2018. We havenoticed internet companies focusing more on lower-tier cities as theypenetrate China. As a result, FM’s management said that its internet clients arerequesting screen/post frame penetration in lower-tier cities. We expect postframes to increase to 1.6m and LCD screens to increase to 300,000, up c.20%yoy. We raise our 2018/2019 earnings forecasts by 11% and 12% to reflect this. Internet, FMCG, education and Baijiu seeing high growthInternet/FMCG clients such as JD, Ali, Baidu and P&G contributed c. 50% ofFM’s ad revenue and their growth remains robust as they are paying moreattention to the inner building and cinema advertisement channels. Ourchannel checks also found strong incremental growth from K12 education andBaijiu companies. For example, mgmt said that Baijiu’s advertisement revenuewas only RMB2-3m in 2016, but it increased 10x to RMB300m in 2017 and islikely to double in 2018E. In education, K12 after-school tutoring companies inparticular are spending more on advertising (for both online and offline classes);these include TAL, EDU, DADA abc (哒哒英语) and Zhangmen (掌门一对一). Valuation and risksOur main valuation method is DCF (9.8% WACC, 3% TGR). FM trades at an excashPER of 24x (it had RMB3.8bn net cash as of 9M17) on our 2018E earningsvs. its 26% three-year earnings CAGR. We view risk-reward as attractive. FMpaid 80% of its earnings as dividend and mgmt guides for largely unchangedpayout for FY2017. Risks: 1) more theaters start their own advertisingbusinesses; 2) threats from other advertising modes; 3) a slowdown in China’sdownstream movie industry; 4) a slowdown in internet/FMCG sector growth.

First six days traffic increased by 15.6% yoy during CNY2018. According to Sanyatour.com (Sanya's official tourism website), during theopening six days of the 2018 Chinese New Year (CNY, Feb15-21), traffic of Sanya(airport+train station) increased by 15.6% yoy to 0.78 million. In addition, total 8scenic spots attracts tourists traffic of 0.97 million (vs. 0.9 million in CNY2017),an increase of 7.9% yoy. Hotels in Sanya recorded occupancy rate of c.80% during CNY2018. According to Sanyatour.com, hotels in Sanya recorded an average occupancy rateof 79.7% during CNY2018, implying a yoy increase of c. 2 ppt (vs. 77.94% duringCNY 2017). To breakdown by areas: Hotels in Yalong Bay enjoyed occupancy rate of 81.1% in CNY2018 (vs. 80.94% in CNY2017). Hotels in Haitang Bay enjoyed occupancy rate of 84.2% in CNY2018 (vs.78.18% in CNY2017). Hotels in Sanya Bay enjoyed occupancy rate of 79.5% in CNY2018. Hotels in Dadonghai enjoyed occupancy rate of 78.1% in CNY2018. Hotels in Sanya Downtown enjoyed occupancy rate of 79.1% in CNY2018. Significant hotel occupancy increase in Haitang Bay benefits CITS' duty freestore Hotels in Haitang Bay recorded over 6 ppt yoy increase of occupancy rate duringCNY2018. We believe this is an clear indication of strong performance of dutyfree business. As we mentioned previously, visitors to Haitang Bay have very fewoptions for any night life, except to stay in the hotel resorts. As CITS' DFS is theonly shopping mall in Haitang Bay, we believe most overnight visitors will visitthe mall for shopping/entertainment in the evening.

Sales/NP in line with DB/consensus for 2017 Yonghui announced its 2017 preliminary results after market closed today. NPgrew by 45.1% to RMB1.8bn, which is in line with both DBe/market consensus. NP margin improved from 2.6% in 2016 to 3.1%. Sales grew 18.61% to RMB58bn,also in line with DB forecast and market consensus. For 4Q17, sales grew by 24% while NP declined by 4% in 4Q17, which is 4%/8%lower than our expectation. This is mainly due to higher than expected opex ratiowhich we believe is due to more stores opened in this period. NP growth is mainly attributed to 1) GPM improvement resulting from enhancedsupply chain management and lower scrap rate for fresh products; 2) operatingleverage helped by its effective “partnership structure”. Among the regions,Beijing, East China and Sichuan regions outperformed in terms of store efficiencyand profitability; 3) interest income growth. In our view, sales growth was mainly driven by store opening expansion andSSSg. According to its website, it net opened 141 stores in 2017 and the totalno. of stores reached 597 as of end-2017. This is ahead of its 80-100 guidance. It also saw SSSg acceleration from 2% in 9M17 to 3% in 4Q17 (DBe), despitethe late CNY this year, based on our meeting with management before its resultsblack out period. Going forward, we believe Yonghui is able to keep the similar store expansionpace in 2018 as it has signed contract with another 170+ stores based on itswebsite. Apart from its traditional Red Label/Green Label supermarkets, it mayopen more Super Species and Yonghui Life stores with Tencent's partnership. To recap, Tencent announced it would acquire 15% stake of Super Species andYonghui Life on 16 Dec 2017. We believe the next catalyst for the company lies on the future businessdevelopment between Yonghui, its strategic partners, like Tencent (5% in YH) onthe integrating its investments in Hongqi ( YH invested 21% in the company) andCarrefour China (stake not disclosed). Management announced on 25 Jan that itmight incurred more cost and investment short term. We will try to speak with management after the full results were released in theend of Mar and review our model.

Wanda Film announced that Alibaba Group Holdings Ltd (BABA.N) and CulturalInvestment Holdings Ltd (600715.SS) jointly invested a total of RMB7.8bn (for a12.77% stake ) in Wanda Film Holding. Details are as follows:A total stake of 12.77% was acquired at RMB51.96 per share. Alibaba will invest RMB4.68bn (for a 7.66% stake ) to become the secondlargestshareholder in Wanda Film. Cultural Investment will invest RMB3.12bn (for a 5.11% stake) to becomethe third-largest shareholder in Wanda Film. Wanda Group is still the controlling shareholder of Wanda Film, holding48.09% of total shares. Wanda Film was suspended from July 2017, at a closing price ofRMB52.04. Theaters of Culture Investment will join Wanda's theater chain. Wanda will delegate pre-movie advertisement of all the theaters toCulture Investment. Alibaba and Wanda will cooperate on movie distribution/investment/online ticketing platform/movie derivative products.

Core earnings growth range in line with DBe We reiterate our BUY rating on BTG and price target of RMB 35.0 unchanged. BTG announced its preliminary forecasting 2017 result yesterday. BTG guided thatits core earnings growth will be in the range of 289-323% yoy, which is in-linewith our estimates. (We estimate core earnings of RMB 613 million, yoy growthof 322%). Growth driven by hotel recovery and tourist site in Sanya Hotel: BTG guided that both occupancy rate and ADR have increased in2017. This is the key driver for earnings growth of hotel segment. Tourist site: BTG's Nanshan Park in Sanya saw significant visitors growthyoy, which has driven the profit growth. Integration of HomeInns makes the yoy comparison base different. To recap on comparison base difference: HomeInns was consolidated in April2016. As a result, from a comparison perspective, 2016 HomeInns only had 8months of operation while 2017 had full year operation. In addition, from April toSeptember, 2016, BTG only controlled 66.1% stake of HomeInns and BTG furtherincreased its stake to 100% after October 2016. DB's take, we have seen accelerated revpar growth and new hotel additionsWe have seen improving revpar growth for BTG. In our DB Access Chinaconference, management disclosed that blended RevPAR yoy growth acceleratedduring 4Q17 (RevPAR yoy growth: Dec > Nov >Oct). Management was confidentabout fulfilling their target of adding 400-450 hotels in 2017 (guided at thebeginning of 2017) and also guided that the company intends to add c.500 hotelsevery year over the next 4-5 years. The company guided that c.40% of additionswill be mid-scale hotels. They expect there will be c.1,000 mid-scale hotels by theend of 2019, which accounts for c.20% of total hotels. We will have more updateand review our model once the full year result has been announced.

Robust RevPAR growth in 4Q17 driven by ADR increase Jinjiang-A reported its Dec-2017 monthly operational data. Domestic hotelsRevPAR growth in 4Q17 continued to be robust. Jinjiang and Plateno series bothenjoyed RevPAR growth of 6-8% yoy in 4Q17. Vienna's blended RevPAR growthseems flattish. In our view, this is mainly due to its fast expansion (c.40% of totalVienna hotels are newly-added, which are still in ramp-up period). To breakdown: RevPAR of Jinjiang series increased by 4.3%/5.7%/6.1% in Oct/Nov/Dec,mainly driven by ADR growth of 4.3%/2.7%/3.0%. RevPAR of Plateno series increased by 9.1%/7.9%/6.7% in Oct/Nov/Dec,mainly driven by ADR growth of 14.6%/12.9%/11.9%. RevPAR of Vienna series increased by -1.1%/2.0%/1.7% in Oct/Nov/Dec,mainly driven by ADR growth of 1.4%/1.2%/2.2%. Midscale hotels expansion driven by Vienna Jinjiang added 191 hotels in 4Q17 to reach a total hotel number of 6,694 in 2017-End (vs. 6,503 in 9M17). Jinjiang is upgrading its products aggressively to midto-upscale hotels, mainly through the Vienna brand (99 hotels added in 4Q17),just like China Lodging's strategy for more mid-to-upscale hotels and the Hantingupgrade. Management had guided previously that c.15% of hotels are midscale. In addition, 50-60% of the hotel portfolio pipelines are midscale. The Vienna brandled the midscale hotel market expansion with c.300 hotels added in 2017 to reach754 hotels as of 2017-End (vs. 464 hotels in 2016-End).

2017 net profit up 78%-88%, but trailing the expectation of ~100% growth… Sunway released 2017 result preview and expects net profit to reachRMB950mn to RMB1bn (up 79% YoY to 88% YoY). Despite being a stellarresult, this figure missed DBe/market expectation (of 100% growth) by ~10%. …due to order/ASP cuts from some clients, forex, finance costs and others Sunway attribute the miss to 1) order cuts and ASP erosion from some clients(we expect to Oppo, Vivo and tier-two Chinese OEMs) leading to slower toplinegrowth and margin decline in 4Q17, 2) the surge in forex loss (due to RMBappreciation against USD), and interest expense (to finance the Changzhouplants), and 3) RMB100mn+ YoY increase in opex (due to aggressive businessexpansion). Our prior Sunway earnings model had properly factored in theincrease in opex (the third factor), but we underestimated the negative impactsfrom first two factors. Positive long-term outlook unchanged We remain positive on Sunway, as the progress of winning multiple iPhonecomponent projects stays on track, including 1) Lightning connectors (as the3rd supplier in 2018), 2) VCM cases, and dual cam supporting frame (as the keysupplier), and 3) market share gains in EMI shielding cases. Also, it could likelygain share in Samsung’s wireless charging module in 2018 too. Valuation and investment risks We trim 2017/18/19 EPS forecasts by 10%/4%/4% to price in 4Q17 non-op lossand softer outlook for Chinese clients, and trim TP from RMB52 to RMB50. Ournew TP is still based on 33.5x 2018 PER, or 0.8x PEG (in line with regionalpeers). Risks: market share loss, slow spec upgrade, and iPhone weakness.

Net profit up 58% yoy in 2017; in line with market expectation Kweichow Moutai issued a profit alert on 31Jan 2018and announced that itsnet profit increased 58% yoy to Rmb26.4bn in 2017. On quarterly basis, the 4Q17profit grew 51% yoy to Rmb6.4bn. The net profit growth was driven by: 1) "FeitianMoutai" sales volume, increased 34% yoy to 31,000tons; 2) 10% ASP increaseof Moutai liquor due to increasing sales portion of super premium products; and3) Lower SG&A/sales ratio due to improved operating efficiency and operatingleverage. The result was in line with its operation update announcement in Dec 2017ofa 58% yoy increase in profit before tax. It is also in line with our forecast atRmb26.2bn in 2017and market's consensus (Wind) at Rmb25.4bn. Long-term growth potential remains intact We think the strong net profit growth is not a surprise to the market. We maintainBuy on the stock for its strong branding and increasing channel control; yet inthe near-term, the potential over supply risk might assert pressure on its retailprice and market sentiments. We maintain our target price at Rmb790based onDCF model (factoring in 9.5% WACC and a 2% terminal growth rate). Downsiderisks: shorter-than-expected restocking cycle; government policy changes; foodsafety incidents.

CZMZ announced its 2017 preliminary result with headline numbers on 23 Jan2018. The company delivered RMB3.5bn revenue and RMB544mn NPAT in 2017,or 27.5% and 11.6% increase on a year-over-year basis. The preliminary NPATwas c.8% below DBe, or c.9% lower than A-share consensus due to subpar yieldof wet processed separator capacity expansion commenced in 3Q17, given stablebusiness performance of the company's other 2 business units - traditional plasticpipes and BOPA film. In the mid-term, we believe the wet processed separatorproduction lines with designed capacity of 105mn sqm should be able to ramp upand provide margin support for the company. CZMZ is scheduled to release thefinal 2017 results on 23 Mar 2018, and we look forward to having more detailsthen. Maintain Buy.

FY17net profit +c.200% YoY, beating expectations WHC released prelim FY17profit guidance with net profit growth of c.200% YoY.This beat DBe/ consensus estimates by 26% / 11%. The strong results were drivenby: 1) a stronger PU performance in both ASP and volume; 2) higher non-recurringprofit from government subsidies. Looking ahead, we expect strong 1Q18E on aYoY basis with: 1) a robust MDI spread due to tight supply-demand dynamics andhigh entry barriers; 2) strong performances from petrochemical and functionalmaterials. Therefore, we reiterate our Buy rating on the strong outlook ahead. Thebiggest risks would relate to potential restructuring / M&A with parentco assets.The stock is under suspension pending a restructuring announcement. Strong PU / Functional material outlook The robust MDI spread was driven by a domestic environmental scrutiny ledWHC polymeric MDI ASP rise of 92% yoy in 2017to RMB26,717/ton. Lookinginto 2018, we expect MDI average margin will continue to grow yoy due to alow base in 1H17; conversely, we expect the global supply demand balance willbe flat as the Sandra plant started operation in 3Q17to offset strong demandgrowth globally. For the polycarbonate (PC) segment, where China relies heavilyon imports, the outlook remains strong; WHC's new PC plant phase 1with 70ktpacapacity started on January 23, making WHC the no#2PC producer in China witha total capacity of 200ktpa. We continue to expect functional material segment(including PC) revenue to achieve a 39% CAGR in 2018-20E. Valuation and risks We base our RMB47.5target price on 8.0x EV/EBITDA by using a GordonGrowth Model, which is at a 15% discount to its historical average of 9.4x.Before suspension, the stock was at 6.1x forward EV/EBITDA, representing a 35%discount to the historical average. Key risks: 1) unexpected corporate actions,including restructuring and M&A; 2) unplanned maintenance turnarounds; 3)fluctuations in oil and chemical product prices; and 3) lower-than-expected GDPgrowth impacting demand growth.

FY17 preliminary results beat consensus and DB estimates. Baosteel announced its 2017 full year preliminary results after market close onJanuary 25. The company estimated 2017 full year NPAT to be from RMB19.1to 19.8bn. This beats both DB and Bloomberg consensus, achieving c. 135%FY17 DBe and 117% Bloomberg 2017 full year estimates. The preliminaryresults should be viewed positively by the market and potentially trigger streetanalysts to further upgrade their estimates into 2018. Supply-side structural reform and Baowu synergy drove profit growth. The supply-side structural reform in 2017 significantly improved the supply anddemand dynamics of steel sector in China. The synergy from Baowu mergerand Zhanjiang project also increased the company’s productions and profitswith strong cost advantage compared to industry peers. We believe that themerger synergies will likely continuously be realised and are likely to lead tostrong profitability of Baosteel in coming years. Positive supply and demand dynamics, maintain Buy. Based on the preliminary results, the implied 2017 ROAE is c.12-13%,increased by c. 6 percentage points from last year. We believe furtherimprovement into 2018 is still highly likely due to the impacts from ChinaSupply Side Reform and synergies from the Baowu merger. That makesBaosteel's current valuation at 1.1x 2018DBe BVPS not demanding in our view. Meanwhile, from recent Baosteel's communications with investors, we don'trule out the possibility of cash dividend pay-out increase resulting from thecompany's strong free cash flow yield. Overall, we deem Baosteel as the realalpha of Chinese steel sector. Buy reiterated.