Morning Notes China/Hong Kong

Sector Outlook. China Property Sector. Untightening.

We expect more stable policy environment, and hence better growth visibilityfor listed developers after the Third Plenary Meeting. Trading at an average6.3x FY14 PE despite an average 25% net profit growth, the sector looks duefor a re-rating and we reiterate OVERWEIGHT. Our top picks: Country Gardenfor its sustainable high growth and COLI for potentially earnings accretiveasset injection.

ASM Pacific (522 HK - BUY). A Mixed Bag.

3Q13 results were a mixed bag. Share gains in semi and SMT equipmentallay concerns of structural loss in competitiveness. In semi equipment,ASM’s sales declines was -6% YoY (1Q-3Q13) vs -7% for BESI, -41% for K&S.

In SMT, ASM’s sales grew 5% YoY in 1Q-3Q13 vs Fuji’s 32% YoY drop.

However, margins are faring worse, notably in SMT where Japanese rivals areaided by a weak yen. We cut our margin forecasts to reflect this. The stocktrading at low end of P/BV range appears to have priced in the negatives.

Steps ASM is taking –a more flexible cost structure, leadership in nextgeneration technology –have us keeping BUY.