STRATEGY:PRIVATIZATION IDEAS FROM A STOCK-CONNECT PERSPECTIVE

　　More cases of privatization despite policy risks. Although the China Securities Regulatory Commission (CSRC) has already indicatedthat it is studying the potential impact of the increasing number of overseas listed Chinese companies planning to retu rn to theA-share market, we continue to see new cases of proposed privatization of Chinese companies in Hong Kong. Trading of Peak Sport(1968.HK) was suspended yesterday. The Company is planning to delist from the Hong Kong market and is likely to return to the Asharemarket, according to press reports. Peak Sport is trading at 0.8x PBR, 9.2x PER and has a 7.8% dividend yield, which fits thecommon criteria for privatization.

　　Potential privatization targets: southbound investors are accumulating H-shares. Although it is always difficult to predict thenext privatization target, we believe investors should pay attention to stocks heavily owned by southbound investors of the Shanghai-Hong Kong Stock Connect. Daily trading volume of southbound investors may be small, but the investor profiles of some H-shareshave changed significantly on an accumulated basis. Among the 300-plus eligible stocks for southbound investors, there are 11 companiesin which southbound investors own more than 15% of the H-share market cap (not full market cap), and in six of these, southboundinvestors own more than 20% of the H-share market cap.

　　Common characteristics: deep discount to A-shares. All of these 11 companies (except Digital China (0861.HK), which is a redchip company) have A-shares, and their H-shares are trading a discount of 38%-87% to their A-share counterparts.