麦格理报告：中国宏观策略：刺激之路进行中 Road to Stimulus A stealth Level 3 stimulus is underway（31P）

Please refer to page 29 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 6 September 2019 China/Hong Kong/Greater China EQUITIES Top beneficiaries of Level 3 stimulus Source: Bloomberg, Macquarie Research, Sep 2019 Inside Materials – Strong Cement Shipment in GD 2 Machinery – strong sales pick up in Aug/Sept 6 Gas distribution- infra hike boost demand 8 Power-RE installation to rush from 4Q19 10 Oil & Gas – boosting lower tier cities oil infra 12 China Banks – Consumer Credit a beneficiary 15 Property – benefits from spill-over liquidity 16 China Resources Cement (1313 HK) 20 Analysts Macquarie Capital Limited David Ching, CFA +852 3922 1823 david.ching@macquarie.com Eric Zong +852 3922 4749 eric.zong@macquarie.com Sean Hu +852 3922 3571 sean.hu@macquarie.com Aditya Suresh, CFA +852 3922 1265 aditya.suresh@macquarie.com Patrick Dai +86 21 2412 9080 patrick.dai@macquarie.com Kelvin Tam, CFA +852 3922 1181 kelvin.tam@macquarie.com David Ng, CFA +852 3922 1291 david.ng@macquarie.com Mark Yao +852 3922 4684 mark.yao@macquarie.com Kerry Cheng +86 21 2412 9025 kerry.cheng@macquarie.com Macquarie Capital Limited, Taiwan Securities Branch Dexter Hsu +886 2 2734 7530 dexter.hsu@macquarie.com Road to Stimulus A stealth Level 3 stimulus is underway Key points  Macquarie’s base case view is for China’s Level 3 stimulus to start in the next two quarters.  However, our latest channel checks across several industries suggest a stealth Level 3 stimulus may already be underway.  We see positive signals across the basic materials, machinery, utilities, and energy sectors. Top buy ideas: CRC, Hengli, COSL, CR Gas, Longyuan Channel checks suggest a Stealth Level 3 Stimulus is underway Using Macquarie’s China economist stimulus framework, we believe a Level 3 stimulus (major infra stimulus/ liquidity loosening) is likely within the next two quarters. However, our latest channel checks suggest a stealth Level 3 stimulus may already be underway. This report lists several bottom-up indicators across different industries, which we believe are leading signals. We have noted a stronger-than-usual pickup in cement shipment, excavator sales, power/ gas consumption, boosting oil retail infra in lower-tier cities, etc. We believe the focus is on infra projects (rather than property as in previous years) and we see CRC, Hengli, COSL, CR Gas and Longyuan as key beneficiaries. Basic materials: Strong pick-up in cement shipment in Guangdong We see weekly cement shipment data as a good leading indicator of infra demand pick-up. The strongest growth YTD YoY is in regions with key infra projects, e.g., Beijing-Tianjin-Hebei (BTH) with the kick-off of Xiongan and Shaanxi. In the past two weeks, shipments grew 20% in Guangdong – where Greater Bay Area (GBA) infra projects kicked off in May – and the key beneficiary is CR Cement, which we now add to our Marquee BUY list. Machinery: Meaningful pick-up in excavator sales in Aug/Sept Jiangsu Hengli’s excavator cylinder plant is running at full utilisation again, with production volume up 35% MoM in Aug and is guided for +7% MoM in Sept. Pick-up in demand has been from replacements as well as positive impact of the relaxation of the local special govt bound issuance in June. Similarly, both Sany Heavy and Zoomlion expect a pick-up in mobile crane sales after declines in June and July. Jiangsu Hengli, Sany Heavy and Zoomlion are key beneficiaries. Gas distribution: Infra hike to drive demand and margin recovery China gas demand was strong in Jul-19 (+12% YoY vs 8% in Jun). We believe distributors’ gas demand will accelerate in 2H19/1H20 driven by infra demand pick-up with 51-76% exposure to C&I users. More gas-related facility investment in 2H19 will help ease supply shortage and margin pressure. Top pick: CR Gas. Power: RE installation rush to stimulate downstream demand We expect the Renewable Energy (RE) installation, esp. wind/solar, to accelerate from 4Q19 which should stimulate material/ machinery demand. Wind/solar developer and equipment providers will benefit. Prefer Longyuan and Goldwind. Oil & gas: Pick-up in oil retail infra in lower-tier cities We note a policy boost to oil retail infra in lower-tier cities via upstream capex and accelerated formation of national pipeline company, after which we expect a resumption in midstream gas capex. Despite a drop in vehicle sales, diesel demand is strong due to freight activity. Prefer COSL and PetroChina. Banks: Loosened liquidity to benefit infra-leveraged names most We believe banks will benefit less vs. infra from L3 stimulus yet consumer credit could benefit from economic recovery. Our top pick is China CITIC Bank. Property: Benefits from spill-over liquidity, gradual stabilisation We believe the policy stance of the central govt remains “property is not for short-term stimulus”. Yet valuations could rebound if liquidity spills over t