Hamon Investment Group

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Hamon Investment Group
Excel China Fund
June 2006
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Contents

• Introduction Hamon Profile
• Section I Investment Philosophy Style
• Section II Current Views
• Section III Themes Ideas
• Section IV Fund Profile Performance

HAMON INVESTMENT GROUP
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Hamon Investment Group - Profile

• Established in 1989 and based in Hong Kong
• Over US700 million Assets Under Management
• Majority-owned by Management Mellon Financial
  Corporation is a minority stakeholder
• Managing Asian equities for over 16 years
  specialist focus on Asia including Japan and
  India
• 16 team members dedicated to managing and
  servicing portfolios in Asia
• Regulated by the SFC in Hong Kong and SEC in the
  United States

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Investment Team
Bernard To CFA
Hugh Simon
Raymond Ip CFA
Adrian Au CFA
Alex So ASCPA/ MBA
Nina Wu CFA
Ann Peng
Financial Analyst
Chief Financial Officer
Fund Manager
Manager, Fund Marketing Investor Relations
Fund Manager
Fund Manager
Chief Executive
N Asia
Overall
Greater China
Fund marketing, Client Servicing
Research stock selection
Finance Operations
Research stock selection
Responsibility
5 years
Experience in Asian Markets
3 years
10 years
Over 20 years
4 years
12 years
3 years
Experience Pre-Hamon
Hua An Fund Management, China
IBJ, Daiwa
Merrill Lynch, Morgan Stanley
Lazard, Schroders
Bank of America, ABN
Morgan Stanley, Invesco
Mount Lucas
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(No Transcript)
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Investment Process - Criteria

• Research and Stock Selection
• Fundamental research done by Fund Managers
• Review business prospects, products services
• Assess management quality and track record
• Valuation methodology
• Balance sheet (P/B), analyzing cash flow
• Relationship to PBR and ROE
• Earnings (ROE PER)
• Stock price drivers
• Catalysts to share price moves
• Historical price and volume movements

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SECTION II
Current Views
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Recent Development Market View

• Government has raised both interest rate by 27
  bps on April 28 and reserve requirement ratio by
  50 bps on June 16. Government also targets
  property market to dampen surplus liquidity and
  eventually to alleviate appreciation pressure on
  RMB
• As of June 22, the Hong Kong Hang Seng Index and
  H-share Index registered 8.5 and 15.3 decline
  respectively from the peaks in May following the
  correction in global equity markets
• GDP growth remained robust at 10.3 in 1Q06 with
  benign inflation of 1.4 (peak 5.3 in 2004). But
  the government is targeting to dampen surplus
  liquidity in the economy to avoid the repeat of
  overheating in 2004.
• Strong consumption growth together with
  infrastructure development in inland areas and
  prior to Beijings Olympics and Shanghais Expo
  to maintain 7-8 GDP growth for next three years
• Valuation not stretched and dips provide buying
  opportunity

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Correction leading back to attractive valuation
Hang Sang H-share ROE
Hang Sang H-share Trailing PER
Current PE 12.3X
Source UBS Estimates
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Trend of Industrialization Urbanization Remain
Intact

• 4th Largest and Fastest growing
• Economy in the world, achieved
• through a Centrally Planned Economy

• The Biggest Economic Transformation
• since the Industrial Revolution

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Changing Chinese Investment Landscape

• The Chinese Government is targeting
• for more balanced and productive
• economic growth

• Youth less interested in political debate
• than in search of better lifestyles

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Establishing High Level Diplomatic Links

• Capital Markets are still underdeveloped
• but with great potential
• Exchange Rate Flexibility
• Domestic Stock Market Reform
• Financial Institutions going Public

• Next Super Nation with unique links
• to the Middle East, Russia and Africa
• in addition to the West

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High Focus on Infrastructure Rural Development

• Congress to implement policies to
• improve rural conditions including
• tax and land reforms

• Infrastructure Environmental Protection
• have been the focus of the 11th Party
• Congress

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GDP Steadily Growing
GDP growth per annum since 1989
GDP growth in US bn per annum since 1989
Source World Bank Database
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China Market Driven By Different Regions
China
United States
Pennsylvania State GDP USD408
billion Population 12.4 million Area 116,076 sq
km
Beijing/Bohai Area GDP USD274
billion Population 117 million Area 181,000 sq
km
New York State GDP USD900 billion Population
19.2 million Area 122,300 sq km
Yangtze River Delta GDP USD276
billion Population 92 million Area 108,800 sq km
Michigan State GDP USD359 billion Population
10.1 million Area 147,100 sq km
Pearl River Delta GDP USD194 billion Population
83 million Area 186,000 sq km
Source Wikipedia GDP figures for 2004,
www.chinatoday.com
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Consumption takes off - Income per Capita Exceeds
US1000
Strong Urban Income Growth
Growing Rural Disposable Income
YoY Growth
Household Income Per Capita
Source BNP Paribas Peregrine
Source BNP Paribas Peregrine
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China Market Too Important to Ignore
Market cap of major oil companies
Market cap of major banks
US millions
US millions
CAGR 5
CAGR 35
CAGR 34
Source Bloomberg
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Pre-emptive measures to prevent over-heating
CPI
M2 Money Supply
Source Bloomberg
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Current Views Themes Ideas

• Financial market liberalization
• China Construction Bank
• China Life Insurance
• PICC Property Casualty

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Financial Market Liberalization
Methods for Saving Money in China at the
Household Level (2005)
Source Credit Suisse
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SECTION III
Themes Ideas
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Current Views Themes Ideas

• Agricultural reform
• SinoChem Chemical and fertilizer import and
  manufacturing
• China Milk Cattle breeding milk production
• Xinjiang Tianye Water Saving Installation of
  irrigation system

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Current Views Themes Ideas

• Infrastructure development in energy resources,
  environment and transportation
• Harbin Power Equipment Company Manufacturer of
  Power Equipment
• China Oilfield Services Operator of offshore
  oil rigs

• Environmental improvement
• Sino-environment Tech Air filtering for
  factories
• NWS Bio-Treat Tech Water sewage treatment

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China is Leading the Global Energy Demand Growth
China Oil Balance
Mms bbl
Source BP China Forecast
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Current Views Themes Ideas

• Growing consumption of hard and soft commodities
  
• Jiangxi Copper Co Copper Mining and Refining
• Zijin Mining The most efficient gold miner in
  China

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Current Views Themes Ideas

• Secular demand in niche consumer products or
  services
• Hua Han Bio-Pharmaceutical research, develops
  and manufactures traditional Chinese medicine
• Sohu.Com, The 9 internet portal, online
  advertising gaming

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Strong Secular Growth in Niche Consumer Areas
Online Game Market Tripling in 4 years
Consumption Pattern Change in China (1995-2003)
Source China Statistic Yearbook 2004
Source IDC as at March 2006
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Risk Factors

• Breakdown of Sino-Taiwan dialogue
• Revaluation of the RMB rising interest rates
• Rising energy costs
• Trade war
• US housing market weakness leading to lower US
  demand
• Outbreak of epidemics

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SECTION IV
Fund Profile Performance
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Excel China Fund Fund Profile Performance

• To seek long-term capital appreciation through
  investment into stock markets in the Greater
  China region, which include China and Hong Kong
• Launched in May 2003 with over 3 years track
  record
• Performance driven by non-benchmark investment
  style and tactical market and sector allocation

Excel China Fund
Above data as of May 31, 2006 Performance in CAD
and net of fees
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Excel China Fund Asset Allocation
Top Ten Holdings
Country Allocation
Company
Country
Weighting

• China Mobile China 3.7
• Harbin Power Equipment China 3.4
• Zijin Mining China 3.0
• Aluminum Corp of China China 3.0
• PetroChina China 3.0
• Tianjin Development China 2.8
• PICC Ppt Casaulty China 2.8
• Sinochem Hong Kong 2.7
• Sohu.com China 2.5
• Jiangxi Copper China 2.5

Sector Allocation
29.4
Above data as of May 31, 2006
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Excel China Fund Portfolio Characteristics
Characteristics of the current Excel China Fund

• Approximately 39 stocks
• Weighted average market capitalization of US18.3
  billion with a median of US1.5 billion
• Stocks with market capitalization less than US1
  billion 35 of the portfolio
• Average holding size 1.9

Above data as of June 22, 2006
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Important Information

The information provided within this presentation
is for use by professional investors and has been
prepared by Hamon Investment Group for
information purposes only and is correct to the
best of our knowledge. This document does not
constitute a prospectus, an offer or an
invitation to invest or a recommendation in
relation to any investments. Portfolio holdings
and investment ideas are subject to change at any
time without notice. The information provided is
for illustrative purposes only and should not be
construed as a recommendation to purchase or sell
any security. Past performance is not
necessarily a guide to future performance.
Investments are subject to risk and there is no
guaranty that these investment objectives will be
achieved. The value of unit trusts, shares and
income from them can fall as well as rise and
investors may not get back the full amount
originally invested. Please note that the fund
prospectus should be read before an investment is
made. This document may not be used for the
purpose of an offer or solicitation in any
jurisdiction or in any circumstances in which
such offer or solicitation is unlawful or not
authorized. This document should not be copies or
circulated without the permission of Hamon.
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Hamon Investment Group
3510 3515 Jardine House 1 Connaught Place,
Central Hong Kong Tel [phone] Fax
(852) 2526 7277 Email Enquiry_at_hamon.com.hk Webs
ite http//www.hamon.com.hk