Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Financials - **Industry View**: Attractive [5] Regulatory Developments - **Regulatory Notice**: On February 6, 2026, financial regulators issued a notice aimed at preventing cryptocurrency-related risks, renewing a similar notice from 2021. This notice explicitly bans the tokenization of real-world assets (RWA) onshore unless pre-approved by regulators and built on specific financial infrastructure [8] - **Stablecoin Licensing in Hong Kong**: The development of stablecoins in Hong Kong is expected to proceed independently. Mainland companies must obtain onshore regulatory approval to participate in stablecoin issuance in Hong Kong, as the notice prohibits them from issuing cryptocurrencies overseas without such approval [2] Company-Specific Insights - **Futu Holdings**: The company is already blocking any crypto-related offerings and market information access to mainland clients. Future offerings may focus more on overseas assets due to regulatory complexities surrounding onshore asset-linked RWAs [3] Market Controls - **Implementation of Controls**: A comprehensive set of controls will be established, covering market entity registration, advertising, financial services, and technology services to mitigate crypto-related risks [8] Analyst Insights - **Analyst Certification**: Analysts have certified that their views on the companies discussed are accurately expressed and that they have not received compensation for specific recommendations [13] - **Investment Banking Relationships**: Morgan Stanley has received compensation for investment banking services from various companies in the financial sector, including Agricultural Bank of China and Bank of China [16][18] Stock Ratings Overview - **Stock Ratings Distribution**: As of January 31, 2026, the distribution of stock ratings includes: - Overweight/Buy: 41% - Equal-weight/Hold: 43% - Underweight/Sell: 16% [28] Important Disclosures - **Conflict of Interest**: Investors should be aware of potential conflicts of interest that may affect the objectivity of Morgan Stanley Research [6] - **Research Methodology**: The research is based on public information, and while efforts are made to ensure accuracy, no guarantees are provided [45] Conclusion - The regulatory landscape for cryptocurrencies in China is tightening, with significant implications for companies involved in crypto and stablecoin activities. Futu Holdings appears well-positioned given its current compliance measures. The overall outlook for the China financial sector remains attractive, with ongoing monitoring of regulatory developments essential for investment decisions.

Report Industry Investment Rating - Not provided in the given content Core Viewpoints - Due to the escalation of US-China tensions, the Asia IG space widened 3-7bps across the board yesterday, with better selling on certain bonds and better buying on others [2] - China's export resilience strengthens its position in the trade war, leading to a revision of the 2025 export growth forecast from 3% to 4.5%, while maintaining the 2025 import growth forecast at 1.5%. The USD/RMB rate may appreciate from 7.13 to 7.1 by year-end and 7.05 by the end of 2026 [4][15][20] - China Water Affairs (CWAHK) proposes to issue a 5NC3 USD senior blue bond, with the FV of the new CWAHK 30 estimated at 6% [8] Summary by Directory Trading Desk Comments - Asia IG space widened 3-7bps due to US-China tension, with better selling on TW lifers, China TMTs, Japanese banks' bonds, and Southeast Asian names. Some bonds like FAEACO 12.814 Perp and NWDEVLs/LIFUNGs/FOSUNI 26 - 29s decreased in price. In Chinese properties, VNKRLE 27 - 29s and FTLNHD 26/FUTLAN 28 were lower, while some SOE property names had better buying. In Southeast Asia, VLLPM 27 - 29s edged up, and VEDLN 28 - 33s/GLPSPs were down. Long - end Yankee AT1s weakened in the morning and recovered slightly [2] - In the LGFV space, activities picked up with new CNH issues, and the space had a stable session with moderate two - way flows [3] - This morning, there were two - way flows on LGFV names. HAOHUAs recovered 3 - 5bps and HYUELEs recovered 5bps in Asia IG space, while NOMURA and Australian long - end Ts2 widened 2 - 3bps. CWAHK 26 had buyers and was 0.1pt higher [4] Marco News Recap - On Monday, S&P (+1.56%), Dow (+1.29%), and Nasdaq (+2.21%) were higher. The US bond market was closed for Columbus Day, and the UST yield was unchanged, with 2/5/10/30 yield at 3.52%/3.65%/4.05%/4.63% [7] Desk Analyst Comments - CWAHK proposes to issue a 5NC3 USD senior blue bond (Ba1/BB+/-), with the FV of the new CWAHK 30 at 6% considering its CWAHK 26 and peers' valuations, adjusted for rating and tenor differential. The issuance size should be capped at its remaining offshore - issuance quota of USD200mn [8] - The net proceeds will be used to repay offshore debt and finance eligible green projects. The new CWAHK 30 will have a CoC put at 101 [10] - CWAHK is a holding company operating mainly through PRC subsidiaries. The new CWAHK 30 will be guaranteed by non - PRC - incorporated subsidiary guarantors [11] - CWAHK is one of the largest water supply companies in China, focusing on water supply and sewage treatment, generating stable cash flow from exclusive concession rights in 58 districts. It serves various end - users with potential coverage of over 30mn people [12] - In FY25, CWAHK generated HKD11.7bn of revenue and HKD3.4bn of operating cash flow, with an estimated free cash flow of HKD40mn. Total debt was HKD25.6bn, and its operating performance weakened, with revenue and EBIT down c9%. Coverage ratios also weakened [13] - CWAHK is listed in Hong Kong, with the chairman and founder owning 27.4%, ORIX Corp and affiliates holding 27.2%, and Great Wall Life Insurance holding 6.0% [14] China Economy - China's export growth beat expectations as exports to Africa, Latin America, and the EU picked up. Exports of integrated circuits and ships remained robust, while personal consumption goods were subdued. Imports rebounded across the board, especially in processing trade. China's rare earth export control is a countermeasure to US semiconductor export restrictions. Trade tensions may intensify in the next two weeks before potentially easing after a possible Trump - Xi meeting [15] - Exports rebounded in September, reaching 8.3% YoY from 4.4% in August, beating market expectations. Exports to the US remained in deep contraction, while shipments to Africa, the EU, and Latin America accelerated. Exports to ASEAN moderated. Since the tariff shocks, exports to ASEAN and Africa have increased significantly, making up for over 120% of the export losses to the US since April. Trade surplus narrowed to US$91bn in September [16] - Integrated circuits and ships had strong growth in September, while personal consumption goods moderated. Low - value - added exports and housing - related products were hit by tariffs. Rare earth exports rebounded despite additional export controls [17] - China's imports increased to 7.4% in September from 1.3% in August, beating market expectations. Imports from the US steadied at - 16%. Import value of processing trade accelerated. For energy products, crude oil import volume rose, while coal and natural gas dropped. Raw material imports had mixed results, and crop imports picked up [18] Offshore Asia New Issues - No offshore Asia new issues were priced today [22] - There are several issuers in the pipeline, including the Macau Branch of Bank of China Limited, Jinan Hi - tech International, and KEB Hana Bank, with different tenors, coupons, and issue ratings [23] News and Market Color - Yesterday, 118 credit bonds were issued onshore with an amount of RMB138bn. Month - to - date, 191 credit bonds were issued with a total amount of RMB212bn, a 19.7% yoy increase [24] - Indonesia plans to shorten the permit process for geothermal projects to three months [24] - Country Garden's top shareholder agrees to a USD1.14bn debt - to - equity swap and will hold scheme meetings on 5 Nov'25 for creditors to vote on its offshore restructuring plan [24] - Freeport Indonesia halts the Gresik smelter due to a mine landslide [24] - China Energy Overseas will redeem GEZHOU 4.15 Perp of USD200mn on 25 Nov'25 [24] - LG Electronics expects a 8.4% yoy drop in 3Q25 operating profit due to higher tariffs [24]

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China Financials** sector within the **Asia Pacific** region, specifically tracking industrial risks and capacity rationalization [1][4]. Core Insights - **Industrial Profit Trends**: Industrial profit growth remained negative, declining by **1.8% year-over-year (yoy)** in the first half of 2025, primarily due to challenges in the mining sector, while manufacturing saw a **4.5% yoy growth** despite a weakening Producer Price Index (PPI) in June [2][7]. - **Monthly Improvement**: There was a sequential improvement in industrial profit contraction, decreasing from **-9.1% in May** to **-4.3% in June** [2]. - **Capital Expenditure (Capex)**: There is an ongoing slowdown in capital expenditure expansion, with **73.8% of sectors** experiencing reduced capex growth in June compared to the first half of 2024 [3][8]. Manufacturing fixed asset investment (FAI) growth moderated to **7.5% yoy** in June 2025, down from **9%** at the beginning of the year [7][11]. - **Sector-Specific Trends**: The electrical equipment sector, including solar, saw a decline in FAI, while growth moderated for electronic devices [3]. Financial Metrics - **Manufacturing Profit**: Manufacturing profit recorded a **4.5% yoy growth** in the first half of 2025, slightly down from **5.4%** in January-May 2025 [7][11]. - **EBIT Coverage Ratio**: The EBIT coverage ratio continued to improve year-over-year in the first half of 2025, indicating better profitability across sectors [7]. Investment Outlook - The report suggests that a market-oriented credit allocation and loan pricing strategy to control capacity expansion is a more effective approach to mitigate potential industrial credit risks over time [3]. Additional Insights - The report indicates that the industrial sector is on track for gradual capacity rationalization, which is seen as a positive development for long-term stability [1][4]. - The overall industry view is considered **attractive**, suggesting potential investment opportunities within the sector [4]. Important Data Points - **Industrial Profit Decline**: **-1.8% yoy** in 1H25, with mining being the main drag [2][7]. - **Manufacturing Growth**: **4.5% yoy** in 1H25, down from **5.4%** [7][11]. - **FAI Growth**: Moderated to **7.5% yoy** in June 2025 [7][11]. - **Capex Growth Slowdown**: **73.8% of sectors** slowed capex growth in June 2025 [3][8]. This summary encapsulates the key findings and insights from the conference call, providing a comprehensive overview of the current state and outlook of the China Financials sector.

Core Viewpoint - Smart Share Global Limited has announced a definitive Merger Agreement with Mobile Charging Group Holdings Limited, implying an equity value of approximately US$327 million for the company [1][3]. Merger Details - The Merger will result in each American Depository Share (ADS) being exchanged for US$1.25 in cash, while each Class A Share will be exchanged for US$0.625 in cash [2]. - The Merger Consideration represents a premium of 74.8% to the closing trading price of the ADSs on January 3, 2025, and a premium of approximately 8.7% to the closing price on July 31, 2025 [3]. Consortium Composition - The Consortium acquiring Smart Share includes Trustar Mobile Charging Holdings Limited and key executives from the company, including the Chairman and CEO, Mars Guangyuan Cai [4]. Funding Structure - The Merger will be funded through cash contributions from Consortium members, a committed term loan facility from Bank of China Limited, and rollover equity contributions from Rollover Shareholders [5]. Board Approval - The Merger Agreement has been approved by the Board, following a unanimous recommendation from a Special Committee of independent directors [6]. Closing Conditions - The Merger is expected to close in the fourth quarter of 2025, subject to customary closing conditions, including shareholder approval and regulatory approvals [7]. Company Background - Smart Share Global Limited, also known as Energy Monster, is a leading provider of mobile device charging services in China, with 9.6 million power banks across over 1.2 million points of interest [15].

Investment Rating - The industry view is rated as Attractive [6] Core Insights - Despite weaker May industrial profit growth, the incremental impact on industrial credit risks is considered small due to concentrated profit deterioration in a few sectors affected by US tariffs, a notable decline in US tariffs from their peak, and modest negative impacts on EBIT interest coverage [2][4] - More sectors are slowing capacity expansion, with ferrous metal processing showing a 1.6% year-on-year decline in fixed asset investment in May 2025, down from 5.4% growth in the first half of 2024, indicating continued capacity control [3] - Year-to-date industrial sector profit fell by 1.1% year-on-year in May compared to a 1.4% decline in April, primarily driven by mining, especially oil mining [4] - Risks associated with loans to the auto sector are emerging as a concern, representing 40% of sectors showing expanding capacity with deteriorating profits, which is the largest drag on year-on-year profit growth in manufacturing firms [5] - Overall manufacturing sector profit growth moderated to 5.4% year-on-year in January-May 2025 from 8.6% in January-April 2025, influenced by the peak in US tariffs [9] Summary by Sections - **Industrial Credit Risks**: The report indicates that the impact of weaker industrial profit growth on credit risks is limited, with specific sectors being more affected by US tariffs [2][4] - **Capacity Expansion**: A significant portion of sectors is reducing capacity expansion, with ferrous metals showing a decline in fixed asset investment, suggesting effective capacity control measures [3] - **Profit Trends**: The industrial sector's profit has seen a slight decline year-to-date, with mining being a major contributor to this trend, while the auto sector poses new risks due to its expanding capacity and declining profits [4][5] - **Manufacturing Sector Performance**: The overall profit growth in the manufacturing sector has slowed, reflecting the broader economic impacts of trade tensions and tariff fluctuations [9]

Investment Rating - The report has lowered the average 2025 net profit growth forecast for covered banks to -5%, reflecting a decrease of 1 percentage point from previous estimates [15]. Core Insights - Negative net profit growth in 1Q25 for large SOE banks and CMB has led to stock price declines, prompting a reassessment of profit forecasts and target prices [1]. - Despite negative net profit growth, banks may still attract long-term funds due to limited downside on dividend yields compared to government bond yields [2][3]. - The report emphasizes the increasing importance of net profit growth in 1Q25, as investors have heightened expectations for shareholder returns following two years of excess returns [3][4]. - The report indicates that banks are facing challenges in achieving positive net profit growth in 2025 due to lower-than-expected net interest income (NII) and loan growth [11][15]. Summary by Sections Net Profit Growth - The average net profit growth forecast for covered banks is now -5% for 2025, with small banks BONB and BONJ expected to achieve 7% growth [15]. - Most banks are still releasing provisions, but not sufficiently to drive positive profit growth, and the potential for further provision releases is limited [5][15]. Dividend Payout Ratios - Banks may need to increase their dividend payout ratios to maintain stable dividends per share (DPS) amidst negative EPS growth [22][30]. - The report suggests that banks have the capacity to increase dividends, but their willingness remains uncertain [22][26]. Loan Growth and NIM - Loan growth for major banks is projected to be lower than previously expected, with NIM also declining more than anticipated [11][13]. - The report notes that while credit growth is expected to accelerate, overall loan demand remains weak due to external factors such as tariffs [13][40]. Fee Income and Consumer Finance - Some banks have reported better-than-expected growth in fee income, driven by bancassurance and fund sales [33]. - A potential recovery in consumer finance is anticipated in the second half of 2025, influenced by low base effects and banks seeking new business opportunities [31][34]. Stock Selection and Recommendations - Among large and medium-sized banks, CMB is viewed as having the least EPS dilution and the lowest required increase in dividend payout ratio, making it more capable of maintaining stable DPS [41]. - BONB is favored for its high growth potential relative to larger banks, while BONJ is rated Neutral due to ongoing convertible bond conversion processes [41].

Investment Rating - The report assigns a "Buy" rating to Bank of China (BOC), Postal Savings Bank of China (PSBC), and China Construction Bank (CCB) with target prices of Rmb 6.73/HK$ 5.00, Rmb 6.82/HK$ 5.59, and Rmb 11.14/HK$ 7.91 respectively [24][27][28] Core Insights - Four large state-owned banks in China announced a total capital raise of Rmb 520 billion, with Rmb 500 billion from the Ministry of Finance and Rmb 20 billion from other state-owned shareholders [1] - The capital injection will increase the average shareholding of the Ministry of Finance and Central Huijin Investment by 5 percentage points to 56% [1] - The capital replenishment is expected to be completed through A-share private placements by the end of 2025 [1] Summary by Sections Capital Raise Details - The capital raise will be evenly distributed among BOC and PSBC, with each bank raising approximately Rmb 120 billion [3] - The new shares will be issued at a price below 1x book value, representing a 16% premium over recent trading prices [3] - New shares as a percentage of outstanding shares post-recapitalization for BOC and PSBC will be 8% and 17% respectively [4] Capital Adequacy - The CET1 ratio for BOC and PSBC is projected to increase by 86 basis points and 151 basis points respectively [4] - The report indicates that to maintain dividend per share (DPS) at 2024 levels, dividend payout ratios would need to rise to 31-36% [5] Growth Projections - The announced capital raise, along with increased dividend payouts, would allow for a 7.9-9.3% growth in risk-weighted assets (RWA) assuming unchanged density [5] - The report anticipates a downward trend in RWA density, which would enable more asset growth without proportionally higher capital consumption [15] Comparative Analysis - The report notes that Agricultural Bank of China (ABC) and Industrial and Commercial Bank of China (ICBC) were excluded from the announced capital injections, with estimates suggesting they may require Rmb 150 billion each for capital support [18][19] - The average CET1 ratio increase for participating banks is expected to be 1.03 percentage points [21]