Dao Heng Bank Recommendation: Buy Brokerage: CS First Boston DAO Heng Bank has operations in commercial banking, deposit-taking, bullion, and trustee and nominal services. The group recently posted 1996 results which exceeded expectations, with net income rising 25.1 per cent to $1.5 billion and earnings per share up 20.2 per cent to $2.205. A major positive earnings surprise came from a higher than forecast $281.6 million exceptional gain from the sale of its headquarters in Bonham Strand. Dao Heng warned it could face tighter margins this year but a lower relative exposure to residential mortgages and a higher exposure to consumer finance will place it favourably in coming months. Chaifa Holdings Recommendation: Buy Brokerage: Mees Pierson CHAIFA Holdings manufactures, trades and distributes garments, shoes and other merchandise under well-known brand names. Sales of the group's Playboy brand goods in China are expected to accelerate, growing 9.9 per cent in 1997, 10.4 per cent in 1998 and 11.2 per cent in 1999. Chaifa's China distribution network should continue to grow with the number of outlets expected to reach 957 by March 1999 from the current number of 660. The company's operating margins are likely to improve from 15.7 per cent to 17.6 per cent by 1999 due to a higher proportion of garments manufactured in-house. Zhenhai Refining & Chemical Co Recommendation: Buy Brokerage: Credit Lyonnais ZHENHAI Refining produces and sells petroleum products and refines crude oil for international petroleum companies. The group continues to look better placed than downstream petrochemical producers as international crude prices have dropped this year while petroleum prices have strengthened. China's import tariff for diesel fuel has returned to 12 per cent from a temporary 6 per cent and this should help domestic diesel prices stay strong. With defensive earnings as a pure refiner and a flexible management, the stock remains a good bet. Swire Pacific Recommendation: Buy Brokerage: Merrill Lynch SWIRE Pacific is a conglomerate with interests ranging from aviation and property investment to marine services. The group continues to be one of the most undervalued stocks in the conglomerate sector as it trades on a 1997 price earnings multiple of only 11.5 times and a 35 per cent discount to net asset value. This year should be good for the property development side of Swire Pacific as it aims to book profits from residential and office portions of Island Place and the Floridian development in Quarry Bay. While earnings should taper off in 1998, beyond that they look promising due to the group's 20 per cent stake in the Tung Chung phase I airport railway development.