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Asia Pacific Daily

See important disclosures, including any required research certifications, beginning on page 56.

21 June 2016

Top story P.3

Stella International (1836 HK) Rating: Hold Outperform Walking in oversold territory Target price: HKD18.40 HKD14.50

- Looks oversold after nearly 30% fall in share price in 2 days - Demand for sports fashion shoes still robust -- a long-term tailwind - Cutting 12-month TP to HKD14.50; upgrading to Outperform (2)

-- John Choi / Carlton Lai

Major changes Analyst Rating Page

Texwinca (321 HK) John Choi Buy Hold P.7 Turnaround interrupted

Target price 28.7% to HKD6.20

Total Access Comm. (DTAC TB) Sarachada

Sornsong

Sell P.11 Don’t catch the falling knives

Target price 21.6% to Bt29.00 Other research

China Insurance Sector Leon Qi Positive P.12 VAT reform: more negative for P&C insurers than life

Alibaba Group (BABA US) John Choi Buy P.14 Investor Day wrap: pedal to the metal

PICC Property and Casualty (2328 HK) Leon Qi Hold P.17 Stable but unexciting business

China State Construction International

(3311 HK)

Kelvin Lau Buy P.21

Worth a revisit

Sunny Optical Technology (2382 HK) Kylie Huang Outperform P.25 Highlights from site visit: confident of strong 2016

POSCO (005490 KS) Sung Yop Chung Buy P.29 Forging ahead

Kakao (035720 KS) Thomas Y. Kwon Buy P.33 Asia NDR highlights

M1 (M1 SP) Ramakrishna Buy P.36 Tokyo NDR: fixed services as revenue-growth driver

Maruvada

WCT Holdings (WCTHG MK) Loong Chee Wei Buy P.40 Modified plans

Japan equity research

Nippon Television Holdings (9404 JP) Taro Ishihara 2 Buy P.41 Growth to accelerate for non-broadcasting ops

Kotobuki Spirits (2222 JP) Satoshi Sakae new

Outperform

P.42 Major confectionary manufacturer & wholesaler Macro research

Indonesia Strategy Harry Su P.43 Indonesia update: La Niña watch

Company Roadshows

Date Company Event Venue

20-22 Jun Accordia Golf Trust (AGT SP) NDR EU

24 Jun Pacific Textiles (1382 HK) NDR HK

24 Jun Pacific Textiles (1382 HK) Group Luncheon (VC)

SG

27 Jun - 1 Jul

Samsung Electro-Mechanics (SEMCO) (009150 KS)

NDR US

29 Jun - 1 Jul

Fraser Centrepoint Limited (FCL SP)

NDR EU

7-8 Jul Link REIT (823 HK) NDR Tokyo

18-21Jul Gamuda Berhad (GAM MK) NDR EU

26 Jul Incitec Pivot (IPL AU) NDR Tokyo

27 Jul HKEI (2638 HK) NDR HK

1 Aug CKI / Power Assets

(1038 HK/ 6 HK)

NDR HK

3-5 Aug Delta Electronics (DELTA TB) NDR EU

29-30 Aug Xtep (1368 HK) NDR US

Daiwa Asian Events

Date Company Venue

20-24 Jun Daiwa Auto & Industrial Leaders Conference 2016

HK

23-24 Jun Hong Kong China Investment Seminar Tokyo

Tokyo

8-11 Nov Daiwa Investment Conference Hong Kong 2016

HK

27 Feb-3 Mar 2017

Daiwa Investment Conference Tokyo 2017

Tokyo

Source: Daiwa

Regional indices

Performance chg (%)

EPS growth (%)

PER (x)

Market 1D 1M YTD 16E 17E 16E 17E

TPX 2.3 (4.8) (17.3) 17.3 8.5 12.8 11.8 HSCEI 1.8 4.0 (10.6) (3.0) 6.0 6.2 5.8 HSI 1.7 3.3 (6.4) (0.5) 9.5 10.9 9.9 KOSPI 1.4 1.7 1.0 24.0 9.3 10.9 10.0 TWSE 0.7 6.1 3.5 (0.4) 10.3 13.7 12.6 SENSEX* 0.9 6.2 2.9 13.2 18.2 18.0** 15.2** FSSTI 1.4 1.3 (2.8) (2.1) 4.9 12.6 12.0 FBMKLCI* 0.6 0.3 (3.4) (0.2) 8.4 16.1** 14.8** SET* 0.0 2.6 10.4 7.5 13.6 15.2** 13.4** PCOMP* 0.6 5.0 10.3 7.4 9.9 19.3** 17.6** JCI* 0.6 3.2 5.9 8.2 13.4 15.9** 14.0** AS51 1.8 (1.8) (0.7) (11.2) 6.4 16.7 15.7

Source: Thomson Reuters

*Valuation based on MSCI Universe **MSCI index priced as of 17 Jun

Asia Pacific Daily | 1

Euro wrap-up Chris Scicluna P.44 Overview Memos – quick updates

Beijing Capital International Airport (694 HK) Kelvin Lau P.46 Signs of slower growth in international traffic

China Harmony New Energy Auto (3836 HK) Kelvin Lau P.47 Core business in good shape; EV a long-term catalyst

Korea: share prices and Daiwa recommendation trends P.48 Daiwa’s Banner Products P.49 Analysts’ company visits P.50 Rating and target-price information P.51 Recently published reports P.52


See important disclosures, including any required research certifications, beginning on page 5

China Consumer Discretionary

What's new: Stella International’s share price has fallen by 29% in 2 days due to a profit warning indicating 1H16 net profit would “decrease considerably”. While we expected weak performance from its casual footwear business, it seems it could be far worse than what we had expected. Nonetheless, after revising down our numbers, we believe the stock is now in oversold territory, and we see this as a good entry point for investors with a multi-year horizon. What's the impact: Stella attributed the guided drop in 1H16 net profit to a decline in shipment volumes (mainly casual footwear), a decline in the ASP due to low raw material prices and greater competition, as well as lower utilisation of non-sports footwear factories. We note that none of these factors are new developments to us, but we believe the magnitude of each decline has been worse than expected. During the 1Q16 call, management guided for low-single-digit percentage growth in volume for 2016; but we now look for a high-single-digit decline in sales volume. Importantly, we continue to believe the demand and order book for sports fashion shoes remain robust and growing, but its revenue growth is limited by capacity conversion (from casual to sports) as well as the build-out of new factories. If the deterioration in its casual shoes business is sustained, we expect management to accelerate the ramp-up of its sports shoes capacity, by converting casual factories to sports factories sooner than originally expected. We note that the company’s plans to commence production at 2 new factories for its 2 largest sports customers (Nike and another global sportswear brand) by the end of 2017, as well as Stella’s long-term partnership plans with them, remain intact. We cut 2016-18E net profit by 0-34%, after revising down our sales volume forecasts by 5-11% and lowering our blended gross margin assumptions by 0.7-1.2pp. What we recommend: We lower our 12-month target price to HKD14.50 (from HKD18.40), based on a target PER of 14x (from 15x, now in line with the average 1-year-forward PER since 2010) applied to the average of our revised 2016-17E EPS (previously 2016E EPS). After the sharp fall in the share price in the past 2 days, we believe the stock is oversold and due for a bounce-back. Hence, we upgrade our rating to Outperform (2) from Hold (3). If the stock remains at this level, we believe there is a high likelihood the company will repurchase shares given its USD168m net cash balance. Key risks to our call: lower-than-expected gross margin for Stella’s ODM business and a deterioration in its retail business. How we differ: We are one of the few major firms with a positive rating on Stella.

20 June 2016

Walking in oversold territory

Looks oversold after nearly 30% fall in share price in 2 days Demand for sports fashion shoes still robust -- a long-term tailwind Cutting 12-month TP to HKD14.50; upgrading to Outperform (2)

Source: Daiwa forecasts

Source: FactSet, Daiwa forecasts

Stella International (1836 HK)

Target price: HKD14.50 (from HKD18.40)

Share price (20 Jun): HKD13.20 | Up/downside: +9.8%

John Choi(852) 2773 8730

[email protected]

Carlton Lai(852) 2532 4349

[email protected]

Forecast revisions (%)Year to 31 Dec 16E 17E 18ERevenue change (11.9) (4.1) (0.3)Net profit change (33.6) (9.2) (0.3)Core EPS (FD) change (33.6) (9.2) (0.3)

90

106

123

139

155

13

15

17

19

22

Jun-15 Sep-15 Dec-15 Mar-16

Share price performance

Stella Int (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 13.20-21.35Market cap (USDbn) 1.343m avg daily turnover (USDm) 1.47Shares outstanding (m) 793Major shareholder Cordwalner Bonaventure (31.0%)

Financial summary (USD)Year to 31 Dec 16E 17E 18ERevenue (m) 1,589 1,783 1,968Operating profit (m) 85 136 168Net profit (m) 83 128 159Core EPS (fully-diluted) 0.105 0.162 0.200EPS change (%) (31.2) 53.9 23.8Daiwa vs Cons. EPS (%) (25.0) 1.0 17.0PER (x) 16.2 10.5 8.5Dividend yield (%) 4.6 7.1 8.8DPS 0.078 0.121 0.150PBR (x) 1.4 1.3 1.2EV/EBITDA (x) 8.6 6.0 5.0ROE (%) 8.4 12.5 14.7


2

Stella International (1836 HK): 20 June 2016

Stella International: key changes to Daiwa forecasts

2016E 2017E 2018E

New Previous Changes (%) New Previous Changes (%) New Previous Changes (%)

ODM

Sales volume (m pairs) 53.5 60.4 -11.4% 58.9 62.8 -6.3% 63.6 66.6 -4.5%

ASP (USD/pair) 28.4 28.7 -1.0% 29.0 28.4 2.0% 29.6 28.4 4.0%

Operating-profit margin 5.5% 7.6% -2.1 ppt 7.7% 8.5% -0.9 ppt 8.5% 9.0% -0.6 ppt

Retail

Number of POS 344 344 0.0% 361 359 0.6% 383 381 0.5%

Average sales per POS (USDm) 0.225 0.241 -6.3% 0.245 0.243 0.7% 0.273 0.255 7.0%

Operating-profit margin 1.7% -1.3% 2.9 ppt 7.0% 1.8% 5.2 ppt 10.3% 3.8% 6.5 ppt

Sales

ODM 1,513 1,723 -12.2% 1,697 1,774 -4.3% 1,866 1,879 -0.7%

Retail 77 82 -6.3% 86 86 0.9% 101 94 7.6%

Total 1,589 1,804 -11.9% 1,783 1,859 -4.1% 1,968 1,973 -0.3%

Gross-profit margin 20.0% 21.2% -1.2 ppt 21.0% 21.9% -0.9 ppt 21.7% 22.3% -0.7 ppt

Operating-profit margin 5.3% 7.2% -1.9 ppt 7.6% 8.2% -0.6 ppt 8.5% 8.8% -0.2 ppt

Net profit (USDm) 83 125 -33.6% 128 141 -9.2% 159 159 -0.3%

EPS (USD) 0.105 0.158 -33.6% 0.162 0.178 -9.2% 0.200 0.201 -0.3%



3


Financial summary Key assumptions

Profit and loss (USDm)

Cash flow (USDm)


Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

ODM – sales volume (m pairs) 52.6 50.8 50.8 53.1 58.2 53.5 58.9 63.6

ODM - ASP (USD) 27.1 28.6 28.3 29.6 29.3 28.4 29.0 29.6

ODM - gross-profit margin (%) 20.3 20.6 19.2 18.6 18.8 17.5 18.5 19.0

ODM - operating-profit margin (%) 10.8 11.1 9.3 7.2 6.5 5.5 7.7 8.5

Retail – POS 413 456 373 332 335 344 361 383

Retail – avg. sales per POS (USDm) 0.269 0.275 0.292 0.283 0.241 0.225 0.245 0.273

Retail - gross-profit margin (%) 69.3 67.4 66.8 58.3 66.5 68.5 70.0 71.0

Retail - operating-profit margin (%) 6.8 (0.4) 0.9 (4.6) (5.8) 1.7 7.0 10.3

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

ODM Revenues 1,396 1,431 1,418 1,563 1,693 1,513 1,697 1,866

Retail Revenues 99 119 121 100 80 77 86 101

Other Revenue 0 (0) 2 (0) (3) 0 0 (0)

Total Revenue 1,495 1,550 1,541 1,663 1,770 1,589 1,783 1,968

Other income 10 24 17 5 9 10 15 15

COGS (1,142) (1,175) (1,188) (1,314) (1,398) (1,272) (1,409) (1,541)

SG&A (160) (191) (189) (168) (198) (190) (196) (210)

Other op.expenses (45) (50) (49) (53) (60) (53) (58) (63)

Operating profit 158 158 133 133 123 85 136 168

Net-interest inc./(exp.) 5 6 4 3 6 7 9 11

Assoc/forex/extraord./others (6) 3 (0) 0 0 0 0 0

Pre-tax profit 157 167 137 136 129 92 145 179

Tax (14) (14) (15) (16) (9) (7) (16) (20)

Min. int./pref. div./others 0 1 (0) 0 1 (1) (1) (1)

Net profit (reported) 143 153 123 121 121 83 128 159

Net profit (adjusted) 143 153 123 121 121 83 128 159

EPS (reported)(USD) 0.181 0.194 0.155 0.152 0.153 0.105 0.162 0.200

EPS (adjusted)(USD) 0.181 0.194 0.155 0.152 0.153 0.105 0.162 0.200

EPS (adjusted fully-diluted)(USD) 0.180 0.194 0.155 0.152 0.153 0.105 0.162 0.200

DPS (USD) 0.127 0.127 0.136 0.123 0.110 0.078 0.121 0.150

EBIT 158 158 133 133 123 85 136 168

EBITDA 184 186 169 173 164 135 191 228

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Profit before tax 157 167 137 136 129 92 145 179

Depreciation and amortisation 26 28 36 40 41 50 55 60

Tax paid (10) (9) (6) (8) (11) (7) (16) (20)

Change in working capital (117) (25) 17 (113) 9 31 (38) (41)

Other operational CF items 8 (17) (2) 5 1 (0) (0) (0)

Cash flow from operations 65 144 182 59 168 166 146 178

Capex (46) (53) (76) (80) (84) (80) (70) (60)

Net (acquisitions)/disposals (0) 16 0 0 (7) 0 0 0

Other investing CF items (33) (26) (14) (1) 0 0 0 0

Cash flow from investing (80) (64) (91) (81) (91) (80) (70) (60)

Change in debt 0 (0) (0) (0) 18 0 0 0

Net share issues/(repurchases) 0 0 0 0 0 0 0 0

Dividends paid (85) (100) (108) (97) (87) (75) (72) (103)

Other financing CF items 0 0 0 0 (1) 0 0 0

Cash flow from financing (85) (100) (108) (98) (69) (75) (72) (103)

Forex effect/others 4 0 1 (1) (0) 0 0 0

Change in cash (96) (20) (15) (120) 7 11 4 16

Free cash flow 19 91 106 (20) 84 86 76 118


4


Financial summary continued … Balance sheet (USDm)

Key ratios (%)


As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Cash & short-term investment 316 304 278 174 186 194 198 213

Inventory 182 179 178 216 208 188 205 226

Accounts receivable 197 224 326 365 363 334 374 413

Other current assets 130 151 44 37 50 49 49 49

Total current assets 826 857 827 793 808 764 826 902

Fixed assets 200 267 332 377 393 423 437 438

Goodwill & intangibles 0 0 0 0 0 0 0 0

Other non-current assets 49 35 28 17 42 42 42 42

Total assets 1,075 1,159 1,187 1,186 1,243 1,229 1,306 1,381

Short-term debt 0 0 0 0 15 15 15 15

Accounts payable 91 98 202 177 186 167 187 207

Other current liabilities 122 144 51 57 54 54 54 54

Total current liabilities 213 242 253 234 256 235 256 275

Long-term debt 0 0 0 0 3 0 0 0

Other non-current liabilities 0 0 0 0 0 0 0 0

Total liabilities 213 242 253 234 259 235 256 275

Share capital 10 10 10 10 10 10 10 10

Reserves/R.E./others 852 906 923 942 975 983 1,038 1,094

Shareholders' equity 862 916 933 952 985 993 1,048 1,104

Minority interests (0) 1 1 1 (1) 0 1 2

Total equity & liabilities 1,075 1,159 1,187 1,186 1,243 1,229 1,306 1,381

EV 1,016 1,037 1,063 1,167 1,166 1,156 1,153 1,139

Net debt/(cash) (316) (304) (278) (174) (168) (179) (183) (198)

BVPS (USD) 1.085 1.153 1.174 1.198 1.243 1.253 1.323 1.393

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Sales (YoY) 15.5 3.7 (0.6) 7.9 6.4 (10.2) 12.2 10.4

EBITDA (YoY) 22.6 0.9 (9.1) 2.4 (5.4) (17.5) 41.7 19.0

Operating profit (YoY) 26.1 0.1 (15.9) (0.1) (7.5) (31.2) 60.9 23.7

Net profit (YoY) 17.8 7.3 (20.0) (1.6) 0.2 (31.2) 53.9 23.8

Core EPS (fully-diluted) (YoY) 17.6 7.2 (20.0) (1.6) 0.2 (31.2) 53.9 23.8

Gross-profit margin 23.6 24.2 22.9 21.0 21.0 20.0 21.0 21.7

EBITDA margin 12.3 12.0 11.0 10.4 9.2 8.5 10.7 11.6

Operating-profit margin 10.6 10.2 8.6 8.0 6.9 5.3 7.6 8.5

Net profit margin 9.6 9.9 8.0 7.3 6.8 5.2 7.2 8.1

ROAE 17.2 17.3 13.3 12.8 12.5 8.4 12.5 14.7

ROAA 13.8 13.7 10.5 10.2 10.0 6.7 10.1 11.8

ROCE 19.0 17.8 14.4 14.1 12.6 8.4 13.1 15.4

ROIC 29.8 24.9 18.7 16.4 14.4 9.5 14.4 16.9

Net debt to equity n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Effective tax rate 9.0 8.7 10.6 11.5 6.7 8.0 11.0 11.0

Accounts receivable (days) 46.4 49.5 65.1 75.9 75.1 80.1 72.5 73.0

Current ratio (x) 3.9 3.5 3.3 3.4 3.2 3.2 3.2 3.3

Net interest cover (x) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Net dividend payout 70.2 65.4 87.7 80.6 72.0 74.7 74.8 74.9

Free cash flow yield 1.4 6.8 7.9 n.a. 6.2 6.4 5.7 8.8

Company profile

Stella International (Stella) is the world’s largest ODM manufacturer of casual and fashion footwear. The company has 3 self-developed footwear brands: Stella Luna, What For and JKJY, and it also distributes the Pierre Balmain brand in China under a joint venture with the French retailer of the same name.



China Consumer Discretionary

What's new: Texwinca’s FY16 results sharply missed our estimates, largely due to a sudden deterioration in its textiles business in 2H FY16. We were also disappointed by its decision to only partially pay out the gains from its asset sales. While we now expect a scaled-back earnings outlook going forward, we believe further share price downside is limited by its 7%+ dividend yield going forward and its HKD2.0 net cash/share. What's the impact: For FY16, the sales volume rose by 2.7% YoY, while its ASP declined by 2.0%. This implies that its sales volume declined by around 19% YoY for 2H FY16 (after a 22% rise in 1H FY16), which management attributed to order delays and the weak order books of its customers. We believe Texwinca’s textile business will remain weak in FY17, as: 1) its ASPs are likely to decline due to lower cotton prices and pressure from its downstream customers, 2) customers may delay orders on the weakening retail sentiment, and 3) factory utilisation could be at risk due to a 15% rise in capacity in FY16. While the dividend payout ratio (including the special dividends) dropped to 82% in FY16, we believe it has maintained its previous policy (of FY14-15) of paying out all of its core net profit in dividends, after adjusting for one-off gains. Management also said it is in the early stages of assessing the expansion of its factory operations in Vietnam. In our view, Texwinca is probably planning to vertically integrate its garment facility in Vietnam (through its stake in its JV with Megawell) with a new fabric facility. Management said that early studies indicate that the expansion would cost HKD1.0bn, and would increase total capacity by around 20%. Hence, we view the lower dividend payout as means to conserve cash for a probable Vietnam expansion over the next 2 years. We cut our FY17-18E EPS by 36-42%, primarily on the deterioration of its textiles business outlook. We also introduce our FY19E EPS of HKD0.65. What we recommend: We lower our 12-month TP to HKD6.20 (from HKD8.70), derived by applying an unchanged 12x PER (about a 20% discount to its regional peers) to our FY17E EPS (previously the average of our FY16-17E EPS). We downgrade the stock to Hold (3) from Buy (1). Other companies with similar mass-market customer exposure are Makalot (1477 TT, TWD150.50, Hold [3]) and Pacific Textiles (1382 HK, HKD9.28, Outperform [2]). The main downside risk to our call would be continued weakness in its textile business; the upside risk a sudden strong rebound in its textiles sales volume. How we differ: Our FY17-18E EPS are 10-11% below consensus as we factor in a slower pick-up in textile orders.

20 June 2016

Turnaround interrupted

Order delays in 2H FY16 reverse strong first-half textile momentum Cut in payout ratio is likely indicative of its Vietnam expansion plans Downgrading to Hold (3) from Buy (1); cutting TP to HKD6.20



Texwinca (321 HK)


Share price (17 Jun): HKD6.30 | Up/downside: -1.5%

John Choi(852) 2773 8730

[email protected]

Carlton Lai(852) 2532 4349

[email protected]

Forecast revisions (%)Year to 31 Mar 17E 18E 19E

Revenue change (15.3) (18.8) n.a.

Net profit change (36.3) (41.5) n.a.

Core EPS (FD) change (36.3) (41.5) n.a.

95

105

115

125

135

6.0

6.9

7.8

8.6

9.5

Jun-15 Sep-15 Dec-15 Mar-16 Jun-16


Texwinca (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 6.30-9.38

Market cap (USDbn) 1.12

3m avg daily turnover (USDm) 1.42

Shares outstanding (m) 1,382

Major shareholder Poon family (53.9%)

Financial summary (HKD)Year to 31 Mar 17E 18E 19E

Revenue (m) 9,537 9,855 10,407

Operating profit (m) 697 764 903

Net profit (m) 715 780 903

Core EPS (fully-diluted) 0.517 0.565 0.653

EPS change (%) 20.8 9.2 15.7

Daiwa vs Cons. EPS (%) (10.8) (9.5) n.a.

PER (x) 12.2 11.2 9.6

Dividend yield (%) 7.5 7.2 8.3

DPS 0.471 0.452 0.523

PBR (x) 1.3 1.3 1.3

EV/EBITDA (x) 5.8 5.1 4.3

ROE (%) 11.3 11.9 13.4


2

Texwinca (321 HK): 20 June 2016

Texwinca: key changes to Daiwa forecasts

FY17E FY18E FY19E

New Previous Changes (%) New Previous Changes (%) New Previous Changes (%)

Textile Volume 3% 13% -10.0 pp 3% 7% -4.0 pp 5% 7% -2.0 pp

Textile ASP -1% 1% -2.0 pp 1% 3% -2.0 pp 3% 3% 0.0 pp

Textile revenue growth YoY (%) 2.0% 14.1% -12.1 pp 4.0% 10.2% -6.2 pp 8.2% 10.2% -2.1 pp

EBIT margin - textile (%) 14.2% 15.5% -1.3 pp 14.8% 16.0% -1.2 pp 15.5% 16.0% -0.5 pp

Number of retail outlets 2,713 2,916 -7.0% 2,703 2,936 -7.9% 2,693 2,793 -3.6%

Average sales per retail outlet (HKDm) 1.72 1.69 1% 1.77 1.76 1% 1.83 1.90 -4%

EBIT margin - retail (%) 0.0% 3.0% -3.0 pp 0.2% 5.0% -4.8 pp 1.0% 5.0% -4.0 pp

Sales (HKDm) 9,537 11,260 -15% 9,855 12,130 -19% 10,407 11,842 -12%

Gross-profit margin (%) 34.1% 34.9% -0.8 pp 35.0% 36.0% -1.0 pp 35.9% 36.6% -0.7 pp

Operating-profit margin (%) 7.3% 10.1% -2.8 pp 7.8% 11.4% -3.6 pp 8.7% 11.1% -2.5 pp

Net profit (HKDm) 814 1,122 -27% 780 1,334 -42% 903 1,266 -29%

Adj EPS (HKD) 0.52 0.81 -36% 0.56 0.97 -42% 0.65 0.92 -29%



3



Profit and loss (HKDm)

Cash flow (HKDm)


Year to 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

Textile revenue growth YoY (%) 16.8 (21.7) (7.9) (6.1) 0.5 2.0 4.0 8.2

Number of retail outlets 3,827 3,658 3,085 2,924 2,743 2,713 2,703 2,693

Sales per retail outlet (HKDm) 1.8 1.5 1.4 1.5 1.6 1.7 1.8 1.8

EBIT margin - textile (%) 9.9 10.0 13.4 13.2 14.0 14.2 14.8 15.5

EBIT margin - retail (%) 2.3 (2.5) (5.1) 0.3 (2.0) 0.0 0.2 1.0

Year to 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

Production, dyeing and sale of knitted

fabric and yarn Revenues6,976 5,460 5,026 4,718 4,741 4,837 5,031 5,442

Apparel retailing Revenues 6,766 5,768 4,816 4,591 4,592 4,680 4,803 4,945

Other Revenue 23 22 17 13 11 20 20 20

Total Revenue 13,766 11,251 9,860 9,322 9,343 9,537 9,855 10,407

Other income 161 304 144 101 80 51 51 51

COGS (9,692) (7,778) (6,578) (6,145) (6,171) (6,287) (6,407) (6,673)

SG&A (3,300) (3,239) (2,938) (2,602) (2,673) (2,604) (2,734) (2,882)

Other op.expenses (15) (2) 0 (14) (13) 0 0 0


Net-interest inc./(exp.) 144 160 138 162 78 80 89 93

Assoc/forex/extraord./others 64 44 81 34 700 34 36 39

Pre-tax profit 1,128 740 707 858 1,345 811 888 1,034

Tax (169) (59) (118) (86) (87) (96) (107) (124)

Min. int./pref. div./others (28) 53 79 1 (206) (51) (1) (7)

Net profit (reported) 930 734 668 773 1,051 664 780 903


EPS (reported)(HKD) 0.683 0.539 0.489 0.560 0.760 0.480 0.565 0.653

EPS (adjusted)(HKD) 0.683 0.539 0.475 0.560 0.428 0.517 0.565 0.653

EPS (adjusted fully-diluted)(HKD) 0.677 0.537 0.473 0.560 0.428 0.517 0.565 0.653

DPS (HKD) 0.500 0.400 0.483 0.560 0.620 0.471 0.452 0.523

EBIT 921 537 488 663 567 697 764 903

EBITDA 1,266 908 826 944 933 1,075 1,154 1,303

Year to 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

Profit before tax 1,128 740 707 858 1,345 811 888 1,034


Tax paid (186) (122) (199) (114) (87) (96) (107) (124)

Change in working capital (34) 438 344 79 (264) (35) (45) (87)

Other operational CF items (304) (459) (225) (239) (778) (114) (124) (131)

Cash flow from operations 948 967 965 865 582 945 1,003 1,092

Capex (262) (105) (116) (99) (207) (200) (170) (170)

Net (acquisitions)/disposals 22 112 145 260 23 0 0 0

Other investing CF items (351) (609) 1,238 (148) 23 (71) (70) (67)

Cash flow from investing (591) (602) 1,267 13 (161) (271) (240) (237)

Change in debt 18 (97) (1,639) 38 (1,064) 0 0 0

Net share issues/(repurchases) 3 47 69 (24) 0 0 0 0

Dividends paid (762) (504) (684) (705) (801) (481) (640) (663)

Other financing CF items 144 160 0 0 78 80 89 93

Cash flow from financing (598) (395) (2,255) (691) (1,787) (402) (552) (571)

Forex effect/others 68 49 (1) (1) 0 0 0 0

Change in cash (172) 19 (24) 186 (1,367) 272 211 284

Free cash flow 686 862 849 765 374 745 833 922


4


Financial summary continued … Balance sheet (HKDm)

Key ratios (%)


As at 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

Cash & short-term investment 4,536 5,188 4,101 4,388 3,168 3,690 4,002 4,385

Inventory 2,713 1,992 1,898 1,867 2,047 2,086 2,126 2,214

Accounts receivable 1,087 935 890 917 698 712 736 777

Other current assets 2,388 1,582 447 518 725 725 725 725

Total current assets 10,724 9,696 7,336 7,690 6,637 7,213 7,588 8,101

Fixed assets 2,262 2,053 1,844 1,663 1,500 1,360 1,141 911


Other non-current assets 417 530 513 613 1,154 1,120 1,125 1,131

Total assets 13,436 12,313 9,727 9,999 9,325 9,727 9,887 10,176

Short-term debt 3,193 3,283 1,502 1,748 530 530 530 530

Accounts payable 1,427 854 964 1,057 978 996 1,015 1,057

Other current liabilities 2,405 1,660 572 565 777 777 777 777

Total current liabilities 7,025 5,797 3,039 3,370 2,285 2,303 2,322 2,364

Long-term debt 413 225 367 158 313 313 313 313


Total liabilities 7,550 6,143 3,540 3,679 2,764 2,783 2,802 2,844

Share capital 68 68 69 69 69 70 70 70

Reserves/R.E./others 5,495 5,794 5,887 6,017 6,063 6,395 6,535 6,775

Shareholders' equity 5,563 5,862 5,956 6,086 6,132 6,465 6,605 6,845

Minority interests 323 308 231 234 429 480 481 488


EV 7,995 7,257 6,625 6,360 6,724 6,245 5,930 5,548

Net debt/(cash) (930) (1,679) (2,232) (2,482) (2,325) (2,847) (3,159) (3,542)

BVPS (HKD) 4.051 4.269 4.342 4.405 4.438 4.678 4.780 4.953

Year to 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

Sales (YoY) 16.1 (18.3) (12.4) (5.4) 0.2 2.1 3.3 5.6

EBITDA (YoY) (24.3) (28.3) (8.9) 14.2 (1.2) 15.3 7.3 12.9

Operating profit (YoY) (32.0) (41.7) (9.1) 35.9 (14.5) 23.0 9.7 18.1

Net profit (YoY) (17.9) (21.1) (11.6) 19.1 (23.5) 20.8 9.2 15.7

Core EPS (fully-diluted) (YoY) (18.8) (20.8) (11.8) 18.3 (23.5) 20.8 9.2 15.7


EBITDA margin 9.2 8.1 8.4 10.1 10.0 11.3 11.7 12.5



ROAE 17.2 12.9 11.0 12.8 9.7 11.3 11.9 13.4

ROAA 7.2 5.7 5.9 7.8 6.1 7.5 8.0 9.0

ROCE 9.9 5.6 5.5 8.1 7.3 9.2 9.7 11.2

ROIC 16.0 10.5 9.6 15.3 13.1 14.7 16.8 20.6




Current ratio (x) 1.5 1.7 2.4 2.3 2.9 3.1 3.3 3.4

Net interest cover (x) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.


Free cash flow yield 7.9 9.9 9.8 8.8 4.3 8.6 9.6 10.6

Company profile

Texwinca’s core businesses are textile manufacturing and apparel retailing. The US is the major market for the textile business, accounting for about 60% of that operation’s turnover.


Please see the important notice on the back page

SELL (Unchanged) TP: Bt 29.00 (From: Bt 37.00) 20 JUNE 2016

Change in Numbers Downside : 12.8%

Total Access Comm. (DTAC TB)

SARACHADA SORNSONG 662 – 617 4966

[email protected]

Don’t catch the falling knives

Despite the share price falling by 10 % MTD, we reiterate our SELL on the stock and lower our TP to Bt29. Even looking beyond 2Q16F earnings, which we think s hould be the bottom, DTA C’s earnings visibility remains p oor due to its o ngoing market share losses and rising costs. Meanwhile, its dividend yield is not attractive at only 4%.

Unable to defend its turf Despite investing aggressively to improve its network quality and brand perception, DTAC is still unable to defend its turf. We project service revenue to contract by 1.2% y- y in 2Q16F, implying a further d ecline in its market share to 2 8%, on our estimates. This is worse than we had initially expected, and we now look for DTAC’s market share losses to be more sev ere as: 1) TRUE is g aining strong momentum in the prepaid segment, and with its deeper pockets, we don’t expect it t o slow its aggressiveness. 2) After winning the 900 MHz s pectrum, ADVANC’s bandwidth situation is better than before. We also expect ADVANC to be aggressive in defending its market share. 3) Intensifying competition could cap the operators’ ability to improve data monetization, leading to slowing industry growth.

Cutting earnings by 14-24% for 2016-18F While we factor in a sharp rise in DTAC’s network amortization and operating costs, its revenue growth is tracking weaker than expected for 2Q16F. As ADVANC won the earlier 900 MHz spectru m auction, we don’t expe ct DTAC to benefit from any 2G roaming revenue windfalls. To reflect our new lower service revenue growth forecasts, we cut our ear nings by 14-24% for 2016-18F . We now look for a 46% earnings contraction this y ear and project earnings to re bound by only 17% in 2017F . On the back of these cuts, we cut our DCF-based TP to Bt29 (from Bt37).

Reiterate SELL As the market expects very weak 2Q16 results, DTAC’s share price has fallen by 10% MTD. Even so, we don’t think its weak earnings outlook has been fully priced in. We project its 2Q16F earnings to fall by 65% y-y and 62% q-q, the worst quarter since 2 Q13. Even factoring in the impact o f seasonality and even if earning s were to improve in 3Q16, the road to recovery would still look limited as costs are likely to increase significantly and we expect it to continue losing market share. Given that DTAC is trading at 24x PE for 2016F , versus our negative 2016 EPS gro wth forecast of 46%, we think its valuation looks expensive. SELL.

Any upside risks? In addition to the weak earnings, DTAC’s business sustainability is another concern as its concessions are going to expire in 2018. Also, it only has 2.1GHz of spectrum on its licensing platform. With this in mind, DTAC is working with CAT to set up a JV for 2G towers and enter into a wholesaler/retailer contract for 20MHz of unused bandwidth from its 1800M Hz contract in order to offer a 4G service. The successful co-operation with CAT would act as a positive share price c atalyst. That said, as there is lots of red tape, we don’t foresee this being an easy ride in the near future.

Than

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COMPANY VALUATION

Y/E Dec (Bt m) 2015A 2016F 2017F 2018F

Sales 87,753 88,564 91,533 95,137

Net profit 5,893 3,316 3,869 5,571

Consensus NP 4,020 4,175 4,707

Diff frm cons (%) (17.5) (7.3) 18.4

Norm profit 6,188 3,316 3,869 5,571

Prev. Norm profit 4,381 4,791 6,479

Chg frm prev (%) (24.3) (19.2) (14.0)

Norm EPS (Bt) 2.6 1.4 1.6 2.4

Norm EPS grw (%) (42.4) (46.4) 16.7 44.0

Norm PE (x) 12.7 23.7 20.3 14.1

EV/EBITDA (x) 4.2 4.2 3.7 3.0

P/BV (x) 2.9 2.9 2.9 2.9

Div yield (%) 8.8 4.1 4.5 5.6

ROE (%) 20.7 12.2 14.2 20.5

Net D/E (%) 139.1 124.2 105.0 80.0

PRICE PERFORMANCE

(60)(50)(40)(30)(20)(10)010

0

20

40

60

80

100

Jun-15 Oct-15 Feb-16 Jun-16

(%)(Bt/shr) DTAC Rel to SET Index

COMPANY INFORMATION

Price as of 20-Jun-16 (Bt) 33.25

Market Cap (US$ m) 2,235.8

Listed Shares (m shares) 2,367.8

Free Float (%) 29.4

Avg Daily Turnover (US$ m) 23.5

12M Price H/L (Bt) 85.00/27.75

Sector Telecom

Major Shareholder Telenor Asia Pte Ltd 42.62%

Sources: Bloomberg, Company data, Thanachart estimates

Than

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China Financials

What’s new: In May 2016, VAT reform was implemented in the China insurance sector. We believe this reform will be negative for the China insurers, especially the P&C insurers, as most of their expenses are not VAT deductible. What’s the impact: Revenue recognition: from gross premium to net premium. Under the VAT system, only the net revenue (exclusive of the 6% VAT) is recognised as revenue, compared with the sales tax system, where the revenue includes the sales tax amount. Namely, the revenue accrued using VAT comes to 94.34% (ie, 1/[1+0.06]) of that under the sales tax. Premium revenue: higher tax amount for P&C. The premium tax base for VAT is the same as that for sales tax, ie, premiums for short-term (one year or below) life insurance, short-term accidental insurance and most P&C insurance are taxable. For P&C insurance, only agriculture, export credit, export cargo and policy critical illness insurance are currently tax-free (c.11% of premiums for PICC P&C in 2015). For life insurance, 80-95% of the premiums are tax-free. As the overall VAT tax rate (6.23%, surcharges included; [1-0.9434] * [1+0.07+0.03]) is higher than that of sales tax (5.5%, surcharges included), the tax amount will be substantially (c.18% p.a. on our estimates) higher for P&C insurers. Investment income: slightly higher tax amount. We note that the tax base for investment income is largely the same under for VAT and sales tax, except that all repurchase transactions and enterprise annuity businesses are tax-free under VAT. But given the VAT tax-rate (surcharges included) is 6.23%, higher than the previous 5.5% sales tax rate, the tax amount is likely to be slightly higher. Also, interest from AFS corporate bonds and dividends from equities might be subject to VAT. Further regulatory clarification will be needed. Expenses: most not deductible. As most of the insurers’ expenses are either paid to individuals (most of the claims, individual agent commissions and staff expenses) or are accrued on a non-cash basis (reserves), input VAT invoices for such expenses are not available and hence these expenses are not VAT-deductible. We understand that some P&C insurers are trying to up the number of auto claims settled with car repair shops instead of paying individual customers directly, as car repair stores can issue input VAT invoices. What we recommend: We believe the May 2016 China P&C insurers’ premium data slowed down due to the above reasons. We believe the overall VAT reform is negative for the P&C insurers but neutral for the life insurers (see Impact from potential VAT reform and A new dawn for our sector views). How we differ: We believe the market has underestimated the negative impact of VAT reform on P&C insurers.

20 June 2016

China Insurance Sector

VAT reform: more negative for P&C insurers than life

Revenue recognition changed from gross premium to net premium (5.7% lower) for taxable premium, more negative for P&C than life

Taxable investment income is now being charged at a higher tax rate of 6.23% (surcharges included; previously 5.5%)

Most of the claims, commission and operating expenses might not be VAT deductible; we reiterate our Positive stance

Selected China insurers: estimated impact of VAT reform (2016)

Item China Life

Ping An

CPIC PICC P&C

Premium revenue -0.4% -1.8% -1.9% -3.6%

Investment income -2.5% -2.8% -2.8% -3.5%

Total revenue -0.5% -1.8% -1.9% -3.6%

Expenses -0.1% -0.3% -0.4% -0.5%

Profit-before-tax -0.5% -1.2% -1.4% -2.7%

Source: Companies, Daiwa estimates

China P&C insurers: premium growth

(CNYbn) May-16 YoY % 4M16 YoY %

Ping An P&C 12.9 -0.9% 57.0 3.8%

China Pacific P&C 7.5 -4.6% 34.0 4.3%

PICC P&C 24.5 4.8% 107.5 14.5%

Taiping * 1.5 13.7% 6.1 21.5%

Total 46.4 1.8% 204.6 9.8%

Source: Companies, Daiwa Note: 1) VAT reform for financial sectors started on 1 May

2016; 2) Taiping only includes its domestic P&C business via TPI

Leon Qi, CFA(852) 2532 4381

[email protected]

Ailsa He(852) 2773 8745

[email protected]


http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20151015cn_China_Insurance_Sector_Impact.pdf#page=1http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20151015cn_China_Insurance_Sector_Impact.pdf

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/China_Insurance_Sector_160105.pdf#page=1http://asiaresearch.daiwacm.com/eg/cgi-bin/files/China_Insurance_Sector_160105.pdf

2

China Insurance Sector: 20 June 2016

Selected China insurers: estimated impact of VAT reform (2016)

China Life Ping An CPIC PICC P&C

Premium revenue -0.4% -1.8% -1.9% -3.6%

Investment income -2.5% -2.8% -2.8% -3.5%

Total revenue -0.5% -1.8% -1.9% -3.6%

Expenses -0.1% -0.3% -0.4% -0.5%

PBT -0.5% -1.2% -1.4% -2.7%

Source: Companies, Daiwa estimates

Selected China insurers: business tax as a % of profit before tax (2015)

(CNY m) China Life Ping An CPIC PICC P&C

Business tax and surcharges 4,681 12,144 6,576 13,682

As % of total income 0.9% 2.5% 2.7% 5.1%

As % of profit-before-tax 10.2% 24.9% 27.0% 48.5%

Source: Companies, Daiwa

Global comparison of the VAT system on insurance companies

US EU Japan Singapore New Zealand Australia Canada South Africa

Life insurance VAT-free * VAT-free * VAT-free * VAT-free * VAT-free * VAT-free * VAT-free * VAT-free for long-

term (≥1-year) products

P&C insurance VAT-free * VAT-free * VAT-free * VAT(7% tax rate) VAT(15% tax rate) VAT (10% tax

rate) VAT-free * VAT(14% tax rate)

Source: KPMG, Daiwa Note: Other types of tax applicable, such as insurance premium tax and stamp tax etc.

Global insurance companies: valuation comparison

Company Ticker Market cap Rating Price PBR (x) PER (x) ROE (%) ROA (%) Leverage (x)

(USD bn)

(LC) 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E

CHINA / HK - H SHARE

China Life 2628 HK 81 Hold 16.72 1.1 1.0 53.5 10.5 2.2 9.8 0.3 1.4 7.5 7.3

Ping An 2318 HK 86 Buy 34.15 1.4 1.2 10.7 8.5 13.7 15.0 1.0 1.1 14.2 14.2

CPIC 2601 HK 35 Buy 26.60 1.5 1.3 17.9 10.4 8.4 13.3 1.2 1.8 7.1 7.3

PICC Group 1339 HK 17 Buy 3.05 0.8 0.8 8.4 6.5 10.6 12.3 1.5 1.7 7.2 7.2

PICC P&C 2328 HK 26 Hold 13.66 1.4 1.2 11.1 10.0 13.5 13.3 3.5 3.5 3.9 3.8

New China Life 1336 HK 16 Outperform 26.65 1.1 1.0 19.7 6.3 5.9 16.8 0.5 1.5 11.4 11.4

Taiping 966 HK 7 Buy 14.18 0.7 0.6 11.7 6.5 6.7 10.4 0.8 1.3 8.1 8.0

China Re 1508 HK 10 N/A 1.75 0.8 0.7 9.1 7.6 9.5 10.1 2.1 2.2 4.6 4.5

AIA Group 1299 HK 70 N/A 45.05 2.1 2.0 19.7 16.1 10.9 12.5 2.0 2.3 5.5 5.4

Sector 347

1.4 1.3 23.5 10.5 9.1 12.7 1.3 1.7 7.3 7.4

CHINA - A SHARE

China Life 601628 CH 81 N/A 20.42 1.8 1.6 18.6 15.9 9.5 10.7 1.3 1.5 7.6 7.2

Ping An 601318 CH 86 N/A 32.12 1.4 1.3 10.4 9.5 15.6 15.7 1.0 1.0 15.4 14.2

CPIC 601601 CH 35 N/A 27.11 1.8 1.6 15.8 14.0 11.8 12.1 1.6 1.6 7.4 7.3

New China Life 601336 CH 16 N/A 40.05 2.0 1.8 16.5 14.2 13.0 13.5 1.2 1.2 10.8 11.4

Sector 218

1.6 1.5 14.7 13.0 12.5 13.1 1.2 1.3 10.4 10.1

Regional

Tokio Marine 8766 JP 25 Buy 3,499 0.7 0.7 9.6 8.9 7.7 8.0 1.4 1.5 5.5 5.2

Dai-ichi Life 8750 JP 14 Buy 1,227 0.4 0.4 6.9 6.7 6.1 6.1 0.4 0.4 15.2 14.8

Samsung Life 032830 KS 17 N/A 99,600 0.7 0.7 9.2 13.1 8.3 5.2 0.8 0.6 10.0 9.3

Cathay Financial 2882 TT 15 Buy 37.6 1.0 1.0 10.7 10.2 9.5 9.7 0.6 0.6 15.6 15.1

Fubon Financial 2881 TT 13 Outperform 39.7 1.0 0.9 8.6 8.1 11.9 11.8 0.8 0.8 14.8 14.2

Sector 84

0.8 0.7 9.1 9.5 8.5 8.0 0.9 0.9 9.6 9.0

GLOBAL

Berkshire Hathaway BRK/B US 347 N/A 140.7 1.3 1.2 19.0 17.2 6.9 7.2 n.a n.a n.a n.a

Allianz ALV GR 70 N/A 134.1 0.9 0.9 8.9 8.6 10.8 10.6 1.0 0.8 11.3 12.9

AIG AIG US 60 N/A 53.4 0.6 0.6 13.2 9.5 5.7 7.2 1.0 3.5 5.4 2.0

AXA CS FP 56 N/A 20.3 0.7 0.7 8.4 8.1 9.1 8.9 0.7 0.7 13.3 12.9

MetLife Inc. MET US 46 N/A 42.2 0.6 0.6 7.7 7.0 9.3 9.2 0.8 0.8 11.8 11.4

Zurich Insurance ZURN VX 36 N/A 230.3 1.1 1.1 11.0 10.0 10.3 11.2 0.8 0.9 12.4 12.4

Prudential Financial PRU US 32 N/A 72.2 0.7 0.6 7.6 7.0 11.7 11.3 0.7 0.7 16.4 15.5

Munich RE MUV2 GR 28 N/A 154.9 0.8 0.8 10.2 9.5 7.8 8.0 0.9 1.0 8.7 8.1

ACE Ltd ACE US n.a. N/A n.a. n.a. n.a. n.a. n.a. 10.6 10.1 3.1 2.9 3.5 3.4

Swiss RE SREN VX 32 N/A 82.7 0.9 0.8 8.9 9.4 9.6 8.7 1.4 1.2 6.8 7.0

The Travelers TRV US 33 N/A 111.9 1.3 1.2 11.8 11.3 11.8 11.7 2.8 2.9 4.3 4.0

Generali G IM 22 N/A 12.3 0.8 0.7 8.1 7.7 9.7 9.7 0.5 0.5 20.7 20.2

Hannover RE HNR1 GR 11 N/A 95.1 1.3 1.3 11.0 11.0 12.7 11.9 1.7 1.7 7.7 7.2

Sector 773

1.0 1.0 13.9 12.6 8.3 8.5 0.6 0.8 14.4 11.1

Source: Bloomberg, Daiwa forecasts Note: Daiwa forecasts for China Life, Ping An, China Pacific, PICC Group, PICC P&C, New China Life and Taiping H-shares; Bloomberg consensus for other stocks. Priced as of 20 June 2016 (except US and European-listed equities [17 June 2016]).



China Information Technology

What's new: We attended Alibaba’s first-ever investor day and 3 theme tours organised by the company (Rural Taobao, AliCloud and Tmall Supermarket) from 13-15 June. We came away from the investor day more optimistic about the company’s long-term strategic vision and execution capability. Alibaba remains our top pick in the China e-commerce sector. What's the impact: Not just a sales channel. Management emphasised that Alibaba now provides merchants with a much broader range of value-added services than it had in the past, from reaching customers (online marketing) to facilitating transactions (online payment & logistics). We believe that through Alibaba’s owned or invested digital properties (Mobile Taobao, Weibo, Youku Tudou, etc), the company’s positioning now enables it to retain users and control the entire purchasing funnel (from shopping intent generation to transaction settlement). As a result, it can now generate revenue not just from merchants’ sales budgets, but also from their brand building/fulfilment/payment/administrative budgets, leading to a much bigger revenue pool for Alibaba to tap into in the future. Enhanced communication likely to lift sentiment. After hearing top executives present a detailed overview of each business line as well as the firm-wide strategic vision, we got the sense that management is more inclined to disclose a greater amount of operating and financial data in the future in order to help investors better understand Alibaba’s business. We believe this improved financial disclosure will lift overall sentiment towards the stock as it approaches the 1Q FY17 results. The practice of disclosing revenue guidance and segmental profitability reporting will provide the market with a revenue growth expectation anchor, which could lead to less share-price volatility going forward. Finally, we welcome Alibaba’s recent share repurchase (USD2bn from Softbank) and management’s equity stake increase (USD400m) as it will be value-accretive for minority shareholders, and shows management’s confidence in the company’s business growth trajectory. What we recommend: We reiterate Buy (1) and raise our 12-month TP to USD97 (from USD93), on an unchanged target PER of 30x (a 20% premium to Alibaba’s China Internet and e-commerce peers) applied to FY17E non-GAAP EPS. We also raise our 2016-18E core earnings by 4.3-5.1% to factor in potentially higher revenue growth, and a slightly lower gross margin and share count. Key risk: a slowdown in the Taobao marketplace. How we differ: We are more positive than the market on Alibaba’s mobile monetisation outlook, despite our below-market operating-margin forecasts for FY16-18.

20 June 2016

Alibaba Group

Investor Day wrap: pedal to the metal

Alibaba is set to tap into a much bigger revenue pool Improving financial disclosure should lift investor sentiment Reaffirming our Buy (1) rating; raising TP to USD97



Alibaba Group (BABA US)

Target price: USD97.00 (from USD93.00)

Share price (17 Jun): USD77.00 | Up/downside: +25.9%

John Choi(852) 2773 8730

[email protected]

Alex Liu(852) 2848 4976

[email protected]

Forecast revisions (%)Year to 31 Mar 17E 18E 19E

Revenue change 6.1 6.8 6.9

Net profit change 3.7 4.0 3.2

Core EPS (FD) change 4.8 5.1 4.3

70

79

88

96

105

55

64

73

81

90

Jun-15 Sep-15 Dec-15 Mar-16 Jun-16


Alibaba Gp (LHS)Relative to S&P 500 Index (RHS)

(USD) (%)

12-month range 57.42-86.69




Major shareholder SoftBank (28.0%)

Financial summary (CNY)Year to 31 Mar 17E 18E 19E

Revenue (m) 149,411 189,240 227,673

Operating profit (m) 35,506 50,536 64,974

Net profit (m) 53,534 68,527 84,632


EPS change (%) 26.1 26.7 22.3

Daiwa vs Cons. EPS (%) 1.3 (0.3) 1.5

PER (x) 24.5 19.4 15.8


DPS 0.000 0.000 0.000

PBR (x) 4.8 3.5 2.7

EV/EBITDA (x) 17.0 12.3 9.2

ROE (%) 22.9 22.0 20.4


3

Alibaba Group (BABA US): 20 June 2016


Profit and loss (CNYm)

Cash flow (CNYm)


Year to 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

Annual Active buyers (m) 123 172 255 350 423 499 569 626

Average spending per active buyers

(CNY)5,390 6,262 6,580 6,982 7,310 7,370 7,517 7,668

T-mall GMV (CNYbn) 113 253 505 847 1,215 1,512 1,829 2,081

Taobao GMV (CNYbn) 550 824 1,173 1,597 1,877 2,167 2,449 2,718

China Retail Total GMV (CNYbn) 663 1,077 1,678 2,444 3,092 3,679 4,278 4,799

Mobile GMV (CNYbn) 16 79 318 994 2,003 2,980 3,604 4,048

Year to 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

China retail business 13,422 26,970 42,832 59,732 80,033 108,365 134,787 156,564

China wholesale business 2,215 2,197 2,300 3,205 4,288 5,131 5,900 6,490

Other Revenue 4,388 5,350 7,372 13,267 16,822 35,915 48,553 64,618

Total Revenue 20,025 34,517 52,504 76,204 101,143 149,411 189,240 227,673

Other income 0 0 0 0 0 0 0 0

COGS (6,554) (9,719) (13,369) (23,834) (34,355) (58,266) (72,857) (87,654)

SG&A (5,269) (6,502) (8,763) (16,313) (20,512) (31,362) (36,515) (41,349)

Other op.expenses (3,187) (7,545) (5,452) (12,922) (17,174) (24,277) (29,332) (33,696)

Operating profit 5,015 10,751 24,920 23,135 29,102 35,506 50,536 64,974

Net-interest inc./(exp.) 190 (1,533) (547) 6,705 50,308 5,206 4,693 8,000

Assoc/forex/extraord./others 327 894 2,429 2,486 2,058 591 1,356 1,940

Pre-tax profit 5,532 10,112 26,802 32,326 81,468 41,302 56,584 74,914

Tax (842) (1,457) (3,196) (6,416) (8,449) (8,915) (11,317) (14,983)

Min. int./pref. div./others (462) (251) (530) (1,761) (1,559) (2,490) (2,350) (2,250)

Net profit (reported) 4,228 8,404 23,076 24,149 71,460 29,897 42,917 57,681

Net profit (adjusted) 6,452 13,869 27,610 34,981 42,741 53,534 68,527 84,632

EPS (reported)(CNY) 1.710 3.660 10.610 10.333 29.126 12.201 17.514 23.539

EPS (adjusted)(CNY) 2.609 6.040 12.695 14.968 17.420 21.846 27.964 34.537

EPS (adjusted fully-diluted)(CNY) 2.548 5.892 11.965 13.992 16.683 21.040 26.665 32.606

DPS (CNY) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

EBIT 6,404 15,672 29,077 36,338 45,639 55,030 71,300 86,703

EBITDA 7,274 16,607 30,731 40,753 52,340 63,092 79,090 93,456

Year to 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

Profit before tax 5,532 10,112 26,802 32,326 81,468 41,302 56,584 74,914

Depreciation and amortisation 870 935 1,654 4,415 5,859 7,152 7,790 6,753

Tax paid (842) (1,457) (3,196) (6,416) (8,449) (8,915) (11,317) (14,983)

Change in working capital 1,788 3,136 (4,493) 12,706 10,866 21,219 19,909 17,719

Other operational CF items 1,927 1,750 5,612 (1,814) (29,052) 40,743 40,673 39,447

Cash flow from operations 9,275 14,476 26,379 41,217 60,692 101,501 113,639 123,851

Capex (2,168) (2,503) (4,776) (7,705) (21,500) (17,000) (11,500) (9,000)

Net (acquisitions)/disposals (877) (36) (17,111) (33,586) (20,000) (6,000) (6,000) (6,000)

Other investing CF items 2,920 3,084 (11,110) (12,163) 0 0 0 0

Cash flow from investing (125) 545 (32,997) (53,454) (41,500) (23,000) (17,500) (15,000)

Change in debt 121 26,932 12,789 (22,713) 26,000 0 0 0

Net share issues/(repurchases) 616 (12,777) 1,923 61,438 (15,000) (13,000) 0 0

Dividends paid (9) (103) (208) (104) 0 0 0 0

Other financing CF items (253) (15,458) (5,140) 48,876 0 0 0 0

Cash flow from financing 475 (1,406) 9,364 87,497 11,000 (13,000) 0 0

Forex effect/others (54) (76) (97) (112) 0 0 0 0

Change in cash 9,571 13,539 2,649 75,148 30,192 65,501 96,139 108,851

Free cash flow 8,752 19,745 32,269 48,121 68,715 112,001 125,139 132,851


4

Alibaba Group (BABA US): 20 June 2016

Financial summary continued … Balance sheet (CNYm)

Key ratios (%)


As at 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E


Inventory 0 0 0 0 0 0 0 0

Accounts receivable 1,669 1,734 4,679 12,978 16,183 22,412 26,494 29,597

Other current assets 1,174 5,055 14,601 4,493 4,164 4,256 4,226 4,113


Fixed assets 4,164 5,703 7,241 12,244 19,272 23,182 23,623 24,879

Goodwill & intangibles 11,791 11,628 13,699 48,508 84,342 93,517 105,085 119,106

Other non-current assets 3,356 3,293 22,776 52,573 73,545 81,959 88,058 95,595

Total assets 47,210 63,786 111,549 255,434 352,336 445,656 563,956 698,612

Short-term debt 1,283 5,448 10,364 1,990 1,990 1,990 1,990 1,990

Accounts payable 4,659 8,961 11,887 19,834 28,589 48,488 60,630 72,943

Other current liabilities 5,809 9,586 15,133 17,848 23,661 33,433 45,118 54,828


Long-term debt 0 22,462 30,711 50,603 76,603 76,603 76,603 76,603

Other non-current liabilities 1,046 6,283 2,636 7,088 7,234 7,516 7,748 7,973


Share capital 20,809 32,189 37,445 117,801 102,801 89,801 89,801 89,801

Reserves/R.E./others 10,709 (21,680) 2,294 28,296 99,544 175,740 269,770 382,028


Minority interests 2,895 537 1,079 11,974 11,915 12,086 12,296 12,446


EV 1,242,281 1,255,320 1,240,736 1,170,853 1,146,601 1,075,271 973,342 858,641

Net debt/(cash) (23,773) (8,463) (7,478) (72,045) (76,237) (141,738) (237,878) (346,728)

BVPS (CNY) 12.735 n.a. 13.489 62.233 82.204 108.094 146.465 192.276

Year to 31 Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E

Sales (YoY) n.a. 72.4 52.1 45.1 32.7 47.7 26.7 20.3

EBITDA (YoY) n.a. 128.3 85.0 32.6 28.4 20.5 25.4 18.2

Operating profit (YoY) n.a. 144.7 85.5 25.0 25.6 20.6 29.6 21.6

Net profit (YoY) n.a. 115.0 99.1 26.7 22.2 25.3 28.0 23.5

Core EPS (fully-diluted) (YoY) n.a. 131.2 103.1 16.9 19.2 26.1 26.7 22.3


EBITDA margin 36.3 48.1 58.5 53.5 51.7 42.2 41.8 41.0



ROAE 41.0 88.2 188.4 40.0 24.6 22.9 22.0 20.4

ROAA 27.3 25.0 31.5 19.1 14.1 13.4 13.6 13.4

ROCE 35.9 42.0 48.1 24.8 18.1 17.0 17.7 17.1

ROIC 79.9 139.2 122.2 31.1 23.3 20.3 30.0 38.3




Current ratio (x) 2.4 1.8 1.8 3.6 3.2 2.9 3.2 3.5

Net interest cover (x) n.a. 10.2 53.2 n.a. n.a. n.a. n.a. n.a.



Company profile

Alibaba group is the world’s largest e-commerce and m-commerce company in terms of GMV in 2014. Alibaba’s ecosystem comprises B2C, C2C, B2B platforms, payment solutions, and cloud business for third-party service providers and other strategic partners.



China Financials

What's new: Following our recent visit to PICC P&C in Beijing, we now expect stable profitability and premium growth for the company in 2016. What's the impact: Auto-premium growth in line with sector. According to PICC P&C, it accumulated around 10% YoY auto premium growth for 5M16, slightly higher than the sector average but much lower than Ping An P&C’s. For 2016, PICC P&C has revised up its auto premium target to “the same as the sector average” from “slightly lower than the sector average” which was the case for the past few years. Note that starting from May 2016, all of the China insurers’ premium revenue has been affected by the VAT reform (see our associated note, VAT reform: more negative for P&C insurers than life). Auto-insurance pricing reform is to expand nationwide by end-June 2016. According to PICC P&C, for the first 2 batches of areas impacted by the reforms for 2016 YTD, the spike in expense ratio has offset the fall in the claim ratio, leaving the combined ratio (CR) unchanged YoY. Separately, based on local media, the auto CR at PICC P&C, Ping An P&C and China Pacific P&C rose by 35bps, 116bps and 125bps, respectively, and sector auto CR by 69bp YoY nationwide in 4M16. Besides, we see the claim ratio rebounding towards the policy year-end (see Reality check for property & casualty). Non-auto lines have become the major driver of overall premium growth (c.19% YoY for 5M16, on our estimates). As per PICC P&C, liability insurance is one of its premium growth areas for 2016, while its agriculture insurance premium growth is likely to be slower than the sector due to the increased competition. Traditional lines closely related to the macro economy, such as cargo and marine insurance have seen negative premium growth YTD. Non-auto profitability might come under pressure due to: 1) a higher proportion (>50%) of government critical illness insurance business (under A&H insurance). Currently, the CR of this unit is slightly above 100%, and 2) more frequent natural disasters than usual in 5M16, the July-Aug period should be the key to determine full-year losses relating to natural disasters. What we recommend: We maintain our Hold (3) rating on the stock and our Gordon Growth Model-derived 12-month TP of HKD13.0. Its 2016E PBR of 1.4x looks fair to us given its 11-14% ROE in 2016-18E (but overshadowed by contribution from Huaxia Bank, which accounts for c.18% of its PBT). Upside risk: faster-than-expected premium agriculture insurance growth; downside risk: a rise in the CR in areas where auto insurance reform started in 2015. How we differ: Unlike others in the market, we believe it is still too early to conclude that the CR could decline after auto insurance pricing reform is rolled out nationwide.

20 June 2016

Stable but unexciting business

Premium growth for both auto and non-auto lines affected by VAT reform Non-auto lines, especially liability insurance, the growth driver for 2016 Maintaining our Hold (3) rating and target price of HKD13.0



PICC Property and Casualty (2328 HK)


Share price (20 Jun): HKD13.66 | Up/downside: -4.8%

Leon Qi, CFA(852) 2532 4381

[email protected]

Ailsa He(852) 2773 8745

[email protected]

Forecast revisions (%)Year to 31 Dec 16E 17E 18E

Revenue change - - -

Net profit change - - -

Core EPS (FD) change - - -

90

99

108

116

125

11

13

15

17

19



PICC Prop (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 11.32-18.44




Major shareholder PICC Group (69.0%)

Financial summary (CNY)Year to 31 Dec 16E 17E 18E

Net premiums (m) 269,188 290,651 314,141

Net investment income (m) 14,170 13,980 14,974

Net profit (m) 15,514 17,263 16,540


EPS change (%) (29.0) 11.3 (4.2)

Daiwa vs Cons. EPS (%) (15.9) (16.4) n.a.

PER (x) 11.1 10.0 10.4


DPS 0.216 0.240 0.230

PBR (x) 1.4 1.2 1.0

ROE (%) 13.5 13.3 11.0


http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20160620cn_China_Insurance_Sector.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20160504cn_China_Insurance_Sector.pdf#page=1

2

PICC Property and Casualty (2328 HK): 20 June 2016

PICC P&C: 12-month rolling premium growth China insurance companies: May 2016 premiums

(CNYbn) May-16 YoY % 5M16 YoY%

Life

China Life 2628 HK 26.6 8.3% 250.2 26.1%

Ping An Life 2318 HK 19.1 35.8% 144.2 33.0%

CPIC Life 2601 HK 9.5 24.5% 68.7 33.4%

PICC Life 1339 HK 4.0 63.6% 76.0 20.9%

New China Life 1336 HK 6.5 27.1% 60.8 -2.6%

Taiping Life 966 HK 4.8 10.4% 52.6 17.6%

Total 70.5 21.2% 652.4 23.5%

P&C

Ping An P&C 2318 HK 12.9 -0.9% 69.9 2.9%

CPIC P&C 2601 HK 7.5 -4.6% 41.5 2.6%

PICC P&C 2328 HK 24.5 4.8% 132.0 12.6%

Taiping * 966 HK 1.5 13.7% 7.6 19.9%

Total 46.4 1.8% 251.0 8.2%

Source: Company, Daiwa

Source: Companies, Daiwa *Note: Taiping only includes its domestic P&C business via TPI.

China P&C insurance sector: YTD cumulative claim / gross premium

PICC P&C: 2015 combined ratios for different product lines

Source: CIRC, Daiwa Source: Company

China P&C insurance sector: monthly cumulative claim / gross premium

2011 2012 2013 2014 2015 2016

Jan 35.5% 34.7% 45.9% 48.2% 40.1% 41.8%

Feb 36.1% 41.6% 49.9% 48.4% 47.8% 47.9%

Mar 37.9% 44.0% 48.2% 47.5% 46.2% 49.9%

Apr 38.1% 44.1% 48.1% 47.6% 46.6% 49.7%

May 39.6% 45.6% 49.1% 48.0% 47.0%

Jun 39.7% 45.2% 47.8% 47.3% 45.7%

Jul 40.6% 46.5% 49.3% 48.3% 47.1%

Aug 42.1% 48.1% 50.5% 49.1% 48.3%

Sep 42.9% 48.9% 50.9% 49.5% 48.9%

Oct 43.7% 49.6% 51.8% 50.0% 49.4%

Nov 45.6% 51.3% 53.6% 51.1% 50.7%

Dec 47.4% 52.8% 55.4% 52.6% 52.5%

Source: CEIC, Daiwa

(5%)

0%

5%

10%

15%

20%

0

100

200

300

400

500

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep

-15

Nov

-15

Jan-

16

Mar

-16

May

-16

(CNYbn)

Rolling 12M premium YoY (RHS)

30%

35%

40%

45%

50%

55%

60%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011 2012 20132014 2015 2016

60.5% 66.4% 90.1%

57.9% 49.1% 64.8% 64.7%

35.6% 42.5%

16.8%

39.0% 40.4% 18.4%

34.8%

(10%)

10%

30%

50%

70%

90%

110%

Mot

or v

ehic

le

Com

mer

cial

prop

erty A&

H

Liab

ility

Car

go

Agr

icul

atur

e

Oth

ers

Loss ratio Expense ratio


3




Change (YoY %) and margins (%)


Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

P&C premium growth (%) 12.7 11.2 15.5 13.2 11.3 10.1 8.0 8.1

Combined ratio (%) 94.0 95.1 96.7 96.5 96.5 98.0 99.2 99.9

Loss ratio (%) 65.8 63.6 66.2 64.4 62.7 62.4 62.2 62.2

Expense ratio (%) 28.2 31.6 30.5 32.2 33.8 35.7 36.9 37.6

Investment assets growth (%) 28.6 14.2 10.4 23.2 16.6 0.0 8.0 8.0

Net investment yield (%) 3.9 4.1 4.4 4.5 4.5 4.1 3.9 3.9

Solvency ratio (%) 184 175 180 239 226 250 276 306

Payout ratio (%) 31.2 24.7 59.8 26.5 20.6 20.6 20.6 20.6

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Net written prem. & policy fees 136,619 164,131 191,756 221,758 252,129 283,713 306,334 331,091

Net earned premiums 133,134 155,304 182,546 211,169 244,567 269,188 290,651 314,141

Net claims incurred (87,546) (98,722) (120,902) (135,947) (153,422) (167,847) (180,922) (195,517)

Deferred policy acq. cost amort. 0 0 0 0 0 0 0 0

Underwriting & policy acq. cost (20,290) (29,505) (34,437) (41,803) (54,255) (62,197) (67,826) (74,031)

G&A expenses (17,282) (19,496) (21,247) (26,128) (28,289) (33,829) (39,433) (44,190)

P'holders' div. & profit particip. 0 0 0 0 0 0 0 0

Other underwriting inc./(exp.) 0 0 0 0 0 0 0 0

Underwriting profit/(loss) 8,016 7,581 5,960 7,291 8,601 5,314 2,470 402

Net investment inc./(exp.) 6,529 8,387 9,939 12,141 14,268 14,170 13,980 14,974

Net realised & unrealised gains/(losses)

on inv.(2,600) (913) (342) 1,319 6,562 (3,985) 1,266 1,423

Associates' profits 108 66 77 307 473 4,520 4,572 4,630

Other inc./(expenses) (1,767) (1,772) (2,195) (1,617) (1,701) (1,258) (1,285) (1,353)


Tax (2,259) (2,944) (2,881) (4,326) (6,356) (3,247) (3,741) (3,537)

Min. int./pref. div./others 0 0 0 0 0 0 0 0



EPS (reported) (CNY) 0.602 0.781 0.747 1.061 1.473 1.046 1.164 1.115

EPS (adjusted) (CNY) 0.602 0.781 0.747 1.061 1.473 1.046 1.164 1.115

EPS (adjusted, fully-diluted)) (CNY) 0.602 0.781 0.747 1.061 1.473 1.046 1.164 1.115

DPS (CNY) 0.188 0.193 0.446 0.281 0.304 0.216 0.240 0.230

EV/share (CNY) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Gross premium growth 12.7 11.2 15.5 13.2 11.3 10.1 8.0 8.1

Net premium growth 8.2 16.7 17.5 15.7 15.8 10.1 8.0 8.1

Net claims incurred n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Underwriting profit/(loss) 188.3 (5.4) (21.4) 22.3 18.0 (38.2) (53.5) (83.7)

Net investment income 64.5 28.5 18.5 22.2 17.5 (0.7) (1.3) 7.1

Net profit (reported) 51.8 29.6 1.5 43.2 44.5 (29.0) 11.3 (4.2)

Net profit (adjusted) 51.8 29.6 1.5 43.2 44.5 (29.0) 11.3 (4.2)

EPS (reported) 44.7 29.6 (4.3) 42.1 38.9 (29.0) 11.3 (4.2)

EPS (adjusted) 44.7 29.6 (4.3) 42.1 38.9 (29.0) 11.3 (4.2)

EPS (adjusted, fully-diluted) 44.7 29.6 (4.3) 42.1 38.9 (29.0) 11.3 (4.2)

DPS n.a. 2.7 131.2 (37.1) 8.2 (29.0) 11.3 (4.2)

EV/share n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Underwriting margin (%) 6.0 4.9 3.3 3.5 3.5 2.0 0.8 0.1

PBT margin (%) 7.7 8.6 7.4 9.2 11.5 7.0 7.2 6.4

Net-profit margin (%) 6.0 6.7 5.8 7.2 8.9 5.8 5.9 5.3


4



Key ratios (%)


As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Cash & bank balances 14,135 12,890 16,272 24,157 22,828 20,642 18,577 20,064

Total investment 169,571 189,899 202,722 241,673 279,572 290,020 317,938 344,424

Loans and advances 0 0 0 0 0 0 0 0

Deferred acquisition costs 0 0 0 0 0 0 0 0

Investment in associates 2,131 2,584 3,973 4,750 8,584 33,363 35,031 36,783

Net fixed assets 16,180 17,478 17,554 17,217 17,461 17,636 17,812 17,990

Goodwill & other intangibles 0 0 0 0 0 0 0 0

Assets under management 0 0 0 0 0 0 0 0

Reins. recov. on unpaid losses 24,275 22,637 26,431 25,681 26,426 37,333 41,440 45,998

Receivables 37,440 43,581 51,202 52,652 65,549 67,672 87,201 109,720

Other assets 1,912 1,355 1,270 0 0 0 0 0

Total assets 265,644 290,424 319,424 366,130 420,420 466,666 517,999 574,979

Customer deposits 0 0 0 0 0 0 0 0

Technical reserves 78,428 85,878 93,844 104,285 116,599 127,384 139,027 151,609

Unearned premium reserves 69,617 75,634 86,595 95,638 102,915 112,599 123,056 134,357

Payables 26,282 17,242 18,153 11,158 9,882 10,962 12,042 13,006

Borrowing 19,299 19,427 19,562 22,449 16,297 16,297 16,297 16,297

Other liabilities 36,858 46,793 43,766 46,825 65,776 78,488 89,882 95,459


Share capital 12,256 12,256 13,604 14,828 14,828 14,828 14,828 14,828

Reserves & others 22,904 33,194 43,895 70,942 94,118 106,103 122,863 149,418




Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

ROAE (adjusted) 26.0 25.8 20.5 21.1 22.4 13.5 13.3 11.0

Net earned premium/equity 378.7 341.7 317.5 246.2 224.5 222.6 211.1 191.3

Total investment return 2.3 3.7 5.1 5.2 6.7 3.0 4.3 4.2

Net debt to equity 14.7 14.4 5.7 net cash net cash net cash net cash net cash


Dividend payout 31.2 24.7 59.8 26.5 20.6 20.6 20.6 20.6

Company profile

PICC Property & Casualty (PICC P&C) was established in July 2003, with PICC Group as its sole promoter, and was listed on the Hong Kong Stock Exchange on 6 November 2003. It is the largest non-life insurance company in China in terms of gross premiums as at 2014. PICC P&C offers a wide range of non-life insurance products covering autos, commercial property, accidental injury and agriculture, etc.



China Industrials

What's new: China State Construction International (CSCI) attended our Auto and Industrial Leader Conference today (20 June). Overall we remain confident on CSCI’s long-term business growth prospects and see its current valuation as undemanding. We expect more good news. What's the impact: New-contract growth remains strong – According to management, CSCI was awarded new contracts worth HKD37bn in 5M16, 47% of management’s 2016 full-year guidance. Like previous years, management sees a target revision as a possibility during its interim results announcement in August. Overall, CSCI expects its PRC segment to continue to lead its new-contract growth, while management sees upside for the margins of its HK construction segment, which was dragged down by the provision made for the lead water incident in 2015. Gearing concerns should be relieved – CSCI’s end-2015 net gearing ratio rose to 46%, slightly above the 40% management target, due mainly to CNY depreciation. After the injection of China Overseas Building (COB) from its parent company in mid-May and strong cash collection, CSCI’s net gearing has fallen back to about 30%. Management is confident in maintaining the ratio below 40% for the next three years. Next M&A target will likely be overseas assets – Though no concrete timetable was given, management said the next asset injection target would likely be an overseas construction subsidiary from its parent in the mature Asian market. We expect share issuance on the asset acquisition, but believe sentiment would be better if it were acquired at the current low valuation of the stock. We cut our 2016-18E EPS by 6-11% to incorporate the share-dilution effect resulting from the recent asset injection as well as the share placement. However, our 12-month target price remains unchanged at HKD15 as we roll over our valuation base to the average of our 2016-17E EPS (previously 2016E). Our target PER remains unchanged at 12x. What we recommend: We reiterate our Buy (1) rating. We think the market has overreacted on the purchase of COB and expect the stock to recover on a new-contract revision, strong net-profit growth and asset injection. The stock is trading close to its railway construction peers, which we see as undemanding due to its strong earnings track record. The key risk to our call would be lower-than-expected new-contract growth. How we differ: Our 2016-18E EPS are 4-9% below the consensus as we have factored in the dilution effect of the recent share placement.

20 June 2016

Worth a revisit

New-contract growth on track; revision of target likely Improvement in cash flow and asset injection could serve as catalysts Reiterating our Buy (1) rating and TP of HKD15



China State Construction International (3311 HK)



Kelvin Lau(852) 2848 4467

[email protected]


Revenue change 0.2 0.2 0.2

Net profit change (0.9) (1.5) (1.2)

Core EPS (FD) change (5.8) (10.8) (10.6)

85

98

110

123

135

9

10

12

13

15



Ch S Cons (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 9.31-14.34




Major shareholder China Overseas Holdings (58.3%)

Financial summary (HKD)Year to 31 Dec 16E 17E 18E

Revenue (m) 42,939 47,913 54,105


Net profit (m) 5,033 6,020 7,320


EPS change (%) 15.2 13.9 21.6

Daiwa vs Cons. EPS (%) (5.1) (9.1) (3.8)

PER (x) 8.4 7.4 6.1


DPS 0.340 0.409 0.497

PBR (x) 1.4 1.3 1.1

EV/EBITDA (x) 8.0 7.1 6.4

ROE (%) 19.3 18.1 19.0


2

China State Construction International (3311 HK): 20 June 2016

Global construction peers: valuation comparison

Name Bloomberg

Code Trading

Currency Share price Rating PER (x) PBR (x) EV/EBITDA(x) Div yield (%) ROE (%)

20-Jun-16 FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E

China Construction companies - H Shares

CSCI * 3311 HK HKD 9.93 Buy 8.4 7.4 1.4 1.3 8.0 7.1 3.4 4.1 19.3 18.1

BUCD * 1599 HK HKD 4.03 Buy 10.0 8.8 1.3 1.2 n.a. n.a. 2.7 3.0 14.1 14.4

CRG * 390 HK HKD 5.75 Buy 8.4 7.5 0.8 0.7 7.8 6.8 1.9 2.1 9.7 10.0

CRCC * 1186 HK HKD 9.44 Buy 7.9 7.2 0.9 0.8 6.2 5.9 2.0 2.2 11.8 11.6

CCC * 1800 HK HKD 8.52 Hold 7.2 6.5 0.7 0.7 9.3 9.3 2.7 3.0 10.6 10.7

MCC 1618 HK HKD 2.11 NR 6.2 5.5 0.6 0.5 10.5 9.6 3.4 3.6 9.3 9.8

Sinopec Engineering 2386 HK HKD 6.99 NR 8.6 8.3 1.0 0.9 3.2 3.1 4.7 4.8 12.1 11.7

CMEC 1829 HK HKD 4.68 NR 7.5 6.8 1.0 0.9 n.a. n.a. 5.1 5.6 14.9 15.0

China Construction companies - A Shares

CRG 601390 CH CNY 6.74 NR 11.6 10.7 1.1 1.0 8.5 7.9 1.4 1.5 10.2 10.1

CRCC 601186 CH CNY 9.48 NR 9.1 8.3 1.0 0.9 6.6 6.1 1.8 2.0 12.0 12.0

CCC 601800 CH CNY 10.54 NR 9.7 8.6 1.1 1.0 9.4 8.4 2.1 2.3 12.2 12.3

MCC 601618 CH CNY 7.79 NR 27.6 24.3 2.5 2.3 10.5 9.7 0.8 0.8 9.4 9.6

China Construction Engineering 601668 CH CNY 5.19 NR 5.4 4.8 0.8 0.7 5.1 4.6 4.3 4.8 17.0 16.5

China Railway ErJu 600528 CH CNY 11.96 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a n.a n.a. n.a.

Long Yuan Cons 600491 CH CNY 8.47 NR 31.0 23.9 2.1 1.9 n.a. n.a. 1.4 1.4 8.3 9.3

Shanghai Tunnel Engineering 600820 CH CNY 8.36 NR 15.6 13.5 1.5 1.4 9.4 8.3 2.1 2.3 9.8 10.2

Shanghai Construction 600170 CH CNY 3.79 NR 13.2 12.2 1.2 1.1 6.7 5.7 4.4 4.6 9.8 9.6

China CAMC Engineering 002051 CH CNY 18.96 NR 14.3 12.0 2.4 2.1 7.7 6.6 1.3 1.4 16.9 17.0

Hongrun Construction 002062 CH CNY 6.00 NR 24.0 18.8 n.a. n.a. n.a. n.a. 0.8 0.8 10.7 12.5

China Design Companies

Jiangsu Transport 300284 CH CNY 19.49 NR 27.1 21.2 3.4 3.0 17.6 13.8 0.7 0.8 13.3 14.5

China Haisum 002116 CH CNY 19.36 NR 30.4 25.0 6.0 5.0 14.3 12.1 1.0 1.0 18.0 18.0

East China Engineering 002140 CH CNY 15.25 NR 42.4 61.0 3.3 3.1 36.6 37.9 0.2 0.2 5.9 5.2

Asian Construction Companies

Daewoo E&C * 047040 KS KRW 5940.00 Hold 13.4 9.1 0.8 0.8 8.2 6.9 n.a. n.a. 6.5 8.9

GS E&C * 006360 KS KRW 28400.00 Underperform 12.8 9.7 0.6 0.5 13.2 9.0 n.a. n.a. 4.6 5.8

Hyundai E&C * 000720 KS KRW 33300.00 Outperform 7.0 6.5 0.6 0.5 4.0 3.7 1.5 1.5 8.4 8.5

Daelim Ind * 000210 KS KRW 80900.00 Hold 10.8 8.4 0.7 0.7 6.7 4.4 0.4 0.4 6.8 8.5

ST Engineering STE SP SGD 3.15 NR 19.1 18.1 4.4 4.2 13.5 13.0 4.5 4.7 23.3 23.5

Shimizu ** 1803 JP JPY 912.00 Outperform 12.4 10.5 1.4 1.3 8.4 7.5 1.4 1.9 11.1 12.8

Nishimatsu Construction ** 1820 JP JPY 445.00 NR 8.4 9.1 0.8 0.7 n.a. n.a. 3.4 3.5 9.4 7.6

Toda Corp. ** 1860 JP JPY 418.00 NR 6.2 6.8 0.6 0.6 7.0 7.4 2.2 2.3 10.7 9.8

Gamuda **** GAM MK MYR 4.75 NR 18.8 16.2 1.7 1.6 23.7 20.1 2.5 2.6 9.6 10.5

Kolon E & C 003070 KS KRW 14950.00 NR 11.5 12.5 1.0 2.0 14.2 15.2 n.a n.a 5.4 6.4

Kajima ** 1812 JP JPY 685.00 Outperform 10.1 10.6 1.5 1.4 8.0 7.0 1.1 1.9 12.4 13.5

WCT Engineering WCTHG MK MYR 1.53 NR 14.0 11.9 0.7 0.7 17.0 14.5 2.4 2.9 5.5 6.1

IJM ** IJM MK MYR 3.45 NR 19.6 18.0 1.4 1.3 12.0 11.9 2.8 2.6 7.5 7.6

US & Europe Construction Companies

Vinci DG FP EUR 62.90 NR 15.3 14.1 2.2 2.0 8.8 8.4 3.3 3.5 14.8 14.9

ACS ACS SM EUR 26.67 NR 11.4 10.7 2.2 2.0 5.9 5.7 4.3 4.4 20.7 18.6

FCC FCC SM EUR 7.57 NR 26.7 20.3 2.5 2.3 9.3 8.8 n.a n.a 13.2 10.8

Boskalis Westminster BOKA NA EUR 30.98 NR 14.0 16.2 1.0 1.0 7.2 8.1 4.9 4.9 7.3 6.2

Hochtief HOT GR EUR 109.50 NR 22.0 19.4 2.9 2.8 7.8 7.4 2.2 2.5 15.0 15.6

Skanska SKAB SS SEK 170.60 NR 13.4 13.5 2.7 2.5 8.0 8.0 4.5 4.7 20.7 19.0

Atlas Copco AB ATCOA SS SEK 209.30 NR 19.4 18.2 4.9 4.5 11.9 11.5 3.1 3.4 26.5 25.4

Sandvik AB SAND SS SEK 79.85 NR 16.9 15.4 2.7 2.5 9.9 9.4 3.3 3.6 16.4 17.1

Chicago Bridge & Iron Co NV CBI US USD 36.26 NR 7.3 7.3 1.5 1.2 5.7 5.9 0.8 0.8 22.5 19.8

McDermott International Inc MDR US USD 4.70 NR 106.8 69.1 0.8 0.8 5.8 5.4 n.a n.a 0.2 0.2

Fluor FLR US USD 50.90 NR 14.9 14.4 2.0 1.8 6.7 6.8 1.7 1.7 15.5 14.3

Indian Construction

IVRCL ** IVRC IN INR 4.75 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a n.a n.a. n.a.

Nagarjuna ** NJCC IN INR 76.10 NR 21.3 16.8 1.2 1.2 6.8 6.1 0.5 0.6 5.8 6.9

Gammon ** GISP IN INR 5.45 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a n.a n.a. n.a.

Jaiprakash ** JPA IN INR 7.65 NR n.a. n.a. 0.2 0.2 10.6 12.1 n.a n.a n.a n.a

ABB (India) ABB IN INR 1221.50 NR n.a. n.a. n.a. n.a. n.a. n.a. 0.4 0.5 n.a. n.a.

Larsen & Toubro ** LT IN INR 1507.05 NR 32.7 25.2 3.1 2.9 20.1 16.4 1.0 1.3 10.2 11.8

Weighted average 13.9 12.4 1.8 1.7 9.0 8.3 2.5 2.7 13.7 13.7

High 106.8 69.1 6.0 5.0 36.6 37.9 5.1 5.6 26.5 25.4

Low 5.4 4.8 0.2 0.2 3.2 3.1 0.2 0.2 0.2 0.2

Median 13.4 12.0 1.2 1.2 8.4 8.1 2.1 2.3 10.7 11.6

Source: Bloomberg, *Daiwa forecasts Note: **Year ended 31 Mar, ***Year ended 30 Jun, ****Year ended 31 Jul; share prices are of 20 June 2016, except for the US and European stocks


3



Profit and loss (HKDm)

Cash flow (HKDm)


Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

New order growth (YoY %) 21.5 21.5 23.7 32.3 16.4 14.8 16.2 14.4

Order book growth (YoY %) 37.9 17.9 32.6 21.7 36.5 29.1 27.3 24.7

Gross margin – HK (%) 7.3 7.1 7.3 6.6 5.9 6.8 6.8 6.8

Gross margin – China (%) 16.0 20.1 20.0 23.0 24.8 21.5 20.5 19.5

New contracts (HKDbn) 30.3 36.8 45.5 60.2 70.1 80.5 93.6 107.0

Year-end order backlog (HKDbn) 48.9 57.7 76.5 93.1 127.1 164.0 208.7 260.1

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Hong Kong 8,708 11,089 11,134 15,285 16,184 17,151 19,624 22,506

PRC overall 7,547 8,810 13,958 15,517 14,631 19,471 23,010 27,020

Other Revenue 124 2,012 2,193 3,638 7,099 6,317 5,279 4,579

Total Revenue 16,379 21,911 27,286 34,440 37,913 42,939 47,913 54,105

Other income 422 371 437 475 833 1,044 1,311 1,649

COGS (14,581) (19,192) (23,540) (29,696) (32,883) (37,276) (41,648) (47,113)

SG&A (554) (740) (1,042) (1,033) (996) (940) (886) (877)

Other op.expenses (23) 0 0 0 0 0 0 0


Net-interest inc./(exp.) (193) (239) (418) (456) (607) (713) (827) (892)

Assoc/forex/extraord./others 394 432 452 318 496 723 1,058 1,555

Pre-tax profit 1,844 2,541 3,174 4,048 4,756 5,776 6,921 8,429

Tax (334) (405) (503) (660) (655) (795) (952) (1,160)

Min. int./pref. div./others (3) (5) 79 70 51 51 51 51



EPS (reported)(HKD) 0.442 0.573 0.707 0.887 1.032 1.178 1.341 1.631

EPS (adjusted)(HKD) 0.442 0.573 0.707 0.887 1.032 1.178 1.341 1.631

EPS (adjusted fully-diluted)(HKD) 0.435 0.573 0.697 0.875 1.023 1.178 1.341 1.631

DPS (HKD) 0.130 0.167 0.210 0.264 0.332 0.340 0.409 0.497

EBIT 1,463 2,237 3,010 4,039 4,727 5,629 6,539 7,602

EBITDA 1,643 2,349 3,140 4,185 4,867 5,767 6,690 7,765

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E



Tax paid (61) (131) (124) (337) (223) (795) (952) (1,160)

Change in working capital (2,418) (5,426) (6,101) (5,461) (3,958) (6,070) (6,015) (5,270)

Other operational CF items 0 (504) (339) (259) (616) 1,029 115 (1,728)

Cash flow from operations (455) (3,246) (3,085) (1,689) 300 279 420 634

Capex (522) (402) 0 0 0 (800) (600) (600)

Net (acquisitions)/disposals (135) (28) (560) (1,618) (1,239) 0 0 0

Other investing CF items 493 (73) 690 (473) 304 0 0 0

Cash flow from investing (164) (504) 130 (2,091) (935) (800) (600) (600)

Change in debt 731 3,681 5,650 4,740 3,114 2,999 2,698 2,698

Net share issues/(repurchases) 3,584 2,271 0 0 0 4,811 0 0

Dividends paid (430) (523) (894) (901) (1,216) (1,460) (1,588) (2,087)

Other financing CF items (991) (407) (710) (667) (588) (713) (827) (892)

Cash flow from financing 2,894 5,022 4,046 3,172 1,309 5,636 283 (280)

Forex effect/others 0 (5) 35 53 (0) 0 0 0

Change in cash 2,275 1,267 1,126 (555) 674 5,115 103 (246)

Free cash flow (977) (3,648) (3,085) (1,689) 300 (521) (180) 34


4


Financial summary continued … Balance sheet (HKDm)

Key ratios (%)


As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E


Inventory 150 185 163 160 109 201 225 254




Fixed assets 1,870 2,191 2,672 2,827 2,772 3,033 3,282 3,518



Total assets 26,733 37,835 52,450 66,579 70,065 90,470 100,845 110,865

Short-term debt 1,298 50 263 588 809 301 301 301




Long-term debt 4,961 10,001 12,465 14,235 16,968 22,667 25,366 28,065

Other non-current liabilities 698 883 1,037 1,125 1,106 1,106 1,106 1,106


Share capital 90 97 97 100 101 533 533 533



Minority interests 7 343 253 168 100 49 (3) (54)


EV 42,733 45,411 47,213 46,535 47,020 45,918 47,462 49,355

Net debt/(cash) 778 3,168 4,591 7,354 9,726 9,801 12,397 15,342

BVPS (HKD) 2.784 3.476 4.099 4.942 5.213 6.916 7.940 9.187

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Sales (YoY) 36.7 33.8 24.5 26.2 10.1 13.3 11.6 12.9

EBITDA (YoY) 63.2 43.0 33.7 33.3 16.3 18.5 16.0 16.1

Operating profit (YoY) 58.1 52.9 34.5 34.2 17.0 19.1 16.2 16.3

Net profit (YoY) 45.5 41.4 29.0 25.7 20.1 21.2 19.6 21.6

Core EPS (fully-diluted) (YoY) 32.7 31.9 21.5 25.6 16.8 15.2 13.9 21.6


EBITDA margin 10.0 10.7 11.5 12.2 12.8 13.4 14.0 14.4



ROAE 21.4 18.5 18.7 19.3 20.3 19.3 18.1 19.0

ROAA 6.6 6.6 6.1 5.8 6.1 6.3 6.3 6.9

ROCE 11.4 11.3 11.4 12.7 12.8 12.1 11.3 11.6

ROIC 16.3 14.5 14.0 14.6 14.4 13.8 13.0 12.8

Net debt to equity 8.2 23.4 28.8 37.1 46.0 31.6 34.8 37.2



Current ratio (x) 1.2 1.6 1.3 1.1 1.1 1.1 1.1 1.1

Net interest cover (x) 7.6 9.3 7.2 8.9 7.8 7.9 7.9 8.5


Free cash flow yield n.a. n.a. n.a. n.a. 0.7 n.a. n.a. 0.1

Company profile

China State Construction International Holdings Limited (CSCI) is an integrated construction company, engaged in construction, civil-engineering operations, and other peripheral operations. It is the largest construction contractor in Hong Kong. The company has extensive international contracting experience, and is actively engaged in the infrastructure market in Mainland China.



China Information Technology

What's new: We joined Sunny’s factory tour in Zhejiang, China, on 17-18 June and came away impressed by the long-term vision, comprehensive product roadmap, and in-house equipment R&D capability on display. What's the impact: Confident tone for 2016. Management is upbeat on the 2016 outlook and kept its 2016 shipment guidance unchanged: handset camera module (HCM) up 15-25% YoY, handset lens sets (HLS) up 20-30% YoY, and vehicle lens sets (VLS) up 30%-plus YoY. The company’s positive tone for 2016 should relieve some investors’ concerns over HLS and HCM after the slow shipments of January-May (HLS up 12% YoY, HCM down 6% YoY), and echoes our earlier point that we expect Sunny to have a backend-loaded 2016 thanks to a ramp-up of shipments for new projects wins and spec upgrades in 2H16 (see On track for a robust 2016). Favourable industry trends ahead. For the handset business, Sunny sees dual cams as an important emerging trend and believes it is well-positioned to benefit. For HCM, Sunny sees itself having a competitive advantage over its peers thanks to its high yields and operating efficiency on the back of its use of highly automated production lines and in-house equipment design capability. For HLS, Sunny sees optical zoom being a key feature for dual-cam usage and hence has a solution ready and targets mass production soon. In addition to dual cams, Sunny expects camera-spec upgrades in smartphones, such as mega pixel migration, OIS, and PDAF, to continue. For VLS, Sunny is positive on the long-term growth prospects, driven by regulatory requirements, the increasing penetration of ADAS and the rising autopilot trend. Sunny expects to outgrow the 20-30% YoY industry revenue growth in a few years on its market-leading position. Well-positioned for emerging opportunities. Management targets to become a total optical solution (“smart eye”) supplier in the long term. In addition to handsets and vehicles, Sunny sees new opportunities from drones, AR/VR, and 360-degree cameras. We currently assume a limited revenue contribution from these new devices over our forecast horizon but believe Sunny is well-positioned for such business growth through its comprehensive product offerings. Thus, if there is significant volume ramp-up in these segments in the near future, that should bring further earnings upside, in our view. What we recommend: We leave our 2016-18 earnings forecasts unchanged. We reaffirm Outperform (2) with a higher target price of HKD29 (from HKD26.7), based on an unchanged 21x PER, near the high point of its past-3-year trading range of 9-22x, on our 1-year-forward EPS (from 2016E EPS). We view the muted 1H16 as an opportunity to accumulate the shares. Key risk: worse-than-expected competition in HCM and HLS. How we differ: We are more positive than the market on Sunny’s gross-margin expansion, and hence are 2-4% above the consensus on our 2016-17E EPS.

20 June 2016

Highlights from site visit: confident of strong 2016

Sunny remains upbeat on 2016, with guidance unchanged Benefiting from favourable industry trends, new opportunities ahead Reiterating Outperform (2), with target price raised to HKD29



Sunny Optical Technology (2382 HK)



Kylie Huang(886) 2 8758 6248

[email protected]

Anthony Liao(886) 2 8758 6251

[email protected]





80

111

143

174

205

12

16

20

24

29



Sunny Opti (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 12.08-28.10




Major shareholder Sun Xu Ltd (38.4%)

Financial summary (CNY)Year to 31 Dec 16E 17E 18E

Revenue (m) 13,120 15,570 17,600


Net profit (m) 1,096 1,366 1,677


EPS change (%) 43.9 24.6 22.8

Daiwa vs Cons. EPS (%) 3.6 1.7 4.0

PER (x) 21.1 16.9 13.8


DPS 0.306 0.381 0.468

PBR (x) 4.9 4.0 3.3

EV/EBITDA (x) 14.3 10.9 8.5

ROE (%) 25.6 26.1 26.2


http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20160510cn_Sunny_Optical_Technology.pdf#page=1

2

Sunny Optical Technology (2382 HK): 20 June 2016

Sunny Optical: semi-annual and annual P&L statement

2016E 2017E

2016E 2017E 2018E

(CNYm) 1H 2H 1HE 2HE

Net sales 5,341 7,779 6,897 8,673 13,120 15,570 17,600

COGS 4,443 6,396 5,711 7,069 10,840 12,780 14,295

Gross profit 897 1,383 1,186 1,604 2,280 2,790 3,305

Operating costs 442 623 554 705 1,065 1,258 1,408

Operating profit 455 760 633 899 1,215 1,532 1,897

Pre-tax income 470 787 648 926 1,257 1,573 1,939

Net income 409 687 560 805 1,096 1,366 1,677

Net EPS (CNY) 0.38 0.64 0.52 0.75 1.02 1.27 1.56

Operating ratios

Gross margin 16.8% 17.8% 17.2% 18.5% 17.4% 17.9% 18.8%

Operating margin 8.5% 9.8% 9.2% 10.4% 9.3% 9.8% 10.8%

Pre-tax margin 8.8% 10.1% 9.4% 10.7% 9.6% 10.1% 11.0%

Net margin 13.0% 12.7% 13.5% 13.0% 8.4% 8.8% 9.5%

YoY (%)

Net revenue 15% 29% 29% 12% 23% 19% 13%

Gross profit 24% 33% 32% 16% 29% 22% 19%

Operating income 41% 30% 39% 18% 34% 26% 24%

Pre-tax income 35% 53% 38% 18% 46% 25% 23%

Net income 33% 51% 37% 17% 44% 25% 23%

HoH (%)

Net revenue -12% 46% -11% 26%

Gross profit -14% 54% -14% 35%

Operating income -22% 67% -17% 42%

Pre-tax income -8% 67% -18% 43%

Net income -10% 68% -18% 44%

Source: Company, Daiwa forecasts

Sunny Optical: 1-year-forward PER Sunny Optical: 1-year-forward PBR

Source: Bloomberg, Daiwa forecasts


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3




Cash flow (CNYm)


Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Handset CCM shipment (m units) 70 97 133 187 228 264 303 330

Blended ASP of handset CCM (USD) 2.38 3.78 4.98 5.68 5.51 5.75 5.99 6.14

Vehicle lens shipment (m units) 0 0 8 11 17 23 33 47

Handset lens shipment (m units) 32 36 26 75 302 376 463 550

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Handset CCM Revenues 1,069 2,307 4,157 6,576 7,785 9,404 11,266 12,576

Vehicle Lens Revenues 100 167 291 421 651 958 1,413 2,048

Other Revenue 1,329 1,510 1,365 1,429 2,260 2,757 2,891 2,976

Total Revenue 2,499 3,984 5,813 8,426 10,696 13,120 15,570 17,600

Other income 0 0 0 0 0 0 0 0

COGS (1,976) (3,243) (4,846) (7,137) (8,933) (10,840) (12,780) (14,295)

SG&A (182) (214) (254) (482) (597) (745) (850) (952)


Operating profit 210 363 462 577 909 1,215 1,532 1,897


Assoc/forex/extraord./others 33 37 49 71 (31) 65 65 65

Pre-tax profit 240 397 504 634 862 1,259 1,575 1,941

Tax (38) (58) (64) (73) (99) (161) (208) (262)

Min. int./pref. div./others 14 7 (0) 5 (2) (2) (2) (2)

Net profit (reported) 215 346 440 566 762 1,096 1,366 1,677

Net profit (adjusted) 215 346 440 566 762 1,096 1,366 1,677

EPS (reported)(CNY) 0.223 0.360 0.443 0.529 0.709 1.020 1.271 1.561

EPS (adjusted)(CNY) 0.223 0.360 0.443 0.529 0.709 1.020 1.271 1.561

EPS (adjusted fully-diluted)(CNY) 0.223 0.360 0.443 0.529 0.709 1.020 1.271 1.561

DPS (CNY) 0.071 0.105 0.121 0.155 0.208 0.306 0.381 0.468

EBIT 210 363 462 577 909 1,215 1,532 1,897

EBITDA 298 472 609 792 1,155 1,527 1,932 2,351

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Profit before tax 240 397 504 634 862 1,259 1,575 1,941


Tax paid (38) (58) (64) (73) (99) (161) (208) (262)

Change in working capital (264) (169) 55 (898) 609 (650) (310) (273)

Other operational CF items 14 7 (0) 5 (2) (2) (2) (2)

Cash flow from operations 40 286 643 (117) 1,616 758 1,455 1,858

Capex (112) (265) (286) (465) (351) (650) (400) (400)

Net (acquisitions)/disposals 1 13 1 (62) (64) 0 0 0

Other investing CF items 0 (38) (26) (178) (60) 60 0 0


Change in debt (35) 34 392 56 167 (5) 0 0


Dividends paid (43) (69) (101) (120) (166) (223) (329) (410)

Other financing CF items (20) (27) 589 (55) (2) 0 0 0

Cash flow from financing (97) (61) 879 (120) (0) (229) (329) (410)

Forex effect/others 0 0 0 0 0 0 0 0

Change in cash (169) (66) 1,211 (942) 1,141 (60) 726 1,048

Free cash flow (73) 20 357 (582) 1,265 108 1,055 1,458


4



Key ratios (%)


As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Cash & short-term investment 681 614 1,826 884 2,025 1,964 2,690 3,739

Inventory 472 748 768 896 897 1,141 1,345 1,505

Accounts receivable 627 901 1,172 2,388 3,003 3,415 4,052 4,581



Fixed assets 489 646 785 1,035 1,141 1,479 1,479 1,425



Total assets 2,375 3,002 4,665 5,594 7,636 8,470 10,048 11,738

Short-term debt 62 103 489 522 683 684 684 684

Accounts payable 599 939 1,257 1,744 2,914 2,970 3,501 3,916


Total current liabilities 671 1,052 1,782 2,297 3,739 3,706 4,248 4,671

Long-term debt 17 0 18 36 33 36 36 36


Total liabilities 694 1,070 1,805 2,343 3,791 3,752 4,294 4,717

Share capital 98 98 105 105 105 105 105 105





EV 22,481 22,570 21,763 22,756 21,774 21,838 21,112 20,064

Net debt/(cash) (601) (512) (1,319) (327) (1,309) (1,244) (1,970) (3,019)

BVPS (CNY) 1.741 2.007 2.876 3.038 3.579 4.391 5.356 6.536

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Sales (YoY) 37.4 59.5 45.9 45.0 26.9 22.7 18.7 13.0

EBITDA (YoY) 30.3 58.1 29.1 30.0 45.9 32.2 26.5 21.7

Operating profit (YoY) 48.0 73.0 27.1 24.9 57.6 33.6 26.1 23.8

Net profit (YoY) 49.7 60.8 27.2 28.5 34.5 43.9 24.6 22.8

Core EPS (fully-diluted) (YoY) 51.7 61.3 23.1 19.4 34.0 43.9 24.6 22.8


EBITDA margin 11.9 11.8 10.5 9.4 10.8 11.6 12.4 13.4



ROAE 13.4 19.2 18.4 18.5 21.5 25.6 26.1 26.2

ROAA 9.7 12.9 11.5 11.0 11.5 13.6 14.7 15.4

ROCE 12.3 19.1 17.1 16.1 21.7 24.3 25.7 26.7

ROIC 18.9 24.8 27.3 22.9 29.5 35.3 36.7 42.2




Current ratio (x) 2.7 2.2 2.1 1.8 1.6 1.8 1.9 2.1



Free cash flow yield n.a. 0.1 1.5 n.a. 5.5 0.5 4.6 6.3

Company profile

Founded in 1984, Sunny Optical is the leading optical component manufacturer in the China technology supply chain. It develops and provides optical-related products with various applications, including instruments, components and opto-electronic modules. The company's major customers include leading China smartphone brand name makers Huawei, Lenovo and OPPO.



Korea Materials

What's new: POSCO’s 2Q16 earnings are tracking in line with the current Bloomberg consensus forecast, but we are now less optimistic on POSCO’s earnings beyond 3Q16 based on an expected 20.3% YoY decline in iron-ore prices in 2016. What’s the impact: We look for POSCO’s 2Q16 spread between its carbon steel product prices and input cost to rise by KRW7,000/tonne QoQ. In 2Q16, POSCO has been able to raise product prices for both domestic HRC (roughly KRW70,000/tonne QoQ) and CRC for distributors, given the 3-month time lag between domestic HRC prices and China’s HRC spot prices as well as tighter demand and supply for the domestic market. As a result, we look for POSCO’s parent-only steel business operating-profit margin to expand by 0.3pp QoQ to 9.8%. As such, we now forecast POSCO’s 2Q16 revenue and operating profit to rise by 6.7% QoQ and 11.6% QoQ to KRW13,295bn and KRW736bn, respectively (2Q16 OPM of 5.5% vs. 1Q16 OPM of 5.3%), compared to the current Bloomberg-consensus revenue and operating profit forecasts of KRW13,823bn and KRW738bn, respectively. We look for POSCO’s 3Q16 spread between carbon steel product prices and input costs to widen due to the recent hike in prices of its high-margin automotive OEMs and more importantly due to 3-month time-lag between China’s steel spot prices and POSCO’s steel-product prices. However, we now look for iron prices to decline from 3Q16 onwards (positive correlation of 86% with POSCO’s share prices) on higher inventory levels of nearly 4 months for Chinese ports (or 100m tonne) and on a faster-than-expected increase in supply for iron-ore in Australia and China. Due to the continued rise in China’s steel production, we expect China’s steel prices to remain weak in 2H16. As such, we lower our 2016-18 EPS forecasts by 1.2-7.1%. What we recommend: In turn, we lower our 12-month Gordon Growth Model-based TP to KRW250,000 (from KRW270,000). We still look for POSCO’s share price to rebound on heightened earnings visibility throughout 2016 and ahead of its interim dividend payment of KRW2,000/share(FY16E dividend of KRW8,000/share or dividend yield of 3.9%). We think the current valuation is still appealing at a 2016E PBR of 0.4x (vs. past-3-year range of 0.33-0.71x). Key risk: larger-than-expected decline in China’s steel prices or iron-ore prices. How we differ: Our 2016-18E EPS are now roughly similar to the current Bloomberg consensus forecasts.

20 June 2016

Forging ahead

2Q16 core earnings tracking in line with consensus forecast We continue to envisage roll margins to remain robust in 2H16 Lowering TP to KRW250,000; reiterating Buy (1) rating



POSCO (005490 KS)

Target price: KRW250,000 (from KRW270,000)

Share price (20 Jun): KRW205,000 | Up/downside: +21.9%

Sung Yop Chung(82) 2 787 9157

[email protected]


Revenue change (8.7) (9.7) (7.0)

Net profit change (5.5) (7.1) (1.2)

Core EPS (FD) change (5.5) (7.1) (1.2)

75

86

98

109

120

150,000

175,000

200,000

225,000

250,000



POSCO (LHS) Relative to KOSPI (RHS)

(KRW) (%)

12-month range 156,000-249,000



Shares outstanding (m) 87

Major shareholder National Pension Service (8.3%)

Financial summary (KRW)Year to 31 Dec 16E 17E 18E

Revenue (bn) 54,866 56,341 59,304

Operating profit (bn) 2,915 2,984 3,147

Net profit (bn) 1,326 1,625 1,804

Core EPS (fully-diluted) 15,208 18,636 20,686

EPS change (%) 634.0 22.5 11.0

Daiwa vs Cons. EPS (%) (3.3) 0.2 (3.1)

PER (x) 13.5 11.0 9.9


DPS 8,000 10,000 10,000

PBR (x) 0.4 0.4 0.4

EV/EBITDA (x) 5.4 5.2 4.7

ROE (%) 3.0 3.6 3.9


2

POSCO (005490 KS): 20 June 2016

Steelmakers globally: valuation summary

Company Ticker Curr. Share Daiwa Mcap Absolute (%) Relative Performance (%) P/E (x) P/BV (x) EV/

EBITDA (x) P/CF (x) ROE (%) Div.

Yield (%) OPM (%)

Price Rating (US$m) YTD 1M 3M YTD 1M 3M 16E 17E 16E 17E 16E 17E 16E 17E 16E 17E 16E 17E 16E 17E

Korea

POSCO* 005490 KS KRW 205,000 Buy 15,381 23.1 1.0 (5.1) 22.1 (0.7) (4.5) 13.2 10.8 0.4 0.4 5.4 5.2 2.4 2.8 3.0 3.6 3.9 4.9 5.3 5.3

HYUNDAI STEEL* 004020 KS KRW 48,700 Outperform 5,593 (2.5) (4.7) (14.4) (3.5) (6.4) (13.9) 7.2 6.5 0.4 0.4 11.0 10.4 2.4 2.3 5.6 5.9 2.2 2.3 9.1 9.3

Japan

NIPPON STEEL 5401 JP JPY 2,027 Hold 18,423 (16.1) (8.9) (7.6) 1.2 (4.2) (2.7) 12.5 12.0 0.6 0.6 8.4 7.8 4.2 3.7 4.8 5.5 2.3 2.3 3.2 4.0

JFE HOLDINGS 5411 JP JPY 1,376 Hold 8,086 (28.3) (5.5) (10.1) (11.0) (0.7) (5.2) 23.4 12.9 0.4 0.4 7.9 7.3 3.0 3.1 1.5 3.2 2.2 2.3 2.6 3.4

KOBE STEEL 5406 JP JPY 92 Hold 3,206 (30.8) (10.7) (14.0) (13.5) (5.9) (9.1) n.a 13.4 0.5 0.5 6.6 6.0 4.0 2.7 (2.4) 3.6 2.2 2.5 3.5 4.0

China

BAOSHAN IRON & STEEL 600019 CH CNY 5.0 Not rated 12,539 (10.2) (3.8) (6.7) 8.2 (6.1) (4.5) 17.1 14.4 0.7 0.7 7.7 6.9 6.9 4.2 4.3 4.7 2.7 3.3 4.5 4.7

ANGANG STEEL 347 HK HKD 3.2 Not rated 3,930 3.2 (3.6) (9.7) 9.6 (5.5) (9.8) n.a n.a 0.5 0.5 9.7 8.8 8.7 5.9 (0.5) 0.3 0.2 0.3 3.3 3.4

US

NUCOR CORP NUE US USD 50.4 Not rated 16,008 24.9 8.1 7.9 23.6 7.0 6.4 22.3 16.8 2.1 1.9 8.7 7.4 9.0 8.8 9.1 12.3 3.0 3.0 8.7 10.4

UNITED STATES STEEL X US USD 18.0 Not rated 2,633 n.a. 27.2 16.6 124.0 26.1 15.1 (9.0) 122.3 1.3 1.2 10.4 6.3 4.3 6.1 n.a (3.1) 1.1 1.1 (0.5) 3.0

STEEL DYNAMICS STLD US USD 25.5 Not rated 6,211 42.7 7.0 15.6 41.4 5.8 14.1 14.2 12.8 2.1 1.8 6.9 6.4 9.5 8.5 14.5 15.5 2.2 2.3 10.1 10.9

Others

ARCELORMITTAL MT NA EUR 4.6 Not rated 16,309 51.3 8.2 13.6 53.0 7.8 15.8 n.a 16.8 0.5 0.5 7.4 6.2 5.7 3.8 (1.0) 2.0 0.0 1.1 3.5 4.7

Global Average

9,847 5.7 1.3 (1.3) 23.2 1.6 0.2 12.6 23.9 0.9 0.8 8.2 7.2 5.5 4.7 3.9 4.9 2.0 2.3 4.8 5.7

Source: Bloomberg, *Daiwa forecasts. Note: 1) share prices are as of 20 June 2016 (US & others as of 19 June 2016), 2) **Relative to each country index

POSCO: 2Q16 preview POSCO: spread between carbon steel prices and input costs

(KRWbn) 2Q16E-Daiwa 2Q16E-Bbg Diff (%) 2Q15 YoY (%) 1Q16 QoQ (%)

USD/KRW (Avg) 1,162.1 1,162.1 0.0 1,096.9 5.9 1,200.0 (3.2) Revenue 13,295 13,823 (3.8) 15,189 (12.5) 12,461 6.7

COGS 11,898 13,468 (11.7) 10,920 9.0

Gross Profit 1,397 1,721 (18.8) 1,541 (9.4)

GP Margin (%) 10.5 11.3 12.4

SG&A 661 1,035 (36.2) 882 (25.1)

Operating profit 736 738 (0.3) 686 7.3 660 11.6

OP margin (%) 5.5 5.3 4.5 5.3

Net profit 412 415 (0.7) 117 251.3 338 21.9

NP margin (%) 3.1 3.0 0.8 2.7



POSCO: major assumption change POSCO: share price vs. iron ore spot price

2016E 2017E 2018E

(KRWbn) New Prev. %

Chg New Prev. % Chg New Prev. %

Chg

Revenue 54,866 60,084 (8.7) 56,341 62,369 (9.7) 59,304 63,770 (7.0)

Operating profit 2,915 3,114 (6.4) 2,984 3,337 (10.6) 3,147 3,220 (2.3)

OP margin(%) 5.3 5.2 5.3 5.3 5.3 5.0

Net profit 1,326

1,403 (5.5)

1,625

1,749 (7.1)

1,804

1,825 (1.2)

NP margin(%) 2.4 2.4 2.9 2.9 3.0 2.9

Input price(USD/tonne)

Iron Ore 51 52 (2.2) 45 52 (13.2) 44 51 (13.8)

Cocking coal 81 81 0.0 83 84 (1.8) 83 84 (0.9)

Average Selling Price ('000 KRW/tonne)

HRC 450 457 (1.6) 438 449 (2.6) 441 435 1.2

CRC 612 611 0.1 598 622 (3.7) 610 627 (2.8)

Total shipments

('000 tonne)

HRC 9,256 9,193 0.7 9,403 9,301 1.1 9,498 9,394 1.1

CRC 14,038 14,143 (0.7) 14,224 14,312 (0.6) 14,152 14,230 (0.5)


Source: Bloomberg, Daiwa

POSCO: share price vs. China HRC, CRC spot price POSCO: earnings revision cycle

Source: Bloomberg, Daiwa Source: Bloomberg, Daiwa

452 420

399

351 361

397 406 386

226 207 206 194 197 173 172 168

678 627 605

546 558 570 578 554

0

50

100

150

200

250

300

350

400

450

0

100

200

300

400

500

600

700

800

900

1,000

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16E 3Q16E 4Q16E

Spread(RHS) Total input prices (LHS) Carbon Steel prices(LHS)

('000 KRW/tonne) ('000 KRW/tonne)

0

2

4

6

8

10

12

14

16

18

2,000

7,000

12,000

17,000

22,000

27,000

32,000

37,000

Apr

-14

May

-14

Jun-

14Ju

l-14

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15F

eb-1

5M

ar-1

5A

pr-1

5M

ay-1

5Ju

n-15

Jul-1

5A

ug-1

5S

ep-1

5O

ct-1

5N

ov-1

5D

ec-1

5Ja

n-16

Feb

-16

Mar

-16

Apr

-16

May

-16

FY16 EPS (LHS) FY16 PER (RHS)

(x) (KRW)


3

POSCO (005490 KS): 20 June 2016


Profit and loss (KRWbn)

Cash flow (KRWbn)


Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

HRC price (KRW/tonne) 847,419 758,418 666,354 615,556 472,776 449,621 437,833 440,628

HRC shipment ('000 tonne) 8,036 8,136 7,536 7,601 9,036 9,256 9,403 9,498

CRC price (KRW/tonne) 1,026,734 943,059 829,468 773,151 659,071 611,780 598,268 609,586

CRC shipment ('000 tonne) 13,084 13,544 13,762 13,806 13,869 14,038 14,224 14,152

Iron Ore price (USD/tonne) 157 140 129 107 63 51 45 44

Coking coal price (USD/ tonne) 274 232 164 119 95 81 83 83

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Steel / Support 57,251 52,869 48,024 49,597 44,837 42,069 42,422 43,171

Trading 28,623 26,414 25,919 31,261 27,008 25,766 25,499 25,810

Other Revenue (16,935) (15,679) (12,078) (15,760) (13,653) (12,969) (11,580) (9,676)

Total Revenue 68,939 63,604 61,865 65,098 58,192 54,866 56,341 59,304

Other income 0 0 0 0 0 0 0 0

COGS (59,824) (56,143) (55,005) (57,815) (51,658) (47,901) (48,947) (50,605)

SG&A (832) (927) (988) (1,022) (1,092) (1,030) (1,057) (1,113)

Other op.expenses (2,816) (2,881) (2,876) (3,048) (3,032) (3,020) (3,353) (4,439)



Assoc/forex/extraord./others (113) 308 (653) (1,268) (1,651) (452) (287) (228)

Pre-tax profit 4,782 3,368 1,946 1,378 181 1,907 2,149 2,381

Tax (1,068) (983) (591) (821) (277) (551) (494) (548)


Net profit (reported) 3,714 2,386 1,355 557 (96) 1,356 1,655 1,834

Net profit (adjusted) 3,648 2,462 1,376 626 181 1,326 1,625 1,804

EPS (reported)(KRW) 42,601 27,362 15,543 6,385 (1,103) 15,552 18,980 21,030

EPS (adjusted)(KRW) 41,843 28,239 15,787 7,181 2,072 15,208 18,636 20,686

EPS (adjusted fully-diluted)(KRW) 41,843 28,239 15,787 7,181 2,072 15,208 18,636 20,686

DPS (KRW) 10,000 8,000 8,000 8,000 8,000 8,000 10,000 10,000

EBIT 5,468 3,653 2,996 3,214 2,410 2,915 2,984 3,147

EBITDA 9,087 7,052 6,318 6,742 5,594 5,917 6,066 6,391

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Profit before tax 4,782 3,368 1,946 1,378 181 1,907 2,149 2,381

Depreciation and amortisation 3,620 3,399 3,322 3,528 3,184 3,002 3,082 3,244

Tax paid (1,068) (983) (591) (821) (277) (551) (494) (548)

Change in working capital (4,318) 2,160 366 675 1,700 2,909 (702) (1,388)

Other operational CF items (1,398) (591) (281) (1,521) 2,514 169 2,435 1,325

Cash flow from operations 1,619 7,354 4,762 3,239 7,302 7,435 6,470 5,015

Capex (5,331) (7,055) (6,570) (3,506) (2,560) (2,707) (2,572) (2,443)

Net (acquisitions)/disposals (43) (522) (2,299) 85 (2,292) (1,033) (1,176) (1,312)

Other investing CF items (331) 1,015 19 (353) 578 (1,320) (2,442) (1,332)

Cash flow from investing (5,704) (6,561) (8,850) (3,773) (4,275) (5,060) (6,190) (5,087)

Change in debt 5,634 68 2,534 959 (2,537) 480 490 499


Dividends paid (771) (752) (649) (677) (823) (697) (872) (872)

Other financing CF items 297 134 1,842 54 1,368 (1,682) 720 1,116

Cash flow from financing 5,160 (550) 3,727 336 (1,992) (1,900) 337 744

Forex effect/others 0 0 0 0 0 0 0 0

Change in cash 1,075 243 (361) (198) 1,036 475 618 672

Free cash flow (3,712) 300 (1,807) (267) 4,742 4,728 3,899 2,572


4

POSCO (005490 KS): 20 June 2016

Financial summary continued … Balance sheet (KRWbn)

Key ratios (%)


As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E


Inventory 12,284 10,585 9,798 10,471 8,225 7,494 6,934 7,591




Fixed assets 28,453 32,276 35,760 35,241 34,523 34,943 35,113 35,035



Total assets 78,409 79,266 84,455 85,252 80,409 80,989 83,485 87,470

Short-term debt 10,363 9,610 9,859 11,038 11,053 11,274 11,500 11,730




Long-term debt 16,394 14,504 15,610 15,370 12,949 13,208 13,472 13,742

Other non-current liabilities 1,679 2,558 2,783 2,714 2,259 1,351 2,371 3,825


Share capital 482 482 482 482 482 482 482 482





EV 37,614 35,141 35,828 38,728 32,669 32,036 31,245 30,299

Net debt/(cash) 19,741 17,268 17,955 20,855 14,796 14,162 13,372 12,426

BVPS (KRW) 471,043 490,698 529,933 523,796 521,239 513,844 524,121 535,587

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Sales (YoY) 13.7 (7.7) (2.7) 5.2 (10.6) (5.7) 2.7 5.3

EBITDA (YoY) 1.0 (22.4) (10.4) 6.7 (17.0) 5.8 2.5 5.4

Operating profit (YoY) (4.7) (33.2) (18.0) 7.3 (25.0) 21.0 2.4 5.5

Net profit (YoY) (12.9) (32.5) (44.1) (54.5) (71.1) 634.0 22.5 11.0

Core EPS (fully-diluted) (YoY) (12.9) (32.5) (44.1) (54.5) (71.1) 634.0 22.5 11.0


EBITDA margin 13.2 11.1 10.2 10.4 9.6 10.8 10.8 10.8



ROAE 9.4 5.9 3.1 1.4 0.4 3.0 3.6 3.9

ROAA 5.0 3.1 1.7 0.7 0.2 1.6 2.0 2.1

ROCE 8.8 5.5 4.3 4.5 3.4 4.2 4.3 4.4

ROIC 7.7 4.3 3.4 2.0 (2.0) 3.5 3.9 4.1




Current ratio (x) 1.7 1.6 1.6 1.5 1.4 1.3 1.3 1.3


Net dividend payout 23.5 29.2 51.5 125.3 n.a. 51.4 52.7 47.6

Free cash flow yield n.a. 1.7 n.a. n.a. 26.5 26.5 21.8 14.4

Company profile

POSCO is the world’s fifth-largest steel company and the fourth-largest steel company in Asia, after Nippon steel, Baosteel and Wugang. POSCO’s total crude-steel production was 38m tonnes in 2015, making the company the largest steel producer in Korea. In December 2013, POSCO completed the construction of its 70%-owned 3m tonnes pa Indonesia steel mill JV, PT Krakatau POSCO. POSCO is taking steps to divest non-core assets and focus on high ROE business for the future such as FINEX consulting and Lithium production.



Korea Information Technology

What's new: On 13-17 June, Kakao met investors in Asia and highlighted that it has successfully streamlined its online and mobile services and is likely to reignite its revenue-growth momentum from 2H16, helped by new mobile ad products and its initiatives for mobile game publishing, content distribution and mobile commerce. Management is still confident of monetising strongly its new mobile-to-offline (M2O) services from 2H16, given robust initial operating metrics for Kakao Driver and Kakao Hairshop. What's the impact: At the meetings, Kakao emphasised that its online-ads platform will likely see weak revenue growth in 2Q16, but mobile-ads sales should increase strongly once it starts to monetise Channel Tap and Sharp Search in 2H16. Also, it expects to generate new ad revenues from location-based data on Kakao Taxi, B2B push messaging service, and rewarded app advertising. After streamlining its ad networks and advertiser base, management expects its ad prices to rise over the medium term. Management believes the company’s games revenue will grow strongly from 2Q16, on solid overseas gamer traffic for Black Desert, enhanced game offerings from third-party partners, and new mobile ads for game apps. Although it plans to provide detailed operating metrics for Kakao Driver (designated-driver service, launched 31 May 2016) in early August, it noted the initial figures for Kakao Driver have shown strong momentum in the number of registered drivers, daily calls and application downloads. In addition to 20% commission revenues, Kakao believes Kakao Driver could become a scalable service infrastructure for its other M2O services such as Kakao Homeclean and Kakao Parking, which it will introduce in 2H16. Of particular note, it projects strong revenues from commerce and content, product listing for sale, and the financial consolidation of Loen Entertainment (016170 KS, not rated) from 2Q16, in which Kakao acquired a 76.4% stake in March 2016. What we recommend: We reaffirm our Buy (1) call and 12-month target price of KRW123,000, based on our 2016E EPS and an unchanged target PER of 29x, the average 2016E PER of its global peer group (Bloomberg consensus EPS forecasts). The key risk: slower than-expected monetisation of new M2O services and ads products. How we differ: We are more positive than the market on: 1) earnings contributions from new M2O services, 2) revenue from mobile-ads offerings, and 3) operating leverage due to the growing scale of its new mobile-platform services.

20 June 2016

Asia NDR highlights

Kakao expects its mobile service to regain revenue-growth momentum Management believes it will monetise its M2O services successfully Reaffirming our Buy (1) call with 12-month TP of KRW123,000



Kakao (035720 KS)

Target price: KRW123,000 (from KRW123,000)

Share price (20 Jun): KRW94,900 | Up/downside: +29.6%

Thomas Y. Kwon(82) 2 787 9181

[email protected]





85

98

110

123

135

90,000

103,750

117,500

131,250

145,000



Kakao (LHS) Relative to KOSPI (RHS)

(KRW) (%)

12-month range 91,200-140,100




Major shareholder Kim, Beom Su (18.6%)

Financial summary (KRW)Year to 31 Dec 16E 17E 18E

Revenue (bn) 1,326 1,644 1,876

Operating profit (bn) 286 359 411

Net profit (bn) 270 293 322

Core EPS (fully-diluted) 4,234 4,337 4,767

EPS change (%) 230.8 2.4 9.9

Daiwa vs Cons. EPS (%) 109.2 31.7 22.4

PER (x) 22.4 21.9 19.9


DPS 150 180 200

PBR (x) 2.3 2.1 2.0

EV/EBITDA (x) 15.2 12.2 10.6

ROE (%) 10.2 10.2 10.3


2

Kakao (035720 KS): 20 June 2016


Profit and loss (KRWbn)

Cash flow (KRWbn)


Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

% of ads revenues to total sales 0.0 26.1 13.5 42.2 24.8 47.7 44.0 40.1

Kakao Talk users (m, person) 0.0 70.0 130.0 170.0 177.0 195.0 200.0 201.0

Search query M/S(%) 0.0 20.0 20.0 19.5 18.0 19.0 19.2 19.4

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Advertising 0 12 28 210 231 632 724 752

Games and others 0 25 161 235 201 258 268 276

Other Revenue 2 9 22 54 500 436 652 848

Total Revenue 2 46 211 499 932 1,326 1,644 1,876

Other income 0 0 0 0 0 0 0 0

COGS 0 0 0 0 0 0 0 0

SG&A (15) (39) (145) (322) (844) (1,040) (1,284) (1,465)

Other op.expenses 0 0 0 0 0 0 0 0

Operating profit (13) 7 66 176 88 286 359 411

Net-interest inc./(exp.) (0) 0 3 6 10 (4) (1) 0

Assoc/forex/extraord./others (5) (4) (8) (14) 11 52 13 15

Pre-tax profit (18) 3 60 169 110 334 371 426

Tax 0 2 1 (19) (31) (77) (93) (120)

Min. int./pref. div./others 9 0 0 0 (3) 13 14 15

Net profit (reported) (9) 5 61 150 76 270 293 322

Net profit (adjusted) (9) 5 61 150 76 270 293 322

EPS (reported)(KRW) (412) 222 1,802 3,938 1,280 4,234 4,337 4,767

EPS (adjusted)(KRW) (412) 222 1,802 3,938 1,280 4,234 4,337 4,767

EPS (adjusted fully-diluted)(KRW) (412) 222 1,802 3,938 1,280 4,234 4,337 4,767

DPS (KRW) 1,607 1,110 1,133 173 167 150 180 200

EBIT (13) 7 66 176 88 286 359 411

EBITDA (12) 10 73 199 164 385 472 539

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Profit before tax (18) 3 60 169 110 334 371 426


Tax paid (23) 2 1 52 (23) (29) (77) (93)

Change in working capital 23 (6) (12) 65 45 (173) 27 (20)

Other operational CF items 6 4 8 (75) (6) (1) (2) (1)

Cash flow from operations (10) 6 64 234 200 230 432 439

Capex (7) (9) (13) (13) (75) (79) (88) (101)

Net (acquisitions)/disposals 135 (78) (39) (127) (242) (55) (43) (44)

Other investing CF items (144) (6) (8) 305 (132) (159) (208) (272)

Cash flow from investing (17) (93) (60) 165 (449) (293) (339) (417)

Change in debt (1) 0 0 0 230 (20) (8) (3)

Net share issues/(repurchases) (5) 5 0 0 0 0 0 0

Dividends paid 0 0 0 0 (12) (10) (10) (12)

Other financing CF items 29 90 9 29 (23) 0 0 0

Cash flow from financing 23 95 9 29 195 (30) (18) (15)

Forex effect/others 0 0 (0) (1) 1 0 0 0

Change in cash (3) 8 13 428 (54) (93) 74 7

Free cash flow (17) (2) 51 221 125 151 344 338


3

Kakao (035720 KS): 20 June 2016

Financial summary continued … Balance sheet (KRWbn)

Key ratios (%)


As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E


Inventory 0 0 0 2 5 0 0 0



Total current assets 8 96 181 798 970 1,035 1,128 1,183

Fixed assets 7 14 20 197 219 225 196 162

Goodwill & intangibles 0 1 1 1,689 1,856 1,988 2,167 2,405


Total assets 15 128 217 2,768 3,188 3,417 3,703 4,008

Short-term debt 0 0 0 0 0 31 31 32




Long-term debt 0 0 0 0 200 180 171 167



Share capital 1 0 21 29 30 30 30 30

Reserves/R.E./others 11 112 156 2,425 2,522 2,730 2,955 3,203

Shareholders' equity 12 112 177 2,455 2,552 2,760 2,986 3,233

Minority interests 0 (0) 0 9 33 42 49 55

Total equity & liabilities 15 128 217 2,768 3,188 3,417 3,703 4,008

EV 6,396 6,309 6,263 5,751 5,789 5,850 5,755 5,731

Net debt/(cash) (6) (78) (128) (640) (577) (505) (587) (597)

BVPS (KRW) 549 4,286 4,100 42,337 42,476 40,914 44,262 47,931

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Sales (YoY) n.a. 2,467.5 356.4 136.7 86.8 42.3 24.0 14.1

EBITDA (YoY) n.a. n.a. 633.3 174.8 (18.0) 135.5 22.4 14.2

Operating profit (YoY) n.a. n.a. 843.5 167.9 (50.0) 224.3 25.5 14.3

Net profit (YoY) n.a. n.a. 1,061.5 144.4 (49.6) 256.8 8.3 9.9

Core EPS (fully-diluted) (YoY) n.a. n.a. 710.8 118.6 (67.5) 230.8 2.4 9.9


EBITDA margin n.a. 21.4 34.4 40.0 17.6 29.1 28.7 28.7

Operating-profit margin n.a. 15.1 31.2 35.4 9.5 21.6 21.9 21.9

Net profit margin (491.0) 11.4 29.1 30.1 8.1 20.4 17.8 17.1

ROAE n.a. 8.5 43.2 11.4 3.0 10.2 10.2 10.3

ROAA n.a. 7.4 35.6 10.1 2.5 8.2 8.2 8.3

ROCE n.a. 11.3 45.5 13.4 3.4 9.9 11.5 12.2

ROIC (226.0) 34.7 158.0 16.7 3.3 10.2 11.4 11.5


Effective tax rate n.a. n.a. n.a. 11.3 28.1 23.0 25.0 28.1


Current ratio (x) 2.3 6.8 5.0 3.5 3.1 3.0 2.7 2.5

Net interest cover (x) n.a. n.a. n.a. n.a. n.a. 76.6 501.3 n.a.

Net dividend payout n.a. 499.4 62.9 4.4 13.0 3.5 4.2 4.2

Free cash flow yield n.a. n.a. 0.8 3.5 2.0 2.4 5.4 5.3

Company profile

Kakao is the largest mobile messaging platform in Korea with monthly active users of 41.2m as of 1Q16. On 1 October 2014, Kakao merged with Daum Communications, the leading Internet portal in Korea.



Singapore Telecommunication Services

What's new: Revenue-growth drivers and threat of new entrants were the key topics of discussion among investors during our recent NDR with M1 in Japan. Below we present some of the key highlights and reaffirm our Buy (1) rating. What's the impact: M1 said the prequalification exercise for prospective new entrants should be completed by 3Q16. Management added that they are not taking the threat lightly and are fully prepared to meet it head on. M1 expects its fixed-services business to be the near-term revenue growth driver, and sees opportunities in the Internet-of-things (IOT), Cloud and Big Data services segments over the longer term. In fixed services (1Q16: 12% of service revenue), M1 said it is making inroads in the corporate segment, which contributed nearly half of its fixed-services revenue in 1Q16, though accounting for only 10% of its fixed-services customer base. In the cloud/IOT/cyber security/ data analytics solutions areas, M1 plans to leverage on its partnerships (with VMware, Palo Alto Networks and Huawei) to grow its presence. To drive its corporate-market foray, M1 plans to continue investing in fiber networks (1,000km length today vs. 400kms a year ago) over the next 3 years. M1 said its Oman investment plans are progressing at a slower pace than it had anticipated. The company still appears to be keen on expanding in overseas markets, provided the targets are of the right size relative to its balance sheet and offer a meaningful source of differentiation. We see M1’s M&A strategy as sound as it strikes a careful balance between seeking growth opportunities and ensuring that its dividend outlook remains intact. Meanwhile, M1 expects its core mobile-business outlook to be stable. Management sees the recent launch of data upsize offers and SIM-only plans as a means to revitalize and enhance the value proposition for its customer base. M1 said participation rates for its SIM-only plans are quite healthy (15% of gross additions with the majority signing up for 12-month contracts), and reiterated that these plans, adjusted for lack of handset subsidies, generate higher gross-profit plans than its regular offers. Finally, management also reaffirmed its dividend policy (minimum 80% payout) and commitment to shareholder return. Overall, we remain confident in our forecast that M1’s fixed-broadband market share will improve from 10.2% in 2015 to 13.8% by 2018. What we recommend: We reaffirm our Buy (1) call and DDM-based 12-month TP of SGD2.94. Risk: emergence of a fourth player in the market. How we differ: Our 2017-18E EPS are 7-12% above consensus, as we believe new-entrant threats in Singapore’s mobile market are overplayed.

20 June 2016

Tokyo NDR: fixed services as revenue-growth driver

Growth drivers and threat of new entrants were key focus areas Measures in place to boost fixed-services revenue base Reaffirming Buy (1) rating



M1 (M1 SP)

Target price: SGD2.940 (from SGD2.940)

Share price (20 Jun): SGD2.430 | Up/downside: +20.9%

Ramakrishna Maruvada(65) 6499 6543

[email protected]





80

88

95

103

110

2.2

2.5

2.8

3.1

3.4



M1 (LHS) Relative to FSSTI (RHS)

(SGD) (%)

12-month range 2.240-3.330




Major shareholder Sunshare Investments (29.6%)

Financial summary (SGD)Year to 31 Dec 16E 17E 18E

Revenue (m) 1,086 1,101 1,109

Operating profit (m) 229 237 243

Net profit (m) 186 193 198


EPS change (%) 4.4 4.0 2.6

Daiwa vs Cons. EPS (%) 2.0 7.2 12.3

PER (x) 12.3 11.8 11.5


DPS 0.178 0.185 0.190

PBR (x) 5.2 4.9 4.7

EV/EBITDA (x) 7.3 6.9 6.7

ROE (%) 43.5 42.7 41.8


2

M1 (M1 SP): 20 June 2016

M1: DDM valuation — key inputs M1: DDM — sensitivity

Key inputs Assumption

Risk free rate 2.6%

Risk premium 6.0%

Levered equity beta 1.0

Cost of equity 8.6%

Cost of Equity

8.10% 8.35% 8.6% 8.85% 9.10%

2.0% 2.76 2.72 2.67 2.63 2.59

2.5% 2.89 2.84 2.80 2.75 2.71

Terminal Div Growth 3.0% 3.04 2.99 2.94 2.89 2.84

3.5% 3.22 3.17 3.11 3.06 3.01

4.0% 3.44 3.38 3.32 3.26 3.21

Source: Daiwa estimates

Source: Daiwa


3

M1 (M1 SP): 20 June 2016


Profit and loss (SGDm)

Cash flow (SGDm)


Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Total mobile subs (m) 2.02 2.11 2.11 1.85 1.93 1.98 2.01 2.05

Blended ARPU (Local curr.) 24.9 24.5 25.5 28.2 29.4 29.4 29.6 29.5

Fiber Subs (m) 0.022 0.052 0.085 0.103 0.128 0.152 0.172 0.184

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Mobile telecommunications services 587 607 644 671 668 690 709 720

International call services 125 117 114 89 69 62 59 59

Other Revenue 353 353 250 316 420 334 333 330

Total Revenue 1,065 1,077 1,008 1,076 1,156 1,086 1,101 1,109

Other income 2 1 2 2 6 0 0 0

COGS (566) (515) (424) (453) (531) (426) (411) (402)

SG&A (191) (262) (273) (290) (291) (304) (317) (324)




Assoc/forex/extraord./others 0 0 0 0 0 0 0 0

Pre-tax profit 197 184 193 217 218 224 233 239

Tax (33) (37) (33) (41) (40) (38) (40) (41)


Net profit (reported) 164 147 160 176 178 186 193 198


EPS (reported)(SGD) 0.181 0.161 0.174 0.188 0.190 0.198 0.206 0.211

EPS (adjusted)(SGD) 0.181 0.161 0.174 0.188 0.190 0.198 0.206 0.211

EPS (adjusted fully-diluted)(SGD) 0.181 0.161 0.174 0.188 0.189 0.198 0.206 0.211

DPS (SGD) 0.145 0.146 0.210 0.189 0.153 0.178 0.185 0.190

EBIT 203 189 197 221 223 229 237 243

EBITDA 309 299 311 334 335 356 374 383

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Profit before tax 197 184 193 217 218 224 233 239


Tax paid (35) (27) (30) (29) (40) (38) (40) (41)

Change in working capital 14 8 24 (31) (60) 79 0 0

Other operational CF items 7 5 5 5 8 5 5 4

Cash flow from operations 291 281 307 277 244 398 334 343

Capex (103) (123) (125) (140) (134) (137) (125) (119)

Net (acquisitions)/disposals (22) 2 3 (39) (8) (94) 0 (40)

Other investing CF items 0 0 0 0 0 0 0 0


Change in debt (13) (31) (22) 52 52 (4) (25) 0


Dividends paid (161) (132) (136) (197) (177) (153) (170) (176)

Other financing CF items (5) (6) (5) (4) (5) (5) (5) (4)

Cash flow from financing (164) (160) (141) (130) (115) (162) (200) (180)

Forex effect/others (0) (1) 0 0 0 0 0 0

Change in cash 3 (0) 43 (32) (13) 5 10 4

Free cash flow 188 159 181 137 111 261 209 224


4

M1 (M1 SP): 20 June 2016

Financial summary continued … Balance sheet (SGDm)

Key ratios (%)


As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E


Inventory 0 0 0 0 0 0 0 0



Total current assets 261 246 249 226 261 243 255 261

Fixed assets 607 630 649 686 714 737 746 748



Total assets 979 975 986 1,028 1,086 1,166 1,167 1,191

Short-term debt 53 272 0 52 354 0 0 0




Long-term debt 250 0 250 250 0 350 325 325



Share capital 145 156 180 201 217 217 217 217

Reserves/R.E./others 178 192 215 194 196 223 246 268

Shareholders' equity 323 348 395 395 413 440 463 485


Total equity & liabilities 979 975 986 1,028 1,086 1,166 1,167 1,191

EV 2,569 2,538 2,473 2,557 2,621 2,613 2,578 2,574

Net debt/(cash) 292 260 196 279 344 335 301 297

BVPS (SGD) 0.355 0.381 0.428 0.424 0.441 0.470 0.494 0.518

Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E

Sales (YoY) 8.8 1.1 (6.4) 6.8 7.4 (6.1) 1.4 0.7

EBITDA (YoY) (0.7) (3.0) 3.8 7.5 0.2 6.5 4.8 2.6

Operating profit (YoY) 3.6 (7.1) 4.4 12.2 0.5 2.8 3.8 2.4

Net profit (YoY) 4.5 (10.7) 9.3 9.9 0.9 4.4 4.0 2.6

Core EPS (fully-diluted) (YoY) 3.5 (11.2) 8.1 8.4 0.5 4.4 4.0 2.6


EBITDA margin 29.0 27.8 30.8 31.0 28.9 32.8 33.9 34.6



ROAE 52.5 43.7 43.2 44.6 44.0 43.5 42.7 41.8

ROAA 17.2 15.0 16.3 17.5 16.8 16.5 16.5 16.8

ROCE 32.7 30.3 31.2 33.0 30.4 29.4 30.1 30.4

ROIC 27.6 24.7 27.4 28.4 25.4 24.8 25.6 26.1




Current ratio (x) 0.8 0.5 1.1 0.8 0.5 0.9 1.0 1.0




Company profile

M1 – founded in August 1994 – is a mobile operator in Singapore, engaged principally in the provision of mobile-voice and data-communication services. The company was listed on the Singapore Stock Exchange in December 2002.


20 June 2016

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 1 of 7

Modified plans WCT’s planned listing of its REIT and construction arm has been delayed

due to the extended time needed to meet listing requirements. It only

raised RM85m from the exercise of its WCT-WC warrants. The shortfall in

cash raised could see WCT issuing new equity via a private placement.

WCT is considering the divestment of The Ascent office building and

other assets as part of its de-gearing exercise. Short-term concerns could

dampen share price performance but long-term prospect remains good.

Maintain BUY with RM2.02 target price, based on 10% discount to RNAV. Construction arm listing delayed WCT’s planned listing of its construction arm has been delayed to 2Q17 from 4Q16. The extended time is needed to meet the chain-listing rule of having separate Board of Directors and management team for the construction arm. Applying a PER of 14x and FY15 net profit of RM107m, valuation for the construction arm is RM1.5bn. Assuming WCT divest a 40% stake in the construction arm, it could raise proceeds amounting to RM600m. REIT listing to proceed first WCT REIT is expected to list first in 1Q17 by injecting Paradigm PJ and BBT malls with indicative RNAV of RM1.2bn. Assuming WCT divests a 60% stake in WCT REIT, it could raise RM720m in proceeds. By retaining a 40% stake, WCT REIT will become an associate and its debt will be de-consolidated, reducing group net gearing. WCT has also identified assets worth RM500m for disposal, including The Ascent and 39-acre land in Serendah. This is in addition to the divestment of the 608.6-acre land in Rawang into a joint venture with UEM Sunrise to raise RM215m in proceeds.

Possible private placement WCT has shareholders’ prior approval to issue new shares up to 10% of its paid-up capital. It can issue up to 124.8m shares worth RM192m at current share price. A partial private placement below the 10% threshold is sufficient to cover the shortfall from the warrant conversion.

Long-term BUY We estimate that its net gearing will reduce from 0.81x currently to 0.4x if the above corporate exercises are completed. This could appease the debt rating agencies to preserve its current AA- rating and remove the current negative rating watch. We maintain BUY with a target price of RM2.02. Earnings & Valuation Summary FYE 31 Dec 2014 2015 2016E 2017E 2018E Revenue (RMm) 1,662.2 1,667.9 2,399.0 3,118.7 3,200.4 EBITDA (RMm) 161.8 126.4 269.5 349.7 407.8 Pretax profit (RMm) 149.5 271.6 406.2 282.8 343.5 Net profit (RMm) 122.9 219.1 353.3 208.7 254.3 EPS (sen) 9.6 13.9 22.5 14.8 17.9 PER (x) 16.0 11.1 6.8 10.4 8.6 Core net profit (RMm) 99.5 72.3 148.0 208.7 254.3 Core EPS (sen) 8.0 5.5 10.0 14.8 17.9 Core EPS growth (%) (8.9) (31.2) 82.5 47.5 20.8 Core PER (x) 19.3 28.0 15.4 10.4 8.6 Net DPS (sen) 6.2 6.0 6.0 8.0 8.0 Dividend Yield (%) 4.0 3.9 3.9 5.2 5.2 EV/EBITDA (x) 19.9 31.0 15.2 12.4 10.5 Chg in EPS (%) (2.9) (3.1) (3.1) Affin/Consensus (x)

2.4 1.2 1.3 Source: Company, Affin Hwang estimates, Bloomberg

Company Update

WCT Holdings WCTHG MK Sector: Construction & Infra RM1.54 @ 17 June 2016 BUY (maintain) Upside: 31% Price Target: RM2.02 Previous Target: RM2.02

Price Performance 1M 3M 12M Absolute -7.3% -6.7% +4.0% Rel to KLCI -6.8% -2.2% +10.6% Stock Data Issued shares (m) 1,248.6 Mkt cap (RMm)/(US$m) 1897.8/462.7 Avg daily vol - 6mth (m) 2.1 52-wk range (RM) 1.1-1.76 Est free float 45.8% BV per share (RM) 2.15 P/BV (x) 0.71 Net cash/ (debt) (RMm) (1Q16) 2,174.1 ROE (2015E) 12.7% Derivatives Yes (Warr 12/17, WP RM0.185, EP RM1.71) (Warr 15/20, WP RM0.175, EP RM2.08) Shariah Compliant Yes Top 3 Key Shareholders WCT Capital 19.7% Lembaga Tabung Haji 10.3% EPF Board

7.4% Source: Affin Hwang, Bloomberg

Loong Chee Wei CFA (603) 2146 7548

[email protected]

1.00

1.20

1.40

1.60

1.80

2.00

2.20

2.40

Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16

(RM)


mailto:[email protected]

Important disclosures, including any required research certifications, are provided on the last two pages of this report.

Share Price Chart

Source: Compiled by Daiwa.

Market data 12-month range (Y) 1,594-2,499

Market cap (Y mn; 17 Jun) 405,659

Shares outstanding (000; 6/16) 253,695

Foreign ownership (%; 3/16) 19.4

Investment Indicators 3/16 3/17 E 3/18 E

P/E (X) 11.0 10.1 9.2

EV/EBITDA (X) 4.4 4.2 3.4

P/B (X) 0.68 0.65 0.62

Dividend yield (%) 2.13 2.13 2.13

ROE (%) 6.4 6.6 6.8

Net debt/equity (X) -0.2 -0.2 -0.2

Income Summary

(Y mn) 3/16 3/17 E 3/18 E

Sales 414,780 422,400 437,100

Op profit 53,178 54,500 60,200

Rec profit 57,791 58,500 64,200

Net income 36,883 40,000 43,900

EPS (Y) 145.4 157.7 173.0

DPS (Y) 34.00 34.00 34.00

See end of report for notes concerning indicators.

Nippon Television Holdings (9404)

Target price: Y2,360 (from Y2,400 as of 6 Feb)

Share price (17 Jun): Y1,599 | Up/downside: +47.6%

Growth to accelerate for non-broadcasting ops Likely higher ad rates amid firm ranking No. 1 for viewer ratings See Hulu, Tipness growing to account for almost 10% profit in FY18 Stock should trade at around sector avg. P/E

What's new: We upgraded our investment rating on Nippon Television Holdings from 2 (Outperform) to 1 (Buy). While the shares have underperformed since the start of the year, down 27% vs. the 17% decline for TOPIX, we think the firm is rather compelling given likely higher ad rates for mainstay broadcasting operations and since it has also embarked on developing non-broadcasting businesses. Outlook: We are encouraged for two reasons: (1) prospects for broadcasting revenue growth on the back of higher ad rates amid the company ranking No. 1 in viewer ratings and (2) expectations for a growing contribution to operating profit from the non-broadcasting businesses of video streaming service Hulu and Tipness sports clubs over the medium term. We forecast y/y spot ad revenue growth of 3.8% for FY16 and 4.1% for FY17 due to likely higher spot advertising rates amid strong viewer ratings. Meanwhile, video streaming service Hulu, which is likely to see losses shrink in FY16, should turn profitable in FY17 and book operating profit of Y3.0bn in FY18. Tipness sports clubs look set for sustained double-digit operating profit growth on the back of aggressive rollouts of FastGym24 low-price, small gyms. These two businesses combined were a drag of Y900mn on earnings in FY15 but are likely to account for 7% of operating profit in FY18. As such, we forecast Nippon Television’s profit growth accelerating, with operating profit up 2.5% in FY16, increasing 10.5% in FY17, and advancing 14.6% in FY18. We also have expectations for sustained modest improvement in ROE from 6.4% in FY15 to 6.8% in FY17 and 7.3% in FY18. What we recommend: We upgraded our investment rating from 2 (Outperform) to 1 (Buy) and set our six- to 12-month target price at Y2,360 (47.6% upside from current level). To reach our price objective we applied the broadcasting sector average P/E of 15X to our FY16 EPS estimate. We think the shares deserve a valuation around the sector average, at the very least, in light of strong viewer ratings and growth prospects for non-broadcasting businesses.

Japan

Information & communications 20 June 2016 Japanese report: 20 June 2016

Buy (up from 2)

Taro Ishihara 81-3-5555-7142

[email protected]


Important disclosures, including any required research certifications, are provided on the last two pages of this report.

Share Price Chart

Source: Compiled by Daiwa.

Market data 12-month range (Y) 978.3-3,290

Market cap (Y mn; 17 Jun) 92,488

Shares outstanding (000; 6/16) 31,120

Foreign ownership (%; 3/16) 8.0

Investment Indicators 3/16 3/17 E 3/18 E

P/E (X) 40.1 35.7 31.5

EV/EBITDA (X) 22.7 18.5 16.4

P/B (X) 8.59 7.73 7.04

Dividend yield (%) 0.67 0.84 1.01

ROE (%) 23.3 22.8 23.4

Net debt/equity (X) -0.1 -0.2 -0.2

Income Summary

(Y mn) 3/16 3/17 E 3/18 E

Sales 26,612 32,900 36,200

Op profit 3,276 3,950 4,500

Rec profit 3,325 3,970 4,520

Net income 2,305 2,590 2,940

EPS (Y) 74.1 83.2 94.5

DPS (Y) 20.00 25.00 30.00

See end of report for notes concerning indicators.

Kotobuki Spirits (2222)

Target price: Y4,200

Share price (17 Jun): Y2,972 | Up/downside: +41.3%

Major confectionary manufacturer & wholesaler Offers wide range of brands including LeTAO, Tokyo Milk Cheese Factory See mid/long-term growth on growth of souvenir market, internal efforts Initiate coverage with 2 (Outperform) rating

What's new: We initiate coverage of Kotobuki Spirits with a 2 (Outperform) rating. Company overview: Kotobuki Spirits is a major manufacturer and wholesaler of confectionaries of various types from Japanese sweets to cakes/pastries for use as souvenirs. It offers a wide range of brands, including LeTAO (handled by subsidiary KCC), in addition to Tokyo Milk Cheese Factory and The Maple Mania (handled by subsidiary Sucrey). The firm has two major strengths: its solid sales network and brand development capabilities. It has steadily expanded its sales network across the nation over the years through M&As and sales efforts. It also gathers information from clients in the course of its sales activities for use in developing new brands. Our focus is on the firm’s mid/long-term potential from the growth of the souvenir market and its internal efforts. We expect the souvenir market to continue expanding over the medium to long term amid increasing numbers of foreign visitors to Japan. The firm should also see sales growth from existing operations driven by sales network expansion in train stations and airports mainly in the Tokyo metropolitan area, as well as increased airport sales and expansion overseas. These factors should allow sales growth of around Y3bn annually (about level for FY15) to continue over the mid/long term. Outlook: We forecast operating profit at Y3.95bn (up 21% y/y, company projection Y3.68bn) for FY16, Y4.5bn (up 14%) for FY17, and Y5.15bn (up 14%) for FY18. We anticipate sales and operating profit growth over the medium to long term amid expansion of the souvenir market, mainly fueled by KCC, Sucrey, and Kotobukiseika. What we recommend: We initiate coverage of Kotobuki Spirits with a 2 (Outperform) rating and a six- to 12-month target price of Y4,200, equivalent to around 50X our FY16 EPS estimate of Y83.2. We see a current-FY P/E of 50X as attainable for food manufacturers with a high ROE and operating profit growth rate.

Japan

Foods 20 June 2016 Japanese report: 20 June 2016

Outperform (new)

Satoshi Sakae 81-3-5555-7139

[email protected]


Asiamoney’s

2013

Best Domestic

Equity House

Spotlight

21 June 2016

Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor

in making their investment decision.

Please see the important disclaimer information on the back of this report

Indonesia update: La Niña watch

Harry Su E-mail: [email protected] Phone: +6221 250 5735

Here comes the rain

Warning from National Disaster Mitigation Agency: A La Niña weather

pattern is expected to develop during the Northern Hemisphere during the

summer of 2016, with about a 75% chance of occurrence during the fall and

winter of 2016-17 (exhibit 5), according to the International Research Institute

for Climate and Society. La Nina occurs when the temperature of the ocean

surface in the western part of Sumatera is warmer than that in east coast of

Africa, creating water vapor and affecting regions such as the western part of

North Sumatera; the western part of West Sumatera; South Sumatera;

Lampung; the western part of Java; Kalimantan; Sulawesi and Papua. Due to La

Nina’s unusual weather pattern, the National Disaster Mitigation Agency has

cautioned for unusual precipitation during this year’s dry season in July, August

and September. However, even during June, with less than a 50% probability,

the rainy season in Indonesia has been much heavier than usual. Based on our

research, rainfall in Sumatra, for example, has been the heaviest in the past 10

years. This should have the following impact on our covered stocks and sectors:

Winners:

Cigarettes: Stick sales typically increase during the rainy season.

Healthcare: Higher sales due to flu-related illnesses caused by the rains.

CPO: Prices could rise on lower production due to soil shock caused by heavy rains as well as the inability of workers to optimally harvest.

Tin: Possible lower to flat production volumes for TINS (TINS IJ-IDR740-

REDUCE-TP:IDR411), resulting in higher tin prices, although this could be

offset by higher costs stemming from increased onshore mining as the sea becomes unfriendly.

Losers:

Retailers: Bad for retailers in general as people tend to stay home and shop less during the rainy season; this is particularly true for RALS’s (RALS IJ, IDR900-BUY-TP:IDR1,080) low-end shoppers who do not own cars.

Taxi: The rise in the number of passengers during rainy days could be offset

by heavy traffic and the preference to stay indoors.

Nickel: As Indonesia is not a major producer of refined nickel, prices are unlikely to move up in a major way, while furnaces would not be working

optimally during heavy rains, leading to lower or flat production output.

Coal: As only the world’s fifth largest producer, the country’s lower coal output may not translate into sufficiently high coal prices to benefit producers, while coal’s higher moisture content could lead to lower selling prices.

Exhibit 5. El Nino vs La Nina probability

Source: International Research Institute (IRI) for Climate and Society

Exhibit 1. Recent flooding in Java

Source: bbc.com

Exhibit 2. Deluge in Sumatra

Source: tempo.com

Exhibit 3. La Nina occurrences La Niña

Weak Mod Strong

1950-51 1955-56 1973-74

1954-55 1970-71 1975-76

1964-65 1998-99 1988-89

1967-68 1999-00

1971-72 2007-08

1974-75 2010-11

1983-84

1984-85

1995-96

2000-01

2011-12

Source: The US Climate Prediction Center

Exhibit 4. El Nino occurrences

El Niño

Weak Mod Strong Very Strong

1951-52 1963-64 1957-58 1982-83

1952-53 1986-87 1965-66 1997-98

1953-54 1987-88 1972-73 2015-16

1958-59 1991-92

1968-69 2002-03

1969-70 2009-10

1976-77

1977-78

1979-80

1994-95

2004-05

2006-07

Source: The US Climate Prediction Center


mailto:[email protected]

Follow one of the WSJ’s top 50 financial twitter feeds @DaiwaEurope

Euro area

Construction output soft at start of Q2

Having grown by more than 1%Q/Q in Q415 and Q116, euro area construction output was soft at the start of the second quarter, falling 0.2%M/M. As such, since the strong start to the year when output rose 2.0%M/M in January thanks not least to favourable winter weather, construction activity has contracted for three consecutive months leaving the level in April more than 1% below the Q116 average and 0.4% lower than a year earlier. The weakness in the latest month related to new building work, which also fell for the third consecutive month, while civil engineering output rose for the first month since January. At the country level, random volatility appeared to be significant as recent trends reversed, with output in the sector down in Germany and Spain following marked gains in the first quarter but activity up in France and Italy following notable drops in the first quarter. However, while growth in the sector looks set to be much weaker than in the previous two quarters, a moderate uptrend in construction output seems likely to resume soon supported by a range of factors including lower interest rates for borrowers, increased lending for house purchase, a gradual rise in home prices and improving labour market conditions. Indeed, other economic data today reinforced expectations of further declines in unemployment over the near term with the euro area job vacancy rate rising in Q1 to 1.7%, the highest for more than a decade among the nineteen countries currently making up the euro area. At the sectoral level, the vacancy rate remained highest in services (2.0%), while among countries it unsurprisingly remained particularly elevated in Germany (2.5%). Indeed, not least given the country’s tight labour market, which is generating the euro area’s firmest wage growth and supporting the region’s fastest house-price inflation, we expect the trend in construction activity to remain most robust in Germany. The day ahead in the euro area and US

Tuesday brings the first of numerous June economic sentiment survey results due this week in the shape of the German ZEW investor sentiment survey. Given the financial market risk aversion prevailing over the past couple of weeks, the current conditions and expectations measures might both be expected to show a deterioration in investor confidence. Meanwhile, the German Constitutional Court will pronounce its judgment in its proceedings on the legality of the ECB’s OMT programme with a ruling broadly in favour of the current asset-purchase arrangements likely. And ECB President Draghi will speak at the European Parliament. In the US, Fed Chair Yellen will testify on monetary policy to the Senate Banking panel while the Treasury will sell 5Y Notes. Euro area: Construction output UK: Brexit referendum poll of polls*

Source: Thomson Reuters and Daiwa Capital Markets Europe Ltd. *The dots show individuals polls and the lines are seven-poll moving averages.

Source: whatukthinks.org and Daiwa Capital Markets Europe Ltd.

30

40

50

60

70

80

90

100

110

120

Jan-07 Jul-08 Jan-10 Jul-11 Jan-13 Jul-14 Jan-16

Euro areaGermanyFranceItalySpain

Index: Jan 2007 = 100, 3mma

35

40

45

50

55

Feb-16 Mar-16 Apr-16 May-16 Jun-16

Remain a member of the EULeave the EU%

Europe Economic Research

20 June 2016

Euro wrap-up

Overview As optimism regarding the UK referendum boosted risk appetite, Bunds

made losses despite some soft euro area construction output data. Gilts made significant losses as opinion polls suggested an increase in

support for the UK to remain in the EU. Tuesday will bring the latest German ZEW investor survey and UK public

finance figures, while Draghi will speak at the European Parliament.

Chris Scicluna +44 20 7597 8326

Daily bond market movements Bond Yield Change*

BKO 0 06/18 -0.585 +0.024 OBL 0 04/21 -0.466 +0.032

DBR 0½ 02/26 0.060 +0.041 UKT 1¼ 07/18 0.473 +0.082 UKT 1½ 01/21 0.790 +0.095 UKT 2 09/25 1.242 +0.098

*Change from close as at 4.30pm BST. Source: Bloomberg


https://twitter.com/DaiwaEurope

- 2 -

Europe Euro wrap-up

20 June 2016

UK

Opinions polls show a shift back towards a Remain vote

With new opinion polls out over the weekend suggesting a swing in support back towards the Remain camp, global risk appetite was much improved today. Sterling was on a tear, up by late afternoon by more than 3 cents against the dollar to its highest level since end-May, while 10Y Gilt yields were up 10bps back firmly above 1.2% for the first time in a week and the FTSE closed up almost 3% on the day. And it was a similar story elsewhere, with European Bourses posting sharp gains and periphery sovereign spreads significantly tighter. In terms of the polls themselves, while one published by Opinium/Observer suggested that support for the two sides was running neck and neck at 44% apiece, a Yougov/Sunday times poll gave Remain a one-point lead (44-43) and a poll by Survation/MoS gave Remain a three-point lead (45-42). The shift in support back to the Remain camp appears to be matching the trend of the Scottish referendum whereby there was a swing back towards the status quo in the days ahead of the poll as voters appeared to become more averse to the risks of dramatic change. Of course, an increase in support for Remain might also be partly a reaction to the murder of the (Remain campaign's) MP Jo Cox last week and distaste at the dog-whistle tactics related to immigration employed by some of the Leave campaign, which also today saw a prominent Conservative former Minister switch sides to Remain. However, with polls also having signalled that those in favour of Brexit might on average still be more likely actually to vote, Thursday’s referendum is still likely to be close. The opinion polls indicate that a key factor influencing voting intentions is the potential impact on the economy. And the IMF report on Brexit published on the weekend came up with some familiar-looking estimates on the potential impact of a vote to Leave, e.g. under an ‘adverse’ scenario UK GDP would be more than 5½% lower by 2019, while the government’s finances would be significantly weaker, with deficits persisting across the forecast horizon. Looking at direct spill-overs to other countries, given its significant economic and financial integration with the UK, Ireland is estimated to be worst hit, with GDP almost 2% lower by 2019 under the adverse scenario, while the Netherlands and Belgium would also see GDP more than ½% lower than it otherwise would be by then but other countries less affected. However, the IMF’s estimates do not factor in the impact of any re-pricing of risk, which we think might be sizeable across the EU and would more significantly harm the economies of member states in Southern as well as Central and Eastern Europe. The day ahead in the UK

Away from the referendum, the data flow tomorrow brings the CBI Industrial Trends survey for June and the public finance figures for May, which are expected to show that public sector borrowing in May was £9.5bn, nearly £1bn lower compared to a year ago.


Important disclosures, including any required research certifications, are provided on the last three pages of this report.

What’s new BCIA announced May operating data. We see signs of slower growth in international

traffic which would be a concern to the market but in line with our expectation. Highlights Moderate growth in aircraft movements – BCIA recorded aircraft movements of

51,184 in May, up 5.4% YoY. By segment, aircraft movements for domestic air routes increased by 5.9% YoY, while aircraft movements for international, Hong Kong , Macau and Taiwan air routes rose by 3.7% YoY. For the first 5 months, BCIA’s total aircraft movements expanded by 2.7% YoY, reaching 249,510, slightly better than our forecasts of 1% YoY (flat YoY for domestic and 4% YoY increase for international).

Passenger throughput growth dragged down by international routes – The company registered passenger throughput of 7,805,000 in May, up 4.4% YoY. The passenger throughput of domestic routes increased by 5.0% YoY. However, its passenger throughput growth for international, Hong Kong, Macau and Taiwan routes slowed to 2.5% YoY (vs 12.2% in Apr and 12.4% YTD). Management explained the slower growth of international routes was due to the high base last year when domestic airlines rapidly deployed new capacities in the segment. For 5M16, BCIA’s total passenger throughput was 38,075,000, rising by 3.6% YoY, slightly better than our forecast of 3% YoY (1% YoY increase for domestic and 9% YoY for international).

Recommendation The overall May data showed slower growth in international passenger traffic due to a

high base when airlines expanded capacities. We believe this may be a concern for investors as the investment thesis for BCIA is mainly its ability to restrict the slots being used on domestic and allocating more to international routes. We reiterate Hold (3) rating on the stock with a 12-month target price of HKD8.1. Key risk to our call would be higher- or lower-than-expected passenger throughput growth.

BCIA: May operating data

Jan-16 Feb-16 Mar-16 Apr-16 May-16 YTD

Aircraft Movements 50,174 46,936 51,086 50,129 51,184 249,510

Passenger throughput 7,537,000 7,182,000 7,724,000 7,826,000 7,805,000 38,075,000

YoY% Jan-15 Feb-15 Mar-15 Apr-16 May-16 YTD

Aircraft Movements 1.6% 3.1% 1.0% 2.7% 5.4% 2.7%

Domestic Routes -0.6% 0.7% -0.4% 2.2% 5.9% 6.1%

International, HK, Macau & Taiwan Routes 9.6% 11.7% 6.1% 4.3% 3.7% 6.9%

Passenger throughput 8.0% 2.8% 0.3% 2.9% 4.4% 3.6%

Domestic Routes 4.1% 0.5% -1.7% 0.0% 5.0% 0.6%

International, HK, Macau & Taiwan Routes 20.9% 9.9% 7.2% 12.2% 2.5% 12.4%

Source: Company, Daiwa

In the interests of timeliness, this document has not been edited.

x

Country

20 June 2016

ME

MO

Beijing Capital International Airport (694 HK)

Share price (17 Jun): HKD7.81 12-mth rating: Hold (3) Target price: HKD8.10 (DCF-based)

Signs of slower growth in international traffic

Kelvin Lau (852) 2848 4467 [email protected]


Important disclosures, including any required research certifications, are provided on the last three pages of this report.

What’s new: China Harmony attended our Auto & Industrial Leaders Conference in HK today. Overall, the company sees its core dealership and independent after-sales service as being on track to achieve its full-year target, while its EV business development is also seeing good progress and would be a long-term earnings driver for the company. Analysis • New car sales target of 15% volume growth on flat margin - China Harmony guided

for the new-car sales volume to increase by 15% YoY and a high single-digit revenue growth for 2016, which would outperform BMW China’s 8.5% sales volume target. The company also guided for a flat gross margin at around 4%. Management see good sales orders from the new BMW X1 as well.

• After-sales service sees robust revenue growth - Management expects to see 20-

25% YoY revenue growth for after-sales service from 4S dealerships, and 60% YoY growth for independent sales outlets, the key segment that differentiates China Harmony from the other dealers. Management expects the gross margin to improve slightly as more outlets mature. According to the management, about 50-70% of current sales generated from independent after-sales outlets are from insurance companies.

• Rapid expansion plan for after-sales stores – The company operated 158

independent after-sales stores at end-2015, up from 43 stores at end-2014. Management expects its network to cover 300 independent after-sales outlets in 2016 and 500 in 2017, and eventually reach 1,000 outlets in 2020, at an average of 150-200 store additions per year. The investment for each center store would be CNY4-5 million while the investment for each community store would only be around half a million. Its CAPEX plan for 2016-18 is only around CNY600-800m per year, including CNY200-300m in capex on the EV business. The remaining capex would be spent on independent after-sales stores and 4S shop openings, at 2-3 stores per year.

• First low end i-car by 1H2017 - Management plans to launch the first model of its low-

end i-car by the first half of 2017, and target the lower-tier cities with a selling price at CNY78,000, after a government subsidy of CNY80-90,000. The driving range would be at 150-200km. It expects a sales volume of 10,000 units for the model in 2017.

• First high-end FMC EV in 2019 - The first model of its high-end EV will be an SUV,

priced at CNY280,000 after government subsidies. With the senior management of BMW and Dongfeng Infinity joining the e-car team, management believes the show car of the first model will be ready in Sep 2017, while the actual launch will be in 2019. Management is confident the e-car will be well received on its first launch in 2019.

Recommendation • We have a Buy (1) call and see strong 1H16 results and the potential listing of its assets

on the A-share market as potential near-term share-price catalysts. Separately, we view Future Mobility Corporation (FMC; previously known as E-car) as a possible long-term rerating catalyst. Our SOTP-based target price of HKD5.8 values Harmony’s core dealership business at HKD5.20 per share and its EV business at HKD0.6 per share. The key risk: lower-than-expected after-sales demand.

In the interests of timeliness, this document has not been edited.

C

20 June 2016

ME

MO

China Harmony New Energy Auto (3836 HK)

Share price (20 June): HKD4.41 12-mth rating: Buy (1) Target price: HKD5.80

Core business in good shape; EV a long-term catalyst

Kelvin Lau (852) 2848 4467 [email protected]

Brian Lam (852) 2532 4341 [email protected]


Korea: share prices and Daiwa recommendation trends Kakao: share price and Daiwa recommendation trend

Source: Daiwa

Note: where appropriate, historical target prices have been adjusted to reflect the current share count

POSCO: share price and Daiwa recommendation trend

Source: Daiwa

Note: where appropriate, historical target prices have been adjusted to reflect the current share count

Date Target price Rating Date Target price Rating Date Target price Rating30/09/13 105,000 Outperform 24/10/14 190,000 Buy 13/08/15 162,000 Buy14/02/14 87,500 Outperform 07/11/14 185,000 Buy 16/10/15 142,000 Buy13/05/14 83,000 Outperform 14/04/15 150,000 Buy 12/11/15 140,000 Buy28/05/14 103,000 Outperform 14/05/15 136,000 Buy 05/02/16 126,000 Buy29/07/14 139,000 Outperform 15/06/15 127,500 Buy 12/05/16 123,000 Buy

95,00092,000

105,000

87,50083,000

103,000

139,000

190,000185,000

150,000

136,000

127,500

162,000

142,000140,000

126,000 123,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Jun-

13

Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb

-16

Mar

-16

Apr

-16

May

-16

Jun-

16

Target price (KRW) Closing Price (KRW)

Date Target price Rating Date Target price Rating Date Target price Rating29/01/14 280,000 Hold 06/02/15 320,000 Buy 15/01/16 185,000 Outperform11/04/14 350,000 Outperform 22/04/15 250,000 Hold 15/02/16 220,000 Buy27/08/14 420,000 Buy 15/07/15 200,000 Hold 08/04/16 270,000 Buy24/10/14 370,000 Buy 13/10/15 190,000 Hold14/01/15 380,000 Buy 01/12/15 170,000 Hold

320,000

280,000

350,000

420,000

370,000380,000

320,000

250,000

200,000190,000

170,000185,000

220,000

270,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Jun-

13

Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb

-16

Mar

-16

Apr

-16

May

-16

Jun-

16

Target price (KRW) Closing Price (KRW)


Click for our latest editions

Hong Kong Property Sector

Hong Kong Property Sector: It’s time to be more greedy than fearful 25 May 2016

Challenges abound, but we think the Hong Kong property market is more mature and sophisticated than many observers realise

Corporate fundamentals are stronger than industry fundamentals – a distinction that we think deserves more recognition

Significant investment value could be unlocked if family-owned property companies continue to modernise; reiterating Positive stance

Jonas Kan, CFA (852) 2848 4439 ([email protected])

SG Strategy

SG Strategy: Navigating choppy markets 8 April 2016

We identify optical communications as a key beneficiary of the rising Big Data/IoT cycle

We flag 2 demand drivers: 1) the continued expansion of global FTTX coverage, and 2) bandwidth upgrades at global datacentres

Food chain value proposition centres on epiwafer-growing — LandMark Opto (Buy [1]); WinSemi (Buy [1]) should also benefit

Ramakrishna Maruvada (65) 6499 6543 ([email protected]) Shane Goh (65) 6499 6546 ([email protected])

Taiwan Industrial PC

Sector

Taiwan Industrial PC Sector: Initiation: now they’re talking 23 March 2016

We highlight the Industrial PC sector as a major beneficiary of the ongoing rise of the Internet of Things (IoT)

The Industrial IoT megatrend, government-led efforts to modernize industrial bases, and M&A should be the key catalysts for the sector

We favour Ennoconn for its strong earnings and Advantech for its industry leadership; concerns over IA demand and opex for Adlink

Steven Tseng (886) 2 8758 6252 ([email protected]) Jack Lin (886) 2 8758 6253 ([email protected])

China Internet Sector

China Internet Sector: Primer: decoding Internet discovery and digital advertising 4 March 2016

App-centric Mobile Internet has hindered information discovery; users spend ever more time on just a few established platforms

Growth in display ads set to outperform that of search ads; programmatic ad buying increasingly drawing attention

Prefer large-cap names with established login user bases; reiterating Buy(1) calls on Alibaba and Tencent

John Choi (852) 2773 8730 ([email protected]) Alex Liu (852) 2848 4976 ([email protected])

Daiwa research is available electronically on Bloomberg, Reuters, Thomson One Analytics, FactSet, Capital IQ and Daiwa’s L-ZONE. Please contact your Daiwa sales representative for more information.

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http://asiaresearch.daiwacm.com/eg/cgi-bin/files/Taiwan_Industrial_PC_Sector_160323.pdf#page=1

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Text in RED: Result BLACK: Company Visit

MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY

June 20 21 22 23 24

HK/CN Anson Chan: Vinda (3331 HK)

TW Christine Wang: Adimmune (4142 TT) Steven Tseng: Lenovo (992 HK)

Christine Wang: PharmaEssentia (6446 TT)

Christine Wang: Chroma ATE (2360 TT)

SG

KR Mike Oh: Hanwha Techwin (012450 KS)

Iris Park: Shinsegae (004170 KS)

27 28 29 30 July 1

HK/CN

TW

SG Shane Goh: Cityneon (CITN SP)

KR

Analysts’ company visits


Rating and target-price information

Bloomberg 12M rating 12M target price* Company name code Country Previous Latest Previous Latest Date POSCO 005490 KS Korea Buy - Buy 270000 ↓ 250000 20-Jun-16 Stella International 1836 HK Hong Kong Hold ↑ Outperform 18.4 ↓ 14.5 20-Jun-16 Sunny Optical Technology 2382 HK China Outperform - Outperform 26.7 ↑ 29 20-Jun-16 Texwinca 321 HK China Buy ↓ Hold 8.7 ↓ 6.2 20-Jun-16 Total Access Communication DTAC TB Thailand Sell - Sell 37 ↓ 29 20-Jun-16 Alibaba Group BABA US China Buy - Buy 93 ↑ 97 20-Jun-16 Humedix 200670 KS Korea n.a. → Buy n.a. → 60,000 17-Jun-16 Namyong Terminal NYT TB Thailand Buy - Buy 19 ↓ 17 17-Jun-16 China Mengniu Dairy 2319 HK China Hold ↓ Underperform 10.7 ↑ 11 17-Jun-16 IMAX China Holding 1970 HK China n.a. → Buy n.a. → 50 16-Jun-16 Scicom MSC Bhd SCIC MK Malaysia Buy - Buy 2.58 ↑ 2.62 16-Jun-16 PTT PCL PTT TB Thailand Sell - Sell 240 ↑ 260 16-Jun-16 Ctrip.com International CTRP US China Buy - Buy 54 ↓ 50 16-Jun-16 BGF Retail 027410 KS Korea Outperform - Outperform 194000 ↑ 220000 16-Jun-16 President Chain Store 2912 TT Taiwan Outperform - Outperform 243 ↑ 255 16-Jun-16 Top Glove Corp TOPG MK Malaysia Buy - Buy 7.17 ↓ 6.3 15-Jun-16 Matahari Department Store LPPF IJ Indonesia Buy - Buy 20500 ↑ 21500 15-Jun-16 Siam Makro PCL MAKRO TB Thailand Hold ↓ Sell 34 ↓ 29 15-Jun-16 Keppel Corp KEP SP Singapore Hold - Hold 5.68 ↓ 5.67 15-Jun-16 Hyundai Glovis 086280 KS Korea Hold ↑ Outperform 195000 ↑ 200000 15-Jun-16 Goodbaby International 1086 HK China Buy - Buy 4.8 ↓ 4.7 14-Jun-16 Mega Financial 2886 TT Taiwan Outperform ↓ Hold 24 ↑ 24.6 14-Jun-16 CTBC Financial 2891 TT Taiwan Underperform ↑ Hold 14.3 ↑ 16.5 14-Jun-16 E.Sun Financial 2884 TT Taiwan Underperform - Underperform 16.4 ↑ 17 14-Jun-16 First Financial 2892 TT Taiwan Underperform - Underperform 14 ↑ 14.8 14-Jun-16 Cathay Financial Holding 2882 TT Taiwan Buy - Buy 50.5 ↑ 51.1 14-Jun-16 Fubon Financial Holding 2881 TT Taiwan Outperform - Outperform 40.5 ↑ 42.6 14-Jun-16 Baidu BIDU US China Hold - Hold 175 ↓ 160 14-Jun-16 Lifestyle International 1212 HK Hong Kong Outperform ↑ Buy 10.7 ↑ 14.3 10-Jun-16 PTT Exploration & Production PCL PTTEP TB Thailand Sell - Sell 65 ↑ 70 10-Jun-16 Note: Daiwa’s 30 most recent rating/target-price changes *Local currency; D: delisted


Recently published reports

Research reports* Subtitle No. of pages

Date of publication

Alibaba Group Investor Day wrap: pedal to the metal 21 20-Jun-16 Discovery Asia small-cap weekly 17 17-Jun-16 Humedix Initiation: attractive play on ageing Asia 22 17-Jun-16 ASEAN Intelligence What matters this week 35 17-Jun-16 Karmarts Pcl Weak growth foundations 16 15-Jun-16 Tesco Lotus Retail Growth. Just a yield story 19 15-Jun-16 Taiwan Financials Sector Still a tough road ahead 32 14-Jun-16 Lifestyle Spin-off to unlock asset value 13 10-Jun-16 PTT Exp. & Production SELL into sentiment rally 13 10-Jun-16 Discovery Asia small-cap weekly 18 10-Jun-16 ASEAN Intelligence What matters this week 35 10-Jun-16 Gunkul Engineering Pcl More potential capacity 12 9-Jun-16 China Autos – PV Weekly Monitor 1-31 May: YoY sales growth fuelled by low base 10 7-Jun-16 Macau Gaming Sector Downgrading: 2H16 looks bleak 52 3-Jun-16 Discovery Asia small-cap weekly 18 3-Jun-16 Glow Energy Pcl SPP replacement benefits 13 3-Jun-16 Global Technology Sector Mid-cycle correction offers re-entry opportunities 29 3-Jun-16 ASEAN Intelligence What matters this week 123 3-Jun-16 Malaysia Strategy Battling perceptions 90 2-Jun-16 Hanwha Techwin Initiation: an empowered consolidator 24 2-Jun-16 COSCO Pacific Downgrading: lack of rebound momentum 14 2-Jun-16 Charoen Pokphand Foods Riding pork price up-cycle 12 1-Jun-16 ComfortDelGro Corp Striking a delicate balance 17 1-Jun-16 KEPCO Strong EV demand is good for tariff protection 23 31-May-16 The Siam Cement Pcl Tokyo NDR feedback 13 31-May-16 China Merchants Holding International Downgrading: catalysts thin on the ground 13 31-May-16 LG Electronics Initiation: beneficiary of transition to OLEDs and EVs 27 30-May-16 Coal India Price hike a welcome reprieve … 10 30-May-16 Taiwan Healthcare Sector New prescriptions for growth 88 27-May-16 Discovery Asia small-cap weekly 20 27-May-16 ASEAN Intelligence What matters this week 47 27-May-16 Krungthai Card Pcl Hong Kong NDR feedback 12 26-May-16 BDO Unibank Initiation: unparalleled operational leverage 24 26-May-16 Larsen & Toubro High performance, delivered 11 26-May-16

*The 30 most recent reports published by Daiwa

Asia Pacific Markets Closed

Hong Kong China SG Malaysia Korea Taiwan Australia New

Zealand India Thailand Philippines Indonesia

Jun 16 9 9, 10 22 6 9, 10 13 6


Daiwa’s Asia Pacific Research Directory HONG KONG Takashi FUJIKURA (852) 2848 4051 [email protected] Regional Research Head John HETHERINGTON (852) 2773 8787 [email protected] Regional Deputy Head of Asia Pacific Research Rohan DALZIELL (852) 2848 4938 [email protected] Regional Head of Asia Pacific Product Management Kevin LAI (852) 2848 4926 [email protected] Chief Economist for Asia ex-Japan; Macro Economics (Regional) Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong and China Property Cynthia CHAN (852) 2773 8243 [email protected] Property (China) Leon QI (852) 2532 4381 [email protected] Banking (Hong Kong/China); Broker (China); Insurance (China) Anson CHAN (852) 2532 4350 [email protected] Consumer (Hong Kong/China) Jamie SOO (852) 2773 8529 [email protected] Gaming and Leisure (Hong Kong/China) Dennis IP (852) 2848 4068 [email protected] Power; Utilities; Renewables and Environment (Hong Kong/China) John CHOI (852) 2773 8730 [email protected] Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Kelvin LAU (852) 2848 4467 [email protected] Head of Automobiles; Transportation and Industrial (Hong Kong/China) Brian LAM (852) 2532 4341 [email protected] Transportation – Railway; Construction and Engineering (China) Thomas HO (852) 2773 8716 [email protected] Custom Products Group PHILIPPINES Bianca SOLEMA (63) 2 737 3023 [email protected] Utilities and Energy

SOUTH KOREA Sung Yop CHUNG (82) 2 787 9157 [email protected] Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel Mike OH (82) 2 787 9179 [email protected] Banking; Capital Goods (Construction and Machinery) Iris PARK (82) 2 787 9165 [email protected] Consumer/Retail SK KIM (82) 2 787 9173 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware Thomas Y KWON (82) 2 787 9181 [email protected] Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Game Kevin JIN (82) 2 787 9168 [email protected] Small/Mid Cap TAIWAN

Rick HSU (886) 2 8758 6261 [email protected] Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional) Christie CHIEN (886) 2 8758 6257 [email protected] Banking; Insurance (Taiwan); Macro Economics (Regional) Steven TSENG (886) 2 8758 6252 [email protected] IT/Technology Hardware (PC Hardware) Christine WANG (886) 2 8758 6249 [email protected] IT/Technology Hardware (Automation); Pharmaceuticals and Healthcare; Consumer Kylie HUANG (886) 2 8758 6248 [email protected] IT/Technology Hardware (Handsets and Components) Helen CHIEN (886) 2 8758 6254 [email protected] Small/Mid Cap INDIA Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Head of India Research; Strategy; Banking/Finance Saurabh MEHTA (91) 22 6622 1009 [email protected] Capital Goods; Utilities SINGAPORE

Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of Singapore Research; Telecommunications (China/ASEAN/India) Royston TAN (65) 6321 3086 [email protected] Oil and Gas; Capital Goods David LUM (65) 6329 2102 [email protected] Banking; Property and REITs Shane GOH (65) 64996546 [email protected] Small/Mid Cap (Singapore) Jame OSMAN (65) 6321 3092 [email protected] Telecommunications (ASEAN/India); Pharmaceuticals and Healthcare; Consumer (Singapore)


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Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129

Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

Daiwa Capital Markets America Inc. New York Head Office Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100

Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935

Daiwa Capital Markets Europe Limited, London Head Office 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600

Daiwa Capital Markets Europe Limited, Frankfurt Branch Neue Mainzer Str. 1, 60311 Frankfurt/Main, Germany (49) 69 717 080 (49) 69 723 340

Daiwa Capital Markets Europe Limited, Paris Representative Office 17, rue de Surène 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808

Daiwa Capital Markets Europe Limited, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441

Daiwa Capital Markets Europe Limited, Moscow Representative Office

Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, Russian Federation

(7) 495 641 3416 (7) 495 775 6238

Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain

(973) 17 534 452 (973) 17 535 113

Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621

Daiwa Capital Markets SG Limited 6 Shenton Way #26-08, OUE Downtown 2, SG 068809, Republic of SG

(65) 6220 3666 (65) 6223 6198

Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia

(61) 3 9916 1300 (61) 3 9916 1330

DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines

(632) 813 7344 (632) 848 0105

Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638

Daiwa Securities Capital Markets Korea Co., Ltd. 20 Fl.& 21Fl. One IFC, 10 Gukjegeumyung-Ro, Yeongdeungpo-gu, Seoul, Korea

(82) 2 787 9100 (82) 2 787 9191

Daiwa Securities Co. Ltd., Beijing Representative Office Room 301/302，Kerry Center，1 Guanghua Road，Chaoyang District， Beijing 100020, People’s Republic of China

(86) 10 6500 6688 (86) 10 6500 3594

Daiwa (Shanghai) Corporate Strategic Advisory Co. Ltd. 44/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road, Pudong, Shanghai China 200120 , People’s Republic of China

(86) 21 3858 2000 (86) 21 3858 2111

Daiwa Securities Co. Ltd., Bangkok Representative Office 18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand

(66) 2 252 5650 (66) 2 252 5665

Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India

(91) 22 6622 1000 (91) 22 6622 1019

Daiwa Securities Co. Ltd., Hanoi Representative Office Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam

(84) 4 3946 0460 (84) 4 3946 0461

DAIWA INSTITUTE OF RESEARCH LTD

HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603

MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417

London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550


Japan: Notes concerning market data and investment indicators Estimates by Daiwa Shares outstanding: Common shares outstanding (excl. treasury stock) Market cap: Based on shares outstanding and closing price as of indicated date EV: Market cap + interest-bearing debt – liquidity on hand EBITDA: Operating profit + depreciation ROE: Net income / average of start-FY and end-FY shareholders’ equity (for SEC-reporting firms net income attributable to

shareholders of the parent / average of start-FY and end-FY shareholders’ equity) Share Price Chart and per-share figures retroactively adjusted to reflect stock splits/reverse stock splits


Important Disclosures and Disclaimer This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Group Inc., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Group Inc., Thanachart Securities, Affin Hwang Investment Bank Berhad, PT.Bahana Securities, their respective subsidiaries or affiliates, or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including market making activities, derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Portions of this publication are prepared by Affin Hwang Investment Bank Berhad (“Affin Hwang”) and reviewed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates (collectively, “Daiwa”), and is distributed and/or originated from outside Malaysia by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. The role of Daiwa Securities Group Inc. and/or its non-U.S. affiliates in connection with this publication is solely limited to the review and distribution of this publication ; and Daiwa Securities Group Inc. and/or its non-U.S. affiliates are not involved in the preparation of this publication in any other way. This research is for Daiwa clients only and the publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Other than disclosures relating to Daiwa, this research is based on current public information that Affin Hwang and Daiwa consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The analysts named in this report may have from time to time discussed with clients, including Daiwa’s salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction where such an offer or solicitation would be illegal nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents in relation to such investments. Portions of this publication are prepared by PT. Bahana Securities and reviewed by Daiwa Securities Group Inc. and/or its affiliates, and distributed outside Indonesia by Daiwa Securities Group Inc. and/or its affiliates, except to the extent expressly provided herein. Certain copies of this publication may be distributed inside and outside of Indonesia by PT. Bahana Securities in accordance with relevant laws and regulations. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Any review does not constitute a full verification of the publication and merely provides a minimum check. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Neither Daiwa Securities Group Inc. nor any of its affiliates is licensed to undertake any business within the Republic of Indonesia. Any display of any trade name or logo of the Daiwa Securities Group Inc. on this publication shall not be deemed to be an undertaking of any business within the Republic of Indonesia. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time may have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Portions of this publication are prepared by Thanachart Securities Public Company Limited and distributed outside Thailand by Daiwa Securities Group Inc. and/or its non-U.S. affiliates except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Thanachart Securities Public Company Limited (“Thanachart Securities”), Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Thanachart Securities, Daiwa Securities Group Inc. and/or their respective affiliates nor any of their respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. All research reports are disseminated and available to our clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Daiwa responsible for the redistribution of our research by third party aggregators. IMPORTANT This report is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Content herein is based on information available at the time the report was prepared and may be amended or otherwise changed in the future without notice. We make no representations as to the accuracy or completeness. Daiwa Securities Co. Ltd. retains all rights related to the content of this report, which may not be redistributed or otherwise transmitted without prior consent. Ratings Issues are rated 1, 2, 3, 4, or 5 as follows:


https://daiwa3.bluematrix.com/sellside/Disclosures.action


1: Outperform TOPIX/benchmark index by more than 15% over the next 12 months. 2: Outperform TOPIX/benchmark index by 5-15% over the next 12 months. 3: Out/underperform TOPIX/benchmark index by less than 5% over the next 12 months. 4: Underperform TOPIX/benchmark index by 5-15% over the next 12 months. 5: Underperform TOPIX/benchmark index by more than 15% over the next 12 months. Benchmark index: TOPIX for Japan, S&P 500 for US, STOXX Europe 600 for Europe, HSI for Hong Kong, STI for SG, KOSPI for Korea, TWII for Taiwan, and S&P/ASX 200 for Australia. (Criteria above apply to rating assignments or updates from Jan 2015. For ratings assigned or updated prior to Jan 2015, cri teria refer to performance vs. TOPIX/benchmark index over six months.) Japan Conflicts of Interest: Daiwa Securities Co. Ltd. may currently provide or may intend to provide investment banking services or other services to the company referred to in this report. In such cases, said services could give rise to conflicts of interest for Daiwa Securities Co. Ltd. Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.: Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Ownership of Securities: Daiwa Securities Co. Ltd. may currently, or in the future, own or trade either securities issued by the company referred to in this report or other securities based on such financial instruments. Daiwa Securities Group has filed major shareholding reports for the following companies of which it owns over 5% (as of 31 May 2016): ICHIKEN (1847); NISSEI BUILD KOGYO (1916); Accordia Golf (2131); Samty (3244); Sansei Landic (3277); Invesco Office J-REIT (3298); MUGEN ESTATE (3299); Nippon Healthcare Investment Corporation (3308); KFC (3420); KI-STAR REAL ESTATE (3465); Billing System (3623); Enigmo (3665); Konoshima Chemical (4026); SEPTENI HOLDINGS (4293); Tri Chemical Laboratories (4369); RaQualia Pharma (4579); NOZAWA (5237); Nakayama Steel Works (5408); Toho Zinc (5707); TOKYO ROPE MFG. (5981); LINKBAL (6046); NS TOOL (6157); NAKAMURA CHOUKOU (6166); Kamakura Shinsho (6184); HIRATA Corporation (6258); SANSO ELECTRIC (6518); W-SCOPE (6619); MITSUMI ELECTRIC (6767); SUMIDA CORPORATION (6817); Ferrotec (6890); ENOMOTO (6928); Astmax (7162); GMO Click Holdings (7177); Nojima (7419); Daiko Denshi Tsushin (8023); Money Partners Group (8732); Daiwa Office Investment Corporation (8976); Japan Rental Housing Investments (8986); Cerespo (9625); Imperial Hotel (9708); PARKER CORPORATION (9845). Lead Management: Daiwa Securities Co. Ltd. has lead-managed public offerings and/or secondary offerings (excluding straight bonds) in the past twelve months for the following companies: DAIHO (1822); Yoshimura Food Holdings K.K. (2884); Torikizoku (3193); HOTLAND (3196); Activia Properties (3279); AEON REIT Investment Corporation (3292); Hulic Reit (3295); Nippon Healthcare Investment Corporation (3308); Tosei Reit Investment Corporation (3451); Kenedix Retail REIT Corporation (3453); KI-STAR REAL ESTATE (3465); SHOEI YAKUHIN (3537); Nousouken (3541); KOMEDA Holdings (3543); TECNOS JAPAN (3666); OPTiM (3694); Mynet (3928); BENEFIT JAPAN (3934); Globalway (3936); FUSO CHEMICAL (4368); Rakuten (4755); Dexerials (4980); Interworks (6032); FIRSTLOGIC (6037); NIPPON VIEW HOTEL (6097); Brangista (6176); Japan Post Holdings (6178); GMO Media (6180); So-net Media Networks (6185); Atrae (6194); IWAKI (6237); TSUBAKI NAKASHIMA (6464); SONY (6758); Japan Investment Adviser (7172); Japan Post Insurance (7181); Japan Post Bank (7182); THE FIRST BANK OF TOYAMA (7184); ATOM (7412); TASAKI (7968); Kyokuto Boeki Kaisha (8093); ORIX JREIT (8954); HEIWA REAL ESTATE REIT (8966); Japan Hotel REIT Investment Corporation (8985); GAKKYUSHA (9769). (list as of 1 June 2016) The Affiliates of Daiwa Securities Group Inc.* engaged in investment banking service (lead-manager/joint lead-manager/co-manager of public offerings and/or secondary offerings [excluding straight bonds]) in the past twelve months for the following companies: econtext Asia Ltd (1390 HK); Accordia Golf Trust (AGT SP); Hua Hong Semiconductor Ltd (1347 HK); Mirae Asset Life Insurance Co Ltd (085620 KS). (list as of 1 September 2015) *Affiliates of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited, Daiwa Capital Markets SG Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd. Notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable to where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with our company based on the information described in this report, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, our company will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be

included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, our company also may charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident.

For derivative and margin transactions etc., our company may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.

There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.

There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by our company. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. * The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with our company. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association Disclosure of Interest of Thanachart Securities - Disclosure of Interest of Affin Hwang Investment Bank - Disclosure of Interest of Bahana Securities - Investment Banking Relationship Within the preceding 12 months, Bahana Securities has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Merdeka Copper Gold Tbk PT (MDKA IJ); Anabatic Technologies Tbk PT (ATIC IJ); Aneka Tambang Persero Tbk PT (ANTM IJ). Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Korea The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external party. Name of Analyst: Thomas Y. Kwon / Sung Yop Chung


Disclosure of Analysts’ Interests If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to: 1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the

investment recommendations); 2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or 3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets. Legal Entities subject to Research Report Coverage Restrictions Daiwa Securities Korea hereby states and confirms that Daiwa Securities Korea has no conflicts of interests with the legal entity covered in this Research Report: 1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the

acquisition of debts; 2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity; 3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea; 4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of the

total asset size or the total number of equities issued and outstanding of the legal entity; 5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date; 6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or

the legal entity is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or 7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity. Disclosure of Prior Distribution to Third Party This report has not been distributed to the third party in advance prior to public release. The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report. "1": the security could outperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. "2": the security is expected to outperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next 12 months, unless otherwise stated. "4": the security is expected to underperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "5": the security could underperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. “Positive” means that the analyst expects the sector to outperform the KOSPI over the next 12 months, unless otherwise stated. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next 12 months, unless otherwise stated “Negative” means that the analyst expects the sector to underperform the KOSPI over the next 12 months, unless otherwise stated Additional information may be available upon request. SG This research is distributed in SG by Daiwa Capital Markets SG Limited and it may only be distributed in SG to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets SG Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets SG Limited’s interest and/or its representative’s interest in securities). Recipients of this research in SG may contact Daiwa Capital Markets SG Limited in respect of any matter arising from or in connection with the research. Australia This research is distributed in Australia by Daiwa Capital Markets Australia Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. India This research is distributed in India to Institutional Clients only by Daiwa Capital Markets India Private Limited (Daiwa India) which is an intermediary registered with Securities & Exchange Board of India as a Stock Broker, Merchant Bank and Research Analyst. Daiwa India, its Research Analyst and their family members and its associates do not have any financial interest save as disclosed or other undisclosed material conflict of interest in the securities or derivatives of any companies under coverage. Daiwa India and its associates may have received compensation for any products other than Investment Banking (as disclosed) or brokerage services from the subject company in this report during the past 12 months. Unless otherwise stated in BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action, Daiwa India and its associates do not hold more than 1% of any companies covered in this research report. There is no material disciplinary action against Daiwa India by any regulatory authority impacting equity research analysis activities as of the date of this report. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research. Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Phil ippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. United Kingdom This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex . This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory. Germany This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Bahrain This research material is distributed in Bahrain by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113


http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf

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United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (Tel no.212-612-7000). Ownership of Securities: For “Ownership of Securities” information please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships: For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. DCMA Market Making: For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Research Analyst Conflicts: For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification: For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months. Disclosure of investment ratings Rating Percentage of total Buy* 66.9% Hold** 19.7% Sell*** 13.5%

Source: Daiwa Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 31 March 2016. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings. For stocks and sectors in Malaysia covered by Affin Hwang, the following rating system is in effect: Stocks: BUY: Total return is expected to exceed +10% over a 12-month period HOLD: Total return is expected to be between -5% and +10% over a 12-month period SELL: Total return is expected to be below -5% over a 12-month period NOT RATED: Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation Sectors: OVERWEIGHT: Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL: Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT: Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months Conflict of Interest Disclosure: Affin Hwang Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationships Affin Hwang may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Affin Hwang market making Affin Hwang may from time to time make a market in securities covered by this research. For stocks and sectors in Indonesia covered by Bahana Securities, the following rating system is in effect: Stock ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. Unless otherwise specified, these ratings are set with a 12-month horizon. It is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. "Buy": the price of the security is expected to increase by 10% or more. "Hold": the price of the security is expected to range from an increase of less than 10% to a decline of less than 5%. "Reduce": the price of the security is expected to decline by 5% or more. Sector ratings are based on fundamentals for the sector as a whole. Hence, a sector may be rated “Overweight” even though its constituent stocks are all rated “Reduce”; and a sector may be rated “Underweight” even though its constituent stocks are all rated “Buy”. “Overweight”: positive fundamentals for the sector. “Neutral”: neither positive nor negative fundamentals for the sector. “Underweight”: negative fundamentals for the sector. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.










Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationships (Bahana Securities) Bahana Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Bahana Securities market making Bahana Securities may from time to time make a market in securities covered by this research. For stocks in Thailand covered by Thanachart Securities, the following rating system is in effect: Ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the rating is BUY. If the downside is 10% or more, the rating is SELL. For stocks where the upside or downside is less than 10%, the rating is HOLD. Unless otherwise specified, these ratings are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. For the sector, Thanachart looks at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word “Positive”, is used when Thanachart sees the industry trend improving. An arrow pointing down, or the word “Negative”, is used when Thanachart sees the industry trend deteriorating. A double-tipped horizontal arrow, or the word “Unchanged”, is used when the industry trend does not look as if it will alter. The industry trend view is Thanachart’s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers. An “Overweight” sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap. “Underweight” is used when Thanachart has SELLs on majority of the stocks it covers by market cap. “Neutral” is used when there are relatively equal weightings of BUYs and SELLs. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Relevant Relationships (Thanachart Securities) Thanachart Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Thanachart Securities market making Thanachart Securities may from time to time make a market in securities covered by this research. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in

the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the

amount of the transaction will be in excess of the required collateral or margin requirements. There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices,

real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content

of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions

regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association





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