regional morning notes wednesday, 29 october...

Wednesday , 29 Oc tober 2014

1 Refer to last page for important disclosures.

R e g i o n a l M o r n i n g N o t e s

PLEASE CLICK ON THE PAGE NUMBER TO MOVE TO THE RELEVANT PAGE. CHINA

Results China CNR Corporation (6199 HK/BUY/HK$7.66/Target: HK$8.90) Page 2 9M14: In-line results; likely merger with CSR

China Longyuan Power (916 HK/BUY/HK$7.58/Target: HK$10.00) Page 5 9M14: Capacity expansion accelerates and we expect earnings upgrades for 2015; key variables show good signs of improvement.

China Telecom (728 HK/HOLD/HK$4.91/Target: HK$5.06) Page 8 3Q14: Profit up 5.2% yoy on effective cost control; improving 3G/4G trends could drive a re-rating.

Guangzhou Automobile Group (2238 HK/SELL/HK$7.22/Target: HK$6.10) 1 3Q14: Profit down 47% yoy, missing expectation. Cut target price from HK$6.50 to HK$6.10.

Ping An Insurance (2318 HK/BUY/HK$60.95/Target: HK$84.00) Page 14 3Q14: Robust earnings in all business segments.

Sinopharm Group (1099 HK/BUY/HK$30.05/Target: HK$35.80) Page 17 3Q14: Net profit up 20.6% yoy, in line with expectation.

Update Belle (1880 HK/BUY/HK$9.32/Target: HK$12.40) Page 20 Key takeaways from analyst briefing.

INDONESIA Results Logindo Samudramakmur (LEAD IJ/BUY/Rp3,985/Target: Rp5,300) Page 23 3Q14: Gross profit impacted by timing difference and vessel maintenance.

MALAYSIA Update CIMB Group (CIMB MK/SELL/RM6.20/Target: RM6.75) Page 26 Persistent challenges in Indonesia and muted capital market environment are impacting its growth outlook. Maintain SELL.

SINGAPORE Results CDL Hospitality Trusts (CDREIT SP/BUY/S$1.68/Target: S$2.00) Page 29 3Q14: RevPAR rebounds driven by record-high occupancies.

OSIM International (OSIM SP/BUY/S$2.25/Target: S$2.87) Page 32 3Q14: Net profit falls 27.8% despite 3.4% expansion in sales.

THAILAND Results Home Product Center (HMPRO TB/HOLD/Bt9.15/Target: Bt9.00) Page 35 3Q14: Earnings up 6.5% yoy on strong top-line growth; results within expectations.

Update IRPC (IRPC TB/HOLD/Bt3.42/Target: Bt3.30) Page 38 3Q14 preview: Huge extra incomes should offset a weaker performance.

KEY INDICES Prev Close 1D % 1W % 1M % YTD % DJIA 17005.8 1.1 2.4 (0.6) 2.6 S&P 500 1985.1 1.2 2.3 0.1 7.4 FTSE 100 6402.2 0.6 0.5 (3.7) (5.1) AS30 5434.0 (0.1) 2.3 3.1 1.5 CSI 300 2416.7 2.0 (0.7) (1.3) 3.7 FSSTI 3211.7 (0.4) 1.0 (2.4) 1.4 HSCEI 10548.8 2.3 2.7 1.1 (2.5) HSI 23520.4 1.6 1.9 1.3 0.9 JCI 5001.3 (0.5) (0.6) (2.7) 17.0 KLCI 1825.7 0.1 1.3 (1.1) (2.2) KOSPI 1925.7 (0.3) 0.5 (5.0) (4.3) Nikkei 225 15329.9 (0.4) 3.6 (6.0) (5.9) SET 1556.5 0.6 2.0 (1.8) 19.9 TWSE 8773.6 1.7 1.4 (2.1) 1.9 BDI 1395 8.6 28.0 33.0 (38.7) CPO (RM/mt) 2175 (0.5) 2.0 (0.5) (15.5) Nymex Crude (US$/bbl)

82 0.2 1.3 (13.8) (17.1)

Source: Bloomberg

TOP PICKS Ticker CP (lcy) TP (lcy) Pot. +/-

( )BUY Sunac China 1918 HK 6.24 8.45 35.4 ICBC 1398 HK 5.05 6.15 21.8 Bank Mandiri BMRI IJ 10,000.00 12,500.00 25.0 Gamuda GAM MK 5.00 5.50 10.0 DBS DBS SP 18.31 22.68 23.9 Pacific Radiance PACRA SP 1.06 1.76 66.8 Bangkok Bank BBL TB 195.50 276.00 41.2 Advanced Info ADVANC 238.00 270.00 13.4

SELL UMWH Holdings UMWH MK 11.68 10.00 (14.4)

KEY ASSUMPTIONS GDP (% yoy) 2013 2014 2015F US 1.9 2.7 3.2 Euro Zone -0.4 0.9 1.4 Japan 1.5 1.5 2.0 Singapore 3.9 3.5 3.9 Malaysia 4.7 5.9 5.2 Thailand 2.9 1.5 3.9 Indonesia 5.8 5.2 5.8 Hong Kong 2.9 3.5 3.7 China 7.7 7.2 7.0 2013 2014F 2015F Brent (US$/bbl) 110 100 85 CPO (US$/mt) 736 788 848 BDI 1,219 1,200 1,300 Source: Bloomberg, UOB ETR, UOB Kay Hian

CORPORATE EVENTS Venue Begin Close

ENN Energy Holdings Luncheon Hong Kong 29 Oct 29 Oct

Raffles Medical Group Luncheon Singapore 30 Oct 30 Oct

China Telecom Luncheon Hong Kong 31 Oct 31 Oct

China Aviation Sector Singapore 31 Oct 31 Oct Analyst Presentation Kuala Lumpur 3 Nov 3 Nov Hong Kong 5 Nov 5 Nov Taipei 6 Nov 7 Nov

Alam Sutera Realty Taipei 10 Nov 11 Nov Corporate Roadshow

股票报告网整理http://www.nxny.com




COMPANY RESULTS BUY

(Maintained)

Share Price HK$7.66Target Price HK$8.90Upside +16.2%

COMPANY DESCRIPTION China CNR is primarily engaged in the research, development, manufacture, sale, maintenance and leasing of railway locomotives, passenger coaches, freight wagons, multiple units, rapid transit vehicles and

STOCK DATA GICS sector IndustrialsBloomberg ticker: 6199 HKShares issued (m): 2,133.7Market cap (HK$m): 99,229.9Market cap (US$m): 12,791.63-mth avg daily t'over (US$m): 16.1

Price Performance (%) 52-week high/low HK$7.84/HK$5.02

1mth 3mth 6mth 1yr YTD10.1 16.1 n.a. n.a. n.a.

Major Shareholders %CNR Group 66.8

FY14 NAV/Share (Rmb) 4.01

FY14 Net Debt/Share (Rmb) 0.49

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9.00(%)(lcy) CHINA CNR CORP LTD-H CHINA CNR CORP LTD-H/HSI INDEX

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May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14

Volume (m)

Source: Bloomberg

ANALYSTS Lawrence Li +8621 5404 7225 ext 813 [email protected] Zhou +8621 5404 7225 ext 858 [email protected]

China CNR Corporation (6199 HK)

9M14: In-line Results; Likely Merger with CSR CNR’s 9M14 results were in line with expectations thanks to more MUs delivered. Trading of CNR was suspended on the back of a likely merger with CSR. In our view, the merger at the parentco level is more likely. We expect share price to have a positive reaction after trading resumes. Share price upside is determined by the merger scheme. Maintain BUY. Target price: HK$8.90.

9M14 RESULTS Year to 31 Dec 9M14 9M13 yoy 3Q14 3Q13 yoy (Rmbm) % chg % chg Revenue 64,166 58,418 9.8 25,361 21,518 17.9 Gross profit 12,526 9,826 27.5 4,810 3,428 40.3 Net profit 3,958 2,398 65.1 1,635 834 96.0 EPS 0.35 0.23 52.2 0.13 0.08 62.5 GPM 19.5% 16.8% +2.7ppt 19.0% 15.9% +3.0ppt

Source: China CNR, UOB Kay Hian

RESULTS

• 9M14 results meet expectations. China CNR Corporation (CNR) booked revenue of Rmb64,166m (+9.8% yoy) and net income of Rmb3,958m (+65.1% yoy) in 9M14. The increase in revenue was due to more deliveries of high-value mutiple units (MUs). Gross profit margin in 9M14 was 19.5% vs 16.8% in 9M14. The substantial margin expansion is thanks to a change in product mix (CNR delivered much more high-margin MUs in 9M14) and increased in-house supply of key components for MUs and locomotives. 9M14 EPS was Rmb0.35.

• 3Q14 earnings almost doubled. CNR’s 3Q14 revenue increased 17.9% yoy while net profit almost doubled, thanks to a change in product mix. Majority of deliveries in 3Q14 were MUs while 3Q13 saw more delivieries of locomotives, freight wagons, passenger coaches and rapid transit vehicle.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2012 2013 2014F 2015F 2016FNet turnover 91,798 96,756 104,972 112,100 118,480EBITDA 6,853 8,405 10,655 11,974 12,800Operating profit 5,130 6,204 8,188 9,285 9,896Net profit (rep./act.) 3,431 4,129 5,531 6,531 7,050Net profit (adj.) 3,431 4,129 5,531 6,531 7,050EPS (Fen) 33.2 40.0 49.2 53.8 58.1PE (x) 18.2 15.1 12.3 11.2 10.4P/B (x) 1.8 1.6 1.5 1.4 1.2EV/EBITDA (x) 12.6 10.2 8.1 7.2 6.7Dividend yield (%) 1.7 3.3 2.3 2.7 2.9Net margin (%) 3.7 4.3 5.3 5.8 6.0Net debt/(cash) to equity (%) 32.0 33.6 12.1 8.5 4.3Interest cover (x) 5.8 6.0 6.4 7.7 8.2ROE (%) 11.5 11.4 12.8 12.8 12.6Consensus net profit - - 5,679 6,640 7,449UOBKH/Consensus (x) - - 0.97 0.98 0.95Source: China South Locomotive & Rolling Stock , Bloomberg, UOB Kay Hian





STOCK IMPACT

• Trading suspension is likely to be due to potential merge with CSR. Trading of CNR, CSR, Zhuzhou CSR and other stocks under CSR Group were suspended from 26 Oct, pending on major announcements made within 5 days after the trading suspension. The trading suspension is very likely due to a potential merger between CSR and CNR. According to various newsflows, SASAC (State-owned Assets Supervision and Administration Commission), the ultimate shareholder of CNR and CSR, is pushing through the merger in order to reduce pricing competition between CNR and CSR in overseas bidding. The scheme of the merger is still unclear and we list two potential schemes. In our view, the merger at a parentco level is more likely.

POTENTIAL SCHEME OF CNR-CSR MERGER Scheme Subsequent events Potential benefits/issues

Merger at a parentco level

• CNR and CSR remain listed

• Competitive landscape in domestic market unchanged.

• JV for bidding overseas projects.

• Simplified merger without change in listing status of CSR and CNR.

• Modest competition in domestic market is good for product innovation.

• Horizontal competition issue.

Merger at a listco level

• One of CNR and CSR will be delisted.

• Only one entity to bid in domestic and overseas market.

• A more complicated merger with heavy work on changing listing status of CSR and CNR.

• Stronger pricing power when negotiating with CRC (China Railway Corporation).

• Trading of relevant stocks will be suspended for a long period.

Source: UOB Kay Hian

• RTV orders for Boston Subway, a breakthrough in developed regions. CNR won 284 units of rapid transit vehicles (RTV) from Massachusetts Bay Transportation Authority (MBTA), operator of Boston’s subway system, including 152 units for the orange line and 152 units for the red line, with a total contract value of Rmb3,485m (US$570m). To be delivered in 2018-19, all RTVs will be produced locally in Springfield, Massachusetts. These RTVs have an operating speed of about 100km/h and are designed to have a minimum service age of 30 years. Strength of structure, control, safety, and RAMS Management follow US standards. According to the Boston Herald, other bidders included Hyundai Rotem at US$720.6m, Kawasaki at US$904.9m and Bombardier at US$1.08b. The GPM of those RTVs is slightly higher than that of domestic RTV orders. Despite no imminent earnings contribution, the order is a breakthrough in developed regions.

EARNINGS REVISION/RISK

• None VALUATION/RECOMMENDATION

• Maintain BUY with target price of HK$8.90, pegged at 13x 2015F PE, which looks fair, given 2013-16 earnings CAGR of 19.5%.

• Expect a positive reaction on share prices after trading resumes. If there is a merger between CNR and CSR in either scheme, we expect share prices to have a positive reaction after trading resumes. Share price upside is determined by the merger scheme.

• We will review CNR’s rating and target price after a major announcement comes out. If there is a merger between CNR and CSR, we will make an assessment on both CNR and CSR and review CNR’s rating and target price.

SHARE PRICE CATALYST

• Merger with CSR, strong order winning momentum in overseas market, strong pick-up in 4Q14 railway investment





PROFIT & LOSS Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FNet turnover 96,756 104,972 112,100 118,480EBITDA 8,405 10,655 11,974 12,800Deprec. & amort. 2,201 2,467 2,689 2,904EBIT 6,204 8,188 9,285 9,896Total other non-operating income 0 0 0 0Associate contributions 291 320 352 387Net interest income/(expense) (1,395) (1,658) (1,553) (1,553)Pre-tax profit 5,099 6,850 8,084 8,730Tax (873) (1,173) (1,384) (1,495)Minorities (97) (146) (168) (185)Net profit 4,129 5,531 6,531 7,050Net profit (adj.) 4,129 5,531 6,531 7,050

BALANCE SHEET Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FFixed assets 27,997 30,242 32,288 34,134Other LT assets 21,432 22,431 23,314 24,116Cash/ST investment 9,332 13,513 14,864 16,925Other current assets 61,397 66,349 70,721 74,721Total assets 120,159 132,535 141,188 149,897ST debt 20,609 18,000 18,001 18,002Other current liabilities 53,394 57,313 60,896 64,298LT debt 1,415 1,415 1,415 1,415Other LT liabilities 5,174 5,174 5,174 5,174Shareholders' equity 37,780 48,668 53,541 58,631Minority interest 1,785 1,964 2,160 2,376Total liabilities & equity 120,159 132,535 141,188 149,897

CASH FLOW Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FOperating 4,887 8,058 9,535 10,542Pre-tax profit 5,099 6,850 8,084 8,730Tax (873) (1,173) (1,384) (1,495)Deprec. & amort. 2,201 2,467 2,689 2,904Associates (291) (320) (352) (387)Working capital changes (3,674) (1,033) (789) (598)Non-cash items 84 0 0 0Other operating cashflows 2,340 1,266 1,288 1,388Investing (5,716) (4,968) (4,972) (4,969)Capex (growth) (5,327) (5,100) (5,100) (5,100)Capex (maintenance) 0 0 0 0Investments (29) 0 0 0Proceeds from sale of assets 62 100 100 100Others (423) 32 28 31Financing 1,154 1,090 (3,212) (3,512)Dividend payments (1,088) (2,064) (1,659) (1,959)Issue of shares 0 7,421 0 0Proceeds from borrowings 85,515 85,000 85,000 85,000Loan repayment (83,649) (87,609) (84,999) (84,999)Others/interest paid 375 (1,658) (1,553) (1,553)Net cash inflow (outflow) 325 4,180 1,352 2,061Beginning cash & cash equivalent 9,028 9,332 13,513 14,864Changes due to forex impact (21) 0 0 0Ending cash & cash equivalent 9,332 13,513 14,864 16,925

KEY METRICS Year to 31 Dec (%) 2013 2014F 2015F 2016FProfitability EBITDA margin 8.7 10.2 10.7 10.8Pre-tax margin 5.3 6.5 7.2 7.4Net margin 4.3 5.3 5.8 6.0ROA 3.6 4.4 4.8 4.8ROE 11.4 12.8 12.8 12.6

Growth Turnover 5.4 8.5 6.8 5.7EBITDA 22.7 26.8 12.4 6.9Pre-tax profit 21.8 34.3 18.0 8.0Net profit 20.3 34.0 18.1 7.9Net profit (adj.) 20.3 34.0 18.1 7.9EPS 20.3 23.1 9.2 7.9

Leverage Debt to total capital 35.8 27.7 25.8 24.1Debt to equity 58.3 39.9 36.3 33.1Net debt/(cash) to equity 33.6 12.1 8.5 4.3Interest cover (x) 6.0 6.4 7.7 8.2





COMPANY RESULTS BUY

(Maintained)

Share Price HK$7.58Target Price HK$10.00Upside +31.9%(Previous TP HK$11.00)

COMPANY DESCRIPTION China Longyuan Power is the largest wind farm developer in China; the company is also involved in the production of solar power, geothermal power, tidal power and biomass power.

STOCK DATA GICS sector UtilitiesBloomberg ticker: 916 HKShares issued (m): 3,340.0Market cap (HK$m): 60,915.8Market cap (US$m): 7,852.53-mth avg daily t'over (US$m): 13.4


1mth 3mth 6mth 1yr YTD(1.4) (4.2) (10.6) (16.1) (24.1)

Major Shareholders %China Guodian Corporation 63.7

FY14 NAV/Share (RMB) 4.11

FY14 Net Debt/Share (RMB) 7.43

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CHINA LONGYUAN POWER GROUP-H/HSI INDEX

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Oct 13 Dec 13 Feb 14 Apr 14 Jun 14 Aug 14

Volume (m)

Source: Bloomberg

ANALYSTS Kevin Zhao Yong Tao +8621 5404 7225 ext 805 [email protected] Yuan Bei Lun +8621 5404 7225 ext 820 [email protected]

China Longyuan Power (916 HK)

9M14: Capacity Expansion Accelerates And We Expect Earnings Upgrades For 2015; Key Variables Show Good Signs Of Improvement 9M14 results are in line with estimates. Key highlight is the acceleration of capacity expansion. Longyuan expects to connect 2GW of new capacities before end-Jun 15 in order for these new capacities to enjoy current on-grid tariffs before the rumoured tariff cut is implemented in 2H15. Operating and finance expense control is impressive. Current valuation is undemanding; the rumoured forthcoming renewable energy quota system is a catalyst in 4Q14. Maintain BUY. Target price: HK$10.00.

9M14 RESULTS Year to 31 Dec (Rmbm) 9M14 9M13 yoy % chg Remarks Revenue 12,789 14,108 -9.4 Weak wind power resources Other net income 278.9 319.7 -12.8 Operating expenses (8,482.8) (9,258.3) -8.4 Good operating expense control Operating profit 4,584.6 5,169.5 -11.3 OPM 35.8% 36.6% -0.8 ppt Net finance expenses (2,293.3) (2,036.4) 12.6 PBT 2,624.4 3,158.7 -16.9 Profit for the period 2,279.2 2,687.3 -15.2 In line with market's expectations Profit attributable to shareholders 1,524.9 1,952.0 -21.9

Source: China Longyuan Power, UOB Kay Hian

RESULTS

• Total revenue amounted to Rmb12,789m, down 9.35% yoy. Of this amount, revenue from wind power business amounted to Rmb7,666m, up 2.90% yoy, while revenue from coal power business came in at Rmb4,555m, down 19.01% yoy. Net profit attributable to shareholders amounted to Rmb1,525m, down 21.88% yoy.

STOCK IMPACT

• 2014 utilisation hours guidance slightly adjusted downward. Utilisation hours in 9M14 reached 1,393 and full-year guidance for 2014 is now 1,980, indicating a slight decrease from the guided 2,050 at the start of the year. This is mainly due to the weaker-than-usual wind resources in 2014. Management disclosed that in 9M14, the average wind speed at all of its wind farms dropped by 0.59m/s. Note that in northeast China provinces such as Jilin, the full-year average wind speed is about 5.6m/s. New capacity target of 1.5-1.8GW for 2014 is unchanged and these new capacities are being gradually put into operations.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2012 2013 2014F 2015F 2016FNet turnover 17,288.2 19,122.6 20,400.3 24,353.2 26,103.9EBITDA 9,745.8 10,396.3 11,719.9 15,076.6 16,515.1Operating profit 6,045.0 6,000.1 6,749.8 9,392.1 10,056.3Net profit (rep./act.) 2,593.2 2,049.5 2,477.7 3,928.3 4,031.7Net profit (adj.) 2,593.2 2,049.5 2,476.7 3,926.3 4,029.7EPS (Fen) 34.7 25.5 30.8 48.9 50.1PE (x) 17.2 23.4 19.4 12.2 11.9P/B (x) 1.6 1.6 1.5 1.3 1.2EV/EBITDA (x) 11.9 11.1 9.9 7.7 7.0Dividend yield (%) 1.1 0.8 0.9 1.5 1.5Net margin (%) 15.0 10.7 12.1 16.1 15.4Net debt/(cash) to equity (%) 181.8 177.7 180.8 194.4 196.3Interest cover (x) 3.9 4.1 4.4 5.3 4.9ROE (%) 9.4 6.8 7.8 11.3 11.1Consensus net profit - - 2,837 3,621 4,345UOBKH/Consensus (x) - - 0.87 1.08 0.93Source: China Longyuan Power, Bloomberg, UOB Kay Hian





• Power grid curtailment ratio continues on a downtrend, expense control is also impressive. The ratio is defined as the power generation that cannot be transmitted by the grid due to insufficient power grid capacity divided by the total power generation. The ratio dropped by 1.48 ppt yoy to 9.79% in 9M14. Both the operating and finance expenses saw very good control despite the large capacity growth.

• On-grid tariff cut may happen in 2H15, but the extent of the cut might be lower than current market expectations. We mentioned the possibility of on-grid tariff cuts for the new wind farms according to some unconfirmed newsflow. There are market rumours that the tariff of each wind resource category may decrease to Rmb0.47/0.50/0.54/0.59/KWh, down 7.8%/7.4%/6.9%/3.3% respectively (from the current Rmb0.51/0.54/0.58/0.61/KWh, depending on the regions). The geographical area covered by each category will remain mostly the same, except for Category III, which is rumoured to cover Fujian province, Yunnan province, Shanxi province, Jilin province, Heilongjiang province, Gansu province, Ningxia and Xinjiang where Category I and II do not cover. The new tariff will only be applied to newly-installed wind power. Cumulative capacity will not be affected, according to our earlier discussions with industry insiders. Management mentioned that based on their understanding, the tariff cut might be implemented starting 1 Jul 15, but the extent of the tariff cut might be lower than expected, which means that previously the market has been expecting too-high tariff cuts. However, there is no reliable data on the most probable tariff cut proposals. For conservative purposes, we have used the above-mentioned rumoured tariff cuts in our model.

• Capacity expansion accelerates. In order for majority of new capacities in 2015 to enjoy the current on-grid tariffs, management has decided to complete most of them before end-Jun 15 with a target of connecting 2GW of new wind power capacity to the grid by then. These 2GW new capacities will be contributed by 34 projects in 19 provinces. Most of these areas are on-grid-curtailment areas. IRR threshold for new projects is 15%.

• Street full-year 2015 earnings estimates will be upgraded. In the past, most of the new capacities for the year will be connected to the grid during the end of the 4Q of the year, indicating limited power generation contribution from the new capacities for the year. Now that Longyuan has brought forward the target deadline for its new capacities, we believe they will be able to contribute power generation in 2H15 and street estimates will have to be raised in order to reflect the change in timetable. Management has said that construction on all of its 2GW new wind farms have begun and most of the wind turbine orders have been placed. Considering the normal construction cycle of 6-8 months, the company is confident of meeting its deadline.

• Plenty of good projects for time period beyond 2H15. If we assume the new on-grid tariff regime takes effect on 1 Jul 15, the new wind farms that are put into operations after the date will enjoy lower tariffs. Management has said that they will review the IRRs of their reserve projects on hand in order to come up with a new development plan. They now have 10GW of reserve projects with road slips on hand, which ensures sufficient pipeline for future growth. Management has guided for a 1GW new installation of offshore wind power capacity by end-16.


• Taking into account the updated utilisation hours guidance and capacity expansion timetables, we have revised our 2014, 2015 and 2016 earnings forecasts by -23.8%, 3.2% and -9.8% respectively.

VALUATION/RECOMMENDATION

• Maintain BUY with a lower DCF-based target price of HK$10.00. PE is in the low end of historical range of 12.0-19.0×.


• Kicking off the renewable energy quota system, good power generation in 4Q14.

RUMOURED NEW TARIFF REGIME Category Tariff

(Rmb/KWh) Area

I 0.47 West Mongolia, Wulumuqi, Yili, Changji, Kelamayi and Shihezi

II 0.5 East Mongolia, Zhangjiakou, Chengde, Zhangye, Jiayuguan and Jiuquan

III 0.54 Fujian province, Yunnan province, Shanxi province, Jilin province, Heilongjiang province, Gansu province, Ningxia and Xinjiang where Category I and II do not cover.

IV 0.59 Other area in China Source: BJX





PROFIT & LOSS Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FNet turnover 19,123 20,400 24,353 26,104EBITDA 10,396 11,720 15,077 16,515Deprec. & amort. 4,396 4,970 5,685 6,459EBIT 6,000 6,750 9,392 10,056Total other non-operating income 0 0 0 0Associate contributions 60 108 127 134Net interest income/(expense) (2,531) (2,667) (2,867) (3,364)Pre-tax profit 3,529 4,190 6,652 6,826Tax (561) (653) (1,044) (1,071)Minorities (919) (1,059) (1,680) (1,724)Net profit 2,049 2,478 3,928 4,032Net profit (adj.) 2,049 2,477 3,926 4,030

BALANCE SHEET Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FFixed assets 79,594 90,318 103,600 115,784Other LT assets 17,313 16,824 16,294 15,722Cash/ST investment 2,715 2,659 2,095 7,331Other current assets 11,052 11,713 13,614 14,456Total assets 110,674 121,513 135,603 153,293ST debt 24,680 26,710 31,282 36,617Other current liabilities 11,996 14,913 13,163 13,345LT debt 32,961 35,672 41,778 48,902Other LT liabilities 2,996 2,996 2,996 2,996Shareholders' equity 30,908 33,031 36,513 39,838Minority interest 7,132 8,192 9,871 11,595Total liabilities & equity 110,674 121,513 135,603 153,293

CASH FLOW Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FOperating 13,611 13,317 10,374 14,777Pre-tax profit 3,529 4,190 6,652 6,826Tax (566) (653) (1,044) (1,071)Deprec. & amort. 4,391 4,964 5,678 6,452Associates (5) 0 0 0Working capital changes 3,085 2,256 (3,652) (660)Non-cash items 606 0 0 0Other operating cashflows 2,570 2,559 2,740 3,230Investing (10,299) (14,980) (18,193) (17,823)Capex (growth) (10,318) (15,198) (18,430) (18,064)Capex (maintenance) 0 0 0 0Investments (540) 0 0 0Proceeds from sale of assets 54 108 127 134Others 506 110 110 106Financing (5,662) 1,607 7,256 8,282Dividend payments (1,037) (355) (446) (707)Issue of shares 41 0 0 0Proceeds from borrowings (1,272) 4,740 10,679 12,459Loan repayment 0 0 0 0Others/interest paid (3,394) (2,777) (2,977) (3,471)Net cash inflow (outflow) (2,351) (56) (563) 5,235Beginning cash & cash equivalent 5,081 2,715 2,659 2,095Changes due to forex impact (15) 0 0 0Ending cash & cash equivalent 2,715 2,659 2,095 7,331


Growth Turnover 10.6 6.7 19.4 7.2EBITDA 6.7 12.7 28.6 9.5Pre-tax profit (3.8) 18.7 58.7 2.6Net profit (21.0) 20.9 58.5 2.6Net profit (adj.) (21.0) 20.8 58.5 2.6EPS (26.4) 20.8 58.5 2.6






COMPANY RESULTS HOLD

(Maintained) Share Price HK$4.91Target Price HK$5.06Upside +3.1%(Previous TP HK$4.50)

COMPANY DESCRIPTION China Telecom Corp provides wireline telephone, mobile telephone, data and Internet, as well as leased line services in China.

STOCK DATA GICS sector Telecommunication

ServicesBloomberg ticker: 728 HKShares issued (m): 13,877.4Market cap (HK$m): 397,377.9Market cap (US$m): 51,226.33-mth avg daily t'over (US$m): 40.6


1mth 3mth 6mth 1yr YTD(0.6) 15.3 33.8 21.2 25.3

Major Shareholders %China Telecom Group 70.9



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CHINA TELECOM CORP LTD-H

CHINA TELECOM CORP LTD-H/HSI INDEX

0100

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Source: Bloomberg

ANALYST Victor Yip +852 2826 1392 [email protected]

China Telecom (728 HK)

3Q14: Profit Up 5.2% yoy On Effective Cost Control; Improving 3G/4G Trends Could Drive A Re-Rating China Telecom delivered better-than-expected 3Q14 earnings on the back of effective control of sales and marketing costs and 3G/4G subscriber growth. However, we still see China Mobile’s aggressive 4G development strategies posing a threat to smaller players’ near-term outlook. Maintain HOLD. Target price: HK$5.06. Entry price: HK$4.20.

3Q14 RESULTS Year to 31 Dec (Rmbm) 3Q14 2Q14 3Q13 qoq % chg yoy % chg vs UOBKH est Turnover 77,635 82,789 80,666 (6.2) (3.8) (1.0) EBITDA 24,255 25,453 24,590 (4.7) (1.4) 10.4 Net Profit 4,733 5,889 4,501 (19.6) 5.2 47.4 EBITDA Margin 31.2% 30.7% 30.5% 0.5 ppt 0.8 ppt 3.2 ppt Net Margin 6.1% 7.1% 5.6% (1.0) ppt 0.5 ppt 2.0 ppt ARPU (Rmb) 54.0 57.5 53.8 (6.1) 0.5 (1.9) Source: CT, UOB Kay Hian

RESULTS

• China Telecom (CT) reported strong 3Q14 results. Despite this is the first full-quarter the telco’s earnings was affected by the VAT reform, its net profit still grew 5.2% yoy, 47.4% better than our expectation.

• Service revenue was flat yoy (+0.1%) but fell 5.7% qoq to Rmb70.9b. The change in sales and marketing strategy caused CT’s handset sales to drop 11.5% qoq and 31.5% yoy to Rmb6.7b.

• Mobile service revenue rose 1.9% yoy but declined 6.6% yoy to Rmb29.2b. Compared with China Unicom’s (CU) double-digit drop in 3G ARPU in 3Q14 due to the combined effect of VAT reform and the change in sales and marketing strategy, CT’s 3G ARPU dropped only 1.7% yoy and 5.9% qoq to Rmb68.8. Also, the launch of TD/FDD-LTE hybrid 4G trial in Jul 14 helped CT lift monthly 3G/4G user additions to 2.0m in Sep 14.

• On operating expenses, the reduction in sales and marketing costs (-28.1% yoy and -36.8% qoq) helped offset the strong increase in network operating costs and staff cost. As a result, CT’s total cash cost fell 4.8%yoy and 6.9% qoq to Rmb53.4b.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2012 2013 2014F 2015F 2016FNet turnover 283,075 321,584 324,823 334,368 351,241EBITDA 70,843 96,551 95,808 103,386 109,067Operating profit 21,188 27,468 29,611 33,001 38,775Net profit (rep./act.) 14,927 17,545 18,228 20,892 25,365Net profit (adj.) 14,927 17,545 18,228 20,892 25,365EPS (fen) 18.4 21.7 22.5 25.8 31.3PE (x) 21.0 17.8 17.2 15.0 12.3P/B (x) 1.2 1.1 1.1 1.1 1.0EV/EBITDA (x) 5.8 4.2 4.3 3.9 3.7Dividend yield (%) 2.2 2.5 2.5 2.6 3.1Net margin (%) 5.3 5.5 5.6 6.2 7.2Net debt/(cash) to equity (%) 26.3 34.0 33.4 31.3 24.1Interest cover (x) 45.3 18.7 17.2 18.9 20.4ROE (%) 5.7 6.5 6.5 7.2 8.3Consensus net profit - - 18,462 20,250 23,560UOBKH/Consensus (x) - - 0.99 1.03 1.08Source: CT, Bloomberg, UOB Kay Hian





STOCK IMPACT

• More balanced results vs China Unicom’s. Although China Unicom delivered better earnings growth in 3Q14 (+14.4% qoq, +26.7% yoy) due to its successful sales and market cost cuts, we see CT doing a better execution as the change in promotions strategy had not created a destructive impact on its 3G/4G ARPU and monthly new user sign-up rate.

• As we understand CT will be actively improving its 4G network coverage in the next two years, while CU will still rely on 3G HSPA+ network to provide data services to users due to various reasons (as CU believes HSPA+ network could cater to near-term demand and it also has a relatively tight balance sheet for new network investment), we see CT may continue to gain market share in mobile services although China Mobile is making an even more aggressive move to compete with CT and CU for market share. Therefore, we foresee the continued improving 3G/4G user sign-up trend could help drive a re-rating of CT in the future.


• We lift our 2014 and 2015 net profit forecasts by 4.4% and 8.0% respectively after lowering handset sales and sales and marketing costs. As a result, our DCF-based target price is increased to HK$5.06.


• In the near term, we are still concerned about China Mobile’s aggressive move on 4G user acquisition as this could put some pressure on smaller players’ competitiveness and earnings outlook in the near term. However, compared with CU, CT seems able to find a better balance on cost cutting that will not affect its 4G user acquisition. Therefore, we continue to prefer China Mobile, followed by CT and CU. Maintain HOLD on CT. Our entry price is HK$4.20.


• Updates on FDD-LTE licensing and rebound in 3G/4G subscribers’ monthly additions.





PROFIT & LOSS Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FNet turnover 321,584.0 324,822.9 334,367.9 351,240.7EBITDA 96,551.0 95,808.4 103,386.3 109,067.1Deprec. & amort. 69,083.0 66,197.5 70,385.0 70,292.1EBIT 27,468.0 29,610.9 33,001.3 38,775.0Total other non-operating income 670.0 10.0 10.0 10.0Associate contributions 103.0 20.0 20.0 20.0Net interest income/(expense) (5,153.0) (5,577.4) (5,463.5) (5,351.3)Pre-tax profit 23,088.0 24,063.5 27,567.8 33,453.7Tax (5,422.0) (5,775.2) (6,616.3) (8,028.9)Minorities (121.0) (60.0) (60.0) (60.0)Net profit 17,545.0 18,228.2 20,891.5 25,364.8Net profit (adj.) 17,545.0 18,228.2 20,891.5 25,364.8

BALANCE SHEET Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FFixed assets 418,498.2 427,992.2 444,394.3 454,307.6Other LT assets 71,958.0 67,069.4 69,043.8 70,530.9Cash/ST investment 16,070.0 12,794.9 14,166.6 30,815.5Other current assets 36,713.0 36,271.1 37,287.1 39,125.4Total assets 543,239.2 544,127.6 564,891.8 594,779.4ST debt 47,759.0 44,174.0 44,174.0 44,174.0Other current liabilities 152,339.0 153,326.5 159,787.0 171,241.6LT debt 62,617.0 62,509.0 62,509.0 62,509.0Other LT liabilities 1,860.0 1,656.0 1,433.2 1,271.8Shareholders' equity 277,741.0 281,479.2 295,945.6 314,479.9Minority interest 923.0 983.0 1,043.0 1,103.0Total liabilities & equity 543,239.0 544,127.6 564,891.8 594,779.4

CASH FLOW Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016FOperating 88,351.0 87,597.1 98,560.9 107,200.4Pre-tax profit 23,088.0 24,063.5 27,567.8 33,453.7Tax (4,539.0) (4,834.7) (4,431.0) (4,301.7)Deprec. & amort. 69,085.0 66,199.5 70,387.0 70,294.1Working capital changes (4,194.0) 243.4 2,997.7 5,596.7Non-cash items 4,911.0 1,925.4 2,039.5 2,157.6Investing (107,948.0) (80,490.1) (90,500.1) (83,510.3)Capex (maintenance) (70,921.0) (80,000.0) (90,000.0) (83,000.0)Investments (37,027.0) (490.1) (500.1) (510.3)Financing 5,637.0 (10,382.1) (6,689.1) (7,041.1)Dividend payments (5,433.0) (6,689.1) (6,689.1) (7,041.1)Issue of shares 0.0 0.0 0.0 0.0Proceeds from borrowings 10,930.0 (3,693.0) 0.0 0.0Others/interest paid 140.0 0.0 0.0 0.0Net cash inflow (outflow) (13,960.0) (3,275.1) 1,371.7 16,648.9Beginning cash & cash equivalent 30,099.0 16,070.0 12,794.9 14,166.6Changes due to forex impact (69.0) 0.0 0.0 0.0Ending cash & cash equivalent 16,070.0 12,794.9 14,166.6 30,815.5


Growth Turnover 13.6 1.0 2.9 5.0EBITDA 36.3 (0.8) 7.9 5.5Pre-tax profit 16.6 4.2 14.6 21.4Net profit 17.5 3.9 14.6 21.4Net profit (adj.) 17.5 3.9 14.6 21.4EPS 17.5 3.9 14.6 21.4






COMPANY RESULTS SELL

(Maintained)

Share Price HK$7.22 Target Price HK$6.10 Upside -15.5% (Previous TP HK$6.50)

COMPANY DESCRIPTION GAC, via subsidiaries and JVs, produces cars under the brand names of Honda, Toyota, Fiat, Mitsubishi and its owned brandsTrumpchi and Changfeng in China.

STOCK DATA GICS sector AutomobileBloomberg ticker: 2238 HKShares issued (m): 2,213Market cap (HK$m): 15,980

Market cap (US$m): 2,062

3-mth avg daily t'over (US$m): 7.0 Price Performance (%) 52-week high/low HK$10.90/HK$6.70

1mth 3mth 6mth 1yr YTD(3.3) (4.1) 19.2 (6.6) (1.2)

Major Shareholders %Guangzhou Automobile Industry Group

58.35

FY14 NAV/Share (HK$) 6.55FY14 Net Cash/Share (HK$) 1.28

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GUANGZHOU AUTOMOBILE GROUP-H

GUANGZHOU AUTOMOBILE GROUP-H/HSI INDEX

0

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Volume (m)

Source: Bloomberg ANALYST Ken Lee +852 2236 6760 [email protected]

Guangzhou Automobile Group (2238 HK)

3Q14: Profit Down 47% Yoy, Missing Expectation GAC posted worse-than-expected 3Q14 results with net profit down 47% yoy to Rmb1,626m, due to an unexpected 31% yoy drop in profit contributions from JVs and associates. Also dampening the bottom line was the proprietary brand business which slipped into the red again in 3Q14. 9M14 net profit was up only 1% yoy to Rmb2,272m, compared with our estimate of Rmb3,650m for full-year 2014. Cut 2014/15/16 EPS by 12%/12%/8%. Maintain SELL. Cut target price to HK$6.10. 3Q14 RESULTS

Year to 31 Dec (Rmbm) 3Q14 yoy chg qoq % chg 9M14 yoy % chg Revenue 4,878 17 -19 15,644 26 EBIT (213) -4 n.a. (380) -38 Shared profit of assoc. & JVs 814 -31 -18 2,943 -2 Net profit 547 -47 -39 2,272 1

Source: GAC , Bloomberg, UOB Kay Hian • 3Q14 profit down 47% yoy. Guangzhou Auto Group’s (GAC) 3Q14 results came in

worse-than-expected with net profit down 47% yoy to Rmb547m. Net profit was up only 1% yoy to Rmb2,272m in 9M14, compared WITH our full-year 2014 estimate of Rmb3,650m and consensus estimate of Rmb3,989m. Our 2014 profit forecasts and consensus estimates respectively imply a 4Q14 net profit of Rmb1,378m (+236% yoy) and Rmb1,717m (+319% yoy), which we deem unlikely. The disappointing net profit for 3Q14 came from an expected 31% yoy drop in profit contributions from associates and JVs (including GQ Honda, GAC Toyota, GAC Gonow, GAC Fiat and GAC Mitsubish. These associates and JVs registered a 4% yoy sales volume growth in 3Q14. The net profit decline was due to a severe margin squeeze, as a result of a drop in capacity utilisation (given capacity expansion) and price cuts.

STOCK IMPACT

• Significant net profit downgrade. The disappointing 3Q14 net profit is going to trigger a significant net profit downgrade given the over-optimistic consensus estimates. The 3Q14 results remind the market of margin risks. The company’s high exposure to the competitive medium sedan segment (eg Honda Accord and Toyota Camry) makes it vulnerable to margin pressures.

EARNINGS REVISION • Cut 2014/2015/2016 net profit forecasts by 12%/12%/8%. Based on the lower margin

assumptions on GQ Honda and GAC Toyota, we cut our net profit forecasts for 2014/2015/2016 by 12%/12%/8% respectively to Rmb3.23b/Rmb3.58b/Rmb4.41b, implying a core net profit growth of 5%/11%/23% in the next three years. Our profit forecasts for 2014/2015/2016 are 19%/30%/28% below consensus respectively due to our lower net profit assumptions for GAC Mitsubishi and GAC Fiat.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2012 2013 2014F 2015F 2016FNet turnover 12,964 18,824 21,450 27,300 32,500EBITDA (814) 279 629 801 1,010Operating profit (1,444) (1,222) (578) (722) (793)Net profit (rep./act.) 1,133 2,654 3,227 3,583 4,410Net profit (adj.) 1,129 3,066 3,227 3,583 4,410EPS (fen) 17.8 47.6 50.1 55.7 68.5PE (x) 33.2 12.1 11.4 10.3 8.4P/B (x) 1.2 1.1 1.0 1.0 0.9EV/EBITDA (x) n.a. n.a. n.a. n.a. n.a.Dividend yield (%) 1.5 2.7 2.5 2.8 3.5Net margin (%) n.a. n.a. n.a. n.a. n.a.Net debt/(cash) to equity (%) (16.9) (14.6) (16.8) (23.0) (31.7)Interest cover (x) n.a. n.a. n.a. n.a. n.a.ROE (%) 3.8 8.2 9.4 9.7 11.1Consensus net profit - - 3,989 5,137 6,109UOBKH/Consensus (x) - - 0.81 0.70 0.72Source: GAC , Bloomberg, UOB Kay Hian





RISKS

• Potential dilution from CBs. On 24 Jun 14, GAC proposed to issue A-share convertiblebonds (CB) in a principal amount of not more than Rmb6b with a term of not more than 6years. The proceeds from the issue of CBs will be used to fund the new projects of GACToyota, Trumpchi and GAC Fiat. Assuming that GAC issues A-share CBs in a principalamount of Rmb6b with a conversion price equivalent to the current A-share price ofRmb8, a maximum of 750m new A-shares (11.7% of existing share capital) would have tobe issued upon conversion of the CBs, which results will result in a 10.5% EPS dilution.Our EPS estimates have not factored in the dilution resulting from the CB issue.

• Sino-Japan dispute. Downside risks to our net profit estimates will mainly be due togeopolitics, eg Japanese car sales in China could be hurt by large-scale anti-Japaneseriots as seen in Sep 12. However, as long as the escalating Sino-Japan tension as aresult of the Diaoyu Islands (Senkaku Islands in Japanese) dispute or other issues do nottrigger such riots in China, sale of Japanese cars in the country would not be affected.


• Cut target price from HK$6.50 to HK$6.10. The stock now trades at 11.4x 2014F PEand 10.3x 2015F PE, compared with historical mean one-year forward PE of 12x. Giventhe prospective slower net profit growth in 2015 vs 2013-14, we believe the stock will bede-rated to below the historical mean level. We keep target PE at 9x (1SD below historicalmean) and roll over the base year from 2014 to 2015. Given that and our lower 2015FEPS, we cut target price from HK$6.50 to HK$6.10.

SHARE PRICE CATALYSTS

• Monthly sales figures.

• Reporting of 2014 results by Mar 15.

ASSUMPTIONS AND PROFIT FORECASTS

2014F 2015F 2016F 2014F 2015F 2016FGQ Honda 435 550 650 435 550 650 GAC Toyota 346 360 400 346 360 400 Honda (China) 30 30 30 30 30 30 GAC Changfeng 24 24 24 24 24 24 Trumpchi 115 160 200 115 160 200 GAC Gonow 26 26 26 26 26 26 GAC Fiat 60 80 170 60 80 170 GAC Mitsubishi 60 80 100 60 80 100 Commercial vehicles 6 6 6 6 6 6 Electric buses - - 3 - - 3 Total 1,102 1,316 1,606 1,102 1,316 1,606 yoy chg 9% 19% 22% 10% 28% 20%

Revenue 21,450 27,300 32,500 21,450 27,300 32,500 EBIT (578) (722) (793) (378) (522) (693) Finance cost (net) (307) (211) (129) (304) (205) (123) Shared profit of asso & JVs 4,164 4,575 5,404 4,391 4,855 5,684 Net profit 3,227 3,583 4,410 3,650 4,062 4,790 yoy chg 22% 11% 23% 38% 11% 18%

EPS (Rmb) 0.50 0.56 0.69 0.57 0.63 0.74 yoy chg 4% 11% 23% 38% 11% 18%

------------Old------------------------New------------

Source: GAC, UOB Kay Hian





PROFIT & LOSS Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016F

Net turnover 18,824 21,450 27,300 32,500

EBITDA 279 629 801 1,010

Depreciation & amortization (951) (1,207) (1,523) (1,803)

EBIT (1,222) (578) (722) (793)

Total other non-operating income 953 833 855 1,018

Associate contributions 4,020 4,164 4,575 5,404

Net interest income/(expense) (1,122) (1,140) (1,066) (1,148)

Pre-tax profit 2,629 3,279 3,642 4,481

Tax (101) (131) (146) (179)

Minorities 125 79 87 108

Net profit 2,654 3,227 3,583 4,410

Net profit (recurrent) 3,066 3,227 3,583 4,410

BALANCE SHEET Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016F

Fixed assets 8,661 11,454 13,931 16,127

Other LT assets 22,669 20,969 18,719 15,799

Cash/ST investment 14,083 12,225 15,015 19,343

Other current assets 12,430 12,463 14,316 15,962

Total assets 57,843 57,110 61,980 67,232

ST debt 9,397 6,500 6,500 6,500

Other current liabilities 8,662 8,759 11,141 13,259

LT debt 4,775 4,700 4,700 4,700

Other LT liabilities 893 893 893 893

Shareholders' equity 33,311 35,531 38,107 41,348

Minority interest 805 726 639 531

Total liabilities & equity 57,843 57,110 61,980 67,232

CASH FLOW Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016F

Operating 1,091 563 1,184 1,301 Pre-tax profit 2,629 3,279 3,642 4,481 Tax (101) (131) (146) (179) Depreciation/amortization 951 1,207 1,523 1,803 Associates (4,020) (4,164) (4,575) (5,404) Working capital changes 201 65 529 471 Non-cash items 1,431 307 211 129 Other operating cashflows - - - - Investing 811 2,281 3,252 4,833 Capex (growth) (2,589) (4,000) (4,000) (4,000) Investments - - - - Proceeds from sale of assets - - - - Others 476 417 427 509 Financing 2,867 (4,702) (1,647) (1,806) Dividend payments (579) (1,007) (1,008) (1,168) Issue of shares - - - - Proceeds from borrowings - - - - Loan repayment 3,881 (2,972) - - Others/interest paid (435) (723) (638) (638) Net cash inflow (outflow) 4,768 (1,858) 2,790 4,327 Beginning cash & cash equivalent 9,316 14,083 12,225 15,015

Ending cash & cash equivalent 14,083 12,225 15,015 19,343

KEY METRICS Year to 31 Dec (%) 2013 2014F 2015F 2016F

Profitability EBITDA margin 148.2 293.2 293.3 310.8

Pre-tax margin n.a. n.a. n.a. n.a.

Net margin n.a. n.a. n.a. n.a.

ROA 4.9 5.6 6.0 6.8

ROE 8.2 9.4 9.7 11.1

Growth

Turnover 45.2 13.9 27.3 19.0

EBITDA n.a. 125.5 27.3 26.2

Pre-tax profit 162.9 24.7 11.1 23.1

Net profit 134.1 21.6 11.1 23.1

Net profit (adj.) 171.6 5.2 11.1 23.1

EPS 167.5 5.2 11.1 23.1

Leverage

Debt to total capital 24.5 19.6 18.1 16.7

Debt to equity 42.5 31.5 29.4 27.1

Net debt/(cash) to equity (14.6) (16.8) (23.0) (31.7)

Interest cover (x) n.a. n.a. n.a. n.a.





COMPANY RESULTS BUY

(Maintained)

Share Price HK$60.95Target Price HK$84.00Upside +37.8%(Previous TP HK$82.00)

COMPANY DESCRIPTION China's leading integrated financial group that provides insurance, banking and investment services.

STOCK DATA GICS sector FinancialsBloomberg ticker: 2318 HKShares issued (m): 3,129.7Market cap (HK$m): 438,041.1Market cap (US$m): 56,466.83-mth avg daily t'over (US$m): 102.4


1mth 3mth 6mth 1yr YTD2.3 (6.4) 6.0 5.1 (12.2)

Major Shareholders %CP Group 15.57

FY14 NAV/Share (HK$) 27.66

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PING AN INSURANCE GROUP CO-H

PING AN INSURANCE GROUP CO-H/HSI INDEX

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Source: Bloomberg ANALYSTS Edmond Law +852 2826 4837 [email protected] Terrance Liu +852 2826 1351 [email protected]

Ping An Insurance (2318 HK)

3Q14: Robust Earnings In All Business Segments Ping An continued to report better-than-peers earnings in 3q14 with solid premiums growth, robust investment income and stable P&C underwriting results. In addition, the banking segment continued to deliver better-than-expected results, reaffirming our views that the market concerns on its banking operation are overdone. We continue to view the insurer as undervalued and maintain our BUY recommendation with a revised target price of HK$84.00.

3Q14 RESULTS Year to 31 Dec 9M14 9M13 yoy 3Q14 2Q14 qoq (Rmbm) (Rmbm) % chg (Rmbm) (Rmbm) % chg Net premiums 222,383 184,198 20.7 63,019 62,861 0.3 Total Investment income 46,307 41,840 10.7 18,920 15,049 25.7 Operating income 392,358 316,194 24.1 126,013 119,264 5.7 Insurance benefits, claims and expenses -171,848 -152,768 12.5 -47,839 -46,604 2.6

Net Profit 31,687 23,339 35.8 10,325 10,553 -2.2 Source: Ping An, UOB Kay Hian

RESULTS

• Earnings ahead of estimate. Ping An insurance (2318 HK) reported 9M14 net profit of Rmb31.7b, up 35.8% yoy. On a quarterly basis, 3Q14 earnings were up 90.2% yoy to Rmb10.3b and were much better than CPIC’s 3Q14 earnings decline of 19% yoy. The robust growth was mainly driven by the banking segment and improving investment income during the period.

• Life segment (45% of earnings): Premiums growth continued to lead peers with headline premiums growth of 20.3% yoy in 9M14 (China Life: -2.1% yoy; CPIC: 5.1% yoy). In terms of premiums breakdown, agency premiums grew by 14.3% yoy while first-year premiums grew by 19.9% in 9M14. Such a premiums mix is likely to be better than most life insurers for the same period as agency premiums continued to account for majority of its new premiums for the period.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2012 2013 2014F 2015F 2016FGross written premiums 233,940 269,051 307,951 343,659 381,343Net earned premiums 213,144 240,199 280,267 312,439 346,133Underwriting profit/(loss) (37,235) (58,362) (65,624) (75,156) (83,211)Net profit (rep./act.) 20,050 28,154 37,913 42,234 48,337Net profit (adj.) 20,050 28,154 37,913 42,234 48,337EPS (Fen) 253.3 355.7 478.9 533.5 610.6PE (x) 19.0 13.5 10.0 9.0 7.9*P/EV (x) 1.3 1.2 1.0 0.9 0.8Dividend yield (%) 0.9 1.4 1.5 1.7 1.9Total investment yield (%) 2.9 5.1 4.7 4.6 4.6Combined ratio (%) 95.3 97.3 95.9 96.3 97.1NBM as % of FYP (%) 31.1 34.6 30.6 30.5 30.5ROE (%) 13.8 16.4 18.7 17.2 16.4Consensus net profit - - 35,597 40,450 46,129UOBKH/Consensus (x) - - 1.07 1.04 1.05Source: Ping An, Bloomberg, UOB Kay Hian





• P&C segment (20% of earnings): Better-than-peers underwriting results. Premiums from property and casualty (P&C) segment increased 25.8% yoy to Rmb105b and was ahead of what peers have reported so far (CPIC: 14.9% yoy). In addition, underwriting results remained stable with a combined ratio of 94.9% in 9M14 (1H14: 94.4%). As a comparison, CPIC reported deteriorating underwriting results in 1H14 and such a trend is likely to worsen in 3Q14, on our estimates. .

• Banking segment (30 % of earnings): Key earnings driver in 3Q14. Banking profits was up 34.2% yoy, mainly due to NIM expansion and strong fees income. On a quarterly basis, NIM expanded by 4bps qoq to 2.60% while fees income surged by 65% yoy in 3Q14, which we believe was mainly driven by robust agency fees and bank card fees for the period. That said, deteriorating asset quality trend continued as NPL balance grew 13% qoq while NPL ratio increased from 0.92% at 2Q14 to 0.98% at 3Q14.

• Better investment income likely from equity investment gains. Ping An reported investment income of Rmb18.9b (+31% yoy) in 3Q14, which was also the key earnings driver for the group profits. While there is limited investment breakdown on its quarterly statement, we estimate such growth was likely due to volume growth in investment assets and realised gains from its equity investments as the A-share index rose by 15.3% qoq in 3Q14.


• We revise up our 2014-16 earnings by 13.2%, 7.5% and 7.2% respectively after factoring the 9M14 results. We revise our target price to HK$84.00 after factoring in our earnings estimate changes.


• Introduction of share incentive scheme. As part of reform measures in China, financial institutions may carry out trials of the share incentive programme for management and staff. Along with its 3Q earnings release, Ping An announced its share incentive proposal. While details are limited for now, the share incentives are expected to have a lock-up period of 12 months and are likely to be extended to key management of the group and the subsidiaries. In our view, such an incentive scheme is likely to be positive in aligning management and shareholder interests. .

• Maintain BUY. Ping An continued to report better-than-peers earnings in 9M14 with solid premiums growth, robust investment income and better-than-peers P&C underwriting results. In addition, as the banking segment continues to deliver better-than-expected results, this reaffirms our views that market concerns on Ping An Bank have been overdone. We continue to view Ping An as undervalued and re-iterate our BUY recommendation on the stock. The quarterly earnings and share incentive proposal is likely positive for the re-rating of the stock.





PROFIT & LOSS

Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016F

Gross written premiums 269,051 307,951 343,659 381,343

Premium ceded to reinsurers (21,034) (18,797) (21,183) (23,865)

Chg in unearned prem reserves (7,818) (8,888) (10,037) (11,345)

Net earned premiums 240,199 280,267 312,439 346,133

Reinsurance commission income 6,584 6,285 7,086 7,990

Claims and insurance benefits (198,002) (224,772) (254,052) (281,550)

Commission exp of insurance ops (25,390) (30,293) (33,752) (37,380)

G&A exp of insurance ops (81,753) (97,111) (106,877) (118,405)

Underwriting profit/(loss) (58,362) (65,624) (75,156) (83,211)

Investment income 55,583 59,148 67,056 75,797

Interest inc. (Banking ops) 93,291 119,634 132,184 143,271

Other income 25,564 38,736 46,030 52,655

G&A exp of non-insurance ops (1,979) (2,237) (2,540) (2,884)

Other expenses (67,873) (87,877) (97,510) (106,693)

Pre-tax profit 46,224 61,781 70,064 78,936

Tax (10,210) (14,033) (15,876) (17,518)

Minorities (7,860) (9,835) (11,954) (13,080)

Net profit 28,154 37,913 42,234 48,337

Net profit (adj.) 28,154 37,913 42,234 48,337

BALANCE SHEET Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016F

Cash 353,331 441,664 529,997 593,596

Loans and advances 861,770 1,059,111 1,270,934 1,423,446

Investments (equity & fixed inc) 1,611,705 1,934,046 2,214,729 2,536,572

Premiums receivables 24,205 27,705 30,917 34,307

Reinsurers' share of ins liabilities 13,839 16,096 18,609 21,408

Policyholder accts (ins & inv) 39,603 46,211 53,762 62,351

Associates & JVs 12,081 21,916 33,869 46,949

Fixed assets (incl prop) 18,873 20,760 22,836 25,120

Other assets 424,905 327,518 314,998 441,261

Total assets 3,360,312 3,895,026 4,490,651 5,185,010

Assets sold (repo agreement) 121,642 95,477 74,940 58,821

Customer deposits 1,191,515 1,489,394 1,787,273 2,144,727

Insurance payables 54,359 61,708 69,747 77,296

Insurance contract liabilties 1,030,212 1,198,217 1,385,275 1,593,639

Subordinated debts 56,756 105,740 105,740 105,740

Other liabilities 666,123 654,472 720,379 792,814

Total liabilities 3,120,607 3,605,009 4,143,354 4,773,037

Shareholders' funds 182,709 223,187 268,512 320,109

Minority interest - accumulated 56,996 66,831 78,784 91,864

Total equity & liabilities 3,360,312 3,895,026 4,490,651 5,185,010

OPERATING RATIO

Year to 31 Dec (%) 2013 2014F 2015F 2016F

Capital Adequacy

Capital-related Solvency ratio 174.4 198.0 198.0 198.0

Shareholders' funds/total assets 5.4 5.7 6.0 6.2

Total Assets/equity (x) 18.4 17.5 16.7 16.2

Liquidity Liquid assets/short-term liabilities 67.3 73.6 76.6 74.0

Liquid assets/total assets 41.2 42.1 43.4 43.0

Valuation (%) P/EV (x) 1.2 1.0 0.9 0.8

NB multiple (x) 2.7 0.2 (2.2) (4.4)

Adjusted P/E (x) 13.5 10.0 9.0 7.9

Dividend Yield 1.4 1.5 1.7 1.9

KEY METRICS Year to 31 Dec (%) 2013 2014F 2015F 2016F

Growth Gross premiums, yoy chg 15.0 14.5 11.6 11.0

FYP, yoy chg 2.4 25.5 8.4 5.8

APE, yoy chg 10.8 10.9 7.4 5.2

Investment income, yoy chg 103.0 6.4 13.4 13.0

Net profit, yoy chg 40.4 34.7 11.4 14.5

Profitability Loss ratio 60.4 59.1 59.5 60.3

Expense ratio 36.9 36.8 36.8 36.8

Combined ratio 97.3 95.9 96.3 97.1

Net investment yield 5.1 5.1 5.0 5.0

Total investment yield 5.1 4.7 4.6 4.6

NBM as % of APE 40.5 40.5 40.8 41.0

NBM as % of FYP 34.6 30.6 30.5 30.5

Reported ROE 16.4 18.7 17.2 16.4

Adjusted ROE 16.4 18.7 17.2 16.4





COMPANY RESULTS BUY (Maintained) Share Price HK$30.05 Target Price HK$35.80 Upside +19.1% (Previous TP HK$33.70)

COMPANY DESCRIPTION Sinopharm Group is the largest pharmaceutical distributor in China.

STOCK DATA GICS sector Health Care Bloomberg ticker: 1099 HK Shares issued (m): 994.0 Market cap (HK$m): 77,177.2 Market cap (US$m): 9,948.9 3-mth avg daily t'over (US$m): 16.3


1mth 3mth 6mth 1yr YTD

4.3 28.4 51.0 40.4 35.1 Major Shareholders

%

CNPGC 65.5



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ANALYSTS Carol Dou Xiao Qin +8621 5404 7225 ext 811 [email protected] Greater China Research +8621 5404 7225 ext 817

Sinopharm Group (1099 HK)

3Q14: Net Proft Up 20.6% yoy, In Line With Expectation Sinopharm’s 3Q14 revenue was Rmb50.0b, 22.4%% yoy. Net profit attributable to shareholders was Rmb683m, up 20.6% yoy, in line with our estimates. We expect the company to continue beating industry growth given its strong revenue growth in tier 2-4 cities. We expect gross margin to remain relatively stable in the next few years. Improvement in operating efficiency will continue to help boost the company’s earnings growth. Maintain BUY. Target price: HK$35.80.

9M14 RESULTS Year to 31 Dec (Rmbm) 3Q14 3Q13 yoy % chg Remarks Revenue 52,000.1 42,495.5 +22.4 Driven by rapid growth in Tier 2-4 cities. COGS 47,777.0 38,967.3 +22.6 Gross Profit 4,223.2 3,528.2 +19.7

Gross margin (%)

8.1% 8.3% -0.2ppt Due to increase in sales of low margin product in Sept and the integration of Sichuan Pharma which has a lower gross margin.

Selling expenses 1,271.5 1,077.3 +18.0 Due to continued efforts in expense control. G&A 715.2 643.3 +11.2

Op. profit 1,808.6 1,465.5 +23.4

Finance cost, net 435.8 343.2 +27.0 Expected to remain at 1% of total sales

for 2014. Net profit 1,097.0 911.7 +20.3 Net profit attributable to shareholders

683.0 566.4 +20.6

Net margin (%) 1.3 1.3 0 EPS (Rmb) 0.269 0.225 +19.7

Source: Sinopharm, UOB Kay Hian

RESULTS

• 3Q14 revenue was Rmb52.0b, up 22.4% yoy. Net profit attributable to shareholders was Rmb683m, up 20.6% yoy. Gross margin was 8.12%, down 0.2 ppt yoy. Selling expenses grew 18% yoy to Rmb1,271.5m. G&A expense grew 11.2% yoy to Rmb715.2m. Finance cost increased 27% yoy to Rmb435.8m. Net margin remained flat at 1.3% in 3Q14.

KEY FINANCIALS Year to 31 Dec (Rmbm) 2012 2013 2014F 2015F 2016F

Net turnover 136,501.7 166,866.1 198,586.7 234,573.9 274,584.2 EBITDA 5,436.0 6,756.2 8,417.7 9,853.3 11,345.9 Operating profit 4,868.9 6,101.9 7,715.7 9,133.7 10,608.7 Net profit (rep./act.) 1,979.4 2,250.0 2,823.7 3,416.5 4,134.4 Net profit (adj.) 1,979.4 2,250.0 2,823.7 3,416.5 4,134.4 EPS (Fen) 82.4 89.2 109.9 133.0 161.0 PE (x) 28.7 26.6 21.5 17.8 14.7 P/B (x) 3.3 2.7 2.6 2.4 2.1 EV/EBITDA (x) 14.6 11.8 9.5 8.1 7.0 Dividend yield (%) 1.1 1.1 1.4 1.7 2.0 Net margin (%) 1.5 1.3 1.4 1.5 1.5 Net debt/(cash) to equity (%) 36.7 51.1 44.6 37.7 35.4

Interest cover (x) 4.3 4.1 4.0 3.8 3.6 ROE (%) 12.0 11.5 13.9 14.4 16.3 Consensus net profit - - 2,842 3,428 4,106 UOBKH/Consensus (x) - - 0.99 1.00 1.01 Source: Sinopharm, Bloomberg, UOB Kay Hian





STOCK IMPACT • Strong performance continued. In 3Q14, Sinopharm reported operating revenue of

Rmb52.0b up 22.4% yoy, beating industry average growth of 14-15%. Net income was Rmb683m, up 20.6% yoy, in line with our and industry expectation. Management guided that Sinopharm will continue to outperform the industry, given by rapid growth in tier 2-4 cities, especially in South West, North China and East China. SINOPHARM'S BREAKDOWN OF REVENUE GROWTH BY REGION

9M14 yoy growth (%) Tier 1 cities 13 Tier 2 cities 19 Tier 3 cities 23 Tier 4 cities 31 Industry average 14-15

Source: Sinopharm

SINOPHARM'S DISTRIBUTION REVENUE BREAKDOWN BY CLIENT 9M14 yoy growth % % of distribution revenue Class III hospitals 19.49 57 Class II hospitals 21.5 Class I hospitals 22.17 Retail Pharmacies 15.92 13 Grassroots medical institutions 25.13 Distributors 11 30

Source: Sinopharm

• New business to support long-term growth. Sinopharm is expanding into new businesses via cooperation with domestic and international pharmaceutical companies on value-added services. For example, the company is promoting and marketing AstraZeneca's genetic drug, Betaloc in China. Sinopharm has beaten its target for this drug by 10% and is expected to make positive income contribution in 2014.

• Gross margin expected to rebound. Gross margin was 8.12% in 3Q14, 0.16ppt lower than 1H14. The decrease in gross margin was due to the increase in sales of low-margin products at end-Sep 14 in preparation of the National Holiday in Oct 14. In addition, contribution from the newly-acquired company, Sichuan Pharma, also contributed to the lower margin. Management expects Sichuan Pharma's gross margin to catch up and expects gross margin to be maintained at around 8.2%, similar to 9M14’s level.

• Efficiency improvement expected to continue. In 3Q14, SG&A expense accounted for 3.8% of total revenue, down 0.2ppt yoy. Management highlighted that Sinopharm will continue to improve efficiency, although in a slowing trend.

• Model revision. We adjust our gross margin assumptions to 8.22%, 8.20% and 8.17% from 8.22%, 8.18% and 8.12% for 2014-16 respectively as we expect gross margin to decrease in a slower trend given increased exposure to high-margin new businesses and improvement of product mix. We have also decreased SG&A as % of total revenue slightly to reflect Sinopharm's continued efforts in improving operating efficiency. As a result, our net profit estimates are increased to Rmb2.8b, Rmb3.4b and Rmb4.1b for 2014-16 respectively.

VALUATION/RECOMMENDATION • Maintain BUY with a new target price of HK$35.80, based on 21x 2015F PE, or 1x

PEG. The stock is currently trading at 17.8x 2015F PE, providing buying opportunities. SHARE PRICE CATALYST • Industry consolidation continues to benefit leading players. • Rapid market expansion in lower-tier cities enables the company to grow faster than the

industry. RISKS • Impact from continued hospital reform and related policies. • Pricing regulations and provincial drug tender programmes may continue to lower drug

prices and thus put pressure on margins. • Impact of anti-corruption measures. • Impact from E-commerce competitors.





PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016F Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016F Net turnover 166,866.1 198,586.7 234,573.9 274,584.2 Fixed assets 7,588.0 7,769.4 7,806.5 7,924.2 EBITDA 6,756.2 8,417.7 9,853.3 11,345.9 Other LT assets 8,151.8 8,151.1 8,298.0 8,346.6 Deprec. & amort. 654.2 702.0 719.6 737.1 Cash/ST investment 14,002.0 14,777.7 17,419.9 23,944.8 EBIT 6,101.9 7,715.7 9,133.7 10,608.7 Other current assets 75,711.4 84,103.8 98,042.8 113,540.2 Total other non-operating income

40.2 23.6 0.0 0.0 Total assets 105,453.1 114,802.0 131,567.2 153,755.8

Associate contributions 138.8 159.6 183.5 183.5 ST debt 21,007.3 21,007.3 23,000.0 30,000.0 Net interest income/(expense)

(1,660.4) (2,110.3) (2,594.4) (3,121.7) Other current liabilities 49,833.9 56,113.0 66,635.0 77,037.7

Pre-tax profit 4,620.5 5,788.6 6,722.8 7,670.6 LT debt 4,134.1 4,134.1 4,134.1 4,134.1 Tax (1,040.8) (1,341.2) (1,546.2) (1,764.2) Other LT liabilities 1,866.5 1,866.5 1,866.5 1,866.5 Minorities (1,329.7) (1,623.7) (1,760.0) (1,771.9) Shareholders' equity 21,815.5 23,261.6 25,752.1 28,766.1 Net profit 2,250.0 2,823.7 3,416.5 4,134.4 Minority interest 6,795.8 8,419.5 10,179.5 11,951.4 Total liabilities & equity 105,453.1 114,801.9 131,567.2 153,755.8 CASH FLOW KEY METRICS Year to 31 Dec (Rmbm) 2013 2014F 2015F 2016F Year to 31 Dec (%) 2013 2014F 2015F 2016F Operating 4,941.3 5,799.2 5,450.0 5,085.1 Profitability Pre-tax profit 4,620.5 5,788.6 6,722.8 7,670.6 EBITDA margin 4.0 4.2 4.2 4.1 Tax 1,081.6 1,341.2 1,546.2 1,764.2 Pre-tax margin 2.8 2.9 2.9 2.8 Deprec. & amort. 676.9 702.0 719.6 737.1 Net margin 1.3 1.4 1.5 1.5 Associates (138.8) (159.6) (183.5) (183.5) ROA 2.4 2.9 2.9 3.2 Working capital changes (1,232.1) (2,113.2) (3,417.1) (5,094.7) ROE 11.5 13.9 14.4 16.3 Non-cash items (15.8) 0.0 0.0 0.0 Other operating cashflows

(51.1) 240.2 62.0 191.3 Growth Investing (4,066.4) (969.9) (816.5) (835.5) Turnover 22.2 19.0 18.1 17.1 Capex (growth) (1,700.3) (723.3) (720.0) (720.0) EBITDA 24.3 24.6 17.1 15.1 Investments 0.0 0.0 0.0 0.0 Pre-tax profit 14.9 25.3 16.1 14.1 Proceeds from sale of assets

0.0 0.0 0.0 0.0 Net profit 13.7 25.5 21.0 21.0

Others (2,366.1) (246.6) (96.5) (115.5) Net profit (adj.) 13.7 25.5 21.0 21.0 Financing 3,408.7 (3,024.6) (1,624.2) 2,642.3 EPS 8.2 23.3 21.0 21.0 Dividend payments (1,171.4) (667.8) (926.0) (1,120.5) Proceeds from borrowings

29,472.7 0.0 1,992.7 7,000.0 Leverage Loan repayment (30,794.6) 0.0 0.0 0.0 Debt to total capital 46.8 44.2 43.0 45.6 Others/interest paid (Rmbm)

5,902.1 (2,356.9) (2,690.9) (3,237.2) Debt to equity 115.2 108.1 105.4 118.7

Net cash inflow (outflow)

4,283.6 1,804.8 3,009.3 6,891.8 Net debt/(cash) to equity 51.1 44.6 37.7 35.4

Beginning cash & cash equivalent

9,801.5 14,002.0 14,777.7 17,419.9 Interest cover (x) 4.1 4.0 3.8 3.6

Changes due to forex impact

(83.2) (1,029.1) (367.0) (367.0)

Ending cash & cash equivalent

14,002.0 14,777.7 17,419.9 23,944.8





COMPANY UPDATE

Belle (1880 HK) Key Takeaways From Analyst Briefing

BUY (Maintained) Share Price HK$9.32 Target Price HK$12.40 Upside +33.0%

COMPANY DESCRIPTION Belle International Holdings limited retails woman's footwear.

STOCK DATA GICS sector Consumer

Discretionary Bloomberg ticker: 1880 HK Shares issued (m): 8,434.2 Market cap (HK$m): 78,607.1 Market cap (US$m): 10,133.0 3-mth avg daily t'over (US$m): 19.9


1mth 3mth 6mth 1yr YTD 6.3 (1.2) 14.8 (11.6) 3.9

Major Shareholders % Chang Chi Kai 24.3



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ANALYSTS Renee Tai +852 2826 1324 [email protected] Herbert Chan +852 2826 1330 [email protected]

Belle held an analyst briefing yesterday. 1HFY15 sportswear and apparel performance beat management expectations but the footwear unit still fell short of management’s full-year target of 5-10% sales growth. Sep-Oct 14 sales were weaker than in 1HFY15 as gifting declined while end-of-season promotions continued. As Belle slows down the pace of its store expansion and shifts its focus to improving store productivity, it has raised its dividend payout from 30% to 60%. Maintain BUY. Target price: HK$12.40. WHAT’S NEW • Footwear sales remain tepid after 1HFY15. For Sep-Oct 14, sales were dragged down

by less gift card sales during Mid-Autumn Festival and the National Holiday. This has impacted footwear sales which to date have been slower than 1HFY15 as SSSG remained negative, and management is not optimistic of achieving its targeted footwear sales growth of 5-10% for the year. Due to operating deleverage, footwear operating margin may decline to 22% for the year. We presently forecast footwear sales to grow at just 3% yoy in FY15.

• Sportswear and apparel sales driven by increasing sports participation. According to management, sportswear and apparel sales continued to grow as expected for Sep-Oct 14. This was driven by the higher participation in sports as health awareness of the Chinese people increased, generating actual demand for sportswear. This contrasts with demand for sportswear in earlier years which was driven by consumers looking for casual wear, but then shifted to other fashion brands as the market matured. We think this is a healthy trend for the sportswear business and can drive growth for years to come. Meanwhile operating margin will likely stabilise as brand owners such as Nike and Adidas continue to support distributors.

• Dividend payout ratio increasing to 60%. Management confirmed that the special dividend of Rmb0.25 per share was one-off due to a net cash balance of Rmb7.57b in Aug 14. However, the dividend payout ratio will increase from the current 30% to around 60% in the coming years, since Belle has passed the high growth stage and the company is no longer aggressively expanding its store network.

• Effective tax rates to remain high on increased dividend payouts. For 1HFY15, effective tax rate increased by 3.2ppt yoy to 29.9% as subsidiaries in Mainland China paid dividends to foreign holdings companies, which are subject to 5% withholding tax. Due to the increased dividend payout ratio of 60%, effective tax rate will remain at higher levels as larger dividends are distributed from Mainland China to shareholders in Hong Kong. Management guided that effective tax rates will be around 27% going forward. KEY FINANCIALS Year to 28 Feb (Rmbm) 2013 2014 2015F 2016F 2017F Net turnover 36,249 43,067 39,550 44,980 52,302 EBITDA 6,736 7,910 7,033 7,952 9,202 Operating profit 5,642 6,634 5,913 6,668 7,797 Net profit (rep./act.) 4,492 5,159 4,462 5,052 5,895 Net profit (adj.) 4,492 5,159 4,462 5,052 5,895 EPS (Fen) 53.3 61.2 52.9 59.9 69.9 PE (x) 13.8 12.0 13.9 12.3 10.5 P/B (x) 2.4 2.4 2.4 2.2 2.0 EV/EBITDA (x) 9.1 7.8 8.8 7.7 6.7 Dividend yield (%) 1.1 2.7 7.8 4.9 5.7 Net margin (%) 12.4 12.0 11.3 11.2 11.3 Net debt/(cash) to equity (%) (5.1) (1.8) 2.6 1.9 2.2 Interest cover (x) n.a. n.a. n.a. n.a. n.a. ROE (%) 18.7 20.0 17.0 18.5 19.9 Consensus net profit - - 4,417 4,667 5,031 UOBKH/Consensus (x) - - 1.01 1.08 1.17 Source: Belle Int' Holding Ltd., Bloomberg, UOB Kay Hian

ESSENTIALS





• Improved manufacturing schedule to enhance product quality and staff retention. The manufacturing of each SKU was originally separated into batches based on the requirements of each region rather than by product. Additionally, due to the short lead time between trade fairs and actual delivery, this led to the low quality of some of its products. Furthermore, the timing of production of new season items would sometimes clash with replenishment orders for previous season products, leading to inefficient distribution and overloading of production lines. This not only compromised its product quality but also led to high staff turnover. To rectify the problem, Belle now produces SKUs in large batches during periods when fewer replenishment orders are expected, leading to improved quality of products made under a more reasonable timeframe. As a result of this change, Belle has also seen increasing retention rates of skilled workers as overtime hours are limited.

• Store expansion to be focused on shopping malls. Belle expects department stores to account for a decreasing market share for mid-high end retailing, as traffic continues to divert to shopping malls in tier 1 cities. That said, department stores are expected to remain the mainstream in lower-tiered cities. Therefore Belle’s new stores will mostly be opened in shopping malls which provide more growth potential. Belle has also started opening stores in 2nd/3rd tier cities, which may require a few years to replicate the strong performance of stores in shopping malls of 1st-tier cities. Furthermore, for their multi-brand stores in shopping malls, the company will now choose stores of moderate size to only display SKUs which can represent each brand’s characteristics, vs displaying a wide range of products that may not appeal to targeted customers of that particular store.

• Online shoppers’ growing appetite for quality bodes well for Belle. Management mentioned that while e-commerce remains a price-sensitive channel, its users are beginning to ask for products of higher quality. This provides a suitable environment for Belle to expand online-to-offline (O2O) business with their mid-high end products.

OUTLOOK • Restructuring efforts to start paying off in 2HFY15. Belle now divides its business units

into smaller ones and further empowers retail level managers so they have more flexibility in making merchandising decisions. This not only shortens reaction time to market trends, but also increases the company’s ability to put the right merchandise on the shelves which should help reduce need for end-of-season discounting, and hence give rise to better margins. Belle started its restructuring initiatives a year ago and we expect to see more noticeable impact starting from 2HFY15.

EARNINGS REVISION/RISK • No change to earnings forecast. We continue to expect FY15 SSSG to be flat yoy given a

slow start to the year, but the positive impact from the supply chain adjustments made by the company should kick in in 2HFY15. We further expect footwear SSSG to improve to 3% and 5% in FY16 and FY17 respectively. Key downside risks include: a) gross margin erosion due to product mix shift if the pricing environment deteriorates, b) increased e-commerce competition which dampens hopes of an ASP recovery, and c) loss of market share to international female footwear brands.

VALUATION/RECOMMENDATION • Maintain BUY with an unchanged target price of HK$12.40. We advise investors to look

beyond near-term sales weakness and focus on margin enhancement stemming from the company's initiatives to improve efficiency and reduce discounting. Belle still has the best-in-class supply chain management among domestic retailers and this should enable it to better counter structural challenges (foreign competition, e-commerce) than other retailers. Our SOTP target price is based on: a) 17.6x FY15F PE for its footwear business, which puts it at a 20% discount to its historical trading average of 22x over the last five years to capture the growing challenges in the industry and the normalising growth momentum that Belle is expected to deliver, and b) 12x FY15F PE for its sportswear & apparel operation, which puts it at a 20% discount to the average historical trading range for casual and sportswear retailers. This yields a target price of HK$12.40, implying calendarised 16.8x 2015F PE. Key share price catalysts include quarterly sales updates and retail sales data from China.

SSSG - FOOTWEAR AND SPORTSWEAR/APPAREL

Source: Belle, UOB Kay Hian GROSS MARGIN TREND

Source: Belle, UOB Kay Hian

PROFIT & LOSS BALANCE SHEET





Year to 28 Feb (Rmbm) 2014 2015F 2016F 2017F Year to 28 Feb (Rmbm) 2014 2015F 2016F 2017F Net turnover 43,067.2 39,549.6 44,980.0 52,301.9 Fixed assets 5,248.1 5,728.9 6,045.2 6,240.7 EBITDA 7,909.6 7,032.6 7,951.7 9,201.7 Other LT assets 6,449.4 6,454.4 6,459.4 6,464.4 Deprec. & amort. 1,275.6 1,119.2 1,283.7 1,404.4 Cash/ST investment 2,825.0 1,679.3 1,821.6 1,680.4 EBIT 6,634.0 5,913.3 6,667.9 7,797.2 Other current assets 17,871.4 19,189.2 21,145.0 24,365.6 Total other non-operating income 0.0 0.0 0.0 0.0 Total assets 32,393.9 33,051.9 35,471.2 38,751.1 Associate contributions 4.8 5.0 5.0 5.0 ST debt 2,360.1 2,360.1 2,360.1 2,360.1 Net interest income/(expense) 408.9 322.9 247.4 273.6 Other current liabilities 3,476.4 4,057.7 4,371.4 5,040.2 Pre-tax profit 7,047.7 6,241.2 6,920.4 8,075.8 LT debt 0.0 0.0 0.0 0.0 Tax (1,920.0) (1,778.7) (1,868.5) (2,180.5) Other LT liabilities 222.1 222.1 222.1 222.1 Minorities 31.4 0.0 0.0 0.0 Shareholders' equity 26,189.2 26,265.9 28,371.4 30,982.6 Net profit 5,159.1 4,462.5 5,051.9 5,895.3 Minority interest 146.1 146.1 146.1 146.1 Net profit (adj.) 5,159.1 4,462.5 5,051.9 5,895.3 Total liabilities & equity 32,393.9 33,051.9 35,471.2 38,751.1 CASH FLOW KEY METRICS Year to 28 Feb (Rmbm) 2014 2015F 2016F 2017F Year to 28 Feb (%) 2014 2015F 2016F 2017F Operating 5,928.8 3,468.8 5,591.1 4,269.5 Profitability Pre-tax profit 6,634.0 5,913.3 6,667.9 7,797.2 EBITDA margin 18.4 17.8 17.7 17.6 Tax (1,819.1) (1,778.7) (1,868.5) (2,180.5) Pre-tax margin 16.4 15.8 15.4 15.4 Deprec. & amort. 1,275.6 1,119.2 1,283.7 1,404.4 Net margin 12.0 11.3 11.2 11.3 Working capital changes (109.6) (1,785.0) (492.1) (2,751.7) ROA 15.7 13.6 14.7 15.9 Other operating cashflows (52.1) 0.0 0.0 0.0 ROE 20.0 17.0 18.5 19.9 Investing (4,259.2) (162.6) (2,443.6) (1,067.4) Capex (growth) (1,767.7) (1,600.0) (1,600.0) (1,600.0) Growth Investments (1,037.0) 1,048.5 (1,150.0) 200.0 Turnover 18.8 (8.2) 13.7 16.3 Others (1,454.5) 388.9 306.4 332.6 EBITDA 17.4 (11.1) 13.1 15.7 Financing (1,124.9) (4,451.9) (3,005.3) (3,343.2) Pre-tax profit 17.4 (11.4) 10.9 16.7 Dividend payments (1,349.4) (4,385.8) (2,946.3) (3,284.2) Net profit 14.9 (13.5) 13.2 16.7 Issue of shares 0.0 0.0 0.0 0.0 Net profit (adj.) 14.9 (13.5) 13.2 16.7 Proceeds from borrowings 229.6 0.0 0.0 0.0 EPS 14.9 (13.5) 13.2 16.7 Others/interest paid (5.1) (66.1) (59.0) (59.0) Net cash inflow (outflow) 544.7 (1,145.7) 142.2 (141.1) Leverage Beginning cash & cash equivalent 2,286.9 2,825.0 1,679.3 1,821.6 Debt to total capital 8.2 8.2 7.6 7.0

Changes due to forex impact (6.6) 0.0 0.0 0.0 Debt to equity 9.0 9.0 8.3 7.6 Ending cash & cash equivalent 2,825.0 1,679.3 1,821.6 1,680.4 Net debt/(cash) to equity (1.8) 2.6 1.9 2.2

Interest cover (x) n.a. n.a. n.a. n.a.





COMPANY RESULTS BUY (Maintained) Share Price Rp3,985 Target Price Rp5,300 Upside +33.0% (Previous TP Rp5,800)

COMPANY DESCRIPTION Logindo Samudramakmur provides marine services along shorelines and deep waters for the oil & gas industry.

STOCK DATA GICS sector Energy Bloomberg ticker: LEAD IJ Shares issued (m): 644.3 Market cap (Rpb): 2,567.4 Market cap (US$m): 211.0 3-mth avg daily t'over (US$m): 0.0

Price Performance (%) 52-week high/low Rp5,225/Rp2,675

1mth 3mth 6mth 1yr YTD (20.3) (20.3) 2.2 n.a. 37.4

Major Shareholders % Alstonia Offshore Pte Ltd. 35.0

Rudy Logam 17.9

Eddy Logam 13.9

FY14 NAV/Share (US$) 0.21

FY14 Net Debt/Share (US$) 0.24

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LOGINDO SAMUDRAMAKMUR TBK PT

LOGINDO SAMUDRAMAKMUR TBK PT/JCI INDEX

0

24

6

8

Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14

Volume (m)

Source: Bloomberg

ANALYSTS Vijay Natarajan +65 6590 6626 [email protected]

Nancy Wei +65 6590 6628 [email protected]

Logindo Samudramakmur (LEAD IJ)

3Q14: Gross Profit Impacted By Timing Difference And Vessel Maintenance Logindo’s 3Q14 net profit excluding one-off gains missed expectations due to timing differences arising from the booking of fuel charges and unexpected maintenance. We expect gross margin to recover in the subsequent quarters. While the sector is facing near-term headwinds due to political changes and corruption scandals which resulted in lower contract awards, the longer-term prospects remain intact. Maintain BUY with a lower target price of Rp5,300.

3Q14 RESULTS Year to 31 Dec 3Q14 yoy 9M14 yoy Remarks (US$m) % chg % chg Turnover 17.0 0 53.6 28 Gross Profit 7.2 (7) 26.4 29 Lower gross margin due to higher

fuel, repair and maintenance expenses

PBT 5.6 30 18.2 52 Disposal gain of US$1.6m from sale of a harbour tug.

Tax (0.4) 42 (0.9) 29 Net Profit 5.2 29 17.2 53 Gross Margin (%) 42 (3ppt) 49 1ppt Net Margin (%) 31 7ppt 32 5ppt

Source: Logindo

RESULTS

• Gross profit impacted by timing difference and unexpected maintenance. Logindo Samudramakmur’s (Logindo) 3Q14 gross profit fell 7% yoy to US$7.2m mainly due to: a) timing difference arising from the booking of vessel fuel expenses, and b) unexpected maintenance related to its AHT. As a result, gross margin fell 10ppt qoq and 3ppt yoy to 42%, the lowest in the last two years.

• Net profit up 29% yoy, boosted by gains from sale of a harbour tug. Logindo booked a US$1.6m gain from the sale of a harbour tug. This helped boost net profit by 29% yoy to US$5.2m despite a lower gross profit. For 9M14, net profit rose 53% yoy to US$17.2m.

• Total E&P accounted for 52% of 3Q14 revenue (2013: 70%) as Logindo diversified its client base. Pertamina Hulu Energi (PHE) was Logindo’s second-biggest client, accounting for 32% of 3Q14 revenue.

KEY FINANCIALS Year to 31 Dec (US$m) 2012 2013 2014F 2015F 2016F Net turnover 34 59 72 94 112 EBITDA 18 33 41 50 61 Operating profit 12 24 29 36 45 Net profit (rep./act.) 9 16 22 25 32 Net profit (adj.) 9 16 22 25 32 EPS (cent) 2.0 2.6 3.4 3.9 5.0 PE (x) 16.7 12.8 9.6 8.3 6.6 P/B (x) 2.9 1.9 1.6 1.3 1.1 EV/EBITDA (x) 20.5 11.1 9.0 7.4 6.0 Dividend yield (%) 0.0 0.0 0.0 0.0 3.1 Net margin (%) 26.0 27.9 30.5 27.0 28.5 Net debt/(cash) to equity (%) 178.5 97.6 116.4 126.0 122.7 Interest cover (x) 5.9 5.2 6.0 5.4 5.3 ROE (%) 19.1 20.2 17.8 17.3 18.3 Consensus net profit - - 23 29 33 UOBKH/Consensus (x) - - 0.94 0.88 0.97 Source: Logindo, Bloomberg, UOB Kay Hian





STOCK IMPACT

• Gross margins to recover post one-off items in 3Q14. Excluding the timing difference in which Logindo has to pay for fuel costs associated with two vessels which finished its contract with PHE, we estimate 3Q14 gross margin at 47-48%, in line with our expectations. We expect margins to recover to normmlised levels of 48-50% in the subsequent quarters.

• Contract awards expected to pick up in 1H15 with the new government settling in. President Jokowi is set to revamp the oil & gas sector with the government studying the possiblity of disbanding SKK Migas and merginig its functions with the Energy and Mineral Resources Ministry for faster approvals and better transperancy. We expect contract wins to pick up in early-1H15 once the new government settles down. Curretly, there are more than US$20b worth of projects in the pipeline, including ENI Djankrik development, Chevron Indonesia deepwater development and BP Tangguh project in Papua.

• Net orderbook of about US$80m; bidding for US$100m worth of contracts. Ytd, Logindo has secured about US$80m worth of contracts from Total E&P, PHE and Premier Oil. Management is currently bidding for US$100m worth of contracts with Total E&P and PHE.

• Capex guidance remains unchanged at US$80m each for 2014 and 2015. Logindo will take delivery of 1 AHTS (6,000bhp) and 1 PSV (3,500 dwt) in 4Q14 and is currently in the process of securing contracts for both vessels. Along with two AHTS (8,000 bhp) it took possesion in 1H14, this will bring its 2014 capex to US$80m. For 2015, Logindo expects capex to be the same, at US$80m. Net gearing currently stands at 1x and Logindo is comfortable with a gearing of up to 2x. Management does not discount the possibility of an additional cash call to fund its expansion plans, if necessary.


• We lower our 2014 and 2015 net profit forecasts by 3% and 10% respectively due to the expected delay in contract awards.


• Maintain BUY with a lower target price of Rp5,300. While the sector is facing some near-term headwinds due to political changes and corruption scandals which resulted in lower contract awards, the longer-term prospects remain intact. Our target price is pegged at 11.5x 2015F PE, a 20% premium to the 1-year forward mean average PE of Singapore OSV owners. The stock is trading relatively cheap at 8x 2015F PE, vs Wintermar’s 11x.


• Strong pick-up in contract awards.

• Higher oil prices and increased E&P spending.

• Better utilisation and higher charter rates.

• Stricter and timely implementation of cabotage laws.

GROSS AND NET MARGINS

Source: Logindo, UOB Kay Hian FLEET AGE BY NUMBERS*

Average Fleet Age – 9 Years * as of 2Q14 Source: Logindo





PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (US$m) 2013 2014F 2015F 2016F Year to 31 Dec (US$m) 2013 2014F 2015F 2016F Net turnover 59.0 71.8 94.0 112.2 Fixed assets 208.9 279.3 345.4 408.6 EBITDA 33.0 40.7 49.5 61.2 Other LT assets 2.3 2.3 2.3 2.3 Deprec. & amort. 9.2 11.2 13.8 16.3 Cash/ST investment 8.2 7.2 5.5 7.4 EBIT 23.9 29.5 35.7 44.8 Other current assets 16.3 17.6 22.4 26.2 Total other non-operating income 0.0 0.0 0.0 0.0 Total assets 235.7 306.5 375.7 444.6 Net interest income/(expense) (6.3) (6.7) (9.2) (11.5) ST debt 37.2 46.4 58.7 56.6 Pre-tax profit 17.5 22.8 26.5 33.4 Other current liabilities 6.0 9.1 9.8 10.7 Tax (1.1) (0.9) (1.1) (1.3) LT debt 80.2 116.7 147.5 185.6 Net profit 16.5 21.9 25.4 32.0 Other LT liabilities 0.4 0.4 0.4 0.4 Net profit (adj.) 16.5 21.9 25.4 32.0 Shareholders' equity 112.0 133.9 159.2 191.3

Total liabilities & equity 235.7 306.5 375.7 444.6 CASH FLOW KEY METRICS Year to 31 Dec (US$m) 2013 2014F 2015F 2016F Year to 31 Dec (%) 2013 2014F 2015F 2016F Operating 13.8 34.9 35.1 45.5 Profitability Pre-tax profit 17.5 22.8 26.5 33.4 EBITDA margin 56.0 56.6 52.6 54.5 Tax (1.1) (0.9) (1.1) (1.3) Pre-tax margin 29.7 31.7 28.2 29.7 Deprec. & amort. 9.2 11.2 13.8 16.3 Net margin 27.9 30.5 27.0 28.5 Associates 0.0 0.0 0.0 0.0 ROA 8.6 8.1 7.4 7.8 Working capital changes (11.8) 1.8 (4.1) (2.9) ROE 20.2 17.8 17.3 18.3 Investing (83.9) (81.5) (80.0) (79.5) Capex (growth) (83.3) (81.5) (80.0) (79.5) Growth Others (0.6) 0.0 0.0 0.0 Turnover 73.1 21.7 31.0 19.3 Financing 75.4 45.6 43.2 36.0 EBITDA 84.9 23.1 21.7 23.6 Dividend payments 0.0 0.0 0.0 1.0 Pre-tax profit 86.1 29.9 16.4 25.9 Issue of shares 43.2 0.0 0.0 0.0 Net profit 85.8 33.1 15.9 26.2 Net cash inflow (outflow) 5.4 (0.9) (1.7) 1.9 Net profit (adj.) 85.8 33.1 15.9 26.2 Beginning cash & cash equivalent 2.8 8.2 7.2 5.5 EPS 30.0 33.1 15.9 26.2

Ending cash & cash equivalent 8.2 7.2 5.5 7.4 Leverage Debt to total capital 51.2 54.9 56.4 55.9 Debt to equity 104.9 121.8 129.5 126.6 Net debt/(cash) to equity 97.6 116.4 126.0 122.7 Interest cover (x) 5.2 6.0 5.4 5.3





COMPANY UPDATE SELL

(Maintained)

Share Price RM6.20Target Price RM6.75Upside +8.9%

COMPANY DESCRIPTION CIMB Group is Malaysia’s largest invesment bank and second-largest consumer bank and one of Southeast Asia’s leading universal banking groups

STOCK DATA GICS sector FinancialsBloomberg ticker: CIMB MKShares issued (m): 8,336.5Market cap (RMm): 51,686.4Market cap (US$m): 15,784.53-mth avg daily t'over (US$m): 12.6

Price Performance (%) 52-week high/low RM7.73/RM6.17

1mth 3mth 6mth 1yr YTD(11.3) (11.0) (17.2) (18.8) (18.6)

Major Shareholders %Khazanah Nasional Berhad 28.6Employees Provident Fund Board 12.9

FY14 NAV/Share (RM) 4.65

FY14 CAR Tier-1 (%) 11.19

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CIMB GROUP HOLDINGS BHD

CIMB GROUP HOLDINGS BHD/FBMKLCI INDEX

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1020

30

40


Volume (m)

Source: Bloomberg

ANALYST Keith Wee Teck Keong +603 2147 1981 [email protected]

CIMB Group (CIMB MK)

Outlook Remains Downbeat Persistent challenges in Indonesia and the muted capital market environment are impacting CIMB’s growth outlook for the rest of 2014. Even with a higher-than-expected post-merger ROE of 10.1% due to the accounting treatment which gives rise to a reverse acquisition reserve, the significantly lower post-merger book value still points to further potential de-rating of CIMB’s share prices closer to the RM6.00 level. Maintain SELL and target price of RM6.75 (1.45x P/B, 12.8% ROE).

WHAT’S NEW

• Merged entity’s higher ROE offset by lower book value. Management clarified that under the MFRS3 accounting standards (“substance over form”), CIMB being the larger entity with management control is deemed as the acquirer and as such, there should be no goodwill arising from the acquisition of CIMB shares but only that of RHB Cap shares at about RM8.1b. This essentially means that the enlarged entity’s book value will be significantly lower, which we estimate at RM67.8b by end-2015 or RM7.87/share vs our initial assumption of RM87.1b/RM10.10/share if RHB Cap was deemed as the acquirer given the impact of a reverse acquisition reserve that will be deducted from the enlarged entity’s shareholders fund. This will result in the merged entity having a higher-than-expected ROE of 10.1% (before factoring in potential synergies) vs our initial expectation of ROEs falling below 9.0% but significantly lower book value per share.

• Still implies downside risk from current share price levels. Despite the higher ROE expectations of 10.1%, the impact on our potential fair value for the merged entity vs our previous assumptions is largely unchanged as the higher ROE expectation, and hence P/B multiples, is being offset by the enlarged entity’s significantly lower book value per share of RM7.87 vs initial assumption of RM10.10/share. As such, our indicative post-merger implied value for CIMB is largely unchanged at RM5.85/share (based on the share SWAP ratio of 0.72x on post-merger RHB Cap target price of RM8.10: ROE – 10.1%, 1.05x FY15F P/B). Also, in terms of the number of new share issuance, there will be no change as RHB Cap is still the legal acquirer and hence the merger will still give rise to a significant increase in the share base which would rise from 2.6b shares to an enlarged share base of 8.6b.

KEY FINANCIALS Year to 31 Dec (RMm) 2012 2013 2014F 2015F 2016FNet interest income 7,396 7,954 8,538 9,127 9,913Non-interest income 4,407 4,600 4,358 4,526 4,737Net profit (rep./act.) 4,305 4,540 4,323 4,583 4,893Net profit (adj.) 4,305 4,015 4,323 4,583 4,893EPS (sen) 57.9 54.0 54.5 57.8 61.7PE (x) 10.7 11.5 11.4 10.7 10.1P/B (x) 1.6 1.5 1.3 1.2 1.1Dividend yield (%) 3.8 3.8 3.5 3.7 4.0Net int margin (%) 3.1 2.9 2.9 2.8 2.8Cost/income (%) 56.4 59.8 59.1 59.0 59.4Loan loss cover (%) 82.8 84.8 83.5 82.1 85.4Consensus net profit - - 4,405 5,024 5,620UOBKH/Consensus (x) - - 0.98 0.91 0.87Source: CIMB Group, Bloomberg, UOB Kay Hian





ESSENTIALS

• Focus on strategic cost transfer rather than aggressive shedding of cost. Management alluded that due to the sensitive and social implications of aggressive headcount cost rationalisation, the merged entity could seek to mitigate such challenges by strategically transferring a sizeable chunk of the cost duplication, be it in the form of headcount and/or branches to the merged Islamic Banking division. The strategic rationale of such a move is underpinned by the assumption that the mega Islamic Bank will be a key driver of growth over the longer term while over the shorter term the duplicative cost transferred to the Islamic Bank will be diluted at the minority interest level as the group will eventually seek to consolidate only 51-60% of the Islamic Bank.

• Swift execution of synergy extraction remains doubtful. Given that the merged Islamic Banking entity will contribute to only about 23% of the enlarged merged entity’s consolidated net profit, we believe that it could be a challenge to transfer a large portion of the duplicative cost of the enlarged merged entity to the Islamic Banking division without having a severe impact on immediate-term operations. Additionally, we believe that having two distinct banking platforms (branches) – Islamic Banking and Conventional Banking – would not augur well for overall customer experience while raising the duplicative cost structure for the overall banking group. This could lead to growth cannibalisation within the merged entity’s Conventional Banking unit which currently contributes a much larger 80% of the group’s overall net profit. As such, the upside would have to come from the ability of the merged Islamic Banking entity in rolling out new and distinct Islamic Banking products that would not result in growth cannibalisation on the enlarged banking group’s conventional banking unit. However, given the fact that nearly 86% of the synergies arising from the merger would be in the form of cost synergies rather than revenue, we believe that extracting compelling top-line growth from the Islamic Banking unit without having some cannibalisation effect on the group’s Conventional Banking unit could be an immediate-term struggle.

• Any compelling upside if realised is likely to flow through only in 2017. Factoring in RM1.7b in total synergy extraction but partly offset by: a) RM840m in integration cost amortised over the next three years, and b) a marginal 2.5% revenue attrition within the first full year of merger from customer duplication, we estimate that the enlarged entity would only be able to raise its ROE back up to the 12.0% level by 2017. Note that our RM1.7b in cost synergy extraction assumption already factors in a fairly aggressive 14% reduction in overall merged entity cost base.

STOCK IMPACT

• CIMB Niaga to face challenging headwinds well into 1H15. We believe that CIMB Niaga’s rather subdued 1H14 earnings growth trajectory is likely to persist into 1H15, impacted by a challenging NPL and liquidity environment that is likely to blunt overall growth outlook while giving rise to further upside risk in provisions. Any upside from an improvement in economic sentiments and activity from the new Jokowi-Kalla administration may not have an immediate flow-through effect as Niaga continues to be plagued by liquidity constraints.

• ROE remains under pressure and potential merger to add to the overhang. Given the persistent challenges of NPL and overall growth outlook in Indonesia, it would be increasingly challenging for the group to meet its 13.5-14.0% ROE target. With this rather bleak outlook in Indonesia, moderating consumer loans growth in Malaysia and lacklustre capital market activities impacting overall income growth, the group’s ROE is likely to settle closer to the 12.5% level in 2014.


• No changes.


• Maintain SELL and target price of RM6.75, which incorporates ROE of 12.8% and fairly values the stock at 1.45x 2014F P/B (implies 12.4x 2014F PE). Persistent net profit weakness coupled with an impending ROE-dilutive merger is likely to continue impacting sentiments on the stock.

SENSITIVITY ON MERGED ENTITY ROE AND IMPACT ON CIMB IMPLIED VALUE

Funding assumptions 100% shares in RHB Cap at

RM10.03/share 35% take in MBSB for cash

Acquisition pricing assumption/share for:- MBSB RM2.82/share CIMB RM7.27/share Cost of acquisition (RMm) MBSB 2,639 CIMB 60,603 Total 63,242 Impact on net profit (RMm) Add: RHB Cap FY15 earnings forecast 2,162.0 Add: CIMB Group FY15 earnings forecast 4,583.0 Add: MBSB FY15 consensus earnings forecast (35% effective stake) 266 Add: Interest expense from debt raised to acquire MBSB @ 5% (132) Net enlarged earnings base 6,879.0 % change in net profit 218.20% Impact on share base (m) RHB Cap Current share base 2,576.00 Potential new shares to be issued 6,042.10 Potential new enlarged share base 8,618.10 % change in share base 234.60% Impact on EPS (sen) EPS pre acqusition 79.2 EPS post acqusition 79.8 Incremental percentage change in EPS 0.80% Impact on Book value per share (RM) Current FY15 Book value/ share est 7.80 Post acqusition FY15 Book value /share 7.87 Impact on ROE (%) Pre acqusition ROE of RHB Cap 11.30 Post acqusition ROE of merged entity 10.10 Pre acquisiton ROE of CIMB 12.00 Post acqusition ROE of merged entity 10.10 Impact on fair value (RM) Pre-acqusition PBV multiplier FV for RHB Cap 1.11 Post-acqusition PBV multiplier for merged entity 1.05 Current Pre-acqusition Fair Value of RHB Cap 8.00 Post-acqusition Fair Value of merged entity 8.10 Current Fair Value of CIMB 6.75 Post merger - Implied Value of CIMB (Share SWAP ratio of 0.72x) 5.83

Source: UOB Kay Hian KEY ASSUMPTIONS

(%) 2014F 2015F 2016F Loan Growth 8.2 9.5 9.0 NIM 2.87 2.83 2.81 NPL 3.2 3.3 3.3

Source: UOB Kay Hian





PROFIT & LOSS Year to 31 Dec (RMm) 2013 2014F 2015F 2016FInterest income 14,677 16,055 17,412 18,966Interest expense (6,723) (7,517) (8,284) (9,053)Net interest income 7,954 8,538 9,127 9,913Fees & commissions 1,868 1,719 1,822 1,968Other income 2,731 2,640 2,704 2,769Non-interest income 4,600 4,358 4,526 4,737Income from islamic banking 1,593 1,768 1,980 2,178Total income 14,147 14,665 15,633 16,829Staff costs (4,969) (5,019) (5,318) (5,812)Other operating expense (3,489) (3,654) (3,909) (4,190)Pre-provision profit 5,689 5,992 6,406 6,827Loan loss provision (661) (889) (1,029) (1,121)Other provisions (66) 80 80 81Associated companies 361 416 478 550Other non-operating income 525 0 0 0Pre-tax profit 5,849 5,599 5,935 6,336Tax (1,240) (1,187) (1,259) (1,344)Minorities (68) (88) (94) (100)Net profit 4,540 4,323 4,583 4,893Net profit (adj.) 4,015 4,323 4,583 4,893

BALANCE SHEET Year to 31 Dec (RMm) 2013 2014F 2015F 2016FCash with central bank 6,362 6,406 7,015 7,646Govt treasury bills & securities 13,055 13,316 13,583 13,854Interbank loans 3,789 4,234 4,729 5,283Customer loans 228,432 247,094 270,424 294,536Investment securities 51,504 58,767 66,917 76,046Derivative receivables 5,020 5,623 6,298 7,053Associates & JVs 1,013 1,064 1,117 1,173Fixed assets (incl. prop.) 1,551 1,417 1,281 1,141Other assets 60,187 67,030 66,876 67,944Total assets 370,913 404,951 438,240 474,676Interbank deposits 20,728 21,388 22,074 22,788Customer deposits 263,004 288,779 317,657 349,422Derivative payables 11,932 12,470 13,032 13,619Debt equivalents 20,404 20,404 20,404 20,404Other liabilities 23,615 24,178 24,149 24,127Total liabilities 339,684 367,219 397,316 430,361Shareholders' funds 30,471 36,886 39,985 43,276Minority interest - accumulated 757 846 939 1,039Total equity & liabilities 370,913 404,951 438,240 474,676

OPERATING RATIOS Year to 31 Dec (%) 2013 2014F 2015F 2016FCapital Adequacy Tier-1 CAR 10.5 11.2 10.5 9.9Total CAR 14.8 15.7 14.8 13.9Total assets/equity (x) 12.2 11.0 11.0 11.0Tangible assets/tangible common equity (x)

17.3 14.5 14.1 13.8

Asset Quality NPL ratio 3.2 3.2 3.3 3.3Loan loss coverage 84.8 83.5 82.1 85.4Loan loss reserve/gross loans 2.7 2.7 2.7 2.8Increase in NPLs (6.7) 11.0 13.4 7.7Credit cost (bp) 28.0 35.0 37.0 37.0

Liquidity Loan/deposit ratio 86.9 85.6 85.1 84.3Liquid assets/short-term liabilities 8.0 7.6 7.3 7.1Liquid assets/total assets 6.3 5.9 5.8 5.6

KEY METRICS Year to 31 Dec (%) 2013 2014F 2015F 2016FGrowth Net interest income, yoy chg 7.5 7.3 6.9 6.9Fees & commissions, yoy chg 8.1 (8.0) 6.0 6.0Pre-provision profit, yoy chg (3.2) 5.3 6.9 6.9Net profit, yoy chg 5.5 (4.8) 6.0 6.0Net profit (adj.), yoy chg (6.7) 7.7 6.0 6.8Customer loans, yoy chg 13.0 8.2 9.4 9.4Customer deposits, yoy chg 6.4 9.8 10.0 10.0Profitability Net interest margin 2.9 2.9 2.8 2.8Cost/income ratio 59.8 59.1 59.0 59.4Adjusted ROA 1.1 1.1 1.1 1.1Reported ROE 15.4 12.8 11.9 12.2Adjusted ROE 13.6 12.8 11.9 12.2Valuation P/BV (x) 1.5 1.3 1.2 1.1P/NTA (x) 2.2 1.8 1.6 1.5Adjusted P/E (x) 11.5 11.4 10.7 10.1Dividend Yield 3.8 3.5 3.7 4.0Payout ratio 39.0 40.0 40.0 40.0





COMPANY RESULTS BUY (Maintained) Share Price S$1.68 Target Price S$2.00 Upside +18.8%

COMPANY DESCRIPTION CDL Hospitality Trusts is a stapled group compromising H-REIT and HBT.

STOCK DATA GICS sector Financials Bloomberg ticker: CDREIT SP Shares issued (m): 978.8 Market cap (S$m): 1,644.3 Market cap (US$m): 1,290.0 3-mth avg daily t'over (US$m): 1.7

Price Performance (%) 52-week high/low S$1.83/S$1.54

1mth 3mth 6mth 1yr YTD 0.6 (5.1) (8.2) 0.9 2.4

Major Shareholders % Hospitality Hldgs 32.3

FY14 NAV/Share (S$) 1.71

FY14 Net Debt/Share (S$) 0.63

PRICE CHART

80

90

100

110

120

1.40

1.50

1.60

1.70

1.80

1.90

2.00(%)(lcy) CDL HOSPITALITY TRUSTS CDL HOSPITALITY TRUSTS/FSSTI INDEX

0

24

6

8


Volume (m)

Source: Bloomberg

ANALYSTS Vijay Natarajan +65 6590 6626 [email protected] Vikrant Pandey +65 6590 6623 [email protected]

CDL Hospitality Trusts (CDREIT SP)

3Q14: RevPAR Rebounds Driven By Record-High Occupancies CDREIT’s Singapore hotel RevPAR saw a modest 0.5% yoy growth in 3Q14 after a disappointing 2Q14 (-6% yoy). The rebound was mainly driven by record-high occupancy levels of 92% while room rates remained weak. Looking ahead, we expect RevPAR to bottom out in 2014 and see a pick-up in 2015 boosted by SEA Games. Maintain BUY with unchanged target of S$2.00.

3Q14 RESULTS Year to 31 Dec 3Q14 yoy 9M14 yoy Remarks (S$m) % chg % chg Gross Revenue 40.1 11.9 121.7 11.3 Higher revenue from newly-

acquired Maldives properties offset by closure of Claymore Link

Net Property Income 33.8 2.4 101.9

0.9

Distributable Income 28.4 (0.5) 85.4 (1.7) DPU after working cap ded.(S Cents)

2.61 (1.1) 7.86 (2.4) Payout ratio 90%

Source: CDL Hospitality Trusts, UOB Kay Hian

OPERATING PERFORMANCE (SINGAPORE HOTELS) 3Q14 Variance 9M14 Variance Occupancy 92.0% 4.4ppt 88.9% 1.4ppt ARR (S$) 209 -4.1% 212 -3.2% RevPAR (S$) 192 0.5% 188 -1.6%

Source: CDL Hospitality Trusts, UOB Kay Hian

RESULTS

• Positive RevPAR growth driven by record-high occupancy levels. CDL Hospitality Trusts (CDREIT) reported 3Q14 DPU of 2.6 S cents (-1% yoy), bringing 9M14 DPU to 7.9 S cents (-2% yoy). The results were in line, accounting for 74% of our 2014 forecasts. 3Q14 RevPAR for Singapore hotels turned positive with a marginal 0.5% yoy increase after a steep 6% decline in 2Q14. The turnaround was driven by record-high occupancies of 92%.

• Rental contribution from Australian properties declined marginally by 0.4% due to a slower economy and lower activities in the mining sector mitigated by the high proportion of fixed rents. NPI contribution from the Maldives properties rose 61% yoy due to contributions from newly-acquired Jumeirah Dhevanafushi.

KEY FINANCIALS Year to 31 Dec (S$m) 2012 2013 2014F 2015F 2016F Net turnover 150 149 158 172 178 EBITDA 125 123 124 136 141 Operating profit 125 123 124 136 141 Net profit (rep./act.) 107 104 102 111 115 Net profit (adj.) 107 104 102 111 115 EPU (S$ cent) 11.1 10.7 10.4 11.2 11.6 DPU (S$ cent) 11.3 11.0 10.7 11.5 11.9 PE (x) 15.2 15.7 16.2 15.0 14.5 P/B (x) 1.0 1.0 1.0 1.0 1.0 DPU Yld (%) 6.7 6.5 6.4 6.9 7.1 Net margin (%) 71.7 69.7 64.2 64.2 64.5 Net debt/(cash) to equity (%) 29.1 38.9 36.7 35.8 34.9 Interest cover (x) 8.0 7.4 6.3 6.1 6.1 ROE (%) 6.9 6.6 6.2 6.6 6.8 Consensus DPU (S$ cent) n.a. n.a. 11.0 11.6 11.7 UOBKH/Consensus (x) - - 0.98 0.99 1.02 Source: CDL Hospitality Trusts Bloomberg UOB Kay Hian





STOCK IMPACT

• Positive rebound in 3Q14, expect further consolidation in coming quarters. During 3Q14, Singapore hotels registered record-high occupancy levels of 92% driven by higher business volumes. There are signs of stabilisation of Chinese visitor arrivals to Singapore (-28% yoy in Aug) post the sharp 47% dip in 2Q14. Room rates however remained weak, declining -4% yoy due to competitive hotel landscape and cautious corporate spending. Corporates account for nearly 60% of CDREITs business. Looking ahead to 4Q14, we expect RevPAR to consolidate and see a slight pick-up (0-3%) in 2015, mainly driven by higher demand from the recently-opened Singapore Sports Hub. Management noted that REVPAR has declined -3.5% yoy for 21 days in October.

• Claymore Link to re-open in 2Q15. Claymore Link, which is undergoing redevelopment at a total cost of about S$25m, is set to re-open post asset enhancement in 2Q15, a slight delay from the earlier expected 1Q15. The shopping mall is expected to yield an ROI of about 8% on completion. Cold Storage has signed up as anchor tenant for the mall and more than a quarter of of its NLA is already pre-committed.

• Looking for acquisitions across Asia in a tight market. CDREIT’s gearing of 30% is the lowest among Hospitality REIT peers, which presents a headroom of more than S$400m (assuming comfortable gearing of 0.4x). Management mentioned that the acquisition environment in Asia remains tight with cap rate compression across the board. CDREIT remains on the active lookout for yield accretive acquisitions in Singapore, Japan, the Maldives and Dubai.

EARNINGS REVISION/RISK • No changes to our earnings estimates. We expect DPU to grow by 7% in 2015 and 3%

in 2016 on the back of re-opening of Claymore Link and stabilisation of RevPAR.

VALUATION/RECOMMENDATION • Maintain BUY with a target price of S$2.00/share. CDREIT’s share price has been

impacted by the decline in Chinese visitor arrivals and increase in hotel supply causing downward pressure in room rates. We expect RevPAR to consolidate and see a slight pick-up in 2H15 with the moderation of hotel room supply and a pick-up in demand driven by key events in Singapore Sports Hub. Our target price is based on two-stage dividend discount model (required rate of return: 7.8% and terminal growth rate: 2%).

SHARE PRICE CATALYST • Pick-up in Singapore hotel room rates.

• Increase in payout ratio.

• Yield-accretive acquisitions.

OCCUPANCY, REVPAR AND ADR TREND

Source: CDREIT., UOB Kay Hian

YTD GEOGRAPHICAL MIX OF VISITORS

*YTD Aug14, Source: CDREIT.

UPCOMING EVENTS IN SPORTS HUB

Source: CDREIT.





PROFIT & LOSS

BALANCE SHEET Year to 31 Dec (S$m) 2013 2014F 2015F 2016F Year to 31 Dec (S$m) 2013 2014F 2015F 2016F Net turnover 148.8 158.2 172.1 178.5 Fixed assets 2,238.8 2,315.0 2,315.0 2,315.0 EBITDA 123.1 123.7 135.7 141.1 Other LT assets 0.1 0.1 0.1 0.1 Deprec. & amort. 0.0 0.0 0.0 0.0 Cash/ST investment 68.1 83.9 94.7 106.2 EBIT 123.1 123.7 135.7 141.1 Other current assets 15.7 15.7 15.7 15.7 Net interest income/(expense) (16.6) (19.5) (22.3) (23.0) Total assets 2,322.7 2,414.8 2,425.6 2,437.0 Pre-tax profit 106.4 104.2 113.4 118.1 ST debt 146.0 146.0 146.0 146.0 Tax (2.7) (2.6) (2.9) (3.0) Other current liabilities 22.3 23.4 23.6 23.6 Net profit 103.7 101.5 110.6 115.1 LT debt 542.2 553.2 553.2 553.2 Net profit (adj.) 103.7 101.5 110.6 115.1 Other LT liabilities 17.1 14.8 15.5 15.0

Shareholders' equity 1,595.0 1,677.4 1,687.2 1,699.2 Total liabilities & equity 2,322.7 2,414.8 2,425.6 2,437.0

CASH FLOW KEY METRICS Year to 31 Dec (S$m) 2013 2014F 2015F 2016F Year to 31 Dec (%) 2013 2014F 2015F 2016F Operating 130.8 134.9 146.6 152.0 Profitability Pre-tax profit 143.0 104.2 113.4 118.1 EBITDA margin 82.7 78.1 78.9 79.0 Deprec. & amort. 0.0 0.0 0.0 0.0 Pre-tax margin 71.5 65.8 65.9 66.2 Working capital changes (2.2) 1.1 0.2 0.0 Net margin 69.7 64.2 64.2 64.5 Non-cash items 16.6 19.5 22.3 23.0 ROA 4.7 4.3 4.6 4.7 Other operating cashflows (26.6) 10.2 10.7 10.9 ROE 6.6 6.2 6.6 6.8 Investing (180.8) (83.0) (7.3) (7.6) Capex (growth) (181.2) (83.0) (7.3) (7.6) Growth Others 0.5 0.0 0.0 0.0 Turnover (0.5) 6.3 8.8 3.7 Financing 43.1 (36.1) (128.5) (133.0) EBITDA (1.7) 0.5 9.7 4.0 Distribution to unitholders (107.1) (116.7) (126.2) (131.0) Pre-tax profit (2.8) (2.1) 8.9 4.1 Issue of shares 0.0 0.0 0.0 0.0 Net profit (3.2) (2.1) 8.9 4.1 Proceeds from borrowings 318.3 100.0 20.0 20.0 Net profit (adj.) (3.2) (2.1) 8.9 4.1 Loan repayment (151.0) 0.0 0.0 1.0 EPU (3.7) (2.8) 8.1 3.4 Others/interest paid (17.1) (19.5) (22.3) (23.0) Net cash inflow (outflow) (6.8) 15.8 10.8 11.5 Leverage Beginning cash & cash equivalent 75.0 68.1 83.9 94.7 Debt to total capital 30.1 29.4 29.3 29.2 Ending cash & cash equivalent 68.1 83.9 94.7 106.2 Debt to equity 43.1 41.7 41.4 41.1

Net debt/(cash) to equity 38.9 36.7 35.8 34.9 Interest cover (x) 7.4 6.3 6.1 6.1





COMPANY RESULTS BUY

(Maintained)

Share Price S$2.25Target Price S$2.87Upside +27.6%(Previous TP S$3.25)

COMPANY DESCRIPTION OSIM International creates, designs, develops and markets well-being and healthy lifestyle products through its specialty retail outlets worldwide. The company's products include massage chairs, foot massagers, neck & shoulder massagers, head massagers, fitness equipment, diagnostic equipment, vitamin & supplements and luxury tea.

STOCK DATA GICS sector ConsumerBloomberg ticker: OSIM SPShares issued (m): 778.4Market cap (S$m): 1,751.4Market cap (US$m): 1,374.63-mth avg daily t'over (US$m): 4.0

Price Performance (%) 52-week high/low S$2.94/S$2.10

1mth 3mth 6mth 1yr YTD(11.8) (20.6) (19.1) 4.7 (2.6)Major Shareholders %Ron Sim 70.3

FY14 NAV/Share (S$) 0.54

FY14 Net Cash/Share (S$) 0.28

PRICE CHART

80

90

100

110

120

130

140

150

1.80

2.00

2.20

2.40

2.60

2.80

3.00

3.20(%)(lcy) OSIM INTERNATIONAL LTD OSIM INTERNATIONAL LTD/FSSTI INDEX

05

10

15

20


Volume (m)

Source: Bloomberg

ANALYST Brandon Ng, CFA +65 6590 6615 [email protected]

OSIM International (OSIM SP)

3Q14: Net Profit Falls 27.8% Despite 3.4% Expansion In Sales OSIM reported 3Q14 revenue of S$158.2m (+3.4% yoy) despite a full consolidation in TWG’s financials as compared to none in 3Q13. Management attributed the slower top-line sales growth to the overall weaker environment and a loss of sales to Brookstone after it ceasing to be a shareholder. Net profit for 3Q14 fell 27.8% yoy to S$16.4m as the company recorded higher operating costs from TWG’s central kitchens and corporate offices. Maintain BUY with a lower target price of S$2.87.

9M14 RESULTS Year to 31 Dec 3Q14 yoy 9M14 yoy (S$m) % chg % chg Turnover 158 3 513 10 Operating EBITDA 27 -12 112 11 Pre-tax Profit 23 -23 98 3 Net Profit Attributable to Shareholders

16 -28 75 1

EBITDA Margin (%) 17.1 21.8 Source: OSIM, UOB Kay Hian

RESULTS • Sales hit a speed bump. OSIM reported 3Q14 revenue of S$158.2m (+3.4% yoy)

despite a full consolidation in TWG’s financials as compared to none in 3Q13. Management attributed the slower top-line sales growth to the overall weaker environment and a loss of sales to Brookstone after it ceasing to be a shareholder. 3Q13 also saw a sharp jump in revenue after rolling out the blockbuster uAngel massage chair. 9M14 revenue grew 10% to S$513m as the launch of newer products such as uDiva, uShape and uInfinity drove sales.

• TWG’s startup costs eroded margins. Operating EBITDA for 3Q14 dipped 12% yoy to S$27m as OSIM had to grapple with higher start-up costs and employee costs from the TWG business segment. Operating EBITDA margin fell to 17.1% from 20.2% in 3Q13. Accordingly, net profit for 3Q14 fell 27.8% yoy to S$16.4 The company also declared a dividend of 1 cent/share, bringing the ytd dividend to 4 cents/share.

KEY FINANCIALS Year to 31 Dec (S$m) 2012 2013 2014F 2015F 2016FNet turnover 602 648 723 813 883EBITDA 127 140 157 188 217Operating profit 115 127 134 157 180Net profit (rep./act.) 87 102 103 119 137Net profit (adj.) 87 98 103 119 137EPS (cts) 11.1 12.9 12.5 14.4 16.6P/E (x) 20.3 17.4 18.0 15.7 13.6P/B (x) 9.0 6.5 4.2 3.7 3.3Dividend yield (%) 2.7 2.7 2.8 3.2 3.7Net margin (%) 14.4 15.7 14.3 14.6 15.5Net debt/(cash) to equity (%) (34.8) (41.6) (52.9) (46.6) (41.0)Interest cover (x) 22.2 24.3 38.1 45.7 52.9ROE (%) 48.1 43.5 29.1 25.4 25.8Consensus net profit - - 121 141 161UOBKH/Consensus (x) - - 0.85 0.84 0.85Source:OSIM, Bloomberg, UOB Kay Hian





STOCK IMPACT

• New products in the pipeline. OSIM will roll out the office massage chair uChill, high-end massage chair uInfinity Luxe and uShape music in 4Q14 as well as several new lines of luxury tea from TWG. The group ended the quarter with 37 TWG outlets and is on track for 45 retail tea boutiques by end-14. TWG will have at least 2-3 more boutiques in China.

• Legal costs dragged earnings. Unfortunately, OSIM had to record additional legal expenses from the Hong Kong litigation and the shareholder dispute in Singapore. Management revealed that TWG would have eked out a profit for 9M14 if not for these expenses.

• Net cash of S$237m. The company continues to strengthen its balance sheet as it grew its cash and cash equivalents to S$427m after generating S$70m in operating cash flow and issuing S$170m in convertible bonds.


• Too much optimism built into 2014 and 2015 consensus earnings. 9M14 net profit formed only 62.3% and 61.2% of our and consensus 2014 earnings forecasts respectively as compared to 73% for 9M13 in 2013 full-year earnings. This is due to the vast expansion of TWG boutiques from 26 in 2013 to 45 in 2014 without the higher-than -estimated operating costs for central kitchens, warehouses and corporate offices in every city. We expect OSIM to face a slew of net profit downgrades in the near term.

• Reduce earnings estimates and project 3-year earnings CAGR of 15%. We cut 2014-16 net profit forecasts by 15.6-17%, working in higher operating expenses from amortisation costs and employee costs.


• Maintain BUY, but with a lower target price of S$2.87 to account for the reduction in earnings for 2014-16. This is derived from our dividend discounted cash flow model.

• Share price has also weakened 23.5% from the 52-week high on speculations of weaker 3Q14 earnings and potential dilution from a convertible bond issue. The recent share buybacks at S$2.39 and S$2.326 should lend support to share price.





PROFIT & LOSS Year to 31 Dec (S$m) 2013 2014F 2015F 2016FNet turnover 647.6 722.5 813.4 883.3 EBITDA 140.4 156.7 187.7 217.3 Deprec. & amort. 13.7 22.6 31.1 37.7 EBIT 126.7 134.1 156.5 179.6 Total other non-operating income 0.0 0.0 0.0 0.0 Associate contributions 2.9 0.0 0.0 0.0 Net interest income/(expense) (0.4) (3.0) (1.9) (1.9) Pre-tax profit 129.2 131.1 154.6 177.7 Tax (27.6) (28.0) (34.4) (38.4) Net profit 101.6 103.3 118.7 136.9 Net profit (adj.) 98.3 103.3 118.7 136.9

BALANCE SHEET Year to 31 Dec (S$m) 2010 2011 2012 2013Fixed assets 18.6 19.9 21.1 25.2 Other LT assets 52.3 88.6 105.4 237.0 Cash/ST investment 73.2 204.7 222.1 290.9 Other current assets 94.3 117.8 122.4 126.9 Total assets 238.4 431.1 470.9 680.0 ST debt 15.3 16.3 25.0 154.6 Other current liabilities 110.8 124.3 121.8 142.3 LT debt 0.0 117.0 117.2 0.0 Other LT liabilities 2.4 5.0 6.6 39.2 Shareholders' equity 109.9 168.5 200.4 343.9 Total liabilities & equity 238.4 431.1 470.9 680.0

CASH FLOW Year to 31 Dec (S$m) 2010 2011 2012 2013Operating 93.5 99.5 94.0 105.2 Pre-tax profit 67.7 98.0 114.8 129.2 Tax 17.9 28.1 27.6 27.6 Deprec. & amort. 11.3 11.5 11.3 13.7 Associates 1.0 (0.5) 2.2 2.9 Working capital changes 30.1 (5.2) (6.9) 3.9 Non-cash items (0.1) 0.5 0.1 0.4 Other operating cashflows (34.3) (33.0) (55.1) (72.4) Investing (18.7) (77.4) (36.1) (4.4) Capex (growth) (12.6) (12.6) (12.1) (11.6) Investments (14.8) (54.2) (21.8) (3.0) Proceeds from sale of assets 8.8 0.1 0.3 0.1 Others (0.2) (10.7) (2.4) 10.1 Financing (62.3) 96.0 (45.4) (41.4) Issue of shares 18.5 149.0 0.5 0.4 Proceeds from borrowings 0.2 12.8 8.7 4.6 Loan repayment (25.0) (14.4) (0.1) (0.0) Others/interest paid (56.0) (51.4) (54.5) (46.3) Net cash inflow (outflow) 12.5 118.1 12.6 59.4 Beginning cash & cash equivalent 63.2 73.2 193.8 201.7 Forex (2.6) 2.6 (4.7) 6.2 Ending cash & cash equivalent 73.2 193.8 201.7 267.3

KEY METRICS Year to 31 Dec (%) 2013 2014F 2015F 2016FProfitability EBITDA margin 21.7 21.7 23.1 24.6 Pre-tax margin 19.9 18.1 19.0 20.1 Net margin 15.7 14.3 14.6 15.5 ROA 17.7 n.a. n.a. n.a. ROE 43.5 29.1 25.4 25.8 Growth Turnover 7.6 11.6 12.6 8.6 EBITDA 10.9 11.6 19.8 15.8 Pre-tax profit 12.5 1.5 17.9 14.9 Net profit 16.9 1.7 14.9 15.3 Net profit (adj.) 13.0 5.1 14.9 15.3 EPS 14.6 (7.9) 14.9 15.3 Leverage 2010 2011 2012 2013 Debt to total capital 13.9 79.1 70.9 44.9 Debt to equity 14.1 80.6 72.5 57.0 Net debt/(cash) to equity (53.5) (43.2) (40.8) (50.3)





COMPANY RESULTS HOLD

(Maintained)

Share Price Bt9.15Target Price Bt9.00Upside -1.6%(Previous TP Bt9.75)

COMPANY DESCRIPTION Thailand's largest home improvement company, controlling nearly 40% share of the modern trade segment.

STOCK DATA GICS sector Consumer

DiscretionaryBloomberg ticker: HMPRO TBShares issued (m): 12,329.4Market cap (Btm): 112,813.9Market cap (US$m): 3,476.73-mth avg daily t'over (US$m): 6.2

Price Performance (%) 52-week high/low Bt9.69/Bt6.42

1mth 3mth 6mth 1yr YTD(1.0) (2.9) 14.4 0.2 25.8

Major Shareholders %Land and House 30.2Quality House 20.0AIA 4.8

FY14 NAV/Share (Bt) 1.06

FY14 Net Debt/Share (Bt) 1.07

PRICE CHART

60

70

80

90

100

110

6.00

7.00

8.00

9.00

10.00(%)(lcy)

HOME PRODUCT CENTER PCL

HOME PRODUCT CENTER PCL/SET INDEX

0

50

100

150


Volume (m)

Source: Bloomberg

ANALYST Thananchai Jittanoon +662 659 8303 [email protected]

Home Product Center (HMPRO TB)

3Q14: Lower Margins And Rising Opex Offset Strong Revenue Growth HMPRO’s revenue growth remained strong in 3Q14 on the back of aggressive store expansion and healthy same-store sales. Bottom line was however held back by falling margins and surging opex. Maintain HOLD. Target price: Bt9.00. Entry price: Bt8.10.

3Q14 RESULTS

Year to 31 Dec (Btm) 3Q13 2Q14 3Q14 yoy %

chg qoq %

chg Remarks Turnover 9,918 12,024 11,898 20.0 (1.0) SSS up 4-5%; 13 new stores yoy

EBITDA 1,403 1,656 1,667 18.9 0.7 Rental income up 16% and other income up 19%

EEBT 907 996 974 7.4 (2.2)

Net profit 720 793 766 6.5 (3.4) 9M14 earnings make up 70% of full-year forecast

EPS (Bt) 0.1 0.1 0.1

Ratio (%) yoy bp

chg qoq bp

chg Sales growth 17.2 23.0 20.0 Profit growth 16.9 8.6 6.5

Gross margin 26.8 26.4 26.2 (59.9) (17.8) Higher mix of low-margins products from Mega Home

Operating margin 3.8 2.8 3.2 (53.9) 42.5 Opex up 20% yoy on pre-opening expenses

EBITDA margin 14.1 13.8 14.0 (13.2) 24.3 Net margin 7.3 6.6 6.4 (81.6) (15.4) Source: HMPRO, UOB Kay Hian

RESULTS

• Results within expectations. Home Product Center (HMPRO) reported only a 6.5% yoy increase in 3Q14 net profit to Bt766m, held back by surging opex and weaker margins. Revenue continued to grow strongly on aggressive store expansion.

KEY FINANCIALS Year to 31 Dec (Btm) 2012 2013 2014F 2015F 2016FNet turnover 34,542 40,112 49,256 57,016 64,207EBITDA 2,463 3,064 3,214 3,999 4,743Operating profit 1,201 1,415 1,410 1,590 1,967Net profit (rep./act.) 2,679 3,069 3,310 3,802 4,524Net profit (adj.) 2,679 3,069 3,310 3,802 4,524EPS (Bt) 0.4 0.4 0.3 0.3 0.4PE (x) 22.0 24.8 30.3 29.7 24.9P/B (x) 6.5 6.9 8.6 8.2 7.7EV/EBITDA (x) 51.2 41.1 39.2 31.5 26.6Dividend yield (%) 4.5 3.8 2.8 3.2 3.8Net margin (%) 7.8 7.6 6.7 6.7 7.0Net debt/(cash) to equity (%) 42.4 70.4 101.1 109.4 96.6Interest cover (x) 16.8 11.1 6.6 6.7 7.9ROE (%) 29.7 27.1 25.6 28.3 31.8Consensus net profit - - 3,404 4,008 4,735UOBKH/Consensus (x) - - 0.97 0.95 0.96Source: HMPRO, Bloomberg, UOB Kay Hian





STOCK IMPACT

• Strong revenue growth. Sales grew by a strong 20% yoy, supported by 13 new stores added ytd while same-store sales (SSS) growth remained resilient at 4-5%, down slightly from 6.5% in 2Q14. This is expected to be the best SSS among Thai retailers because the company targets mid- to high-income clients whose purchasing power is least affected by high level of household leverage.

• Other operating income was strong too. Rental income also gained 16% yoy while other income (promotional income from suppliers and services) jumped 19% yoy.

• Margins down. Gross margin fell further to 26.2%, down 18bp qoq, and 60bp yoy, on higher mix of low-margin sales from Mega Home (more than 5% of total revenue).

• Opex and interest charge soared. Another key negative holding back bottom line came from a strong surge in opex (+20% yoy) and financial costs (+70% yoy.) due to start-up costs and pre-operating expenses from the new stores.


• None. 9M14 net profit accounts for 70% of our full-year forecast, which we are keeping it unchanged. Historically, earnings in the first nine months make up 69-71% of the full-year profit.


• Re-iterate HOLD but trim target price from Bt9.75 to Bt9.00 to reflect the recent stock dividend (1 new share for every 8 shares held; dilution is round 13%). Entry price is Bt8.10.


• No near-term catalyst.





PROFIT & LOSS Year to 31 Dec (Btm) 2013 2014F 2015F 2016FNet turnover 40,112 49,256 57,016 64,207EBITDA 3,064 3,214 3,999 4,743Deprec. & amort. 1,649 1,803 2,409 2,776EBIT 1,415 1,410 1,590 1,967Total other non-operating income 2,719 3,212 3,763 4,289Associate contributions 0 0 0 0Net interest income/(expense) (277) (485) (600) (600)Pre-tax profit 3,857 4,137 4,753 5,655Tax (789) (827) (951) (1,131)Minorities 0 0 0 0Net profit 3,069 3,310 3,802 4,524Net profit (adj.) 3,069 3,310 3,802 4,524

BALANCE SHEET Year to 31 Dec (Btm) 2013 2014F 2015F 2016FFixed assets 24,787 31,092 35,323 36,542Other LT assets 1,933 1,809 1,889 1,974Cash/ST investment 807 1,248 436 321Other current assets 8,413 7,955 9,208 9,888Total assets 35,941 42,104 46,857 48,725ST debt 1,860 500 500 500Other current liabilities 12,471 13,743 16,837 18,793LT debt 7,900 14,000 15,000 14,000Other LT liabilities 994 750 750 750Shareholders' equity 12,716 13,111 13,769 14,681Minority interest 0 0 0 0Total liabilities & equity 35,941 42,104 46,856 48,724

CASH FLOW Year to 31 Dec (Btm) 2013 2014F 2015F 2016FOperating 5,193 6,691 7,977 8,502Pre-tax profit 3,857 4,137 4,753 5,655Tax (789) (827) (951) (1,131)Deprec. & amort. 1,649 1,803 2,409 2,776Associates 0 0 0 0Working capital changes (748) 1,730 1,841 1,276Non-cash items 0 0 0 0Other operating cashflows 1,224 (152) (75) (75)Investing (9,661) (8,076) (6,645) (4,005)Capex (growth) (9,952) (7,956) (6,564) (3,921)Capex (maintenance) 0 0 0 0Investments 0 0 0 0Proceeds from sale of assets 72 (43) 0 0Others 218 (77) (80) (84)Financing 3,985 1,825 (2,144) (4,612)Dividend payments (2,143) (2,915) (3,144) (3,612)Issue of shares 0 0 0 0Proceeds from borrowings 0 0 0 0Loan repayment 4,260 4,740 1,000 (1,000)Others/interest paid 1,869 0 0 0Net cash inflow (outflow) (484) 440 (812) (115)Beginning cash & cash equivalent 1,291 807 1,248 436Changes due to forex impact 0 0 0 0Ending cash & cash equivalent 807 1,248 436 321


Growth Turnover 16.1 22.8 15.8 12.6EBITDA 24.4 4.9 24.4 18.6Pre-tax profit 10.8 7.3 14.9 19.0Net profit 14.5 7.9 14.9 19.0Net profit (adj.) 14.5 7.9 14.9 19.0EPS (11.3) (18.2) 2.1 19.0






COMPANY UPDATE HOLD

(Maintained)

Share Price Bt3.42Target Price Bt3.30Upside -3.5%

COMPANY DESCRIPTION Refinery and petrochemical

STOCK DATA GICS sector EnergyBloomberg ticker: IRPC TBShares issued (m): 20,434.4Market cap (Btm): 69,885.7Market cap (US$m): 2,153.63-mth avg daily t'over (US$m): 4.4

Price Performance (%) 52-week high/low Bt3.70/Bt3.04

1mth 3mth 6mth 1yr YTD1.2 0.0 (4.5) (4.5) 4.9

Major Shareholders %PTT 38.5Government saving bank 9.5Government pension fund 5.8

FY14 NAV/Share (Bt) 3.29

FY14 Net Debt/Share (Bt) 2.42

PRICE CHART

80

90

100

110

120

2.80

3.00

3.20

3.40

3.60

3.80

4.00

4.20(%)(lcy) IRPC PCL IRPC PCL/SET INDEX

0

200

400

600


Volume (m)

Source: Bloomberg

ANALYST Arsit Pamaranont +662 659 8317 [email protected]

IRPC (IRPC TB)

Huge Extra Incomes Should Offset A Weaker Performance 3Q14 results should come in better than market expectations. Despite weaker performance, we expect extra income to help IRPC report a net profit of around Bt56m (down 95% yoy and 69% qoq) in 3Q14. Although 4Q14 earnings will continue to soften qoq due to a huge inventory loss, we believe this negative issue has already been priced in. We think investors are awaiting the benefit from the Phoenix project, which would help IRPC to show positive earnings in 2015. Maintain HOLD. Target price: Bt3.30. Entry price: Bt3.30.

WHAT’S NEW

• Weaker performance… We met IRPC’s IR team yesterday to preview its 3Q14 performance. Despite higher GRM and petrochemical spread, we expect IRPC to post a loss before tax and extra items of around Bt2.3b in 3Q14 due to a huge inventory loss of around US$4.7/bbl (vs inventory gains of US$4.42/bbl in 3Q13 and US$3.78/bbl in2Q14), reflecting a sharp decline in crude price of around US$11.5/bbl to US$94/bbl as at end-3Q14.

• ...but 3Q14 should still see a profit. Despite the weaker performance, we expect extra income to help IRPC report a net profit of around Bt56m (down 95% yoy and 69% qoq) in 3Q14. The huge one-off gains of around Bt2.3b would consist of: a) Bt700m (US$23m) from property damage claims on vacuum gas oil hydrotreater unit (VGO/HT) after the fire in Jun 14, b) one-off gains of around Bt470m after terminating a 90-year lease agreement for TPI Tower building, c) one-off gains of around Bt150m after divesting United Grain Industries Ltd back to the Liapairattana family after settling the dispute in Sep 14, and d) deferment of a tax asset of around Bt1.0b. Note that IRPC will announce its 3Q14 results on 4 Nov 14.

• Update on Phoenix project. According to management, the UHV project (an upstream project for hygiene and value-added products) is still on track, and has made around 80% progress. It expects commercial operations to commence in Sep 15, in line with its plan.

KEY FINANCIALS Year to 31 Dec (Btm) 2012 2013 2014F 2015F 2016FNet turnover 292,430 292,593 281,459 307,476 331,712EBITDA 2,244 4,335 1,241 9,449 10,911Operating profit (2,243) (597) (3,939) 4,094 5,356Net profit (rep./act.) (777) 826 (4,264) 3,493 4,438Net profit (adj.) (777) 826 (4,264) 3,493 4,438EPS (Bt) 0.0 0.0 (0.2) 0.2 0.2PE (x) n.m. 84.6 n.m. 20.0 15.7P/B (x) 0.9 0.9 1.0 1.0 1.1EV/EBITDA (x) 53.3 27.6 96.3 12.6 11.0Dividend yield (%) 2.9 2.9 2.9 2.9 3.5Net margin (%) (0.3) 0.3 (1.5) 1.1 1.3Net debt/(cash) to equity (%) 49.3 51.8 73.7 73.5 80.9Interest cover (x) 1.9 1.8 0.8 6.1 5.7ROE (%) (1.0) 1.1 (6.0) 5.2 6.7Consensus net profit - - 858 3,258 4,889UOBKH/Consensus (x) - - n.m. 1.07 0.91Source: IRPC, Bloomberg, UOB Kay Hian n.m. : not meaningful; negative P/E, EV/EBITDA reflected as "n.m."





STOCK IMPACT

• Weaker outlook to continue. IRPC’s 4Q14 earnings are likely to slightly soften qoq and there could be a huge inventory loss reported in 4Q14 due to: a) softening of crude price to US$85/bbl, resulting in a huge inventory loss again, and b) weaker petrochemical spread.

3Q14 PREVIEW Year to 31 Dec 3Q14F 3Q13 2Q14 yoy qoq 9M14 9M13 yoy (Btm) % chg % chg % chg Revenue 70,401 74,072 71,658 (5.0) (1.8) 215,582 215,736 (0.1) Core EBITDA 902 352 24 156.2 3,657.1 2,421 3,453 (29.9) Inventory gain/(loss)

(1,863) 2,296 1,937 (181.2) (196.2) 447 1,640 (72.8)

Fx gain/(loss) 95 (112) (5) (184.8) (2,000.0) 246 (312) (178.8) Depre. (1,261) (1,238) (1,290) 1.8 (2.3) (3,823) (3,610) 5.9 Tax 1,050 (61) (35) (1,825.4) (3,069.5) 948 2 43,284.9 Extra item 1,366 Net income 56 1,047 178 (94.7) (68.8) 577 42 1,285.4 EPS 0.00 0.05 0.01 - 94.70 - 68.84 0.0

Source: IRPC, UOB Kay Hian


• None


• Maintain HOLD and target price of Bt3.30, based on 1.0x P/B. We expect share price to respond negatively to the oil price decrease. We expect core earnings to continue exhibiting a gradual recovery in 2015, backed by the Phoenix project coming on-stream as well as the absence of a plant shutdown. However, share price seems to be limiting upside and market should wait and monitor crude price movement. We still recommend HOLD on IRPC. Entry price is Bt3.30.


• 4 Nov 14: 3Q14 results announcement

• 17 Nov 14: Analysts’ meeting

• 1Q15: Expected earnings recovery after the plant makes a turnaround.

3Q14 OPERATING STAT 3Q14F 3Q13 2Q14 yoy qoq GRM 2.10 1.6 1.7 0.5 0.4 Product to feed 3.34 3.3 2.5 0.0 0.8 utilities 1.22 1.1 1.2 0.2 0.0 Market GIM 6.66 6.0 5.4 0.7 1.3

Source: IRPC, UOB Kay Hian





PROFIT & LOSS Year to 31 Dec (Btm) 2013 2014F 2015F 2016FNet turnover 292,593 281,459 307,476 331,712EBITDA 4,335 1,241 9,449 10,911Deprec. & amort. 4,932 5,180 5,355 5,555EBIT (597) (3,939) 4,094 5,356Total other non-operating income 3,961 1,250 1,175 1,250Associate contributions (39) 140 27 32Net interest income/(expense) (2,469) (1,495) (1,550) (1,915)Pre-tax profit 856 (4,044) 3,746 4,723Tax (7) (200) (220) (250)Minorities (23) (20) (33) (35)Net profit 826 (4,264) 3,493 4,438Net profit (adj.) 826 (4,264) 3,493 4,438

BALANCE SHEET Year to 31 Dec (Btm) 2013 2014F 2015F 2016FFixed assets 88,216 92,036 95,681 93,126Other LT assets 11,474 12,900 12,980 13,080Cash/ST investment 18,009 6,801 9,550 8,077Other current assets 63,634 60,370 60,635 71,635Total assets 181,332 172,106 178,845 185,918ST debt 9,152 9,152 9,152 9,152Other current liabilities 47,035 46,800 51,700 55,200LT debt 47,969 47,169 49,369 52,569Other LT liabilities 1,650 1,700 1,900 2,500Shareholders' equity 75,458 67,197 66,603 66,341Minority interest 68 88 121 156Total liabilities & equity 181,332 172,106 178,845 185,918

CASH FLOW Year to 31 Dec (Btm) 2013 2014F 2015F 2016FOperating 16,768 6,362 13,683 3,093Pre-tax profit 856 (4,044) 3,746 4,723Tax (7) (200) (220) (250)Deprec. & amort. 4,932 5,180 5,355 5,555Associates (23) (20) (33) (35)Working capital changes 12,911 3,029 4,635 (7,500)Non-cash items n.a. n.a. n.a. n.a.Other operating cashflows (1,902) 2,416 200 600Investing (13,778) (12,793) (9,080) (3,100)Capex (growth) (20,000) (9,000) (9,000) (3,000)Investments 4,761 (3,793) (80) (100)Others 1,462 0 0 0Financing 8,494 (4,777) (1,854) (1,465)Dividend payments (1,633) (3,678) (4,087) (4,700)Proceeds from borrowings 12,910 (800) 2,200 3,200Others/interest paid (2,783) (299) 33 35Net cash inflow (outflow) 11,484 (11,208) 2,749 (1,472)Beginning cash & cash equivalent 6,524 18,009 6,801 9,550Ending cash & cash equivalent 18,009 6,801 9,550 8,077

KEY METRICS Year to 31 Dec (%) 2013 2014F 2015F 2016FProfitability EBITDA margin 1.5 0.4 3.1 3.3Pre-tax margin 0.3 (1.4) 1.2 1.4Net margin 0.3 (1.5) 1.1 1.3ROA 0.5 (2.4) 2.0 2.4ROE 1.1 (6.0) 5.2 6.7

Growth Turnover 0.1 (3.8) 9.2 7.9EBITDA 93.2 (71.4) 661.2 15.5Pre-tax profit n.a. (572.5) n.a. 26.1Net profit n.a. (616.0) n.a. 27.0Net profit (adj.) n.a. (616.0) n.a. 27.0EPS n.a. (616.0) n.a. 27.0






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This report may not be published, circulated, reproduced or distributed in whole or in part by any recipient of this report to any other person without the prior written consent of UOBKH. This report is not intended for distribution, publication to or use by any person in any jurisdiction outside Singapore or any other jurisdiction as UOBKH may determine in its absolute discretion, where the distribution, publication or use of this report would be contrary to applicable law or would subject UOBKH and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registration, licensing or other requirements within such jurisdiction. The information or views in the report (“Information”) has been obtained or derived from sources believed by UOBKH to be reliable. 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Each research analyst of UOBKH who produced this report hereby certifies that (1) the views expressed in this report in any event accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of UOBKH or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including UOBKH’s total revenues, a portion of which are generated from UOBKH’s business of dealing in securities. IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSES Where the report is distributed in Singapore and contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact UOBKH (and not the relevant foreign research house) in Singapore in respect of any matters arising from, or in connection with, the analysis or report; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, UOBKH accepts legal responsibility for the contents of the analyses or reports IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by UOBKH, a company authorized, as noted above, to engage in securities activities in Singapore. UOBKH is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution by UOBKH (whether directly or through its US registered broker dealer affiliate named below) to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). All US persons that





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regional morning notes wednesday, 29 october...

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