2014.08.01_medc - an oil-short 1h14 by cimb

REGIONAL DAILY

August 4, 2014

ASIA PACIFIC

Asia Pacific Daily | 4 August 2014

Equity Research Reports

IDEA OF THE DAY | South Korea Strategy Flash Note - Quest for income in Korea | P5 We believe Korean governments new economic policies should bode well for a market re-rating as they address the age-old issue of Korea Inc. -the lack of dividends. While corporate inertia and resistance are expected in the near-term, follow-up measures by the government should be tailwind for investors quest for income in Korea. We maintain our CY14 KOSPI target of 2,100 based on 1.04x 2015F P/BV against an ROE of 9.4%, with the main concerns still being a negative earnings revision cycle. However, we may see further upside to our target, if 1) corporate response to the governments policy changes comes through earlier than expected; and/or 2) we see higher visibility on the effectiveness of policies that will force the companies to improve their capital management. Regional/Asia Pacific Alpha Edge - A gloomy season in the horizon? | P6 Monthly Market Review - Jul 14: Asia-Pacific markets | P7 Australia CSL Ltd (HD, TP:A$67.50) - HyQvia- US Advisors thumbs up | P8 Pact Group (AD, TP:A$4.19) - The Aus & NZ roll-up continues | P9 ResMed Inc (AD, TP:A$5.92) - 4Q softness -- it's due to timing | P10 Rio Tinto (AD, TP:A$84.00) - Aluminium earnings in focus | P11 Smallcap-pedia (NA) - Weekly Informer #24, 2014 | P12 Strategy Note - Monthly Market Review July 2014 | P13 Strategy Note - Index Monthly July 2014 | P14 Strategy Flash Note - Post-reporting comments | P15 China/Hong Kong China Overseas Grand Oceans (HD, TP:HK$6.85) - Growth expectations brought back to earth for third-tier cities | P16 China Overseas Land (AD, TP:HK$28.80) - Asset injection is a catalyst in 2H | P17 Hutchison Whampoa (AD, TP:HK$122.00) - Europe is now a helping hand | P18 Gaming (OW) - More GGR downside likely | P19 Economic Update - Better-than-expected PMI shows stabilisation in Chinas economy | P20 India DLF Ltd (RD, TP:Rs170.00) - Waiting for demand recovery | P21 HCL Technologies (AD, TP:Rs1,800.00) - Outlook remains robust | P22 Hindustan Construction (AD, TP:Rs53.90) - Focused on balance sheet correction | P23 Indian Bank (HD, TP:Rs156.00) - Weakness persists | P24 IPCA Labs (HD, TP:Rs815.00) - Margin pressure ahead? | P25 Jagran Prakashan Ltd (AD, TP:Rs146.00) - Focussing on profitable growth | P26 NTPC Ltd (RD, TP:Rs130.00) - New norms-led decline begins | P27 Titan Co Ltd (AD, TP:Rs370.00) - Superior execution continues | P28 Auto & Parts - Overall (UW) - Seasonally weak July month | P29 Consumer Staples - Overall (UW) - Consumer pulse: input cost continues to ease | P30 Indonesia Indocement (AD, TP:Rp27,500.00) - RMX business setback | P31 London Sumatra (AD, TP:Rp2,500.00) - Higher 2H contribution | P32 Malindo Feedmill (AD, TP:Rp3,300.00) - Gathering strength | P33 Medco Energi Internasional (AD, TP:Rp4,100.00) - An oil-short 1H14 | P34 South Korea DGB Financial Group (AD, TP:W21,000.00) - Stable outlook intact | P35 SK Telecom (AD, TP:W313,000.00) - Strengthening its pole position | P36 Woori Finance Holdings (HD, TP:W15,000.00) - Lower earnings volatility | P37 Autos (OW) - July 2014: a festive carnival | P38 Malaysia Perdana Petroleum (AD, TP:RM2.40) - No cold fleet | P39 Sime Darby Bhd (HD, TP:RM9.85) - Preferred candidate for NBPOL | P40 Philippines Bank of the Philippine Islands (RD, TP:PHP70.00) - Tracking behind | P41 Economic Update - BSP: At long last, a rate hike | P42 Singapore Dairy Farm Int'l (HD, TP:US$10.60) - Southeast Asia continues to drag | P43 DBS Group (HD, TP:S$19.44) - Trade and loan fees slow, WM doing well | P44

Showcasing CIMB Research

Research Ideas

CHN: Banks 30/07 Mortgage channel checks: significant >PDF

KR: Banks 29/07 Another STX or Dongbu risk? >PDF

TW: Poya Co Ltd 28/07 Winning the fight for the retail $ >PDF

APAC: Consumer Staples - Overall 21/07 Shop for strong franchises >PDF

KR: Strategy 20/07 2QFY14 earnings preview >PDF

Country Recommendations

Australia UnderweightChina / HK Overweight

India OverweightIndonesia Neutral

South Korea OverweightMalaysia Neutral

Philippines OverweightSingapore Neutral

Taiwan NeutralThailand UnderweightVietnam Overweight

Reg. Equity Research Contacts

Jim McCAFFERTY Head of Regional Research T: (852) 25391315 E: [email protected]

Kelvin GOH, CFA Deputy Head of Regional Research T: (60) 3 2261 9099 E: [email protected]

Show Style "View Doc Map"

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.

Compiled as @: 8/4/2014 12:04:36 AM Page 1

REGIONAL DAILY

August 4, 2014

DBS Group (HD, TP:S$19.44) - Shedding light on its China book | P45 Sri Lanka John Keells Hotels PLC (AD) - KHL 1Q Profit Up 226% | P46 Taiwan St. Shine Optical (AD, TP:NT$815.00) - Look beyond the weak 2Q14 | P47 WPG Holdings (HD, TP:NT$41.00) - Defensive with high yield | P48 Thailand Banks (N) - Lulled by blue skies? | P49 Economic Update - Inflation on the back burner | P50


Compiled as @: 8/4/2014 12:04:36 AM Page 2

Asia Pacific DailyEquity Research Reports August 4, 2014

Key Metrics Market Indices MSCI Asia Pacific XJ

LastClose 1D 1M YTDAustralia ASX 200 5,556 -1.4% 1.2% 3.8%China 'A' Shanghai A 2,288 -0.7% 5.9% 3.3%China 'H' HSCEI 10,983 -1.3% 5.1% 1.5%Hong Kong HSI 24,532 -0.9% 5.8% 5.3%India Sensex 25,481 -1.6% -1.3% 20.4%Indonesia JCI 5,089 4.2% 19.1%Japan Nikkei 15,523 -0.6% 1.1% -4.7%Korea Korea Comp 2,073 -0.1% 3.1% 3.1%Malaysia FBMKLCI 1,863 -0.4% -0.8% -0.2%Philippines PSEi 6,894 0.4% -0.1% 17.1%Singapore STI 3,344 -0.9% 3.1% 5.6%Taiwan Taiwan Wgtd 9,267 -0.5% -2.7% 7.6%Thailand SET 1,500 -0.1% 1.0% 15.5%AsiaPac ex Japan MSCI 504 -1.1% 0.8% 7.6%

410

430

450

470

490

510

530

Aug-13 Nov-13 Feb-14 May-14 Aug-14

SOURCE: CIMB, BLOOMBERG, DATASTREAM, MSCI SOURCE: CIMB, BLOOMBERG, DATASTREAM, MSCI

IBES/MSCI Market Valuations Regional Currencies

12m Forward 12m Forward 12m Forward 12m ForwardP/E (x) EPS DY (%) ROE

Australia 14.71 5.06 4.72 13.30China 9.04 10.37 3.51 14.10Hong Kong 15.01 9.15 3.10 8.46India 16.28 15.59 1.63 15.50Indonesia 14.71 12.82 2.66 20.30Korea 9.78 14.15 1.32 10.50Malaysia 15.50 9.70 3.14 12.80New Zealand 19.67 9.98 4.11 11.00Philippines 18.37 14.69 2.16 14.30Singapore 13.82 9.13 3.62 9.87Taiwan 14.24 9.54 3.20 12.80Thailand 12.82 12.42 3.41 15.30Asia ex-Japan 11.75 11.44 2.75 12.10Asia Pac ex-Japan 12.39 10.13 3.25 12.30

(to US$1) CY14 forecast LastClose 1D YTDAustralian Dollar 1.12 0.93 0.3% 4.3%China Renminbi 6.20 6.18 -0.1% -2.0%Hong Kong Dollar 7.85 7.75 0.0% 0.0%Indian Rupee 64.0 61.19 -1.0% 1.0%Indonesian Rupiah 12,000 11,803 -1.9% 3.1%Japanese Yen 105.0 102.69 0.2% 2.2%Korean Won 1,090 1,037.10 -0.9% 1.2%Malaysian Ringgit 3.28 3.21 -0.5% 2.0%New Zealand Dollar 1.25 0.85 0.5% 3.7%Philippine Peso 45.0 43.82 -0.8% 1.3%Singapore Dollar 1.27 1.25 0.1% 1.4%Taiwan Dollar 30.0 30.05 -0.1% -0.8%Thai Baht 32.5 32.17 0.0% 1.9%


Upcoming Major Data Releases Commodities Event/data Country DateJul external trade Indonesia 4-AugJul CPI Indonesia 4-AugJul CPI Taiwan 5-AugCentral bank announce interest rate India 5-Aug2Q GDP Indonesia 5-AugJun external trade Malaysia 6-AugCentral bank announce interest rate Thailand 6-AugJul external trade Taiwan 7-AugCentral bank announce interest rate Eurozone 7-AugJul external trade Japan 8-AugJul external trade China 8-AugCentral bank announce interest rate Japan 8-AugJul external trade India 8-Aug

LastClose % chg YTDWTI spot (US$/bbl) 104 0.0% 6.2%Gold (US$/oz) 1,295 0.7% 7.2%Baltic Dry Index 751 -0.5% -67.0%


Page 3

Asia Pacific DailyEquity Research Reports August 4, 2014

CIMB Daily Revisions | as at 4 August 2014

CIMB Daily Revisions

Reuters/ Mkt Cap Year EPS ForecastsMarket BBG Date Company (USD M) Lead Analyst Curr Prev Curr Prev End Chg%

Recommendation Price Target

Australia RIO AU 1-Aug-14 Rio Tinto $107,722.30 Michael EVANS Add Add A$ 84.00 80.70 2014 1.6

RIO.AX +4.1% 2015 2.02016 1.7

Hong Kong 688 HK 3-Aug-14 China Overseas Land $24,521.93 Johnson HU, CFA Add Add HK$ 28.80 27.60 2014 -0.50688.HK +4.3% 2015 -5.6

2016 -7.8

India DLFU IN 2-Aug-14 DLF Ltd $5,845.56 Prakash AGARWAL Reduce Reduce Rs 170.0 140.0 2015 n.c.DLF.BO +21.4% 2016 n.c.

2017 n.c.India HCLT IN 1-Aug-14 HCL Technologies $17,337.18 Sandeep SHAH Add Add Rs 1,800.0 1,680.0 2015 1.4

HCLT.BO +7.1% 2016 2.52017

India HCC IN 1-Aug-14 Hindustan Construction $415.35 Pramod AMTHE Add Add Rs 53.9 53.5 2015 n.c.HCNS.BO +0.7% 2016 n.c.

2017 n.c.India JAGP IN 2-Aug-14 Jagran Prakashan Ltd $622.99 Srinivas SESHADRI Add Add Rs 146.0 142.0 2015 -8.4

JAGP.BO +2.8% 2016 -7.42017 9.2

India NTPC IN 2-Aug-14 NTPC Ltd $18,967.87 Harish BIHANI Reduce Reduce Rs 130.0 115.0 2015 0.7NTPC.BO +13.0% 2016 -1.3

2017 -0.6India TTAN IN 1-Aug-14 Titan Co Ltd $4,739.65 Varun LOHCHAB Add Add Rs 370.0 300.0 2015 1.7

TITN.NS +23.3% 2016 -0.22017

India UNBK IN 1-Aug-14 Union Bank of India $2,026.33 Jatinder AGARWAL Reduce Hold Rs 143.0 139.0 2015 3.3UNBK.BO +2.9% 2016 0.4

2017 0.9

Indonesia INTP IJ 1-Aug-14 Indocement $7,781.64 Jovent GIOVANNY Add Add Rp 27,500 27,500 2014 -7.8INTP.JK n.c. 2015 -7.6

2016 -8.0Indonesia LSIP IJ 1-Aug-14 London Sumatra $1,213.93 Maureen NATASHA Add Hold Rp 2,500 2,530 2014 -9.0

LSIP.JK -1.2% 2015 -1.52016 -5.5

Indonesia MAIN IJ 1-Aug-14 Malindo Feedmill $432.46 Dewinta SUMARTONO Add Add Rp 3,300 3,500 2014 -19.4MAIN.JK -5.7% 2015 -4.5

2016 -5.0Indonesia MEDC IJ 1-Aug-14 Medco Energi Internasional $986.78 Erindra KRISNAWAN, CFA Add Add Rp 4,100 4,330 2014 -58.3

MEDC.JK -5.3% 2015 -41.72016 -43.3

Philippines BPI PM 1-Aug-14 Bank of the Philippine Islands $8,590.63 Edser TRINIDAD Reduce Reduce P 70.0 70.0 2014 n.c.BPI..PS n.c. 2015 n.c.

2016

Singapore OSIM SP 1-Aug-14 OSIM International $1,781.82 Kenneth NG, CFA Add Add S$ 4.60 4.60 2014 3.8OSIL.SI n.c. 2015 4.9

2016 6.4

South Korea 139130 KS 3-Aug-14 DGB Financial Group $2,177.99 Daehyun KIM Add Add W 21,000 21,000 2014 -3.9139130.KS n.c. 2015 -2.8

2016 -2.7South Korea 017670 KS 3-Aug-14 SK Telecom $20,048.23 Youngwoo CHUNG Add Add W 313,000 272,000 2014 12.4

017670.KS +15.1% 2015 13.62016 17.2

Taiwan 1565 TT 3-Aug-14 St. Shine Optical $1,075.58 Jack LIN Add Add NT$ 815.00 905.00 2014 -4.61565.TWO -9.9% 2015 -1.6

2016 1.9 SOURCES: CIMB, COMPANY REPORTS

Page 4

August 3, 2014

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

SOUTH KOREA STRATEGY FLASH NOTE

Quest for income in Korea We believe Korean governments new economic policies should bode well for a market re-rating as they address the age-old issue of Korea Inc. -the lack of dividends. While corporate inertia and resistance are expected in the near-term, follow-up measures by the government should be tailwind for investors quest for income in Korea.

Figure 1: List of companies that have potential for higher dividend payout Potential upside to dividend Dividend yield Change in dividend yield30/60% basis 40/70% basis Current 30/60% basis 40/70% basis 30/60% basis 40/70% basis

Company Ticker 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016Hyundai Motor 005380 KS 374% 400% 534% 565% 1.0% 1.1% 5.0% 5.4% 6.7% 7.2% 3.9% 4.3% 5.6% 6.1%Hyundai Mobis 012330 KS 948% 1038% 1160% 1265% 0.7% 0.7% 6.8% 7.6% 8.2% 9.1% 6.2% 6.9% 7.6% 8.5%KIA Motors 000270 KS 239% 278% 373% 419% 1.2% 1.3% 4.1% 4.7% 5.8% 6.5% 2.9% 3.5% 4.5% 5.3%Hankook Tire 161390 KS 309% 443% 471% 628% 0.7% 0.7% 2.9% 3.8% 4.0% 5.1% 2.2% 3.1% 3.3% 4.4%Hyundai E&C 000720 KS 250% 313% 399% 481% 0.8% 0.8% 2.7% 3.2% 3.9% 4.5% 1.9% 2.4% 3.1% 3.7%Samsung Engineering 028050 KS 138% 119% 205% 175% 1.3% 1.9% 3.1% 4.1% 4.0% 5.1% 1.8% 2.2% 2.7% 3.2%

2015 2016KB Financial Group 105560 KS 2.5% 3.0%Shinhan Financial Group 055550 KS 2.0% 2.4%

2015 201647% 35%54% 42%

2015 2016 20164.0%3.4%

20151.2% 1.0%1.1% 1.0%

3.6%3.0%

SOURCES: CIMB

We maintain our CY14 KOSPI target of 2,100 based on 1.04x 2015F P/BV against an ROE of 9.4%, with the main concerns still being a negative earnings revision cycle. However, we may see further upside to our target, if 1) corporate response to the governments policy changes comes through earlier than expected; and/or 2) we see higher visibility on the effectiveness of policies that will force the companies to improve their capital management.

What Happened The Korean government is introducing policy measures encouraging corporates to have more efficient balance sheets. The new policies offer incentives, as well as penalties, guiding companies to: 1) pay out more dividends (to increase income); 2) increase salaries (more direct help with higher household income); or 3) increase domestic investments (circulate cash within the local economy), which could ultimately lead to the income flow from corporates to households.

What We Think The economic stimulus packages and corporate governance reform plans point towards a shared objective to break Koreas vicious cycle that began following the Asian crisis., in our view. We believe that the recent measures are a prelude to more policies that is likely to be implemented to bolster household income and circulate money within the domestic economy.

We expect KOSPI could reach over 2,500 by end-2015 if Koreas payout ratio is doubled by 2016 to 30%, in-line with the MSCI Asia ex Japan index. We think that higher dividend yields alone can lead to significant upside to KOSPIs P/BV that could raise the valuation multiple by 11%. MSCI Korea trades at a 17% discount to MSCI Asia ex Japan, and we expect the Korea discount could be largely resolved if the Korean firms act in favour of shareholders returns.

What You Should Do In the near term, play the potential for dividends via companies with high owner stakes that are already paying out decent yields (Figure 44) as we expect the governments tax benefit on dividend income to bode well for higher dividend payout for these companies. We need evidence on the effectiveness of the corporate tax law revisions in the longer term but we expect dividend upsides in the banking, auto, construction and telco sectors (Figure 35).

CIMB Analyst(s)

Dohoon Lee T (82) 2 6730 6121 E [email protected]

Daehyun Kim T (82) 2 6730 6128 E [email protected]

TJ Ok T (82) 2 6730 6134 E [email protected]

Page 5

Alpha Edge Regional

August 1, 2014

1

S&P500 Dollar Index MAxJ DJIA 16,563 1,937 81.5 598 DAX 9,407 (+4.4% yoy) (+1.6% yoy) (+8.6% yoy) Shanghai 2,202 ST Direction Oil US$98 LT Direction VIX 16.9

A gloomy season in the horizon? We see signs of some technical damage on the US DJIA but Asia continues to look strong for now. The DJIA continues to face a major long-term resistance trendline since 2000, currently at 16,800pts. Seasonally, Aug and Sep are usually difficult months for global equity markets. It might not be any different this year. The US S&P500 VIX and the US dollar are showing signs of breaking out of their consolidation phase since the start of the year.

Technical damage on US DJIA Last month was mixed for the US and regional equity markets. While the MSCI Asia ex-Japan Index (MAxJ) was up 3.2% mom, the US S&P500 was down 1.5%. What is of concern is the technical damage on the US Dow Jones Industrial Average (DJIA), which broke below its major support trendline for the first time since end-2012. In addition, the DJIA also failed to overcome its major long-term resistance trendline since 2000. The current long-term resistance trendline for the DJIA is at 16,800.

Asia is still up Asias equity market has been resilient in the past month. Our wave count for the MSCI Asia ex-Japan Index (MAxJ) show the Index taking a little longer than expected to complete its uptrend leg since the Feb 2014 low. If we are right, the MAxJ would soon complete the minor wave 5 up leg first before we see some signs of correction for this market. We could see a top for the MAXJ sometime this month.

Difficult months ahead? The next 1-2 months could be difficult for global equity markets. Seasonally, Aug and Sep are generally negative months for both the US and regional equity markets. Other negative months include May and Jun. Jul is a seasonally positive month for equity markets but it was not so for US equity markets last month.

US DJIA, weekly chart (16,563)

SOURCE: BLOOMBERG, CIMB RESEARCH

Sources: CIMB. COMPANY REPORTS

CIMB Analyst(s)

Nigel FOO Chek Keng T (60) 3 2261 9069 E [email protected]


Page 6

August 1, 2014


ASIA PACIFIC MONTHLY MARKET REVIEW

Jul 14: Asia-Pacific markets Our Monthly Market Review is your guide to Asia-Pacific market movements over the past month. It provides performance attribution analysis for local markets and puts Asia-Pacific markets in the context of the rest of the world.

Figure 1: MSCI Asia-Pacific ex-Japan index vs MSCI World index

Title:

Source:

Please fill in the values above to have them entered in your report

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

30Jun14 05Jul14 10Jul14 15Jul14 20Jul14 25Jul14 30Jul14

MSCI AsiaPac xJapan (+3.6%) MSCI World (-1.6%)

SOURCES: DataStream, MSCI

In common currency, the MSCI Asia Pacific ex Japan index (up 3.6%) outperformed the MSCI World index (down 1.6%) as well as the US S&P 500 Composite (down 1.4%) during Jul 2014.

Best- and worst-performing sectors The best-performing sectors for the month were Telecommunication services (up 7.0%), Financials (up 5.9%) and Materials (up 4.6%). The weakest sectors were Information Technology (down 0.3%), Utilities (up 0.7%) and Energy (up 0.8%).

Best- and worst-performing countries The best-performing countries for the month were Indonesia (up 8.2%), China (up 8.2%) and Hong Kong (up 6.0%). The weakest countries were New Zealand (down 1.7%), Malaysia (up 0.1%) and Taiwan (up 0.4%).

FX and commodity movements Currencies in Asia were mixed against the US$ in Jul, with NZ$ down by 2.9%. The largest gain against the US$ was posted by the rupiah (IDR), up 2.3%. Gold fell 3.4% while oil dropped 6.8% to close at US$98.2/barrel.


CIMB Analyst(s)

Janice TAI T (852) 2532 1127 E [email protected]


Page 7

Health ProductsAustralia

August 1, 2014

The CIMB Stock Selection Tools (SST) are designed to complement and enhance the investment decision making process. The SST incorporate a range of analytical tools, providing ready access to key company and market data, valuation tools and charts. If you are interested in subscribing to the 'Stock Selection Tools', please contact your CIMB account manager.


HyQvia- US Advisors thumbs up A US panel of FDA advisors has voted unanimously that the benefits of Baxters subcutaneous immunoglobulin product HyQvia outweigh its risks. While we find the outcome somewhat surprising, given the FDAs cautious stance, and note the agency will have the final say if the product is greenlighted or not, the panels favourable vote increasing the likelihood for approval and with it, sees downside risk for CSLs market dominance in the space. We make no changes to our estimates or SOP-based price target of A$67.50 at this time pending further insights into HyQvias future.

What Happened The FDAs Blood Products Advisory Committee (BPAC) has voted 15-1 in favour of a positive risk/benefit profile of HyQvia, Baxters subcutaneous (sub-Q) immunoglobulin (Ig) product that incorporates recombinant human hyaluronidase (rHuPH20), which facilitates dispersion and absorption allowing for once-monthly dosing. The advisors viewed FDA main concerns over the potential impact of anti-rHuPH20 antibodies on reproduction, development and fertility as theoretical and voted against requiring monitoring of antibody levels and saw no need to restrict the availability of the product to patient subgroups (ie pregnant women, male children and those with inflammatory disorders). The FDA will take the BPAC recommendation under consideration and make a final ruling on whether HyQvia should be commercialised in 3Q14.

What We Think We view the BPAC ruling as somewhat of a surprise, given the cautious nature of FDA panel briefing documents outlining the unknown, long-term risk associated with antibodies to rHuPR20. Nevertheless, with a unanimous vote in favour of approval and with no need to monitor patients for antibody levels or restrict the label to patient subgroups, we view a high likelihood of approval. While it is difficult to determine the impact on CSLs sub-Q product Hizentra at this early stage and we believe HyQvias label may be the most important determinant of uptake and patient switching if the product is approved, our prior DCF-based scenario analysis points to downside risk of between 5-10%.

What You Should Do With CSLs dominance in the sub-Q space under threat, the risk appears to the downside with little buffer seen in current trading levels (forward PE of 20.4x).

CIMB Analyst(s)

Dr Derek JELLINEK T (61) 2 9694 6074 E [email protected]

Share price info Share price perf. (%) 1M 3M 12M

Relative -2.5 -3.5 -8.9

Absolute 1.9 -0.9 2.6

Major shareholders % held

CBA 6.5 Blackrock 6.2 Vanguard 2.9


CSL Ltd FLASH NOTE CSL AU / CSL.AX Current A$67.80

Market Cap Avg Daily Turnover Free Float Target A$67.50

US$29,971m US$73.63m 95.0% Prev. Target A$67.50 A$32,262m A$78.67m 471.0 m shares Up/Downside -0.4%

Conviction| |


88.091.094.097.0100.0103.0106.0

62.064.066.068.070.072.074.0

Price Close Relative to S&P/ASX 200 (RHS)

Source: Bloomberg

1

2

3

4

Aug-13 Nov-13 Feb-14 May-14

Vol m

Financial Summary Jun-12A Jun-13A Jun-14F Jun-15F Jun-16F

Revenue (US$m) 4,616 4,950 5,330 5,769 6,256Operating EBITDA (US$m) 1,446 1,687 1,879 2,046 2,224Net Profit (US$m) 956 1,157 1,299 1,452 1,596Normalised EPS (US$) 1.97 2.44 2.77 3.10 3.46Normalised EPS Growth 16.0% 23.7% 13.4% 12.0% 11.7%FD Normalised P/E (x) 32.01 25.91 22.83 20.39 18.26DPS (US$) 0.83 1.02 1.13 1.27 1.42Dividend Yield 1.32% 1.62% 1.79% 2.02% 2.25%EV/EBITDA (x) 22.70 19.16 16.64 14.74 12.99P/FCFE (x) 18.70 25.08 26.45 23.33 20.50Net Gearing 3.4% 30.5% 25.6% 18.5% (3.2%)P/BV (x) 9.26 10.28 9.31 8.21 6.48ROE 27.7% 37.5% 43.0% 43.0% 39.8%Normalised EPS/consensus EPS (x) 1.00 1.00 1.00

67.80

67.50

63.35 72.50

Target

52-week share price range

Current

SOURCE: CIMB, COMPANY REPORTS

Page 8

PackagingAustralia

August 1, 2014

The Aus & NZ roll-up continues PGH has agreed to acquire of Sulo Group, a manufacturer of recycling and waste bins in Australia and New Zealand, for A$35m. While Asia has been identified as a growth opportunity for the group, the transaction demonstrates to us further opportunities in the core Australian and New Zealand markets. Importantly, management anticipates an ROI of >20% by year three. In our view, this highlights PGHs disciplined acquisition and execution approach. Add rating retained.

We believe the transaction will be EPS neutral in FY15, the first year of acquisition. However, with scope for synergies and PGHs record with integrations, we believe profitability should improve. We have upgraded our FY16 and FY17 earnings forecasts by 1% and 2%, respectively. As a result of this, we have increased our blended valuation by 2% to A$4.19 per share.

Further opportunities in ANZ Sulo Group is a manufacturer of plastic waste and recycling bins in Australia and New Zealand, servicing local government and waste collection companies. In FY14, the business generated turnover of ~A$48m. As indicated by PGH, the acquired businesses are complementary to its existing sustainability, materials handling and infrastructure divisions. While synergy expectations were not specifically disclosed, we believe this should provide scope for synergy benefits. We believe the transaction will be EPS neutral in FY15 and accretive thereafter as profitability converges to that of existing businesses. Importantly,

the transaction also demonstrates further acquisition opportunities in ANZ, which has been a key part of PGHs growth strategy for over a decade.

Discipline evident The targeted return of 20% by year three is consistent with hurdles set by domestic listed packaging peers. While delivery is critical, the target provides further evidence of discipline ahead of any potential acquisition of Dynapack a key milestone for potential investors.

Add retained We retain our Add rating, highlighting 13% potential upside to our valuation and an attractive FY15F dividend yield of 6%. We acknowledge concerns about related-party arrangements and acquisition risk, coupled with the likely need for an equity issue. However, we believe a Dynapack transaction would likely address these concerns, removing a material overhang and providing a re-rating towards our fundamental valuation.

Pact Group COMPANY NOTE PGH AU / PGH.AX Current A$3.71

Market Cap Avg Daily Turnover Free Float Target A$4.19 US$1,014m US$2.42m 60.0% Prev. Target A$4.10 A$1,091m A$2.59m 294.1 m shares Up/Downside 12.9%

Conviction| |

Notes from the Field

Niraj SHAH T (61) 2 9694 6083 E [email protected] Andrew SCOTT T (61) 2 9694 6081 E [email protected] Company Visit Expert Opinion Channel Check Customer Views


The acquisition of Sulo is expected to be EPS accretive and generate an ROI in excess of 30% within three years.

Company reports

73.0

79.7

86.3

93.0

99.7

3.00

3.20

3.40

3.60

3.80


Source: Bloomberg

10203040

Dec-13 Feb-14 Apr-14 Jun-14

Vol m

Financial Summary Jun-14F Jun-15F Jun-16F Jun-17F Jun-18F

Revenue (A$m) 1,188 1,275 1,324 1,373 1,435Operating EBITDA (A$m) 201.4 211.8 220.2 228.7 238.1Net Profit (A$m) 24.7 88.8 94.9 101.2 108.1Normalised EPS (A$) 0.28 0.30 0.32 0.34 0.37Normalised EPS Growth 0.00% 7.05% 6.82% 6.70% 6.83%FD Normalised P/E (x) 13.15 12.29 11.50 10.78 10.09DPS (A$) 0.10 0.21 0.23 0.24 0.26Dividend Yield 2.56% 5.70% 6.09% 6.49% 6.94%EV/EBITDA (x) 8.29 7.88 7.43 7.02 6.61P/FCFE (x) 11.45 18.34 17.08 15.90 14.88Net Gearing 209% 189% 162% 139% 119%P/BV (x) 3.95 3.57 3.24 2.96 2.70ROE 30.5% 29.6% 28.7% 28.0%% Change In Normalised EPS Estimates 0.00% 0.18% 1.13% 2.43% 2.45%Normalised EPS/consensus EPS (x) 1.00 0.99 0.99 0.98

3.71

4.19

3.12 3.80

Target


Current


The CIMB Stock Selection Tools (SST) are designed to complement and enhance the investment decision making process. The SST incorporate a range of analytical tools, providing ready access to key company and market data, valuation tools and charts. If you are interested in subscribing to the 'Stock Selection Tools', please contact your CIMB account manager. IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

Page 9

Medical Equipment & SvsAustralia

August 1, 2014

4Q softness - its due to timing Financial results were below expectations as volumes were negatively impacted by changing order patterns for certain US customers and recent price adjustments. While the operating environment remains challenging, the main issues appear to be more about timing than underlying fundamentals, with offsets and a robust product pipeline helping to steady our confidence in the restoration of sales growth and earnings momentum. We lower our FY15-16 profit estimates by up to 2%, with our DCF/PE/SOP-based target price declining to A$5.92. We maintain our Add rating.

US buying patterns distort the true picture Adjusted net profit of US$92m (+1%; ex-US$6.3m restructuring charge) was weaker than expected on modest sales growth (-1% in cc; US$415.2m), impacted mainly by changing US customer ordering patterns and the new 3Q pricing structure, seeing sales declines in Americas of US$214.9m (-7% yoy), for flow generators (US$99.3m, -5%) and masks (US$115.6m, -8%), partially offset by ROW sales (US$200.3m, +5% in cc; masks, US$64m, 4% in cc; flow generators, US$136m, +6% in cc). Higher opex (US$154m,+5.2%; including cUS$4m in legal expenses) limited EBIT gains (US$104.8m, +9.1% yoy; +0.1% qoq) and margin uplift (-150bp yoy; -110bp qoq to 25.2%). OCF and cash conversion improved qoq (14.3% to US$115.6m; 91%, +8pts), supporting a dividend of 28cps (+12%).

Its timingnot fundamentals While 3Q14 price adjustments continue to flow through, we note gross margins held up fairly well (62.9%, -40bp qoq vs 3Q14 -140bp, 63.3%), at the top of managements guidance range (61-63%). While acknowledging support via product mix shift, manufacturing efficiencies and FX, we view the modest margin decline as reflecting a stable pricing environment and take comfort with management acknowledging that the bulk of price adjustments has likely occurred and the product portfolio is stronger than ever, with sales weakness more a function of purchase timing as opposed to a more concerning fundamental issue in the volume/pricing dynamic.

Market reaction is overdone With the shares trading at a forward PE of 17.2x (five-year average 19.4x) and a strong net cash position of US$605m, we believe the risk/return is favourable.

CIMB Analyst(s)

Dr Derek JELLINEK T (61) 2 9694 6074 E [email protected] Share price info Share price perf. (%) 1M 3M 12M

Relative -4.7 -5.2 -11.5

Absolute -1.3 -3.2 -1.7


Blackrock 6.2 Vanguard 6.0 Capital 5.4


ResMed Inc 4QFY14 RESULTS NOTE RMD AU / RMD.AX Current A$5.23


US$6,818m US$23.64m 98.5% Prev. Target A$6.03 A$7,339m A$26.35m 149.3 m shares Up/Downside 13.2%

Conviction| |

Results comparison

FYE June (A$m) 4QFY14 (actual)

4QFY13 (actual)

% chg yoy

3QFY14 (actual)

% chg yoy

FY14 (actual)

FY13 (actual)

% chg yoy

Comments

Revenue 415.2 414.6 0.1% 397.8 4.4% 1,555.0 1514.5 2.7% Impacted by buying patterns, price adjustmentsOperating costs -134.2 -129.2 3.9% -129.9 3.3% -497.6 -475.0 4.8% Includes ~US$4m in legal expensesEBITDA 127.0 130.6 -2.7% 121.9 4.2% 492.1 465.7 5.7%margin (%) 30.6% 31.5% 30.6% 31.6% 30.7%D&A -22.2 -19.7 12.7% -17.2 29.1% -80.8 -86.1 -6.2% Lower than expectedEBIT 104.8 110.9 -5.5% 104.7 0.1% 411.4 379.6 8.4%margin (%) 25.2% 26.7% 26.3% 26.5% 25.1%Net interest/other 8.1 1.7 390.3% 8.2 -0.8% 25.1 32.5 -22.7% Lower than expectedPBT 113.0 112.6 0.4% 112.9 0.1% 437.4 409.9 6.7%Tax -21.0 -21.8 -3.9% -22.9 -8.5% -87.9 -85.0 3.4%rate (%) 18.6% 19.4% 20.3% 20.1% 20.7% Growing exposure to lower tax jurisdictionsAdj NPAT 92.0 90.7 1.4% 89.9 2.3% 349.5 324.9 7.6%Significant items -4.2 0.0 0.0 0.0 -17.7 US$6.3m pre-tax restructuring charge Reported NPAT 87.8 73.0 20.2% 89.9 -2.4% 349.5 324.9 7.6%EPS (cts) 64.3 62.1 3.5% 62.7 2.5% 242.1 222.3 8.9% 800k shares repurchaseed (18.3m remain)DPS (cts) 28 25 12.0% 25 12.0% 103.0 76 35.5% 44% payout ratio


The CIMB Stock Selection Tools (SST) are designed to complement and enhance the investment decision making process. The SST incorporate a range of analytical tools, providing ready access to key company and market data, valuation tools and charts. If you are interested in subscribing to the 'Stock Selection Tools', please contact your CIMB account manager. IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

Page 10

MiningAustralia

August 1, 2014



Aluminium earnings in focus In RIOs 1H14 result, we expect the aluminium division to demonstrate further margin expansion driven by both higher ASPs and lower unit costs, while earnings growth may be muted due to lower sales volumes than in previous periods. The blight on the division remains the capital cost overrun at the Canadian Kitimat aluminium smelter, the extent of which we expect the company to update at the 1H14 results. While an allowance for a capital overrun has been made in the companys 2014 US$12bn capex estimate, we expect the market to react negatively if this allowance is revealed as inadequate. We reiterate our Add recommendation with a target price of US$84.00.

While average spot LME aluminium prices have fallen in 1H14 to US$1,795/t compared to an average of US$1,887/t in 2013, premiums in key regions have risen by 27-68%. On balance, we expect RIOs aluminium ASP to increase 2% in 1H14 compared to 2013, while we estimate costs will fall 4-5% in its Primary Metals division to around US$1,650/t following an 11% fall in unit costs in 2013 compared to 2012.

Aluminium looking brighter With stronger bauxite and aluminium prices going into 2H14, the full-year earnings and outlook for the aluminium division looks increasingly attractive after a multi-year period of write-downs post the 2007 Alcan acquisition. In 2015, we forecast an aluminium division EBITDA of

US$3.2bn compared to RIO-compiled consensus of US$2.2m in May 2014.

Kitimat capex blowout A blow out in the original Kitimat capex of US$3.3bn was first revealed in the 2013 results, when a US$750m pre-tax impairment was made. The company expects to update the market on the extent of the final cost overrun at the 1H14 results.

Write-downs at OT? While the recently announced sale of its Mozambique assets for US$50m will crystallise this cash loss for the group in 2014, we believe the real concern with regard to write-downs in 1H14 remains the Mongolian Oyu Tolgoi project, which is capitalised on RIOs balance sheet at US$8.4bn at 31 December 2013 and has been plagued by ongoing delays over the past six months.

Rio Tinto COMPANY NOTE RIO AU / RIO.AX Current A$65.40


US$107,399m US$132.5m 100.0% Prev. Target A$80.70 A$115,607m A$141.2m 1,847 m shares Up/Downside 28.4%

Conviction| |



Michael EVANS T (61) 2 9694 6090 E [email protected]

Amber MacKINNON T (61) 2 9694 6091 E [email protected]

Company Visit Expert Opinion Channel Check Customer Views


90.0

99.4

108.8

118.1

56.0

61.0

66.0

71.0


Source: Bloomberg

2468

10

Aug-13 Nov-13 Feb-14 May-14

Vol m

Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F

Revenue (US$m) 50,967 51,171 42,001 47,659 50,684Operating EBITDA (US$m) 16,645 18,772 19,011 21,950 23,675Net Profit (US$m) (2,990) 3,665 10,039 11,499 12,262Normalised EPS (US$) 5.04 5.53 5.43 6.22 6.64Normalised EPS Growth (39.4%) 9.8% (1.7%) 14.5% 6.6%FD Normalised P/E (x) 12.06 10.99 11.18 9.76 9.16DPS (US$) 1.67 1.92 2.02 2.27 2.38Dividend Yield 2.75% 3.16% 3.32% 3.73% 3.92%EV/EBITDA (x) 8.28 7.16 7.08 5.94 5.35P/FCFE (x) 967.3 18.5 46.6 13.5 14.2Net Gearing 34.0% 34.6% 31.0% 21.2% 13.8%P/BV (x) 2.39 2.45 2.14 1.84 1.61ROE 18.7% 22.0% 20.4% 20.3% 18.7%% Change In Normalised EPS Estimates 1.62% 2.06% 1.69%Normalised EPS/consensus EPS (x) 1.09 1.13 1.08

65.40

84.00

57.45 70.88

Target


Current


Page 11

August 1, 2014


AUSTRALIA AUSTRALIA SMALL/MID CAPS

Weekly Informer #24, 2014 The Small Ords (0.3%) underperformed the All Ords (0.8%) by 52bp for the week, with the Small Resources down 0.7%. Since the start of the year, the Small Ords (1.9%) has underperformed the S&P/ASX100 (5.4%) by 3.52%. The Small Ords is at a premium to the S&P/ASX100 at a PE relative of 101.8%, above the 99.8% eight-year average.

Figure 1: Index performance - rolling 12 months

40

50

60

70

80

90

100

110

120

130

140

Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14

All Ords Small Ords Small Industrials Small Resources

SOURCE: IRESS

Research summary Key research pieces this week include GUD (When a beat is really a beat - Add), NVT (Operating leverage pushed out - Hold), TAH (What about online? - Reduce), REC (Time to take some profits Hold), GMA (Claim outcome drive upgrades - Hold), REA (REA buys 17% of IPP - Reduce), PDN (Weathering the storm Add), AMM (A great way to start FY15 Add).

Sector performance The Small Ords (0.3%) underperformed the All Ords (0.8%) by 52bp for the week. The Small Industrials (0.6%) outperformed the Small Resources (-0.7%) by 124bp. YTD, the Small Industrials (0.5%) has underperformed the Small Resources (7.6%) by 712bp. That said, ytd, the Small Ords (1.9%) has underperformed the S&P/ASX 100 (5.4%) by 352bp.

P/E performance In terms of PE relative, the Small Ords is at a small premium to the S&P/ASX 100, at 101.8% (based on

one-year forward earnings). The eight-year average is 99.8%.

Stocks best and worst performers The best-performing Small Industrials over the week were Acrux Limited (58.9%), Iproperty Group Ltd (19.7%), and Silex Systems (12.3%), while the worst performers were Newsat Limited (-24.1%), Boart Longyear (-15.9%), and Starpharma Holdings (-7.9%). The best-performing Small Resources over the week were Atlas Iron Limited (8.5%), ROC Oil Company (6.9%), and Mount Gibson Iron (6.5%). The worst performers were Troy Resources Ltd (-31.2%), Red Fork Energy (-10.9%), and Beadell Resource Ltd (-8.8%). The top-three weekly contributors in the Small Ords Index were Sirius Resources NL (2.19bp), Veda Group (1.9bp), and Acrux (1.69bp), while the worst three were OceanaGold Corporation (-2.04bp), Telecom Corporation of New Zealand (-1.28bp), and Nufarm (-1.23bp).



Julian Guido T (61) 2 9694 6085 E [email protected]

Tim Plumbe T (61) 2 9694 6086 E [email protected]

Matthew Nicholas T (61) 2 9694 6087 E [email protected]

Shawn Lee T (61) 2 9694 6088 E [email protected]

Page 12

August 1, 2014


AUSTRALIA STRATEGY

Monthly Market Review July 2014 Analysts earnings expectations have taken a step down into the FY14 reporting season following the hit to confidence after the Federal budget, the resiliently high AUD and declining commodity prices. Despite this the Australian market continued to be buoyed by improving global growth in the US and China, with growth in the two major economies surprising positively in July. Geopolitical risks have so far taken a back seat but further escalation in the growing number of conflict areas may quickly reverse the positive trend.

Figure 1: Sector performance July 2014

Sector Price Pricecurr -12m 1m 3m 6m 12m 1m 3m 6m 12m

S&P/ASX 200 5632.9 5052.0 4.4 2.6 8.5 11.5Consumer Discretionary 1853.2 1659.6 4.0 0.8 6.0 11.7 -0.4 -1.8 -2.5 0.2Energy 14656.8 13251.9 2.2 3.8 11.7 10.6 -2.2 1.2 3.2 -0.9Healthcare 14569.1 13628.4 2.7 1.9 1.1 6.9 -1.7 -0.8 -7.4 -4.6Information Technology 837.6 679.3 6.3 6.3 16.0 23.3 1.9 3.7 7.4 11.8Materials 10445.5 9269.2 7.7 2.8 4.4 12.7 3.3 0.2 -4.1 1.2Industrials 4183.6 3637.9 3.8 2.9 7.6 15.0 -0.5 0.3 -0.9 3.5Property 1122.8 1021.4 5.0 5.7 13.5 9.9 0.6 3.0 5.0 -1.6Consumer Staples 10218.7 9741.7 4.6 1.7 5.3 4.9 0.2 -0.9 -3.3 -6.6Telecommunication Services 1908.2 1722.3 5.2 4.9 6.8 10.8 0.8 2.3 -1.7 -0.7Utilities 5940.6 5414.8 0.5 2.8 9.4 9.7 -3.9 0.2 0.9 -1.8Financials ex Property 7412.6 6571.6 3.6 1.9 11.4 12.8 -0.8 -0.7 2.8 1.3

Absolute performance (%) Relative performance (%)

Priced at close of business, 31 July 2014. SOURCE: IRESS

Australias performance versus the world In local currency, the All Ordinaries (+4.5%) outperformed the US S&P 500 (-1.5%), the MSCI Asia Pacific ex Japan Index (+3.8%) and the MSCI World ex Australia Index (-0.9%) during the month.

The best- and worst-performing sectors The best performers for the month were Materials (+7.7%), Information Technology (+6.3%) and Telecommunication Services (+5.2%). The worst performers were Utilities (+0.5%), Energy (+2.2%) and Health Care (+2.7%).

The top five and bottom five performing S&P/ASX 200 stocks The top five performers from the S&P/ASX 200 (price) Index for the month were Wotif.Com Holdings (37.4%), Northern Star (36.1%), Lynas Corporation (30.8%), Paladin Energy (27.1%) and Transfield Services (25.3%). The bottom five performers were Navitas (-30.4%), Buru Energy (-24.8%), Beadell Resources (-14.8%), ALS (-11.9%) and Medusa Mining (-9.8%).

Consensus earnings revisions The top five upgrades were Scentre Group (7.4%), Aristocrat Leisure (6.0%), Newcrest Mining (5.7%), Mirvac Group (3.7%) and Leighton Holdings (3.7%). The top five downgrades were Arrium (-37.8%), Iluka Resources (-34.6%), Qantas Airways (-22.7%), Fortescue Metals Group (-19.6%) and Mineral Resources (-15.1%).



Thiva NAGARATNAM, CFA T (61) 2 9694 6056 E [email protected]

Shane LEE T (61) 2 9694 6054 E [email protected]

Muditha WEERATUNGA, CFA T (61) 2 9694 6057 E [email protected]


Page 13

August 1, 2014


AUSTRALIA STRATEGY

Index Monthly July 2014 Improving consumer sentiment and stabilising iron ore prices helped the S&P/ASX 200 index outperform most of the global indices during the month. With investors focusing on high-beta sectors, Utilities and Healthcare underperformed the broader market.

Figure 1: Sector performance July 2014

Sector Ticker Pricecurrent 1m 3m 6m 12m 1m 3m 6m 12m

S&P/ASX 200 XJO 5632.9 4.4 3.5 10.9 16.5 4.4 2.6 8.5 11.5Consumer Discretionary XDJ 1853.2 4.0 0.9 7.8 15.3 4.0 0.8 6.0 11.7Energy XEJ 14656.8 2.2 3.8 13.6 14.1 2.2 3.8 11.7 10.6Healthcare XHJ 14569.1 2.7 1.9 2.2 9.3 2.7 1.9 1.1 6.9Information Technology XIJ 837.6 6.3 6.3 17.4 26.7 6.3 6.3 16.0 23.3Materials XMJ 10445.5 7.7 3.0 6.1 16.4 7.7 2.8 4.4 12.7Industrials XNJ 4183.6 3.8 3.7 9.7 19.6 3.8 2.9 7.6 15.0Property XPJ 1122.8 5.0 8.6 17.8 17.5 5.0 5.7 13.5 9.9Consumer Staples XSJ 10218.7 4.6 1.8 7.3 9.5 4.6 1.7 5.3 4.9Telecommunication Services XTJ 1908.2 5.2 4.9 9.7 17.0 5.2 4.9 6.8 10.8Utilities XUJ 5940.6 0.7 4.4 12.4 15.9 0.5 2.8 9.4 9.7Financials ex property XXJ 7412.6 3.6 3.5 14.2 18.7 3.6 1.9 11.4 12.8

Total return (%) Absolute return (%)

Priced at close of business 31 July 2014. SOURCE: IRESS

The top- and bottom-performing sectors in July The best performers for the month in terms of total return were Materials (+7.7%), Information Technology (+6.3%) and Telecommunication Services (+5.2%). The worst performers were Utilities (+0.7%), Energy (+2.2%) and Healthcare (+2.7%).

S&P/ASX 200 top- and bottom-performing stocks in July The top five performers in July were Wotif.com (+37.4%), Northern Star (+36.1%), Lynas (+30.8%), Paladin Energy (+27.1%) and Transfield Services (+25.3%). The bottom five performers were Navitas (-30.4%), Buru Energy (-24.8%), Beadell Resource (-14.8%), ALS (-11.9%) and Medusa Mining (-9.8%).

S&P/ASX 200 top- and bottom-performing sectors for the past 12 months The Information Technology sector finished the past 12 months as the best-performing sector with a rise of 26.7%. Other positive contributors were Industrials (+19.6%) and Financials ex property (+18.7%). The worst performers were Healthcare (+9.3%) and Consumer Staples (+9.5%).

S&P/ASX 100 performance The S&P/ASX 100 Index was up 4.4% in July. The top-performing stocks in terms of total return were Sims Metal Management (+23.2%), Alumina (+18.9%), BlueScope (+15.9%), Mineral Resources (+15.7%) and Caltex Australia (+14.6%). The bottom-performing stocks were Navitas (-30.4%), ALS (-11.9%), Fairfax Media (-5.0%), AGL Energy (-4.5%) and Ansell (-4.0%).



Thiva NAGARATNAM, CFA T (61) 2 9694 6056 E [email protected]

Muditha WEERATUNGA, CFA T (61) 2 9694 6057 E [email protected]


Page 14

August 1, 2014


AUSTRALIA STRATEGY NOTE

Post-reporting comments As at 1 August 2014

Figure 1: Result vs CIMB forecast * Figure 2: Reporting day price reaction * Figure 3: Post-result changes to forecasts *

17% 17%

33%

17% 17%

0

0.5

1

1.5

2

2.5

Miss(< -5%)

Miss(< -2.5%)

Inline Beat(> +2.5%)

Beat(> +5%)

Count

33%

17%

50%

0% 0%0

0.5

1

1.5

2

2.5

3

3.5

< -5% < -2.5% -2.5% & +2.5%

> +2.5% > +5%

Count

33%

17%

33%

0%

17%

0

0.5

1

1.5

2

2.5

Down(< -5%)

Down(< -2.5%)

Maintain Up(> +2.5%)

Up(> +5%)

Count

SOURCES: CIMB, COMPANY REPORTS

* NPAT deviation of CIMB forecast vs FY14A; Otherwise 1HFY14A for Dec Y/E

SOURCES: CIMB, COMPANY REPORTS* Price reaction relative to the S&P/ASX200

SOURCES: CIMB, COMPANY REPORTS* Change to FY15 NPAT forecast (FY14 for Dec Y/E)

Figure 4: Post-reporting comments Result CIMB Rel. Price Post-result comment

Code Y/E Date Beat/Miss Reaction Forecast Actual FY1 FY2 FY15 FY16

RMD Jun 01-Aug Miss (< -2.5%) -5.3% 355.3 345.3 tbc tbc tbc tbc

First take on 4Q results--- softer than expected, with adj NPAT of US$92m (+1%), EPS of US$0.64 vs cons at US$94m (CIMB US$96m) and EPS of US$0.66 (CIMB US$0.68). Sales were weak, coming in at US$415.2m (-1% yoy in cc) vs cons US$436m (CIMB US$428m) as the sales in the Americas continue to be impacted by the challenging operational environment, US$214.9m (-7% yoy) while ROW sales were S$200.3m (+9% yoy; +5% in cc). Given the sales weakness, GMs seem to hold up fairly well, coming in at 62.9%(+20bp yoy; -40bp qoq), toward the top end of guidance (61-63%) vs cons 62.2%.

ERA Dec 31-Jul Inline +0.5% -126.6 -127.2 tbc tbc tbc tbc

ERA reported 1H14 NPAT of a loss of A$127.2m, within its guidance range of A$120m-140m. Uranium oxide sales were well above our expectation at 1,524t versus our estimate of 1,000t, while the average realised price was below at US$46.65/lb versus our estimate of US$52/lb. FY14 production guidance of 1-1.5kt of uranium oxide was maintained. The company also guided to second-half sales broadly similar to those in 1HCY14. The key value driver remains Ranger 3 Deeps project, for which the exploration decline and related studies remain on schedule (as confirmed by the company), with completion due in late 2014.

OGC Dec 30-Jul Miss (< -5%) -2.5% 77.6 56.8 -10.3% +8.9% 11.0x 11.9x

After a strong first quarter, OceanaGold has delivered a June quarter that, although guided lower, has probably surprised to the downside. In our view, the company remains on track for 2014, as we expect increased throughput and higher grades at Didipio to offset a weaker performance from the NZ operations. OceanaGold reported a net profit for 1H14 of US$56.8m vs our US$77.5m forecast, the difference attributable to lower production and higher costs during the June quarter.

Post-result PEPost-result NPAT revisionNPAT ($m)

SOURCES: CIMB FORECASTS, COMPANY REPORTS

Shane LEE T (61) 2 9694 6054 E [email protected] Andrew TANG T (61) 2 9694 6076 E [email protected]

Page 15

Property DevelopmentHong Kong

August 1, 2014



Growth expectations brought back to earth for third-tier cities COGOs 22% decline in 1H14 core earnings to 41% of our FY14 estimate is in line with our results preview estimate. However, COGO has guided down the outlook by lowering its sales target from HK$23bn to HK$18bn, which is only marginally higher yoy. Management also thinks that the long-term GPM in third-tier cities could normalise from 30%+ to 20%+. The slower sales pace and gradually falling GPM prompt us to cut FY14-16 EPS by 12-21%. Amid the sector rally, the stock has rebounded 50%+ from the bottom in May 2014. We downgrade it from Add to Hold while widening the target RNAV discount from 40% to 50%. We see upside risk from potential stake increases by its parent from 38% to 50%+ amid stock price dip or any potential benefit from asset injections.

Normalised expectations for third-tier cities The slow sales in 1H14 were attributed to the lacklustre sales in third-tier cities in Yangtze River Delta and Hohhot this year. The company has withdrawn its previous guidance of 30% sales and earnings CAGR. We think that it is more realistic to expect steady growth in the longer term, i.e. more than 10%, for COGO in third-tier cities. We expect sales to improve in 2H with more launches and better market sentiment on the back of HPR easing in third-tier cities such as Hohhot and Nanning where COGO has exposure.

Margin trending down, particularly in third-tier cities COGOs GPM declined from 33% in FY13 to 29% in 1H14, lower than our previous estimate of 30.5% for FY14. Management expects general downward pressure on margins in the sector and thinks that a reasonable margin in third-tier cities is 20%+ rather than 30%. We expect GPM to be 28% in FY14. Our GPM estimates of 27.9% for FY15 and 31.7% for FY16 are partially supported by bookings for the high-end Beijing Tonghui River Project.

Control over net gearing We expect its net gearing to improve from 67% in 1H14 to 63% at end-2014 with slowdown of land purchases and construction and the ramp-up of sales.

CIMB Analyst(s)

Johnson HU, CFA T (852) 2532 1117 E [email protected]

Linda LIN T (852) 2539 1321 E [email protected]


Relative 24.2 24.8 -44.8

Absolute 31 36.7 -31.7


China Overseas Land 37.9 Yung Kwok Kee 18.4


China Overseas Grand Oceans 1HFY14 RESULTS NOTE 81 HK / 0081.HK Current HK$6.29

Market Cap Avg Daily Turnover Free Float Target HK$6.85

US$1,852m US$3.58m 30.9% Prev. Target HK$8.55 HK$14,355m HK$27.75m 2,282 m shares Up/Downside 8.9%

Conviction| |


Results comparison FYE Dec (HK$ m) 1HFY14 1HFY13 yoy % hoh % Prev.

chg chg FY14F Comments

Rev enue 7,893.9 8,008.8 (1.4) (0.0) 17,156.6 Below , 46% of our full-y ear estimate

Operating costs (5,970.8) (5,746.6) 3.9 7.5 (12,978.5)

EBITDA 1,923.2 2,262.2 (15.0) (17.9) 4,178.1

EBITDA margin (%) 24.4 28.2 (3.9) (5.3) 24.4 Below , GPM of 29% is low er than our estimate of abov e 30%

Depn & amort. (8.9) (8.5) 5.3 8.9 (54.6) Below

EBIT 1,914.3 2,253.7 (15.1) (18.0) 4,123.5

Interest ex pense (8.5) (5.7) 49.9 (38.7) (43.2) Below

Interest & inv t inc 40.9 32.6 25.4 (15.6) 91.3 In line

Associates' contrib 2.1 2.0 5.4 (86.4) 22.9 Below

Ex ceptionals 29.9 296.8 (89.9) (83.3) -

Pretax profit 1,978.7 2,579.4 (23.3) (22.8) 4,194.5

Tax (760.2) (864.9) (12.1) (15.2) (1,428.9)

Tax rate (%) 38.4 33.5 4.9 3.5 34.1 Abov e, effectiv e income tax rate at about 30%

Minority interests (144.3) (150.8) (4.3) 50.6 (186.5)

Net profit 1,074.2 1,563.7 (31.3) (31.7) 2,579.1

Core net profit 1,051.8 1,341.1 (21.6) (26.9) 2,579.1 In line, 41% of our full-y ear estimate

EPS 47.1 68.5 (31.3) (31.7) 113.0

Core EPS 46.1 58.8 (21.6) (26.9) 113.0 SOURCE: CIMB, COMPANY REPORTS

Page 16

Property DevelopmentHong Kong

August 3, 2014



Asset injection is a catalyst in 2H 1H14s core profit was largely in line at 46% of our full-year forecast as we expect stronger 2H earnings to be backed by its high sales revenue lock-in. But we trim our FY15-16 GPM estimates by about 1-2% and, accordingly, revise down our FY15-16 earnings by 6-8%. COLI will speed up its contracted sales in 2H in light of its abundant saleable resources. We also think it is one of the major beneficiaries from the HPR easing given its heavy exposure in these areas. We foresee the parents asset injections happening in 2H. We maintain our Add call with a higher target price as we narrow the target discount to RNAV from 10% to 5% to reflect the potential catalyst from asset injections.

Cant exclude the likelihood of asset injections in near future It has been one year since Aug 2013 when COLI said it would acquire its parent companys real estate assets. Part of the parents real estate projects have already been entrusted to COLIs management since Jan 2014. COLIs cash on hand increased by 20% to HK$50bn in 1H14, so it is financially well prepared for the asset injection. According to CSCECLs operation report in 1H14, the parent companys other landbank (excluding COLI) could be up to 22.5m sq m Currently, CSCECL is trading at 4.6x FY13 P/E and 0.8x FY13 P/BV, much lower than COLIs current 10x FY13 P/E and 1.8 FY13 P/BV. We think that potential asset injections are likely to be RNAV-accretive for COLI.

Expect 2H contracted sales to improve COLI is still keeping its full-year saleable resources unchanged at HK$220bn. We project contracted sales increasing by more than 10% to HK$155bn-160bn in 2014, implying a sell-through rate of slightly above 70%, vs. over 75% in 2013. COLI is one of major beneficiaries of the HPR easing in China given its heavy exposure in these areas (68% of RNAV, excluding tier-1 cities).

GPM should stay decent COLI reported a 1H14 GPM of 33.6%. However, excluding the impact of sales recognition from social housing and repurchase of three JCE projects, GPM for its regular projects should have been 35.8%. As bookings for the low-margin projects were almost at the tail end in 1H14, we expect GPM to improve slightly in 2H, and full-year GPM to reach 34.2% in FY14 We conservatively estimate a mild decline for margins to 32.7% in FY15, and 33.3% in FY16.

CIMB Analyst(s)

Johnson HU, CFA T (852) 2532 1117 E [email protected]

Linda LIN T (852) 2539 1321 E [email protected]


Relative 17.9 11.4 -7.5

Absolute 23.7 22.2 3.6


China Overseas Holdings 53.1


China Overseas Land 1HFY14 RESULTS NOTE 688 HK / 0688.HK Current HK$23.25



Conviction| |


Results comparison FYE Dec (HK$m) 1HFY14 1HFY13 yoy % hoh % Prev.

chg chg FY14F Comments

Rev enue 49,575.0 32,188.5 54.0 (1.4) 103,456.2 48% of our FY14 forecast

Operating costs (34,281.2) (21,714.9) 57.9 (6.7) (71,318.5)

EBITDA 15,293.7 10,473.6 46.0 13.0 32,192.2

EBITDA margin (%) 30.8 32.5 31.1 Slightly below

Depn & amort. - - - - (54.6)

EBIT 15,293.7 10,473.6 46.0 13.0 32,137.6

Interest ex pense (185.0) (151.3) 22.3 33.0 (442.4) In line

Interest & inv t inc 554.0 375.9 47.4 4.8 754.5 Abov e

Associates' contrib 975.1 1,628.7 (40.1) (54.5) 3,798.1 Below

Ex ceptionals 2,956.1 3,782.2 165.3 -

Pretax profit 19,593.9 16,109.1 21.6 14.1 36,247.8

Tax (6,537.6) (5,008.8) 30.5 28.2 (12,529.0)

Tax rate (%) 33.4 31.1 34.6 Below , LAT is equiv alent to 5% of property dev elopment rev enue and effectiv e income tax rate is 23%

Minority interests (34.2) (67.8) (49.5) (49.2) (260.8)

Net profit 13,022.1 11,032.5 18.0 8.4 23,458.0

Core net profit 10,805.0 8,195.9 31.8 (3.3) 23,458.0 In line, 46% of our FY14 forecast

EPS (cents) 159.33 135.0 18.0 8.4 287.02

Core EPS (cents) 132.20 100.3 31.8 (3.3) 287.02 SOURCE: CIMB, COMPANY REPORTS

Page 17

ConglomerateHong Kong

August 1, 2014



Europe is now a helping hand HWLs 1H14 core net profit of HK$13.5bn represented 40% of our previous FY14 forecast, and was broadly in line with expectations as this is consistent with trends in previous years. Earnings were powered by better retail profit, while property development was a large drag. Growth of 13% yoy in 1H14 was slower than that observed in FY13. We believe that HWLs European operations will help to drive continued growth in the near term, especially as the continents growth accelerates. Maintain Add. We value HWL at a 15% discount to NAV. Our earnings forecasts are reduced by 2-9% for FY14/15, largely due to weaker property assumptions for sales in the Mainland.

European operations now more resilient HWL disclosed that 1H14 EBIT growth of 3% was heavily driven by its European businesses. HWLs EBIT in Europe improved by 18% yoy, whereas non-Europe EBIT fell by 4% yoy. Admittedly, this difference was distorted by the strength of the euro and pound in the half, but underlying trends remain positive as well. Growth in the European operations stemmed from a continued improvement in 3G Europe, where EBIT jumped 23% yoy. The groups retail businesses in Europe also observed EBIT growth of 18% yoy due to continued store growth and further margin improvement.

Property dragging down the group Property earnings were significantly weaker than we had expected, with both EBITDA and EBIT for the overall property segment falling 35% yoy. The large fall was attributable to slower property sales in the Mainland, particularly in Tier 1 and 2 cities which had been affected by local purchase and pricing restrictions. Management has now reduced its 2014 residential properties sales target from 10,700 to 7,200 units.

Still more upside, in our view We believe that investors are waiting for catalysts in the form of M&A activity, with consolidation in Italy likely being considered at the moment. While usage of its cash from recent divestments is rightfully important, we believe that organic growth drivers are largely pointing in the right direction as well, and this could drive a narrowing of HWLs discount to NAV from its current 28%.

CIMB Analyst(s)

Andrew ORCHARD T (852) 2539 1331 E [email protected]

Stella XING T (852) 2539 1314 E [email protected]


Relative -6.8 -11.9 8

Absolute 0 0 21.1


Cheung Kong Holdings 52.5


Hutchison Whampoa 1HFY14 RESULTS NOTE 13 HK / 0013.HK Current HK$106.0



Conviction| |


1H14 results summary

Year end 31 Dec (HK$ m) 1HFY14 1HFY13yoy %

chg 2HFY13hoh %

chg 6MFY14 6MFY13yoy %

chgPrev

FY14F CommentsRevenue 130,734 123,262 6.1 132,972 (0.0) 130,734 123,262 6.1 279,044 Operating costs (108,044) (103,096) 4.8 (107,986) 0.0 (108,044) (103,096) 4.8 (218,079) EBITDA 22,690 20,166 12.5 24,986 (0.1) 22,690 20,166 12.5 60,965 EBITDA margin (%) 17.4 16.4 18.8 17.4 16.4 21.8 Depre & amort 8,348 7,699 8.4 8,151 0.0 8,348 7,699 8.4 15,958 Operating profit 27,436 26,961 1.8 31,868 (0.1) 27,436 26,961 1.8 64,906 Net interest income (3,904) (4,335) (9.9) (4,056) (0.0) (3,904) (4,335) (9.9) (8,436) Exceptionals 14,921 388 3,746 (304) (50.1) 14,921 388 3,746 13,150 Profit before tax 38,453 23,014 67.1 27,508 0.4 38,453 23,014 67.1 69,620 Tax (5,689) (7,017) (18.9) (4,725) 0.2 (5,689) (7,017) (18.9) (12,314) Tax rate (%) 14.8 30.5 17.2 14.8 30.5 17.7 Minority interests (4,321) (3,599) 20.1 (4,069) 0.1 (4,321) (3,599) 20.1 (10,046) Net profit 28,443 12,398 129.4 18,714 0.5 28,443 12,398 129.4 47,260 Core net profit 13,522 12,010 12.6 19,018 (0.3) 13,522 12,010 12.6 34,110 EPS (HK$) 6.67 2.91 129.4 4.39 0.5 6.67 2.91 129.4 11.09 Core EPS (HK$) 3.17 2.82 12.6 4.46 (0.3) 3.17 2.82 12.6 8.00

EBITDA growth mainly fueled by Europe 3G business and Finance & Investments and Others

Tax rate significantly drop due to the one-off gain from HK electricity listing

Gain of HK$16bn recognized due to listing of Power Assets


Page 18

Travel and LeisureGaming

August 1, 2014

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. CIMB Securities Limited has had an investment banking relationship with Macau Legend Development Ltd within the preceding 12 months. Designed by Eight, Powered by EFA

HONG KONG GAMING

SECTOR FLASH NOTE |

More GGR downside likely Gross gaming revenue (GGR) reached MOP28.4bn in Jul (-4% yoy), in line with market expectations. We expect GGR to see, on average, low single-digit yoy growth for the remainder of the year due to last years high base along with muted VIP growth. We keep our long-term Overweight rating on the Macau gaming sector, based on our FY15 sector growth estimate, where we expect GGR to return to double-digit growth on the back of new capacity. Our top pick is Galaxy as it will have the earliest new capacity opening in 2015.

Figure 1: Macau monthly GGR

Title:

Source:

Please fill in the values above to have them entered in your report

-10%-5%0%5%10%15%20%25%30%35%40%45%

- 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

GGR MOPbn yoy growth %

SOURCES: CIMB, DICJ

What Happened Jul GGR reached MOP28.4bn (-4% yoy, +4% mom) and YTD GGR has risen by 10% yoy to MOP221.5bn.

What We Think We attribute the weakness in Jul to a combination of a persistently soft VIP gaming market and some negative impact from World Cup gambling. Based on our conversations with sources in the gaming industry, we believe VIP revenue is likely to gradually improve over the next few months but growth is unlikely to rebound significantly. We forecast Aug GGR to reach MOP30.6bn (-0.4% yoy, +7.7% mom) and maintain our view that GGR growth will finish the year at 6.6% yoy (vs. consensus estimates of 10-12%). We are forecasting 28%/-3%/5% growth for mass/VIP/slots. GGR over the past 19 months during non-China holiday months has averaged MOP29.3bn. To reach our 6.6% GGR growth forecast, assuming a record MOP39.5bn in Oct, GGR for the remaining four non-holiday months of the year has to average MOP30.9bn. For GGR to reach 10% consensus growth while taking into account our Oct forecast, GGR would have to jump to an average of MOP34bn per non-holiday month. This could be challenging given that Sept and Nov are seasonally weaker months.

What You Should Do The sector is trading at 13x forward consensus EV/EBITDA (vs. 3-year average of 12x), which is an undemanding valuation. However, given the high probability of consensus GGR downgrades to around 5-7% GGR growth, we believe the sector could remain volatile in the short term. While we remain long-term positive on the Macau gaming sector, we advocate waiting for better entry points until the market is factoring in mid-single digit GGR growth for this year.


CIMB Analyst(s)

Michael TING T (852) 2532 1121 E [email protected]

Stella XING T (852) 2539 1314 E [email protected]


Page 19

August 1, 2014


CHINA

ECONOMIC UPDATE

Better-than-expected PMI shows stabilisation in Chinas economy Chinas manufacturing PMI reached a 27-month high, signaling improved economic conditions in China. Targeted monetary loosening and rising government expenditure were the main support for the recovery in the manufacturing sector. We believe the government will stay with targeted easing and proactive fiscal policy in the coming months to ensure steady economic growth. Meanwhile, the government is likely to speed up the pace of reforms from 2H14 onwards to sustain economic growth over the long run.

News Chinas official manufacturing PMI surprised the market on the upside in Jul 14. The index climbed to 51.7 in the month from 51.0 in Jun 14 (consensus: 51.4, CIMB: 51.2), recording a 27-month high.

Analysis We observed that the output index gained 1.2pts to 54.2 in Jul 14 as orders were boosted by the government. The leading indicator, new orders, also hit a 27-month high of 53.6, implying that demand conditions are improving.

In Jul 14, new export orders reached 50.8, up 0.5pt compared with Jun 14s 50.3, and the imports sub-index edged up by 0.1pt to 49.3, indicating that growth momentum for trade conditions is likely to continue in Jul 14.

The quantity of purchases accelerated by 1.0pt to 53.0 in Jul 14, reflecting enterprises recovering confidence. As a result, input prices rose 0.4pt to 50.5 in the month.

Implications The improvement in the manufacturing PMI in Jul 14 remained the result of recent targeted easing and the governments supportive measures. However, given a mild recovery in endogenous growth (see our note on 29 Jul 2014) as well as overhangs from softened property investment, we still believe the government will stick with proactive fiscal policy and targeted monetary easing in the near term to ensure steady economic growth.

Both the State Council and the central bank have recently urged commercial banks to lower borrowing cost for corporates. We believe this will be the major focus area for the authority in 2H14 given financing difficulties and limited access to credit for small-sized enterprises. In the money market, the central bank lowered the rate of its 14-day repurchase agreement in end-Jul 14 to guide down borrowing cost. We also project more relending and PSL (pledged supplementary loans) from the central bank to qualified banks and policy banks while the proportion of direct financing is also likely to increase given the development of the bond and equity markets in the coming months.

Given the better-than-expected PMI readings and statement by the government that the current pace of economic growth is acceptable, we believe policy makers will speed up the pace for a series of reforms from 2H14 onwards. The State Council announced a detailed plan for household registration reform in end-Jul 14 and we believe more announcements will be made in 2H14 and 2015, such as reforms for SOEs, fiscal policy, land regulations and the financial sector as well as guidelines for changes in the governments function.


CIMB Analyst(s)

Fan ZHANG T (86) 21 5047 1771 x110 E [email protected]

Show Style "View Doc Map" "View Doc Map"

Page 20

Property DevelopmentIndia

August 2, 2014



Waiting for demand recovery While EBITDA margins improved in 1QFY3/15, presales of Rs3.1bn were the lowest in last five years. 1QFY15 EPS formed only 10% of our FY15 forecast, but we consider it as above as we expect a significant pick-up in 2HFY15. DLF guided for muted FY15 presales of Rs30bn-35bn (vs. Rs40bn in FY14) as it remains uncertain about demand recovery. DLF plans to launch relatively lower ticket sized residential projects in 2HFY15, and success in such projects would be critical for sales volumes and cashflow. We maintain Reduce, with a higher SOP-based target price as we roll forward our DCF-based gross asset value (GAV) from FY15 to FY16 and reduce the discount to 10% (from 20%). Slower demand and launch delays are potential de-rating catalysts.

Weak operating performance continues 1QFY15 revenue fell 25% yoy to Rs17.3bn (Rs5.25bn annuity income). EBITDA came in at Rs7.4bn with margins of 42.7% (+315bp yoy) due to revenue recognition in its higher-margin Gurgaon project (Camellias) and lower costs (due to the sale of Aman hotel and Pramerica). Finance costs remained high at Rs5.6bn despite the significant asset sales as gross debt remained high. Net profit fell 29% yoy to Rs1.3bn. DLF generated positive operating cashflow of Rs3.8bn vs. interest outflow of Rs7.6bn. Sales booking remained weak, at Rs3.1bn from the sale of 0.4m sq ft in 1Q (Rs40.7bn from 3.8m sq ft in FY14). Higher leasing (largely in Gurgaon) of 0.71msf (FY15 guidance: 1.5msf) was positive. Gross/net debt rose to Rs240bn/Rs191bn in 1Q15 from Rs223bn/Rs185bn in FY14 due to operational capex (land/government charges), and maintain higher liquidity (given the near-term liabilities).

Muted guidance: still waiting for demand recovery Despite the recent change in government and improving business sentiment, economy and policies, DLF maintained its muted outlook and guided for conservative presales of Rs30bn-35bn in FY15 (vs. Rs40bn in FY14) as it is still uncertain about the recovery timeline. Apart from its plans to monetise its mature inventory (Rs40bn of finished stock and Rs130bn of launched/ under-construction projects), DLF plans to launch relatively lower ticket sized residential projects (Shivaji Marg in Delhi: 1msf @Rs17,000/sf; Sector 70 in New Gurgaon: 1msf @ Rs 9000/sf) in 2HFY15 as the market improves.

CIMB Analyst(s)

Prakash AGARWAL T (91) 22 6602 5153 E [email protected]

Nishith SANGHVI T (91) 22 6602 5152 E [email protected]


Relative -7.2 29.5 13.7

Absolute -7.3 43.2 45.6


Promoters - Singh Family 75.0 Janus Overseas Fund 2.2 Govt. of Singapore 1.6


DLF Ltd 1QFY15 RESULTS NOTE DLFU IN / DLF.BO Current Rs200.8

Market Cap Avg Daily Turnover Free Float Target Rs170.0

US$5,846m US$46.62m 25.0% Prev. Target Rs140.0 Rs357,661m Rs2,778m 10,777 m shares Up/Downside -15.3%

Conviction| |


Results Comparison

YE Mar (Rs m) 1Q FY15 1Q FY14 yoy % chg

4Q FY14 qoq % chg

Prev. FY15F Comments

Revenue 17,252 23,141 -25 19,695 -12 91,916 22% below estimatesGross profits 10,123 12,936 -22 9,370 8 55,150Gross margins 58.7 55.9 60.0

Staff 740.8 1,451 -49 1,030 -28 6,047Other expenses 2,013 2,329 -14 4,711 -57 14,379EBITDA 7,369 9,156 -20 3,629 103 34,723 20% higher than estimates due to revenue recognition of high margin projects EBITDA margin (%) 42.7 39.6 18.4 37.8

Depn & amort. 1,345 1,782 -25 1,627 -17 -6,722Interest expense 5,581 5,914 -6 6,297 -11 17,362Exceptional item 295 - -Pretax profit 1,413 2,909 -51 1,193 18 -17,901Tax 302 913 5,585Tax rate (%) N.A 31 31

Net profit 1,278 1,812 -29 2,197 -42 13,018

EPS (Rs/ share) 0.7 N.A N.A 1 -42 7.3175% higher than estimates


Page 21

IT ServicesIndia

August 1, 2014



Outlook remains robust At 103% of our full-year estimate, HCLTs FY14 EPS was above estimates due to higher other income and lower tax. Although IMS/software services growth slowed down qoq in 4Q14, we expect it to pick up in the coming quarters, driven by a strong order book and healthy continued deal win momentum (US$5bn+ in total contract value (TCV) in FY14, including three mega wins). We raise our FY15-16 EPS by 1-3% (for higher margins) and our target price, which is based on 14.9x 1-year forward P/E, an unchanged ~20-25% discount to the industry benchmark, TCS. We maintain Add with sustained growth beyond IMS and improving cash flow distribution the key catalysts.

4QFY14: Operationally better, revenue growth tad lower HCLTs 4Q US$ revenue growth of 3.4% qoq (below our +3.7% estimate) was driven by IMS (+3.7%) and BPO (+17.1%) while software services growth of 2.1% was muted. The EBIT margin decline of 46bp qoq (+333bp yoy) to 24.2% was ahead vs. our forecast of a 96bp decline as G&A optimisation, an 80bp increase in fixed price projects and a 30bp utilisation improvement partially offset headwinds from currency appreciation, wage inflation and large deal transition cost. Besides higher-than-expected operational profits, higher other income and lower tax led to a PAT of Rs18.3bn, ~12% ahead of our estimate.

Record quarterly TCV win drives strong revenue visibility Although the 2.7% qoq growth in non-BPO services in 4Q14 was disappointing, a quarterly record order intake (we estimate TCV of US$1.5bn+ in 4Q, with total wins worth US$5bn+ in FY14) indicates that the growth momentum should improve in the coming quarters not only in IMS but also in software services (healthy order book in FY14 for non-IMS services). Considering HCLTs consistent strong execution for driving productivity gains, we expect its earnings momentum to remain healthy in the near-medium term.

Improved cash flow resulting in higher dividend pay-out In line with our earlier expectation, HCLT increased its dividend pay-out ratio to 28% in FY14 vs. 24% in FY13, with a Rs12/share dividend announced in 4QFY14. We believe our 14.9x target P/E is justified given HCLTs strong cash generation (FCF/PAT of 93% for FY14, which is one of the best amongst peers), 30%+ ROE and 14% EPS CAGR over FY14-17.

CIMB Analyst(s)

Sandeep SHAH T (91) 22 6602 5159 E [email protected]

Srinivas SESHADRI T (91) 22 6602 5160 E [email protected]

Anubhav JAIN T (91) 22 6602 5161 E [email protected]


Relative 1.8 -4.7 32

Absolute 3.7 10.8 65.9


Shiv Nadar and related parties 61.6 LIC 1.2 Warhol Ltd 1.1


HCL Technologies 4QFY14 RESULTS NOTE HCLT IN / HCLT.BO Current Rs1,555

Market Cap Avg Daily Turnover Free Float Target Rs1,800

US$17,977m US$26.34m 38.4% Prev. Target Rs1,680 Rs1,088,673m Rs1,573m 700.0 m shares Up/Downside 15.7%

Conviction| |


Results Comparison

FYE June (Rs m) 4QFY14 4QFY13 yoy % chg

qoq % chg

FY14 FY13 yoy % chg

Prev. FY14F

Comments

Revenue (US$m) 1,407 1,228 14.60 3.36 5,360 4,686 14.37 5,359Revenue 84,239 69,442 21.31 0.90 329,183 257,337 27.92 329,322Operating costs 62,070 53,281 16.50 1.47 242,505 199,769 21.39 243,003EBITDA 22,169 16,161 37.17 -0.68 86,678 57,568 50.57 86,318EBITDA margin (%) 26.32 23.27 26.33 22.37 26.21

Depn & amort. 1,771 1,677 5.60 2.96 7,321 6,725 8.87 7,335EBIT 20,398 14,484 40.83 -0.98 79,357 50,844 56.08 78,984Interest expense -135 -188 nm nm -485 -1,001 nm -485Interest & invt inc 2,245 665 237.6 52.46 6,215 2,770 124.4 5,443Others -550 305 nm nm -5,910 -198 nm -6,011Pretax profit 21,958 15,267 43.82 6.96 79,177 52,416 51.06 77,930Tax -3,620 -3,290 10.04 -15.62 -15,480 -12,161 27.29 -16,209Tax rate (%) 16.49 21.55 19.55 23.20 20.80 Tax rate of 16.5% was significantly lower than our estimate of 21%Minority interests 0.00 0.00 nm nm 0.00 0.00 nm 0.00Net profit 18,338 11,978 53.10 12.92 63,697 40,255 58.23 61,721EPS (Rs) 25.95 16.97 52.94 12.91 90.14 57.06 57.97 87.35

HCLT reported a forex loss of Rs550m (0.7% of revenue) vs loss of Rs1,420 (1.7% of revenue) in 3Q14

US$ revenue growth of 3.4% qoq (constant currency growth of 2.8% qoq) was below our expectation of 3.7% growth

EBIT margin was down ~50bp qoq vs our expectation of 96 bp decline as headwinds were partially offset by G&A optimisation and operational efficiency. Headwinds for the quarter were currency appreciation, wage inflation and large deal transition cost

HCLT declared a interim/special dividend of Rs12/share resulting in Rs22/share dividend for FY14


Page 22

ConstructionIndia

August 1, 2014



Focused on balance sheet correction HCC recorded a 39% yoy improvement in 1Q EBITDA to Rs1.41bn, just 2.8% below our estimate. But higher depreciation and interest expenses led to a 1Q core net loss of Rs203m, as compared to our profit estimate of Rs21mn. Management focused on a long overdue claim settlement to the benefit of Rs600m in the quarter, leading to reported PAT of Rs271m. Its plans to reduce debt by 20% in FY3/15 with the help of aggressive claims follow-up, equity fund raising and the sale of subsidiaries impress us. This should place it well to participate in the next wave of infrastructure building in the country. We maintain our numbers as we expect the management to improve its balance sheet. We increase our target price by 0.7% as we roll forward. Maintain Add, with potential triggers to come from equity raising and better valuations.

Marginal miss in 1Q EBITDA HCC recorded 39% yoy growth in 1Q EBITDA to Rs1.41bn despite a weak sales performance (-5.5% yoy). Managements focus on claiming its receivables from clients helped it gain Rs600m to benefit EBITDA, leading to reported PAT of Rs271m. Higher interest expenses were due to interest bearing advances received from new client orders, whereas gross debt remained flat qoq.

Management guides for 20% debt reduction in FY15 In the analyst meeting, management reiterated its strategy of 20% debt reduction in FY15, with help from aggressive receivables collection through court arbitrations, road asset sale proceeds and equity fund raising. We maintain our FY15 estimate of returning to profitability.

Subsidiary value unlocking possibility We reiterate an Add rating and maintain our SOP-based target price. Favourable equity markets provide scope for unlocking subsidiary value, such as the recent filing to list Lavasa at a valuation upwards of Rs40bn, i.e. 33% higher than our estimated valuation, leading to an 18% upside to our SOP-based target price.

CIMB Analyst(s)

Pramod AMTHE T (91) 22 6602 5167 E [email protected]

Jay KALE, CFA T (91) 22 6602 5168 E [email protected]


Relative -17 92.4 365.5

Absolute -15.1 107.9 399.4


HINCON Holdings 43.5 SIWA Holding Ltd 5.6 HSBC Global 3.0


Hindustan Construction 1QFY15 RESULTS NOTE HCC IN / HCNS.BO Current Rs39.70

Market Cap Avg Daily Turnover Free Float Target Rs53.90

US$423.4m US$4.92m 56.5% Prev. Target Rs53.50 Rs25,639m Rs292.5m 645.8 m shares Up/Downside 35.8%

Conviction| |


Results Comparison

FYE Mar (Rs m) 1QFY15

1QFY14

yoy % chg

qoq % chg

Prev. FY15F

Comments

Revenue 9,853 10,429 (5.5) (14.7) 44,123 Operating costs 8,442 9,412 (10.3) (14.2) 38,211 EBITDA 1,411 1,017 38.7 (17.5) 5,913 EBITDA margin (%) 14.32 9.76 456.2 (48.2) 13.40

Depn & amort. 369 371 (0.6) 20.5 1,466 EBIT 1,042 646 61.2 (25.7) 4,497 Interest expense 1,562 1,489 4.9 3.9 5,824 Interest expense 11.5% above estimatesOther Income 316 148 113.9 (30.9) 1,450 Pretax profit (203) (694) (70.7) (156.7) 123 Tax - 113 (100.0) (100.0) 42 Tax rate (%) - (16) nm nm 35 Net profit 271 192 40.8 10.9 81 Exceptionals 474 1,000 nm nm - Core net profit (203) (808) (74.8) (194.3) 81 EPS (Rs) 0.4 0.3

2014.08.01_medc - an oil-short 1h14 by cimb

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