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Asia Pacific Daily See important disclosures, including any required research certifications, beginning on page 27. 12 February 2014 Major changes Analyst Rating Page China Citic Bank (998 HK) Leon Qi Underperform Outperform P.2 Valuation looks to have troughed Target price 10.3% to HKD4.3 Other research Chailease Holding (5871 TT) Jerry Yang Outperform P.5 A case of déjà vu? Chroma ATE (2360 TT) Christine Wang Outperform P.8 Automation projects set to take off Globe Telecom (GLO PM) Ramakrishna Maruvada Buy P.12 4Q13: costs disappoint Memos – quick updates China Marine Sector Kelvin Lau P.16 Top 8 ports recorded only a 6.5% YoY increase in throughput for January as a result of early Chinese New Year holiday this year Hutchison Port Holdings Trust (HPHT SP) Kelvin Lau P.18 Weak 2013 results, but yield still looks attractive Lotte Chemical (011170 KS) Jun Yong Bang P.19 Adds a long-term growth engine, but near-term uncertainties persist Vard Holdings (VARD SP) Benjamin Lim P.20 Two new orders in quick succession Daiwa’s Banner Products P.21 Economic calendar – February 2014 P.22 Rating and target-price information P.23 Recently published reports P.23 Company Roadshows Date Company Event Venue 14 Feb Luk Fook (590 HK) Telecon. Global 14, 19 Feb Econtext Asia (1390 HK) NDR HK 17-18 Feb Econtext Asia (1390 HK) NDR SG 18 Feb APT Satellite (1045 HK) Luncheon HK 18 Feb APT Satellite (1045 HK) Video Con. SG 18 Feb APT Satellite (1045 HK) Video Con. Tokyo 18-19 Feb Sunlight REIT (435 HK) NDR Tokyo 19-20 Feb Mediatek (2454 TT) NDR HK 20-21 Feb BTS Group (BTS TB) NDR Tokyo 21 Feb 21Vianet (VNET US) NDR HK 24 Feb Dah Chong Hong (1828 HK) NDR HK 24 Feb Dah Chong Hong (1828 HK) Video Con. 27 Feb Hang Lung Properties (101 HK) Video Con. Tokyo 27 Feb KPJ Healthcare Bhd (KPJ MK) NDR HK 28 Feb China Fiber Optic (3777 HK) Luncheon HK 28 Feb China Fiber Optic (3777 HK) Video Con. SG 4-5 Mar Dah Chong Hong (1828 HK) NDR US 10 Mar Prosperity REIT (808 HK) Video Con. Tokyo 10-11 Mar Shin Corp PCL (INTUCH TB) NDR SG Daiwa Asian Events Date Company Venue 13-14 Feb Daiwa ASEAN Conference-Philippine Corporate Day Tokyo 2014 Tokyo 3-7 Mar Daiwa Investment Conference Tokyo 2014 Tokyo 15-17 Apr Daiwa Consumer and Gaming Conference 2014 HK 27-28 May Daiwa Investment Conference New York 2014 New York 30 May Daiwa Investment Conference San Francisco 2014 San Francisco 2-3 Jun Daiwa Investment Conference London 2014 London Source: Daiwa Regional indices Performance chg (%) EPS growth (%) PER (x) Market 1D 1M YTD 13E 14E 13E 14E TPX 1.3 (7.3) (7.5) 71.0 8.8 14.8 13.6 HSCEI 2.5 (3.0) (8.9) 10.2 8.5 6.1 5.6 HSI 1.8 (3.9) (5.8) 10.4 6.4 10.1 9.5 KOSPI 0.5 (0.3) (3.9) 3.8 31.2 12.5 9.5 TWSE 0.5 (1.2) (2.1) 36.4 10.7 15.9 14.3 SENSEX* 0.1 (1.9) (3.8) 8.2 18.2 16.2** 13.7** FSSTI 0.4 (3.7) (4.4) (3.7) 8.8 14.4 13.3 FBMKLCI* 0.4 (0.1) (2.3) (1.2) 7.2 16.4** 15.2** SET* 0.4 3.2 (0.2) 12.2 11.7 12.1** 10.9** PCOMP* 1.1 4.5 3.7 7.9 7.4 18.9** 17.6** JCI* 0.4 5.1 4.6 2.6 10.6 14.5** 13.1** AS51 0.6 (1.1) (1.8) 7.1 9.0 14.8 13.6 Source: Thomson Reuters *Valuation based on MSCI Universe **MSCI index priced as of 10 Feb

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Page 1: Asia Pacific Dailyasiaresearch.daiwacm.com/eg/cgi-bin/files/Daily12Feb14.pdf · 15-17 Apr Daiwa Consumer and Gaming Conference 2014 HK 27-28 May Daiwa Investment Conference New York

Asia Pacific Daily

See important disclosures, including any required research certifications, beginning on page 27.

12 February 2014

Major changes Analyst Rating Page

China Citic Bank (998 HK) Leon Qi Underperform →

Outperform

P.2

Valuation looks to have troughed

Target price ↑10.3% to HKD4.3 Other research

Chailease Holding (5871 TT) Jerry Yang Outperform P.5

A case of déjà vu?

Chroma ATE (2360 TT) Christine Wang Outperform P.8

Automation projects set to take off

Globe Telecom (GLO PM) Ramakrishna

Maruvada

Buy P.12

4Q13: costs disappoint Memos – quick updates

China Marine Sector Kelvin Lau P.16

Top 8 ports recorded only a 6.5% YoY increase in throughput for January as a result of early Chinese New Year holiday this year

Hutchison Port Holdings Trust (HPHT SP) Kelvin Lau P.18

Weak 2013 results, but yield still looks attractive

Lotte Chemical (011170 KS) Jun Yong Bang P.19

Adds a long-term growth engine, but near-term uncertainties persist

Vard Holdings (VARD SP) Benjamin Lim P.20

Two new orders in quick succession

Daiwa’s Banner Products P.21 Economic calendar – February 2014 P.22 Rating and target-price information P.23 Recently published reports P.23

Company Roadshows

Date Company Event Venue 14 Feb Luk Fook (590 HK) Telecon. Global 14, 19 Feb Econtext Asia (1390 HK) NDR HK 17-18 Feb Econtext Asia (1390 HK) NDR SG 18 Feb APT Satellite (1045 HK) Luncheon HK 18 Feb APT Satellite (1045 HK) Video Con. SG 18 Feb APT Satellite (1045 HK) Video Con. Tokyo 18-19 Feb Sunlight REIT (435 HK) NDR Tokyo 19-20 Feb Mediatek (2454 TT) NDR HK 20-21 Feb BTS Group (BTS TB) NDR Tokyo 21 Feb 21Vianet (VNET US) NDR HK 24 Feb Dah Chong Hong (1828 HK) NDR HK 24 Feb Dah Chong Hong (1828 HK) Video Con. 27 Feb Hang Lung Properties (101 HK) Video Con. Tokyo 27 Feb KPJ Healthcare Bhd (KPJ MK) NDR HK 28 Feb China Fiber Optic (3777 HK) Luncheon HK 28 Feb China Fiber Optic (3777 HK) Video Con. SG 4-5 Mar Dah Chong Hong (1828 HK) NDR US 10 Mar Prosperity REIT (808 HK) Video Con. Tokyo 10-11 Mar Shin Corp PCL (INTUCH TB) NDR SG

Daiwa Asian Events

Date Company Venue 13-14 Feb Daiwa ASEAN Conference-Philippine

Corporate Day Tokyo 2014 Tokyo

3-7 Mar Daiwa Investment Conference Tokyo 2014 Tokyo 15-17 Apr Daiwa Consumer and Gaming Conference

2014 HK

27-28 May Daiwa Investment Conference New York 2014

New York

30 May Daiwa Investment Conference San Francisco 2014

San Francisco

2-3 Jun Daiwa Investment Conference London 2014

London

Source: Daiwa

Regional indices

Performance chg

(%)

EPS growth

(%) PER (x)

Market 1D 1M YTD 13E 14E 13E 14ETPX 1.3 (7.3) (7.5) 71.0 8.8 14.8 13.6 HSCEI 2.5 (3.0) (8.9) 10.2 8.5 6.1 5.6 HSI 1.8 (3.9) (5.8) 10.4 6.4 10.1 9.5 KOSPI 0.5 (0.3) (3.9) 3.8 31.2 12.5 9.5 TWSE 0.5 (1.2) (2.1) 36.4 10.7 15.9 14.3 SENSEX* 0.1 (1.9) (3.8) 8.2 18.2 16.2** 13.7** FSSTI 0.4 (3.7) (4.4) (3.7) 8.8 14.4 13.3 FBMKLCI* 0.4 (0.1) (2.3) (1.2) 7.2 16.4** 15.2** SET* 0.4 3.2 (0.2) 12.2 11.7 12.1** 10.9** PCOMP* 1.1 4.5 3.7 7.9 7.4 18.9** 17.6** JCI* 0.4 5.1 4.6 2.6 10.6 14.5** 13.1** AS51 0.6 (1.1) (1.8) 7.1 9.0 14.8 13.6 Source: Thomson Reuters *Valuation based on MSCI Universe **MSCI index priced as of 10 Feb

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- 2 -

■ What's new Post China Citic Bank’s (Citic Bank) 20% share-price fall since November, we believe it is trading at a trough valuation. Also, the bank’s plan to raise its NPL write-off for 2013 should ease pressure on provision charges. ■ What's the impact Citic Bank announced (on 27 January) that it will increase its NPL write-off for 2013 from CNY2bn to CNY5.2bn. We believe this will ease the pressure on the bank’s provision charges over 2013-15. Citic Bank has seen a significant acceleration in its rate of underlying NPL formation since 4Q12. It is now seeking to allocate more resources to enhance revenue growth, rather than collect more NPLs. From an accounting perspective, given Citic Bank’s provisioning-coverage ratio of above 200% at end-3Q13, increasing its NPL write-off should lead to higher

provision-coverage ratios and hence reduce its provision pressure. We think the steep declines seen in China banks’ share prices since November last year reflect market concerns about rising short-term market rates. Citic Bank is not the most affected bank as some investors may perceive, as 13% of its total assets were funded through interbank means at end-1H13, similar to the average level for the China banks in our coverage.

China banks: funding mix (1H13)

Source: Companies

■ What we recommend We are raising our 2013-15E EPS by 3-5% to factor in lower provisions than we assumed before. Our new Gordon Growth Model implies a 2014E PBR of 0.8x (previously 0.7x), or a fair value of HKD5.55/share. Factoring in a 30% haircut for exposure to local government financing vehicles (HKD1.25/share), we derive a new 6-month target price of HKD4.30 (raised from HKD3.90), implying a target 2014E PBR of 0.6x. We upgrade Citic Bank to Outperform (2), from Underperform (4), as its valuation looks cheap and its higher NPL write-off for 2013 should provide an earnings uplift. The key risk is that Citic Bank might need to raise capital to sustain its loan growth given its below-sector-average earnings growth over 2012-13E and hence weaker internal capital generation.

China banks: valuation comparison Company Ticker 2014E PBR ICBC 1398 HK 0.89 CCB 939 HK 0.86 BOC 3988 HK 0.72 ABC 1288 HK 0.90 BOCOM 3328 HK 0.63 CMB 3968 HK 0.90 CITIC 998 HK 0.58 Minsheng 1988 HK 0.85 CEB 6818 HK 0.62 CRCB 3618 HK 0.58 Sector 0.81

Source: Bloomberg, Daiwa

■ How we differ Unlike the market, we do not expect Citic Bank’s provision charges to pick up much for 2013-15.

11 8 15 9 19 17 13 24 25 21

78 81 74 81 71 72 77 66 66 70

0%

20%

40%

60%

80%

100%

Interbank funding Deposit funding Other fundings

11 February 2014

Valuation looks to have troughed

• Down 20% since November • Its plan to increase its 2013

NPL write-off should reduce pressure on provision charges

• Raise target price to HKD4.30, upgrade to Outperform; valuation looks cheap

Source: Daiwa forecasts

Source: FactSet, Daiwa forecasts

Financials / China

China Citic Bank998 HK

BuyOutperform (from Underperform)

HoldUnderperformSell

1

2

3

4

5Target (HKD): 3.90 4.30 Upside: 9.7% 11 Feb price (HKD): 3.92

Leon Qi, CFA(852) 2532 4381

[email protected]

Grace Wu(852) 2532 [email protected]

Forecast revisions (%)Year to 31 Dec 13E 14E 15EPPOP change 1.3 1.6 1.8Net profit change 4.9 6.5 2.5Core EPS (FD) change 4.9 6.5 2.5

70

79

88

96

105

3.0

3.6

4.3

4.9

5.5

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

Share price performance

Citic Bk (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 3.39-5.21Market cap (USDbn) 23.643m avg daily turnover (USDm) 14.74Shares outstanding (m) 46,787Major shareholder CITIC Limited (61.9%)

Financial summary (CNY)Year to 31 Dec 13E 14E 15ETotal operating income (m) 97,082 104,871 117,676Pre-provision operating profit(m) 56,696 58,071 63,937Net profit (m) 33,176 32,942 33,915Core EPS (fully-diluted) 0.709 0.704 0.725EPS change (%) 6.9 (0.7) 3.0Daiwa vs Cons. EPS (%) (1.8) (10.0) (15.2)PER (x) 4.3 4.3 4.2Dividend yield (%) 5.3 5.3 5.4DPS 0.163 0.162 0.167PBR (x) 0.6 0.6 0.5ROE (%) 15.7 13.9 12.9

Page 3: Asia Pacific Dailyasiaresearch.daiwacm.com/eg/cgi-bin/files/Daily12Feb14.pdf · 15-17 Apr Daiwa Consumer and Gaming Conference 2014 HK 27-28 May Daiwa Investment Conference New York

Financials / China 998 HK

11 February 2014

- 3 -

Key assumptions

Profit and loss (CNYm)

Change (YoY %)

Source: FactSet, Daiwa forecasts

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ENet interest margin (%) 3.16 2.51 2.63 3.00 2.81 2.64 2.56 2.54NPL (%) 1.4 1.0 0.7 0.6 0.7 0.9 1.2 1.4Credit cost (bps) 81.2 25.1 36.0 42.7 83.7 69.9 70.4 83.9Provision coverage (%) 136 149 214 272 288 259 226 214Loan loss reserve (%) 1.92 1.42 1.44 1.62 2.12 2.39 2.66 3.05Loan growth (%) 27.0 45.9 18.6 13.4 16.0 14.0 12.5 11.5Deposit growth (%) 30.5 30.6 29.0 13.7 14.6 18.0 13.0 11.0Fee to income ratio (%) 8.9 10.3 10.1 11.5 12.5 16.2 16.5 16.1Expense to income ratio (%) 41.5 46.7 40.2 36.8 39.0 41.6 44.6 45.7

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ENet-interest income 37,351 35,984 48,135 65,106 75,486 78,473 84,451 95,393Net fees & commission 3,720 4,220 5,696 8,837 11,210 15,694 17,263 18,990Trading and other income 892 779 2,525 3,149 3,015 2,915 3,156 3,293Net insurance income 0 0 0 0 0 0 0 0Total operating income 41,963 40,983 56,356 77,092 89,711 97,082 104,871 117,676Personnel expenses (8,113) (8,921) (10,053) (12,294) (15,434) (18,521) (22,595) (27,114)Other expenses (9,322) (10,210) (12,585) (16,087) (19,545) (21,865) (24,205) (26,625)Total expenses (17,435) (19,131) (22,638) (28,381) (34,979) (40,386) (46,800) (53,740)Pre-provision operating profit 24,528 21,852 33,718 48,711 54,732 56,696 58,071 63,937Total provision (6,793) (2,619) (5,249) (7,207) (13,104) (12,147) (13,829) (18,383)Operating profit after prov. 17,735 19,233 28,469 41,504 41,628 44,548 44,242 45,553Non-operating income (22) 32 226 86 (19) (65) (71) (79)Profit before tax 17,713 19,265 28,695 41,590 41,609 44,483 44,170 45,475Tax (4,459) (4,705) (6,916) (10,746) (10,224) (10,930) (10,853) (11,174)Min. int./pref. div./other items 42 (240) (270) (25) (353) (377) (375) (386)Net profit 13,296 14,320 21,509 30,819 31,032 33,176 32,942 33,915Adjusted net profit 13,296 14,320 21,509 30,819 31,032 33,176 32,942 33,915EPS (CNY) 0.339 0.365 0.551 0.711 0.663 0.709 0.704 0.725EPS (adjusted) (CNY) 0.339 0.365 0.551 0.711 0.663 0.709 0.704 0.725EPS (adjusted fully-diluted) (CNY) 0.339 0.365 0.551 0.711 0.663 0.709 0.704 0.725DPS (CNY) 0.085 0.088 0.000 0.200 0.150 0.163 0.162 0.167

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ENet-interest income 42.7 (3.7) 33.8 35.3 15.9 4.0 7.6 13.0Non-interest income 158.4 8.4 64.5 45.8 18.7 30.8 9.7 9.1Total operating income 50.1 (2.3) 37.5 36.8 16.4 8.2 8.0 12.2Total expenses 47.8 9.7 18.3 25.4 23.2 15.5 15.9 14.8Pre-provision operating profit 51.8 (10.9) 54.3 44.5 12.4 3.6 2.4 10.1Total provisions 248.7 (61.4) 100.4 37.3 81.8 (7.3) 13.8 32.9Operating profit after provisions 24.8 8.4 48.0 45.8 0.3 7.0 (0.7) 3.0Profit before tax 24.6 8.8 48.9 44.9 0.0 6.9 (0.7) 3.0Net profit (adjusted) 42.0 7.7 50.2 43.3 0.7 6.9 (0.7) 3.0EPS (adjusted, FD) 32.0 7.7 51.1 29.0 (6.7) 6.9 (0.7) 3.0Gross loans 27.0 45.9 18.6 13.4 16.0 14.0 12.5 11.5Deposits 30.5 30.6 29.0 13.7 14.6 18.0 13.0 11.0Total assets 30.5 34.5 17.3 32.9 7.0 12.2 10.0 8.9Total liabilities 28.4 40.1 17.3 32.2 6.6 12.2 9.9 8.8Shareholders' equity 42.0 (13.9) 16.9 45.2 13.7 12.9 11.3 10.5Avg interest-earning assets 41.3 21.1 27.6 18.5 23.9 10.7 11.0 14.0Avg risk-weighted assets 19.8 48.2 25.2 22.9 14.5 16.6 12.5 8.8

Financial summary

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Financials / China 998 HK

11 February 2014

- 4 -

Balance sheet (CNYm)

Key ratios (%)

Source: FactSet, Daiwa forecasts

Company profile

Founded in 1987, China Citic Bank is the banking arm of CITIC group, a leading conglomerate in China. Traditionally a wholesale bank, China Citic Bank uses its strength in cross-selling and corporate relations with other entities under the parent group. It is also focused on developing its business in the medium and high-end retail segments.

As at 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ECash & equivalent 333,662 491,014 534,543 1,066,141 885,643 956,494 1,018,192 1,084,084Investment securities 223,759 209,442 273,483 255,859 404,743 465,246 502,466 528,195Net loans and advances 716,386 1,050,479 1,246,026 1,410,779 1,627,576 1,850,418 2,075,959 2,305,468Fixed assets 10,034 10,482 10,222 10,388 11,853 14,224 16,357 17,993Goodwill 0 0 0 0 0 0 0 0Other assets 35,729 13,614 17,040 22,714 30,124 34,527 39,585 43,218Total assets 1,319,570 1,775,031 2,081,314 2,765,881 2,959,939 3,320,909 3,652,559 3,978,958Customers deposits 1,030,403 1,344,682 1,741,545 1,968,051 2,255,141 2,661,066 3,007,005 3,337,776Borrowing 118,085 287,330 157,242 553,792 403,146 331,085 252,749 220,493Debentures 20,375 18,422 34,915 33,730 56,402 56,402 93,402 93,402Other liabilities 21,333 17,589 23,074 31,527 42,164 43,292 44,454 45,651Total liabilities 1,190,196 1,668,023 1,956,776 2,587,100 2,756,853 3,091,846 3,397,610 3,697,322Share capital 39,033 39,033 39,033 46,787 46,787 46,787 46,787 46,787Reserves & others 80,333 63,765 81,142 127,709 151,569 177,073 202,439 228,553Shareholders' equity 119,366 102,798 120,175 174,496 198,356 223,860 249,226 275,340Minority interests 10,008 4,210 4,363 4,285 4,730 5,203 5,723 6,296Total equity & liabilities 1,319,570 1,775,031 2,081,314 2,765,881 2,959,939 3,320,909 3,652,559 3,978,958Avg interest-earning assets 1,183,632 1,433,377 1,829,344 2,167,788 2,685,089 2,971,258 3,297,012 3,757,182Avg risk-weighted assets 746,547 1,106,648 1,385,262 1,702,861 1,949,578 2,273,864 2,558,666 2,784,925BVPS (CNY) 3.058 2.634 3.079 3.730 4.240 4.785 5.327 5.885

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ELoan/deposit 70.9 79.2 72.6 72.9 73.7 71.2 70.9 71.2Tier-1 CAR 12.3 9.2 8.5 9.9 9.9 9.7 9.6 9.7Total CAR 14.3 10.7 11.3 12.3 13.4 12.7 13.7 12.2NPLs/gross loans 1.4 1.0 0.7 0.6 0.7 0.9 1.2 1.4Total loan-loss prov./NPLs 136.1 149.4 213.5 272.3 288.2 259.0 225.9 214.0ROAA 1.1 0.9 1.1 1.3 1.1 1.1 0.9 0.9ROAE 13.1 12.9 19.3 20.9 16.6 15.7 13.9 12.9Net-interest margin 3.2 2.5 2.6 3.0 2.8 2.6 2.6 2.5Gross yield 5.3 3.9 4.0 4.9 5.2 5.0 4.9 4.8Cost of funds 2.3 1.5 1.4 2.1 2.6 2.4 2.4 2.4Net-interest spread 2.9 2.4 2.5 2.8 2.6 2.6 2.5 2.4Total cost/total income 41.5 46.7 40.2 36.8 39.0 41.6 44.6 45.7Effective tax 25.2 24.4 24.1 25.8 24.6 24.6 24.6 24.6Dividend-payout 25.2 24.1 0.0 28.1 22.6 23.0 23.0 23.0

Financial summary continued …

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- 5 -

■ What's new The 10% fall in Chailease Holding’s (Chailease) share price since the recent peak of 3 December 2013 has, in our view, been due mainly to an 88bps increase in the Shibor rate to 5.6% over the period. This situation mirrors that in 2Q13, which was followed by a 29% share-price rise from July-October. Thus, we see now as a good time to accumulate the stock. ■ What's the impact Asset-quality concerns appear overdone. Our analysis shows that Chailease’s share-price movements often have an inverse correlation with China’s Shibor, as investors tend to perceive a tightening of bank liquidity as implying a deterioration in the company’s asset quality and lease-portfolio growth. We believe the rate of fresh NPL formation moderated for 4Q13, and expect this trend to continue for its China lease portfolio for this year.

Also, we believe likely higher QoQ provisions for 4Q13 were driven by the growth of its China lease portfolio (to put it in line with its internal policy), and not by a rise in customer defaults. China lease portfolio’s growth should accelerate. About 50% of Chailease’s funding capacity remained unused as of end-December 2013, according to management, suggesting to us that it still has strong portfolio-growth capacity. We expect its China portfolio growth to accelerate once more, starting in 2Q14. We raise our EPS by 11% for 2014E and 16% for 2015E to reflect a better-than-previously expected asset quality trend. ■ What we recommend We reaffirm our Outperform (2) rating, and raise our Gordon Growth Model-based 6-month target price to TWD82.5 (from TWD79.0) to reflect the increases to our earnings forecasts and a higher assumed ROE of 19% (from 18.5%). Our cost of equity of 10% and growth rate of 3.5% are both unchanged. Our new target price implies a 2.4x 2014E PBR. Higher-than-expected employee turnover is the main risk to our call. ■ How we differ We are more positive than the market about the growth in value of

Chailease’s China lease portfolio and asset quality over 2014.

Financials / Taiwan5871 TT

11 February 2014

Chailease Holding

A case of déjà vu?

• The recent share-price decline mirrors the one that took place in mid-2013, which was followed by a sharp rise

• Concerns about the asset quality of Chailease’s lease portfolio in China look overdone

• China portfolio growth should accelerate in 2Q14; raising target price to TWD82.50, reiterating Outperform rating

Source: Daiwa forecasts

Source: FactSet, Daiwa forecasts

Financials / Taiwan

Chailease Holding5871 TT

Target (TWD): 79.00 82.50Upside: 11.2%10 Feb price (TWD): 74.20

BuyOutperform (unchanged)

HoldUnderperformSell

1

2

3

4

5

Forecast revisions (%)Year to 31 Dec 13E 14E 15ERevenue change (3.6) (6.2) (8.7)Net profit change (2.0) 11.4 16.0Core EPS (FD) change (2.0) 11.4 16.0

80

90

100

110

120

55

64

73

81

90

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

Share price performance

Chailease (LHS)Relative to TWSE Index (RHS)

(TWD) (%)

12-month range 57.72-87.72Market cap (USDbn) 2.443m avg daily turnover (USDm) 22.64Shares outstanding (m) 996Major shareholder Koo Family (30.0%)

Financial summary (TWD)Year to 31 Dec 13E 14E 15ERevenue (m) 27,075 31,326 36,556Operating profit (m) 8,082 9,778 11,635Net profit (m) 5,888 7,006 8,234Core EPS (fully-diluted) 5.913 7.035 8.269EPS change (%) 32.8 19.0 17.5Daiwa vs Cons. EPS (%) 7.7 5.2 6.0PER (x) 12.5 10.5 9.0Dividend yield (%) 2.4 2.8 3.3DPS 1.8 2.1 2.5PBR (x) 2.5 2.1 1.8EV/EBITDA (x) 19.1 17.5 16.5ROE (%) 22.0 21.8 21.8

Jerry Yang(852) 2773 8842

[email protected]

How do we justify our view?How do we justify our view?

Page 6: Asia Pacific Dailyasiaresearch.daiwacm.com/eg/cgi-bin/files/Daily12Feb14.pdf · 15-17 Apr Daiwa Consumer and Gaming Conference 2014 HK 27-28 May Daiwa Investment Conference New York

Financials / Taiwan 5871 TT

11 February 2014

- 6 -

Key assumptions

Profit and loss (TWDm)

Cash flow (TWDm)

Source: FactSet, Daiwa forecasts

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ETaiwan loan asset growth YoY (%) n.a. n.a. 8.4 31.2 21.0 25.8 16.8 18.3China loan asset growth YoY (%) n.a. n.a. 152.1 164.1 29.6 9.9 26.1 26.5Total loan asset growth YoY (%) n.a. n.a. 10.2 51.2 23.5 19.8 20.0 21.1Credit cost (%) n.a. n.a. 0.7 0.8 1.4 1.6 1.6 1.7NPL ratio (%) n.a. n.a. 3.0 3.1 3.0 3.6 4.0 4.1NIM (%) n.a. n.a. 9.2 9.9 9.9 10.5 10.5 10.6Coverage ratio (%) n.a. n.a. 103.5 92.7 105.1 78.8 80.7 80.2Expected loss ratio (%) n.a. n.a. 53.5 44.8 40.3 49.0 22.9 30.7

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ETaiwan n.a. 5,314 5,625 7,371 9,132 10,473 12,031 13,614China n.a. 4,486 5,818 7,362 10,469 13,197 15,214 18,176Other Revenue n.a. 1,377 1,480 2,036 2,484 3,405 4,081 4,765Total Revenue n.a. 11,177 12,924 16,770 22,085 27,075 31,326 36,556Other income n.a. 0 0 0 0 0 0 0COGS n.a. (5,685) (6,571) (8,114) (9,680) (9,680) (11,036) (12,592)SG&A n.a. (5,108) (3,356) (4,785) (7,004) (9,092) (10,299) (12,111)Other op.expenses n.a. (187) (126) (138) (86) (222) (213) (217)Operating profit n.a. 198 2,869 3,733 5,315 8,082 9,778 11,635Net-interest inc./(exp.) n.a. (114) (91) (75) (37) (5) (33) (52)Assoc/forex/extraord./others n.a. (618) 620 180 946 734 734 734Pre-tax profit n.a. (534) 3,399 3,839 6,223 8,811 10,479 12,317Tax n.a. (106) (1,081) (1,202) (1,834) (2,597) (3,089) (3,631)Min. int./pref. div./others n.a. 2,138 (191) (189) (248) (325) (384) (452)Net profit (reported) n.a. 1,498 2,127 2,448 4,141 5,888 7,006 8,234Net profit (adjusted) n.a. 1,498 2,127 2,448 4,141 5,888 7,006 8,234EPS (reported)(TWD) n.a. 1.532 2.406 3.014 4.454 5.913 7.035 8.269EPS (adjusted)(TWD) n.a. 1.532 2.406 3.014 4.454 5.913 7.035 8.269EPS (adjusted fully-diluted)(TWD) n.a. 1.532 2.406 3.014 4.454 5.913 7.035 8.269DPS (TWD) n.a. 0.000 1.190 2.300 2.000 1.774 2.110 2.481EBIT n.a. 198 2,869 3,733 5,315 8,082 9,778 11,635EBITDA n.a. 571 3,122 4,008 5,487 8,525 10,204 12,070

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015EProfit before tax n.a. (534) 3,399 3,839 6,223 8,811 10,479 12,317Depreciation and amortisation n.a. 2,133 2,241 2,198 1,864 4,063 4,210 4,137Tax paid n.a. (106) (1,081) (1,202) (1,834) (2,597) (3,089) (3,631)Change in working capital n.a. 3,904 4,436 7,421 5,795 6,427 6,620 7,823Other operational CF items n.a. 114 91 75 37 5 33 52Cash flow from operations n.a. 5,511 9,086 12,330 12,086 16,709 18,253 20,698Capex n.a. (3,156) (5,811) (1,909) (2,127) (2,000) (3,000) (2,000)Net (acquisitions)/disposals n.a. 1,466 (17,470) (42,284) (33,829) (18,696) (26,279) (35,612)Other investing CF items n.a. 0 (142) (279) (502) 0 0 0Cash flow from investing n.a. (1,689) (23,423) (44,472) (36,458) (20,696) (29,279) (37,612)Change in debt n.a. (7,000) 19,776 32,909 24,230 12,376 11,773 16,214Net share issues/(repurchases) n.a. 0 (3,846) 1,851 5,964 0 0 0Dividends paid n.a. (74) (81) (943) (1,922) (1,811) (1,767) (2,102)Other financing CF items n.a. 2,013 0 0 0 0 0 0Cash flow from financing n.a. (5,060) 15,849 33,816 28,272 10,565 10,006 14,112Forex effect/others n.a. 22 (210) 536 (327) 0 0 0Change in cash n.a. (1,216) 1,302 2,211 3,573 6,578 (1,020) (2,802)Free cash flow n.a. 2,356 3,275 10,421 9,959 14,709 15,253 18,698

Financial summary

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Financials / Taiwan 5871 TT

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Balance sheet (TWDm)

Key ratios (%)

Source: FactSet, Daiwa forecasts

Company profile

With over 35 years of experience in asset-financing and leasing (eg, heavy equipment and vehicles), Chailease Holding (Chailease) dominates the Taiwan leasing market with a 42% share as at the end of June 2012. The company has operations in five countries globally: Taiwan (100%-held), China (100%-held), the US (100%-held), Vietnam (100%-held) and Thailand (48.18%-held).

As at 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ECash & short-term investment n.a. 3,166 4,564 7,079 12,365 18,943 17,924 15,122Inventory n.a. 0 0 0 0 0 0 0Accounts receivable n.a. 43,773 52,212 82,078 106,073 126,037 151,643 183,621Other current assets n.a. 3,684 3,646 7,707 9,147 9,699 10,305 11,306Total current assets n.a. 50,624 60,423 96,864 127,584 154,679 179,872 210,049Fixed assets n.a. 11,524 11,410 8,610 6,333 15,024 15,054 15,039Goodwill & intangibles n.a. 25 27 25 23 0 0 0Other non-current assets n.a. 20,754 21,198 30,219 32,852 38,667 45,804 54,601Total assets n.a. 82,927 93,057 135,718 166,793 208,370 240,730 279,688Short-term debt n.a. 36,194 35,079 39,831 51,044 61,736 73,459 86,322Accounts payable n.a. 290 998 2,312 1,773 2,067 2,416 2,842Other current liabilities n.a. 18,422 25,120 43,937 62,547 65,861 78,191 92,905Total current liabilities n.a. 54,906 61,197 86,081 115,363 129,663 154,066 182,069Long-term debt n.a. 10,648 16,179 28,419 23,312 44,231 47,157 51,567Other non-current liabilities n.a. 1,385 2,429 3,862 2,265 3,063 2,664 2,864Total liabilities n.a. 66,940 79,804 118,362 140,940 176,958 203,886 236,500Share capital n.a. 9,159 6,911 7,853 9,053 9,958 9,958 9,958Reserves/R.E./others n.a. 4,918 5,116 8,226 15,048 19,526 24,765 30,897Shareholders' equity n.a. 14,077 12,027 16,079 24,101 29,484 34,723 40,856Minority interests n.a. 1,910 1,226 1,278 1,752 1,927 2,120 2,332Total equity & liabilities n.a. 82,927 93,057 135,718 166,793 208,370 240,730 279,688EV n.a. 119,476 121,810 136,339 137,633 162,842 178,703 198,990Net debt/(cash) n.a. 43,676 46,693 61,171 61,991 87,024 102,692 122,768BVPS (TWD) n.a. 15.370 17.403 20.475 26.622 29.607 34.868 41.027

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ESales (YoY) n.a. n.a. 15.6 29.8 31.7 22.6 15.7 16.7EBITDA (YoY) n.a. n.a. 446.4 28.4 36.9 55.4 19.7 18.3Operating profit (YoY) n.a. n.a. 1,349.4 30.1 42.4 52.0 21.0 19.0Net profit (YoY) n.a. n.a. 41.9 15.1 69.2 42.2 19.0 17.5Core EPS (fully-diluted) (YoY) n.a. n.a. 57.0 25.3 47.7 32.8 19.0 17.5Gross-profit margin n.a. 49.1 49.2 51.6 56.2 64.2 64.8 65.6EBITDA margin n.a. 5.1 24.2 23.9 24.8 31.5 32.6 33.0Operating-profit margin n.a. 1.8 22.2 22.3 24.1 29.8 31.2 31.8Net profit margin n.a. 13.4 16.5 14.6 18.8 21.7 22.4 22.5ROAE n.a. 10.6 16.3 17.4 20.6 22.0 21.8 21.8ROAA n.a. 1.8 2.4 2.1 2.7 3.1 3.1 3.2ROCE n.a. 0.3 4.5 5.0 5.7 6.8 6.6 6.9ROIC n.a. 0.3 3.3 3.7 4.5 5.5 5.3 5.4Net debt to equity net cash 310.3 388.2 380.4 257.2 295.2 295.7 300.5Effective tax rate n.a. n.a. 31.8 31.3 29.5 29.5 29.5 29.5Accounts receivable (days) n.a. 714.7 1,355.4 1,461.5 1,554.8 1,564.5 1,570.6 1,579.0Current ratio (x) n.a. 0.9 1.0 1.1 1.1 1.2 1.2 1.2Net interest cover (x) n.a. 1.7 31.7 50.1 141.9 1,505.5 299.1 223.1Net dividend payout n.a. 0.0 49.5 76.3 44.9 30.0 30.0 30.0Free cash flow yield n.a. 3.2 4.4 14.1 13.5 19.9 20.6 25.3

Financial summary continued …

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■ What's new Chroma ATE (Chroma) is due to announce its 4Q13 results on 14 February, when it is likely to provide more colour on the 2014 outlook. We expect the company to provide more details on its new business category, Automation, as it expects this new business to take off from this year. ■ What's the impact Automation looks set to take off. The company has reorganised its business segments, creating a new category called Automation, for which it sees projects taking off from 2014, on the back of increased demand for automation solutions globally. In addition to turnkey solutions for solar and LED projects, this new segment also encompasses new automation projects for downstream technology firms. We forecast this new segment to account for 12% of total company sales for 2014 (for 2012, the solar and LED turnkey solutions segments

accounted for 10% of the total). Despite some margin dilution, automation likely to be another revenue driver long term. Automation projects usually have a lower gross margin (of about 30% compared with the company’s average margin of more than 50%). As such, we are adjusting down our gross-margin assumption to 53% for 2014-15E (from 55%), while maintaining our positive view on Chroma’s automation business. We view this new business segment as critical in supporting the company’s long-term bottom-line growth, assuming more projects are taken on in future. IC testing another driver. We still forecast 30% YoY earnings growth for the IC testing business this year, due to the strong ongoing demand for 2.5D/3D IC testing. 4Q13 results out 14 February. We expect the company to report a 4Q13 net profit that is in line with the consensus. However, we are cutting our 2014-15E EPS by 7% to reflect changes to the product mix discussed above. ■ What we recommend We reiterate our Outperform (2) rating. As we expect demand for automation and IC testing to strengthen over this year, we maintain our 6-month target price of TWD75, now based on a 2014E PER of 20x (18x previously), to reflect the recent sector rerating. Our target PER is 0.5SD above the stock’s average PER over the past 2 years, and is in line with the Taiwan Automation Sector’s current multiple. We believe Chroma will be rerated on the back of strong automation

demand in 2014, based on our checks of orders in hand among the industry players. The key downside risk would be technology companies cutting back on their capex on automation due to poorer-than-expected demand. ■ How we differ Our 2013-15 EPS forecasts are 0-3% above those of the Bloomberg consensus, reflecting our positive view on the automation trend. Meanwhile, our gross-margin assumptions are lower.

11 February 2014

Automation projects set to take off

• We are positive on Chroma’s newly expanded automation business

• Automation looks set to be a key long-term revenue driver, despite some margin dilution

• IC business remains solid; reiterating Outperform rating

Source: Daiwa forecasts

Source: FactSet, Daiwa forecasts

Information Technology / Taiwan

Chroma ATE2360 TT

BuyOutperform (unchanged)

HoldUnderperformSell

1

2

3

4

5Target (TWD): 75.00 75.00 Upside: 10.1% 11 Feb price (TWD): 68.10

Christine Wang(886) 2 8758 6249

[email protected]

Forecast revisions (%)Year to 31 Dec 13E 14E 15ERevenue change (0.8) 0.3 1.9Net profit change (3.2) (6.7) (6.8)Core EPS (FD) change (3.2) (6.7) (6.8)

70

80

90

100

110

45

53

60

68

75

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

Share price performance

Chroma Ate (LHS)Relative to TWSE Index (RHS)

(TWD) (%)

12-month range 50.00-73.50Market cap (USDbn) 0.853m avg daily turnover (USDm) 2.22Shares outstanding (m) 377Major shareholder DB & Janus Global Fund (5.8%)

Financial summary (TWD)Year to 31 Dec 13E 14E 15ERevenue (m) 4,031 4,995 5,548Operating profit (m) 874 1,287 1,543Net profit (m) 1,250 1,448 1,879Core EPS (fully-diluted) 3.318 3.843 4.987EPS change (%) 32.3 15.8 29.7Daiwa vs Cons. EPS (%) 2.7 (0.0) 2.0PER (x) 20.5 17.7 13.7Dividend yield (%) 3.9 4.5 5.9DPS 2.7 3.1 4.0PBR (x) 3.3 3.1 3.0EV/EBITDA (x) 22.4 16.3 14.0ROE (%) 16.0 18.1 22.4

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Chroma: quarterly financial data 2013E 2014E 2013E 2014E 2015E(TWDm) 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q

Net sales 821 1,001 1,072 1,138 989 1,100 1,422 1,484 4,031 4,995 5,548COGS -363 -457 -463 -500 -442 -490 -675 -730 -1,782 -2,337 -2,635Gross profit 458 544 609 638 547 610 747 754 2,249 2,658 2,913Operating costs -312 -354 -381 -328 -320 -351 -380 -320 -1,375 -1,371 -1,370Operating profit 146 190 228 310 227 259 367 434 874 1,287 1,543Non-operating profit 94 264 71 61 41 110 110 80 490 342 590Pre-tax profit 240 454 299 371 267 369 478 514 1,364 1,629 2,133Taxes -21 -25 -23 -44 -23 -74 -41 -44 -113 -181 -240Net profit 219 429 276 326 245 295 437 471 1,250 1,448 1,879

Pre-tax EPS (TWD) 0.64 1.21 0.79 0.98 0.71 0.98 1.27 1.37 3.62 4.32 5.66Net EPS (TWD) 0.58 1.14 0.73 0.87 0.65 0.78 1.16 1.25 3.32 3.84 4.99Outstanding shares (m) 377 377 377 377 377 377 377 377 377 377 377Operating ratios Gross margin 55.8% 54.3% 56.8% 56.1% 55.3% 55.4% 52.6% 50.8% 55.8% 53.2% 52.5%Operating margin 17.8% 19.0% 21.3% 27.3% 22.9% 23.6% 25.8% 29.3% 21.7% 25.8% 27.8%Pre-tax margin 29.3% 45.4% 27.9% 32.6% 27.0% 33.6% 33.6% 34.7% 33.8% 32.6% 38.4%Net margin 26.7% 42.9% 25.8% 28.7% 24.7% 26.9% 30.7% 31.7% 31.0% 29.0% 34.1%YoY % Net revenue -6% -11% -15% 25% 20% 10% 33% 30% -3% 24% 11%Gross profit -4% -13% -7% 24% 19% 12% 23% 18% -1% 18% 10%Operating income -11% -28% -17% 80% 55% 36% 61% 40% 0% 47% 20%Pre-tax income 31% 27% -16% 84% 11% -19% 60% 39% 24% 19% 31%Net income 33% 51% -12% 78% 12% -31% 58% 44% 32% 16% 30%QoQ % Net revenue -10% 22% 7% 6% -13% 11% 29% 4%Gross profit -11% 19% 12% 5% -14% 12% 23% 1%Operating income -15% 30% 20% 36% -27% 14% 42% 18%Pre-tax income 20% 89% -34% 24% -28% 38% 29% 8%Net income 20% 96% -36% 18% -25% 21% 48% 8%

Source: Company, Daiwa forecasts

Chroma: Daiwa earnings-forecast revisions 2013E 2014E 2015E (TWDm) Previous New Consensus Previous New Consensus Previous New ConsensusRevenue 4,066 4,031 4,028 4,981 4,995 5,308 5,446 5,548 5,311Diff (%) -0.8% 0.1% 0.3% -5.9% 1.9% 4.5%Gross Margin (%) 55.7% 55.8% 55.6% 55.3% 53.2% 54.8% 55.4% 52.5% 55.4%Operating profit 937 874 865 1,425 1,287 1,244 1,686 1,543 1,559Operating Margin (%) 23.0% 21.7% 21.5% 28.6% 25.8% 23.4% 31.0% 27.8% 29.3%Net profit 1,291 1,250 1,217 1,553 1,448 1,448 2,017 1,879 1,841EPS (TWD) 3.43 3.32 3.23 4.12 3.84 3.84 5.35 4.99 4.89 Diff (%) -3.2% 2.7% -6.7% 0.0% -6.8% 2.8%

Source: Bloomberg, Daiwa forecasts

Chroma: one-year forward PER Chroma: 2014E sales breakdown by segments

Source: TEJ, Daiwa estimates Source: Daiwa forecasts

0

20

40

60

80

100

120

Feb10 Feb11 Feb12 Feb13 Feb14

TWD

14x 17x 20x 23x Chroma

T&M58.6%

Automation12.3%

IC25.1%

Services & Others4.0%

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Key assumptions

Profit and loss (TWDm)

Cash flow (TWDm)

Source: FactSet, Daiwa forecasts

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015EClean tech revenue share (%) 10.8 19.7 30.3 32.1 12.2 10.0 12.3 10.4Clean tech sales YoY (%) n.a. 50.9 151.4 0.4 (70.2) (21.1) 52.8 (6.2)IC revenue growth YoY (%) 0.0 (38.8) 0.5 (18.9) 46.8 29.1 36.3 25.5

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ELED testing 71 85 370 352 132 90 207 232Solar power testing 42 97 998 970 115 127 211 120Other Revenue 4,044 3,262 4,271 4,017 3,927 3,815 4,578 5,196Total Revenue 4,158 3,444 5,640 5,338 4,174 4,031 4,995 5,548Other income 0 0 0 0 0 0 0 0COGS (1,918) (1,701) (2,544) (2,562) (1,904) (1,782) (2,337) (2,635)SG&A (680) (624) (867) (827) (757) (762) (756) (755)Other op.expenses (557) (481) (603) (630) (637) (613) (615) (615)Operating profit 1,003 639 1,626 1,319 875 874 1,287 1,543Net-interest inc./(exp.) (15) (7) (1) (1) (3) 14 11 (3)Assoc/forex/extraord./others 275 327 361 400 223 475 330 579Pre-tax profit 1,263 960 1,986 1,717 1,096 1,364 1,629 2,118Tax (158) (97) (174) (195) (151) (113) (181) (240)Min. int./pref. div./others 0 0 0 0 0 0 0 0Net profit (reported) 1,105 863 1,812 1,523 945 1,250 1,448 1,879Net profit (adjusted) 1,105 863 1,812 1,523 945 1,250 1,448 1,879EPS (reported)(TWD) 3.348 2.467 5.001 4.041 2.509 3.318 3.843 4.987EPS (adjusted)(TWD) 3.348 2.467 5.001 4.041 2.509 3.318 3.843 4.987EPS (adjusted fully-diluted)(TWD) 3.348 2.467 5.001 4.041 2.509 3.318 3.843 4.987DPS (TWD) 3.615 2.014 2.010 3.800 2.500 2.655 3.075 4.020EBIT 1,003 639 1,626 1,319 875 874 1,287 1,543EBITDA 1,203 837 1,811 1,495 1,075 1,076 1,488 1,747

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015EProfit before tax 1,263 960 1,986 1,717 1,096 1,364 1,629 2,118Depreciation and amortisation 200 197 185 176 200 201 201 205Tax paid (158) (97) (174) (195) (151) (113) (181) (240)Change in working capital 188 72 (669) 66 414 1,477 (149) (111)Other operational CF items (96) (177) 353 (38) (346) (399) (300) (549)Cash flow from operations 1,397 956 1,681 1,727 1,213 2,530 1,199 1,423Capex (78) (152) (137) (109) (397) (64) (82) (102)Net (acquisitions)/disposals (187) (100) (48) (52) (187) (97) (96) (108)Other investing CF items 2 5 1 (182) (214) 0 0 0Cash flow from investing (263) (247) (184) (343) (797) (161) (178) (210)Change in debt 90 (130) (590) (150) 330 (25) (109) 12Net share issues/(repurchases) 0 0 0 0 0 0 0 0Dividends paid (1,100) (664) (703) (1,377) (942) (1,000) (1,158) (1,515)Other financing CF items (105) 30 61 0 (30) 13 8 5Cash flow from financing (1,115) (764) (1,232) (1,526) (642) (1,012) (1,259) (1,498)Forex effect/others 0 0 0 0 0 0 0 0Change in cash 18 (56) 265 (142) (227) 1,356 (238) (284)Free cash flow 1,318 803 1,544 1,618 816 2,466 1,117 1,322

Financial summary

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Balance sheet (TWDm)

Key ratios (%)

Source: FactSet, Daiwa forecasts

Company profile

Established in 1984, Chroma ATE manufactures electronics-testing and -measurement equipment. As a leading own-brand turnkey test and measurement solution provider globally, the company’s client base covers different technology sub-sectors. Previously, it focused on providing services to traditional IT companies, but since 2007 Chroma has been providing services to clean-tech companies such as electric-vehicle makers, LED companies, and solar companies.

As at 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ECash & short-term investment 454 403 665 654 547 1,904 1,665 1,396Inventory 1,050 1,008 1,367 1,373 1,073 228 302 352Accounts receivable 1,200 1,628 2,015 1,826 1,736 540 675 767Other current assets 127 159 190 70 159 159 159 159Total current assets 2,831 3,197 4,237 3,924 3,515 2,831 2,801 2,674Fixed assets 1,987 2,023 2,044 2,055 2,351 1,984 1,904 1,852Goodwill & intangibles 0 0 0 0 0 0 0 0Other non-current assets 2,916 3,268 3,354 3,568 3,693 4,189 4,585 5,242Total assets 7,734 8,488 9,634 9,547 9,559 9,004 9,290 9,768Short-term debt 770 790 200 50 380 355 246 258Accounts payable 519 895 1,125 963 733 170 229 260Other current liabilities 166 61 422 347 185 185 185 185Total current liabilities 1,455 1,746 1,747 1,360 1,298 710 661 703Long-term debt 0 0 0 0 0 0 0 0Other non-current liabilities 223 293 329 422 465 465 465 465Total liabilities 1,677 2,039 2,076 1,782 1,764 1,176 1,126 1,169Share capital 3,299 3,498 3,623 3,768 3,768 3,768 3,768 3,768Reserves/R.E./others 2,758 2,951 3,935 3,997 4,027 4,061 4,396 4,831Shareholders' equity 6,057 6,449 7,558 7,765 7,795 7,829 8,164 8,599Minority interests 0 0 0 0 0 0 0 0Total equity & liabilities 7,734 8,488 9,634 9,547 9,559 9,004 9,290 9,768EV 25,973 26,045 25,192 25,053 25,490 24,109 24,238 24,519Net debt/(cash) 316 387 (465) (604) (167) (1,549) (1,419) (1,138)BVPS (TWD) 18.359 18.437 20.863 20.610 20.689 20.779 21.668 22.824

Year to 31 Dec 2008 2009 2010 2011 2012 2013E 2014E 2015ESales (YoY) (1.2) (17.2) 63.7 (5.3) (21.8) (3.4) 23.9 11.1EBITDA (YoY) (28.7) (30.4) 116.4 (17.4) (28.1) 0.1 38.3 17.4Operating profit (YoY) (34.6) (36.2) 154.3 (18.9) (33.6) (0.1) 47.2 19.8Net profit (YoY) (28.2) (21.9) 109.9 (16.0) (37.9) 32.3 15.8 29.7Core EPS (fully-diluted) (YoY) (33.8) (26.3) 102.7 (19.2) (37.9) 32.3 15.8 29.7Gross-profit margin 53.9 50.6 54.9 52.0 54.4 55.8 53.2 52.5EBITDA margin 28.9 24.3 32.1 28.0 25.8 26.7 29.8 31.5Operating-profit margin 24.1 18.6 28.8 24.7 21.0 21.7 25.8 27.8Net profit margin 26.6 25.1 32.1 28.5 22.6 31.0 29.0 33.9ROAE 17.7 13.8 25.9 19.9 12.1 16.0 18.1 22.4ROAA 13.8 10.6 20.0 15.9 9.9 13.5 15.8 19.7ROCE 14.3 9.1 21.7 16.9 11.0 10.7 15.5 17.9ROIC 13.3 8.7 21.3 16.4 10.2 11.5 17.6 19.3Net debt to equity 5.2 6.0 net cash net cash net cash net cash net cash net cashEffective tax rate 12.5 10.1 8.8 11.3 13.8 8.3 11.1 11.3Accounts receivable (days) 123.5 149.9 117.9 131.3 155.7 103.0 44.4 47.4Current ratio (x) 1.9 1.8 2.4 2.9 2.7 4.0 4.2 3.8Net interest cover (x) 65.9 95.2 1,261.2 918.4 327.8 n.a. n.a. 442.2Net dividend payout 108.0 81.6 40.2 94.0 99.7 80.0 80.0 80.6Free cash flow yield 5.1 3.1 6.0 6.3 3.2 9.6 4.4 5.2

Financial summary continued …

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■ What’s new Globe Telecom’s (Globe) 4Q13 net profit was lower than we forecast due mainly to an escalation in costs. Despite this, we retain our positive view on the stock as: 1) the company’s revenue growth momentum remains strong for 2014, and 2) we see its 2012 deal with Bayantel (not listed) as value-accretive. ■ What’s the impact The 4Q13 net profit was 25% lower than our forecast due mainly to a weaker-than-expected EBITDA margin, while revenue was in line with our forecast. As we expected, service revenue growth momentum remained strong (4Q13: 8.5%; 4Q12: 6.6%), driven by good customer traction in the post-paid segment. The 4Q13 post-paid revenue accounted for 37.8% of cellular revenue compared with 35.6% for 4Q12. Subscriber additions for the quarter (1.9m for 4Q13 versus 1.0m for 4Q12) was a positive surprise.

However, a key concern for us in the results is the escalation in costs –Globe’s service EBITDA margin declined by 1.3pp YoY for 4Q13, compared with our forecast of a 6.1pp YoY increase. This was due to higher-than-expected handset subsidies, marketing costs, personnel expenses, provisions and other expenses. Clearly, the operating leverage in the business that we expected to see for 4Q13 did not pan out. That said, we still expect the EBITDA margin to be on an uptrend into 2014, as: 1) 4Q13 expenses included one-off costs resulting from Typhoon Haiyan, and 2) higher-than-expected handset subsidies and marketing costs (15.4% of sales versus our forecast of 12.9%) were partly driven by strong subscriber additions (4Q13 net adds: 1,958,000), which in turn should support our 2014 revenue forecasts. Overall, while we are raising our revenue forecasts by 1-2% for 2014-16, we are lowering our 2014-16 EBITDA margin forecasts by 1.3-1.5pp in light of the slightly elevated costs seen in 4Q13. Consequently, we are cutting our 2014-16 EPS forecasts by 4-8%. Meanwhile, during the results call, Globe said it aims to secure regulatory approval for its investment in Bayantel by the end of 1Q14. Given that we estimate that the Bayantel deal was valued at 3.0x 2012 EV/EBITDA multiple, we view this deal as being value-accretive for Globe. ■ What we recommend We are cutting our DCF-based six-month target price to PHP2,003 (from PHP 2,048), driven by our earnings-forecast changes. However, we reiterate our Buy (1) rating as we

continue to forecast strong EBITDA growth for the company (10.5% CAGR over 2014-16E). Deteriorating pricing power would be the key downside risk to our call. ■ How we differ Our 2014-15 EBITDA forecasts are 3-8% above those of the Bloomberg consensus, possibly because we are more optimistic than the consensus on Globe’s revenue prospects.

11 February 2014

4Q13: costs disappoint

• 4Q13 earnings miss our forecasts on higher costs

• But revenue growth momentum remains strong

• Reiterate Buy (1) rating

Source: Daiwa forecasts

Source: FactSet, Daiwa forecasts

Telecommunication Services / Philippines

Globe TelecomGLO PM

Buy (unchanged)

OutperformHoldUnderperformSell

1

2

3

4

5Target (PHP): 2,048.00 2,003.00 Upside: 17.8% 10 Feb price (PHP): 1,700.00

Ramakrishna Maruvada(65) 6499 [email protected]

Jame Osman(65) 6321 [email protected]

Forecast revisions (%)Year to 31 Dec 14E 15E 16ERevenue change 1.8 1.5 1.3Net profit change (8.1) (4.2) (7.4)Core EPS (FD) change (8.1) (4.2) (7.4)

90

108

125

143

160

1,100

1,288

1,475

1,663

1,850

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

Share price performance

Globe Tel (LHS)Relative to PCOMP Index (RHS)

(PHP) (%)

12-month range 1,119.00-1,810.00Market cap (USDbn) 5.003m avg daily turnover (USDm) 2.59Shares outstanding (m) 132Major shareholder Singapore Telecom (Singtel) (47.6%)

Financial summary (PHP)Year to 31 Dec 14E 15E 16ERevenue (m) 104,421 111,424 117,222Operating profit (m) 21,166 26,074 28,296Net profit (m) 13,448 17,038 18,812Core EPS (fully-diluted) 100.906 127.849 141.156EPS change (%) 171.1 26.7 10.4Daiwa vs Cons. EPS (%) 6.9 19.2 n.a.PER (x) 16.8 13.3 12.0Dividend yield (%) 4.4 5.5 6.4DPS 75.000 93.117 109.436PBR (x) 4.9 4.4 4.1EV/EBITDA (x) 6.9 6.0 5.5ROE (%) 30.1 35.0 35.3

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Telecommunication Services / Philippines GLO PM

11 February 2014

- 13 -

Globe: 4Q13 results summary Globe: changes to Daiwa’s forecasts and assumptions

(PHPbn) 4Q12 1Q13 2Q13 3Q13 4Q13 YoY (%)

Revenue 22.4 22.5 24.1 23.8 24.8 11 EBITDA 7.86 8.78 10.16 9.35 8.22 4.7 EBITDA margin (%) 36.7 41.1 43.9 41.2 35.4 -1.3 ppNet profit 0.05 0.66 0.75 2.12 1.43 2,820 Positives Wireless revenue 17.3 17.1 18.7 18.2 18.7 7.8 Subscriber net adds ('000) 1,064 2,023 950 425 1,958 84.1 Negatives Subsidy and marketing costs 3.32 2.90 2.87 2.97 3.58 8 Other expenses 4.90 4.38 4.32 4.77 5.33 9

2014E 2015E 2016E

Wireless service revenue 1.4 1.2 1.0Wireline service revenue 0.6 0.4 0.4Service revenue 1.3 1.0 0.9Total revenue 1.8 1.5 1.3EBITDA (1.8) (2.4) (2.5)D&A 4.7 (0.3) 4.4EBIT (7.5) (4.0) (7.0)PTP (8.1) (4.2) (7.4)Net Profit (8.1) (4.2) (7.4)Assumptions Wireless subscribers ('000) 3 3 3Blended ARPU (PHP) (2) (2) (2)

Source: Company Source: Daiwa forecasts

Globe: post-paid revenue as a % of cellular revenue Globe: marketing and subsidy costs as a % of service revenue

Source: Companies, Daiwa estimates Source: Companies, Daiwa

37.2

20

22

24

26

28

30

32

34

36

38

40

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

%

02468

1012141618

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

%

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Telecommunication Services / Philippines GLO PM

11 February 2014

- 14 -

Key assumptions

Profit and loss (PHPm)

Cash flow (PHPm)

Source: FactSet, Daiwa forecasts

Year to 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016ETotal mobile subs (m) 23.2 26.5 30.0 33.1 38.5 41.7 44.9 47.3Subscriber net add (m) (1.4) 3.2 3.6 3.1 5.4 3.2 3.2 2.4Blended ARPU (Local curr.) 220.2 202.3 187.4 177.3 169.4 166.0 165.2 164.3Broadband subscriber (m) 0.7 1.1 1.4 1.7 2.0 2.2 2.3 2.5Broadband APRU (Local curr.) 579.2 535.3 502.7 471.4 469.8 451.0 442.0 433.1

Year to 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016EWireless 63,279 60,331 63,538 67,189 72,764 79,831 85,774 90,867Wireline 9,622 12,410 14,227 15,553 17,736 19,181 20,149 20,759Other Revenue 1,418 2,993 3,753 3,704 4,641 5,409 5,501 5,595Total Revenue 74,319 75,734 81,518 86,446 95,141 104,421 111,424 117,222Other income 0 0 0 0 0 0 0 0COGS (2,948) (4,239) (5,888) (7,679) (9,953) (11,293) (11,518) (11,749)SG&A (34,909) (37,956) (40,526) (43,756) (48,674) (51,412) (53,947) (56,101)Other op.expenses (17,388) (18,086) (18,941) (23,584) (27,478) (20,551) (19,885) (21,076)Operating profit 19,074 15,453 16,163 11,427 9,036 21,166 26,074 28,296Net-interest inc./(exp.) (1,825) (1,763) (1,762) (1,506) (1,404) (1,955) (1,733) (1,422)Assoc/forex/extraord./others 724 348 (304) (153) (768) 0 0 0Pre-tax profit 17,973 14,038 14,097 9,768 6,864 19,211 24,341 26,874Tax (5,404) (4,293) (4,265) (2,911) (1,904) (5,763) (7,302) (8,062)Min. int./pref. div./others 0 0 0 0 0 0 0 0Net profit (reported) 12,569 9,745 9,832 6,857 4,960 13,448 17,038 18,812Net profit (adjusted) 12,569 9,745 9,832 6,857 4,960 13,448 17,038 18,812EPS (reported)(PHP) 94.975 73.636 74.293 51.814 37.479 101.615 128.748 142.148EPS (adjusted)(PHP) 94.975 73.636 74.293 51.814 37.479 101.615 128.748 142.148EPS (adjusted fully-diluted)(PHP) 94.312 73.122 73.775 51.452 37.218 100.906 127.849 141.156DPS (PHP) 114.000 80.000 62.000 65.000 67.000 75.000 93.117 109.436EBIT 19,074 15,453 16,163 11,427 9,036 21,166 26,074 28,296EBITDA 36,462 33,539 35,104 35,011 36,514 41,717 45,959 49,372

Year to 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016EProfit before tax 17,973 14,038 14,097 9,768 6,864 19,211 24,341 26,874Depreciation and amortisation 17,388 18,086 18,941 23,584 27,478 20,551 19,885 21,076Tax paid (5,589) (4,106) (4,509) (3,803) (1,904) (5,763) (7,302) (8,062)Change in working capital 2,479 (2,443) (486) (6,878) (3,186) 3,295 6,622 1,160Other operational CF items 1,125 1,573 1,883 1,565 2,172 1,955 1,733 1,422Cash flow from operations 33,376 27,148 29,926 24,237 31,424 39,248 45,279 42,470Capex (21,088) (17,721) (18,152) (20,277) (28,999) (28,564) (19,066) (20,093)Net (acquisitions)/disposals 0 0 0 0 0 0 0 0Other investing CF items (949) 601 (297) (4,822) 0 0 0 0Cash flow from investing (22,037) (17,120) (18,450) (25,099) (28,999) (28,564) (19,066) (20,093)Change in debt 6,808 3,195 (1,814) 13,396 7,522 0 0 0Net share issues/(repurchases) 0 0 0 0 0 0 0 0Dividends paid (15,147) (10,638) (8,251) (8,641) (8,867) (9,926) (12,323) (14,483)Other financing CF items (2,796) (2,537) (2,196) (2,092) (1,404) (1,955) (1,733) (1,422)Cash flow from financing (11,136) (9,981) (12,261) 2,664 (2,749) (11,880) (14,056) (15,905)Forex effect/others (46) (118) 0 (201) 0 0 0 0Change in cash 158 (71) (784) 1,601 (324) (1,196) 12,156 6,472Free cash flow 12,288 9,427 11,774 3,961 2,425 10,684 26,213 22,377

Financial summary

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Telecommunication Services / Philippines GLO PM

11 February 2014

- 15 -

Balance sheet (PHPm)

Key ratios (%)

Source: FactSet, Daiwa forecasts

Company profile

Globe Telecom is the second-largest telecoms company by subscribers in The Philippines. It derives the bulk of its revenue from the provision of mobile-communication services.

As at 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016ECash & short-term investment 5,943 5,869 5,159 6,760 6,436 5,240 17,397 23,869Inventory 0 0 0 0 0 0 0 0Accounts receivable 8,237 10,213 12,031 14,182 20,931 20,884 16,714 17,583Other current assets 4,236 5,502 6,375 13,087 13,087 13,087 13,087 13,087Total current assets 18,415 21,585 23,565 34,028 40,454 39,211 47,197 54,539Fixed assets 104,913 105,300 103,051 105,216 113,518 114,750 113,931 112,947Goodwill & intangibles 0 0 0 0 0 0 0 0Other non-current assets 4,315 3,743 4,224 9,188 9,188 9,188 9,188 9,188Total assets 127,644 130,628 130,840 148,433 163,161 163,150 170,316 176,675Short-term debt 7,669 8,677 11,354 11,349 11,349 11,349 11,349 11,349Accounts payable 20,839 22,115 23,043 29,736 33,299 36,547 38,998 41,028Other current liabilities 5,068 4,517 4,591 4,743 12,292 5,511 5,511 5,511Total current liabilities 33,576 35,309 38,987 45,827 56,940 53,407 55,858 57,887Long-term debt 39,808 41,694 37,325 50,431 57,952 57,952 57,952 57,952Other non-current liabilities 6,551 6,755 6,100 5,420 5,420 5,420 5,420 5,420Total liabilities 79,935 83,759 82,412 101,678 120,313 116,780 119,231 121,260Share capital 33,912 33,946 33,967 34,096 34,096 34,096 34,096 34,096Reserves/R.E./others 13,797 12,923 14,461 12,659 8,752 12,274 16,990 21,319Shareholders' equity 47,709 46,869 48,428 46,755 42,848 46,370 51,086 55,415Minority interests 0 0 0 0 0 0 0 0Total equity & liabilities 127,644 130,628 130,840 148,433 163,161 163,150 170,316 176,675EV 266,512 269,480 268,498 279,998 287,843 289,039 276,882 270,410Net debt/(cash) 41,534 44,502 43,520 55,020 62,865 64,061 51,904 45,432BVPS (PHP) 360.503 354.157 365.937 353.292 323.771 350.386 386.017 418.730

Year to 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016ESales (YoY) 14.7 1.9 7.6 6.0 10.1 9.8 6.7 5.2EBITDA (YoY) (2.5) (8.0) 4.7 (0.3) 4.3 14.2 10.2 7.4Operating profit (YoY) (6.4) (19.0) 4.6 (29.3) (20.9) 134.2 23.2 8.5Net profit (YoY) 11.5 (22.5) 0.9 (30.3) (27.7) 171.1 26.7 10.4Core EPS (fully-diluted) (YoY) 11.5 (22.5) 0.9 (30.3) (27.7) 171.1 26.7 10.4Gross-profit margin 96.0 94.4 92.8 91.1 89.5 89.2 89.7 90.0EBITDA margin 49.1 44.3 43.1 40.5 38.4 40.0 41.2 42.1Operating-profit margin 25.7 20.4 19.8 13.2 9.5 20.3 23.4 24.1Net profit margin 16.9 12.9 12.1 7.9 5.2 12.9 15.3 16.0ROAE 25.7 20.6 20.6 14.4 11.1 30.1 35.0 35.3ROAA 10.2 7.5 7.5 4.9 3.2 8.2 10.2 10.8ROCE 20.5 16.1 16.6 11.1 8.2 18.6 22.1 23.1ROIC 15.3 11.9 12.3 8.3 6.3 13.7 17.1 19.4Net debt to equity 87.1 95.0 89.9 117.7 146.7 138.2 101.6 82.0Effective tax rate 30.1 30.6 30.3 29.8 27.7 30.0 30.0 30.0Accounts receivable (days) 41.3 44.5 49.8 55.3 67.4 73.1 61.6 53.4Current ratio (x) 0.5 0.6 0.6 0.7 0.7 0.7 0.8 0.9Net interest cover (x) 10.5 8.8 9.2 7.6 6.4 10.8 15.0 19.9Net dividend payout 120.0 108.6 83.5 125.4 178.8 73.8 72.3 77.0Free cash flow yield 5.5 4.2 5.2 1.8 1.1 4.7 11.7 9.9

Financial summary continued …

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■ What’s new

• China’s top eight port areas recorded a 6.5% YoY increase in container throughput for January (vs 13.5% YoY in Jan 13). Foreign trade was up by 7.9% YoY (vs. 9.5% YoY in Jan 13). Although Shanghai figures turned positive this month, total and foreign trade numbers were unexciting due to fewer working days than in the same period last year as a Chinese New Year came earlier this year (Chinese New Year was in February last year).

■ Highlights

• Shanghai’s overall throughput growth for January rose by 4.2% YoY (vs. 15.9% YoY in Jan 13) while foreign trade rose by 3.6% YoY (vs. 13.1% YoY in Jan 13)

which are significantly lower than in the same period last year. On the positive side, Shenzhen continued to record decent growth of 6.4% YoY for total container and 7.9% YoY for foreign trade throughput for January.

• Among ports in the Bohai Rim, those in Dalian had throughput growth of 10.6% YoY, which is a lot slower than the 26.2% in the same period last year, while those in Tianjin and Qingdao had growth of 6.0% YoY and 8.2% YoY respectively, lower than the low teens growth in the same period last year.

• Ports in Shenzhen recorded a better trend than those in Shanghai and the Bohai Rim for January. The major driver was Shekou, which was up by 10.5% YoY. Guangzhou’s growth was only 4.1% YoY with a drag from Guangzhou South China Oceangate Container Terminal in Nansha (under Cosco Pacific (1199 HK, HKD9.9, Outperform [2]), which declined by 12.0% YoY.

■ Recommendation

• This month’s data was positive for Cosco Pacific given decent growth at Yantian. Also, the data was slightly positive for HPHT (HPHT SP, USD0.66, Hold [3]) due to improvements at Yantian. However, it is more positive for CMHI (144 HK, HKD26.6, Buy [1]) due to the growth recovery in Shanghai and decent growth in Shekou. CMHI is our top sector pick, as we expect it to have achieved strong earnings in 2H13, and we look for the company to benefit from both the Qianhai and Shanghai free-trade zones.

• If we include CMHI’s and Cosco Pacific’s percentage ownership and foreign trade breakdown, the January data would imply that Cosco Pacific could record a 4.8% YoY increase in revenue and CMHI a 5.9% YoY increase in revenue for January 2014.

• CMHI and Cosco Pacific are currently trading at 2014E PERs of 14.2x and 11.1x, respectively, based on our forecasts. CMHI is trading lower than its past 5-yr average of 17x while Cosco Pacific is trading lower than its past 5-yr average of 12x. HPHT offers a yield of 7.8%, on our 2014 forecast.

• Our six-month target prices of HKD31 for CMHI and HKD12.2 for Cosco Pacific are both based on SOTP valuations, while our six-month target price of USD0.77 for HPHT is based on a DDM. Risks to our call include lower-than-expected throughput and ASP increases.

11 February 2014

China Marine Sector

Rating: Positive

Top 8 ports recorded only a 6.5% YoY increase in throughput for January as a result of early Chinese New Year holiday this year Kelvin Lau (852) 2848 4467 [email protected] Carrie Yeung (852) 2773 8243 [email protected]

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China Marine Sector HPHT SP

11 February 2014

- 17 -

Throughput YoY% Oct-13 Nov-13 Dec-13 Jan-14Total Dalian 21.1% 27.8% 24.9% 10.6%Tianjin 2.5% 6.5% 6.3% 6.0%Qingdao 4.6% 0.1% (3.8%) 8.2%Shanghai 4.6% 5.6% (1.1%) 4.2%Ningbo 1.2% 10.6% 72.1% 7.4%Xiamen 9.7% 6.1% 1.0% 13.1%Guangzhou 21.0% 21.2% 8.1% 4.1%Shenzhen 3.7% 6.8% 5.2% 6.4%Top 8 total 6.9% 10.6% 9.1% 6.5% Foreign trade Dalian 12.3% 22.3% 17.7% 7.0%Tianjin 9.6% 6.8% 20.3% 13.7%Qingdao 8.7% 7.8% (3.4%) 23.6%Shanghai 3.4% 5.3% (4.4%) 3.6%Ningbo 0.7% 9.3% 74.2% 6.6%Xiamen 20.1% 6.0% (2.2%) 4.3%Guangzhou 30.5% 17.4% 3.2% 0.3%Shenzhen 4.5% 6.7% 5.8% 7.9%Top 8 total 6.8% 10.6% 8.2% 7.9% Domestic Dalian 32.7% 34.3% 33.6% 14.8%Tianjin (4.6%) 6.2% (11.4%) (4.5%)Qingdao (5.3%) (20.7%) (4.8%) (31.2%)Shanghai 17.3% 8.6% 47.5% 10.3%Ningbo 7.2% 27.3% 53.6% 19.4%Xiamen 6.0% 6.3% 14.2% 65.5%Guangzhou 15.8% 23.5% 11.2% 7.0%Shenzhen (10.7%) 8.5% (5.0%) (19.8%)Top 8 total 8.9% 10.6% 12.1% 1.1% Country total 7.2% 9.1% 5.7%

Source: Chineseport

In the interests of timeliness, this document has not been edited.

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■ What’s new Hutchison Port Holdings Trust’s FY13 earnings declined by 25% YoY. The full-year results were 10.7% below our estimates and 12.5% below consensus. ■ Highlights Revenue was down by 0.3% YoY due to a decrease in throughput by 1% and a decrease in the average revenue per TEU for Hong Kong due to a one-off concession grant to

liners after the strike in HIT. Throughput for Asia Container Terminal (ACT), HIT and COSCO-HIT dropped by 2% YoY, mainly due to weaker transshipments and US/EU cargo, while Yantian throughput was up by 1% YoY as the positive trend for transshipment cargo was offset by lower empty cargo. Operating cost increased by 4.6% YoY due to the implementation of Value Added Tax (VAT) in China, higher depreciation expense from the ACT acquisition, the addition of operational expense from ACT, and RMB appreciation. Management said approval on the potential P3 network is still pending. We believe this would lead to more direct cargo to Yantain, as the network can accommodate large vessels and would affect transshipments to Hong Kong. Also, Yantian would become the last port of call for the P3 transpacific route, which means that much of the

transpacific cargo would pass through Yantian. Management guided that it would continue to defer capex and spend around HK$1.1-1.2bn, similar to previous guidance. HPHT also stated that the expect DPU should be no less than HKD 41 cents per share. ■ Recommendation We believe HPHT remains a yield play of 7-8% every year, but its port business in Hong Kong would probably be stagnant in the long term. Risks and catalysts would include lower- or higher-than-expected throughput growth. The stock is currently trading at 2014E PER 20.6x. We have a Hold (3) rating on HPHT as we believe it looks fairly priced and that its 2014E dividend yield of 8% should provide share-price support.

11 February 2014

Hutchison Port Holdings Trust HPHT SP

Share price (11 Feb): USD0.66 6-mth rating: Hold (3) Target price: USD0.77

Weak 2013 results, but yield still looks attractive Kelvin Lau (852) 2848 4467 [email protected] Carrie Yeung (852) 2773 8243 [email protected]

■ Financial results of HPH Trust YoY (%)

(HKD million) 1Q13 2Q13 3Q13 4Q13 2013 1Q13 2Q13 3Q13 4Q13 2013Revenue and other income 2,867 3,032 3,364 3,122 12,384 1.1 (2.6) 1.0 (0.8) (0.3)Cost of services rendered (1,007) (1,103) (1,200) (1,184) (4,494) (0.3) 3.6 3.1 8.0 4.2Staff costs (73) (71) (73) (71) (288) 6.7 6.1 5.5 7.2 7.6Depreciation and amortisation (696) (723) (720) (716) (2,854) 1.2 5.3 3.6 4.5 3.7Other operating income 6 26 31 19 82 266.7 127.6 236.6 (68.5) (1.1)Other operating expenses (257) (212) (208) (222) (899) 36.5 (4.1) (6.6) (18.9) 8.2Management fes Trust expenses Total operating expenses (2,027) (2,083) (2,169) (2,174) (8,453) 3.8 2.7 1.3 9.5 4.6

-

Operating profit 840 949 1,195 948 3,931 (5.0) (12.6) 0.5 (18.5) (9.6)EBITDA (daiwa adjusted) 1,535 1,672 1,915 1,664 6,785 (2.2) (5.6) 1.6 (10.0) (4.4)Interest and other finance costs (149) (157) (157) (179) (641) (2.0) 5.5 4.9 20.8 7.2Share of profit/(loss) after tax of associated Cos/JCE 34 37 31 18 121 (17.7) (17.7) (32.8) (36.2) (25.3)Profit before tax 725 830 1,069 787 3,411 (6.2) (15.5) (1.6) (24.5) (12.8)Taxation (83) (80) (103) (143) (409) (3.9) (22.6) 5.3 60.8 8.7Profit after tax 642 749 966 644 3,002 (6.5) (14.7) (2.2) (32.5) (15.0)Profit after tax attributable to non-controlling interests (262) (311) (427) (328) (1,327) 10.5 - 6.9 (6.2) 2.4Profit after tax attributable to unitholders of HPH Trust 380 438 539 316 1,674 (15.5) (22.7) (8.4) (47.7) (25.1)Margins (%) Operating profit margin 29 31 36 30 32 (1.9) (10.2) (0.2) (6.6) (3.2)EBITDA margin 54 55 57 53 55 (1.8) (3.1) 0.3 (5.4) (2.3)Profit after tax margin 22 25 29 21 24 (1.8) (12.4) (1.0) (9.7) (4.2)

Source: Company

In the interests of timeliness, this document has not been edited.

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■ What’s new? • Lotte Chemical announced that the company will start a JV with Axiall (not rated), a US-based chemical company, to build a shale-gas based, ethane cracker to produce mono-ethyl glycol (MEG). While the share price is up more than 3% in intraday trading over the news, we see some near-term headwinds. ■ Details • Project details 1. Lotte Chemical’s JV with Axiall has plans to build a 1m tonne capacity ethane cracker in Louisiana. Lotte Chemical will gain ownership of 50% (or 500k tonnes) of the ethylene production 2. Lotte Chemical will wholly utilize the 500k tonnes of ethylene from its JV US cracker to locally produce MEG. MEG production will be done in the US independently by Lotte Chemical, ie, apart from the ethane cracker JV. The MEG volume is targeted to be sold in the US and neighboring regions. 3. We estimate that the required capital for this project for Lotte Chemical will be around KRW1.3-1.5tn (considering the 50% stake in the ethane cracker project)

4. According to Lotte Chemical, the groundbreaking will take place in 2015E and the first production will come in mid 2018. 5. Upon completion of this project, Lotte Chemical’s ethylene capacity will expand from 2.8m tonnes/year to 3.3m tonnes/year while its MEG capacity would rise from 1,050k tonnes/year to 1,750k tonnes/year. • The US project to be a long-term positive, but only from 2018E: We are incrementally positive on Lotte Chemical’s new project in the US, as it 1) secures volume growth (expands MEG production volume from the current 1,050k tonnes/year to 1,750k tonnes/year) which should underpin its earnings expansion while using more economic feedstock (shale gas), and 2) diversifies its geographic customer base (the US and EU). However, despite the aforementioned positives, we still estimate the project would require more than 4 years to be completed; hence, we think it is still too early to be fully factored into the company’s valuation. • Near-term outlook: more cautious as key products’ margins remain soft: We expect downstream demand in China from the start of the Lunar New Year to pick up slower than the market had anticipated, resulting in a slowdown in the prices and margins of key petrochemical products. While a rapid downturn in petrochemical margins seems unlikely given that traders are keeping inventories low in China, we believe the softening trend could persist throughout 1Q14, especially amid: 1) increased export volumes from the Middle East to China, and 2) China’s key economic data (ie, PMI) tracking at a low level. As of 2nd week of February, the MEG margin has declined from

USD67/tonnes to USD58/tonnes from the beginning of this year, while other key product margins continue to remain muted YTD. ■ Recommendation • Despite the better earnings outlook for 2014E vs. 2013 following last week’s earnings release, we believe the current share price more than fully reflects the above-mentioned positives. We have a Hold (3) rating on Lotte Chemical. The key upside/downside risks include a rapid recovery/slowdown in petrochemical demand in China from 2Q14. In the interests of timeliness, this document has not been edited.

11 February 2014

Lotte Chemical (011170 KS)

Share price (10 Feb): KRW210,500 6-mth rating: Hold (3)

Adds a long-term growth engine, but near-term uncertainties persist Jun Yong Bang (82) 2 787 9168 [email protected]

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■ What’s new Vard announced after market hours that it has secured its third order win for 2014. This latest contract will require Vard to build a Platform Supply Vessel (PSV) for delivery by 2Q-2015. Earlier on 7 Feb 2014, the company had also announced a contract to build an Anchor Handling Tug Supply (AHTS) vessel to be delivered in 1Q-2016. Including these two orders, we estimate that Vard has secured c.NOK2.3bn worth of new orders so far in 2014.

■ Details Details of both orders. For the PSV order announced today, Vard will build a mid-sized 4,000dwt PSV in its Vietnam yard and deliver the vessel to Carlotta Offshore (not listed) by 2Q-2015. This is the second PSV order that Carlotta had placed with the company and the first order will be delivered before end-2014. While the contract value for this PSV order was not disclosed in the announcement, we estimate that it is likely to be in the range of NOK250-300m. For the AHTS vessel order that was announced on 7 Feb 2014, Vard is expected to build a large AHTS for Bourbon (not rated) in its Norway and Romania yards and the unit is scheduled for delivery in 1Q-2016. Bourbon is also a repeat customer of Vard’s – the company had delivered seven vessels to Bourbon in the past. Both of these units will be built based on Vard’s own designs. Excellent start to 2014. As mentioned in our note published on 3 Feb 2014, Vard’s order win momentum has been strong in recent months. Including this latest pair of contracts, we estimate that the company has already secured

more than NOK2bn worth of new orders so far in 2014. We believe the strong order momentum is likely to continue during 1H14, supported by demand for Offshore Subsea Construction Support Vessels (OSCVs) and AHTSs; we are assuming total order wins of NOK11bn in 2014 and we estimate year-to-date order wins make up c.20% of our full-year forecast. ■ Recommendation These latest contracts reaffirm our view that Vard’s order momentum will continue to be strong in 2014 and that the company will be able to renew its order book with its widely accepted products and designs. We have a PER-based 6-month target price of SGD0.95 and an Outperform (2) rating on the stock. Downside risks to our call include significant deterioration of its Brazil operations and order cancellations.

11 February 2014

Vard Holdings VARD SP

Share price (11 Feb): SGD0.840 6-mth rating: Outperform (2) Target price: SGD0.950

Two new orders in quick succession Benjamin Lim (65) 6321 3086 [email protected] Adrian Loh (65) 6499 6548 [email protected]

■ 2014 year-to-date orders

Source: Company, Daiwa

■ Order wins

Source: Company, Daiwa

In the interests of timeliness, this document has not been edited.

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Click for our latest editions

2014 Outlook for Global

Technology

2014 Outlook for Global Technology: How to be upwardly mobile 10 January 2014

Mobile devices feature heavily in our 8 key investment themes for global tech in 2014

We highlight Lenovo, MediaTek, Hon Hai, Catcher, SK Hynix, and Iljin Display as beneficiaries of the rise of mobile gadgets

In the Japan tech space, we like Sony, Hitachi Kokusai Electric, and Nidec

Eric Chen (852) 2773 8702 ([email protected])

Takumi Sado (81) 3 5555 7085 ([email protected])

Global Tech Team

Asia Strategy

Asia Strategy: How to beat the market in 2014 8 January 2014

After mixed market performances in 2013, Daiwa and consensus forecasts call for an average 16% rise in MSCI indices in 2014

But US stimulus withdrawal and accelerating economic growth in the G3 threaten to polarise performance

Overweight China, Korea, and Malaysia; Underweight Hong Kong and most of ASEAN; Neutral on Taiwan and Singapore

Rohan Dalziell (852) 2848 4938 ([email protected]) John Hetherington (852) 2773 8787 ([email protected])

China Logistics

Sector

China Logistics Sector Initiation: ready to move up in the world 16 December 2013

We see the development of China’s logistics industry in the next decade following the path established by the US, Japan and Korea

Given a growing need for cost savings, emerging 3PL services and a demand boost from e-commerce should be major sector drivers

Positive rating; top pick Sinotrans; also recommend SZI, CIMC

Kelvin Lau (852) 2848 4467 ([email protected]) David Lum, CFA (65) 6329 2102 ([email protected])

China Tech Food Chain

China Tech Food Chain Standing out from the crowd 15 November 2013

We expect investors to focus on China smartphones, tablets, components, and mobile Internet/services in 2014

On our forecasts, smartphone and tablet shipments will grow by 43% and 42% YoY, respectively

Our top stock picks for 2014 are: Mediatek, SK Hynix, Tencent, Lenovo and Sunny Optical

Eric Chen (852) 2773 8702 ([email protected]) and the Daiwa Tech Team

Daiwa research is available electronically on Bloomberg, Reuters, Thomson One Analytics, FactSet, Capital IQ and Daiwa’s L-ZONE. Please contact your Daiwa sales representative for more information. .

Daiwa’s Banner Products

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Sunday Monday Tuesday Wednesday Thursday Friday Saturday

2 4

5

6

7

8

9 10

11

12 Exp & Imp;

Trade Bal (Jan) IP (Dec); CPI

(Jan)

Machine Orders (Dec)

EPI, IPI, Unemployment Rate (Jan)

IP (Dec)

13

Policy Rate Retail Sales

(Jan)

14 CPI, PPI (Jan) Retail Sales

(Dec) IP, Cap

Utilization (Jan) Trade Balance

(Dec) GDP (4Q A)

15

16 17

GDP (4Q P) O/S Workers

Remittances (Dec) NODE (Jan) GDP (4Q)

18 Unemployment

Rate (Jan)

BOJ 2014 Monetary Base Target

PPI (Jan) GDP (4Q F) PPI; CPI, RPI

(Jan)

19 CPI (Jan) GDP (4Q F) PPI(Jan) BoE minutes

20 HSBC PMI

(Feb)

Trade Bal; Exp & Imp (Jan)

Exp Orders (Jan)

CPI (Jan) Fed Releases

Mins

21 CPI (Jan) Retail Sales

(Jan)

22

23 24 China Property

Prices (Jan) CPI (Jan)

IP (Jan)

25 Exp & Imp;

Trade Bal (Jan)

Trade Balance, Imp (Dec)

26 GDP (2013) IP (Jan) Unemployment

Rate (Jan) GDP (4Q P)

27 28 GDP(4Q13)

:Jobless Rate, Natl CPI, IP, Housing Starts, Retail Sales (Jan)

IP (Jan) Exp, Imp,

Trade Bal. (Jan)

c: Consensus; China; Hong Kong; India; Indonesia; Japan; Korea; Malaysia; Philippines; Singapore; Taiwan; Thailand; United Kingdom; United State; EuroZone

Economic calendar – September 2011 Economic calendar – February 2014

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Rating and target-price information Bloomberg 6M rating 6M target price* Company name code Country Previous Latest Previous Latest DateChina Citic Bank 998 HK China Underperform ↑ Outperform 3.9 ↑ 4.3 11-Feb-14Chailease Holding 5871 TT Taiwan Outperform – Outperform 79 ↑ 82.5 11-Feb-14Globe Telecom GLO PM Philippines Buy – Buy 2048 ↓ 2003 11-Feb-14Hyundai Steel 004020 KS Korea Outperform ↑ Buy 93000 ↑ 98000 7-Feb-14City Developments CIT SP Singapore Underperform ↑ Buy 9.7 ↑ 11.4 7-Feb-14CapitaLand CAPL SP Singapore Sell ↑ Outperform 2.65 ↑ 3.2 7-Feb-14GS Retail 007070 KS Korea Hold – Hold 29000 ↓ 25700 6-Feb-14Hyundai Heavy Industries 009540 KS Korea Outperform – Outperform 300000 ↓ 245000 6-Feb-14Naver 035420 KS Korea Buy – Buy 760000 ↑ 860000 6-Feb-14Catcher Technology 2474 TT Taiwan Outperform – Outperform 222 ↑ 237 6-Feb-14Amorepacific 090430 KS Korea Outperform – Outperform 1080000 ↑ 1200000 6-Feb-14Bharat Heavy Electricals BHEL IN India Underperform – Underperform 115 ↑ 137 5-Feb-14Korea Kumho Petrochemical 011780 KS Korea Underperform – Underperform 89000 ↓ 79000 5-Feb-14Hyundai Home Shopping Network 057050 KS Korea Outperform – Outperform 215000 ↓ 210000 5-Feb-14Advanced Process Systems 054620 KS Korea Buy – Buy 13000 ↓ 12000 5-Feb-14Bank of East Asia 23 HK Hong Kong Hold ↑ Outperform 33 – 33 5-Feb-14KEPCO Plant Service & Engineering 051600 KS Korea Outperform – Outperform 59000 ↑ 62000 5-Feb-14SK Broadband 033630 KS Korea Hold – Hold 4400 ↓ 4300 4-Feb-14SK Innovation 096770 KS Korea Buy – Buy 190000 ↓ 170000 4-Feb-14Lotte Himart 071840 KS Korea Hold – Hold 92000 ↓ 82000 4-Feb-14Vard Holdings VARD SP Singapore Outperform – Outperform 0.92 ↑ 0.95 3-Feb-14

Note: Daiwa’s 20 most recent rating/target-price changes *Local currency; D: delisted

Recently published reports

Research reports* Subtitle No. of pages

Date of publication

Chailease Holding A case of déjà vu? 13 11-Feb-14Naver Taking the right LINE 13 10-Feb-14Hyundai Steel Upgrading; improved earnings visibility should drive a re-rating 15 7-Feb-14Singapore Property Developers Turning more positive 24 7-Feb-14Discovery Asia small-cap weekly 15 7-Feb-14Bank of East Asia Upgrading: share-price weakness seems unjustified 10 5-Feb-14Daelim Industrial 2014 EPS-recovery story intact, despite 4Q13 results 13 3-Feb-14Discovery Asia small-cap weekly 14 30-Jan-14Haitong Securities Bond losses fully provisioned 13 28-Jan-14PICC Property & Casualty A beginning, not an end 23 28-Jan-14Energy Development Initiation: Long-term value despite recent setbacks 24 27-Jan-14Kerry Logistics Network Initiation: M&A rerating story 26 24-Jan-14Discovery Asia small-cap weekly 20 24-Jan-14Gemdale Properties and Investment More solid outlook justifies a rerating 15 23-Jan-14Makalot Industrial Initiation: fashion-forward 17 22-Jan-14China Everbright Bank Initiation: supported by fee-based business growth 63 22-Jan-14Great Wall Motor H8 launch delay; so what? 9 21-Jan-14Korea Construction Sector Near-term earnings uncertainty still; switch to domestic players 57 21-Jan-14China Minsheng Banking Corp Micro-loan business losing momentum 11 21-Jan-14

*The 20 most recent reports published by Daiwa

Asia Pacific Markets Closed

Hong Kong

China Singapore Malaysia Korea Taiwan AustraliaNew

ZealandIndia Thailand Philippines Indonesia

Feb 14 3 3-6 3 3-4 6 14

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Daiwa’s Asia Pacific Research Directory

SOUTH KOREA

Chang H LEE (82) 2 787 9177 [email protected] Head of Korea Research; Strategy; Banking

Sung Yop CHUNG (82) 2 787 9157 [email protected] Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel

Jun Yong BANG (82) 2 787 9168 [email protected] Tyres; Chemicals

Mike OH (82) 2 787 9179 [email protected] Capital Goods (Construction and Machinery)

Sang Hee PARK (82) 2 787 9165 [email protected] Consumer/Retail

Jae H LEE (82) 2 787 9173 [email protected] IT/Electronics (Tech Hardware and Memory Chips)

Joshua OH (82) 2 787 9176 [email protected] IT/Electronics (Handset Components)

Thomas Y KWON (82) 2 787 9181 [email protected] Pan-Asia Head of Internet & Telecommunications; Software (Korea) – Internet/On-line Game

TAIWAN

Mark CHANG (886) 2 8758 6245 [email protected] Head of Taiwan Research

Steven TSENG (886) 2 8758 6252 [email protected]

IT/Technology Hardware (PC Hardware)

Christine WANG (886) 2 8758 6249 [email protected] IT/Technology Hardware (Automation); Cement; Consumer

Kylie HUANG (886) 2 8758 6248 [email protected] IT/Technology Hardware (Handsets and Components)

Lynn CHENG (886) 2 8758 6253 [email protected] IT/Electronics (Semiconductor)

INDIA

Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Head of India Research; Strategy; Banking/Finance

Navin MATTA (91) 22 6622 8411 [email protected] Automobiles and Components

Saurabh MEHTA (91) 22 6622 1009 [email protected] Capital Goods; Utilities

Mihir SHAH (91) 22 6622 1020 [email protected] FMCG/Consumer

Deepak PODDAR (91) 22 6622 1016 [email protected]

Materials

Nirmal RAGHAVAN (91) 22 6622 1018 [email protected] Oil and Gas; Utilities

SINGAPORE

Adrian LOH (65) 6499 6548 [email protected] Head of Singapore Research, Regional Head of Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore)

David LUM (65) 6329 2102 [email protected] Property and REITs

Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of ASEAN & India Telecommunications; Telecommunications (ASEAN & India)

HONG KONG

Hiroaki KATO (852) 2532 4121 [email protected] Regional Research Head

John HETHERINGTON (852) 2773 8787 [email protected] Regional Deputy Head of Asia Pacific Research

Rohan DALZIELL (852) 2848 4938 [email protected] Regional Head of Product Management

Kevin LAI (852) 2848 4926 [email protected] Deputy Head of Regional Economics; Macro Economics (Regional)

Christie CHIEN (852) 2848 4482 [email protected] Macro Economics (Taiwan)

Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong Research; Head of Hong Kong and China Property

Jeff CHUNG (852) 2773 8783 [email protected] Automobiles and Components (China)

Grace WU (852) 2532 4383 [email protected] Head of Greater China FIG; Banking (Hong Kong, China)

Jerry YANG (852) 2773 8842 [email protected] Banking (Taiwan); Insurance (Taiwan and China)

Leon QI (852) 2532 4381 [email protected] Banking (Hong Kong, China); Broker (China)

Winston CAO (852) 2848 4469 [email protected] Capital Goods – Machinery (China)

Alison LAW (852) 2532 4308 [email protected] Head of Regional Consumer; Consumer (Hong Kong/China)

Jamie SOO (852) 2773 8529 [email protected]

Consumer (Hong Kong/China)

Eric CHEN (852) 2773 8702 [email protected] Pan-Asia/Regional Head of IT/Electronics; Semiconductor/IC Design (Regional)

Felix LAM (852) 2532 4341 [email protected] Head of Materials (Hong Kong, China); Cement and Building Materials (China, Taiwan); Property (China)

Dennis IP (852) 2848 4068 [email protected] Power; Utilities; Renewables and Environment (Hong Kong/China)

John CHOI (852) 2773 8730 [email protected] Regional Head of Small/Mid Cap; Small/Mid Cap (Regional); Internet (China)

Joey CHEN (852) 2848 4483 [email protected] Steel (China)

Kelvin LAU (852) 2848 4467 [email protected] Head of Transportation (Hong Kong, China); Transportation (Regional)

Jibo MA (852) 2848 4489 [email protected] Head of Custom Products Group; Custom Products Group

Thomas HO (852) 2773 8716 [email protected] Custom Products Group

PHILIPPINES

Norman H PENA (63) 2 813 7344 ext 301

[email protected]

Banking/Property

Michael David MONTEMAYOR

(63) 2 813 7344 ext 293

[email protected]

Consumer/Retail

Patricia PALANCA (63) 2 813 7344 ext 408

[email protected]

Utilities/Mining

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Daiwa’s Offices

Office / Branch / Affiliate Address Tel Fax

DAIWA SECURITIES GROUP INC

HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661

Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726

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Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, Russian Federation

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(82) 2 787 9100 (82) 2 787 9191

Daiwa Securities Capital Markets Co Ltd, Beijing Representative Office

Room 3503/3504, SK Tower, No.6 Jia Jianguomen Wai Avenue, Chaoyang District, Beijing 100022, People’s Republic of China

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Daiwa Securities Capital Markets Co. Ltd, Bangkok Representative Office

18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand

(66) 2 252 5650 (66) 2 252 5665

Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India

(91) 22 6622 1000 (91) 22 6622 1019

Daiwa Securities Capital Markets Co. Ltd, Hanoi Representative Office

Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam

(84) 4 3946 0460 (84) 4 3946 0461

DAIWA INSTITUTE OF RESEARCH LTD

HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603

MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417

London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550

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Japan: Notes concerning market data and investment indicators Estimates by Daiwa Shares outstanding: Common shares outstanding (excl. treasury stock) Market cap: Based on shares outstanding and closing price as of indicated date EV: Market cap + interest-bearing debt – liquidity on hand EBITDA: Operating profit + depreciation ROE: Net income / average of start-FY and end-FY shareholders’ equity (for SEC-reporting firms net income attributable to shareholders

of the parent / average of start-FY and end-FY shareholders’ equity) Share Price Chart and per-share figures retroactively adjusted to reflect stock splits/reverse stock splits

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Disclaimer

This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof.

Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Capital Markets Co. Ltd., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.

Daiwa Securities Group Inc., Thanachart Securities, Bahana Securities, their respective subsidiaries or affiliates, or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures.

IMPORTANT This report is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Content herein is based on information available at the time the report was prepared and may be amended or otherwise changed in the future without notice. We make no representations as to the accuracy or completeness. Daiwa Securities Co. Ltd. retains all rights related to the content of this report, which may not be redistributed or otherwise transmitted without prior consent. Ratings Issues are rated 1, 2, 3, 4, or 5 as follows:

1: Outperform TOPIX/benchmark index by more than 15% over the next six months. 2: Outperform TOPIX/benchmark index by 5-15% over the next six months. 3: Out/underperform TOPIX/benchmark index by less than 5% over the next six months. 4: Underperform TOPIX/benchmark index by 5-15% over the next six months. 5: Underperform TOPIX/benchmark index by more than 15% over the next six months.

Benchmark index: TOPIX for Japan, S&P 500 for US, DJ STOXX 600 for Europe, HSI for Hong Kong, STI for Singapore, KOSPI for Korea, TWII for Taiwan, and S&P/ASX 200 for Australia.

Japan

Conflicts of Interest: Daiwa Securities Co. Ltd. may currently provide or may intend to provide investment banking services or other services to the company referred to in this report. In such cases, said services could give rise to conflicts of interest for Daiwa Securities Co. Ltd.

Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.: Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc.

Ownership of Securities: Daiwa Securities Co. Ltd. may currently, or in the future, own or trade either securities issued by the company referred to in this report or other securities based on such financial instruments. Daiwa Securities Group has filed major shareholding reports for the following companies of which it owns over 5% (as of 31 May 2013): Komehyo (2780); Septeni Holdings (4293); Seiryo Electric (4341); RaQualia Pharma (4579); Mebiopharm(4580); Nissei ASB Machine (6284); Okada Aiyon (6294); Sansha Electric Mfg. (6882); Astmax (7162); Nihon Flush (7820); Cardinal (7855); Kimoto (7908);Daiko Denshi Tsushin (8023); Money Square Japan (8728); Money Partners Group (8732); Daiwa Office Investment Corporation (8976); Kadokawa Group Holdings (9477); Cerespo (9625); Imperial Hotel (9708).

Lead Management: Daiwa Securities Co. Ltd. has lead-managed public offerings and/or secondary offerings (excluding straight bonds) in the past twelvemonths for the following companies: Tama Home (1419); JAPAN TOBACCO (2914); Samty (3244); Poletowin Pitcrew Holdings (3657); Ateam (3662); Enigmo (3665); TECNOS JAPAN (3666); enish, Inc. (3667); COLOPL, Inc. (3668); Awa Paper MFG Co. (3896); Prestige International (4290); DaitoPharmaceutical (4577); WASEDA ACADEMY (4718); CORONA (5909); Livesense (6054); Trenders (6069); PUNCH INDUSTRY (6165); Nabtesco (6268); EBARA (6361); ELECOM (6750); Imagica Robot Holdings (6879); Sansha Electlic Manufacturing (6882); Financial Products Group Co. (7148); ZENKOKUHOSHO Co. (7164); FALTEC (7215); TAKASHO (7590); FUJIMORI KOGYO (7917); Wakita (8125); Aozora Bank (8304); eGuarantee (8771); TOSHO(8920); Sun Frontier Fudousan (8934); ORIX JREIT (8954); Frontier Real Estate Investment Corporation (8964); HEIWA REAL ESTATE REIT (8966); Daiwa House Residential Investment Corporation (8984); Japan Hotel REIT Investment Corporation (8985); Konoike Transport (9025); Japan Airlines (9201); STEP CO. (9795). (list as of 4 June 2013)

Notification items pursuant to Article 37 of the Financial Instruments and Exchange Law

(This Notification is only applicable to where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with our company based on the information described in this report, we ask you to pay close attention to the following items.

In addition to the purchase price of a financial instrument, our company will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm thecommission for each transaction. In some cases, our company also may charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident.�

For derivative and margin transactions etc., our company may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.

There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.�

There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by our company.�

Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.

* The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with our company.

Corporate Name: Daiwa Securities Co. Ltd.

Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108

Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan,

Japan Investment Advisers Association, Type II Financial Instruments Firms Association

Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research.

Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.

DHK market making DHK may from time to time make a market in the securities covered by this research.

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Korea

The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external party. Name of Analyst: Disclosure of Analysts’ Interests If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to: 1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the investment

recommendations); 2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or 3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets. Legal Entities subject to Research Report Coverage Restrictions Daiwa Securities Korea hereby states and confirms that Daiwa Securities Korea has no conflicts of interests with the legal entity covered in this Research Report: 1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the acquisition of debts; 2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity; 3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea; 4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of the total asset size

or the total number of equities issued and outstanding of the legal entity; 5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date; 6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or the legal entity

is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or 7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity. Disclosure of Prior Distribution to Third Party This report has not been distributed to the third party in advance prior to public release. The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report. "1": the security could outperform the KOSPI by more than 15% over the next six months. "2": the security is expected to outperform the KOSPI by 5-15% over the next six months. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next six months. "4": the security is expected to underperform the KOSPI by 5-15% over the next six months. "5": the security could underperform the KOSPI by more than 15% over the next six months. “Positive” means that the analyst expects the sector to outperform the KOSPI over the next six months. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next six months “Negative” means that the analyst expects the sector to underperform the KOSPI over the next six months Additional information may be available upon request.

Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.

Australia

This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.

Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

India This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to ,or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited.

Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.

Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities.

For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively.

United Kingdom This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and

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effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Germany This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.

Bahrain This research material is issued/compiled by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113

This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent.

United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).

Ownership of Securities: For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Investment Banking Relationships: For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

DCMA Market Making: For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Research Analyst Conflicts:

For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.

Research Analyst Certification: For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. For stocks in Thailand covered by Thanachart Securities, the following rating system is in effect: Ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the rating is BUY. If the downside is 10% or more, the rating is SELL. For stocks where the upside or downside is less than 10%, the rating is HOLD. Unless otherwise specified, these ratings are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. For the sector, Thanachart looks at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word “Positive”, is used when Thanachart sees the industry trend improving. An arrow pointing down, or the word “Negative”, is used when Thanachart sees the industry trend deteriorating. A double-tipped horizontal arrow, or the word “Unchanged”, is used when the industry trend does not look as if it will alter. The industry trend view is Thanachart’s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers. An “Overweight” sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap. “Underweight” is used when Thanachart has SELLs on majority of the stocks it covers by market cap. “Neutral” is used when there are relatively equal weightings of BUYs and SELLs. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Relevant Relationships (Thanachart Securities) Thanachart Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Thanachart Securities market making Thanachart Securities may from time to time make a market in securities covered by this research.

For stocks and sectors in Indonesia covered by Bahana Securities, the following rating system is in effect:

Stock ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. Unless otherwise specified, these ratings are set with a 12-month horizon. It is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. "Buy": the price of the security is expected to increase by 10% or more. "Hold": the price of the security is expected to range from an increase of less than 10% to a decline of less than 5%. "Reduce": the price of the security is expected to decline by 5% or more.

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Sector ratings are based on fundamentals for the sector as a whole. Hence, a sector may be rated “Overweight” even though its constituent stocks are all rated “Reduce”; and a sector may be rated “Underweight” even though its constituent stocks are all rated “Buy”. “Overweight”: positive fundamentals for the sector. “Neutral”: neither positive nor negative fundamentals for the sector. “Underweight”: negative fundamentals for the sector.

Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .

Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .

Relevant Relationships (Bahana Securities) Bahana Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.

Bahana Securities market making Bahana Securities may from time to time make a market in securities covered by this research.

Additional information may be available upon request.

Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law

(This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.

• In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.

• In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.

• For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.

• There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.

• There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.

• Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.

*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.

Corporate Name: Daiwa Securities Co. Ltd.

Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108

Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan

Japan Securities Investment Advisers Association

Type II Financial Instruments Firms Association