asia pacific dailyasiaresearch.daiwacm.com/eg/cgi-bin/files/daily22jun15.pdfasia pacific daily see...

Asia Pacific Daily

See important disclosures, including any required research certifications, beginning on page 41.

22 June 2015

Major changes Analyst Rating Page

China Aircraft Leasing Group (1848 HK) Kelvin Lau Buy → Hold P.3

Negative on management change, wait for rerating catalyst

Target price ↓30.0% to HKD9.8

Hota Industrial Manufacturing (1536 TT) Helen Chien Buy → Outperform

P.7

Most of the positives look priced in

Target price ↑19.6% to TWD110 Other research

Discovery John Choi P.11

Asia small-cap weekly

Hong Kong Utilities Sector Dennis Ip P.12

Tokyo NDR highlights

Yestar International (2393 HK) Carlton Lai Not Rated P.14

No longer just a films company

Macau Gaming Sector Jamie Soo Neutral P.15

On keeping the concessions

Tenaga (TNB MK) Lim Tee Yang Buy P.16

Decision time for TNB on Jimah power plant

AirAsia Berhad (AIRA MK) Sharifah Farah Buy P.17

Unfairly punished

Jasa Marga (JSMR IJ) Bob Setiadi Buy P.18

Blue festivity Macro research

ASEAN Intelligence Rohan Dalziell P.19

What matters this week

Malaysia Economy Alan Tan P.20

CPI: Inflation rose for a second straight month to 2.1% in May

Market Factor Analysis: China A Shares Jibo Ma P.21

Repayment of margin debt could cause a big sell-off

Kinouchi’s Technical Tips for Institutions Eiji Kinouchi P.22

Selling interest from foreigners limited; Japan-bound tourists could increase this summer

U.S. Economic Comment Michael Moran P.23

The Fed vs. the Market

Euro wrap-up Economic

Research Team

P.24

Overview

Company Roadshows

Date Company Event Venue 15-26 Jun Shenzhou International (2313 HK) NDR US 22-24 Jun Sunlight REIT (435 HK) NDR EU 22-25 Jun Canvest Environmental (1381 HK) NDR US 22-25 Jun Accordia Golf Trust (AGT SP) NDR US 23-30 Jun Vinda (3331 HK) Aging Day

+ NDR EU

29 Jun Pacific Textiles (1382 HK) NDR HK 29 Jun- 3 Jul

Jintian Pharm (2211 HK) Aging Day + NDR

EU

10-17 Jul L'Arc Macau (Not Listed) NDR US 13-14 Jul Thai Beverage PCL (THBEV SP) NDR Tokyo 23-24 Jul Luk Fook Holdings (590 HK) NDR Tokyo 24-25 Aug Japfa Comfeed Indonesia TBK

(JPFA IJ) NDR SG

26-27 Aug Japfa Comfeed Indonesia TBK (JPFA IJ)

NDR HK

Daiwa Asian Events

Date Company Venue 22-26 Jun Daiwa Auto and Industrial Leaders

Conference HK

30 Jun Daiwa Asia's Ageing Society Conference Zurich 31 Aug Daiwa Asia Water Day Zurich 7-8 Sep Daiwa Pan Asia REIT Day Tokyo 2015 Tokyo 10-13 Nov Daiwa Investment Conference Hong Kong

2015 HK

Source: Daiwa

Regional indices

Performance chg

(%) EPS growth

(%) PER (x)

Market 1D 1M YTD 15E 16E 15E 16ETPX 0.9 (0.1) 15.9 18.1 9.3 15.7 14.4 HSCEI (0.6) (7.1) 10.0 4.5 8.1 8.5 7.9 HSI 0.2 (3.4) 13.4 (0.3) 9.7 12.2 11.1 KOSPI 0.2 (3.5) 6.9 44.5 5.9 10.8 10.2 TWSE 0.3 (5.1) (1.0) 12.4 8.4 12.9 12.0 SENSEX* 0.7 (1.2) (0.7) 17.1 19.4 18.1** 15.2** FSSTI 0.0 (4.4) (1.9) 3.3 9.2 13.7 12.5 FBMKLCI* 0.2 (4.9) (2.2) 2.5 10.0 16.1** 14.6** SET* (1.1) (2.3) (0.4) 15.3 13.7 14.4** 12.6** PCOMP* (0.1) (3.4) 5.1 10.3 12.3 19.6** 17.5** JCI* 0.8 (5.4) (4.6) 4.8 14.1 14.7** 12.9** AS51 1.3 (0.3) 3.4 (1.7) 0.9 15.4 15.3 Source: Thomson Reuters *Valuation based on MSCI Universe **MSCI index priced as of 18 Jun

Asia Pacific Daily | 1

https://lzone.jp.daiwacm.com/conference/openPdf?fileName=Daiwa+Auto+%26+Industrials+Leaders+Conference+(22-26+Jun+2015).pdf&conferenceId=23

Yen 4Sight Emily Nicol P.28

Highlights Memos – quick updates

China Aircraft Leasing Group (1848 HK) Kelvin Lau P.32

Change in management is short-term negative

Super Group (SUPER SP) Jame Osman P.33

Making inroads into the premium coffee segment

Daiwa’s Banner Products P.34 Analysts’ company visits P.35 Rating and target-price information P.36 Recently published reports P.37


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

■ What's new China Aircraft Leasing Group (CALC) held a conference on 19 June to provide details on the alleged bribery investigation related to Mr. Mike Poon (CEO and Executive Director) and China Southern Airlines (1055 HK, HKD8.68, Hold [3]). CALC also announced that Mr. Mike Poon resigned and would be replaced as CEO by Mr. Chen Shuang, the Chairman and a Non-executive Director. CFO Dr. TT Yu also resigned and was replaced by Mr. Barry Mok. We consider the resignation of the CEO to be a short-term negative, while we are neutral on the change in CFO. ■ What's the impact We are negative about Mr. Poon’s resignation and his absence during the call. Additionally, the board was unable to reach him before the announcement. We believe this may imply that he is being investigated.

For the CFO change, we believe it is more a personal issue, unrelated to the CEO change, and think that CALC preferred to announce all its bad news at one time. CALC is now looking for a new CEO to replace Mr. Chen. CALC reiterated that its business outlook remains intact for 2015-16. It confirmed that its ongoing negotiations with airlines, financing facilities, leasing contracts have not been affected by the issue. Its leasing target remains at 70 aircraft by end-2015 and 100 by end-2016. CALC also said that China Everbright (CE) and Friedmann Pacific Asset Management (owned by Mr. Poon) do not have any plans to reduce their holdings in CALC. Additionally, the new CEO Mr. Chen said CE considered aircraft leasing as one of its major businesses and does not rule out a possible increase of its stake in CALC. We believe it would be positive for CALC if CE or another SOE were to own a higher stake, as we believe corporate governance issues would have a lower impact on operations than private enterprise. ■ What we recommend While we leave our earnings forecasts for 2015-17 unchanged, we downgrade CALC to Hold (3) from Buy (1) as we revise down our DCF-based 12-month target price to HKD9.80, which is now based on a 30% discount to our DCF valuation (previously no discount). We believe a 30% discount is appropriate as we reference some small/mid-cap non-SOE companies which have had corporate governance issues in the past (see table 0n pg. 2). We think market sentiment in the near term should be negative on the

stock, but we expect CALC’s business model to remain attractive in the long term. A potential rerating catalyst for the stock would be SOEs buying shares from Mr. Poon, but we expect this to take time to realise. Key risks to our call are lower-than-expected demand for aircraft in China and a possible need for equity financing. ■ How we differ We are 1 of the 4 firms on the street that cover the stock. We are still more optimistic than the street on CALC’s 2015-16 earnings outlook.

19 June 2015

Negative on management change, wait for rerating catalyst

• We see the recent change in

CEO as negative for the stock • But, CALC says its business

outlook remains intact • Downgrade to Hold (3); lower

12-month TP to HKD9.80 due to weak market sentiment

Source: Daiwa forecasts

Source: FactSet, Daiwa forecasts

Industrials / China

China Aircraft Leasing Group1848 HK

BuyOutperformHold (from Buy)

UnderperformSell

1

2

3

4

5Target (HKD): 14.00 9.80 Upside: 1.6% 19 Jun price (HKD): 9.65

Kelvin Lau(852) 2848 [email protected]

Forecast revisions (%)Year to 31 Dec 15E 16E 17ERevenue change - - -Net profit change - - -Core EPS (FD) change - - -

80

116

153

189

225

5

8

10

13

15

Jul-14 Oct-14 Jan-15 Apr-15

Share price performance

CALG (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 5.02-14.78Market cap (USDbn) 0.733m avg daily turnover (USDm) 5.98Shares outstanding (m) 586Major shareholder CE Aerospace (36.7%)

Financial summary (HKD)Year to 31 Dec 15E 16E 17ERevenue (m) 1,994 2,847 4,574Operating profit (m) 1,515 2,049 2,552Net profit (m) 523 643 805Core EPS (fully-diluted) 0.750 0.877 1.097EPS change (%) 21.1 16.9 25.1Daiwa vs Cons. EPS (%) 15.5 7.2 n.a.PER (x) 12.9 11.0 8.8Dividend yield (%) 2.9 3.5 4.4DPS 0.276 0.340 0.426PBR (x) 2.6 2.1 1.7EV/EBITDA (x) 14.5 11.9 9.9ROE (%) 26.5 26.5 27.1


Industrials / China 1848 HK

19 June 2015

- 2 -

Selected Corporate Governance issues of H-share listed China companies Share price performance

Company Bloomberg code Date Event

First day performance

after the news released

1Year performance

Since-the-event performance

China South City 1668 HK Jan-15 Mr. Cheng Chung Hing, the Co-chairman and Executive Director of CSC, was on a list circulated on internet of Shenzhen property developers who may be subjected to investigation. The company denied the rumour and no management member was charged.

-14% N.A. -24%

Hydoo International 1396 HK Jul-14 The company announced it was not able to contact Mr. Wong Choihing, the Chairman and Executive Director of the company. The board finally removed Mr. Wong from his positions and replaced him.

-34% N.A. -41%

Kaisa Group 1638 HK Oct-14 In October, Mr. Kwok Ying Shing, Chairman and an Executive Director of the company, was reported being detained or unreachable. The company denied the rumour. 2 months later, the company announced that 4 of its projects in Shenzhen were blocked from sale by the Urban Planning Land and Resources Commission of Shenzhen Municipality.

-6% N.A. -45%

Beijing Capital Intl Airport 694 HK Jun-07 Li Peiying, former Chairman and General Manager of Capital Airports Holding Company (Parent company of BCIA) was "Shuanggui" in mid-2007. He was convicted of bribery and executed in 2009.

1% -6% 2%

China Southern Airlines 1055 HK Jan-15 The company announced Mr. Xu Jie Bo (Executive Director, CFO) and Mr. Zhou Yue Hai(Executive Vice-President) were both removed from the company due to the suspicion of job-related crimes.

4% N.A. 123%

Sinotrans 598 HK Nov-14 Media reported Sinotrans & CSC Holdings’ Guangxi and Liuzhou subsidiary (sister company of Sinotrans) were likely in relation to irregularities in the custodian warehousing operations and related collateral management services. Sinotrans denied the issue has any relation toits operations.

-13% N.A. -14%

China Gas 384 HK Dec-10

Mr. Liu Ming Hui (Managing and Executive Director) and Mr. Huang Yong (Executive President) were escorted away by officials from the Shenzhen Municipal Public Security Bureau. Mr. Liu was released after one year and resumed as Managing Director and President of the company.

-15% 7% 388%

Source: companies, various media outlets

CALC: Management Profile

CEO

Resigned Mr. Poon Ho Man Mr. Poon, founder of CALC, was responsible for formulating and reviewing the Group’s strategic planning and managing overall business operations. He has more than 7 years of experience in the aircraft leasing industry in China.

New Mr. Chen Shuang Mr. Chen has held the position of Chairman and Non-Executive Director of CALC since Aug 2013. He is mainly responsible for reviewing CALC's overall strategic planning and business development. He will now be appointed as CEO and re-designated as an Executive Director. Mr. Chen is also a Director at China Everbright Holdings and CEO of China Everbright Limited.

CFO

Resigned Dr. Yu Tai Tei Mr. Yu joined CALC in June 2013. He has more than 29 years’ experience in the areas of finance, business control, auditing and tax. He had an important role during CALC’s IPO launch and convertible bond issuance.

New Mr. Mok Chung Tat, Barry Mr. Mok has over 20 years of experience in the banking and finance industry. He has extensive knowledge about the debt and capital markets. He also specialises in structured finance, syndicated loans and corporate bond transactions.

Source: company



19 June 2015

- 3 -

Key assumptions

Profit and loss (HKDm)

Cash flow (HKDm)


Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017ETotal fleet size (no.) 0 10 16 25 44 70 100 132No. of realization transaction (no.) n.a. n.a. n.a. 1 4 8 14 14Ad hoc orders (no.) 0.0 10.0 6.0 8.0 8.0 6.0 10.0 12.0

Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017EFinance lease income n.a. 223 364 478 775 1,075 1,183 1,229Operting lease income n.a. 0 84 145 218 578 1,156 1,849Other Revenue n.a. 0 0 64 152 341 508 1,496Total Revenue 0 223 448 687 1,145 1,994 2,847 4,574Other income 0 0 0 0 0 0 0 0COGS 0 (24) (39) (90) (200) (279) (399) (1,089)SG&A 0 0 0 0 0 0 0 (280)Other op.expenses 0 (0) (31) (54) (71) (200) (400) (653)Operating profit 0 199 377 542 874 1,515 2,049 2,552Net-interest inc./(exp.) 0 (124) (250) (330) (521) (857) (1,239) (1,539)Assoc/forex/extraord./others 0 3 1 (2) 27 0 0 0Pre-tax profit 0 78 128 210 381 657 809 1,013Tax 0 (27) (33) (37) (78) (135) (166) (208)Min. int./pref. div./others 0 0 0 0 0 (0) (0) (0)Net profit (reported) 0 51 95 173 303 523 643 805Net profit (adjusted) 0 51 95 183 344 523 643 805EPS (reported)(HKD) n.a. 0.153 0.253 0.376 0.577 0.892 1.098 1.375EPS (adjusted)(HKD) n.a. 0.153 0.253 0.400 0.655 0.892 1.098 1.375EPS (adjusted fully-diluted)(HKD) n.a. 0.153 0.253 0.400 0.619 0.750 0.877 1.097DPS (HKD) 0.000 0.165 0.051 0.115 0.160 0.276 0.340 0.426EBIT 0 199 377 542 874 1,515 2,049 2,552EBITDA 0 199 408 596 945 1,715 2,449 3,206

Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017EProfit before tax 0 78 128 210 381 657 809 1,013Depreciation and amortisation 0 0 31 54 71 200 400 653Tax paid 0 (27) (33) (37) (78) (135) (166) (208)Change in working capital 0 177 (35) 1,103 3,025 3,027 5,199 5,491Other operational CF items 0 121 252 328 519 857 1,239 1,539Cash flow from operations 0 349 343 1,658 3,919 4,607 7,482 8,489Capex 0 (584) (3,678) (5,601) (8,230) (11,076) (12,480) (11,232)Net (acquisitions)/disposals 0 (2) 0 0 0 0 0 0Other investing CF items 0 0 0 1 1 0 0 0Cash flow from investing 0 (586) (3,678) (5,600) (8,229) (11,076) (12,480) (11,232)Change in debt 0 436 3,230 5,504 4,458 8,482 6,798 5,476Net share issues/(repurchases) 0 0 390 89 621 0 0 0Dividends paid 0 0 0 (53) (69) (94) (162) (199)Other financing CF items 0 (127) (302) (306) (631) (857) (1,239) (1,539)Cash flow from financing 0 309 3,318 5,234 4,378 7,531 5,397 3,737Forex effect/others 0 0 0 0 0 0 0 0Change in cash 0 72 (16) 1,292 68 1,062 399 994Free cash flow 0 (235) (3,335) (3,943) (4,312) (6,469) (4,998) (2,743)

Financial summary



19 June 2015

- 4 -

Balance sheet (HKDm)

Key ratios (%)


Company profile

China Aircraft Leasing Group (CALC) is the largest independent aircraft lessor in China, managing a fleet of 44 aircraft as at the end of 2014. CALC was listed in Hong Kong on 11 July 2014.

As at 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017ECash & short-term investment 0 90 73 1,367 1,426 2,488 2,887 3,881Inventory 0 0 0 0 0 0 0 0Accounts receivable 0 106 808 2,183 3,503 3,531 3,137 2,505Other current assets 0 8 79 116 234 346 394 491Total current assets 0 203 960 3,667 5,163 6,365 6,418 6,877Fixed assets 0 1 1,541 1,487 1,707 5,563 10,622 14,181Goodwill & intangibles 0 0 0 0 0 0 0 0Other non-current assets 0 3,136 4,388 7,679 11,443 13,549 13,971 14,602Total assets 0 3,340 6,889 12,833 18,313 25,477 31,011 35,661Short-term debt 0 370 374 2,821 4,690 5,977 6,398 6,819Accounts payable 0 0 0 0 0 0 0 0Other current liabilities 0 238 87 249 447 778 1,112 1,786Total current liabilities 0 609 461 3,070 5,137 6,755 7,510 8,605Long-term debt 0 2,486 5,713 8,615 10,653 15,770 20,067 23,016Other non-current liabilities 0 10 20 189 743 743 743 743Total liabilities 0 3,105 6,195 11,875 16,532 23,268 28,320 32,364Share capital 0 235 619 743 1,332 1,332 1,332 1,332Reserves/R.E./others 0 0 76 195 429 858 1,340 1,946Shareholders' equity 0 235 695 939 1,761 2,190 2,672 3,278Minority interests 0 0 0 20 19 19 19 20Total equity & liabilities 0 3,340 6,889 12,833 18,313 25,477 31,011 35,661EV 5,653 8,420 11,666 15,741 19,589 24,931 29,251 31,626Net debt/(cash) 0 2,767 6,014 10,069 13,917 19,259 23,579 25,954BVPS (HKD) n.a. 0.699 1.846 2.045 3.007 3.739 4.561 5.596

Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017ESales (YoY) n.a. n.a. 100.6 53.4 66.7 74.1 42.8 60.6EBITDA (YoY) n.a. n.a. 105.0 46.0 58.4 81.4 42.8 30.9Operating profit (YoY) n.a. n.a. 89.5 43.7 61.1 73.3 35.3 24.6Net profit (YoY) n.a. n.a. 84.8 92.8 87.5 52.0 23.1 25.1Core EPS (fully-diluted) (YoY) n.a. n.a. 64.8 58.1 54.9 21.1 16.9 25.1Gross-profit margin n.a. 89.3 91.2 86.8 82.5 86.0 86.0 76.2EBITDA margin n.a. 89.3 91.2 86.8 82.5 86.0 86.0 70.1Operating-profit margin n.a. 89.2 84.3 79.0 76.3 76.0 71.9 55.8Net profit margin n.a. 23.1 21.2 26.7 30.0 26.2 22.6 17.6ROAE n.a. 43.9 20.5 22.5 25.5 26.5 26.5 27.1ROAA n.a. 3.1 1.9 1.9 2.2 2.4 2.3 2.4ROCE n.a. 12.9 7.6 5.7 5.9 7.4 7.7 8.2ROIC n.a. 8.7 5.8 5.0 5.2 6.5 6.8 7.3Net debt to equity n.a. 1,179.1 865.6 1,072.8 790.2 879.3 882.5 791.8Effective tax rate n.a. 34.3 25.9 17.8 20.5 20.5 20.5 20.5Accounts receivable (days) n.a. 86.4 372.3 794.7 906.4 643.9 427.4 225.1Current ratio (x) n.a. 0.3 2.1 1.2 1.0 0.9 0.9 0.8Net interest cover (x) n.a. 1.6 1.5 1.6 1.7 1.8 1.7 1.7Net dividend payout n.a. 107.6 20.2 30.7 27.7 31.0 31.0 31.0Free cash flow yield 0.0 n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Financial summary continued …



■ What's new Hota’s share price has performed extremely well YTD (up 83.1% vs. down 0.6% for the TWSE Index), which we attribute to the company’s strong sales pipeline and earnings visibility. More foreign investors are buying into the company’s story (QFII holdings have risen to 36.3% YTD from 26.2% at the beginning of 2015) given its favourable position to benefit from the demand for global automotive parts (Borg Warner) and electric vehicles (Tesla) (see our latest note Still our top pick, 7 May 2015, and marketing feedback, Taiwan Small- and Mid-Caps: Investors focused on earnings visibility, 1 June 2015). ■ What's the impact Sales to Borg Warner on track; we see more upside from Tesla. In the year to May, Hota’s sales to Borg Warner rose by 25% YoY and those to Tesla were up 100% YoY, driven we believe by the promising global automotive outlook and stronger-than-expected sales of

Tesla’s Model S P85D (all-wheel drive, whose ASP is twice that of Tesla’s Model S). We believe Hota will remain the sole supplier to Tesla’s Model 3 in 2017, and expect to see more volume demand from this cheaper model. Stronger sales-order visibility/ pipeline vs. other auto parts players in Taiwan. The company looks on track to start selling new parts to Tesla (for its Model X) in 3Q15 and to Borg Warner for Ford’s P558 (for F250, F350, F450 and F550 type) pick-up prototype truck in 4Q15, which would support stronger QoQ sales momentum for Hota in 2H15. Hota is also steadily expanding its Taiwan capacity with a target of 15-20% annual capacity increases from 2016-19E. We believe this bodes well for sales growth in 2017 and beyond. Thus, we now see a good possibility of it winning new orders from Borg Warner (for Chrysler’s pick-up prototype truck), Punch (for Proton and some China local-brand sedans), and Tesla for its Model 3. Forecast revisions. Reflecting its stronger-than-expected orders from key clients (such as Punch and Tesla - we have factored in potential sales from Tesla’s Model 3 in 2017), we are tweaking up our sales and gross-margin assumptions (with the rising contribution from new parts, which have a gross-margin of 30-40% vs. existing products’ 28-30%). Thus, we are lifting our 2015-17E EPS by 1-10%. ■ What we recommend On valuation we downgrade the stock to Outperform (2) from Buy (1) as we believe most of the positives have already been priced into its current share price. However, we still like Hota’s solid order pipeline, strong earnings visibility and less capital-intensive model in the long run. We

raise our 12-month target price to TWD110 (from TWD92), still based on the average of our 2015-16E EPS with a new target PER of 24x (previously 21x), based on a 1x PEG over 2015-17E. We raise our PER on our stronger 2015-17E EPS CAGR of 24% (previously 19%). The main risk to our call would be worse-than-expected sales growth to key clients. ■ How we differ We are more positive than the consensus on Hota’s gross margins over 2015-17E.

19 June 2015

Most of the positives look priced in

• We see a good chance of Hota

winning new projects from Borg Warner, Tesla and Punch in 2017

• Valuation looks less attractive after 83% run-up YTD

• Downgrading to Outperform; and raising TP to TWD110

Source: Daiwa forecasts


Consumer Discretionary / Taiwan

Hota Industrial Manufacturing1536 TT

BuyOutperform (from Buy)

HoldUnderperformSell

1

2

3

4

5Target (TWD): 92.00 110.00 Upside: 7.8% 18 Jun price (TWD): 102.00

Helen Chien(886) 2 8758 [email protected]

Forecast revisions (%)Year to 31 Dec 15E 16E 17ERevenue change 1.0 0.9 7.0Net profit change 1.1 3.9 9.7Core EPS (FD) change 1.2 4.0 9.8

80

111

143

174

205

40

56

73

89

105

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15


Hota (LHS) Relative to TWSE Index (RHS)

(TWD) (%)

12-month range 46.80-102.00Market cap (USDbn) 0.773m avg daily turnover (USDm) 11.25Shares outstanding (m) 235Major shareholder Shen family (20.0%)

Financial summary (TWD)Year to 31 Dec 15E 16E 17ERevenue (m) 5,278 6,138 7,371Operating profit (m) 1,188 1,418 1,754Net profit (m) 940 1,171 1,452Core EPS (fully-diluted) 3.989 4.970 6.163EPS change (%) 32.1 24.6 24.0Daiwa vs Cons. EPS (%) 0.5 0.9 (0.2)PER (x) 25.6 20.5 16.6Dividend yield (%) 2.7 3.4 4.2DPS 2.8 3.5 4.3PBR (x) 6.5 5.7 5.0EV/EBITDA (x) 17.3 14.7 12.0ROE (%) 27.1 29.6 32.1


http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20150507tw_Hota_Industrial_Manufacturing.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20150601tw_Taiwan_Small-_and_Mid-Caps.pdf#page=1

Consumer Discretionary / Taiwan 1536 TT

19 June 2015

- 2 -

Hota: revisions to revenue and earnings forecasts 2015E 2016E 2017E

(TWDm) New Previous Change New Previous Change New Previous ChangeSales 5,278 5,225 1.0% 6,138 6,083 0.9% 7,371 6,887 7.0%Gross profit 1,816 1,763 3.0% 2,142 2,095 2.2% 2,609 2,411 8.2% Gross profit margin 34.4% 33.8% 0.7pp 34.9% 34.4% 0.5pp 35.4% 35.0% 0.4ppOperating profit 1,188 1,142 4.0% 1,418 1,377 2.9% 1,754 1,612 8.9% Operating profit margin 22.5% 21.9% 0.7pp 23.1% 22.6% 0.5pp 23.8% 23.4% 0.4ppNet profit 940 930 1.1% 1,171.3 1127 3.9% 1,452.4 1323 9.7% Net profit margin 17.8% 17.8% 0.0pp 19.1% 18.5% 0.6pp 19.7% 19.2% 0.5ppEPS (TWD) 3.99 3.94 1.2% 4.97 4.78 4.0% 6.16 5.61 9.8%Source: Daiwa forecasts

Hota: quarterly performance

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15ERevenue 980 1,009 1,092 1,155 1,205 1,334 1,340 1,400Gross profit 290 293 344 367 417 453 461 485Operating profit 156 164 208 233 271 285 303 328Pre-tax profit 181 193 226 265 241 267 300 325Net profit 154 153 182 223 204 216 243 277Basic EPS (TWD) 0.68 0.68 0.78 0.91 0.87 0.92 1.03 1.18Diluted EPS TWD) 0.67 0.67 0.78 0.90 0.87 0.92 1.03 1.17Margin Gross margin 29.6% 29.0% 31.5% 31.8% 34.6% 34.0% 34.4% 34.6%Operating margin 15.9% 16.2% 19.1% 20.2% 22.5% 21.4% 22.6% 23.4%Pre-tax profit 18.4% 19.1% 20.7% 23.0% 20.0% 20.0% 22.4% 23.2%Net margin 15.7% 15.2% 16.6% 19.3% 17.0% 16.2% 18.1% 19.8%YoY Revenue 11.8% 18.8% 13.1% 11.9% 22.9% 32.1% 22.7% 21.2%Gross profit 25.6% 46.0% 35.4% 33.4% 43.7% 54.7% 34.1% 32.1%Operating profit 39.5% 91.0% 79.8% 56.3% 73.5% 74.1% 45.5% 41.0%Pre-tax profit 47.2% 112.3% 69.1% 59.5% 33.2% 38.4% 32.4% 22.4%Net profit 42.2% 111.4% 58.4% 65.0% 32.7% 41.2% 33.7% 24.1%QoQ Revenue -5.0% 3.0% 8.2% 5.7% 4.3% 10.7% 0.5% 4.5%Gross profit 5.4% 1.1% 17.2% 6.7% 13.6% 8.8% 1.7% 5.2%Operating profit 4.9% 5.0% 27.0% 11.7% 16.4% 5.3% 6.2% 8.2%Pre-tax profit 8.6% 6.8% 17.3% 17.2% -9.3% 11.0% 12.3% 8.3%Net profit 14.0% -0.5% 18.5% 22.6% -8.3% 5.9% 12.3% 13.8%

Source: Company, Daiwa forecasts

Hota: consensus earnings revisions Hota: 1-year forward PER bands

Source: Bloomberg Source: Bloomberg, Daiwa forecast

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

4.8

5.0

Aug-

14

Nov

-14

Feb-

15

May

-15

(TWD)

2015E EPS 2016E EPS

0

20

40

60

80

100

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

(TWD)

18x

14x

10x

6x

22x



19 June 2015

- 3 -

Key assumptions

Profit and loss (TWDm)

Cash flow (TWDm)


Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017ESales to Borg Warner (TWDm) 659.3 667.4 893.7 900.7 1,160.0 1,450.0 1,750.0 2,000.0Sales to Punch (TWDm) 0.0 383.9 598.8 477.4 250.0 350.0 400.0 450.0Sales to AGCO (TWDm) 0.0 0.0 0.0 2.6 37.0 80.0 110.0 150.0Sales to Tesla (TWDm) 0.0 3.1 60.1 174.6 369.0 700.0 900.0 1,470.0

Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017ENorth America 1,608 1,679 1,992 2,011 2,924 3,642 4,296 4,296Asia Pacific 689 882 1,340 1,229 673 845 927 927Other Revenue 255 285 290 484 640 792 914 2,148Total Revenue 2,552 2,846 3,623 3,724 4,236 5,278 6,138 7,371Other income 0 0 0 0 0 0 0 0COGS (1,955) (2,213) (2,767) (2,763) (2,943) (3,463) (3,996) (4,762)SG&A (302) (285) (351) (378) (419) (496) (571) (671)Other op.expenses (66) (87) (105) (120) (114) (132) (153) (184)Operating profit 229 262 399 463 761 1,188 1,418 1,754Net-interest inc./(exp.) (78) (71) (70) (54) (49) (43) (41) (39)Assoc/forex/extraord./others (21) 75 20 105 153 (11) 35 35Pre-tax profit 130 266 349 514 866 1,133 1,411 1,750Tax (10) (51) (60) (79) (154) (193) (240) (297)Min. int./pref. div./others (3) (5) (2) (5) (0) 0 0 0Net profit (reported) 117 209 287 431 712 940 1,171 1,452Net profit (adjusted) 117 209 287 431 712 940 1,171 1,452EPS (reported)(TWD) 0.740 1.322 1.692 2.297 3.064 4.001 4.985 6.181EPS (adjusted)(TWD) 0.740 1.322 1.692 2.297 3.064 4.001 4.985 6.181EPS (adjusted fully-diluted)(TWD) 0.642 0.932 1.216 1.824 3.020 3.989 4.970 6.163DPS (TWD) 0.000 0.000 0.208 1.556 2.103 2.801 3.490 4.327EBIT 229 262 399 463 761 1,188 1,418 1,754EBITDA 419 463 675 734 1,039 1,484 1,737 2,098

Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017EProfit before tax 130 266 349 514 866 1,133 1,411 1,750Depreciation and amortisation 191 201 276 272 277 297 319 344Tax paid (10) (51) (1) (34) (98) (193) (240) (297)Change in working capital 246 293 (687) (580) (26) (321) (188) (273)Other operational CF items (70) (9) (24) (16) (11) 21 11 10Cash flow from operations 487 699 (87) 156 1,008 938 1,313 1,534Capex (118) (330) (226) (274) (234) (400) (450) (500)Net (acquisitions)/disposals (5) (8) 50 2 (7) 0 0 0Other investing CF items (15) (14) (24) 13 (88) 0 0 0Cash flow from investing (138) (352) (199) (259) (329) (400) (450) (500)Change in debt (536) 64 38 129 123 (188) 0 0Net share issues/(repurchases) 236 0 0 (51) 0 0 0 0Dividends paid 0 0 0 (47) (292) (488) (658) (820)Other financing CF items 0 1 (1) 0 0 0 0 0Cash flow from financing (299) 65 37 31 (168) (677) (658) (820)Forex effect/others 10 (2) (15) 7 15 0 0 0Change in cash 59 410 (263) (65) 526 (139) 205 214Free cash flow 369 369 (313) (118) 774 538 863 1,034

Financial summary



19 June 2015

- 4 -

Balance sheet (TWDm)

Key ratios (%)


Company profile

Founded in 1973, Hota Industrial Manufacturing (Hota) is the largest manufacturer of gears and shafts for cars, motorcycles, and trucks (including agricultural tractors) in Taiwan. The company’s major customers include BorgWarner, Eaton, Punch, Bombardier, AGCO and Tesla Motors.

As at 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017ECash & short-term investment 271 681 417 352 553 414 619 832Inventory 675 868 1,060 1,072 1,194 1,420 1,558 1,809Accounts receivable 876 799 917 920 1,058 1,108 1,289 1,548Other current assets 358 174 157 136 176 97 97 97Total current assets 2,180 2,521 2,551 2,480 2,981 3,039 3,563 4,286Fixed assets 2,800 2,947 3,106 3,471 3,667 3,777 3,915 4,079Goodwill & intangibles 4 1 12 9 2 2 2 2Other non-current assets 208 422 558 630 698 698 698 698Total assets 5,191 5,891 6,226 6,591 7,348 7,516 8,178 9,065Short-term debt 851 867 976 605 431 350 350 350Accounts payable 796 1,224 1,240 979 1,152 1,108 1,239 1,476Other current liabilities 79 58 54 75 295 274 293 310Total current liabilities 1,725 2,149 2,270 1,659 1,878 1,732 1,881 2,136Long-term debt 1,489 1,574 1,443 1,779 1,888 1,750 1,750 1,750Other non-current liabilities 166 207 329 290 288 288 288 288Total liabilities 3,380 3,929 4,042 3,728 4,054 3,770 3,919 4,174Share capital 2,003 2,003 2,003 2,242 2,350 2,350 2,350 2,350Reserves/R.E./others (239) (92) 132 568 893 1,345 1,858 2,490Shareholders' equity 1,764 1,911 2,135 2,811 3,242 3,694 4,207 4,840Minority interests 47 50 50 53 51 51 51 51Total equity & liabilities 5,191 5,891 6,226 6,591 7,348 7,516 8,178 9,065EV 26,075 25,770 26,011 26,044 25,777 25,697 25,492 25,279Net debt/(cash) 2,069 1,760 2,002 2,032 1,765 1,686 1,481 1,268BVPS (TWD) 8.492 9.421 10.833 12.535 13.800 15.723 17.907 20.599

Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017ESales (YoY) 81.6 11.5 27.3 2.8 13.8 24.6 16.3 20.1EBITDA (YoY) 617.2 10.3 46.0 8.7 41.5 42.9 17.0 20.8Operating profit (YoY) n.a. 14.3 52.6 15.9 64.6 56.0 19.4 23.7Net profit (YoY) n.a. 78.5 37.0 50.2 65.3 32.1 24.6 24.0Core EPS (fully-diluted) (YoY) n.a. 45.1 30.5 50.0 65.5 32.1 24.6 24.0Gross-profit margin 23.4 22.3 23.6 25.8 30.5 34.4 34.9 35.4EBITDA margin 16.4 16.3 18.6 19.7 24.5 28.1 28.3 28.5Operating-profit margin 9.0 9.2 11.0 12.4 18.0 22.5 23.1 23.8Net profit margin 4.6 7.4 7.9 11.6 16.8 17.8 19.1 19.7ROAE 8.9 14.8 17.9 19.0 23.5 27.1 29.6 32.1ROAA 2.3 3.8 4.7 6.7 10.2 12.7 14.9 16.8ROCE 5.4 6.1 8.9 9.4 14.0 20.7 23.2 26.3ROIC 5.3 5.6 8.4 8.6 12.6 18.8 21.1 24.5Net debt to equity 117.2 92.1 93.8 72.3 54.4 45.6 35.2 26.2Effective tax rate 7.7 19.3 17.2 15.3 17.8 17.0 17.0 17.0Accounts receivable (days) 114.9 107.4 86.4 90.0 85.2 74.9 71.3 70.2Current ratio (x) 1.3 1.2 1.1 1.5 1.6 1.8 1.9 2.0Net interest cover (x) 2.9 3.7 5.7 8.6 15.6 27.3 34.5 45.0Net dividend payout 0.0 0.0 13.4 56.6 68.6 70.0 70.0 70.0Free cash flow yield 1.5 1.5 n.a. n.a. 3.2 2.2 3.6 4.3

Financial summary continued …



■ What’s new This week, Daiwa held its Hong Kong & China Investment Seminar in Singapore, at which small-cap companies Texhong Textiles (2678 HK, HKD7.95, Hold [3]), Yestar International (2393 HK, not rated), Haier Healthwise (348 HK, not rated) and Jiangnan Group (1366 HK, not rated) were in attendance. Many questions from investors focused on earnings visibility for the next 2 years, and investors seem markedly more cautious given the recent market rally. While all 4 companies were viewed as high-growth companies, investors seemed keen on Jiangnan, as the stock is trading at a relatively low 2015E PER of 8x (Bloomberg consensus). Our top 5 regional small-cap picks — our highest conviction ideas across Daiwa’s small-cap coverage in Hong Kong, Taiwan and Korea — this week are Texwinca (321 HK), Best Pacific International (2111 HK), Canvest Environment Protection Group (1391 HK), Makalot Industrial (1477 TT) and

Sansung Life & Science (016100 KQ). ■ Discovery idea Yestar International (Yestar) is a supplier of medical imaging devices, colour photographic papers, and industrial imaging products in China. It is the exclusive processor and distributor of Fujifilm colour photographic paper in the country. The films business recently has been boosted by market-share gains for Fujifilm’s medical films. However, with the acquisition of Jiangsu Uno in 2H14, Yestar management said it had transformed into a medical consumables player. Another larger medical consumables acquisition has been announced and, if completed, should help significantly expand its medical consumables business, according to management. Pick of the week This week, we reiterated our 12-month target price of Texwinca of HKD9.60, and reaffirmed our Buy (1) call on the stock. Texwinca remains one of our top picks in the China textiles sector. We believe Texwinca’s full-year FY15 results support our view of a strong earnings rebound in FY16. The highlight was the long-awaited turnaround of its retail division, which posted an EBIT margin of 0.3% for FY15. We note that the retail division had been a burden on its earnings since FY13 and has been significantly restructured since then. We also expect the textiles division to continue to drive core net profit growth in FY16. We were positively

surprised by management’s comment during the analyst briefing that utilisation had reached 100% during the first few months of FY16E (vs. an 80% average for full-year FY15), especially as it had been cherry-picking higher-gross-margin orders. Recent company visits (8 – 19 June) Company Bloomberg code CITIC Telecom 1883 HK Technovator International 1206 HK Nine Dragons Paper 2689 HK China Maple Leaf Education 1317 HK *Texwinca 321 HK Shanghai Fudan Microelectronics 1385 HK eHi EHIC US Shanghai Haohai 6826 HK Tenwow International 1219 HK Xiao Nan Guo 3666 HK Shanghai Jahwa 600315 CH Yestar International 2393 HK Texhong Textile 2678 HK Jiangnan Group 1366 HK Fufeng Group 546 HK BeijingWest Industries 2339 HK Goodbaby 1086 HK Shenzhou International 2313 HK Cosmo Lady 2298 HK

Source: Daiwa Forthcoming company visits Company Bloomberg code Pacific Textiles 1382 HK CAR Inc 699 HK Vitasoy 345 HK Tsui Wah 1314 HK

Source: Daiwa *Note: Results MSCI small-cap index MSCI Small Cap

Chg (%) Jun-18-2015 1-week 1-month 3-month 6-month

Asia 0.3 (2.1) 6.5 14.6 Asia ex-Japan 0.9 (2.9) 10.3 15.7 China 0.3 (2.5) 37.0 41.1 Hong Kong 0.4 (3.8) 11.3 12.1 Taiwan 0.6 (2.6) (5.5) 1.3 Korea 1.5 2.6 17.7 31.4 India 2.9 (3.0) (7.2) 3.9 Singapore 1.2 (3.6) 4.5 1.1 Indonesia (1.5) (10.7) (13.2) (10.7)Malaysia (1.3) (3.6) (0.6) 7.9 Philippines 0.4 (8.6) (10.3) (3.3)

Source: Bloomberg

19 June 2015

Asia small-cap weekly

• Investors attending our Hong Kong/China Investment Seminar seemed noticeably more cautious on the valuations of small-caps

• Discovery idea: Yestar International • Pick of the week: Texwinca

Discovery

Small Cap / Asia ex Japan

John Choi(852) 2773 [email protected]

Regional Small-cap Team



■ What's new We hosted an NDR for Cheung Kong Infrastructure (CKI) and Power Assets (PAH) in Tokyo on 16-18 June. Of the 15 investors we met, most questions focused on PAH’s recent HKEI stake disposal, M&A opportunities, especially for PAH, and a potential merger between CKI and PAH. ■ What's the impact CKI management optimistic it can spend PAH cash pile. CKI’s management said there could be M&A opportunities due to the oil majors disposing of oil & gas transmission pipeline assets or the coal-mine owners disposing of coal-transportation infrastructure assets (eg, coal terminal ports). CKI is also focusing on the privatisation of electricity-grid assets in New South Wales, Australia, worth AUD30bn. And even though the Queensland government has called off the privatisation of its power-grid assets, management believes there

could be other non-energy infrastructure opportunities in this province. M&A might not be imminent solution for cash under PAH; merger may be the answer. Given that M&A is viewed as opportunistic by CKI/PAH, as management has a prudent approach without having a “must-win” mentality (targeted 10-11% equity IRR for regulated assets or 12-13% equity IRR for non-regulated infrastructures assets), we believe it is uncertain there will be an M&A opportunity to spend the HKD69bn in cash under PAH by January 2016. By then, PAH might need to pay a special dividend, as mentioned by PAH’s Chairman Fok during HKEI’s IPO EGM, which we believe is not the favoured option of the Li family (with only a c.8.9% effective stake in PAH). Hence, we think a merger is a likely move as: 1) it would effectively shift the HKD69bn in cash to CKI, the entity in which the Li family has a bigger effective stake (though it could be diluted after a merger-through-equity offer), and 2) in case there are more infrastructure M&A opportunities, CKI would have sufficient cash to execute, just as it did in the past 2 deals (Eversholt and Park’N Fly). Merger would have to appeal to minority shareholders. Management said shareholder interest would be a key consideration in considering a CKI and PAH merger. Although PAH shares are trading at a 16x 2015E PER, which is above the 13x for CKI, on our EPS forecasts, we believe a merger would still be well considered by minority shareholders, given that PAH’s 2015 PER (ex-net cash at HKD60bn) is 10x. A merger would need at least

75% minority-shareholder approval (with 10% or less voting against it). Tax dispute resolved, share-price overhang likely removed. PAH and CKI have settled with the Australian Tax Office for a total of AUD69m, and AUD60m for the power distribution businesses in Victoria and South Australia – which we see as removing a share-price overhang. On 5 September 2013, PAH and CKI were ordered by the Australia Federal Court to pay AUD396m and AUD380m, respectively, in unpaid tax. The amount is only 16-17% of the original request, which is a positive. ■ What we recommend We prefer CKI (1038 HK, HKD61.3, Buy [1]). Following the spin-off of Hongkong Electric (HEC) and the recent stake disposal of HEC, PAH (6 HK, HKD78.8, Hold [3]) has HKD64bn in cash, and has had an 8.5% opportunity cost of not using it to secure meaningful M&A opportunities over the past 18 months. As a result, we still recommend investors shift to CKI, given that the assets under PAH, post spin-off, are similar to those of parent CKI. In addition, we believe CKI is a more leveraged play on M&A without a huge pile of idle cash (at HKD69bn). We have an SOTP-based 12-month TP of HKD74 on CKI. The main risk to our calls for both CKI and PAH: continued depreciation of the GBP vs HKD. For PAH, whether it can spend the idle cash from the disposal of HKEI stands as an additional risk. ■ How we differ Our 2015-16E EPS are 9-12% above consensus for both CKI and PAH, as we do not think the recent deals have been factored in.

19 June 2015

Hong Kong Utilities Sector

Tokyo NDR highlights

• Merger could be the solution

for the cash under PAH • Share-price overhang removed

after tax disputes resolved • CKI seems to be a more

leveraged play on M&A, without huge pile of idle cash

Utilities / Hong Kong

Dennis Ip, CFA(852) 2848 [email protected]

Scott Chui(852) 2848 [email protected]


Hong Kong Utilities Sector 19 June 2015

- 2 -

Li Ka Shing’s HK-listed assets overview under the reorganisation of CKH and Hutchison, and potential merger of CKI and PAH

Source: Daiwa

PAH: total consideration spent on M&A in 2010-Jan 2015

Date Type Cash spent Corporate debt Total considerationJun-10 Seabank Power Network GBP211.7m NA GBP211.7mOct-10 UKPN GBP1bn GBP1.31bn GBP2.3bn Sep-12 West and Wales Utilities GBP204m GBP404mn GBP608m Sep-13 AVR EUR112m EUR77m EUR189mSep-14 Envestra AUD667m NA AUD667m

Total HKD22.9bn HKD21.5bn HKD44.4bn


CKI: total consideration spent for M&A in 2010-Jan 2015

Date Type Cash spent Corporate debt Total considerationJun-10 Seabank Power Network GBP211.7m NA GBP211.7mOct-10 UKPN GBP1bn GBP1.31bn GBP2.3bn Apr-11 Meridian Cogeneration Plant CAD45.7m NA CAD45.7mOct-11 Northumbrian Water GBP880m GBP905mn GBP1.8bn Sep-12 West and Wales Utilities GBP204m GBP404mn GBP608m Apr-13 EnviroWaste NZD340m NZD150m NZD490m Sep-13 AVR EUR198m EUR133m EUR331mJul-14 Park'N Fly CAD381m NA CAD381mSep-14 Envestra AUD667m NA AUD667mMar-15 Eversholt GBP570m GBP730m GBP1.3bn

Total HKD47.0bn HKD43.2bn HKD90.2bn


Positive impact of CKI/PAH merger on PAH, CKI, Hutchison and the Li family

PAH More exposure to M&A opportunities as target assets would not be limited to energy projects More efficient use of its HKD63bn cash pile, enhancing its ROE from 7% to 14-17% Enhancement of its market cap,l from c.HKD160bn (or c.USD20bn) to c.HKD320bn (or c.USD40bn)

CKI

Elimination of holding company discount Enhancement of its market cap, from c.HKD160bn (or c.USD20bn) to c.HKD320bn (or c.USD40bn) Increase in its free float, from 24.33% to 54-56% Potential 12-month-forward PER could be rerated from 14x to 19x on our forecasts Transfer of the HKD63bn cash from PAH to CKI for M&A activity, without the risk of equity dilution

Li family HKD63bn cash pile moves closer to the Li family, from an 8.87% effective stake to c.13.5% effective stake Hutchison Effective stake in CKI will drop from 75.67% to 44.14-45.88%. Hence, it would not need to consolidate the debt under CKI as CKI would become an associate

Source: Daiwa

Li’s Family

CK Holding(1 HK)

Hutchison(13 HK)

CKI(1038 HK)

Power Assets(6 HK)

43.42%

49.97%(Effective stake: 21.70%)



Li’s Family

CK Hutchison(13 HK)

CKI(1038 HK)

Power Assets(6 HK)

30.15%



CK Property

30.15%

Before CKI merging PAH

Li’s Family

CK Hutchison(13 HK)

CKI + Power Assets

30.15%

44.14-45.88%(Effective stake: 13.31-13.83%)

Before re-organizing CKH and HutchsionAfter re-organizing CKH and Hutchsion

After CKI merging PAHAfter re-organizing CKH and Hutchsion

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2010 2011 2012 2013 2014

Uni

t: H

KD

m

Cash spent for M&A Corporate debt raised for M&A

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2010 2011 2012 2013 2014 2015

Uni

t: H

KD

m

Cash spent for M&A Corporate debt raised for M&A



■ Background Yestar International (Yestar) is a supplier of medical imaging devices, colour photographic papers, and industrial imaging products in China. It is the exclusive processor and distributor of Fujifilm colour photographic paper in the country. However, with the acquisition of Jiangsu Uno in 2H14, Yestar management said it has transformed into a medical consumables player. Another larger medical consumables acquisition has been announced and, if completed, should once again help significantly expand its medical consumables business, according to management. ■ Highlights Becoming a major medical consumables distributor in China. In November 2014, Yestar acquired a 70% equity interest in Jiangsu Uno for CNY245m; the

remaining 30% has been retained by Jiangsu Uno’s founder Ms. Hang Wenxia. Jiangsu Uno is a distributor of Roche Diagnostic products in Jiangsu and Anhui and Becton Dickinson (BD) products in Anhui. Both Roche and BD are leading global brands for in-vitro diagnostics (IVD) products, which are mainly used in sample testing (for blood, gene, tissue, etc). Roche is the largest manufacturer of IVD products in China with an over 20% market share in sales, while the second largest player Sysmex, has around half of Roche’s market share. This acquisition comes with a 3-year profit guarantee: 2014-16 net profit would not be less than CNY45m, CNY54m and CNY64m, respectively, as stipulated in the M&A agreement. On 18 June 2015, Yestar announced that Jiangsu Uno’s 2014 net profit exceeded its profit guarantee, so the implied acquisition multiple was less than 7.8x its 2014 net profit. In April 2015, Yestar announced an acquisition of another 5 distributors with rights to distribute Roche and Thermo Fisher products in Shanghai. In total, the consideration is CNY910m in cash and the company expects to complete the transaction in coming months. Like Jiangsu Uno, this acquisition is for a 70% equity interest (to retain existing management) and comes with 2015-17 profit guarantees (by the seller) of CNY156m, CNY187m and CNY225m, respectively. The combined guaranteed profits in 2015 (of these two acquisitions alone) attributable to Yestar (CNY147m) are already significantly more than the net profit of the entire group in 2014 (CNY103m: already includes 2 months of Jiangsu Uno’s financials). Given the scale of the combined acquisitions, Yestar said it

plans to use as much internal cash as possible for the purchase, but would likely need to raise funds via debt and/or equity issuance. Management said it plans to continue making acquisitions with similar deal structures (about 70% equity stake with profit guarantees) and to ultimately become a major distributor of medical consumables in China. Medical films boost legacy business. Yestar’s traditional films business, the manufacture of colour photographic paper (40% of 2014 revenue) and industrial imaging products (13% of 2014 revenue), continued to record strong organic growth (11% and 32% YoY, respectively, for 2014). However, according to management, sales of medical films became the key revenue driver for the company in 2014 (its medical consumables segment grew by 52% YoY, but this includes 2 months of Jiangsu Uno’s consolidated financials) due to Fujifilm’s increasing market share in the medical films segment in China. ■ Valuation Yestar is currently trading at a 2016E PER of 28.6x on Bloomberg consensus estimates, but this does not reflect any contributions from the second acquisition.

19 June 2015

iNo longer just a films company

• Now a medical consumables

company • Growth of legacy film business

in 2014 still strong • Another major M&A deal

expected to close soon, more likely to come

Source: FactSet, Daiwa

Industrials / China

Yestar International2393 HK

Not Rated

Target (HKD): n.a. Up/downside: - 18 Jun price (HKD): 3.69

Carlton Lai(852) 2532 [email protected]

John Choi(852) 2773 [email protected]

50

131

213

294

375

1.0

1.8

2.5

3.3

4.0

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15


Yestar Int (LHS)Relative to S&P 500 Index (RHS)

(HKD) (%)

12-month range 1.00-4.00Market cap (USDbn) 0.893m avg daily turnover (USDm) 2.74



■ What's new As we approach the Macau Government’s 2015 mid-term review of the gaming industry, a topical discussion in 2H15 is likely to be the renewal of Macau’s 6 gaming concessions. In this report, we review the legal framework of the gaming concessions, the terms and conditions of renewals, and their consequent sector implications. ■ What's the impact When do licences expire? The common belief, albeit not entirely correct, is that the gaming concessions/subconcessions will expire either in 2020 (for SJM and MGM) or in 2022 (Wynn, Melco, Galaxy and SCL). The market widely expects all of the concessions to be ultimately renewed (albeit on less attractive terms). Currently no renewal conditions have been imposed under the concession contracts; however, the government

has the right to impose additional renewal conditions (the most widely discussed are gaming tax hikes, additional investments in non-gaming, one-off payments, etc.). It is also noteworthy that in the event of a licence non-renewal, all of a concessionaire’s assets in Macau would revert to the government. Gaming licences can actually be redeemed as early as 2018. However, the market appears to have overlooked critical terms whereby the Macau Government can redeem concessions prior to their 2020/22 expiries in one of 2 ways: 1) By giving at least 1 year prior notice after 26 June 2017 (or April 2009 for SJM/MGM). Under this scenario, the concessionaire would be compensated based on the previous year’s EBITDA multiplied by the number of years remaining on the concession. 2) By unilaterally rescinding the concessionaire if it fails to fulfil its fundamental obligations (eg, commits fraud, non-compliance with government rules, etc.). This scenario would result in: a) an immediate termination of the gaming licence, b) seizure of assets by the Macau Government, and c) potential penalties. Are Macau’s casino operators at risk? According to both official and media sources, there are ongoing investigations and lawsuits involving one or more of the

concessionaires (refer to page 3 for a non-exhaustive list). We have no insights nor make any judgments on the validity of any of these cases and allegations. That said, we do believe their eventual findings may have some bearing on the government’s decision-making process over licence renewals. In conclusion, we believe there is a growing risk that one of more concessions will not be renewed. In our view, such a scenario has not yet been discounted into sector share prices. ■ What we recommend Investors should be mindful of the potential ramifications from current sector developments. Regardless of whether or not such an unforeseen scenario pans out, we remain cautious on the Macau Gaming Sector’s fundamentals. The growing risk of non-renewals of these gaming concessions is another reason to avoid the sector, in our view. ■ How we differ While the market seems to favour supply-side-driven growth, our stock picks are based on cost defensiveness.

19 June 2015

On keeping the concessions

• The issue of gaming concessions will likely become increasingly topical ahead of Macau’s mid-term review in 2H15

• In this report, we explore the legal framework of the gaming concessions and discuss the terms and conditions of renewals

• It is not inconceivable that at least one of the operators will lose its gaming licence; and we believe this risk is not in share prices

Macau Gaming Sector

Consumer Discretionary / Macau

Positive

Neutral (unchanged)

Negative

Jamie Soo(852) 2773 [email protected]

Adrian Chan, CFA(852) 2848 [email protected]

Jennifer Wu(852) 2532 [email protected]


Decision time for TNB on Jimah power plant TNB has officially received an invitation from the regulator to take over the Jimah power plant at a higher levelised tariff. We remain cautiously optimistic, and understand that the costs associated with the higher tariff would be covered under the next base tariff review. Maintain BUY on TNB with an unchanged TP of RM17.50. Higher levelised tariff announced for Track 3B We remain cautiously optimistic on the possible TNB takeover of the 2,000MW Jimah coal-fired power plant (Track 3B project) as this would increase TNB’s generation capacity market share and keep capacity payments within the group. On 19 June, TNB announced it had received a letter of invitation from the Energy Commission (EC) to submit a proposal to take over 1MDB’s entire stake in the Track 3B project. The key terms are: 1) levelised tariff not exceeding 26.67 sen/kWh (5.3% higher than 25.33 sen/kWh currently); and 2) financial close by 15 Oct 2015.

TNB may accept if Track 3B makes commercial sense Understandably, TNB would accept the project if it makes commercial sense, although it is difficult to estimate the IRR for Track 3B. Nonetheless, we believe the revision in tariff (potentially enhancing the project value by c.RM1bn) would help address the costs associated with project delays and forex fluctuation. Besides that, the revision in levelised tariff is small, possibly due to TNB’s stronger balance sheet which allows TNB to borrow at a lower finance rate compared to 1MDB. TNB’s finance rate is estimated at 4.9% compared to 1MDB’s at c.6%. We expect TNB to make a decision soon since financial close has to occur by 15 Oct.

Key terms are silent on commercial operation date (COD) We believe the revised COD for Track 3B would likely be pushed back by 6 months, considering that 1MDB was initially supposed to achieve financial close by Apr-15. We note that the key terms under the EC’s invitation are silent on the COD. Recall that Track 3B had an original COD (split into 2 phases) of Nov-18 and May-19.

Reaffirm BUY with an unchanged TP of RM17.50 We maintain our BUY rating on TNB with an unchanged DCF-based 12-month TP of RM17.50 (WACC: 8%, LT growth: 3%). We like TNB for: 1) decent electricity-sales growth; 2) benign coal prices; and 3) indirect ICPT implementation. However, ongoing uncertainty on Track 3B and persistent overhang from 1MDB bailout speculation are potential headwinds.

Earnings & Valuation Summary FYE 31 Aug 2013 2014 2015E 2016E 2017E Revenue (RMm) 37,130.7 42,792.4 44,000.9 45,352.1 46,643.5 EBITDA (RMm) 10,555.5 11,467.1 13,357.9 13,769.8 14,184.8 Pretax profit (RMm) 5,925.1 7,114.7 7,839.6 8,136.3 8,452.6 Net profit (RMm) 5,356.2 6,467.0 7,097.5 7,366.1 7,652.6 EPS (sen) 94.9 114.6 125.8 130.5 135.6 PER (x) 13.6 11.2 10.2 9.9 9.5 Core net profit (RMm) 4,841.3 5,436.1 7,097.5 7,366.1 7,652.6 Core EPS (sen) 85.8 96.3 125.8 130.5 135.6 Core EPS growth (%) 39.5 12.3 30.6 3.8 3.9 Core PER (x) 15.0 13.4 10.2 9.9 9.5 Net DPS (sen) 25.0 25.0 30.0 32.5 35.2 Dividend Yield (%) 1.9 1.9 2.3 2.5 2.7 EV/EBITDA (x) 8.2 7.9 6.6 6.2 5.8 Chg in EPS (%) - - - Affin/Consensus (x) 1.1 1.1 1.1 Source: Company, Affin Hwang forecasts

Company Update

Tenaga TNB MK Sector: Utilities RM12.86 @ 19 Jun 2015 BUY (maintain) Upside 36% Price Target: RM17.50 Previous Target: RM17.50

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15

(RM)

Price Performance 1M 3M 12M Absolute -7.9% -11.7% +9.0% Rel to KLCI -3.3% -7.3% +18.9% Stock Data Issued shares (m) 5,643.6 Mkt cap (RMm)/(US$m) 72,689.7/19,437.8 Avg daily vol - 6mth (m) 11.2 52-wk range (RM) 11.74-16.96 Est free float 40% BV per share (RM) 8.28 P/BV (x) 1.56 Net cash/(debt) (RMm) (2Q15) (21,600) ROE (2015F) 14.5% Derivatives Nil Shariah Compliant Yes Key Shareholders Khazanah Nasional 29.7% EPF 15.4% ASB 8.7% Source: Affin, Bloomberg

Lim Tee Yang, CFA (603) 2145 9616

[email protected]

19 June 2015

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 1 of 5


19 June 2015


Page 1 of 9

Unfairly punished

AirAsia’s share price took a hit after an independent research

publication. While some of the key concerns are valid, it is not new

news, in our view, and management has been addressing it. We cut

our 2015-17E earnings by 10-13% on higher debt level assumptions,

resulting in a lower target price of RM2.22 (based on 12x 2016E PER).

We think that the shares have been unjustly punished. Maintain BUY.

Concerns on aircraft leasing business and associates

AirAsia’s share price took a strong beating falling to a new low in response to an independent research report which questioned its aircraft leasing business and the viability of two of its associates – Indonesia AirAsia (IAA) and Philippines AirAsia (PAA). Funds raising plans in the pipeline

In the immediate term, there are plans of potential funds to be raised from Indonesia AirAsia (IAA) and Philippines AirAsia (PAA)’s local partners (on higher paid up capital) as well as the potential issuance from convertible bonds (CB) (US$100m each), which would raise total funds of at least US$296m (c.RM1,112bn). This will likely be used to repay the amount owing to AirAsia. This excludes any estimated proceeds from the sale of its aircraft. Hence, we do not expect a total default on the amount owing by its associates nor a cash call in the immediate term. Maintain BUY but with a lower target price of RM2.22

We are lowering our 2015-17E earnings by 10-13%, after incorporating the updated 2014 financial statement (annual report) as well as assuming a higher debt level. Due to our earnings cuts, we lower our 12-month target price to RM2.22 (from RM2.55 previously), based on an unchanged 2016E PER of 12x (the past-3-year average). Maintain BUY. Risks to recommendation

Risks to our call include: i) aggressive selling by foreign funds, ii) a spike in jet-fuel prices and iii) a weakening of the RM against the US$. Earnings & Valuation Summary

FYE 31 Dec 2013 2014 2015E 2016E 2017E Revenue (RMm) 5,111.8 5,415.7 5,766.6 6,411.1 7,107.4 EBITDA (RMm) 1,539.6 1,534.9 1,836.3 1,900.4 2,001.7 Pretax profit (RMm) 362.1 22.7 532.1 566.8 684.1 Net profit (RMm) 363.0 82.8 478.9 510.1 615.7 EPS (sen) 13.2 3.0 17.4 18.5 22.3 PER (x) 12.7 55.6 9.6 9.0 7.5 Core net profit (RMm) 584.1 415.8 478.9 510.1 615.7 Core EPS (sen) 21.2 15.1 17.4 18.5 22.3 Core EPS growth (%) -17.7 -28.8 15.2 6.5 20.7 Core PER (x) 7.9 11.1 9.6 9.0 7.5 Net DPS (sen) 0.0 0.0 3.5 3.7 4.5 Dividend Yield (%) 0.0 0.0 2.1 2.2 2.7 EV/EBITDA (x) 8.7 10.4 9.8 10.4 10.3 Chg in EPS (%) (13.1) (13.1) (10.2) Affin/Consensus (x) 0.7 0.7 0.7 Source: Company, Affin Hwang forecasts, Bloomberg

Company Update

AirAsia Berhad AIRA MK Sector: Transport & Logistics RM1.69 @ 18 June 2015

BUY (maintain) Upside 31% Price Target: RM2.22 Previous Target: RM2.55

Price Performance

1M 3M 12M Absolute -25.1% -25.1% -28.0% Rel to KLCI -21.1% -21.1% -21.2% Stock Data

Issued shares (m) 2783.0 Mkt cap (RMm)/(US$m) 4.647/1,255 Avg daily vol - 6mth (m) 12.4 52-wk range (RM) 1.43-2.94 Est free float 70% BV per share (RM) 1.68 P/BV (x) 1.00 Net cash/ (debt) (RMm) (1Q15) (11,544) ROE (2015F) 10.0% Derivatives Nil Shariah Compliant No Key Shareholders

Tune Air 19.1% Wellington 7.8% EPF 8.1% Source: Affin Hwang, Bloomberg

Sharifah Farah (603) 2145 0327

[email protected]


mailto:[email protected]

Asiamoney’s

2013

Best Domestic

Equity House

Corporate flash

19 June 2015

Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor in

making their investment decision.

Please see the important disclaimer information on the back of this report

*Based on consensus’ recent changes ↑ (up), ↓ (down), ↔ (unchanged)

2014Finance Asia's

Best Equity House

Alpha Southeast Asia

2014 Best Research Call FMCG Sector

Asiamoney's2013

Best DomesticEquity House

2015Institutional

Investors Highest Research

Ranked Local House

Jasa Marga Sector: Toll road (Neutral)

BUY (Unchanged)

Rating momentum*:

Bob Setiadi E-mail: [email protected] Phone: +6221 250 5081 ext. 3605

Price:IDR5,800–TP:IDR7,000 (from:IDR7,500)

TP/consensus: 92%; TP momentum*: JCI: 4,945

Blue festivity

25-35% toll tariff discounts to lower top line by 1.5%: Despite the

current strict regulations on toll-road tariffs, set bi-annually by the

Indonesian Toll Road Authority (BPJT), President Jokowi has revealed his plan

to provide toll tariff discounts (25% for private operators and 35% for JSMR)

for 10 days before and 5 days after the Eid (the largest Islamic festivity) on

17 July 2015. We believe that the government is committed to implement the

discount via a Ministerial Decree, and we expect this to reduce JSMR‟s 2015

toll-road sales by 1.5%. Note that the Islamic festive period has historically

accounted for around 8% of JSMR‟s total traffic volumes (exhibit 9).

Raising 2015 capex to IDR7tn on two new toll-road projects: Following

a successful negotiation, JSMR has completed the acquisition of 90km Solo-

Ngawi and 87km Ngawi-Kertosono toll roads from Thiess Contractors for

IDR263bn (JSMR‟s stake: 60%). As a result, JSMR has revised up its 2015

capex from IDR4tn to IDR7tn (Bahana: IDR6tn) with planned toll-road

construction in 2H15, as land acquisitions for both toll-roads have progressed

beyond 75% (exhibit 8). JSMR has also become the frontrunner to acquire

another Thiess Contractors-owned toll road, the 10.24km Cinere-Serpong,

which is expected to have a total investment of IDR2.2tn.

Lowered 5M15 traffic growth on operational toll road delays: Despite

an economic slowdown, JSMR still booked respectable 5M15 traffic volumes

of 550.4mn cars (+4.7% y-y), although operational delays in JSMR‟s new

toll-roads (Gempol-Pandaan and Gempol-Pasuruan) prompts us to lower

2015 traffic growth assumption from 6.6% to 5.5% (2014: 4.3%). On a more

positive note, strong growth in JORR W2 section (5M15: +183% y-y) should

justify JSMR‟s strategy to create an inter-connection between the old and

younger toll roads to boost traffic volumes.

Outlook: Increasing need of external funding for additional projects

In order to finance growing number of new toll-road projects (exhibit 6), we

expect JSMR to increase its 2015 debts to IDR17.2tn (+29.3% y-y), translating

to an elevated 2015 net gearing of 124%. This is likely to slow down 2015 net

earnings growth to IDR1.4tn (2015F: +2.0% y-y; 2014: +36.5% y-y),

although in 2016, we expect JSMR‟s net profit to jump to IDR1.61tn (+12.4%

y-y), benefitting from the full-year impact of expected toll tariff hikes in 4Q15.

Additionally, the three higher-coupon bonds totalling IDR1.5tn maturing in

2016, should allow JSMR to refinance with cheaper alternatives.

Recommendation: Retain BUY rating but with lower TP of IDR7,000

On the back of tariff discounts during Islamic festive season and higher 2015-

17 capex, we cut our 2015-16F net earnings assumptions by 2-6% (exhibit 5).

Accordingly, we lower our DCF-based TP slightly to IDR7,000 (from IDR7,500),

applying 9.4% WACC. That said, we believe JSMR's solid fundamentals remain

(2015-16F EBITDA margin: 50.6-51.1%), and coupled with the recent market

underperformance (exhibit 4), offers a solid entry point for long-term investors.

Retain BUY. Risks to our call include policy risk on lower tariffs, worse-than-

expected traffic volumes and higher construction cost of new toll roads.

Exhibit 1. Company information

Market cap (IDRtn/USDbn) : 39.4/3.0

3M avg.daily t.o.(IDRbn/USDmn) : 42.4/3.2

Bloomberg code : JSMR IJ Source: Bloomberg

Exhibit 2. Shareholders information

Republic of Indonesia (%) : 70.0

Est. free float (%) : 30.0 Source: Bloomberg

Exhibit 3. Key forecasts and valuations

2013 2014 2015F 2016F

Sales (IDRbn) 6,357 7,254 7,883 9,136

EBIT (IDRbn) 2,039 2,777 3,019 3,535

Net profit (IDRbn) 1,029 1,403 1,431 1,608

Bahana/Cons. - - 86 79

EPS (IDR) 151 206 210 237

EPS growth (%) (35.9) 36.7 1.9 12.4

EPS momentum* - -

EV/EBITDA (x) 19.9 13.8 13.2 12.0

P/E (x) 38.4 28.1 27.6 24.5

FCFPS (IDR) (433) (299) (520) (510)

FCF yield (%) (7.5) (5.2) (9.0) (8.8)

BVPS (IDR) 1,323 1,451 1,579 1,752

PBV (x)

4.4 4.0 3.7 3.3

DPS (IDR) 60 83 63 71

Yield (%) 1.0 1.4 1.1 1.2

ROAA (%) 3.9 4.7 4.1 4.0

ROAE (%) 11.7 14.9 13.9 14.2

EBIT margin 32.1 38.3 38.3 38.7

Net gearing (%) 95.6 101.3 124.1 139.3 Source: Company, Bloomberg, Bahana estimates Note: Pricing as of close on 18 June 2015

Exhibit 4. Relative share price performance

(12.3)

(0.1)

(9.4)

(13.3)

(3.6)(4.1)

(14)

(12)

(10)

(8)

(6)

(4)

(2)

0

(14)

(12)

(10)

(8)

(6)

(4)

(2)

0

ytd 1M 3M 6M 9M 12M

(%) (%)

JSMR IJ relative to JCI

Source: Bloomberg, Bahana



■ ASEAN rising In this report, we feature the week’s top stories among the 300-plus stocks and 5 markets that Daiwa and its alliance partners cover in ASEAN. Our goal is to provide on-the-ground colour from our team of local experts: Bahana Securities (Indonesia), Thanachart Securities (Thailand), and Affin Hwang Investment Bank (Malaysia), and Daiwa’s own team in Singapore. ■ Indonesia (page 5) After lower-than-expected 1Q15 results, Bahana’s Harry Su has lowered his 2015E market EPS growth to 7.7% YoY from 11.6%, and cut his year-end JCI Index target to 5,150 from 5,800. His 2016E Index target is 5,600. He remains Neutral on the market. The Indonesian market is trading currently at a 2015E PER of 18.7x (2016E: 16.9x). Despite the cut in his index target to 5,150, Harry believes there are still plenty of stocks with significant upside, including

Erajaya Swasemba (ERRA IJ), which has been upgraded to a Buy with a 12-month target price of IDR940, representing 62% upside potential. ■ Thailand (page 15) Despite poor results in 2014 and 1Q15 on higher-than-expected provisions, Thanachart’s Ittikorn Thepmani reaffirms his Buy on Bangkok Life Assurance (BLA TB) for its earnings turnaround story. With the recent surge in the long-end bond yield allaying fears of further provisions in 2Q15, he thinks it’s time to get back into the stock. After cuts to earnings forecasts of 12-15% during 2015-17 to reflect higher-than-expected extra reserves and benefit payment expenses, and a lowered DDM-based 12-month target price of THB60 from THB65, BLA is trading at an embedded value of 1.6x versus a 2011-13 trading range of 2.2-2.5x, on Thanachart’s reading. BLA is Ittikorn’s top sector pick. ■ Malaysia (page 26) Affin analyst Walter Aw upgraded the Malaysian Healthcare Sector to Overweight, from Neutral, as well as upgrading earnings and target prices for IHH Healthcare (IHH MK) and KPJ Healthcare (KPJ MK). IHH remains his top sector pick given its 3-year EPS CAGR of 23% and higher

exposure to emerging markets. Despite a 34% YoY rally in Malaysian healthcare stocks, Walter believes current 2015E valuations of 30.8x for KPJ and 50.0x for IHH are justified given their strong earnings and continuous capacity expansion. He changed his target price basis for IHH and KPJ to SOTP with DCF to better reflect the long-term growth potential, with new target prices for IHH of MYR6.71 (MYR6.07 previously based on CY16 EV/EBITDA of 22x) and KPJ MYR4.75 (MYR3.75 previously based on 30x CY16 PER), respectively. ■ Singapore (page 43) Daiwa’s David Lum upgraded CapitaLand Commercial Trust (CCT SP) to Hold (3) from Underperform (4) following a 10.8% decline in the share price YTD. Despite lowering his rental growth assumptions for prime Grade-A office rents to 5.4% YoY (from 8.9% YoY) for 2015 and 2.1% YoY (from 4.8%) for 2016 resulting in a downward revision to his 2015-17 DPU for CCT of 1.9-2.5%, the stock is now trading on a par with its mean PBR of 0.9x since listing. Its DPU yield of over 6% is also on a par with the S-REIT sector average.

ASEAN: stock-market performance

Index (as at 18 June) WoW chg (%) YTD chg (%) End-2015 index target Upside to target (%)Indonesia (JCI) 4,983.77 0.34 -5.38 5,150 3.3Malaysia (KLCI) 1,724.26 -0.96 -8.44 1,820 5.6Thailand (SET) 1,498.40 -0.45 0.69 1,700 13.4Source: Daiwa, Bahana, Thanachart and Affin Hwang

19 June 2015

What matters this week

• Highlighting the week’s top ASEAN stories from Daiwa and its alliance partners, which together cover 300-plus stocks

• Bahana cuts its 2015E market EPS growth and JCI Index target to 7.7% and 5,150, respectively, after weak 1Q15 results

• Affin Hwang raises its outlook for the healthcare sector to Overweight, seeing strong demand for defensive stocks

ASEAN Intelligence

Rohan Dalziell (852) 852 2848 4938 [email protected]

Strategy / ASEAN

No Capital Markets and Services Licence has been issued by the Malaysian Securities Commission to any member of Daiwa Capital Markets and accordingly this report and any part of its content may not be distributed or made available by any means within Malaysia.


Economic Update

Malaysia- CPI

Economic Research (603) 2145 8210

[email protected] [email protected]

Inflation rose for a second straight month to 2.1% in May Cost-push effect from GST turned out to be lower than expected Following the implementation of GST in early April this year, the country’s headline inflation rose higher for the second consecutive month, from 1.8% yoy in April to 2.1% in May (0.9% in March), in line with our and market expectations. On a month-to-month comparison, inflation rose by 0.4% mom in May, albeit at a slower rate of 0.9% in April. Earlier concerns of the lagged cost-push effect from GST, which might lead to sharply higher inflation rate in subsequent months, turned out to be lower than expected. The price of food & non-alcoholic beverages rose from 3.1% yoy in April to 3.5% in May, but this was offset mainly by lower costs of transport, given that monthly retail petrol prices (RON97, RON95 and diesel) remained unchanged in May. However, core inflation, excluding food prices, rose steadily from 1.2% yoy in April to 1.4% in May, attributed to higher price of alcoholic beverages & tobacco (11.3%), costs of health as well as restaurant & hotels, see Fig 1. Fig 1: Consumer price index (CPI), May 2015

% yoy % yoy % mom Weights 2013 2014 Mar-15 Apr-15 May-15 Mar-15 Apr-15 May-15

Food & Non-alcoholic Beverages 30.3 3.6 3.3 2.3 3.1 3.5 -0.3 0.8 0.4 Alcoholic Beverages & Tobacco 2.2 6.0 11.6 10.6 13.0 11.3 0.0 2.2 -1.5 Clothing & Footwear 3.4 -0.6 -0.2 -0.2 0.7 0.9 0.4 0.8 0.1 Housing, Water, Electricity & Gas & Other Fuels 22.6 1.7 3.4 1.9 2.3 2.6 -0.4 0.4 0.7 Furnishings, Household Equipment 4.1 1.5 1.0 0.2 2.3 2.6 0.1 2.2 0.4 Health 1.3 1.9 2.9 3.6 5.0 5.0 0.4 1.9 0.3 Transport 14.9 2.0 4.9 -4.9 -4.8 -4.7 8.0 0.3 0.2 Communication 5.7 -0.7 -0.7 -0.9 2.3 2.6 0.0 3.1 0.1 Recreation Services & Culture 4.6 0.1 1.5 0.6 1.5 1.6 -0.2 0.9 0.2 Education 1.4 2.4 2.4 2.2 2.6 2.5 0.1 0.5 -0.1 Restaurant & Hotels 3.2 2.5 4.7 2.8 4.3 4.5 0.3 1.8 0.4 Miscellaneous Goods & Services 6.3 0.3 0.7 1.5 4.1 4.4 0.3 2.5 0.3 Core CPI 69.7 1.5 3.1 0.3 1.2 1.4 1.5 1.0 0.3 TOTAL CPI 100.0 2.1 3.2 0.9 1.8 2.1 0.9 0.9 0.4

Source: Department of Statistics (DoS)

However, on a quarterly basis, with the headline inflation rate rising from 0.7% yoy in 1Q15 to 2% in April-May 2015, which averaged around 1.2% in the first five months of this year, we are maintaining our inflation forecast at around 2.5% for 2015, which is at the mid-point of the official projection of 2–3% (3.2% in 2014). This is based on the assumption of some inflationary pressure from higher food prices, which are typically volatile in price movement due to festive season. Similarly, in the months ahead, with some improvement in global oil prices, costs of transportation may trend slightly higher, especially when the monthly retail petrol prices were raised by 5.1% mom to RM2.05 for RON95 and diesel and 4.4% to RM2.35 for RON97 effective from June 2015. On monetary policy, in view of the manageable inflation outlook in 2015 and 2016, we believe any change in the BNM's stance on monetary policy in 2H15, will likely focus on economic growth, based on both the global and domestic economic developments. The implementation of GST may impact consumer spending and domestic demand, where the country’s real GDP growth could slow markedly in 2Q15. In our opinion, if the 2Q15 real GDP growth, which will be released on 13 August 2015, were to dip below 4.5% yoy (5.6% in 1Q15), with the domestic economic slowdown continuing into 2H15, there is a possibility that BNM may cut its OPR by 25bps from 3.25% to 3% in 2H15. The three remaining MPC meetings are on 9 July, 3 September and 5 November 2015.

19 June 2015


Page 1 of 5



■ Bottom-up factors aren’t working The A-share market is arguably one of the least-friendly markets for stock pickers relying on conventional factors. YTD factor premiums show that size is the only clear winner. Factor premiums (YTD)

Source: Daiwa Custom Products Group

Most factors fail to explain the circa-50% YTD increase in the MSCI China Index, likely because factors not covered by our model are driving the market. Policies like the Shanghai-Hong Kong Stock Connect are difficult, if not impossible, to capture in a conventional model. ■ Top-down factors also a worry Top-down factors, such as the PMI, M2 and electricity consumption, aren’t working the way they used to either. (Note: the negative coefficients of these macro factors show the A-share rally is not being driven by fundamental factors.)

Daiwa: regression analysis Coefficient t-statistics R2

New borrowing as % of ADT 1.2 3.9 33.0%Margin debt as % of free float 53.2 85.9 98.0%PMI -16.84 -1.70 15.3%M2 -30.57 -6.31 71.3%Electricity consumption -4.83 -2.88 34.1%


However, our regression analysis indicates that 2 factors relating to China margin debt (new borrowing as a percentage of ADT, and margin debt as a % of market free float) are statistically significant. Our analysis using daily data since 31 October 2014 shows that the 1st factor explains 33% of the A-share market’s daily return, with a coefficient of 1.21 – a 1% rise in this ratio would imply a 1.21% rally in the market, and vice versa. A regression analysis of the CSI 300 Index and the 2nd factor above shows an R2 of 98%, indicating the market is being driven by borrowed money. ■ So what does this mean?

A look at the NYSE, which introduced margin debt in the 1950s, is instructive. Using data since 1993 for a regression analysis of the S&P500, we found that net margin debt accounts for 13% of the market’s monthly performance. We also found: 1) the net margin debt balance tends to rise steadily in a bull market, and 2) when the market turns south, investors pay back debt much faster, coinciding with or even preceding a crash. The fat-tail risk of such a speedy repayment could drag the market into a downward spiral.

Net margin debt and the S&P500


So what are the chances of this happening in China? Quantifying the leverage is straightforward: investors in China have borrowings of CNY2.3tn, equal to 8.3% of the A-share market, per Wind data (vs. 2.1% for the NYSE as of April). But if we consider other financing channels in China, the actual leverage is much higher. To quantify the fragility of sentiment, we take the difference between financing costs and realised market returns. Investors in China shares borrow from local brokers at 8.5% (vs. 2% in the US) in hope of making a quick 20-30% return. When the market moves against them, they are prone to repay the debt. The recent 13.5% pullback in A shares is testing investors’ limit every day. The spike in market volatility indicates the market is on the cusp of a peak. How to manage margin debt and avoid the consequences of deleveraging is a priority for regulators, which increases the difficulty of predicting the market. But we think there is a risk the situation could snowball further, barring concerted government action.

80

90

100

110

120

130

140

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15

Volatility Momentum SizeTrading Growth EarningYieldDividendYield Value Leverage

(250)

(200)

(150)

(100)

(50)

0

50

100

150

200

250

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

1993 1996 1999 2002 2005 2008 2011 2014

S&P500

22 June 2015

Repayment of margin debt could cause a big sell-off

• Margin debt is a sentiment factor explaining 33% of the average daily return for A shares, when other top-down factors fail

• A-share market leverage and borrowing cost is 4x higher than the US market — not sustainable and susceptible to a pullback

• We recommend: short stocks with highest margin finance

Market Factor Analysis: China A Shares

Quantitative / Hong Kong

Jibo Ma(852) 2848 [email protected]


Important disclosures, including any required research certifications, are provided on the last two pages of this report.

Kinouchi’s Technical Tips for Institutions

Concerns over significant rise in foreigners’ selling interest to prove unwarranted: The Tokyo stock market opened well above the flat line, with individual stocks taking a while to see their first transaction for the day amid mounting buying interest. The range of beneficiaries of a surge in Japan-bound tourists widened significantly. Moreover, large caps, which plunged yesterday, performed well, alleviating market fears. We may attribute yesterday’s severe sell-off in Tokyo shares to the rising sense of uncertainty surrounding strong selling interest from foreigners. In fact, net share sales by foreigners amounted to Y413.2bn for the second week of June, according to trading statistics released before the opening yesterday by the Ministry of Finance. In the first week for the month, sales in index futures by foreigners clearly triggered a meaningful setback. In this context, market participants seem to have feared the increase in foreigners’ selling interest. Concerns over this may have proved unwarranted. TSE’s trading statistics released after yesterday’s trading session highlight a modest Y172.6bn in net share sales by foreigners vs. Y243.8bn in net share sales by brokers’ proprietary trading. In our view, share sales by foreign brokers’ parent companies may have been counted as part of foreigners’ share sales in the ministry’s numbers. Indeed, long index arbitrage positions waned last week, but this is often the case with the week including the date for fixing final settlement prices for index options/futures, and thus did not carry over into this week. On balance, we recommend buying on dips. With growth strategies as well as the skeleton plan for economic/fiscal policy and structural reforms slated for release in the end of June, increased government spending would help contractors and property stocks fare well. (Comment following opening of morning session—19 June 2015)

Japan Technical analysis 19 June 2015 Japanese report: 19 June 2015

Selling interest from foreigners limited; Japan-bound tourists could increase this summer

Technical Daily Comment Eiji Kinouchi

(81) 3 5555-7230 [email protected]

Hikaru Sato (81) 3 5555-7330

[email protected]

Translation: H.M. Style check: K.R. Accuracy check: H.M.


This reLtd., THong Conduand Esecuriestimathat m

T

rlolae

sfeTmop

ufopfo

U

U A C

Exp

* EaNormaFederwere o

Sourc

0

1

2

3

4P

eport is issued by Tokyo (“Daiwa SecKong Ltd. (Hong

uct Authority and axchange Commisties. The data conates expressed ar

might be significant

The Fed vA downwa

ecent meetiower portionatest meetinend of this ye

Despite thsee an approed funds ind

The differencmore than 50over the paspoints in Dec

We suspecupper portionollow the pre

portion of theorecast rang

US Ec

.S. EcA dovish fedCorporate fin

pected Fed F

ch dot representsally, this graph woral Reserve Board open in March and

ce: Federal Open

Percent

2015 foJu

JMedianMean

Daiwa Securitiescurities”) and its suKong), regulated a member of the Lssion, a futures contained in this repre our own, and wt.

vs. the Mrd shift in thng of the Fe

n of the forecng. Similarear, wherea

e dovish shioximately evdicate that mces are mor0 basis point several mocember), bu

ct that muchn of the distreferred pathe distributionge.

conomic Rese

conom is still morenance: loadi

Funds Rate

s the expected fedould contain 19 prod and 12 reserve bd June.

n Market Committe

orecast as of une 2015

June '15n rate = 0.625%rate = 0.566%

s Group Inc. througubsidiaries worldwby the Hong Kong

London Stock Exchmmission merchaort were taken froe make no repres

Market he Fed’s dot ederal Opencast range (ly, no Fed ofs four expec

ift, Fed officven odds formarket particre pronouncents higher thaonths (it wast the Fed an

h of the gap ribution of fo

h of Chair Yen. Thus, m

earch

mic Coe hawkish thing up on de

e (Year-End

deral funds rate of ojections (seven gank presidents), b

ee

MMedianMean

2015 M

gh its relevant growide that are authog Securities and Fhange, and Daiwa

ant regulated by thom statistical servisentation or guara

plot signale Market Comsteady policfficial now ected such an

ials are still r one, two, ocipants are thed next yearan the rate is approximand market pa

reflects the orecasts. Inellen, and m

market expec

ommehan the markebt, but still f

d 2015)*

a Fed official. governors of the but two governorsh

March '15n rate = 0.625% rate = 0.772%

forecast as of March 2015

oup companies. Dorized to do busin

Futures Commissioa Capital Markets Ahe U.S. Commoditces, reports in ountee either as to a

ed that officiammittee. Pcy or one ratexpects the fn outcome a

out of sync or three rate hinking in ter, as the meimplied by fu

ately 70 basiarticipants a

fact that manvestors anost market p

ctations refle

ent ket consensfinancially s

Fed

hips

SourceBloomb

0

1

2

3

4

5

6

04-Ja

aiwa Securities Gness within their reon, Daiwa CapitalAmerica Inc. (Newty Futures Tradingr possession, andaccuracy, complet

als took a stPreviously, ote hike), but federal fundsat the March

with marketincreases t

erms of only dian forecasutures contras points afte

are still not o

arket participd traders moparticipants ect only view

19 Ju

us ound

Funds Rate

e: Federal Reserberg

an 06-Jan 0

Percent

roup Inc. is the gloespective jurisdicti

Markets Europe Lw York), a U.S. brog Commission, andd from other sourceness or as to the

ep in the donly three pothat numbe

s rate to exc meeting (ch

participantshis year, whone policy c

st of Fed offacts. The 2er the Marchon the same

pants are givost likely suslikely envisi

ws in the low

une 2015

e – Actual a

ve Board; Federal

8-Jan 10-Jan

obal brand name ions. These includLimited (London),

okerdealer registed a primary deale

ces believed to be e existence of othe

ovish directioolicymakers er jumped toceed one pehart, left).

s. FOMC phile futures cchange (chaficials (1.6252016 gap hah meeting anpage.

ving little wespect that Fon her dot i

w-to-mid port

Michael Daiwa Capit212-612-639michael.mor

and Expecte

al Open Market Co

12-Jan 14-Ja

Fed funds effec

Implied futures

Fmfo(0

of Daiwa Securitiede: Daiwa Capital regulated by the red with the U.S. Sr in U.S. governmreliable. The opin

er facts or interpre

on at the were in the seven at th

ercent at the

participants contracts on art, right). 5 percent) isas narrowednd 95 basis

eight to the Fed policy win the lower tion of the

Moran tal Markets Americ92 [email protected].

ed

ommittee;

an 16-Jan

ctive rate

s rate

FOMC median orecast (2015) .625%

FOMC medianforecas(2016) 1.625%

es Co. Markets Financial Securities

ment nions and etations

he e

s d

ill

ca

.com

n t

%


Follow one of the WSJ’s top 50 financial twitter feeds @DaiwaEurope

Euro area ECB increases ELA again, for now

While yesterday's failed Eurogroup meeting placed the ball firmly back in the court of the Greeks to come up with credible new proposals, the ECB was today put in the invidious position of having to decide what to do about the steady drain of deposits from the Greek banks. With a deal between the Greek government and its creditors still possible next week, the ECB was always unlikely to pull the plug on its ELA today. And, with reports suggesting that more than €1bn of deposits had been withdrawn yesterday alone, the Governing Council reportedly agreed to raise the ELA ceiling by a further €3.3bn to €87.4bn, with the situation to be reviewed further at the start of next week. We would not be surprised, however, to see the ECB refuse to increase the ceiling further in the absence of significant progress towards a comprehensive agreement at Monday’s special leaders’ summit. And since there is no reason to expect the decline in bank deposits to ease in the event that a deal looked no more likely after the summit, we would then expect the Greek banks to be closed from Tuesday. Current account surplus at new record high

Compared to events in Greece, the economic data-flow remains of secondary importance. However, today’s euro area balance of payments figures showed that the secular rise in the euro area’s current account surplus – a fundamental source of support for the euro exchange rate – shows no signs of abating, reaching 2.5% of GDP in April on a 12-month cumulative basis. Having hovered just shy of 2% of GDP for most of 2014, the latest increase in the surplus marks a series high that might well push higher still in the months to come, not least due to a steadily rising goods trade surplus, which in April hit an all-time nominal high of €30.4bn, underpinned by a similar record reached in Germany. Meanwhile, the financial account revealed that euro area debt securities saw foreigners reduce significantly their holdings of euro area fixed income securities (by €23.4bn) in April amid the generalised sell-off in the market. In addition, the previously strong net inflows of portfolio investment into euro area equities also reversed in April to post a moderate net outflow of €13.6bn. Together, net outflows of portfolio investment thus reached €51.5bn in April, the second-highest monthly value in more than three years. Given recent continued bond market volatility and concerns about Greece, we suspect that net outflows might well have remained a dominant theme since then. The coming week in the euro area and the US

All eyes will remain on Greece in the coming week, as the emergency meeting of euro area leaders on Monday evening will seek to break the ongoing and increasingly resentful deadlock between Greece and its creditors. That meeting will be preceded the same afternoon by a preparatory Eurogroup meeting. EU President Tusk has, however, sought to downplay the

Greece: Deposits of non-financial private sector* Euro area: Current account

*Daiwa estimate for May and June-to-date based on ELA increases Source: Bank of Greece, Bloomberg and Daiwa Capital Markets Europe Ltd.

Source: Datastream and Daiwa Capital Markets Europe Ltd.

110

130

150

170

190

210

230

250

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15

€bn

First bailoutMay 2010

Second bailoutFebruary 2012 Syriza elected

January 2015

-200

-100

0

100

200

300

400

Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15

Services IncomeGoods Current account

€bn, 12m cumulative

Europe Economic Research 19 June 2015

Euro wrap-up

Overview

• Bunds made gains today as the ECB increased the Greek ELA ceiling for the second time this week.

• Gilts followed Bunds higher as the latest UK public finance figures beat expectations.

• Greece will continue to take centre stage in the coming week, as euro area leaders meet for an emergency summit on Monday in yet another attempt to resolve the deadlock between the Greek government and the creditors.

Economic Research Team +44 20 7597 8326

Daily bond market movementsBond Yield Change*

BKO 0 06/17 -0.204 -0.005 OBL 0 04/20 0.105 -0.030

DBR 0½ 02/25 0.758 -0.049 UKT 1¾ 01/17 0.574 -0.012 UKT 2 07/20 1.478 -0.026 UKT 5 03/25 2.011 -0.030

*Change from close as at 4.30pm BST. Source: Bloomberg


- 2 -

Europe Euro wrap-up 19 June 2015

likelihood of a comprehensive agreement on Monday, noting for example that there will be no technical negotiations. And if Monday’s summit proves completely fruitless, we would not be surprised to see the Greek banks closed ahead of the further summit of all EU heads of state scheduled for Thursday and Friday, which might offer the last opportunity to reach agreement. That timetable would still, however, leave time extremely tight for implementation of any deal by month-end. Meanwhile, the coming week’s euro area data calendar looks comparatively sparse, with the latest euro area consumer confidence reading due on Monday, followed on Tuesday by June’s flash PMIs for the euro area, France and Germany. Following a moderate weakening since March, the euro area’s composite output PMI is expected to hold steady at a level implying a slight acceleration of quarterly GDP growth in Q215. Wednesday brings the German Ifo business climate index for June, followed on Thursday by Germany’s GfK consumer confidence survey for the same month. On Friday, the ECB releases the latest euro area bank lending data, while on the events side ECB Board members Cœuré and Constâncio speak on Monday and Wednesday, respectively. Supply-wise, Italy will hold a bond auction on Thursday. In the US, the coming week kicks off with a number of housing market indicators with existing home sales figures due on Monday, followed on Tuesday by the FHFA home price index and new home sales data. Tuesday also sees the release of May durable goods orders figures. The third and final estimate of Q1 GDP will be published on Wednesday and is expected to report a modest upward revision from the annualised decline of 0.7%Q/Q estimated in the second release. Monthly personal income and spending figures for May will be released on Thursday, followed on Friday by the final reading of the University of Michigan’s sentiment survey for June. On the supply side, the Treasury will sell 2Y notes on Tuesday, 2Y FRNs and 5Y notes on Wednesday and 7Y notes on Thursday.

UK Public sector net borrowing on a downward trend

If today’s data are to be believed, the UK public finances continue to improve. Public sector net borrowing of £10.1bn in May was £2.2bn lower compared to the equivalent month in 2014, leaving fiscal year-to-date net borrowing so far at £16.4bn, £5.1bn (23.6%) lower compared to the level in FY14/15. With central government expenditure effectively unchanged from a year earlier, the improvement in the latest month was driven by higher tax receipts off the back of recent firm economic growth as well a further exceptional boost from fine payments by certain financial institutions worth £0.3bn. Of course, the monthly public finance figures are typically volatile and are frequently revised. However, for the time being, it appears that the government is on track to hit the OBR’s PSNB forecast for FY15/16 of about £75bn, £14bn lower than the previous fiscal year. And that will be good news for Chancellor George Osborne ahead of the presentation of his post-election Budget on 8 July, when he is due to set out how the government intends to meet the manifesto commitment to eliminate the budget deficit entirely by FY18/19. The coming week in the UK

After several top-tier UK economic data releases this week, the coming week looks set to be much quieter. The CBI will release its two major surveys, with the Industrial Trends survey for June due on Tuesday and the Distributive Trade survey for the same month out on Thursday. In addition, on Wednesday the BBA will release its May data from High Street banks. Given the notable increase in housing demand reported after the General Election at the beginning of May, secured lending is likely to continue rising while mortgage approvals are expected to increase from the previous month’s level of 42.1k.

UK: Public sector net borrowing UK: Annual public sector net borrowing

Source: Datastream and Daiwa Capital Markets Europe Ltd. Source: ONS and Daiwa Capital Markets Europe Ltd.

In the absence of substantive breaking news on Greece by market close on 22 June 2015,

the next edition of the Euro wrap-up will be published on 23 June 2015.

0

10

20

30

40

50

60

70

80

90

100

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

FY15/16

FY14/15

£bn

OBRforecasts

-40

-20

0

20

40

60

80

100

120

140

160

180

FY93/94 FY96/97 FY99/00 FY02/03 FY05/06 FY08/09 FY11/12 FY14/15

£bn

OBRf'cast


- 3 -


European calendar Today’s results

Economic data

Country Release Period Actual Market consensus/

Daiwa forecast Previous Revised

EMU Current account balance €bn Apr 22.3 - 18.6 18.0

Italy Current account balance €bn Apr 5.1 - 2.0 -

UK PSNCR (PSNB excluding interventions) £bn May 12.4 (10.1) - (10.3) -4.0 (6.8) -2.7 (6.2)

Country Auction

- Nothing to report -

Source: Bloomberg and Daiwa Capital Markets Europe Ltd.

Coming week’s data calendar Key data releases

Country BST Release PeriodMarket consensus/

Daiwa forecast Previous

Monday 22 June 2015

EMU 14.45 ECB QE purchases €bn Weekly - 10.6

15.00 Preliminary consumer confidence Jun -5.8 -5.5

Tuesday 23 June 2015

EMU 09.00 Preliminary manufacturing PMI Jun 52.2 52.2

09.00 Preliminary services PMI (preliminary composite PMI) Jun 53.6 (53.5) 53.8 (53.6)

Germany 08.30 Preliminary manufacturing PMI Jun 51.1 51.1


France 07.45 Business confidence indicator (production outlook) Jun 98 (-) 97 (6)

08.00 Preliminary manufacturing PMI Jun 49.6 49.4


Italy 09.00 Industrial orders M/M% (Y/Y%) Apr - -0.3 (2.7)

09.00 Industrial sales M/M% (Y/Y%) Apr - 1.3 (0.9)

10.00 Retail sales M/M% (Y/Y%) Apr - -0.1 (-0.2)

UK 11.00 CBI industrial trends survey, total orders Jun 2 -5

Wednesday 24 June 2015

Germany 09.00 Ifo business climate index Jun 108.1 108.5

09.00 Ifo current assessment balance (expectations) Jun 114.1 (102.5) 114.3 (103.0)

France 07.45 GDP – 2nd release Q/Q% (Y/Y%) Q1 0.6 (0.7) 0.0 (0.0)

UK 09.30 BBA loans for house purchase 000s May 43.4 42.1

Thursday 24 June 2015

Germany 07.00 GfK consumer confidence survey Jul 10.2 10.2

UK 11.00 CBI distributive trades survey, reported sales Jun 35 51

Friday 26 June 2015

EMU 09.00 M3 money supply Y/Y% (3M/Y%) May 5.4 (5.1) 5.3 (4.7)

France 07.45 Consumer confidence survey Jun 93 93

Italy 09.00 Consumer confidence indicator Jun 105.5 105.7

09.00 Manufacturing (economic) confidence indicator Jun 103.8 (-) 103.5 (102.0)

Spain 08.00 Mortgage lending (approvals) Y/Y% Apr - 7.3 (19.7)

Source: Bloomberg and Daiwa Capital Markets Europe Ltd.


- 4 -


Coming week’s events/auctions calendar Key events & auctions

Country BST Event / Auction

Monday 22 June 2015

EMU 07.30 ECB’s Cœuré scheduled to speak in Paris

14.00 Euro area finance ministers meet in Brussels

18.00 Euro area leaders hold emergency summit on Greece in Brussels

Tuesday 23 June 2015

- Nothing scheduled -


EMU 15.00 ECB’s Constâncio scheduled to speak in Frankfurt


EMU 08.00 ECB’s Nouy scheduled to speak in Brussels

14.00 ECB’s Praet scheduled to speak in Frankfurt

15.00 EU leaders commence a two-day summit in Brussels

Italy 10.00 Auction: To sell index-linked bonds

Friday 26 June 2015

- Nothing scheduled -

Source: ECB, BoE, Bloomberg and Daiwa Capital Markets Europe Ltd.

Access our research blog at: http://www.uk.daiwacm.com/research-zone/research-blog

Follow us

www.twitter.com/@DaiwaEurope

This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and 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 its affiliates may have positions and 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-regulatory. Regulatory disclosures of investment banking relationships are available at http://www.daiwausa.com/.n


Follow one of the WSJ’s top 50 financial twitter feeds @DaiwaEurope

BoJ keeps its monetary base target unchanged

With GDP growth having surprised on the upside in the first quarter of 2015, and the BoJ expecting above-potential growth to be maintained through to FY17, the latest Policy Board meeting brought no surprises in terms of monetary policy. All but one member continued to vote to keep increasing the monetary base and the BoJ’s JGB holdings at an annual pace of ¥80trn, with the dissenter, Kiuchi, making his regular proposal to taper purchases to achieve an annual rate of increase of ¥45trn. The latest meeting was, however, not a total non-event, with agreement (subject to Cabinet approval) to shake up the way the Board will decide and communicate policy from the start of 2016. To bring the central bank closer to international norms, the BoJ aims to reduce the scheduled number of meetings each year from fourteen to eight; increase the frequency of publication of its Outlook Reports from a semi-annual to a quarterly basis; publish economic forecasts of individual Board members; and provide a more timely summary of discussions ‘about a week after [each] meeting’. The new approach should allow improved communication of the possibility of future policy actions, which might be particularly important next year if and when the BoJ moves to taper. BoJ also maintained its upbeat economic outlook

Not least due to growing unease among some Policy Board members about the relative costs and benefits of additional JGB purchases, not to mention the potential limits to QQE, we doubt that the BoJ will increase further the pace of its balance sheet expansion even if the economic data start to disappoint. And while the BoJ recognises that CPI will remain around zero for the time being, it still expects moderate economic recovery to be maintained to pull inflation gradually higher in due course. So, from the Board’s perspective, there appears to be little to justify extra easing either. Indeed, following the current meeting, it left its assessment of economic conditions predominantly unchanged. It did, however, tweak very slightly its assessment of housing activity, noting that such investment ‘has started to pick up’ compared with its previous assessment that it had ‘shown some signs of picking up’. And this improvement was evident in the latest construction activity figures, with output up for the second successive month in April and by 3½%M/M, the firmest pace since the post-quake rebound. Within the detail, private residential construction growth accelerated for the fourth consecutive month to its highest level since last July, while non-residential private construction jumped more than 4%M/M. And there was surprise support from public sector construction too, which rose almost 7%M/M.

Japan Economic Research

19 June 2015

Yen 4Sight

Highlights

The BoJ left its monetary policy unchanged as it maintained its upbeat assessment of the economic outlook.

May’s export data were disappointing. But the latest Reuters Tankan suggested that business conditions have become more favourable.

The coming week sees the release on Friday of the latest inflation, labour market and household spending figures.

Emily Nicol +44 20 7597 8331 [email protected]

Chris Scicluna +44 20 7597 8326 [email protected]

Interest and exchange rate forecasts

End period 12-Jun Q315 Q415 Q116 BoJ ONR % 0-0.10 0-0.10 0-0.10 0-0.10 BoJ JGBs ¥trn 241 260 280 300 10Y JGB % 0.42 0.50 0.50 0.55 JPY/USD 123 125 126 128 JPY/EUR 139 135 132 134 Source: Bloomberg, BoJ and Daiwa Capital Markets Europe Ltd.

BoJ: Monetary base and JGB holdings

Source: BoJ

Construction activity

Source: METI and Capital Markets Europe Ltd.

Export volumes and industrial production

Source: BoJ, METI and Daiwa Capital Markets Europe Ltd.

0

50

100

150

200

250

300

350

Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16

Monetary base

JGB holdings

¥trn Start of QQE

65

70

75

80

85

90

95

100

105

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

Public sector Private sectorPrivate sector residential Private sector non-residential

Index: 2005 = 100, 2mma

889092949698

100102104106108110112

Jan-12 Jan-13 Jan-14 Jan-15

Industrial production

Export volumes

Index: Jan-10 = 100, 3mma


https://twitter.com/DaiwaEurope



- 2 -

Japan Yen 4Sight

19 June 2015

Exports continue to disappoint in May

The latest trade report, however, was disappointing suggesting that near-term risks to the outlook for the manufacturing sector might be skewed to the downside. Indeed, while the Policy Board maintained its view that exports continue to pick up, the past week’s trade report was discouraging. Export values declined in May for the third month out of the past four and by more than 2½%M/M, to leave them at their lowest level since August and up just 2½%Y/Y, the softest for nine months. The slowdown was evident across key manufacturing sectors with, for example, exports of autos up 2.2%Y/Y, just one-quarter of the average rate over the previous six months, while shipments from the general and electrical machinery sectors also slowed markedly in May. When also adjusting for price effects, the export performance was even more disappointing, with export volumes down 5%M/M, to leave them 3½% lower on a three-month basis in May and almost 10% below the peak at the start of the year. So, compared with a year earlier, they were down almost 4%, with notable declines in shipments to the US, by more than 6½%Y/Y the steepest drop for more than two years, and China, by 4½%Y/Y. Export recovery to be supported by US and EU

To some extent, however, the recent softness of goods exports aligns with the global trend. Indeed, compared with its peers, Japan's exports fared reasonably well in the first quarter of the year, to suggest that market share was likely maintained. Certainly, recent weakness in shipments to the US likely at least in part reflects the significant disruption to trade at the start in the year on the back of the West Coast port troubles. So, as that situation continues to normalise and the US economic recovery more generally gathers momentum, we should see renewed support for Japanese exports from that country over coming quarters. Likewise, with export volumes to Europe posting their sixth consecutive year-on-year increase in May, the ongoing recovery in that region should provide a greater boost. This notwithstanding, the recent marked weakening in other Asian economies’ imports since the start of the year – down more than 8½% in Q1 to their lowest level since June last year – poses a downside risk. Net trade need not be a drag on GDP growth in Q2

With respect to GDP growth, however, net trade need not be a significant near-term drag. Despite the decline in exports, a larger drop in import values in May saw the seasonally adjusted trade deficit narrow from ¥240bn to just ¥182bn. And the near-8½%Y/Y decline in import values caused the headline trade deficit to narrow by ¥700bn from a year earlier to just ¥216bn. Lower prices have clearly played a key role in the recent import weakness, in particular the weaker oil price which in May was still down more than one quarter compared with a year earlier. But there was a notable drop in total import volumes, which declined 3½%M/M, to leave them more than 5% lower compared with a year earlier. On a three-month basis imports were also down 5%, suggesting that net exports might have provided a negligible contribution to GDP growth in Q2. Manufacturers remain cautiously optimistic

It remains to be seen to what extent, if any, Japanese manufacturers will adjust production over coming months to reflect any concerns about softer external demand. But for now, at least, sentiment indicators suggest that they are not overly downbeat. E.g., the past week’s Reuters Tankan survey – a good guide to the BoJ’s quarterly Tankan survey, due on 1 July

Trade balance and components

Source: MoF and Daiwa Capital Markets Europe Ltd.

Export volumes and global trade

Source: BoJ, CPB and Daiwa Capital Markets Europe Ltd.

Total import volumes by region

Source: CPB and Daiwa Capital Markets Europe Ltd.

Japanese export and import volumes

Source: BoJ and Daiwa Capital Markets Europe Ltd.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

1

2

3

4

5

6

7

8

Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

Trade balance (rhs)

Exports

Imports

¥trn, 3mma ¥trn, 3mma

60

80

100

120

140

160

Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15Japanese export markets World importsJapanese exports


Collapse of Lehman Brothers

Great East Japan Earthquake & Tsunami

96

98

100

102

104

106

108

110

112

Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15

US Euro area Emerging Asia


-8

-6

-4

-2

0

2

4

6

Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15

Export volumes

Import volumes

%, 3M/3M


- 3 -

Japan Yen 4Sight

19 June 2015

– suggested that large manufacturers assessed business conditions to have been slightly more favourable in June, with the relevant index up 1pt for the second successive month to 14. Given a large decline at the start of the quarter, however, this still left the index down 2pts over the quarter as whole. Nevertheless, manufacturers remain cautiously optimistic about the near-term outlook, forecasting an increase to 19 at the end of Q3, which would be the firmest for fourteen months. Services sector conditions much more favourable

More encouragingly, the Reuters survey signalled that large non-manufacturers were extremely upbeat about conditions at the end of Q2, with the relevant index rising 3pts on the month to a series high of 36. This left the index an impressive 15pts higher over the second quarter as a whole, the largest such quarterly increase since the post-quake recovery. While increased optimism was widespread across the sub-sectors, a particularly striking improvement in conditions was reported by Japanese retailers, with the relevant index up 12pts in June to 34, a whopping 43pts higher than its level three months ago and just 4pts off its pre-consumption tax hike high. Recovery should be resilient to export risks The past week’s department store sales figures were consistent with this more upbeat take on conditions in the retail sector, reporting the second consecutive year-on-year increase and by more than 6%. Ongoing support for retailers is likely to come from the ever-rising number of overseas visitors, up 50%Y/Y in May, as tourists take advantage of the weaker yen. Japanese consumers should also provide increased support to sales growth as they benefit from higher wages, with regular earnings rising at their firmest rate for more than seven years in April. Meanwhile, if, as the Reuters Tankan suggests, overall business conditions are becoming increasingly favourable across a range of sectors, firms should continue to step up their capital expenditure. So, even if the downside risks to exports crystallise, we expect GDP to maintain an upward, albeit gradual rather than vigorous, trend over coming quarters. The week ahead in Japan and the US

The first half of the coming week should be relatively quiet for economic data, with just the flash June manufacturing PMI due Tuesday and May’s services PPI due Wednesday. But several top-tier releases for May are due on Friday. Inflation data are expected to show underlying core CPI (excluding fresh foods and consumption tax) unchanged at zero. Labour market data are expected to show the unemployment rate unchanged at an eighteen-month low of 3.3%. And household spending data are expected to report a welcome pickup. In the JGB market, meanwhile, the MoF will hold a 2Y auction on Thursday. In the US, the coming week kicks off with a number of housing market indicators with existing home sales figures due on Monday, followed on Tuesday by the FHFA home price index and new home sales data. Tuesday also sees the release of May durable goods orders figures. The third and final estimate of Q1 GDP will be published on Wednesday and is expected to report a modest upward revision from the annualised decline of 0.7%Q/Q estimated in the second release. Monthly personal income and spending figures for May will be released on Thursday, followed on Friday by the final reading of the University of Michigan’s sentiment survey for June. On the supply side, the Treasury will sell 2Y notes on Tuesday, 2Y FRNs and 5Y notes on Wednesday and 7Y notes on Thursday.

Tankan survey: Business conditions*

*Large enterprises. Solid line is BoJ Tankan. Dashed line is Reuters Tankan.

Source: BoJ, Reuters and Daiwa Capital Markets Europe Ltd.

Reuters Tankan: Business conditions by sector*

*Large enterprises. Diamonds represent survey forecast for September 2015.

Source: Reuters Tankan and Daiwa Capital Markets Europe Ltd.

Department store sales

Source: Datastream and Daiwa Capital Markets Europe Ltd.

Monthly foreign visitor arrivals

Source: JNTO and Daiwa Capital Markets Europe Ltd.

-100

-75

-50

-25

0

25

50

Q105 Q107 Q109 Q111 Q113 Q115

Large non-manufacturers

Large manufacturers

DI

-80

-60

-40

-20

0

20

40

60

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

ManufacturersRetailersConstructionNon-manufacturers

DI, 3mma

-15

-10

-5

0

5

10

15

20

300

350

400

450

500

550

600

650

Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15

LevelGrowth

%, Y/Y, 2mma ¥bn, 2mma

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

Other Europe US

Korea Taiwan China

mn, 12mma


- 4 -

Japan Yen 4Sight

19 June 2015

Economic calendar Key data releases – June/July

15 16 17 18 19 5Y JGB AUCTION 1Y TB AUCTION

TRADE BALANCE ¥BN APR -239 MAY -183 EXPORTS Y/Y% APR 8.0 MAY 2.4 IMPORTS Y/Y% APR -4.2 MAY -8.7 MACHINE TOOL ORDERS APR 10.5 MAY F 15.0

3M TB AUCTION 40Y JGB AUCTION REUTERS TANKAN – MANUFACTURERS DI MAY 13 JUN 14 NON-MANUFACTURERS DI MAY 33 JUN 36 BOJ POLICY BOARD MEETING (18-19 JUN 2015)

ALL INDUSTRY ACTIVITY Y/Y% APR -1.4 MAY 0.1 COINCIDENT INDEX MAR 111.1 APR F 111.0 LEADING INDEX MAR 107.2 APR F 106.4 DEPARTMENT STORE SALES Y/Y% APR 13.7 MAY 6.3 BOJ POLICY ANNOUNCEMENT

22 23 24 25 26 AUCTION FOR ENHANCED

LIQUIDITY (APPROX ¥0.5TRN) MANUFACTURING PMI MAY 50.9 JUN P N/A

SERVICES PPI Y/Y% APR 0.7 MAY N/A BOJ POLICY BOARD MINUTES (21-22 MAY MEETING)

3M TB AUCTION (APPROX ¥5.4TRN) 2Y JGB AUCTION (APPROX ¥2.5TRN)

NATIONAL CPI Y/Y% APR MAY 0.6 0.3 EX FRESH FOOD 0.3 0.0

EX FOOD/ENERGY 0.4 0.2 TOKYO CPI Y/Y% MAY JUNE 0.5 0.5 EX FRESH FOOD 0.2 0.2

EX FOOD/ENERGY 0.1 0.1

UNEMPLOYMENT RATE % APR 3.3 MAY N/A JOB-TO-APPLICANT RATIO APR 1.17 MAY N/A HOUSEHOLD SPENDING Y/Y% APR -1.3 MAY N/A

29 30 01 02 03 RETAIL SALES (MAY) INDUSTRIAL PRODUCTION (MAY) FLOW OF FUNDS (Q115)

AVERAGE EARNINGS (MAY) CONSTRUCTION ORDERS (MAY) HOUSING STARTS (MAY)

TANKAN (Q2) MANUFACTURING PMI (JUN F) VEHICLE SALES (JUN)

3M TB AUCTION 10Y JGB AUCTION MONETARY BASE (JUN)

SERVICES PMI (JUN) COMPOSITE PMI (JUN)

06 07 08 09 10 COINCIDENT INDEX (MAY P) LEADING INDEX (MAY P)

10Y INFLATION-INDEXED JGB AUCTION

6M TB AUCTION ECONOMY WATCHERS SURVEY (JUN) BANK LENDING (JUN) CURRENT ACCOUNT BALANCE (MAY)

3M TB AUCTION 30Y JGB AUCTION MACHINE ORDERS (MAY) MACHINE TOOL ORDERS (JUN P) M3 MONEY SUPPLY (JUN)

CONSUMER CONFIDENCE (JUN) PPI (JUN)

*Approximate date of release. Source: BoJ, MoF, Bloomberg & Daiwa Capital Markets Europe Ltd.


Important disclosures, including any required research certifications, are provided on the last three pages of this report.

■ What’s new

• CALC management held a conference this afternoon to provide details on the alleged investigation of Mr. Poon Ho Man (CEO and executive director) related to China Southern Airlines (1055 HK, HOLD, HKD8.78). The company announced that Mr Chen Shuang, originally the Chairman and a non-executive director, will be appointed as the CEO and re-designated as an executive director of the Company.

■ Analysis

• According to the announcement, except for the news on the media, the board does not have any further information about the alleged investigation. The board received resignation from Mr. Poon on 17 June during his planned annual leave (18 May - 26 June). Up until now, the board couldn't contact Mr. Poon. The management, therefore, confirmed the appointment of Mr. Chen as CEO as a short-term measure to maintain the stability of the company. Also, the recruitment process for new CEO is now in progress. The company also announced the change of CFO from Dr. Yu Tai Tei to Mr. Mok Chung Tat. Dr. Yu, during the conference, has clarified that

his resignation is totally out of personal reason and not related to the alleged investigation.

• The management emphasized that the business of CALC is not affected due to the well-organized business structure and well-defined managerial functions. They confirmed all the ongoing negotiations with its business partner, such as airlines, have not been affected by the issue. The company has also talked with the financing entities and confirmed no financing facilities will be affected by the issue nor the change of CEO. Further, all the leasing contract is irrevocable and unconditional which means the income stream is guaranteed. The planned 20 aircraft addition to the fleet in 2015 and 2016, and the progress of setting up the China Aircraft Disassembly Centre will not be affected and is on schedule. They expected more announcements of realization of lease contracts and aircraft delivery in the near term.

• The management said China Everbright (CE) and Friedmann Pacific Asset Management do not have any plan to reduce their holdings in CALC. Mr Chen, as an executive director of CE, said CE considered aircraft leasing as one of the major businesses and it will continuously support CALC and does not rule out a possibility to increase stakes in CALC.

■ Recommendation

• We think the business of CALC is quite solid and should not be greatly affected by the issue. However, we agree that the sentiment toward the stock may turn negative and a short-term pressure on share price is likely. We believe a potential catalyst for the stock to regain momentum is

for China Everbright to buy back the shares from Mike poon, and we note that the previous subscription of convertible bonds by CE has proved its confidence in CALC’s business. We currently have BUY rating on the stock with a DCF-based 12-month TP of HKD14. Risks to our call includes lower-than-expected demand of aircraft and a possible need for equity financing, although we see that risk diminishing following the recent CB announcement.

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

19 June 2015

China Aircraft Leasing Group 1848 HK

Share price (18 Jun): HKD11.94 12-mth rating: Buy (1) Target price: HKD14.00

Change in management is short-term negative Kelvin Lau (852) 2848 4467 [email protected]


Important disclosures, including any required research certifications, are provided on the last three pages of this report.

■ What’s new

• Super Group announced on 18 Jun (after market hours) that a subsidiary of its wholly owned Owl International, Owl Beverage Specialist (OBS), has been appointed as the sole distributor for Caffè Cagliari products in Asia. In addition to distributing its full range of products (whole beans, ground coffee, capsule coffee (including Nespresso compatible capsules) and machines, as well as complementary products like coffee sweets), OBS will introduce the first Cagliari Café franchise in Singapore.

■ Highlights

• Partnership details. Caffè Cagliari is an Italian family owned company with a presence across Europe (UK, Sweden, Hungary, Bulgaria), as well as recently in the US and Canadian markets. It said that it intends to make Singapore its regional distribution hub.

• Prior to the partnership, the company had roughly 200 customers in Singapore. It will focus on bringing its products into hotels, restaurants and cafes

first, while retail products could be launched by end-2015, according to the company.

• Further details regarding the partnership were not disclosed, although we expect that Super could possibly undertake the majority of distribution and marketing costs associated with Caffè Cagliari’s products. It remains unclear at this point which other markets Super is targeting to distribute these products, as well as pricing strategy for the products and potential revenue contribution from the partnership.

• ‘Premiumisation’ focus. Management had previously mentioned that it intends to launch new products in 2H15, and that the new products are likely to focus on the ‘premiumisation’ of its existing product scope. While it may be premature to surmise whether the partnership could result in cannibalisation of sales from these new product launches, Caffè Cagliari appears to target mainly the high-end coffee segment, a segment previously not served by Super’s existing instant coffee product range, indicating to us that Super’s new product launches are unlikely to be in the same product category.

■ What we recommend

• While the partnership appears promising, as it provides Super inroads into the premium coffee segment, it is unlikely to have a significant impact to our forecasts in the near-term. Further, it remains unclear how the company plans to allocate resources toward the partnership, and whether this could detract from the company’s efforts to turnaround the performance of its branded consumer (BC) segment

in the near-term (1Q15 BC sales declined 4.9% YoY).

• Super Group is trading at a 2015E PER of 19.7x, which appears unattractive given its relatively modest earnings-growth profile (2014-17E net profit CAGR of 7.1% vs 27.4% over 2008-13). We have a PER-based 12-month target price of SGD1.06 and an Underperform (4) rating on the stock. A decline in competitive intensity in its core markets represents a key risk to our view.

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

19 June 2015

Super Group SUPER SP

Share price (18 Jun): SGD1.13 12-mth rating: Underperform (4) Target price: SGD1.06

Making inroads into the premium coffee segment Jame Osman (65) 6321 3092 [email protected] Ramakrishna Maruvada (65) 6499 6543 [email protected]


Click for our latest editions

Asia Nuclear Sector

Asia Nuclear Sector: Initiation: the next powerhouse 11 June 2015

China’s nuclear industry is poised to enter a rapid development phase, with capacity exceeding Japan and Korea’s in a few years Its leading operators should benefit from expanded installed capacity and better profitability, driven by government policies Fuxin (Buy) is our top China pick; we initiate on CGN with an Outperform (2); in Korea we like KEPCO and DHI (Outperform)

Dennis Ip, CFA (852) 2848 4068 ([email protected]) Mike Oh (82) 2787 9179 ([email protected]) Syusaku Nishikawa (81) 3 5555 7052 ([email protected]) Scott Chui (852) 2848 4443 ([email protected])

Sands China: Drawing a new line in the sand?

Sands China: Drawing a new line in the sand?: Why now might be the right time for a REIT spin-off of Sands’ non-gaming assets 29 May 2015

In this special report, we pick up on Mr. Adelson’s comment first made 2 years ago that he would consider a monetisation strategy. We look at a scenario whereby Sands China Limited (SCL) spins off its mall and lodging assets into a REIT, and assess the implications of such a move. We estimate the value of a REIT spin-off would be upwards of HKD102bn, making it among the 3 largest in Asia.

Jamie Soo (852) 2773 8529 ([email protected])

Hong Kong Property

Sector

Hong Kong Property Sector: The Mutual Market: a new helping hand for office landlords 25 May 2015

The adjustment in Hong Kong’s office market seems over; now the sector is awaiting stronger demand to take it to the next level

We see the Stock Connect as a powerful new catalyst, reinforcing 6 structural trends and creating new office demand

The office sector looks set for another leap; we remain Positive

Jonas Kan, CFA (852) 2848 4439 ([email protected]) Leon Qi, CFA (852) 2532 4381 ([email protected])

Hong Kong: New

Directions in Office

Property

Hong Kong: New Directions in Office Property Q2 2015

The Stock Connect marks the beginning of China's offshore capital markets, which could exceed USD4.4tn -- larger than Hong Kong’s capital markets today The scheme should serve as a new impetus to structural trends in the financial sectors, including the expansion of Mainland institutions’ footprint in Hong Kong If, as we expect, the scheme continues to develop, new Grade-A office supply of 1.9m sq ft (NFA) pa may not prove sufficient for Hong Kong’s needs

Jonas Kan, CFA (852) 2848 4439 ([email protected]) Leon Qi, CFA (852) 2532 4381 ([email protected])

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

Daiwa’s Banner Products


http://asiaresearch.daiwacm.com/eg/cgi-bin/files/Asia_Nuclear_Sector_150611.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/SandsChina_150529.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/HongKongPropertySector_150525.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/HKNewDirectionsInOfficeProperty_150505.pdf#page=1

Text in RED: Result BLACK: Company Visit MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY

June 15 16 17 18 19

HK/CN Becky Han: Texwinca (321 HK) Becky Han: Beijingwest (2339 HK)

Becky Han: Xiao Nan Guo Restaurants (3666 HK) & eHi (EHIC US) & China Pioneer Pharma (1345 HK) &Shanghai Jahwa (60315 CH)

Carlton Lai: Cosmo Lady (2298 HK)Becky Han: Hua Hong Semiconductor (3666 HK)& Shanghai Fudan (1385 HK) & Tenwow (1219 HK) & Goodbaby (1086 HK)

TW Steven Tseng: Lotes (3533 TT) Helen Chien: CH-forging (4528 TT) & TRRVO (2233 TT)

Helen Chien: TSRC (2103 TT)

SG Carlton Lai: Yestar (2393 HK) & Haier Healthwise (348 HK)

Jame Osman: Religare Health Trust (RHT SP) Carlton Lai: Texhong (2678 HK)

KR 22 23 24 25 26

HK/CN Becky Han: CAR (699 HK) Anson Chan/Jennifer Wu: Huishan Dairy (6863 HK)

Adrian Chan/ Jennifer Wu: Sa Sa (178 HK) Adrian Chan/Jennifer Wu: Luk Fook (590 HK) Carlton Lai: Pacific Textiles (1382 HK)

Anson Chan/Jennifer Wu: China Agri (606) Leon Qi: CPIC (2601 HK)

TW Steven Tseng: Ju-teng(3336 HK) Helen Chien: ECLAT(1476 TT)

Christine Wang: Ennoconn (6414 TT) Kylie Huang: Hon Hai(2317 TT)

Helen Chien: HonChuan(9939 TT)

SG Jame Osman: Eu Yan Sang (EYSAN SP)

KR Mike Oh: KEPCO E&C (052690 KS)

Thomas Kwon: Com2uS (078340 KS) Jun Yonng Bang: Ching Kun Dang (001630 KS) & Rutronic (085370 KS)

Iris Park: Shinsegae (004170 KS) Jun Yong Bang: Medipost (078160 KS)

Analysts’ company visits


Rating and target-price information Bloomberg 12M rating 12M target price* Company name code Country Previous Latest Previous Latest DateChina Aircraft Leasing Group 1848 HK China Buy ↓ Hold 14.0 ↓ 9.8 19-Jun-15Hota Industrial Manufacturing 1536 TT Taiwan Buy ↓ Outperform 92 ↑ 110 19-Jun-15Jasa Marga Persero JSMR IJ Indonesia Buy - Buy 7500 ↓ 7000 19-Jun-15AirAsia AIRA MK Malaysia Buy - Buy 2.55 ↓ 2.22 19-Jun-15Geely Automobile 175 HK China n.a. → Buy n.a. → 5.00 18-Jun-15Guangzhou Automobile Group 2238 HK China n.a. → Buy n.a. → 6.20 18-Jun-15BAIC Motor 1958 HK China n.a. → Buy n.a. → 12.00 18-Jun-15Great Wall Motor 2333 HK China n.a. → Hold n.a. → 39.90 18-Jun-15BYD 1211 HK Hong Kong n.a. → Outperform n.a. → 56 18-Jun-15UMW UMWH MK Malaysia Hold - Hold 11.55 ↓ 9.82 18-Jun-15CapitaLand Commercial Trust CCT SP Singapore Underperform ↑ Hold 1.63 ↓ 1.57 18-Jun-15Ace Hardware Indonesia ACES IJ Indonesia Reduce - Reduce 690 ↓ 555 18-Jun-15Top Glove Corp TOPG MK Malaysia Buy - Buy 5.75 ↑ 7.13 17-Jun-15KB Financial Group 105560 KS Korea Hold - Hold 35000 ↑ 37000 17-Jun-15Bangkok Life Assurance BLA TB Thailand Buy - Buy 65 ↓ 60 17-Jun-15Delta Electronics 2308 TT Taiwan Outperform - Outperform 223 ↓ 195 16-Jun-15Bekasi Fajar Industrial Estate BEST IJ Indonesia Buy - Buy 890 ↓ 520 16-Jun-15Makalot Industrial 1477 TT Taiwan Outperform - Outperform 268 ↑ 294 15-Jun-15Hyundai Mobis 012330 KS Korea Buy - Buy 300000 ↓ 250000 15-Jun-15China Huishan Dairy Holdings 6863 HK China Buy ↓ Hold 2.00 ↓ 1.55 15-Jun-15Daum Kakao 035720 KS Korea Buy - Buy 136000 ↓ 127500 15-Jun-15Felda Global Ventures FGV MK Malaysia Buy - Buy 2.13 ↓ 1.92 15-Jun-15Aneka Tambang Persero ANTM IJ Indonesia Reduce ↑ Buy 720 ↑ 910 15-Jun-15Cathay Pacific Airways 293 HK Hong Kong Hold ↑ Outperform 16.1 ↑ 21.0 12-Jun-15BTS Group Holdings PCL BTS TB Thailand Buy - Buy 11.5 ↑ 12.0 12-Jun-15Cosco Corp Singapore COS SP Singapore Sell - Sell 0.38 ↓ 0.35 12-Jun-15SembCorp Marine SMM SP Singapore Underperform - Underperform 2.8 ↓ 2.56 12-Jun-15Keppel Corp KEP SP Singapore Hold - Hold 9.02 ↓ 8.76 12-Jun-15CGN Power 1816 HK China n.a. → Outperform n.a. → 5 11-Jun-15

Note: Daiwa’s 30 most recent rating/target-price changes *Local currency; D: delisted


Recently published reports

Research reports* Subtitle No. of pages

Date of publication

Discovery Asia Small-cap Weekly 19 19-Jun-15Macau Gaming Sector On keeping the concessions 8 19-Jun-15ASEAN Intelligence What matters this week 52 19-Jun-15China Autos Sector Initiation: pockets of strength 104 18-Jun-15Global Power Synergy For the long haul 18 18-Jun-15China Internet Sector Ready to blossom 22 17-Jun-15Bangkok Life Assurance Earnings keep turning around 15 17-Jun-15Post Conference Thanachart Bank Day 16 16-Jun-15China Huishan Dairy Holdings Dreamed too big; downgrade to Hold 12 15-Jun-15Singapore Strategy Bouquets and brickbats 33 15-Jun-15Singapore Rigbuilders Sector Still in negative mode 28 12-Jun-15Discovery Asia Small-cap Weekly 16 12-Jun-15ASEAN Intelligence What matters this week 34 12-Jun-15CGN Meiya Power Initiation: another CRG story in the making 45 11-Jun-15Asia Nuclear Sector Initiation: the next powerhouse 116 11-Jun-15Carabao Group Pcl Demanding valuation 18 11-Jun-15Hyundai Motor Navigating choppy waters, but there are glimmers of hope 23 10-Jun-15Central Plaza Hotel Solid turnaround 14 10-Jun-15PTT Exp. & Production Domestic disturbance 24 9-Jun-15Charoen Pokphand Foods Worst shrimp case priced in 16 9-Jun-15Huatai Securities Initiation: monetising through margin finance 31 8-Jun-15GF Securities Initiation: wealth management is a long-term catch 26 8-Jun-15Siam Senses The glass half full 74 8-Jun-15ASEAN Intelligence What matters this week 80 5-Jun-15Discovery Asia small-cap weekly 16 5-Jun-15Thailand Healthcare Sector End of the re-rating 42 4-Jun-15Ichitan Group Pcl An outperformer 13 3-Jun-15Gamuda On the hunt 14 3-Jun-15Asia ex-Japan Tech Sector This ain’t a V-shaped recovery 44 3-Jun-15Starhill Global REIT Our MCA site visit 12 3-Jun-15Energy Absolute Pcl What if EA acquires WEH … 16 2-Jun-15Malaysia Strategy 1Q15: A dismal quarter 29 1-Jun-15Qihoo 360 Technology Initiation: crouching tiger 36 1-Jun-15Lenovo Group “Lenovo Tech World” takeaways 13 29-May-15Discovery Asia Small-cap Weekly 16 29-May-15Sands China Drawing a new line in the sand? 40 29-May-15Canvest Environment Protection Group Near-term earnings impact from strong WTE project pipeline 15 28-May-15

*The 30 most recent reports published by Daiwa

Asia Pacific Markets Closed

Hong Kong

China Singapore Malaysia Korea Taiwan AustraliaNew

ZealandIndia Thailand Philippines Indonesia

Jun 15 22 1 19 8 1 1 12 2


Daiwa’s Asia Pacific Research Directory

HONG KONG

Takashi FUJIKURA (852) 2848 4051 [email protected] Regional Research Head

Kosuke MIZUNO (852) 2848 4949 / (852) 2773 8273

[email protected]

Regional Research Co-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] Chief Economist for Asia ex-Japan; Macro Economics (Regional)

Christie CHIEN (852) 2848 4482 [email protected] Macro Economics (Regional); Banking; Insurance (Taiwan)

Junjie TANG (852) 2773 8736 [email protected] Macro Economics (China)

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

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

Anson CHAN (852) 2532 4350 [email protected] Consumer (Hong Kong/China)

Jamie SOO (852) 2773 8529 [email protected] Gaming and Leisure (Hong Kong/China)

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

John CHOI (852) 2773 8730 [email protected]

Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap

Becky HAN (852) 2848 4464 [email protected] Small/Mid Cap (Regional)

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

Brian LAM (852) 2532 4341 [email protected] Transportation – Aviation (Hong Kong/China); Railway; Construction and Engineering (China)

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

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

PHILIPPINES

Bianca SOLEMA (63) 2 737 3023 [email protected] Utilities and Energy

SOUTH KOREA

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

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

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

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

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

TAIWAN

Rick HSU (886) 2 8758 6261 [email protected] Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional)

Steven TSENG (886) 2 8758 6252 [email protected] IT/Technology Hardware (PC Hardware)

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

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

Helen CHIEN (886) 2 8758 6254 [email protected] Small/Mid Cap

INDIA

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

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

SINGAPORE

Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of Singapore Research; Telecommunications (China/ASEAN/India)

Royston TAN (65) 6321 3086 [email protected] Oil and Gas; Capital Goods

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

Evon TAN (65) 6499 6546 [email protected] Property and REITs

Jame OSMAN (65) 6321 3092 [email protected] Telecommunications (ASEAN/India); Pharmaceuticals and Healthcare; Consumer (Singapore)


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

Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129

Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

Daiwa Capital Markets America Inc. New York Head Office Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100

Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935

Daiwa Capital Markets Europe Limited, London Head Office 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600

Daiwa Capital Markets Europe Limited, Frankfurt Branch Neue Mainzer Str. 1, 60311 Frankfurt/Main, Germany (49) 69 717 080 (49) 69 723 340

Daiwa Capital Markets Europe Limited, Paris Representative Office 17, rue de Surène 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808

Daiwa Capital Markets Europe Limited, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441

Daiwa Capital Markets Europe Limited, Moscow Representative Office

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

(7) 495 641 3416 (7) 495 775 6238

Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain

(973) 17 534 452 (973) 17 535 113

Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621

Daiwa Capital Markets Singapore Limited s (65) 6220 3666 (65) 6223 6198

Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia

(61) 3 9916 1300 (61) 3 9916 1330

DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines

(632) 813 7344 (632) 848 0105

Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638

Daiwa Securities Capital Markets Korea Co., Ltd. 20 Fl.& 21Fl. One IFC, 10 Gukjegeumyung-Ro, Yeongdeungpo-gu, Seoul, Korea

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

Daiwa Securities Co. Ltd., Beijing Representative Office Room 301/302，Kerry Center，1 Guanghua Road，Chaoyang District， Beijing 100020, People’s Republic of China

(86) 10 6500 6688 (86) 10 6500 3594

Daiwa (Shanghai) Corporate Strategic Advisory Co. Ltd. 44/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road, Pudong, Shanghai China 200120 , People’s Republic of China

(86) 21 3858 2000 (86) 21 3858 2111

Daiwa Securities Co. Ltd., Bangkok Representative Office 18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand

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

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

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

Daiwa Securities Co. Ltd., Hanoi Representative Office Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam

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

DAIWA INSTITUTE OF RESEARCH LTD

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

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

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

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


Japan: Notes concerning market data and investment indicators

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

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


Disclaimer This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Group Inc., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Group Inc., Thanachart Securities, Affin Hwang Investment Bank Berhad, PT.Bahana Securities, their respective subsidiaries or affiliates, or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Portions of this publication are prepared by Affin Hwang Investment Bank Berhad (“Affin Hwang”) and reviewed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates (collectively, “Daiwa”), and is distributed and/or originated from outside Malaysia by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. The role of Daiwa Securities Group Inc. and/or its non-U.S. affiliates in connection with this publication is solely limited to the review and distribution of this publication ; and Daiwa Securities Group Inc. and/or its non-U.S. affiliates are not involved in the preparation of this publication in any other way. This research is for Daiwa clients only and the publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Other than disclosures relating to Daiwa, this research is based on current public information that Affin Hwang and Daiwa consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The analysts named in this report may have from time to time discussed with clients, including Daiwa’s salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction where such an offer or solicitation would be illegal nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents in relation to such investments. Portions of this publication are prepared by PT. Bahana Securities and reviewed by Daiwa Securities Group Inc. and/or its affiliates, and distributed outside Indonesia by Daiwa Securities Group Inc. and/or its affiliates, except to the extent expressly provided herein. Certain copies of this publication may be distributed inside and outside of Indonesia by PT. Bahana Securities in accordance with relevant laws and regulations. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Any review does not constitute a full verification of the publication and merely provides a minimum check. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Neither Daiwa Securities Group Inc. nor any of its affiliates is licensed to undertake any business within the Republic of Indonesia. Any display of any trade name or logo of the Daiwa Securities Group Inc. on this publication shall not be deemed to be an undertaking of any business within the Republic of Indonesia. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time may have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Portions of this publication are prepared by Thanachart Securities Public Company Limited and distributed outside Thailand by Daiwa Securities Group Inc. and/or its non-U.S. affiliates except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Thanachart Securities Public Company Limited (“Thanachart Securities”), Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Thanachart Securities, Daiwa Securities Group Inc. and/or their respective affiliates nor any of their respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. All research reports are disseminated and available to our clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Daiwa responsible for the redistribution of our research by third party aggregators. IMPORTANT This report is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Content herein is based on information available at the time the report was prepared and may be amended or otherwise changed in the future without notice. We make no representations as to the accuracy or completeness. Daiwa Securities Co. Ltd. retains all rights related to the content of this report, which may not be redistributed or otherwise transmitted without prior consent.

Ratings Issues are rated 1, 2, 3, 4, or 5 as follows: 1: Outperform TOPIX/benchmark index by more than 15% over the next 12 months. 2: Outperform TOPIX/benchmark index by 5-15% over the next 12 months. 3: Out/underperform TOPIX/benchmark index by less than 5% over the next 12 months. 4: Underperform TOPIX/benchmark index by 5-15% over the next 12 months. 5: Underperform TOPIX/benchmark index by more than 15% over the next 12 months. Benchmark index: TOPIX for Japan, S&P 500 for US, STOXX Europe 600 for Europe, HSI for Hong Kong, STI for Singapore, KOSPI for Korea, TWII for Taiwan, and S&P/ASX 200 for Australia. (Criteria above apply to rating assignments or updates from Jan 2015. For ratings assigned or updated prior to Jan 2015, criteria refer to performance vs. TOPIX/benchmark index over six months.)


Japan Conflicts of Interest: Daiwa Securities Co. Ltd. may currently provide or may intend to provide investment banking services or other services to the company referred to in this report. In such cases, said services could give rise to conflicts of interest for Daiwa Securities Co. Ltd. Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.: Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Ownership of Securities: Daiwa Securities Co. Ltd. may currently, or in the future, own or trade either securities issued by the company referred to in this report or other securities based on such financial instruments. Daiwa Securities Group has filed major shareholding reports for the following companies of which it owns over 5% (as of 29 May 2015): DAI-ICHI CUTTER KOGYO (1716); KITA KOUDENSHA (1734); TENOX (1905); TAKAHASHI CURTAIN WALL (1994); Accordia Golf (2131); Full Speed (2159); Azia (2352); ALCONIX (3036); MID REIT (3227); Samty (3244); Sansei Landic (3277); Hoshino Resorts REIT (3287); Invesco Office J-REIT (3298); MUGEN ESTATE (3299); Nippon Healthcare Investment Corporation (3308); Kuriyama Holdings (3355); KFC (3420); SANKO TECHNO (3435); Tosei Reit Investment Corporation (3451); Techfirm (3625); m-up (3661); mobcast (3664); AVANT (3836); Konoshima Chemical (4026); SOURCENEXT (4344); RaQualia Pharma (4579); SAGAMI RUBBER INDUSTRIES (5194); Arisawa Mfg. (5208); NOZAWA (5237); Nakayama Steel Works (5408); Toho Zinc (5707); NIHON SEIKO (5729); NS TOOL (6157); Okada Aiyon (6294); SANSO ELECTRIC (6518); W-SCOPE (6619); SEMITEC (6626); TERASAKI ELECTRIC (6637); SUMIDA CORPORATION (6817); KYOSHA (6837); ENOMOTO (6928); YAMAICHI ELECTRONICS (6941); SHIBAURA ELECTRONICS (6957); Astmax (7162); Nojima (7419); Daiko Denshi Tsushin (8023); MONEY SQUARE HOLDINGS (8728); Money Partners Group (8732); Daiwa Office Investment Corporation (8976); Japan Rental Housing Investments (8986); Cerespo (9625); Imperial Hotel (9708); Marubeni Construction Material Lease (9763); PARKER CORPORATION (9845); VITEC (9957). Lead Management: Daiwa Securities Co. Ltd. has lead-managed public offerings and/or secondary offerings (excluding straight bonds) in the past twelve months for the following companies: DAIYU EIGHT (2662); Kitanotatsujin (2930); Hulic (3003); BRONCO BILLY (3091); Torikizoku (3193); HOTLAND (3196); Daiwa House REIT Investment Corporation (3263); Activia Properties (3279); AEON REIT Investment Corporation (3292); Hulic Reit (3295); Nippon Healthcare Investment Corporation (3308); Toridoll.corporation (3397); Tosei Reit Investment Corporation (3451); Kenedix Retail REIT Corporation (3453); Samty Residential Investment Corporation (3459); REALWORLD (3691); OPTiM (3694); GMO Research (3695); Daio Paper (3880); CrowdWorks (3900); KAYAC (3904); Datasection (3905); TerraSky (3915); TAKEMOTOYOHKI (4248); QUICK (4318); MEDICAL SYSTEM NETWORK (4350); Daito Pharmaceutical (4577); RIBOMIC (4591); Rakuten (4755); Nihon Enterprise (4829); KUNIMINE INDUSTRIES (5388); GMO TECH (6026); Adventure (6030); Interworks (6032); EXTREME (6033); MRT (6034); FIRSTLOGIC (6037); NIPPON VIEW HOTEL (6097); PUNCH INDUSTRY (6165); MEIWA INDUSTRY (7284); Menicon (7780); PLATZ (7813); KIKUSUI CHEMICAL INDUSTRIES (7953); ORIX JREIT (8954); HEIWA REAL ESTATE REIT (8966); Daiwa Office Investment Corporation (8976); Japan Hotel REIT Investment Corporation (8985); Japan Rental Housing Investments (8986); Smartvalue (9417); U-NEXT (9418); MTI (9438); AlphaPolis (9467); HIROSHIMA GAS (9535); ISB (9702); GAKKYUSHA (9769); ZAOH COMPANY (9986). (list as of 4 June 2015) Notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable to where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with our company based on the information described in this report, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, our company will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be

included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, our company also may charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident.

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

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

There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by our company. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. * The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with our company.

Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association

Disclosure of Interest of Thanachart Securities

Investment Banking Relationship

Within the preceding 12 months, Thanachart Securities has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: NOK Airlines (NOK TB), MC Group Pcl (MC TB), MK Restaurants Group Pcl (M TB)

Disclosure of Interest of Affin Hwang Investment Bank

Investment Banking Relationship

Within the preceding 12 months, Affin Hwang Investment Bank has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following company: ALAM MARITIM (AMRB MK) Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. 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. 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 12 months, unless otherwise stated. "2": the security is expected to outperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next 12 months, unless otherwise stated. "4": the security is expected to underperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "5": the security could underperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. “Positive” means that the analyst expects the sector to outperform the KOSPI over the next 12 months, unless otherwise stated. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next 12 months, unless otherwise stated “Negative” means that the analyst expects the sector to underperform the KOSPI over the next 12 months, unless otherwise stated Additional information may be available upon request.

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 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-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

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


Bahrain This research material is distributed 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.

The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report.

"1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months. Disclosure of investment ratings

Rating Percentage of total

Buy* 61.0% Hold** 26.1% Sell*** 12.9%

Source: Daiwa

Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 31 March 2015. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings.

For stocks and sectors in Malaysia covered by Affin Hwang, the following rating system is in effect:

Stocks: BUY: Total return is expected to exceed +10% over a 12-month period HOLD: Total return is expected to be between -5% and +10% over a 12-month period SELL: Total return is expected to be below -5% over a 12-month period NOT RATED: Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation

Sectors: OVERWEIGHT: Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL: Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT: Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months

Conflict of Interest Disclosure: Affin Hwang


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

Relevant Relationships

Affin Hwang may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.

Affin Hwang market making

Affin Hwang may from time to time make a market in securities covered by this research. For stocks and sectors in Indonesia covered by Bahana Securities, the following rating system is in effect: Stock ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. Unless otherwise specified, these ratings are set with a 12-month horizon. It is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. "Buy": the price of the security is expected to increase by 10% or more.


"Hold": the price of the security is expected to range from an increase of less than 10% to a decline of less than 5%.

"Reduce": the price of the security is expected to decline by 5% or more.

Sector ratings are based on fundamentals for the sector as a whole. Hence, a sector may be rated “Overweight” even though its constituent stocks are all rated “Reduce”; and a sector may be rated “Underweight” even though its constituent stocks are all rated “Buy”.

“Overweight”: positive fundamentals for the sector.

“Neutral”: neither positive nor negative fundamentals for the sector.

“Underweight”: negative fundamentals for the sector.


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

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

Bahana Securities market making Bahana Securities may from time to time make a market in securities covered by this research. For stocks in Thailand covered by Thanachart Securities, the following rating system is in effect:

Ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the rating is BUY.

If the downside is 10% or more, the rating is SELL.

For stocks where the upside or downside is less than 10%, the rating is HOLD.

Unless otherwise specified, these ratings are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating.

For the sector, Thanachart looks at two areas, ie, the sector outlook and the sector weighting.

For the sector outlook, an arrow pointing up, or the word “Positive”, is used when Thanachart sees the industry trend improving.

An arrow pointing down, or the word “Negative”, is used when Thanachart sees the industry trend deteriorating.

A double-tipped horizontal arrow, or the word “Unchanged”, is used when the industry trend does not look as if it will alter. The industry trend view is Thanachart’s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers.

An “Overweight” sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap.

“Underweight” is used when Thanachart has SELLs on majority of the stocks it covers by market cap.

“Neutral” is used when there are relatively equal weightings of BUYs and SELLs.

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

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

Relevant Relationships (Thanachart Securities) Thanachart Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Thanachart Securities market making Thanachart Securities may from time to time make a market in securities covered by this research.

Additional information may be available upon request.

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

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

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

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

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

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

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

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

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

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

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

Corporate Name: Daiwa Securities Co. Ltd.

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

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

Japan Securities Investment Advisers Association

Type II Financial Instruments Firms Association


asia pacific dailyasiaresearch.daiwacm.com/eg/cgi-bin/files/daily22jun15.pdfasia pacific daily see...

Documents