Equity research│July 10, 2018

Asia Pacific Daily - 10 July 2018 Equity Research Reports…

▌IDEA OF THE DAY | Thailand Charoen Pokphand Foods (ADD, tp:THB28.25▲) - Strong recovery | P2 We estimate 2Q18F core earnings recovered from the core net loss in 1Q18 to core net profit of THB2.2bn (+11% yoy), driven by a jump in Vietnamese swine prices. CPF reported that its exchangeable bond (EB) holders converted US$132m of EB into CPALL shares. We believe CPF booked extra gains from this of THB2.6bn in 2Q18F. We estimate 2Q18F GPM widened, fuelled by improving swine prices in Vietnam. While domestic livestock prices remained weak, we believe 1Q18 was the bottom. Maintain Add with a higher SOP-based target price of THB28.25. ——————————————————————————————————————————————————————————————————————————————————————— ▌Australia CML Group (ADD, tp:A$0.69▲) - Several factors driving growth | P3 Frontier Digital Ventures (ADD, tp:A$0.95▼) - Steady progress | P4 IPH Limited (ADD, tp:A$5.13▲) - Bouncing back | P5 Magellan Financial Group (HOLD▼, tp:A$26.05▼) - Solid FUM level but weak retail flows | P6 ——————————————————————————————————————————————————————————————————————————————————————— ▌China/Hong Kong Geely Automobile Holdings Ltd (ADD, tp:HK$28.33) - Growth with more balanced product mix | P7 Technology - Handsets (NEUTRAL) - Investor feedback from our US/SG marketing trip | P8 ——————————————————————————————————————————————————————————————————————————————————————— ▌Indonesia Bank Tabungan Negara (ADD, tp:Rp4,200.00) - Negative news largely priced in; valuations… | P9 Jasa Marga (ADD, tp:Rp4,800.00) - On the edge of glory | P10 ——————————————————————————————————————————————————————————————————————————————————————— ▌South Korea SKC Kolon PI (ADD, tp:W60,000.00▼) - 2Q18F preview: Re-adjusting basis for growth | P11 ——————————————————————————————————————————————————————————————————————————————————————— ▌Malaysia Nova MSC Bhd (NR, ctp:RM0.17) - A global government digitalisation play | P12 Construction (UNDERWEIGHT) - Question marks surround LRT 3 | P13 ——————————————————————————————————————————————————————————————————————————————————————— ▌Thailand Muangthai Capital PCL (HOLD▲, tp:THB35.30) - 2Q18F preview: Competition hurts | P14 Siam Makro (HOLD▲, tp:THB39.00▼) - Still feeling the pressure | P15

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VN: Airports Corporation of Vietnam 4/7 A play on the world’s fastest growing aviation market

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MAL: Strategy Note-Alpha 2/7 Taking the road less travelled

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MAL: Westports Holdings 2/7 Low-risk, long-term upside from Westports 2

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Regional Equity Research Contact

Bertram LAI Head of Research T: (852) 2532 1111 E: bertram.lai@cgs-cimb.com

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Company Note Food & Beverages│Thailand│July 9, 2018

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Charoen Pokphand Foods Strong recovery ■ We estimate 2Q18F core earnings recovered from the core net loss in 1Q18 to core

net profit of THB2.2bn (+11% yoy), driven by a jump in Vietnamese swine prices. ■ CPF reported that its exchangeable bond (EB) holders converted US$132m of EB into

CPALL shares. We believe CPF booked extra gains from this of THB2.6bn in 2Q18F. ■ We estimate 2Q18F GPM widened, fuelled by improving swine prices in Vietnam. ■ While domestic livestock prices remained weak, we believe 1Q18 was the bottom. ■ Maintain Add with a higher SOP-based target price of THB28.25.

2Q18F results likely improved significantly We expect CPF to post 2Q18F core net profit of THB2.2bn (+11% yoy), recovering from a core net loss of THB47m in 1Q18, likely driven by GPM improving to 12.5% in 2Q18F (vs. 11.7% in 2Q17 and 9.4% in 1Q18) as the increase in Vietnamese swine prices should more than offset weaker domestic livestock prices.

Increasing Vietnam swine prices should support GPM In 2Q18, Vietnamese swine prices jumped to VND41k/kg from VND31k/kg in 1Q18 as the number of swine breeding households continued to drop due to a long-term plunge in swine prices. Note that CPF’s swine cost in Vietnam was around VND34k/kg in 2Q18. Management believes swine prices in Vietnam are entering an upcycle, confirmed by the fact that CPF’s swine feed sales volume in Vietnam fell sharply by 30-40% in 1Q18. As such, management believes the Vietnam operations recovered significantly in 2Q18.

Waiting for domestic livestock prices to recover In 2Q18, domestic broiler prices remained low at THB32/kg (-19% yoy, flat qoq), pressured by supply that remained high. We expect prices to gradually recover in 2H18 on the back of its export high season in 3Q and increasing exports of by-products to China. Domestic swine prices rose 29% qoq, thanks to the Thai government's campaign to support swine raisers. Given that the current swine price is almost lower than the farmers’ cost of THB55-60/kg, we do not project another significant drop in prices.

Extra gain likely boosted 2Q18 net profit Regarding the issuance of CPF’s exchangeable bond (EB) of US$300m on 16 Sep 2016, CPF reported in Apr that EB holders converted US$132m of EB into CPALL shares. Given that the exercise price of converting EB into CPALL shares is THB77.35/share and CPF’s cost for CPALL is THB22/share (based on our assumption), we expect CPF to record gains from EB exercises of THB2.6bn. As such, we estimate 2Q18F net profit was THB4.4bn (+7.3% yoy, +43% qoq).

Bottoming out finally We believe CPF’s prospects are now more positive as Vietnam operations appear to have recovered firmly while downside for domestic operations appears to be limited. We believe CPF’s core earnings troughed in 1Q18 and project a significant GPM recovery from 2Q-3Q18F onwards, its typical high seasons. As such, we revise up our core EPS forecasts for FY19-20F by 4-5% to reflect our better outlook for CPF’s GPM.

Maintain Add We reiterate our Add rating with a higher SOP-based target price of THB28.25. We expect to see a GPM recovery from 2H18F onwards as 3Q is usually its high season and on the back of improving livestock prices. Potential re-rating catalysts are a faster-than-expected livestock price recovery. Downside risks to our call are a further slump in livestock prices and a spike in feed costs.

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Thailand

ADD (no change) Consensus ratings*: Buy 20 Hold 2 Sell 2

Current price: THB24.80 Target price: THB28.25 Previous target: THB27.25

Up/downside: 13.9% CGS-CIMB / Consensus: -2.2%

Reuters: CPF.BK Bloomberg: CPF TB Market cap: US$6,440m THB213,559m Average daily turnover: US$22.77m THB731.0m Current shares o/s: 8,611m Free float: 47.3% *Source: Bloomberg Key changes in this note

FY19F EPS increased by 5%. FY20F EPS increased by 4%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -1.8 0 -0.4 Relative (%) 5.3 7.2 -3.3

Major shareholders % held Charoen Pokphand Group 27.0 Charoen Pokphand Foods Holding 9.7 Thai NVDR 6.1 Insert

Analyst(s)

Tanida JIRAPORNKASEMSUK

T (66) 2 761 9265 E tanida.ji@cgs-cimb.com

Financial Summary Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Revenue (THBm) 464,465 501,507 520,159 541,214 559,770Operating EBITDA (THBm) 40,418 24,180 26,770 31,314 33,213Net Profit (THBm) 14,703 15,224 12,401 10,344 11,774Core EPS (THB) 1.89 0.85 0.87 1.20 1.37Core EPS Growth 249% (55%) 2% 38% 14%FD Core P/E (x) 13.11 29.03 28.54 20.64 18.14DPS (THB) 0.95 0.75 0.65 0.71 0.78Dividend Yield 3.83% 3.02% 2.61% 2.87% 3.16%EV/EBITDA (x) 11.05 17.93 16.55 14.16 13.32P/FCFE (x) NA NA NA NA NANet Gearing 143% 117% 113% 111% 108%P/BV (x) 1.44 1.27 1.21 1.17 1.13ROE 11.7% 4.6% 4.3% 5.8% 6.3%% Change In Core EPS Estimates 0.05% 5.00% 4.09%CIMB/consensus EPS (x) 1.65 0.80 0.78

71.0

83.9

96.7

109.6

22.0

24.0

26.0

28.0

Price Close Relative to SET (RHS)

100

200

300

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

2

Financial Services - Others│Australia│Equity research│July 9, 2018

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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CML Group

Several factors driving growth

CGR upgraded FY18 underlying EBITDA guidance to ‘in excess of’ A$17m (from ■in excess of A$15.5m). In part, the outperformance was driven by the inclusion of the TDF acquisition in 2H18.

In our view, the drivers of CGR’s solid organic 2H18 earnings result continue to be ■in place to deliver s trong growth into FY19/20.

We continue to see solid growth potential with ‘earnings risk’ to the upside over a ■two-year view. We acknowledge strong share price appreciation over the past 12-months, however continue to see solid returns over the medium -term.

Solid momentum heading into FY19 CGR upgraded FY18 underlying EBITDA guidance by ~10% to ‘in excess of A$17m’ (previously in excess of A$15.5m excluding any contribution from the TDF acquisition). CGR stated drivers of the upgrade reflect: 1) strong growth in the core Cashflow Finance division, driven in part by increased online originations; 2) smooth integration of the TDF acquisition; and 3) better than expected results from the Equipment Finance division which was profitable in 2H18. CGR noted FY19 expectations have not been finalised, however stated the group is "more than comfortable in re-affirming previously stated FY19 guidance of underlying EBITDA of ~A$19.5m".

Solid growth potential: origination channels and new product In our view, the drivers of CGR’s 2H18 earnings uplift provide the platform for continued growth over FY19/20. These include: 1) increasing direct channel client origination, which we estimate to be around half the client acquisition cost; 2) delivering operating leverage (improving EBITDA margins) with the inclusion of the TDF acquisition (partially offset by a lower ‘blended’ gross margin on invoices purchased); and 3) incremental earnings contribution delivered from Equipment Finance. Whilst we generally view equipment finance businesses as a ‘commodity’ (hard to achieve competitive advantage), we see strategic rationale in CGR providing the product offering (which looks to be gaining early traction to more holistically satisfy clients’ business funding needs).

Risk/reward remains positive We outline our basic bull, base, bear case for FY19 overleaf. We continue to find the base and upside opportunity (bull case) attractive compared to the inherent risks. In our view, under CGR management the TDF business has meaningful upside (noting CGR’s EBIT margin of ~54% compared to TDF’s at ~37% pre-acquisition). Overall, we see upside risk to FY19/20 earnings forecasts if management execute on client origination and the equipment financing strategy (noting our FY19 EBITDA forecast sits ~10% above management’s initial guidance).

Add maintained Our PE-based price target increases to A$0.69ps (from A$0.63ps). We forecast strong growth into FY19 which is driven by: 1) additional volume from the TDF acquisition; 2) potential for further market share gains; 3) improved funding structure reducing finance costs; and 4) incremental profitability from the Equipment Finance division. Key risks include access to funding; client attrition from recent acquisition; operational risks (namely fraud); major client losses; and competitive pressures.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

ADD (no change) Current price: A$0.61 Target price: A$0.69 Previous target: A$0.63 Up/dow nside: 12.5% Reuters: CGR.AX Bloomberg: CGR AU Market cap: US$91.08m A$122.6m Average daily turnover: US$0.16m A$0.22m Current shares o/s 202.6m Free f loat: 62.0%

Price performance 1M 3M 12M

Absolute (%) 2.5 19.6 100 Relative (%) -1.3 11.6 90

Scott MURDOCH

T (61) 7 3334 4516

E smurdoch@morgans.com.au

Analyst(s) own shares in the follow ing stock(s) mentioned in this report: – CML Group

Financial Summary Jun-16A Jun-17A Jun-18F Jun-19F Jun-20F

Revenue (A$m) 27.09 40.01 49.18 50.80 50.09Operating EBITDA (A$m) 5.35 13.11 17.16 21.66 23.61Net Profit (A$m) 0.95 3.85 5.79 9.69 11.03Normalised EPS (A$) 0.010 0.022 0.032 0.048 0.054Normalised EPS Growth (100%) 122% 47% 50% 13%FD Normalised P/E (x) 62.12 27.97 19.05 12.73 11.25DPS (A$) 0.010 0.013 0.016 0.025 0.028Dividend Yield 1.64% 2.05% 2.62% 4.10% 4.51%EV/EBITDA (x) 22.69 13.73 11.21 10.54 9.52P/FCFE (x) NA 361.1 NA 12.9 11.4Net Gearing 428% 441% 205% 228% 193%P/BV (x) 5.58 6.55 3.06 2.68 2.39ROE 13.1% 24.9% 20.5% 22.5% 22.5%% Change In Normalised EPS Estimates 5.68% 0.49% 2.37%Normalised EPS/consensus EPS (x) 1.14 1.04 0.95

87101116130144158173187

0.2800.3300.3800.4300.4800.5300.5800.630

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

Source: Bloomberg

2468

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

3

IT Services│Australia│Equity research│July 9, 2018

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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Frontier Digital Ventures

Steady progress

FDV says that five of its 15 portfolio investment came close to break even in the ■June quarter, thanks to rapid revenue growth.

Although the June quarter is normally the weakest of the four quarters, FDV says ■that group companies continued to rack up high double-digit revenue growth.

Most FDV companies are just commencing the journey towards transaction-based ■services.

Our valuation and price target have declined to A$0.95 per share (from A$0.97), ■due to higher issued shares and currency movements. We maintain an ADD recommendation (high risk).

Five companies break even in quarter FDV provided an update on trading following its recent capital raising, reporting to that most of the 15 companies in its portfolio of investments are making progress towards EBITDA profitability and cash flow generation. FDV reported that in the June quarter five of the 15 companies recorded positive monthly EBITDA and several others came close to break-even. The companies that performed strongest were iMyanmarHouse, LankaPropertyWeb, Infocasas, E24 and Moteur. Most companies in the group are just beginning to reap revenues from transaction-based services.

Changes to forecasts, valuation We have made small changes to our forecasts, mostly to reflect exchange rate movements. Due to the greater number of shares on issue since the recent capital raising and exchange rate movements, our valuation falls to A$0.95 per share from A$0.97 per share.

Risks and catalysts Risks to FDV’s revenues and share price include: 1) key investee companies failing to grow audience and revenues at the expected rate; 2) operating costs of investee companies being higher than forecast; 3) significant changes in the political, economic or regulatory landscape in countries where FDV invests; and 4) significant changes in competitor behaviour. Potential re-rating catalysts for FDV include: 1) stronger-than-expected performance from FDV portfolio companies; 2) more rapid monetisation from early-stage companies in the portfolio; and 3) realisation through IPO or sale of one of the portfolio companies.

Investment view We retain a positive view on FDV. FDV offers investors exposure to the growth in online advertising marketplaces in newly emerging economies with large populations, a rapidly growing middle class, and growing smart phone usage. FDV has created significant value since investing in most of its portfolio companies and we expect that it will continue to do so. FDV invests in early-stage ventures in high-risk economies and therefore its shares are high risk. Investors with a low risk profile should not invest in FDV.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

ADD (no change) Current price: A$0.63 Target price: A$0.95 Previous target: A$0.97 Up/downside: 50.2% Reuters: FDV.AX Bloomberg: FDV AU Market cap: US$114.1m A$153.6m Average daily turnover: US$0.06m A$0.07m Current shares o/s 243.8m Free float: 42.2%

Price performance 1M 3M 12M

Absolute (%) -3.8 -1.6 10.5 Relative (%) -7.9 -10 1.6

Ivor RIES

T (61) 3 9947 4182

E ivor.ries@morgans.com.au

Analyst(s) own shares in the following stock(s) mentioned in this report: – Frontier Digital Ventures

Financial Summary Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Revenue (A$m) 2.14 10.04 14.17 21.14 29.57Operating EBITDA (A$m) -4.33 -6.33 -4.68 -1.24 3.83Net Profit (A$m) -3.87 -13.49 -7.71 -5.16 -0.93Normalised EPS (A$) (0.036) (0.044) (0.023) (0.011) 0.003Normalised EPS Growth 205% 21% (49%) (51%)FD Normalised P/E (x) NA NA NA NA 242.1DPS (A$) - - - - - Dividend Yield 0% 0% 0% 0% 0%EV/EBITDA (x) NA NA NA NA 31.66P/FCFE (x) NA NA NA NA 88.85Net Gearing (44.6%) (28.3%) (32.0%) (25.2%) (26.4%)P/BV (x) 2.64 3.42 2.89 2.92 2.71ROE (13.4%) (20.8%) (11.1%) (5.1%) 1.2%% Change In Normalised EPS Estimates 5.3% 8.6% (19.4%)Normalised EPS/consensus EPS (x) 0.87 1.00 0.65

95.0

107.9

120.7

133.6

0.500

0.600

0.700

0.800

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

Source: Bloomberg

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1

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Services - Overall│Australia│Equity research│July 9, 2018

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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IPH Limited

Bouncing back

Data gathered from IP Australia suggests that total market patent filing volumes ■bounced back in 2H18 to end the financial year down just 0.2% (compared to a 1H18 decline of 1.9%).

Updated revenue and margin assumptions and a move to use spot currency rates ■for forecast periods has resulted in upgrades to earnings.

We view the FY19 PE of 14.5x as undemanding and retain our Add rating on the ■stock with an upgraded price target of A$5.13/share (from A$4.82/share).

Australian patent filing volumes bounce back in 2H18 Based on our analysis of the IP Australia filings data, the Australian patent filings market saw growth of 1.4% in 2H18 on the pcp. IPH however strongly outperformed the market with growth of 5.1% on the pcp (after adjusting the pcp to include the AJ Park business). The 2H18 strength follows a 1.9% decline in filings seen in 1H18 due to the ongoing impact of the AIA witnessed in the pcp numbers. We estimate that IPH’s market share at 30 June 2018 was 23.7%, up from 22.9% in the pcp (again after adjusting for AJ Park), and steady on the 1H18 result of 23.8%.

We forecast 50% of the buyback to be completed We have assumed IPH complete A$20m of the proposed A$40m buyback and only A$2.7m was bought back in 2H18 due to commencement of the buyback on 23 May 2018. We have assumed the balance of the A$20m buyback is completed in 1H19 at an average price of A$4.50/share. As a result of the company funding the buyback with debt, our FY19 net debt to equity ratio increases to 8% (from ~2%). Importantly on a FY19 ND/EBITDA basis leverage only increases to 0.3x (up from 0.1x) and given the company's strong cashflow we expect to see strong deleveraging achieved over the forecast period.

Updated earnings forecasts After updating currency forecasts (we are now using spot rates for forecast years) and making some assumption changes our EBITDA forecasts for FY18-20 are A$72.7m (+1.0%), A$84.3m (+5.5%) and A$90.7m (+3.3%). Following the incorporation of the buyback into the model and after adjusting for the DRP issuance in 2H18, our FY18-20 NPATA forecasts are A$52.8m (-1.3%), A$60.6m (+3.2%) and A$66.4m (+2.9%). Our FY18 EPS estimate has fallen 1.5% while our FY19/20 EPS expectations increase by 5.1% and 4.9% respectively due to the buyback and the earnings upgrades.

Retain Add rating on revised A$5.13/share target price Our blended price target has increased to A$5.13/share (from A$4.82/share) and given the stock is trading on a FY19 PE of 14.5x we retain an Add rating. Key risks include lower patent activity and filings, adverse foreign exchange movements, integration risk, acquisition risk, key employee risk and increased competition.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

ADD (no change) Current price: A$4.52 Target price: A$5.13 Previous target: A$4.82 Up/downside: 13.5% Reuters: IPH.AX Bloomberg: IPH AU Market cap: US$662.5m A$892.0m Average daily turnover: US$3.18m A$4.23m Current shares o/s 394.6m Free float: 77.0%

Price performance 1M 3M 12M

Absolute (%) 2 32.2 -8.1 Relative (%) -2.1 23.8 -17

James LAWRENCE

T (61) 7 3334 4547

E james.lawrence@morgans.com.au

Analyst(s) own shares in the following stock(s) mentioned in this report: – N/A

Financial Summary Jun-16A Jun-17A Jun-18F Jun-19F Jun-20F

Revenue (A$m) 157.5 186.0 220.5 251.3 260.3Operating EBITDA (A$m) 65.04 71.60 72.74 84.35 90.68Net Profit (A$m) 43.84 50.64 52.40 60.58 66.36Normalised EPS (A$) 0.25 0.27 0.27 0.31 0.34Normalised EPS Growth 6.1% (0.2%) 17.9% 9.5%FD Normalised P/E (x) 18.02 16.99 17.02 14.44 13.18DPS (A$) 0.21 0.22 0.23 0.25 0.27Dividend Yield 4.65% 4.87% 4.98% 5.53% 5.97%EV/EBITDA (x) 11.24 11.67 12.46 10.64 9.79P/FCFE (x) NA 114.0 24.1 13.5 16.7Net Gearing (26.5%) (10.2%) 5.4% 8.9% 4.8%P/BV (x) 3.90 3.72 3.29 3.40 3.32ROE 39.5% 21.9% 20.5% 22.9% 25.5%% Change In Normalised EPS Estimates (2.83%) 5.12% 4.81%Normalised EPS/consensus EPS (x) 1.00 1.05 1.07

58.0

78.0

98.0

118.0

2.90

3.90

4.90

5.90

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

Source: Bloomberg

5101520

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

5

Financial Services - Others│Australia│Equity research│July 9, 2018

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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Magellan Financial Group

Solid FUM level but weak retail flows

MFG has reported June-18 group FUM of A$69.51bn, up 3.2% for the month. ■Excluding the acquired Airlie business, FUM is up 8.8% over the six months driven primarily by fund performance (~7.3%).

FUM flows weakened over 2H18 as expected, however retail flows entered outflow ■territory from March-18. Whilst retail flows do not reflect investment performance, continued outflows pose a headwind to sentiment towards the stock (potentially resulting in a sustained multiple derating).

Trading on 15.4x FY19F (with a relatively low performance fee contribution ■embedded in our forecasts), MFG presents value (vs ~20x two-year average). However, MFG’s near-term earnings outlook is driven predominantly by market direction versus ‘bottom up’ growth drivers. We move to a Hold, preferring to add MFG closer to the point of organic growth returning or any meaningful volatility.

Strong growth recorded in FY18 MFG has ended FY18 with A$69.51bn FUM (+8.3% over the six months), comprising Retail FUM of A$19.18bn (+6.4% on opening FUM); MFG institutional FUM of A$43.79bn (+9.9% on opening FUM); and Airlie FUM of A$6.5bn (+3.5% since acquisition). Institutional inflows of A$0.94bn (pcp A$0.44bn) have remained solid post the soft-close of the Global Fund in Dec-17. Retail recorded net outflows of A$56m (commencing in Mar-18). MFG ceased disclosing flows between the Global Fund and the Infrastructure Fund, however we expect the outflow to be greater in the Global Fund versus the aggregated number.

Weak retail flows: a risk primarily to market rating In our view, weaker retail flows reflect slower industry flows; heightened competition from increased global fund offerings; and the maturity of MFG’s traditional retail distribution channels. MFG’s Global Fund performance has been strong in absolute terms over all periods; and out-performance achieved versus benchmark across all periods except five years (which is in-line). We expect slight retail outflows over the near term, however at a similar monthly rate to the recent trend given the solid fund performance recorded. In our view, the prospect of slight outflows being sustained is not material to MFG’s earnings outlook, however may result in a sustained de-rating to MFG’s historical valuation metrics and premium versus peers.

Balance sheet and Airlie provide some growth optionality MFG signaled its willingness to put the balance sheet and scrip to use in 1H18, with the acquisition of Airlie Funds and Frontier Partners. We note Airlie is expected to raise retail funds in the near term, which can add some growth. However, from a ‘bottom-up’ growth perspective, we believe the US low carbon strategies need to attract meaningful flows (increased confidence is required); or potentially further acquisitions are required.

Market direction dictates near-term outlook; Hold We value MFG using a blended DCF/PE valuation at A$26.05ps (from A$28.30ps). We acknowledge MFG presents strong value at 15.4x FY19F PE (~22% discount to its ~20x medium-term average); however we believe MFG is likely to sustain a lower PE (18x used in our valuation) until ‘bottom-up’ growth can be proved up (a return to retail inflows; commencement of institutional flows into new US products; or executing inorganic growth opportunities).

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

HOLD (previously ADD) Current price: A$23.70 Target price: A$26.05 Previous target: A$28.30 Up/downside: 9.9% Reuters: MFG.AX Bloomberg: MFG AU Market cap: US$3,102m A$4,176m Average daily turnover: US$8.84m A$11.77m Current shares o/s 171.7m Free float: 75.0%

Price performance 1M 3M 12M

Absolute (%) 4.6 2.9 -12.5 Relative (%) 0.8 -5.1 -22.5

Scott MURDOCH

T (61) 7 3334 4516

E smurdoch@morgans.com.au

Analyst(s) own shares in the following stock(s) mentioned in this report: – N/A

Financial Summary Jun-16A Jun-17A Jun-18F Jun-19F Jun-20F

Revenue (A$m) 331.7 336.3 447.9 460.6 482.8Operating EBITDA (A$m) 257.9 254.6 343.7 348.9 368.2Net Profit (A$m) 198.4 196.2 266.0 271.7 287.4Normalised EPS (A$) 1.16 1.14 1.53 1.54 1.63Normalised EPS Growth 13.4% (1.2%) 34.1% 0.6% 5.8%FD Normalised P/E (x) 20.52 20.77 15.48 15.39 14.55DPS (A$) 0.89 0.86 1.07 1.11 1.18Dividend Yield 3.77% 3.61% 4.51% 4.70% 4.96%EV/EBITDA (x) 15.31 15.43 11.58 11.43 10.65P/FCFE (x) 24.75 27.35 26.37 16.21 15.49Net Gearing (33.9%) (32.7%) (28.4%) (34.5%) (40.4%)P/BV (x) 11.45 9.10 8.43 7.43 6.45ROE 60.2% 48.9% 56.4% 51.3% 47.5%% Change In Normalised EPS Estimates 12.8% 2.3% (0.6%)Normalised EPS/consensus EPS (x) 1.13 0.97 0.95

71.0

79.8

88.5

97.3

106.0

21.0

23.0

25.0

27.0

29.0

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

Source: Bloomberg

11223

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

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1

Autos│Hong Kong Geely Automobile Holdings Ltd│July 9, 2018

Insert Insert

Geely Automobile Holdings Ltd Growth with more balanced product mix ■ Jun sales rose 45% yoy, achieving 49% of full-year guidance. Management alluded

that upward revision to its full-year shipment guidance is likely. ■ Shipment of all six key models exceeded 10k units every month in 1H18, resulting in a

more balanced product mix. ■ Reiterate Add and target price based on CY18F P/E of 16x (2 s.d. above 10-year

average) vs. sector average of 7x.

Shipment remained positive in Jun ● Jun shipment of 128.4k units (+45% yoy, +4% mom) was at 49% of management's

full-year guidance. Management indicated that its full-year sales guidance of 1.58m units will likely be exceeded.

● Lynk & Co sales were flat mom in Jun at 9.2k units. Boyue SUV sales reached 22k units in Jun (+4% mom and yoy), which we deem as positive given the increasing competition in the low-end compact SUV segment.

Product mix becoming more balanced in FY18F ● In 1H18, all of Geely’s six key models surpassed 10k units sold each month, vs. only

three key models achieving 10k sales per month throughout FY17. ● Geely has a higher degree of product diversification with a 45%/45%/10% split among

SUV/Sedan/MPV in its 1H18 total shipments, unlike Great Wall and Guangzhou Auto Trumpchi (both rated Reduce) which mainly concentrate on SUVs.

● The adoption of Volvo’s compact modular architecture (CMA) platform, which enables multiple models to be produced on the same line, enables Geely to optimise production scale and reduce production cost by c.30%, hence expanding its margins. The CMA platform has already been used for Lynk & Co models, and will also be used for certain Geely-branded new models in FY18F, such as Borui GE sedan.

● We forecast the gradual adoption of CMA platform for Geely’s models will improve its gross margins from 19.3% in FY17 to 21% in FY18F.

Lynk & Co to see faster sales ramp-up in 2H18F ● In 1H18, Lynk & Co's average monthly shipment was 7.7k units, mainly contributed by

the 01 model. We expect an eventual run-rate of c.13k units/month on average for FY18F due to the ramp up of models 02 (cross over) and 03 (sedan) in 2H18F.

● Management guided that the output for Lynk & Co 01 is at c.8k-9k units/month, amounting to c.100k units for FY18F. Production of the 01 model is not likely to significantly surpass 100k units this year given the short-term capacity constraint in the production of 2.0T engines for the model.

● We maintain our Lynk & Co shipment forecast of 150k units for FY18F, in line with management's guidance.

Reiterate Add on Geely – top pick among China autos ● Geely remains our top pick in the China auto space, with an Add rating and target

price based on 16x CY18F P/E, 2 s.d. above the stock’s historical average since 2008. We believe the valuation premium is justified given margin expansion for FY18F and longer term technology advantage with Volvo’s CMA platform.

● Potential re-rating catalysts are stronger-than-expected earnings or shipments. ● Key downside risk is lower-than-expected shipment growth.

Figure 1: Geely’s monthly shipment growth

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

0

20,000

40,000

60,000

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Hong Kong

July 9, 2018 - 5:35 PM

ADD (no change) Consensus ratings*: Buy 32 Hold 6 Sell 2

Current price: HK$19.92 Target price: HK$28.33 Previous target: HK$28.33

Up/downside: 42.2% CGS-CIMB / Consensus: -11.9%

Reuters: 0175.HK Bloomberg: 175 HK Market cap: US$22,787m HK$178,833m Average daily turnover: US$128.9m HK$1,012m Current shares o/s 8,821m Free float: 55.3% *Source: Bloomberg Key financial forecasts

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) -15.6 -15.1 14.6 Relative (%) -8.3 -10 1.4

Major shareholders % held Proper Glory Holding 29.4 Zhejiang Geely Automobile Co. Ltd. 8.7 Shanghai Maple Auto 3.3

Insert

Analyst(s)

Michael TING

T (852) 2532 1121 E michael.ting@cgs-cimb.com Danny CHEN

T (852) 2539 1350 E danny.chen@cgs-cimb.com

Dec-18F Dec-19F Dec-20F

Net Profit (Rmbm) 12,629 16,506 22,172Normalised EPS (Rmb) 1.43 1.87 2.51Normalised EPS Growth 42.8% 30.7% 34.3%FD Normalised P/E (x) 11.90 9.11 6.78Recurring ROE 32.7% 34.3% 34.9%P/BV (x) 3.47 2.78 2.02DPS (Rmb) 0.27 0.35 0.47Dividend Yield 1.59% 2.08% 2.80%

89.0

114.0

139.0

16.0

21.0

26.0

Price Close Relative to HSI (RHS)

50100150200

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

7

Sector Flash Note Technology│Hong Kong

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Technology - Handsets Investor feedback from our US/SG marketing trip ■ Feedback during our trip was generally positive, with most investors worried about 1)

slow shipment growth, 2) margin pressure, and 3) a trade war. ■ Sunny Optical should benefit from specification upgrades in smartphones, such as

multi-cameras (dual-cam/tri-cam/3DS) and miniature cameras. ■ Maintain Neutral on the sector, with Sunny Optical and Tongda our top picks.

US/SG marketing feedback ● We hosted a marketing trip to US/SG, meeting 60 investors in the past 2 weeks. Key

questions included 1) slow smartphone shipments growth, 2) margin pressure from rising demand for low-spec products, and 3) the potential impact of US/China tensions.

● Most investors were still positive on Sunny Optical (2382 HK, Add) as they believed makers will continue to upgrade smartphone cameras. They were also interested in AAC Tech (2018 HK, Hold) given its solid operations with a well-diversified customer portfolio and positive on its lens development despite short-term margin pressure.

Worried about slowing smartphone shipment growth ● Investors asked about smartphone shipment growth of China’s top 4 (HOVX: Huawei,

Oppo, Vivo and Xiaomi) in 2018F. We forecast the top 4 to ship 523m smartphones, up by 11% yoy, in 2018F, driven by Indian, South East Asian and European markets.

● We also highlighted sustained smartphone ASP growth at HOVX as a key earnings driver for domestic components manufacturers on the back of robust demand for high-end and sophisticated components. According to Counterpoint, HOVX’s ASP jumped on average by 20% yoy in 1Q18.

Disappointed with low adoption rate of 3DS and 3DG ● Investors were disappointed with the low adoption rate of 3D-sensing cameras (3DS)

by Chinese brands as Chinese brands were currently focused on in-display technology for front-facing (FF) cameras and fingerprint sensors given that 3DS did not help to improve user experience but instead increased cost.

● We also highlighted that only flagship models will adopt 3D-glass back-covers (3DG) in 2018 due to cost concerns while 5G will commence only in 2020. Chinese brands currently preferred plastics to glass, such as Tongda’s IMT uni-body plastics back-cover for mid-range products.

Trade war could be positive for domestic supply chain ● Investors agreed with our view that the domestic supply chain should benefit from the

trade war as Chinese brands should take market share from Apple if the Chinese government imposes restrictions on iPhone sales in China.

● On the other hand, HOVX's sales to the US are very low and they source limited components from the US. AAC Tech and Tongda may get lower revenue from Apple while Sunny Optical may benefit from higher sales to Chinese brands, in our view.

Sunny Optical is the core holding ● Almost all investors agreed that Sunny Optical was the core holding despite its

relatively high valuation (c.24x FY19F P/E) as they were positive on smartphone camera upgrades, both the increase in the number of cameras (image cameras, 3DS) and specification upgrades (triple-cam, pop-up camera, miniature camera modules).

AAC Technologies’ (AAC) valuations look attractive ● Investors were still interested in AAC as it had fallen to an attractive c.15x FY19F P/E,

although earnings growth was expected to decelerate to c.17% in FY18F (above 30% in FY15-17), due to market share losses in acoustics and a low adoption rate of 3DG and 3DS by Chinese customers.

Maintain Neutral on China smartphone sector ● We maintain Neutral on the China smartphone sector as we see short-term headwinds

from margin pressure given rising demand for low-spec products and competition, slow shipment growth at Oppo/Vivo and low adoption rates for 3DS and 3DG. Sunny Optical and Tongda are our picks as they are gaining market share in cameras and waterproof components and have high sales exposure to Huawei and Xiaomi.

● Upside risks include rapid shipment growth for HOVX and successful new flagship model launches in Sep 18 by Apple and HOVX. Downside risks are further margin pressure due to competition and the US/China trade war intensifying.

Figure 1: Estimated revenue distribution, by customers (% of total revenue in FY18F)

SOURCES: CGS-CIMB RESEARCH, COUNTERPOINT

Revene distribution, by customers (% of total revenue in FY18F) AAC Tech Q Tech Sunny Tongda - Huawei n.a. c.10-15% c.20-25% c.5-10% - Oppo n.a. c.10-15% c.10-15% c.5-10% - Vivo n.a. c.30-35% c.5-10% c.1-3% - Xiaomi n.a. c.5-10% c.5-10% c.25-30%HOVX c.25-30% c.55-75% c.50-60% c.40-50%Apple c.45-50% 0% 0% c.12-16%Samsung c.8-12% 0% c.5-10% 0%

Hong Kong July 9, 2018 - 5:46 PM

Neutral (no change)

Highlighted companies AAC Technologies HOLD, TP HK$118.4, HK$105.9 close AAC will see short-term margin pressure due to competition in acoustics and a low adoption rate of 3DG and 3DS by Chinese brands while the lenses business should start meaningful contribution in FY19F. Sunny Optical Technology (Group) ADD, TP HK$200.0, HK$142.0 close Sunny Optical will benefit from the rising domestic demand for sophisticated high-end handset camera modules and lenses. It will also benefit from the rapid growth of the global vehicle camera market. Tongda Group Holdings Ltd ADD, TP HK$2.63, HK$1.53 close Tongda is a key beneficiary of Xiaomi’s robust smartphone shipment growth and the huge demand for waterproof components from US customers.

Summary valuation metrics

Insert

Analyst

Ray KWOK T (852) 2532 1113 E ray.kwok@cgs-cimb.com

P/E (x) Dec-18F Dec-19F Dec-20FAAC Technologies 17.93 15.00 12.32 Sunny Optical Technology (Group) 33.24 24.28 19.85 Tongda Group Holdings Ltd 6.95 5.83 5.18

P/BV (x) Dec-18F Dec-19F Dec-20FAAC Technologies 5.43 4.47 3.68 Sunny Optical Technology (Group) 12.34 8.87 6.62 Tongda Group Holdings Ltd 1.26 1.09 0.94

Dividend Yield Dec-18F Dec-19F Dec-20FAAC Technologies 2.18% 2.60% 3.17%Sunny Optical Technology (Group) 0.75% 1.02% 1.25%Tongda Group Holdings Ltd 4.62% 5.51% 6.19%

8

Company Note Banks│Indonesia│July 9, 2018

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Insert Insert

Bank Tabungan Negara Negative news largely priced in; valuations appealing ■ Our checks suggest that the lawsuit reported by the media has already been

provisioned (for principal), and will not have further impact on earnings. ■ 5M18 results were relatively weak due to steep increase in opex and provisions;

though this may reverse in 2H amid its front-loading strategy. ■ Despite pressure on NIMs, our worst-case scenario (assuming 100-150bp rate hike)

suggests the earnings downside (6-9%) is relatively manageable. ■ Asset quality was resilient, with NPL and SML still improving mom in May. It remains

confident about meeting its FY18F NPL target of 2.3-2.5% and SML target of <8%. ■ Maintain Add; it now trades at 6x FY19F P/E and 1x FY19F P/BV.

Muted impact from lawsuit Local news (KONTAN) reported that BBTN is currently being sued by three depositors (local insurance and multi finance) who lost their money in BBTN (total of c.Rp250bn – fully provisioned in 2016) to a fraud involving a criminal syndicate (employees of those respective companies) and two BBTN employees. BBTN won the case in the criminal court, though the debtors are now looking to take the case to the civil court. We think the verdict will be the same as the fraud involved both parties (BBTN and those from insurance/multi finance companies).

Weak 5M18 results due to jump in costs; expect normalisation in 2H It posted a weak 5M18 net profit of Rp919bn (-10% yoy), behind at 26% of our FY18F estimate. Weak PPOP (-3% yoy) was due to a steep increase in opex (+23% yoy). Provisions also rose 23% yoy, though cost of credit (COC) was benign (0.5% in 5M18 vs. 0.4% in 5M17). Our discussion with the management suggested that this may reverse in 2H as both opex and provision were front-loaded in 1H. It maintained its net profit growth guidance of 25% for 2018 (vs. our estimate of 18%).

Margin has been resilient so far Our discussion with the management suggested that NIM was relatively flattish in May (from 4.2% in Mar) as the slight increase in cost of funds (COF) (+10bp from Mar) was offset by an increase in subsidised mortgage yield (+30bp from Mar) – note that subsidised mortgage under interest subsidy (c.20% of loan) will automatically reprice-up along with the rate hike.

Concerns over margin overblown NIM fell to 4.1% in 5M18 from 4.2% in 1Q18 due to a lower loan yield (9.9% in 5M18 vs. 10.2% in 1Q18) and higher cost of funds (5.6% in 5M18 vs. 5.5% in 1Q18). While its asset liability mix suggests that it may not benefit from higher rates (fixed asset but reliance on expensive funding such as time deposits, i.e. TD), we calculate the impact from this rate hike cycle (100-150bp rate hike this year) will adversely impact earnings by only 6-9% (figure 2) vs. -40% YTD share price contraction. Resilient asset quality; on track to meet its target Its NPL and special mention loans (SML) were relatively stable at 2.9% and 10.6% in May from 2.8% and 10.4% in Mar, respectively. Management remains confident about achieving its NPL target of 2.3-2.5% and SML target of below 8%, which will also alleviate margin pressure. Recent correction provides an attractive entry point Maintain Add and our GGM-based TP. The stock is down 40% YTD, underperforming JCI by 29%, BBTN is now trading at 6x FY19F P/E and 1x FY19F P/BV (ex-asset reval), below 10-year average of 9x P/E and 1.3x P/BV. Main re-rating catalyst will be stabilising NIM, while the key downside risks are rising bond yields and rupiah depreciation.

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Indonesia

ADD (no change) Consensus ratings*: Buy 17 Hold 6 Sell 1

Current price: Rp2,330 Target price: Rp4,200 Previous target: Rp4,200

Up/downside: 80.3% CGS-CIMB / Consensus: 14.4%

Reuters: BBTN.JK Bloomberg: BBTN IJ Market cap: US$1,717m Rp24,674,700m Average daily turnover: US$4.69m Rp66,485m Current shares o/s: 10,565m Free float: 40.0% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) -23.1 -35.3 -6.8 Relative (%) -20 -28.3 -6.7

Major shareholders % held Government of Indonesia 60.0 Insert

Analyst(s)

Jovent GIOVANNY

T (62) 21 3006 1727 E jovent.muliadi@cgs-cimb.com Timothy HANDERSON T (62) 21 3006 1724 E timothy.handerson@cgs-cimb.com

Financial Summary Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Net Interest Income (Rpb) 8,164 9,341 11,632 13,924 16,508Total Non-Interest Income (Rpb) 1,283 1,606 1,764 2,066 2,608Operating Revenue (Rpb) 9,446 10,947 13,397 15,991 19,116Total Provision Charges (Rpb) (708) (884) (1,094) (1,313) (1,576)Net Profit (Rpb) 2,619 3,027 3,580 4,271 5,059Core EPS (Rp) 245.8 283.7 335.4 400.3 474.2Core EPS Growth 39.7% 15.4% 18.2% 19.3% 18.5%FD Core P/E (x) 9.48 8.21 6.95 5.82 4.91DPS (Rp) 35.0 62.0 57.3 84.7 101.1Dividend Yield 1.50% 2.66% 2.46% 3.64% 4.34%BVPS (Rp) 1,811 2,051 2,348 2,667 3,045P/BV (x) 1.29 1.14 0.99 0.87 0.77ROE 15.7% 14.7% 15.3% 16.0% 16.6%CIMB/consensus EPS (x) 1.01 1.05 1.12

85101117133149165

1,9002,4002,9003,4003,9004,400

Price Close Relative to JCI (RHS)

100200300400

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

9

1

Toll Roads│Indonesia Jasa Marga│July 9, 2018

Insert Insert

Jasa Marga On the edge of glory ■ JSMR issued its first closed-end fund (RDPT) by divesting 20% stakes in three toll

roads for Rp912bn (at 1.8x BV) and a rights issue of c.Rp500bn. ■ Further potential upside catalysts are the divestment of the JLB stake and JORR

integration. ■ Maintain Add and target price of Rp4,800, still based on 10.3x FY18F EV/EBITDA.

Issuance of first closed-end fund ● JSMR announced the issuance of its first closed-end fund (RDPT or reksadana

penyertaan terbatas) with total proceeds of Rp1.4tr. This consisted of the divestment of 20% stakes in three toll road concessions (Solo-Ngawi, Ngawi-Kertosono and Batang-Semarang) for Rp912bn (at 1.8x BV) and a rights issue of c.Rp500bn.

● The total value of the fund is Rp3tr. The balance of the fund will be received in the phase through a rights issue of Rp1.6tr.

● The IRR promised to investors is 10.25%. Estimated net gains after tax that could be booked in FY18F are c.Rp304bn. Post the issuance of the fund, the company will be able to deconsolidate the three concessions from its books as it now has only 40% shares in these concessions (previously 60%).

JLB stake divestment inches towards reality ● Our discussion with the company suggests that the plan to divest a minority stake in

Jakarta Lingkar Baratsatu (JLB) is in progress and could materialise soon. ● We estimate net gains after tax to be booked from the stake divestment could amount

to Rp270bn (divestment valuation of 3x BV) or Rp136bn (2x BV). Lower JORR integration tariff but still offers appealing upside ● In our latest discussions, the company revealed that the integration of the JORR toll

roads by the Ministry of Public Works and Housing is in progress. The company expects the plan to be implemented over the near term.

● The company now believes the integrated JORR tariff will be lower, i.e. Rp13,000 for class I vehicles (vs. Rp15,000 previously).

● Assuming that the tariff is implemented in Aug 18, class I vehicles will pay Rp13,000 post the integration while the increment for class II-V vehicles will be lower. Hence, we estimate the integration of tariffs on JORR roads will lead to potential upside of 5-11% to our current earnings estimates in FY18-20F.

Add call maintained ● We think its earnings outlook for FY18F could be much better than our current

estimate of Rp1.9tr and may provide some growth compared to the prior year’s earnings if the two main catalysts, JORR integration and JLB stake divestment, are realised this year.

● We maintain our Add call for JSMR and target price of Rp4,800, still based on 10.3x FY18F EV/EBITDA.

● Potential downside risks to our Add call include unexpected government intervention, higher cost of funds and weaker-than-expected toll road revenue.

Indonesia

July 9, 2018 - 11:18 AM

ADD (no change) Consensus ratings*: Buy 16 Hold 6 Sell 1

Current price: Rp4,640 Target price: Rp4,800 Previous target: Rp4,800

Up/downside: 3.4% CGS-CIMB / Consensus: -15.3%

Reuters: JSMR.JK Bloomberg: JSMR IJ Market cap: US$2,343m Rp33,676,524m Average daily turnover: US$1.60m Rp22,394m Current shares o/s 7,258m Free float: 30.0% *Source: Bloomberg Key financial forecasts

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) 1.3 1.5 -14.9 Relative (%) 7.5 9.3 -12.2

Major shareholders % held Government of Indonesia 70.0 Insert

Analyst(s)

Aurelia BARUS

T (62) 21 3006 1721 E aurelia.barus@cgs-cimb.com Namira LAHUDDIN T (62) 21 3006 1728 E namira.lahuddin@cgs-cimb.com

Dec-18F Dec-19F Dec-20F

Net Profit (Rpb) 1,878 2,386 1,662Core EPS (Rp) 258.8 328.7 229.0Core EPS Growth 16.0% 27.0% (30.3%)FD Core P/E (x) 17.93 14.11 20.26Recurring ROE 11.9% 13.8% 8.9%P/BV (x) 2.05 1.85 1.74DPS (Rp) 72.97 92.69 64.56Dividend Yield 1.57% 2.00% 1.39%

71.0

88.1

105.3

122.4

3,600

4,600

5,600

6,600

Price Close Relative to JCI (RHS)

10203040

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

10

Company Note Technology Components│South Korea│July 9, 2018

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Insert Insert

SKC Kolon PI 2Q18F preview: Re-adjusting basis for growth ■ We tone down our 2Q18F topline and OP by 10%, and reconcile our growth trajectory. ■ We were too aggressive in our 2Q18F utilisation rate assumption; but our 2H18F

revenue growth forecast of 20% yoy is intact even after the earnings revision. ■ We believe FPCB use will provide downward rigidity, graphite sheet (G/S) and

general-use PI films will continue to see explosive growth through FY18F. ■ We expect significant uplift in share price once the visibility for new applications

(MLCC, semiconductor, EV battery) clears further. ■ Maintain Add. Our TP is based on 24x CY19F P/E (25x previously), derived from PEG

vs. ROE, to reflect 46% FY17-19F EPS CAGR and FY19F ROE of 24.2%.

2Q18F preview: softer growth We expect 2Q18F earnings to come below our previous forecast as we have overestimated SKPI's capacity utilisation rate. As such, we revise down our topline and OP forecasts by 10% to W61.5bn and W15.4bn, respectively, to reflect the change in our assumptions. Despite the revision in 1H18F earnings, SKPI's 2H18F topline growth story (16% hoh, 20% yoy) remains intact, in our view.

Graphite sheet upholding earnings growth; not FPCB We believe G/S demand continued to surge in 2Q18F (+70% yoy), driven by 1) increase in per-device volume (areas of usage/number of layers), and 2) expanding usage in low/mid-end smartphones. Flexible printed circuit board (FPCB) use, SKPI's conventional sales growth driver, will rise just 5% yoy in 2Q18F, in our view. But we believe regardless of the change in FPCB industry dynamics, polyimide (PI) industry is highly undersupplied; and SKPI's revenue from non-FPCB applications have out-grown that of FPCB. PI varnish: reality check SKPI is still in the qualification process with multiple flexible OLED panel vendors, for the supply of PI varnish for their products. At the moment, we do not see high visibility of SKPI supplying PI varnish to Samsung Display (which accounts for majority share of global mobile flexible OLED industry), given Samsung-Ube’s current underutilisation. Instead, we expect SKPI to supply 1) PI base film to Samsung Display in 3Q18F for foldable OLED, and 2) PI varnish to BOE and LG Display in FY19F. New applications to drive growth We estimate general-use PI saw 70% yoy growth in 2Q18F, backed by 1) electric vehicle battery coating tape, and 2) masking tape used in multi-layer ceramic capacitor (MLCC) and semiconductor production. PI varnish has more applications than just as a substrate material of flexible OLED; it is being developed as 1) a coating material for EV-use cables, and 2) lithium-ion battery separator. While we lower our PI varnish sales forecasts for flexible-OLED, we raise our general-use PI sales estimates for FY18-20F by 2-3% due to new applications. Maintain Add with a lower TP of W60k PI film is still seeing sustained supply shortages. We expect the virtuous cycle of 1) demand growth, 2) capacity expansion, and 3) earnings growth to continue over our forecast period. We believe SKPI’s current valuation does not fully reflect the earnings upcycle and potential of new applications. Share price correction following the unrelated noise surrounding SKPI presents a buying opportunity, in our view. Risks to our call include 1) higher key raw material price (16% of COGS) and 2) appreciating Korean won.

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

South Korea

ADD (no change) Consensus ratings*: Buy 12 Hold 1 Sell 0

Current price: W50,200 Target price: W60,000 Previous target: W62,000

Up/downside: 19.5% CGS-CIMB / Consensus: 2.0%

Reuters: 178920.KS Bloomberg: 178920 KS Market cap: US$1,321m W1,474,189m Average daily turnover: US$14.96m W16,128m Current shares o/s: 29.36m Free float: 56.0% *Source: Bloomberg Key changes in this note

FY18-20F revenue decreased by 4-5% FY18-20F EPS decreased by 2-8%

Source: Bloomberg

Price performance 1M 3M 12M

Absolute (%) -4.2 23.6 119.2 Relative (%) 3.1 30.6 123.7

Major shareholders % held SKC Co. 27.0 Kolon Industries 27.0 Insert

Analyst(s)

Jun LIM

T (82) 2 6730 6130 E jun.lim@cgs-cimb.com

Financial Summary Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Revenue (Wb) 153.1 216.4 278.3 342.9 392.6Net Profit (Wb) 20.99 32.78 47.82 70.24 84.31Normalised EPS (W) 715 1,116 1,628 2,392 2,871Normalised EPS Growth 23.7% 56.2% 45.9% 46.9% 20.0%FD Normalised P/E (x) 70.23 44.97 30.83 20.99 17.49Price To Sales (x) 9.63 6.81 5.30 4.30 3.75DPS (W) 450 800 1,221 1,794 2,153Dividend Yield 0.90% 1.59% 2.43% 3.57% 4.29%EV/EBITDA (x) 32.60 20.90 16.93 13.17 11.26P/FCFE (x) 64.80 36.12 NA 34.88 24.18Net Gearing 0.2% (17.8%) 3.3% (0.3%) (3.5%)P/BV (x) 6.45 5.94 5.41 4.80 4.35ROE 9.6% 13.8% 18.4% 24.2% 26.1%% Change In Normalised EPS Estimates (7.64%) (3.19%) (2.07%)Normalised EPS/consensus EPS (x)

88

128

168

208

21,000

31,000

41,000

51,000

Price Close Relative to KOSPI (RHS)

1122

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

11

Eyes on the Ground Technology - Others│Malaysia│July 9, 2018 Shariah Compliant

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Nova MSC Bhd A global government digitalisation play ■ Nova MSC (Nova) focuses on developing and providing smart e-solution systems in:

i) smart healthcare, ii) digital government and iii) building automation. ■ Of various e-government systems it provides, its crown jewel is the CORENET system

which has been used by the Singapore government since 2001. ■ McKinsey & Partners values global government digitalisation industry at US$1tr p.a. ■ Nova provides smart healthcare solutions that integrate multiple healthcare systems.

Its clients include Novena Medical Centre and Changi General Hospital in Singapore. ■ With a reported all-time high order book of RM232m, Nova is confident of returning to

profitability in FY3/19F. It offers investors exposure to government digitalisation plays.

Singapore-based company developing smart e-applications Nova MSC (Nova) is an ACE-listed company primarily involved in developing and supplying smart e-solutions in three main segments: i) smart healthcare, ii) government digitalisation and iii) building automation and control. It targets both government and private entities. All its software is fully developed in-house. Nova’s current operations are mainly in Singapore (98% of its FY18 revenue) but it also has presence in other Southeast Asian countries such as Brunei, Malaysia and Indonesia. CORENET: Crown jewel of its digital government systems segment The crown jewel of Nova’s digital government systems segment is the Construction and Real Estate Network (CORENET) that it developed 100% in-house and has been used by the Singapore government since 2001. The system connects 16 Singapore government agencies, providing a one-stop point for the e-submission and processing of all applications related to the construction and real estate industry. In Oct 2017, Nova announced that it had secured an RM83m contract to upgrade the system to CORENET 2.0 and maintain it until Oct 2023F. Current order book robust at RM232m, an all-time high In a report by McKinsey & Company, the government digitalisation industry globally is estimated to be worth US$1tr annually. As Nova is confident in its strong track record for providing e-government services to well-recognised clientele such as the Singapore and Brunei governments in various business segments, the group believes that it could stand to benefit from the growing demand. Nova's total reported outstanding order book at end-Mar 2018 (end-FY18) was at an all-time high of RM232m. Robust demand for smart healthcare Nova also promotes smart healthcare by developing e-solutions to automate and streamline the operations of healthcare institutions. This includes its multi-organisation architecture system (Vesaluis.geo) that integrates multiple healthcare systems involving frontline, clinical, ancillary support and backend services into one. Users of this system include highly-established hospitals such as Novena Medical Centre (Singapore), Changi General Hospital (Singapore) and Penang Adventist Hospital (Malaysia). In a niche market; only comparable to e-solution providers Nova has no direct peers given its unique exposure to smart healthcare solutions. In the e-solution space (including e-government product providers), its closest peers are MyEG, Dnex, Datasonic and GHL, which collectively trade at CY19F Bloomberg consensus P/E of 15.9x. Although it has been loss-making in the past two years (FY17-18), Nova strongly believes the worst is over and all the kitchen-sinking exercises have been done. It is confident of returning to the black in FY19F, thanks to: i) a record-high order book, ii) better overall cost control, and iii) more potential contract wins.

SOURCES: CIMB RESEARCH, COMPANY REPORTS

Malaysia

NON RATED Current price: RM0.17 Consensus Tgt Price: N/A Up/downside: N/A Reuters: NOVS.KL Bloomberg: NOVM MK Market cap: US$30.70m RM124.0m Average daily turnover: US$0.35m RM1.41m Current shares o/s: 751.6m Free float: 61.2%

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) 73.7 94.1 120 Relative (%) 80.1 103.5 126

Major shareholders % held Stone Villa Limited 6.6 Zylog Systems Asia Pacific Pte Ltd 6.3 Raden Corporation Sdn Bhd 5.7

This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CGS-CIMB's coverage universe. It does not carry investment ratings and CGS-CIMB does not commit to regular updates on an ongoing basis.

Insert

Analyst(s)

Walter AW

T (60) 3 2261 9093 E walter.aw@cimb.com

Financial Summary Mar-14A Mar-15A Mar-16A Mar-17A Mar-18A

Revenue (RMm) 32.4 32.3 31.0 96.8 73.0 Operating EBITDA (RMm) 2.0 4.1 4.2 0.7 8.7 Pretax profit (RMm) 0.7 1.2 0.5 (23.4) (4.4) Net profit (RMm) 0.7 1.2 0.5 (20.4) (2.6) EPS (RM) 0.00 0.00 0.00 (0.03) (0.00) EPS growth nm 49% -59% nm -87%FD core P/E (x) 91.5 61.4 148.4 (5.4) (41.8) DPS (RM) NA NA NA NA NADividend yield NA NA NA NA NAEV 122.6 117.1 122.8 123.2 130.6 EV/EBITDA (x) 62.1 28.7 29.3 166.4 15.0 Net gearing (x) (0.1) (0.2) (0.0) (0.1) 0.1 P/BV (x) 2.9 1.9 1.6 2.3 2.7 ROE (%) 3% 3% 1% -42% -6%

73

140

206

0.060

0.110

0.160

Price Close Relative to FBMKLCI (RHS)

50

100

150

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

12

Sector Flash Note Construction and Materials│Malaysia

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Construction Question marks surround LRT 3 ■ LRT 3’s initial RM9bn cost has swelled to over RM15bn. Prasarana may take over the

PDP role from MRCB-George Kent JV. A deferment of the project is also possible. ■ Sources said that, in the worst case, LRT 3 could be shelved, although we believe this

is unlikely to materialise as the project has entered the intensive civil works phase. ■ Within our coverage, Sunway (via SunCon), IJM Corp, Muhibbah, WCT and EITA

have exposure to LRT 3.

Prasarana to take over LRT 3’s construction from MRCB-GK JV? ● In a report in StarBiz today, sources said that Prasarana Malaysia Bhd, the project

owner of the Light Rail Transit Bandar Utama-Klang Line (LRT 3), is considering taking over the rail system’s construction works from the project delivery partner (PDP). The latter is a 50:50 joint venture (JV) between Malaysian Resources Corp Bhd (MRC MK, Reduce) and George Kent (Malaysia) Bhd (GKEN MK, NR).

● According to the sources, Prasarana plans to take over LRT 3’s construction after costs have risen from the reported RM9bn to over RM15bn. One source was quoted as saying that the government will make a decision on the matter soon.

● The report said one idea mulled to slash the construction cost was reducing the size of the project. Other options being considered, sources said, included reverting to the turnkey model to complete the project.

● The article further reported that, in the worst case, the project could be shelved “given the current financial constraints” as the government aims to rein in its finances.

10% completion ● According to the StarBiz report, LRT 3’s overall cost had been estimated to be

RM10bn when it was launched in Sep 2015. This comprised RM9bn for construction costs and an allocation of up to RM1bn for land acquisitions. At this stage, physical works are 10% completed.

● Prasarana had the approval to raise up to RM10bn in debt to pay for the project, StarBiz reported. Going past the allocated budget will require the company to seek approval from the cabinet for additional funds.

● The report stated that the project exceeded its given budget after the original LRT 3 design underwent changes. Some of the 26 stations’ costs were inflated from RM80m to RM200m each as the designs were altered to accommodate state-of-the-art facilities and larger capacity.

Negative implications for contractors; Underweight ● This news is a negative surprise as downsizing the LRT 3 will impact existing order

books and margins. Contractors under coverage that have exposure to LRT 3 are Sunway (via SunCon; the biggest scope), WCT (three packages), IJM Corp (the only underground scope), Muhibbah Engineering (noise barrier) and EITA (elevator and lifts). Maintain Underweight on the sector. Key upside risk for the sector is a revival of scaled-down rail projects.

Figure 1: Selected list of announced LRT 3 awards in 2017-2018 YTD

SOURCES: CIMB RESEARCH, PRESS REPORTS

Value

Date Company Job scope (RM m)

4-Apr-17 Mudajaya Group PC2: manufacture, supply and delivery of precast pier caps and other related works  58.3

5-Apr-17 WCT Holdings TD1: Johan Setia Depot (Phase 1) and associated works 185.9

2-Aug-17 CRRC*-Siemens-Tegap Dinamik JV Design, manufacture, supply, delivery, installation, testing and commissioning of 42 six-car light rail vehicles (LRV) 1,560.0

29-Aug-17 WCT Holdings GS03: Guideway, Stations, Park and Ride, Ancillary Buildings and other associated works 840.0

5-Sep-17 TRC Synergy TD2: Construction and Completion of Johan Setia Depot (Phase 2) and Associated Works 760.6

5-Oct-17 Sunway Construction Group GS07 & GS08: Guideway, stations, iconic bridge, park and rides, ancillary buildings and other associated works 2,308.7

5-Oct-17 WCT Holdings GS02: Guideway, Stations, Park and Ride, Ancillary Buildings and other associated works 640.0

5-Oct-17 Gabungan AQRS GS04: Guideway, Stations, Park and Ride, Ancillary Buildings and Other Associated Works 1,205.6

9-Oct-17 Mudajaya Group GS01: Guideway, stations, park and ride, ancillary buildings and other associated works 1,155.4

16-Nov-17 Econpile Holdings Bore piling and general infrastructure works for package GS04 (awarded by Gabungan AQRS) 208.7

30-Jan-18 Ikhmas Jaya Bore piling and general infrastructure works for package GS04 (awarded by Mudajaya) 38.5

28-Feb-18 EITA Supply of escalators and lifts for LRT 3 stations 126.0

9-Mar-18 Muhibbah Engineering (49% JV stake) Noise barrier packages 57.6

14-Mar-18 IJM Corp 2km underground and tunnelling scope 1,120.0

Total 10,265.2

*CRRC Zhuzhou Locomotive

Malaysia July 9, 2018 - 1:59 PM

Underweight (no change)

Highlighted companies

Malaysian Resources Corp REDUCE, TP RM0.54, RM0.61 close

MRCB is undertaking the project delivery partner (PDP) scope of the LRT 3 project, initially valued at RM9bn, via a JV with George Kent (50:50). The PDP JV has been receiving fees of 6% of construction cost, based on the progress of works done. Sunway Bhd HOLD, TP RM1.56, RM1.50 close

Via Sunway Construction (SunCon), the group secured the largest LRT 3 package (including two stations) worth RM2.3bn. The contract was awarded in Oct 2017. WCT Holdings

HOLD, TP RM0.84, RM0.79 close

WCT secured three LRT 3 contracts worth a combined RM1.7bn involving the depot, stations and viaducts. The group is the only contractor that bagged three LRT 3 packages in 2017.

Summary valuation metrics

Insert

Analyst(s)

Sharizan ROSELY

T (60) 3 2261 9077 E sharizan.rosely@cimb.com Kamarul ANWAR T (60) 3 2261 9092 E kamarulanwar.kamaruddin@cimb.com

P/E (x) Dec-18F Dec-19F Dec-20F

Malaysian Resources Corp 20.02 18.50 18.20 Sunway Bhd 12.02 11.03 10.71 WCT Holdings 7.26 6.66 5.93

P/BV (x) Dec-18F Dec-19F Dec-20F

Malaysian Resources Corp 0.56 0.57 0.58 Sunway Bhd 0.82 0.78 0.74 WCT Holdings 0.37 0.36 0.36

Dividend Yield Dec-18F Dec-19F Dec-20F

Malaysian Resources Corp 2.48% 2.48% 2.48%Sunway Bhd 3.64% 3.64% 3.64%WCT Holdings 4.13% 6.00% 6.74%

13

Company Note Finance Companies│Thailand│July 9, 2018

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Insert Insert

Muangthai Capital PCL 2Q18F preview: Competition hurts ■ We forecast a 2Q18F net profit of THB856m (+50% yoy and +3% qoq). Net profit for

1H18F should form 50% of our full-year estimate. ■ Loan growth in 2Q18F is expected at 41% yoy and 8.7% qoq, while we expect a slight

NIM contraction from intense competition in motorcycle and land-backed loans. ■ We upgrade our rating to Hold, with an unchanged TP of THB35.3 as, we think

regulatory concerns have been priced in. We await further share price catalysts. ■ Key upside risks to our call include the removal of regulatory risk overhang. Downside

risks: deteriorating asset quality and contracting average loan per branch.

Loan yield impacted by competitor’s nationwide campaign We forecast a 2Q18F net profit of THB856m (+50% yoy and +3% qoq). Net profit for1H18F should form 50% of our full-year estimate. The strong yoy net profit growth shouldhave stemmed from rapid branch openings and the gaining of market share from smallercompetitors in the market. We expect loan growth in 2Q18F to come with a 50bps loweryield qoq as its major competitor carried out a nationwide discount campaign in 2Q18.

Loan growth boosted by upcountry expansion Loan growth in 2Q18F is expected at 41% yoy and 8.7% qoq, while we expect a slightNIM contraction from intense competition in motorcycle and land-backed loans. MTC had2,889 branches in 2Q18, exceeding its original FY18F target of 2,800 branches. The 251branches opened in 2Q18 were mainly in the upcountry. We expect MTC to achieve itsFY19 branch target of 3,000 in 2018F with a focus on upcountry expansion.

Asset quality not a concern Asset quality is expected to have stabilised in 2Q18F as credit costs are also expected tobe maintained at 158bp in 2Q18F. Despite the company’s robust loan growth frompersonal loans and nano-finance loans, we expect NPL to stay at 1.3%, slightly lowerthan the company’s target of 1.5%, as these clients are those who have alreadyestablished a reputable repayment history with MTC though their asset-backed loans.

Regulatory risks postponed, not removed We now expect Thailand’s non-bank act to come into effect in 2H19F. With the actrequiring the cabinet approval, which usually takes up to four months, we do not foreseeit passing through the NLA within 2018. Thailand’s general election is currently plannedfor Feb 2019, thus, we expect the act to be postponed further until a new government iselected and campaign policies are delivered. Therefore, MTC’s regulatory risks areexpected to have no impact on FY18F’s earnings despite still causing a risk overhang.

MTC’s response to possible interest rate cap The main concern for MTC is largely regulatory risks, including possible implementationof an unfavourable interest rate cap and scrutiny over its operations that could lead tohigher operating costs. As concerns of excessive interest charges prevail, MTC hasdevised a strategy of splitting clients’ contracts into asset-backed loans and nano-finance, to maintain its effective yield of 23%. As both loans have to be serviced side-by-side, MTC is also able to keep its NPL low despite an increase in unsecured loan portion.

Upgrade to Hold from Reduce post sharp correction We upgrade our recommendation to Hold from Reduce as MTC’s share price has seen a22% correction from its peak in Feb 2018 over regulatory concerns, which we believe arenow fully priced in. We maintain our target price of THB35.3, based on 6.26x FY18FP/BV (assuming LT ROE of 31% and COE of 12%). Key upside risks include the removalof regulatory risk overhang. Downside risks: deteriorating asset quality as a consequenceof its split contracts strategy and contracting average loan per branch.

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Thailand

HOLD (previously REDUCE) Consensus ratings*: Buy 17 Hold 2 Sell 1

Current price: THB34.75

Target price: THB35.30

Previous target: THB35.30

Up/downside: 1.6%

CGS-CIMB / Consensus: -26.8%

Reuters: MTC.BK

Bloomberg: MTC TB

Market cap: US$2,221m

THB73,670m

Average daily turnover: US$9.72m

THB311.8m

Current shares o/s: 2,120m

Free float: 25.0%*Source: Bloomberg

Key changes in this note No change

Source: Bloomberg

Price performance 1M 3M 12MAbsolute (%) -0.7 0 2.2Relative (%) 6.4 7.2 -0.7

Major shareholders % heldPetaumpai Family 66.0

Insert

Analyst(s)

Sukrit FRIESTAD T (66) 2 841 9013 E sukrit.fr@cgs-cimb.com

Financial Summary Dec-16A Dec-17A Dec-18F Dec-19F Dec-20FNet Interest Income (THBm) 3,691 6,122 8,319 10,834 13,096Total Non-Interest Income (THBm) 453 676 901 1,165 1,421Operating Revenue (THBm) 4,144 6,798 9,220 11,999 14,517Total Provision Charges (THBm) -332 -679 -927 -1,159 -1,391Net Profit (THBm) 1,464 2,501 3,391 4,457 5,405Core EPS (THB) 0.69 1.18 1.60 2.10 2.55Core EPS Growth 77.5% 70.8% 35.6% 31.4% 21.3%FD Core P/E (x) 50.32 29.46 21.73 16.53 13.63DPS (THB) 0.10 0.18 0.24 0.32 0.38Dividend Yield 0.29% 0.52% 0.69% 0.91% 1.10%BVPS (THB) 3.16 4.22 5.64 7.50 7.19P/BV (x) 11.01 8.24 6.16 4.63 4.84ROE 23.7% 32.0% 32.5% 32.0% 34.7%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 0.96 0.95 0.91

77.0

88.1

99.2

110.3

29.0

34.0

39.0

44.0

Price Close Relative to SET (RHS)

20406080

Jul-17 Oct-17 Jan-18 Apr-18

Vol

m

14

Company Note Retail│Thailand│July 9, 2018

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Insert Insert

Siam Makro Still feeling the pressure ■ We expect MAKRO’s 2Q18F earnings to be still under pressure from lower fresh food

prices, higher competition, and higher operating costs. ■ The pre-operating costs associated with its first store in India and overseas

operational costs would have resulted in a higher SG&A-to-sales ratio for the quarter. ■ We cut our SSSG forecast from 3% to 0.6% in FY18F to reflect the lower-than-

expected 1H18F SSSG. Therefore, we cut FY18-20F EPS forecasts by 7.9-9.1%. ■ However, we upgrade our call from Reduce to Hold, with a lower target price of

THB39, following the sharp share price decline over the past few months.

2Q18F results preview We expect MAKRO to post a weaker 2Q18F net profit of THB1.19bn (-3.3% yoy, -26.8% qoq) due to 1) yoy lower prices for some of its fresh food products like pork, chicken, and palm oil, 2) higher operating expenses from its overseas expansion in Cambodia, and 3) pre-operating cost from the opening of its first store in India. We believe MAKRO’s 2Q18F revenue was THB45.9bn (+3% yoy, -2.7% qoq). We estimate SSSG of -1% for 2Q18F vs. -1.4% in 2Q17 and +0.2% in 1Q18. The earlier-than-expected rainy season in Apr was also another reason for the SSSG contraction in 2Q18F.

Margins steady We believe 2Q18F gross margin was 9.6% vs. 9.5% in 2Q17 (10% in 1Q18). The yoy flat GPM was due to better product mix management to increase the proportion of sales from higher-margin food services, offset by intense competition from hypermarkets. We estimate a higher SG&A-to-sales ratio yoy in 2Q18F due to pre-operating expenses for its new overseas business with the company opening its first store in India in Jul 18. NPM should be at 2.5% in 2Q18F (vs. 2.7% in 2Q17 and 3.4% in 1Q18).

Intense competition and declining food prices pile on the pressure While the economic indicators like farm income, spending sentiment, and consumer confidence index showed signs of improvement in 2Q18, the intense competition among hypermarkets and cash-and-carry operators, and the yoy lower prices of food products like pork, chicken, and palm oil, are still exerting pressure on MAKRO’s sales and margins, in our view. However, on a yoy basis, we expect to see a slight recovery from 2H18F onwards from the low base of food prices in the prior year.

Domestic expansion In 2Q18F, MAKRO opened two new 3,487 sq m stores in the food service segment, bringing its total number of stores in Thailand to 125 stores. Its total area increased 0.5% qoq to 734,670 sq m in 2Q18F.

Opening first store in India MAKRO will be opening its first Indian store in Delhi earlier than expected in mid-Jul 18 in the eco-plus format with c.4,700 sq m under the LOTS Wholesale Solutions concept. Total capex was c.US$2m. The company is planning to open its second store in India in 4Q18F, one in Cambodia in 4Q18F or 1Q19F and its first store in China in FY19F.

Revised SSSG and target price We cut our EPS forecasts by 7.9-9.1% in FY18-20F as we lower our SSSG assumptions from 3%/3%/4% to 0.6%/3%/3% and cut our GPM by 0.3% pts p.a. in FY18F/19F/20F to reflect the weaker 1H18F performance. We also cut our DCF-based target price to THB39 (unchanged 7.2% WACC). However, as the share price has fallen 33% from its peak of THB57 and now provides 3% upside to our target price, we upgrade our rating to Hold. Slower domestic sales are a possible de-rating catalyst. An upside risk is higher-than-expected GPM.

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Thailand

HOLD (previously REDUCE) Consensus ratings*: Buy 3 Hold 7 Sell 7

Current price: THB37.75 Target price: THB39.00 Previous target: THB43.00

Up/downside: 3.3% CGS-CIMB / Consensus: -11.3%

Reuters: MAKR.BK Bloomberg: MAKRO TB Market cap: US$5,464m THB181,200m Average daily turnover: US$2.63m THB83.64m Current shares o/s: 4,800m Free float: 2.1% *Source: Bloomberg Key changes in this note

FY18F EPS decreased by 9.1%. FY19F EPS decreased by 7.9%. FY20F EPS decreased by 8.9%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -13.2 -18.4 5.6 Relative (%) -6.1 -11.2 2.7

Major shareholders % held Siam Makro Holdings 55.0 CPALL PCL 24.7 CPALL PCL 18.2 Insert

Analyst(s)

Uraiwan TANTISUWANNAKUL

T (66) 2 761 9256 E uraiwan.ta@cgs-cimb.com

Financial Summary Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Revenue (THBm) 169,226 182,753 192,056 206,372 221,419Operating EBITDA (THBm) 9,125 10,407 10,755 11,789 12,878Net Profit (THBm) 5,413 6,178 6,238 6,765 7,326Core EPS (THB) 1.13 1.29 1.30 1.41 1.53Core EPS Growth 0.6% 14.1% 1.0% 8.4% 8.3%FD Core P/E (x) 33.48 29.33 29.05 26.79 24.73DPS (THB) 0.81 0.89 0.90 0.97 1.06Dividend Yield 2.15% 2.36% 2.38% 2.58% 2.80%EV/EBITDA (x) 20.18 17.65 17.17 15.67 14.30P/FCFE (x) 40.30 20.98 74.83 41.99 30.97Net Gearing 18.2% 11.0% 15.1% 13.8% 9.9%P/BV (x) 11.53 10.32 9.30 8.40 7.61ROE 36.2% 37.1% 33.7% 33.0% 32.3%% Change In Core EPS Estimates (9.10%) (7.87%) (8.91%)CIMB/consensus EPS (x) 0.94 0.93 0.90

83.0

106.3

129.7

153.0

31.0

41.0

51.0

61.0Price Close Relative to SET (RHS)

20

40

60

Jul-17 Oct-17 Jan-18 Apr-18

Vol m

15

Asia Pacific Daily | Equity Research | July 10, 2018

REGIONAL HEAD

Bertram LAI Regional Head of Research +852 2532 1111 bertram.lai@cgs-cimb.com

COUNTRY HEADS OF RESEARCH

Ivy NG, CFA Siew Khee. LIM Erwan TEGUH Kasem PRUNRATANAMALA, CFA Raymond CHENG Malaysia Singapore Indonesia Thailand Hong Kong/China +60 (3) 2261-9073 +65 6210-8664 +62 (21) 3006-1720 +66 (2) 657-9221 +852 2539-1324 ivy.ng@cimb.com siewkhee.lim@cgs-cimb.com erwan.teguh@cgs-cimb.com kasem.prunratanamala@cgs-cimb.com raymond.cheng@cgs-cimb.com Dohoon LEE Satish KUMAR South Korea India +82 (2) 6730-6121 +91 (22) 6602-5185 dohoon.lee@cgs-cimb.com satish.kumar@cgs-cimb.com Yolan SEIMON Anirban LAHIRI Sri Lanka Vietnam +94 (11) 230-6273 +8428 7300-0688 (ext: 21242) yolan@jkstock.keells.com anirban.lahiri@vndirect.com.vn Coverage via partnership arrangement with John Keells Stock Brokers

Coverage via partnership arrangement with VNDirect Securities Corporation

REGIONAL SECTOR HEADS

KJ KWANG Ivy NG, CFA Raymond YAP, CFA Offshore & Marine Plantations Transportation +82 (2) 6730-6123 +60 (3) 2261-9073 +60 (3) 2261-9072 kj.hwang@cgs-cimb.com ivy.ng@cgs-cimb.com raymond.yap@cgs-cimb.com

7

16

Asia Pacific Daily | Equity Research | July 10, 2018

DISCLAIMER The content of this report (including the views and opinions expressed therein, and the information comprised therein) has been prepared by and belongs to CGS-CIMB or CIMB, as the case may be, save that (i) if it is a report written by the analyst(s) of John Keells Stock Brokers (“John Keells”), it belongs to John Keells; (ii) if it is a report written by the analyst(s) of SB Equities Inc (“SBE”), it belongs to SBE; and (iii) if it is a report written by the analyst(s) of Morgans Financial Limited (“Morgans”), it belongs to Morgans. This report is distributed by CGS-CIMB or CIMB, as the case may be, and in respect of sections of the report relating to (i), (ii) and/or (iii) aforesaid, it is distributed pursuant to an arrangement between John Keells, SBE and Morgans respectively and none of the aforesaid parties is an affiliate of CGS-CIMB or CIMB. 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Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A

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Asia Pacific Daily | Equity Research | July 10, 2018

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2017, Anti-Corruption 2017 AAV – Very Good, n/a, ADVANC – Excellent, Certified, AEONTS – Good, n/a, AMATA – Very Good, n/a, ANAN – Excellent, n/a, AOT – Excellent, Declared, AP – Excellent, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Declared, BCP - Excellent, Certified, BCPG – Very Good, n/a, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, , BGRIM – not available, n/a, BH - Good, n/a, BJC – Very Good, Declared, BJCHI – Very Good, Declared, BLA – Very Good, Certified, BPP – Good, n/a, BR - Good, Declared, BTS - Excellent, Certified, CBG – Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, n/a, DEMCO – Excellent, Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, GFPT - Excellent, Declared, GGC – not available, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Excellent, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Certified, ICHI – Excellent, n/a, III – not available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Very Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Certified, M – Very Good, n/a, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Very Good, Declared, MALEE – Very Good, n/a, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Excellent, Declared, PLAT – Very Good, Certified, PSH – Excellent, Certified, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Very Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI – Very Good, Declared, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, n/a, TCAP – Excellent, Certified, THAI – Very Good, n/a, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Excellent, Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Very Good, Declared, TMB - Excellent, Certified, TNR – Good, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Excellent, Declared, TTW – Very Good, n/a, TU – Excellent, Declared, TVO – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a. Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into: - Companies that have declared their intention to join CAC, and - Companies certified by CAC

Recommendation Framework Stock Ratings Definition: Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition: Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition: Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

WJV#05

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