china lesso group holdings (2128 hk) initiation share price: … · 2014. 4. 30. · china lesso...

April 29, 2014

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SEE PAGE 18 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

China Lesso Group Holdings (2128 HK)

Catalysts drive imminent re-rating Initiate at BUY with 72% upside to Street-high HKD7.20 TP

(11X FY14F PER, 20% discount to DCF). Trading at 40% discount to A-share listed peers and being a constituent of Hang Seng Composite MidCap Index, we expect the discount will narrow under the upcoming “through train” scheme.

Project 16% 3-year NPAT CAGR forecast. We foreseeaccelerating demand growth for plastic pipes driven byincreasing urbanisation, government-led municipal pipeline construction and water conservation projects.

We believe Lesso can grow its home building materials salesby leveraging its dominant market leadership in plastic pipes. We expect its margins to improve ahead on enhanced scale.

What’s New Controlling shareholder and founder Mr Wong recently boosted hisstake in the company, which demonstrates his strong confidence inLesso’s business prospects amid favourable policies, in our view.

Our latest chat with management assures us of our bullish earningsforecast, as supported by its on-schedule capacity-expansion progress in Yunnan and Hainan, an improving utilization rate,addition of new customers and deeper sales penetration.

We anticipate Lesso’s FCF position will improve and hence support a dividend yield of 4%-5% going forward. We forecast the company to turn into net cash position in FY16F.

What’s Our View Lesso trades at 6.4X FY14F PER, which is lower than 10.8X for A-share listed plastic pipe manufacturing peers and 8.0X for HK-listed construction material producers (whereas respective sub-sector leaders could trade up to 10-11X), despite its absolute competitive advantage and dominant market-leader position. Key risks are weaker-than-expected construction activity and a surge inraw-material costs, threat of substitutes such as stainless-steel pipes, and margin dilution from home building materials business.

Key Data

Share Price Performance

Maybank vs Market

Share Price: HKD4.18 MCap (USD): 1.7B China

Target Price: HKD7.20(+72%) ADTV (USD): 2M Construction (New)BUY

52w high/low (HKD)

3m avg turnover (USDm)

Free float (%)

Issued shares (m)

Market capitalization

Major shareholders:

-WONG LUEN HEI 68.7%

-FIL Investment Management (Hong Kong) 1.5%

-Norges Bank Investment Management 1.1%

5.50/3.64

3,089

31.1

HKD12.9B

2.4

70

80

90

100

110

120

130

140

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13

China Lesso - (LHS, HKD) China Lesso / Hang Seng Index - (RHS, %)

1 Mth 3 Mth 12 Mth

Absolute(%) 1.5 (11.6) (6.5)

Relative to index (%) 1.1 (12.3) (4.7)

Positive Neutral Negative

Market Recs 5 0 0

Maybank Consensus % +/-

Target Price (HKD) 7.20 6.21 15.9

'14 PATMI (CNYm) 1,636 1,643 (0.4)

'15 PATMI (CNYm) 1,947 1,919 1.4

Source: FactSet; Maybank

FYE Dec (CNY m) FY12A FY13A FY14E FY15E FY16ERevenue 10,891.4 13,070.5 15,324.9 17,580.4 19,980.9EBITDA 1,828.3 2,207.9 2,576.5 3,009.6 3,467.7Core net profit 1,238.3 1,449.3 1,636.0 1,947.3 2,261.7Core EPS (CNY) 0.41 0.48 0.53 0.63 0.73Core EPS growth (%) (2.4) 17.1 10.4 19.0 16.1Net DPS (CNY) 0.12 0.12 0.13 0.16 0.18Core P/E (x) 8.2 7.0 6.4 5.3 4.6P/BV (x) 1.7 1.4 1.2 1.0 0.9Net dividend yield (%) 3.6 3.5 3.9 4.7 5.4ROAE (%) 22.5 21.8 20.8 21.1 20.9ROAA (%) 14.1 13.1 12.7 13.6 14.1EV/EBITDA (x) 7.2 6.1 4.3 3.5 2.8Net debt/equity (%) 5.0 6.9 6.4 0.8 net cash

Jacqueline Ko, CFA(852) [email protected]

April 29, 2014 2

China Lesso Group Holdings

Investment thesis and key catalysts Established in 1996 and listed on the HKEx in 2010, Lesso (previously known as Liansu) is the largest manufacturer of plastic pipes and pipe fittings in China. In recent years it expanded into the home building material space with sanitary products, holistic kitchen materials and plastic-steel doors and windows. It currently has 18 major production bases in 12 provinces across China. It sells its products via 1,780 independent distributors (68% of sales) as well as directly to several thousand customers via a bid/tender process or through individual negotiations.

Favourable policy outlook We believe Lesso is one of the best proxies for investors to gain access to the theme of expanding investment in hydraulic engineering and the replacement of outdated pipe networks as well as private/social security housing projects amid a rising urbanisation trend (from 54% in 2013 to 60.0% in 2018F). A total of CNY83.5b will be invested to upgrade approximately 92.3k km of dated water pipes in networks while an additional CNY184b of municipal water-pipe networks and CNY244b of sewage-pipe networks will also be built under the 12th Five Year Plan. Meanwhile, the policy also supports migration towards the use of plastic pipes. On top of that, we expect the government to speed up relevant spending in future development plans.

Catalyst #1 Re-rate on accelerating earnings growth momentum We project a 16% 3-year net profit CAGR over FY14-16F as compared with 8.6% NPAT CAGR over FY10-13. This is supported by its solid sales outlook, improving profitability at its core business on favourable mix upgrade and reduced losses at its home building materials business on enhanced scale, as well as soft raw-material costs. Better-than-expected margin improvement could serve as a major earnings catalyst, in our view. We believe Lesso’s approximately 40%/20% valuation discount to its A-share/H-share listed peers should narrow going forward. Catalyst #2 Industry consolidations kicking in

Given the more stringent requirements on energy conservation and environmental protection, we share management’s view that inefficient players will be forced out given the intense competition and surging operating costs. We expect this to improve the industry’s oversupply gradually, which should bode well for the industry margin. Lesso, on the other hand, has a well-established nationwide production network that gives it better access and puts it closer to nearby downstream customers. Catalyst #3 Home building business breakeven in sight

We anticipate Lesso’s new building materials and home decoration business to account for 12% of its total sales by end-FY16F vs 6.5% in FY13 while management targets to increase its sales contribution to 10% by FY15F. We believe its numerous M&A efforts in the different categories such as sanitary products will gradually pay off given its good relationship with property developers and the rising popularity of pre-decorated flats. We foresee largely stable product pricing for comparable categories but better GPM (15% in FY13 vs 18%-20% in FY14-16F) given the enlarged scale.

Sales breakdown by products(FY13)

Source: Company data, Maybank Kim Eng

Sales breakdown by regions(FY13)


Sales breakdown by materials(FY13)


Sales breakdown by business units(FY13)


April 29, 2014 3


Business model

Growth plans Management targets to add 80-100k of new capacity annually in FY14-16F. Due to the geographical diversification efforts, management expects the sales contribution from the Southern China market to decline to 50% in the medium to long run from 60% currently. The company also targets to be a one-stop shop for customers with its growing home building materials business portfolio by offering consultation, design, and implementation and after-sales services.

Distribution model Lesso has a third-party distributor model and direct sales model (such as selling directly to government entities, utility companies and real estate developers). Lesso has increased its number of distributors from 282 in FY07 to 1,787 in FY13. A total of 62% of sales are derived from sales to distributors. Lesso and its distributors usually sign one-year non-exclusive sales agreements for a designated geographical territory. Different distributors are subject to different annual sales targets. Distributors normally are required to pay on or before delivery while key customers can enjoy a credit period of 30 to 60 days. Evergrande(3333,NR) is currently its largest customers(2% of total sales in FY13).

Sales channel management Lesso manages its domestic sales network via a number of regional sales teams comprising over 800 employees located at over thirty sales offices across China. Lesso has an online ordering system that allows the distributors to make timely purchases. Meanwhile, the company also supports its distributors in various bidding/tender processes to increase the chance of winning tenders for large-scale projects. Training is also offered through face-to-face meetings and online resources to improve distributors’ operational skills as well as product knowledge. It also has separate teams to deal with key customers and export sales.

Channel profit sharing The recommended minimum-selling price for first-tier distributors is a 10-15% mark up on Lesso’s ex-factory price. However, China Lesso does not deal directly with its lower-tier distributors and management estimates that there may be over 10,000 distributors of Lesso’s products nationwide. Therefore, the selling price may vary widely without any suggested retail price. Overall, we estimate that first-tier distributors with retail shops should earn a 20-30% GPM on average in order to cover OPEX while pure wholesalers may only earn mid-to-high single digit GPM.

R&D capability Lesso has consistently increased its R&D spending to strengthen its product quality and technology. In FY13, R&D expenses accounted for 1.9% of its sales and were booked as other OPEX. Currently there are around 1,000 employees in the R&D department. The company targets to gradually grow its R&D spending going forward to keep its product quality ahead of competitors.

April 29, 2014 4


Industry Analysis

The rising popularity of plastic pipes over traditional piping systems such as metal, copper, steel and concrete is down to two main factors: 1) The government’s target to migrate to plastic pipes under its 2015 development plan; and 2) Several product advantages such as lighter weight, lower energy consumption, and longer life, to name a few.

Market demand and supply According to industry statistics, the volume of plastic pipe production should reach 13.2m tons in 2015F, or at a 9.5% CAGR over 2010-2015F. However, the total production capacity is estimated at 25m tons in 2013F vs an actual production volume of 12m, which implies the industry utilization rate is approximately 50%. PVC pipes (PVC-C and PVC-U) account for approximately 50% of the total plastic pipe production volume. This is followed by PE (HDPE & LDPE and other PE collectively) and PP pipes. However, the popularity of PP pipes is expected to rise in the future though PVC should remain as the mainstream category on cost concerns. On demand side, there is lack of official statistics, however, management expect demand should increase by 10% annually going forward.

Competitive landscape The plastic pipes industry in China is very fragmented. Currently, there are approximately 3,000 plastic pipe manufacturers in China, of which only 300 players have over 10k tons of capacity and 20 players with over 100k tons of capacity. Lesso ranks no.1 with FY13 sales almost fourfold more than its closest competitor Yongao (002641 CH, NR). However, in terms of profitability (GPM/EBITM/NM) it is only ranked no.3, behind Fujian New Choice Pipe (300198 CH, NR) and Zhejiang Weixing New Building Materials (002372 CH, NR). We attribute the difference in profitability to product mix and business models. New Choice Pipe’s FY13 GPM, EBITM and NPM were as high as 35%/16%/14%. Of note, it has a higher exposure to the higher-margin direct sales and PPR materials.

Figure 1: PRC plastic pipe industry production volume (2012-2015F)

Source: China Plastics Processing Industry Association, Maybank Kim Eng

8.40

10.0011.00

12.1012.75

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12

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2010 2011 2012 2013 2014E 2015E

m tons

April 29, 2014 5


Figure 2: PRC plastic pipe production volume by material


Figure 3: General properties and principal application of plastic pipe materials Type General properties Principal applications PVC Resistant to most corrosive fluids. Has

greater strength and rigidity than most other plastic pipes.

Residential and industrial drainage, waste and sewage systems, potable water systems, industrial and chemical process piping and cable conduits

PE Relatively high mechanical strength, chemical resistance and flexibility.

Potable water systems, irrigation and sprinkler systems, drainage, corrosive chemical transport, gas transport and cable conduits

PP-R Good high and low temperature properties

Hot and cold water supply systems.


Figure 4: Plastic pipe sales comparison (2013)

Source: company’s data, Maybank Kim Eng

PVC50%

PE29%

PP10%

Others2%

0

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4,000

6,000

8,000

10,000

12,000

14,000

(CNYm)

April 29, 2014 6


Figure 5: China Lesso - SWOT Analysis

Strengths Opportunities

Strong brand recognition and R&D

Absolute market leadership in Southern China

Comprehensive range of products offering

Extensive production base network

Stable and experienced management team

PRC government accelerating number of infrastructure facilities to drive up urbanization

Migration to plastic pipes and pipe fittings Expanding sales network in new markets

Market shares gains amid industry consolidation given more stringent environmental laws and surging cost

Horizontal M&A to enhance cross-selling opportunities

Weaknesses Threats

Reliance on third-party distributors

Late comer in the home building materials business

Limited presence in Western China, particularly North western region

Any austerity measures for the property sector should hurt demand for plastic pipes and fittings

Petrochemical raw materials cost volatility

Any slowdown in government-led infrastructure projects will hurt demand

Execution risk with expansion plan in new markets

Rising threat of substitutes such as stainless steel

Policy risk

Source: Company data, Maybank Kim Eng analysis

Figure 6: Nationwide production network


April 29, 2014 7


Figure 7: China Lesso- Porter’s Five Forces Model Analysis

Source: Maybank Kim Eng analysis

Figure 8: PRC’s top 24 plastic pipe manufacturers


Bargaining power of

suppliers: Low The major raw

material PVC resin is in abundant supply

Industry competition: Low-to-Medium

Industry is in excess supply but price competition is not keen as different

players usually have different targeted markets and product

segments.

Bargaining power of

customers: Low-to-Medium Limited number of

players with nationwide network;

brand name and product quality is

key concern.

Threat of substitutes: Low Stainless steel and metal such as copper are of much higher cost.

Threat of new entrants: Low Limited technology requirement for plastic pipe manufacturing but the

business is capital intensive

April 29, 2014 8


Figure 9: PRC plastic pipe manufacturers’ market presence


Financial Analysis

Sales We project sales to increase by 17.3%/14.7%/13.7% in FY14/15/16F or 15.2% 3-year sales CAGR over FY14-16F on the back of; i) 13.6% volume CAGR; ii) 39.4% sales CAGR for its home building materials sales. We anticipate sales contribution from water supply and drainage to increase to 85% in FY16F from the current 78% given pipes upgrade needs and incremental demand from new government and housing projects. We apply a flat ASP change assumption amid stable raw materials cost.

COGS analysis Raw materials normally account for 80-90% of its COGS. In FY13, raw materials accounted for 87% of its COGS. Among which, over 50% of the raw materials consumed are PVC-resins, followed by the PE and PP-R resins (20% of COGS), catalysts/additions (20% of COGS) and remaining other materials (10% of COGS). Labor cost and utilities cost account for 6.3%/3.6% of its COGS, respectively.

Gross margin We project gross profit per ton to increase to CNY2,554 by FY16F as compared with CNY2,300-2,500 over the last several years. Given the moderate raw-material cost pressure and moderate hike in labor costs, we anticipate the blended GPM to slightly improve by 33-59bps per year in FY14-16F. This should be partly due to better profitability of the home building materials unit, and we estimate the segment GPM to rise from 15% in FY13 to 20% in FY16F.

April 29, 2014 9


OPEX We forecast a relatively stable OPEX ratio going forward due to better economies of scale and enhanced automation. Of note, management aims to maintain total OPEX at 11-12% of total sales in FY14F. We also anticipate improved sharing of overheads thanks to a higher utilization rate. We expect the utilization rate to go up to 78% in FY14F against 72-73% in FY13. We project OPEX ratio at 11.4%-11.5% for FY14-16F.

Net profit We forecast net profit to grow at 13%/19%/16% in FY14/15/16F based on assuming an effective tax rate of 19%/19%/20%, while management is guiding an effective tax rate of 20-22% over the long run. We expect the net margin to be largely stable at 11% over FY14-16F.

Balance sheet and cash flows The company has budgeted a CAPEX of CNY1-1.2b/1b/1b for FY14/15/16F. We forecast a positive FCF position during the period on assumption on the assumption of a relatively stable cash conversion cycle and improving profitability. Hence we forecast Lesso to achieve a net cash position as early as FY16F. We project Lesso to maintain a 25% dividend payout throughout the period, translating into a 4%-5% projected dividend yield. Nonetheless, we project ROE to decline moderately given the enlarged equity base while ROA should improve with the limited CAPEX addition.

Figure 10: Sales assumptions (tonne) FY12 FY13 FY14F FY15F FY16F Sales volume(PVC) 855,777 1,003,362 1,163,900 1,315,207 1,473,032 YoY(%) 13.5 17.2 16.0 13.0 12.0 Sales volume(non-PVC) 229,638 269,269 309,659 349,915 391,905 YoY(%) 10.9 17.3 15.0 13.0 12.0 Total sales volume 1,085,415 1,272,631 1,473,559 1,665,122 1,864,937 YoY(%) 13.0 17.2 15.8 13.0 12.0 ASP(CNY/tonne)(PVC) 7,999 8,022 8,022 8,022 8,022 YoY(%) (9.8) 0.3 0.0 0.0 0.0 ASP(CNY/tonne)(non-PVC) 15,690 15,472 15,472 15,472 15,472 YoY(%) 0.4 (1.4) 0.0 0.0 0.0 Blended ASP(CNY/tonne) 9,626 9,598 9,588 9,588 9,588 YoY(%) (6.8) (0.3) 0.0 0.0 0.0 Source: Company data, Maybank Kim Eng estimates

April 29, 2014 10


Figure 11: Gross margin assumptions by segment FY12 FY13 FY14F FY15F FY16F Blended GPM(%) 24.32 24.98 25.47 25.80 26.16 PVC - 28.00 28.00 28.00 28.00 Non-PVC - 21.60 22.00 23.00 24.00 Home building materials 22.00 15.00 18.00 19.00 20.00 Gross profit per ton(CNY) 2,348 2,474 2,489 2,522 2,554 Source: Company data, Maybank Kim Eng estimates

Figure 12: Historical ASP (PVC pipes only) and PVC price trend

Source: CEIC, company data, Maybank Kim Eng

Figure 13: SG&A expenses-to-sales ratio assumptions As a % of sales FY12A FY13A FY1fF FY15F FY16F S&D 4.99 5.53 5.50 5.50 5.50 Admin expenses 3.50 3.86 3.80 3.70 3.70 Other OPEX 1.95 2.11 2.15 2.20 2.20 Total 10.44 11.50 11.45 11.40 11.40 Source: Company data, Maybank Kim Eng estimates

Figure 14: Corporate’s advertisement for the home building material business

Source: Company advertisement, Maybank Kim Eng

0

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Jan 07 Nov 07 Sep 08 Jul 09 May 10 Mar 11 Jan 12 Nov 12 Sep 13

CNY/tonne PVC price ASP(PVC pipe only)

April 29, 2014 11


Valuation and recommendation We initiate coverage on Lesso with a BUY recommendation and Street-high TP of HKD7.20, offering 72% upside from the current share price and implying 11.0/9.2X FY14/15F PER. Valuation multiple has been under pressure since peaked in July 2011, which we believe is attributable to concerns over surging OPEX and ASP pressures as well as a slowdown and policy risk in the PRC property market. Despite 25-30% sales exposure to the PRC property market, we believe Lesso’s earnings growth will stay intact given property developers tend to allocate more orders to well-established suppliers amid a rising trend for pre-decorated flats.

Comparables Major A-share listed plastic pipe manufacturers include Yongao (002641 CH), Zhejiang Weixing New Build (002372 CH), Lingyun Industrial (600480 CH), Changzhou Mingzhu (002108 CH), Ningxia Qinglong(002457 CH), Anhui Guotong Hi-Tech Pipes (600444 CH), Goody Science & Technology (002694 CH), and Fujian Newchoice Pipe Tech (300198 CH). Of these, we believe Yongao, Weixin and Goody are the most relevant comparables as the other companies are also involved in other non-plastic pipe businesses. Meanwhile, we have also identified a number of cement manufacturers and building materials manufacturers as our comparison benchmarks.

Valuation As an industry leader, we believe Lesso should trade in line with its A-share peers or other industry leaders in HK, such as Anhui Conch. Price target is based on 11X 2014PER, above its HK peers’ 8X. As a reference, we have also derived a DCF value of HKD9.13/share with our three-stage DCF model. Major assumptions are: i) market risk premium of 10.6% and a risk-free rate of 4.5%; ii) WACC at 12.3%, based on a beta of 0.92 and a terminal growth rate of 3.0%. Target price implies 21% discount to DCF from the current level of 54%.

Figure 15: Peer valuation comparison (as of closing on 28 April) FY14F Latest price EV/ Div Net (local Stock Mkt Cap PER (x) P/BV EBITDA ROE yield gearing Company currency) code (USDb) 2013 2014F 2015F (x) (x) (%) (%) (%) A-share plastic pipe manufacturers Goody Tech. 12.40 002694 CH 0.34 23.40 -- -- -- -- -- -- -- Yongao 9.17 002641 CH 0.53 13.69 8.99 8.34 1.39 -- 13.80 -- -- Zhejiang Weixing 15.00 002372 CH 0.81 15.63 12.88 10.62 2.36 8.13 17.49 3.00 -- Linyun Industrial 7.58 600480 CH 0.44 20.49 -- -- -- -- -- -- -- Cangzhou Minzhu 10.28 002108 CH 0.56 23.36 18.13 14.48 2.68 -- 14.42 1.75 -- Ningxia Qinlong 8.44 002457 CH 0.45 24.82 17.96 14.31 1.54 9.37 7.80 -- -- Anhui Guotong 10.04 600444 CH 0.17 251.00 -- -- -- -- -- -- -- Fujian Superpipe 13.95 300198 CH 0.47 31.70 15.30 11.48 2.36 -- 12.05 -- -- Average 31.42 10.77 8.74 1.58 2.87 10.26 0.90 -- HK-listed building materials companies BBMG 5.65 2009 HK 4.13 5.97 5.61 5.00 0.68 7.30 12.98 2.60 72.9 CNBM 7.41 3323 HK 5.16 5.49 4.57 4.11 0.74 8.09 17.19 3.16 382.3 Anhui Conch Cement 28.15 914 HK 15.31 12.61 9.65 8.53 1.83 5.20 20.26 2.01 11.0 CR Cement 5.50 1313 HK 4.63 10.74 8.47 7.53 1.26 6.60 15.93 2.15 59.2 Shanshui Cement 3.10 691 HK 1.13 6.82 5.99 5.24 0.70 5.58 11.99 4.19 154.5 China National Materials-H 1.47 1893 HK 0.68 10.50 6.93 5.99 0.35 5.94 5.43 2.99 235.6 Xinyi Glass 6.14 868 HK 3.11 6.68 9.81 8.11 1.78 8.18 18.97 4.36 31.2 China Lesso 4.18 2128 HK 1.67 7.08 6.41 5.39 1.24 4.17 20.83 3.17 6.36 Bolina 2.77 1190 HK 0.36 10.90 9.90 8.40 2.00 5.50 22.40 4.10 Net cash Average 9.58 8.00 7.02 1.36 6.29 17.87 2.66 86.8 Source: Bloomberg consensus, Maybank Kim Eng

12-mth Forward PER band

Source: Factset, Maybank Kim Eng

12-mth Forward PBR band

Source: Factset, Maybank Kim Eng

April 29, 2014 12


Figure 16: Three-stage DCF Valuation CNY (‘000) FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F Terminal

Revenue 15,324,855 17,580,426 19,980,948 22,378,662 25,064,101 28,071,793 30,317,536 32,742,939 35,362,375 Less: COGS (11,422,266) (13,044,282) (14,753,035) (16,515,452) (18,497,306) (20,716,983) (22,283,389) (24,164,289) (26,097,432) Add: Dep. & Amort. 389,996 438,348 477,664 525,899 589,006 659,687 697,303 753,088 813,335 EBIT 2,186,922 2,571,646 2,990,416 3,379,178 3,784,679 4,238,841 4,577,948 4,944,184 5,339,719 EBIT* (1-tax rate) 1,771,406 2,083,033 2,392,333 2,703,342 3,027,743 3,391,073 3,570,799 3,856,463 4,164,980 Less: CAPEX (1,200,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000) Add: Dep & Amort. 389,996 438,348 477,664 525,899 589,006 659,687 697,303 753,088 813,335 Less: Change in W.C. (468,160) (446,598) (432,665) (994,843) (543,614) (469,740) (625,383) (501,944) (508,168) FCFF 493,242 1,074,783 1,437,331 1,234,398 2,073,136 2,581,020 2,642,719 3,107,607 3,470,147 38,432,814 Cost of Equity (%) 14.32 Risk free rate (%) 4.54 Beta 0.92 Country premium (%) 10.59 Cost of debt (%) 4.24 WACC (%) 12.3 Discount factor 1.00 0.89 0.79 0.71 0.63 0.56 0.50 0.44 0.40 0.40 PV of FCFFs 493,242 957,064 1,139,718 871,597 1,303,493 1,445,082 1,317,566 1,379,646 1,371,860 15,193,721 Terminal value growth (%)

3.00%

PV of terminal value 15,193,721 FCFF 25,472,991 less: Total Debt 2,660,769 Less: Minority interest 28,432 FCFE 22,783,789 Total number of shares (m)

3,088,889

Fair value per share (CNY)

7.38

Source: Maybank Kim Eng estimates

Figure 17: Sensitivity analysis for fair-value under different assumptions

Terminal growth rate (%) 2.4 2.6 2.8 3.0 3.2 3.4 3.6

WA

CC

(%

) 13.3 6.21 6.29 6.38 6.46 6.55 6.65 6.74 12.8 6.61 6.70 6.80 6.90 7.00 7.10 7.22 12.3 7.05 7.15 7.26 7.38 7.49 7.62 7.75 11.8 7.54 7.67 7.78 7.91 9.12 8.19 8.34 11.3 8.09 8.22 8.37 8.52 8.67 8.84 9.02

Source: Maybank Kim Eng estimates

April 29, 2014 13


Appendix Mr. Wong Luen Hei, the chairman and the founder of China Lesso, is the largest shareholder in the company with a 68.7% stake. The company granted pre-IPO share options to the senior management. As of latest date, there are 22.2m outstanding options (exercise price at HKD1.82) which represent 0.72% of the enlarged share capital upon full exercise.

Corporate background Mr Wong and his wife established the first production facility in Shunde, Guangdong Province, in 1996, and formed Shunde Liansu Industrial and started selling plastic pipe products. From 2001 to 2009, Liansu added 10 production facilities for plastic pipes and pipe fittings in eight provinces across the PRC. From 2004, the company started its export sales. The “Liansu” brand was registered as a trademark in the PRC in 1996.

Related party transactions China Lesso purchased certain raw materials and equipment, rented properties as well as sold products to its related companies. In FY13, all related party transactions (ex- acquisition of Lesso Valve) amounted to CNY119m or 8% of its total net profit. The company derived CNY6.4m worth of sales from its related parties in FY13.

Figure 18: Stable and experienced management team

Mr Wong Luen Hei Founder, Chairman & Executive director

Mr. Zu Man Lun CEO and Executive director

Responsible for the group’s overall strategic planning and business management

He has 17years of experience in the plastic pipe manufacturing industry

Responsible for the management of the daily business operation of the group.

He has 14 years of experience in the plastic pipe industry.

He is brother-in-law of Mr Wong Luen Hei. Joined the group in 1999.

Ms. Zuo Xiaoping Vice President, Executive director

Mr. Lai Zhi Qiang Vice President, Executive director

Responsible for procurement control and logistics management of the group.

She is spouse of Mr. Wong Luen Hei.

Responsible for the production and technical management of the group.

He has 17 years of relevant industry experience. Joined the group in 1999.

Mr. Kong Zhao Cong Vice President, Executive director

Mr. Chen Guo Nan Vice President, Executive director

Responsible for managing China’s sales of the group

He has 20 years of industry experience. Joined the group in 1999.

Responsible for the management of quality control of the group.

He has 24 years of industry experience. Joined the group in 1999.

Mr. Lin Shao Quan Vice President, Executive director

Mr. Huang Gui Rong Vice President, Executive director

Responsible for the R&D and overseas sales of the group.

He has approximately 11 years of industry experience. Joined the group in 2002.

Received a doctorate degree in polymer chemical and physics from Sun Yat-sen University in 2002.

Responsible for overall management of factories and production facilities of the group.

He has approximately 17 years of industry experience.

Joined the group in 1999.


April 29, 2014 14


Figure 19: Extrusion process (used in the production of plastic pipes)


Figure 20: Injection molding process (used in the production of plastic pipes)


Figure 21: Snapshots at China Lesso’s production plant

Source: Maybank Kim Eng visit

April 29, 2014 15


FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey MetricsP/E (reported) (x) 8.2 7.0 6.4 5.3 4.6Core P/E (x) 8.2 7.0 6.4 5.3 4.6P/BV (x) 1.7 1.4 1.2 1.0 0.9P/NTA (x) 1.7 1.4 1.2 1.0 0.9Net dividend yield (%) 3.6 3.5 3.9 4.7 5.4FCF yield (%) nm 3.1 5.3 10.9 14.4EV/EBITDA (x) 7.2 6.1 4.3 3.5 2.8EV/EBIT (x) 8.4 7.2 5.0 4.1 3.3

INCOME STATEMENT (CNY m)Revenue 10,891.4 13,070.5 15,324.9 17,580.4 19,980.9Gross profit 2,649.3 3,265.6 3,902.6 4,536.1 5,227.9EBITDA 1,828.3 2,207.9 2,576.5 3,009.6 3,467.7Depreciation (237.6) (336.8) (390.0) (438.3) (477.7)Amortisation (14.9) (23.5) 0.0 0.0 0.0EBIT 1,575.7 1,847.5 2,186.5 2,571.3 2,990.0Net interest income /(exp) (93.7) (80.4) (152.1) (151.8) (146.4)Associates & JV 0.3 0.4 0.4 0.4 0.4Exceptionals 0.0 0.0 0.0 0.0 0.0Other pretax income 0.0 0.0 0.0 0.0 0.0Pretax profit 1,482.3 1,767.5 2,034.8 2,419.9 2,844.0Income tax (251.0) (329.9) (386.6) (459.8) (568.8)Minorities (7.1) (11.6) (12.2) (12.8) (13.5)Reported net profit 1,238.3 1,449.3 1,636.0 1,947.3 2,261.7Core net profit 1,238.3 1,449.3 1,636.0 1,947.3 2,261.7

BALANCE SHEET (CNY m)Cash & Short Term Investments 1,922.3 2,189.2 2,122.5 2,566.4 3,306.7Accounts receivable 1,009.5 1,037.6 1,397.6 1,492.4 1,792.2Inventory 1,766.1 2,434.0 2,447.8 3,127.3 3,178.1Property, Plant & Equip (net) 3,288.3 4,452.1 5,262.1 5,823.8 6,346.1Intangible assets 9.8 33.9 33.9 33.9 33.9Investment in Associates & JVs 5.3 5.7 6.1 6.5 6.8Other assets 1,781.5 2,145.1 2,145.1 2,145.1 2,145.1Total assets 9,782.8 12,297.7 13,415.0 15,195.3 16,809.0ST interest bearing debt 595.8 1,080.1 1,134.1 1,190.8 1,250.3Accounts payable 512.1 861.4 765.9 1,092.5 1,009.3LT interest bearing debt 1,628.8 1,607.0 1,526.7 1,450.3 1,377.8Other liabilities 1,018.2 1,493.2 1,493.2 1,493.2 1,493.2Total Liabilities 3,754.9 5,041.8 4,919.9 5,226.9 5,130.7Shareholders Equity 6,010.0 7,239.7 8,466.7 9,927.2 11,623.5Minority Interest 17.9 16.2 28.4 41.3 54.8Total shareholder equity 6,027.9 7,255.9 8,495.2 9,968.5 11,678.3

CASH FLOW (CNY m)Pretax profit 1,482.3 1,767.5 2,034.8 2,419.9 2,844.0Depreciation & amortisation 252.6 360.3 390.0 438.3 477.7Adj net interest (income)/exp 93.7 80.4 152.1 151.8 146.4Change in working capital (301.9) (444.0) (468.2) (446.6) (432.7)Cash taxes paid (289.5) (307.7) (386.6) (459.8) (568.8)Other operating cash flow 298.5 335.2 385.2 458.3 567.3Cash flow from operations 1,280.4 1,503.5 1,751.3 2,134.0 2,503.6Capex (1,476.6) (1,185.3) (1,200.0) (1,000.0) (1,000.0)Free cash flow (196.2) 318.2 551.3 1,134.0 1,503.6Dividends paid (293.8) (291.8) (409.0) (486.8) (565.4)Equity raised / (purchased) 40.8 60.2 0.0 0.0 0.0Change in Debt 496.7 504.7 (26.3) (19.6) (13.0)Other invest/financing cash flow (433.9) (417.6) (182.7) (183.6) (184.9)Effect of exch rate changes (0.2) (7.7) 0.0 0.0 0.0Net cash flow (527.6) (76.3) (66.7) 443.9 740.3

April 29, 2014 16


FYE 31 Dec FY12A FY13A FY14E FY15E FY16EKey RatiosGrowth ratios (%)Revenue growth 7.4 20.0 17.2 14.7 13.7EBITDA growth 0.8 20.8 16.7 16.8 15.2EBIT growth (3.9) 17.3 18.3 17.6 16.3Pretax growth (4.8) 19.2 15.1 18.9 17.5Reported net profit growth (1.8) 17.0 12.9 19.0 16.1Core net profit growth (1.8) 17.0 12.9 19.0 16.1

Profitability ratios (%)EBITDA margin 16.8 16.9 16.8 17.1 17.4EBIT margin 14.5 14.1 14.3 14.6 15.0Pretax profit margin 13.6 13.5 13.3 13.8 14.2Payout ratio 29.4 24.7 25.0 25.0 25.0

DuPont analysisNet profit margin (%) 11.4 11.1 10.7 11.1 11.3Revenue/Assets (x) 1.1 1.1 1.1 1.2 1.2Assets/Equity (x) 1.6 1.7 1.6 1.5 1.4ROAE (%) 22.5 21.8 20.8 21.1 20.9ROAA (%) 14.1 13.1 12.7 13.6 14.1

Liquidity & EfficiencyCash conversion cycle 80.5 80.1 79.9 80.9 80.9Days receivable outstanding 29.1 28.2 28.6 29.6 29.6Days inventory outstanding 66.8 77.1 76.9 76.9 76.9Days payables outstanding 15.4 25.2 25.6 25.6 25.6Dividend cover (x) 3.4 4.0 4.0 4.0 4.0Current ratio (x) 2.5 1.9 2.1 2.2 2.5

Leverage & Expense AnalysisAsset/Liability (x) 2.6 2.4 2.7 2.9 3.3Net debt/equity (%) 5.0 6.9 6.4 0.8 net cashNet interest cover (x) 16.8 23.0 14.4 16.9 20.4Debt/EBITDA (x) 1.2 1.2 1.0 0.9 0.8Capex/revenue (%) 13.6 9.1 7.8 5.7 5.0Net debt/ (net cash) 302.3 497.9 538.3 74.7 (678.6)

April 29, 2014 17


Research Offices

REGIONAL

WONG Chew Hann, CA Regional Head of Institutional Research (603) 2297 8686 [email protected]

ONG Seng Yeow Regional Head of Retail Research (65) 6432 1453 [email protected]

Alexander GARTHOFF Institutional Product Manager (852) 2268 0638 [email protected]

ECONOMICS

Suhaimi ILIAS Chief Economist Singapore | Malaysia (603) 2297 8682 [email protected]

Luz LORENZO Philippines (63) 2 849 8836 [email protected]

Tim LEELAHAPHAN Thailand (662) 658 1420 [email protected]

JUNIMAN Chief Economist, BII Indonesia (62) 21 29228888 ext 29682 [email protected]

Josua PARDEDE Economist / Industry Analyst, BII Indonesia (62) 21 29228888 ext 29695 [email protected]

MALAYSIA

WONG Chew Hann, CA Head of Research (603) 2297 8686 [email protected] • Strategy • Construction & Infrastructure

Desmond CH’NG, ACA (603) 2297 8680 [email protected] • Banking & Finance

LIAW Thong Jung (603) 2297 8688 [email protected] • Oil & Gas - Regional • Shipping

ONG Chee Ting, CA (603) 2297 8678 [email protected] • Plantations - Regional

Mohshin AZIZ (603) 2297 8692 [email protected] • Aviation - Regional • Petrochem

YIN Shao Yang, CPA (603) 2297 8916 [email protected] • Gaming – Regional • Media

TAN Chi Wei, CFA (603) 2297 8690 [email protected] • Power • Telcos

WONG Wei Sum, CFA (603) 2297 8679 [email protected] • Property & REITs

LEE Yen Ling (603) 2297 8691 [email protected] • Building Materials • Glove Producers

CHAI Li Shin (603) 2297 8684 [email protected] • Plantation • Construction & Infrastructure

KANG Chun Ee (603) 2297 8675 [email protected] • Consumer

Ivan YAP (603) 2297 8612 [email protected] • Automotive

LEE Cheng Hooi Regional Chartist (603) 2297 8694 [email protected]

Tee Sze Chiah Head of Retail Research (603) 2297 6858 [email protected]

HONG KONG / CHINA

Howard WONG Head of Research (852) 2268 0648 [email protected] • Oil & Gas - Regional

Alexander LATZER (852) 2268 0647 [email protected] • Metals & Mining - Regional

Jacqueline KO, CFA (852) 2268 0633 [email protected] • Consumer

Karen KWAN (852) 2268 0640 [email protected] • Property & REITs

Osbert TANG, CFA (86) 21 5096 8370 [email protected] • Transport & Industrials

Ricky WK NG, CFA (852) 2268 0689 [email protected] • Utilities & Renewable Energy

Simon QIAN, CFA (852) 2268 0634 [email protected] • Telecom & Internet

Steven ST CHAN (852) 2268 0645 [email protected] • Banking & Financials– Regional

Warren LAU (852) 2268 0644 [email protected] • Technology – Regional

William YANG (852) 2268 0675 [email protected] • Technology – Regional

INDIA

Jigar SHAH Head of Research (91) 22 6623 2601 [email protected] • Oil & Gas • Automobile • Cement

Anubhav GUPTA (91) 22 6623 2605 [email protected] • Metal & Mining • Capital Goods • Property

Urmil SHAH (91) 22 6623 2606 [email protected] • Technology • Media

SINGAPORE

NG Wee Siang Head of Research (65) 6432 1467 [email protected] • Banking & Finance

Gregory YAP (65) 6432 1450 [email protected] • SMID Caps – Regional • Technology & Manufacturing • Telcos

Wilson LIEW (65) 6432 1454 [email protected] • Property Developers

ONG Kian Lin (65) 6432 1470 [email protected] • S-REITs

James KOH (65) 6432 1431 [email protected] • Consumer - Regional

YEAK Chee Keong, CFA (65) 6432 1460 [email protected] • Offshore & Marine

Derrick HENG (65) 6432 1446 [email protected] • Transport (Land, Shipping & Aviation)

WEI Bin (65) 6432 1455 [email protected] • Commodity • Logistics • S-chips

John CHEONG (65) 6432 1461 [email protected] • Small & Mid Caps • Healthcare

TRUONG Thanh Hang (65) 6432 1451 [email protected] • Small & Mid Caps

INDONESIA

Wilianto IE Head of Research (62) 21 2557 1125 [email protected] • Strategy

Rahmi MARINA (62) 21 2557 1128 [email protected] • Banking & Finance

Aurellia SETIABUDI (62) 21 2953 0785 [email protected] • Property

Anthony YUNUS (62) 21 2557 1136 [email protected] • Consumer • Poultry

Isnaputra ISKANDAR (62) 21 2557 1129 [email protected] • Metals & Mining • Cement

Pandu ANUGRAH (62) 21 2557 1137 [email protected] • Infrastructure • Construction • Transport

Janni ASMAN (62) 21 2953 0784 [email protected] • Cigarette • Healthcare • Retail

PHILIPPINES

Luz LORENZO Head of Research (63) 2 849 8836 [email protected] • Strategy

Laura DY-LIACCO (63) 2 849 8840 [email protected] • Utilities • Conglomerates • Telcos

Lovell SARREAL (63) 2 849 8841 [email protected] • Consumer • Media • Cement

Rommel RODRIGO (63) 2 849 8839 [email protected] • Conglomerates • Property • Gaming • Ports/ Logistics

Katherine TAN (63) 2 849 8843 [email protected] • Banks • Construction

Ramon ADVIENTO (63) 2 849 8845 [email protected] • Mining

THAILAND

Maria LAPIZ Head of Institutional Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 [email protected] • Consumer / Materials

Jesada TECHAHUSDIN, CFA (66) 2658 6300 ext 1394 [email protected] • Financial Services

Kittisorn PRUITIPAT, CFA, FRM (66) 2658 6300 ext 1395 [email protected] • Real Estate

Sittichai DUANGRATTANACHAYA (66) 2658 6300 ext 1393 [email protected] • Services Sector

Sukit UDOMSIRIKUL Head of Retail Research (66) 2658 6300 ext 5090 [email protected]

Mayuree CHOWVIKRAN (66) 2658 6300 ext 1440 [email protected] • Strategy

Padon VANNARAT (66) 2658 6300 ext 1450 [email protected] • Strategy

Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 [email protected] • Auto • Conmat • Contractor • Steel

Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected] • Media • Commerce

Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 [email protected] • Energy • Petrochem

Termporn TANTIVIVAT (66) 2658 6300 ext 1520 [email protected] • Property

Woraphon WIROONSRI (66) 2658 6300 ext 1560 [email protected] • Banking & Finance

Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 [email protected] • Transportation • Small cap

Chatchai JINDARAT (66) 2658 6300 ext 1401 [email protected] • Electronics VIETNAM LE Hong Lien, ACCA Head of Institutional Research (84) 844 55 58 88 x 8181 [email protected] • Strategy • Consumer • Diversified • Utilities

THAI Quang Trung, CFA, Deputy Manager, Institutional Research (84) 844 55 58 88 x 8180 [email protected] • Real Estate • Construction • Materials

Le Nguyen Nhat Chuyen (84) 844 55 58 88 x 8082 [email protected] • Oil & Gas NGUYEN Thi Ngan Tuyen, Head of Retail Research(84) 8 44 555 888 x 8081 [email protected] • Food & Beverage • Oil&Gas • Banking

NGUYEN Trung Hoa, Dy Head of Retail Research (84) 8 44 555 888 x 8088 [email protected] • Macro • Steel • Real estate

TRINH Thi Ngoc Diep (84) 4 44 555 888 x 8208 [email protected] • Technology • Utilities • Construction

TRUONG Quang Binh (84) 4 44 555 888 x 8087 [email protected] • Rubber plantation • Tyres and Tubes • Oil&Gas

PHAM Nhat Bich (84) 8 44 555 888 x 8083 [email protected] • Consumer • Manufacturing • Fishery

NGUYEN Thi Sony Tra Mi (84) 8 44 555 888 x 8084 [email protected] • Port operation • Pharmaceutical • Food & Beverage

April 29, 2014 18


APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS

This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price andvolume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness ofthis report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.

This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward lookingstatements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.

MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law,from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. MKE may, to the extent permitted by law, act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report.

This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect.

This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state,country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based ongeographical location of the person or entity receiving this report.

Malaysia

Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.

Singapore

This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legallyliable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.

Thailand

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in theCorporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result.

Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect.

US

This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. Youshould satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations.

UK

This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the FinancialServices and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

April 29, 2014 19


Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 29 April 2014, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

As of 29 April 2014, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Reminder

Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings

Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (excluding dividends) HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends) SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

DISCLOSURES Legal Entities Disclosures

Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng Securities (“PTKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission.Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and ExchangeCommission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State Securities Commission of Vietnam.Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange (Reg. No. INF/INB 011452431) and is regulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.

April 29, 2014 20


Malaysia Maybank Investment Bank Berhad (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194

Singapore Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd 9 Temasek Boulevard #39-00 Suntec Tower 2 Singapore 038989 Tel: (65) 6336 9090 Fax: (65) 6339 6003

London Maybank Kim Eng Securities (London) Ltd 6/F, 20 St. Dunstan’s Hill London EC3R 8HY, UK Tel: (44) 20 7621 9298 Dealers’ Tel: (44) 20 7626 2828 Fax: (44) 20 7283 6674

New York Maybank Kim Eng Securities USA Inc 777 Third Avenue, 21st Floor New York, NY 10017, U.S.A. Tel: (212) 688 8886 Fax: (212) 688 3500

Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888 Fax: (603) 2282 5136

Hong Kong Kim Eng Securities (HK) Ltd Level 30, Three Pacific Place, 1 Queen’s Road East, Hong Kong Tel: (852) 2268 0800 Fax: (852) 2877 0104

Indonesia PT Maybank Kim Eng Securities Plaza Bapindo Citibank Tower 17th Floor Jl Jend. Sudirman Kav. 54-55 Jakarta 12190, Indonesia Tel: (62) 21 2557 1188 Fax: (62) 21 2557 1189

India Kim Eng Securities India Pvt Ltd 2nd Floor, The International 16, Maharishi Karve Road, Churchgate Station, Mumbai City - 400 020, India Tel: (91).22.6623.2600 Fax: (91).22.6623.2604

Philippines Maybank ATR Kim Eng Securities Inc. 17/F, Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1200 Tel: (63) 2 849 8888 Fax: (63) 2 848 5738

Thailand Maybank Kim Eng Securities (Thailand) Public Company Limited 999/9 The Offices at Central World, 20th - 21st Floor, Rama 1 Road Pathumwan, Bangkok 10330, Thailand Tel: (66) 2 658 6817 (sales) Tel: (66) 2 658 6801 (research)

Vietnam Maybank Kim Eng Securities Limited 4A-15+16 Floor Vincom Center Dong Khoi, 72 Le Thanh Ton St. District 1 Ho Chi Minh City, Vietnam Tel : (84) 844 555 888 Fax : (84) 8 38 271 030

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china lesso group holdings (2128 hk) initiation share price: … · 2014. 4. 30. · china lesso...

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