monday, 27 march 2017 asean contractors: enter the dragon

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST

CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Monday, 27 March 2017

Asian Daily (Asia Edition)

EPS, TP and Rating changes EPS TP

(% change) T+1 T+2 Chg Up/Dn Rating

BAIC Motor 7 8 7 15 O (O) Brilliance China 2 0 1 (5) N (N) China World Trade Center

(36.2) (38.4) (6) 8 N (N)

Dynagreen Env (15.9) 11 5 33 O (O) Great Wall Motor 3 6 18 (4) N (N) Guangfa Securities - A (4) (13) (22) 1 N (O) Guangfa Securities - H (4) (13) (10) 16 O (O) Hilong (14.4) (16.8) (11) 21 O (O) Huaneng Power - A 1 0 0 (56) U (U) Huaneng Power - H 1 0 0 (34) U (U) Longfor Properties (8.1) (7.0) 14 16 O (O) Ping An Bank (9) (6) (9) 0 N (N) Shanghai Lujiazui Finance & Trade Zone Development

(6.2) (9.8) (1) (15) U (U)

Sinopec - A 7 5 13 34 O (O) Sinopec - H 7 5 14 34 O (O) Kerry Logistics (4.3) 1 (2) 18 O (O) Tower Bersama (7.5) (5.6) 0 (1) N (N) Koito Manufacturing 13 13 17 (18) U (U) Cebu Air Inc 10 3 (31) (1) N (O) Fubon Financial Holding

(7) (6) 5 10 N (N)

Teco 3 6 37 23 O (N)

Connecting clients to corporates

Thematic Trip

Post AIC : Japan Tech Tour Date 30-31 March, Tokyo

Post AIC : Macau Tour Date 31 March, Seoul

Analyst Kenneth Fong

Post AIC: China Tech Tour Date 31 March, China

Analyst Sam Li / Kyna Wong

Corporate Days / Conferences

20th Annual Asian Investment Conference Date 27-30 March, Hong Kong

Europe (Non-deal roadshow)

PICC P&C (2328) Post results Date 31 March, London

Analyst Charles Zhou

Hong Kong / China (Non-deal roadshow)

CNOOC (0883.HK) Post results Date 24-28 March, Hong Kong

Analyst Horace Tse

BAIC Motor Corporation Limited (1958.HK) Post results Date 27 March, Hong Kong

Analyst Bin Wang

Huadian Fuxin Energy (0816.HK) Post results Date 28 March, Hong Kong

Analyst Dave Dai

Anhui Conch Cement Co. Ltd. (0914.HK) Post results Date 28-30 March, Hong Kong

Analyst Trina Chen

Chinasoft International Ltd (0354.HK) Post results Date 29 March, Hong Kong

Analyst Kyna Wong

Li Ning Co Ltd (2331.HK) Post results Date 29 March, Hong Kong

Analyst Raymond Ching

Top of the pack ...

Asian Investment Conference Manish Nigam (4) Revisiting our contrarian AIC meeting indicator

Sinopec - H (0386.HK) – Maintain O Horace Tse (5) FY16 results 20% ahead of street estimates, dividend payout rises to 65%

Indonesia Consumer Survey 2017 Ella Nusantoro (6) New report: Rising optimism

BAIC Motor Corporation Limited (1958.HK) – Maintain O Bin Wang (7) 2016 results in line; expect upside surprise from Benz JV profit in 2017

Asian Investment Conference Manish Nigam (8) What will happen on Day One

SAVE THE DATE

CS pic of the day

ASEAN Contractors: Enter the Dragon

We are positive on the infrastructure orderflow prospects for Malaysia, Indonesia and Thailand. We believe that the

propensity to splurge on infrastructure upgrades hinges on (1) a stable political environment, (2) potential threats to

these economies arising from US policy changes, and (3) surge in China FDIs to fuel infrastructure spending initiatives.

Source: Credit Suisse estimates

China’s FDIs into ASEAN has doubled

... and the whole pack

Regional

Asia Pacific Equity Strategy Sakthi Siva (9) New report: Malaysia has underperformed the region by 42% since taper. Time to Overweight?

Asian Investment Conference Manish Nigam (4) Revisiting our contrarian AIC meeting indicator

Asian Investment Conference Manish Nigam (8) What will happen on Day One

Australia

Westpac (WBC.AX) – Maintain N Jarrod Martin (10) As ever, wealth offers longer-term potential

China

BAIC Motor Corporation Limited (1958.HK) – Maintain O Bin Wang (7) 2016 results in line; expect upside surprise from Benz JV profit in 2017

https://www.credit-suisse.com/microsites/conferences/aic/en.html?aa_cmp=mail_coco_apac_201701_aic2017pre_conf_asiandaily_na_banner_eng_aic00164

https://plus.credit-suisse.com/u/_X0hg1AA-WEqxCc


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Yongda Auto (3669.hk) Post results Date 29-30 March, Hong Kong

Analyst Aaron Zhang

GCL new energy (0451.HK) Post results Date 30-31 March, Hong Kong

Analyst Gary Zhou

Huaneng Renewables (0958.HK) Post results Date 31 March, Hong Kong

Analyst Dave Dai

Singapore (Non-deal roadshow)

CNOOC (0883.HK) Post results Date 29-30 March, Singapore

Analyst Horace Tse

PICC Group (1399.HK) Post results Date 30-31 March, Singapore


PICC P&C (2328.HK) Post results Date 30-31 March, Singapore


Contact [email protected] or your usual sales representative.

Brilliance China Automotive Holdings Limited (1114.HK) – Maintain N Bin Wang (11) 2016 results in line; management guided to >20% YoY volume growth in 2017

China Merchants Bank Co Ltd (3968.HK) – Maintain O Sanjay Jain (12) 4Q16 results: In line; new NPL formation announced for the first time

China World Trade Center Co., Ltd. (600007.SS) – Maintain N Jizhou Dong, CFA (13) Quality company with limited growth

Dali Foods Group (3799.HK) – Maintain N Mark Mao (14) 2016 result in line; new soy milk showcased

Dongfang Electric Corporation Limited (1072.HK) – Maintain N Edmond Huang, CFA (15) Big loss in 2016 after provision, largely in line

Dynagreen Environmental Protection (1330.HK) – Maintain O Joy Zhang (16) FY16A results summary: Results slightly beat; improved operation

Great Wall Motor (2333.HK) – Maintain N Bin Wang (17) 2016 results in line; 'red pocket' program likely to hurt margin

Guangfa Securities - A (000776.SZ) – Downgrade to N Steven Zhu (18) FY16 results: strong IBD and asset management to offset weak investment trading

Guangfa Securities - H (1776.HK) – Maintain O Steven Zhu (19) FY16 results: Strong IBD and asset management to offset weak investment trading

Hilong (1623.HK) – Maintain O Horace Tse (20) FY16 results a miss; expect near-term weakness, but recovery story remains intact

Huaneng Power International Inc - A (600011.SS) – Maintain U Dave Dai, CFA (21) Industry leader confirming our concerns

Huaneng Power International Inc - H (0902.HK) – Maintain U Dave Dai, CFA (22) Industry leader confirming our concerns

Longfor Properties (0960.HK) – Maintain O Alvin Wong (23) Well-deserved position as the best non-SOE developer

PICC P&C – Maintain O Charles Zhou, CFA (24) FY16 result: Weak CoR of non-auto, but one-off; focus on motor outlook

Ping An Bank (000001.SZ) – Maintain N Sanjay Jain (25) Limited impact from Huishan Dairy; FY17: Retail strategy to continue

Postal Savings Bank of China Co., Ltd. (1658.HK) – Maintain U Sanjay Jain (26) 4Q16 result: Beat on investment gains and provision reversal; div payout 15%, yield 1.7%

Shanghai Lujiazui Finance & Trade Zone Dev (600663.SS) – Maintain U Jizhou Dong, CFA (27) Potential increase in office supply adds more uncertainties

Sinopec - A (600028.SS) – Maintain O Horace Tse (28) FY16 results 20% ahead of street estimates, dividend payout rises to 65%

Sinopec - H (0386.HK) – Maintain O Horace Tse (5) FY16 results 20% ahead of street estimates, dividend payout rises to 65%

ZTE Corporation - A (000063.SZ) – Maintain U Sam Li (29) 4Q16 results in line: Some positive signals for 2017

Hong Kong

Hong Kong Economics Christiaan Tuntono (30) Carrie Lam elected as the new Chief Executive

Kerry Logistics (0636.HK) – Maintain O Alvin Wong (31) Potential special dividend post asset disposal

India

India Market Strategy Neelkanth Mishra (32) State govt borrowings: Could adverse seasonality be driving the spike in yield spreads for SDLs?

India Financial Sector Ashish Gupta (33) Big trouble in little loans?

Mahindra & Mahindra (MAHM.BO) – Maintain N Jatin Chawla (34) Analyst meet update

Indonesia

Indonesia Consumer Survey 2017 Ella Nusantoro (6) New report: Rising optimism

Indofood CBP (ICBP.JK) – Maintain N Ella Nusantoro (35) Contribution derived from higher noodle and dairy prices


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Asian indices - performance (% change) Latest 1D 1W 3M YTD

ASX300 5,701 0.8 (0.8) 2.2 1.5

CSEALL 5,996 0.3 (0.9) (3.5) (3.7)

Hang Seng 24,358 0.1 0.2 12.9 10.7

H-SHARE 10,478 (0.1) (0.3) 14.1 11.5

JCI 5,567 0.1 0.5 10.7 5.1

KLSE 1,746 (0.1) 0.0 8.0 6.3

KOSPI 2,169 (0.2) 0.2 6.5 7.0

KSE100 48,971 (0.1) 1.2 5.0 2.4

NIFTY 9,108 0.2 (0.6) 14.1 11.3

NIKKEI 19,263 0.9 (1.3) (0.9) 0.8

TOPIX 1,544 0.9 (1.4) 0.0 1.7

PCOMP 7,270 (0.4) (1.0) 10.8 6.3

RED CHIP 3,986 0.2 (1.0) 13.5 11.1

SET 1,574 0.3 0.8 4.2 2.0

STI 3,143 0.5 (0.8) 9.5 9.1

TWSE 9,903 (0.3) (0.1) 9.1 7.0

VNINDEX 722 0.4 1.6 8.7 8.6 Thomson Reuters

Asian currencies (vs US$) (% change) Latest 1D 1W 3M YTD

A$ 1 (0.1) (1.0) 6.2 5.6

Bt 35 (0.1) (0.8) (3.8) (3.6)

D 22,785 (0.0) 0.0 0.1 0.1

JPY 111 0.4 (1.2) (5.1) (4.7)

NT$ 30 (0.3) (0.5) (5.5) (6.4)

P 50 (0.4) 0.0 0.9 1.3

PRs 105 0.0 (0.0) (0.0) 0.3

Rp 13,326 0.0 (0.1) (0.9) (1.1)

Rs 65 (0.0) (0.1) (3.6) (3.7)

S$ 1 (0.0) (0.2) (3.2) (3.4)

SLRs 151 (0.2) (0.2) 1.3 1.2

W 1,117 (0.5) (1.0) (6.9) (7.4) Thomson Reuters

Global indices (% change) Latest 1D 1W 3M YTD

DJIA 20,597 (0.3) (1.5) 3.3 4.2

S&P 500 2,344 (0.1) (1.4) 3.5 4.7

NASDAQ 5,829 0.2 (1.2) 6.7 8.3

SOX 1,004 0.8 (0.0) 8.2 10.8

EU-STOX 3,127 (0.3) (0.5) 4.3 3.9

FTSE 7,337 (0.1) (1.2) 3.8 2.7

DAX 12,064 0.2 (0.3) 5.4 5.1

CAC-40 5,021 (0.2) (0.2) 3.7 3.3

10 YR LB 2 (0.3) (3.2) (4.8) (1.2)

2 YR LB 1 0.7 (4.4) 4.6 5.7

US$:E 1 0.2 0.6 3.3 2.7

US$:Y 111 0.4 (1.2) (5.1) (4.7)

GOLD 0 (0.1) 1.3 9.8 8.0

VIX 0 (1.2) 14.9 13.3 (7.7) Thomson Reuters

MSCI Asian indices – valuation & perf. EPS grth. P/E (x) Performance

MSCI Index 16E 17E 16E 17E 1D 1M YTD

Asia F X Japan 2 13 15.8 14.0 (0.0) 2.7 13.6

Asia Pac F X J. (1) 14 16.6 14.6 0.1 1.7 12.2

Australia (17) 13 19.0 16.9 0.6 (1.8) 7.4

China 1 15 15.0 13.0 0.0 1.0 14.4

Hong Kong 1 7 17.7 16.6 (0.1) 3.1 13.4

India 8 19 20.4 17.1 0.2 4.3 15.0

Indonesia 4 16 19.0 16.3 (0.2) 4.6 6.9

Japan (4) 13 18.2 16.1 1.0 0.9 6.0

Korea 7 15 12.3 10.8 (0.3) 5.2 16.9

Malaysia (3) 6 17.6 16.7 0.0 2.7 7.8

Pakistan (7) 11 12.1 11.0 (0.3) (1.9) (0.4)

Philippines 7 7 18.9 17.7 (0.7) (0.8) 5.1

Singapore (7) 5 14.7 14.0 0.7 1.6 11.8

Sri Lanka (2) 11 15.3 13.7 0.1 (5.1) (8.1)

Taiwan 11 9 16.6 15.2 (0.3) 2.3 12.5

Thailand 0 4 10.9 10.4 0.6 2.4 7.2 Thomson Reuters. All data as of the most recent market close.

Tower Bersama (TBIG.JK) – Maintain N Colin McCallum, CA (36) FY16 results: Revenue growth weaker than expected

Japan

Koito Manufacturing (7276.T) – Maintain U Koji Takahashi (37) New models drive Japan business; focus turns to North America and China auto output

For more Japan equity reports, please see Japan Daily (First Edition) – 27 March 2017

Philippines

Cebu Air Inc (CEB.PS) – Downgrade to N Muzhafar Mukhtar, CFA (38) 4Q16: Have profits peaked for now?

Taiwan

Fubon Financial Holding (2881.TW) – Maintain N Chung Hsu, CFA (39) In-line 4Q16 results with moderate guidance for 2017

Teco (1504.TW) – Upgrade to O Jerry Su (40) Motor business to recover in 2017-18; upgrade to OUTPERFORM

O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight

Research mailing options To make any changes to your existing research mailing details, please e-mail us directly at [email protected]

Sales Contact Hong Kong 852 2101 7211 Singapore 65 6212 3052 London 44 20 7888 4367 New York 1 212 325 5955 Boston 1 617 556 5634

https://plus.credit-suisse.com/r/V67uRq1AF-WElY95


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Top of the pack ...

Asian Investment Conference ------------------------------------------------------------------------------ Revisiting our contrarian AIC meeting indicator Manish Nigam / Research Analyst / 852 2101 7067 / [email protected] Mujtaba Rana / Research Analyst / 852 2102 6305 / [email protected]

● The 2017 Asian Investment Conference kicks off on Monday, 27 March. More than 340 corporates have confirmed their attendance. As you get ready for your meetings, it is worth looking back at our contrarian AIC meeting indicator—the negative correlation between meeting request popularity and share price performance!

● Since 2009, the least popular companies in terms of one-on-one meeting requests have consistently outperformed the most popular companies over a 3-month period post-AIC (Fig 1), and in most years, this outperformance carried forward to the end of the year.

● In 2016, the least popular companies again outperformed the most popular companies by 2.6% over 3 months post-AIC (by 4.3% to end-2016). Internet (Bitauto, Vipshop, and 58.com) drove a large part of this 'popular company' underperformance, whereas financials (Habib, Hana Financial, Vietcombank) drove returns of the least popular companies.

● This year, internet companies are, again, amongst the most requested names this year. Least popular companies are spread widely, though property names constitute the biggest sub-grouping.

Figure 1: Outperformance of 30 least requested companies versus 30 most requested companies (three months from the end of AIC)

23.6%

4.2%

1.1%

6.1%

1.8%3.8%

2.1% 2.6%

-5%

0%

5%

10%

15%

20%

25%

2009 2010 2011 2012 2013 2014 2015 2016

30 Least v. Most Popular Outperformance (3M)

Source: Bloomberg, Credit Suisse estimates

Revisiting our contrarian AIC meeting indicator

The 2017 Credit Suisse Asian Investment Conference will commence on Monday, 27 March. More than 340 corporates have confirmed their attendance. As you get ready for your meetings, it is worth looking back at our contrarian AIC meeting indicator (the negative correlation between meeting request popularity and share price performance).

As we all know, popularity is not always a virtue in the investment business. In every year since 2009, the least popular companies in terms of one-on-one meeting requests have largely outperformed the top companies, as measured by the three-month share price performances post-AIC (Fig 1). They have also outperformed (with the exception of 2013 and 2015) to the year-end (Fig 2).

2017 – Contrarian indicator worked for most of the year

Our contrarian indicator worked well for most of last year. The least popular companies outperformed the most popular companies three months after the AIC (2.1%), but saw a reversal 6 months after the AIC ('most' were outperforming 'least' by 6.1%). However, by year end, the least popular companies were back on top again (on average).

Figure 2: Outperformance of 30 least requested companies versus 30 most requested companies (from the end of AIC to the year-end)

47.7%

11.8%

0.8%

10.3%

-8.9%

13.9%

-3.1%

4.3%

-10%

0%

10%

20%

30%

40%

50%

2009 2010 2011 2012 2013 2014 2015 2016

30 Least v. Most Popular Outperformance (AIC to Year End)

Source: Bloomberg, Credit Suisse estimates

Some of the popular Chinese consumer companies in particular did perform well, however. Sun Art Retail, Mengniu Dairy, Shenzhou and Anta Sports were among the most sought after companies in 2016, and their share price performance to year end was very strong. Amongst the most popular companies, however, around half underperformed three months from the AIC. Similarly, half of them were also underperforming by year end. Although Tencent (our most requested meeting) ended the year up 19%, other China tech plays, such as Vipshop, Bibauto, Lenovo and 58.com, all registered 15-50%+ falls. Highly requested ASEAN names, such as Matahari Dept and Universal Robina, also performed poorly (c.20% falls).

Among the least popular companies, Tata Communications and Habib Bank were the standout performers (up c.60% to the year-end). Alongside those, 75% of the sample set also outperformed over that time period, with three unpopular Thai companies (Indorama Ventures, VGI Global Media and C.P. Pokphand) all returning 20%+. From the stocks that underperformed over the year, Greenland, China Power Intl, and Beijing Properties did so acutely (25%+ falls).

What about 2017?

If you expect this contrarian trend to continue, then here is the list of companies with the most meeting requests in 2017: Alibaba (337 requests), JD.com (302), Baidu (295), Tencent (261), NetEase (258), Ctrip.com (245), TSMC (214), Amorepacific (210), Anta Sports (207) and Vipshop (185).

The other end of the spectrum is spread widely across sectors and countries and mostly includes small/mid-cap stocks, though there are a few larger names: CITIC, COLI, Samsung C&T, Maxis Berhad and Guangfa. Interestingly, almost a quarter of the companies with less than 30 requests for meetings operate in the property sector.

The full agenda and general conference information can also be found on the AIC website: http://www.credit-suisse.com/aic .

http://www.credit-suisse.com/aic


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Sinopec - H --------------------------------------------------------------------- Maintain OUTPERFORM FY16 results 20% ahead of street estimates, dividend payout rises to 65% EPS: ▲ TP: ▲ Horace Tse / Research Analyst / 852 2101 7379 / [email protected] Jessie Xu / Research Analyst / 852 2101 7650 / [email protected] Beatrice Lam / Research Analyst / 852 2101 7693 / [email protected]

● Sinopec reported a strong FY16 result with FY16 EPS at Rmb0.385, up 44% YoY, 10%/20% ahead of CS/consensus estimates. FY16 dividend payout was raised to 65% (from 56% in FY15), the highest payout level since its listing, implying a 5% yield. Sinopec also issued a profit alert, expecting 1Q17 EPS to reach Rmb0.13 (+150% YoY).

● Headline 4Q16 EPS was Rmb0.14, up 211% YoY/63% QoQ. Stripping out the one-offs (Rmb20.6 bn pipeline sale gain, Rmb16.4 bn asset impairment) core 4Q16 EPS would have been Rmb0.10, up 127% YoY/20% QoQ, supported by solid & resilient downstream earnings.

● Non-fuel Marketing continues to deliver robust growth, with 4Q16/ FY16 non-fuel revenue growing at 45%/42%, respectively, paving way for its upcoming listing (CS assumes end-2017). We expect management to give clarity on the timeline at its analyst briefing.

● Our TP is raised to HK$8.3 (from HK$7.3) suggesting 34% potential upside. Our 2017-19 EPS are revised up by 2-7% and our new 2017 EPS of Rmb0.57 is 39% above consensus. Given the solid results we expect a round of earnings upgrades to come. Stay OUTPERFORM.

Click here for detailed financials

Robust FY16 results with dividend payout increased to 65%

Sinopec reported FY16 results on 26 March evening which are above market expectations and solid on all counts. FY16 EPS came in at Rmb0.385/sh, up 44% YoY, 10%/20% ahead of CS/consensus estimates. Dividend payout was raised to a record-high 65% in FY16 (vs 56% in FY15), which implies a 5% dividend yield at current share price, the highest within the China Oil Sector.

4Q16 earnings solid excluding one-offs

4Q16 is a demonstration of Sinopec’s core competence on its downstream profitability. 4Q16 included an Rmb20.6 bn of Sichuan-East pipeline disposal gain and Rmb16.4 bn of asset impairment loss. Stripping these out, its core 4Q16 EPS would have been c.Rmb0.1/sh, up 127% YoY / 20% QoQ, a demonstration of its downstream earnings resilience under a low oil price environment.

Segment-wise performance

E&P: FY16 E&P EBIT loss was Rmb36.6 bn and 4Q16 EBIT loss was Rmb6.2 bn, narrowed by 55% YoY / 27% QoQ. Full-year realised oil price was $35/bbl, a 22% discount to Brent. Sinopec booked Rmb11.6 bn of E&P impairment loss in 2016 vs Rmb4.9 bn in 2015.

Refining: FY16 Refining EBIT were Rmb56 bn, up 168% YoY and highest in history, of which Rmb13 bn were from the $40 price floor policy in 1H16. 4Q16 Refining EBIT was Rmb13.9 bn which includes Rmb3.8 bn of inventory gain amid higher oil price QoQ. Sinopec is now generating a core Refining EBIT of Rmb9-10 bn per quarter, a stable and resilient performance.

Marketing: FY16 Marketing EBIT came in at Rmb32 bn, up 11% YoY; 4Q16 Marketing EBIT was Rmb7.9 bn, +7% YoY / -7% QoQ. Non-fuel business continues to be the bright spot with 4Q16 non-fuel revenue growing at 45% YoY.

Chemical: FY16 Chemical EBIT came in at Rmb20.6 bn, up 6% YoY; 4Q16 Chemical EBIT was Rmb5.2 bn, +16% YoY / -10% QoQ, slightly weaker than expected given Asia petchem margins have seen a c.20% rally in 4Q16.

Figure 1: Sinopec—Quarterly earnings by segment

(Rmb mn) 1Q16 2Q16 3Q16 4Q16 YoY% QoQ%

EBIT 13,057 22,051 16,322 25,763 251% 58%

E&P (12,526) (9,403) (8,487) (6,225) 55% 27%

Refining 13,443 19,145 9,804 13,873 129% 42%

Marketing 7,690 8,087 8,496 7,880 7% -7%

Chemicals 4,581 5,097 5,774 5,171 16% -10%

Others (131) (875) 735 5,064 47% 589%

Net profit 6,663 13,256 10,188 16,565 208% 63%

EPS (RMB) 0.055 0.110 0.084 0.137 211% 63%

Source: Company data, Credit Suisse

Other operational highlights

Reserves: Sinopec’s reserve base has faced a rather significant deterioration in 2016 amid the lower oil price YoY. 1P oil reserves were written down by 36% YoY; together with the 29% YoY decline seen in 2015 it means that its oil reserves have been written down by 55% vs 2014 levels. This brings Sinopec’s oil reserve life to 4.6 years, the lowest level since its listing. Sinopec gave a new disclosure in its annual report that a 10% decrease in oil price would lead to an additional Rmb3 bn impairment loss.

Capex: 2016 capex came in at Rmb76 bn, 24% below its year-beginning target of Rmb100 bn. Upstream was the main area of squeeze with E&P capex down 41% YoY. Sinopec is guiding for Rmb110 bn of capex in 2017 (+44% YoY) which is back to 2015 levels.

Bbg/RIC 386 HK / 0386.HK Rating (prev. rating) O (O) Shares outstanding (mn) 121,071 Daily trad vol - 6m avg (mn) 85.9 Daily trad val - 6m avg (US$ mn) 64.1 Free float (%) 26.1 Major shareholders Sinopec Group

73.8%

Price (24 Mar 17 , HK$) 6.20 TP (prev. TP HK$) 8.30 (7.30) Est. pot. % chg. to TP 34 52-wk range (HK$) 6.28 - 4.72 Mkt cap (HK$/US$ bn) 783.7/ 100.9

Performance 1M 3M 12M

Absolute (%) 1.6 13.1 29.4 Relative (%) (0.7) (4.4) 7.6

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 2,020,375 1,930,911 2,211,572 2,478,588 2,553,002 EBITDA (Rmb mn) 153,282 185,618 200,427 211,730 211,488 Net profit (Rmb mn) 32,512 46,672 69,355 77,155 68,631 EPS (CS adj. Rmb) 0.27 0.39 0.57 0.64 0.57 - Change from prev. EPS (%) n.a. n.a. 6.8 5.3 2.3 - Consensus EPS (Rmb) n.a. n.a. 0.41 0.49 0.27 EPS growth (%) (32.4) 43.3 48.6 11.2 (11.0) P/E (x) 20.4 14.2 9.6 8.6 9.7 Dividend yield (%) 2.7 4.5 6.8 7.5 6.7 EV/EBITDA (x) 5.7 4.1 3.7 3.4 3.3 P/B (x) 1.0 0.9 0.9 0.9 0.8 ROE (%) 5.1 6.7 9.6 10.3 8.9 Net debt(cash)/equity (%) 23.6 8.2 5.6 3.5 0.5

Note 1: ORD/ADR=100.00. Note 2: Sinopec is a leading integrated oil & gas and the largest downstream producer in China. Its principal operations include exploration & production of oil & gas, refining & marketing of refined products and chemicals, and natural gas transmission.

https://rave.credit-suisse.com/research/company/financials?ric=0386.HK


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Indonesia Consumer Survey 2017 ------------------------------------------------------------------------ New report: Rising optimism Ella Nusantoro / Research Analyst / 62 21 2553 7917 / [email protected]

● After interviewing 1,534 Indonesians, we have published our seventh Indonesia Consumer Survey. We found that Indonesia is the second most optimistic country after India, leaving behind other emerging countries like: China, Brazil, South Africa, Mexico, Turkey, and Russia. Full report.

● With improving GDP growth of 5.02% from 4.8% in FY15, and declining inflation of 3.7% (lowest from 6.4% over the last decades), Indonesian respondents have the highest household income expectation over the next year.

● Despite being the highest ranked in both historical income and income outlook amongst the emerging countries, Indonesians were less optimistic regarding their income compared to last year. This may be due to the new government regulation on the minimum wage formulation (GDP growth plus inflation).

● With the current climb of Indonesia’s optimism amongst the emerging countries, our stock preferences are: ASII, HMSP, UNVR, ICBP, GGRM, LPPF, MAPI, SILO, MIKA, TLKM, EXCL, BSDE, BBNI, and BJTM; not necessarily in that order.

Figure 1: Emerging Countries Scorecard 2017

Inflation expectation

Personal Finances

Income* expectation

Income* history

Major purchases Rank

India 1 1 5 3 1 1

Indonesia 6 2 1 1 3 2

China 5 4 3 2 2 3

Brazil 3 3 2 8 8 4

South Africa 8 5 4 4 5 5

Mexico 7 6 6 7 4 6

Turkey 2 8 8 5 7 6

Russia 4 7 7 6 6 6

*Household Income Source: Credit Suisse Indonesia Consumer Survey 2017

The 7th Credit Suisse Indonesia Consumer Survey encompassed 1,534 respondents from ten exclusive areas across Indonesia. We asked each respondent a total of 86 questions in 12 different categories. Here is what Indonesians are saying:

2016 was a year full of hope …

Indonesians were less optimistic regarding their income relative to last year, however, they are also still the most optimistic compared to emerging countries in the survey. Rising optimism boosted Indonesia to second place (behind India) out of the eight emerging countries that was surveyed. This is an improvement from the fourth place in the previous year, with Indonesia overtaking China which falls into third rank this time, from second in the previous year. Despite the many challenges, we see the improvement stemmed from Indonesia being more defensive compared to the other emerging countries.

Improving economic growth, upgrading lifestyle …

Indonesia’s GDP grew by 5.02% in 2016, improving from 2015’s 4.8% growth. The largest contributor to the GDP remains private consumption accounting for 55%, with 5% YoY growth from 2015. The second largest contributor would be investments, accounting for 34% with 4.5% growth in 2016. This was a decline in growth, considering the investment growth in 2015 was 6.4%. Sector wise, manufacturing remains the largest contributor to the economy with 21%, followed by retail and agriculture at 13% and 11%, respectively.

Indonesians were less optimistic compared to a year ago regarding their income. We view that this might be due to the GoI introduction of the fixed formula (GDP growth plus inflation) on the increase in minimum wages starting from 2016, thus with the inflation reaching its lowest at 3.7%, the expectation on household income declined.

In terms of personal finances, high-earning Indonesians are seeing their personal finances worse relative to last year; we believe that this might be attributable to the tax amnesty program. Meanwhile, low income earners see stable condition, and middle income earners felt their personal finances were better off compared to last year.

With Indonesians getting wealthier and seeking lifestyle upgrades, amid growing optimism and confidence, they are spending more on discretionary items. Thus, we found an upgrade in willingness for major purchases. Indonesia was ranked number four on the major purchases in 2016.

Slightly less but remain worried over inflation …

According to our survey, Indonesians remained worried over inflation, a same pattern that we also saw in 2016’s consumer survey. Indonesia's inflation in 2016 reached 3.7%, at its lowest ever in the last three decades, compared to 6.4% in 2015.

We view that the worry revolves around the sustainability of low inflation. Especially, given that in 2017, the government plans to remove subsidies for electricity tariff for the mid-low end, increase price of LPG (liquefied petroleum gas) for the low end, and increase tariff for registration licence for auto. Our economist estimates inflation will reach 4.5% in 2017.

Figure 2: Stock screen

Ticker Rtg Price MCap

(USDm)

EPS growth PE ROE

Current Target T+1 T+2 T+1 T+2 T+1

Automobiles & Components

Astra International ASII IJ O 8,450 9,800 25,674 42 9 15.9 14.5 18.7

Banks 93,740 0 16 15.4 13.3 15.4

Bank Jatim BJTM IJ O 635 690 705 11 14 8.3 7.2 16.5

Bank Negara Indonesia BBNI IJ O 6,900 7,800 9,561 16 19 9.7 8.2 14.3

Consumer Staples

Gudang Garam GGRM IJ N 65,450 74,100 9,451 9 10 18.2 16.5 17.8

HM Sampoerna HMSP IJ N 3,960 4,340 34,571 18 4 37.4 36.0 38.5

Indofood CBP ICBP IJ N 8,775 9,500 7,680 21 4 28.1 27.1 22.0

Unilever Indon UNVR IJ N 42,500 42,700 24,338 11 13 49.7 44.1 126.3

Healthcare

Mitra Keluarga MIKA IJ O 2,580 3,110 2,818 22 15 54.0 46.8 20.7

Siloam Hospitals SILO IJ O 14,050 12,840 1,371 33 39 n.m. n.m. 5.3

Real Estate

BSD BSDE IJ O 1,845 2,620 2,665 (8) 16 17.8 15.4 10.0

Retailing

MAPI MAPI IJ O 5,800 6,400 723 443 73 47.5 27.5 7.7

Matahari Dept Store LPPF IJ O 14,250 16,100 3,121 11 9 18.5 17.0 38.4

Telecommunication Services

Telkom TLKM IJ O 4,090 4,750 30,942 22 10 17.0 15.5 26.2

XL Axiata EXCL IJ O 3,280 3,950 2,631 44 67 59.5 35.6 2.7

Source: Company data, Credit Suisse estimates, Thomson Reuters

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Asian Daily

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BAIC Motor Corporation Limited --------------------------------------- Maintain OUTPERFORM 2016 results in line; expect upside surprise from Benz JV profit in 2017 EPS: ▲ TP: ▲ Bin Wang / Research Analyst / 852 2101 6702 / [email protected]

● In line with previous profit alert, BAIC's 2016 earnings rose 92% YoY to Rmb 6.4 bn. Growth mainly came from Benz JV's profit jump (up 74% YoY to Rmb10.4 bn) and local brand operations’ loss reduction (down 26% YoY to Rmb 2.74 bn), while Hyundai JV profit was flattish YoY.

● BAIC is trading at 7x 2017 P/E, a significant discount to Brilliance's 11x, because of investors worries over Hyundai JV's weak sales outlook (due to THAAD dispute) and its local brands’ continuing loss. However, we think some investors might underestimate Benz JV's volume & margin due to reduced competition, as Audi dealers refused to push volume in 1H17 to show opposition to upcoming SAIC-Audi JV.

● After 58% YoY volume jump in Jan/Feb, BAIC Benz JV's strong momentum continued in Mar—up 36% YoY in first three weeks. Given the weaker-than-expected competition environment in luxury car market, we raise 2017-18 EPS by 7-8% on higher Benz JV profit estimates, leading to higher TP of HK$9.8 (from HK$9.2).

● Reiterate our OUTPERFORM. Key catalyst is strong 1Q17 results (est. Rmb1.6 bn, up 84% YoY, to release on 28 April 2017).


On 11 November 2016, Audi AG signed a co-operation framework agreement with SAIC, the long-time partner of Volkswagen Group, with the potential implication to develop its second joint venture with SAIC in China. Moreover, SAIC-Audi may also develop its new dealer networks separately from the existing FAW-Audi distribution channels. Audi AG's decision has triggered a significant backlash among FAW-Audi dealers—a discontented dealer union decided not to take cars from Audi and refused to complete Audi's 1Q and 2Q17 volume target.

As a result, Audi's sales volume declined by 27% YoY in Jan-Feb 2017, notably underperforming the China luxury car market's 13% YoY growth in the same period. BAIC Benz and Brilliance BMW, as Audi's key rivals, gained shares amid the Audi-dealer disputes. Meanwhile, luxury car sales were not negatively impacted much by the vehicle purchase tax rate increase, as most of their cars are equipped with big engines (>1.6L).

Among the two luxury car plays, BAIC (1958 HK) and Brilliance (1114 HK), we prefer BAIC over Brilliance, due to: (1) its more sustainable competitive edge from Mercedes-Benz's appealing exterior and internal design than BMW's model cycle, especially for a first-time luxury customer dominant market like China and (2) BAIC's cheaper valuation at 7x 2017 P/E vs Brilliance's 11x 2017 P/E.

Figure 1: BAIC group earnings breakdown by key operation

9% 28%

91% 83%

-6%

-120%

-58%

-117%

-46%

107%

195%124%

120%

60%

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

2012 2013 2014 2015 2016

Beijing Hyundai (50%) Beijing Auto Beijing Benz (51%)

Source: Company data

Figure 2: BAIC-Benz JV's quarterly earnings growth

1,680

952

1,617

2,087

1,678

2,003

3,296 3,217

240%

47%

410%

177%

0%

110% 104%

54%

-50%

50%

150%

250%

350%

450%

550%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Rmb mn

Beijing Benz quarterly earnings YoY growth Source: Company data.

Bbg/RIC 1958 HK / 1958.HK Rating (prev. rating) O (O) [V] Shares outstanding (mn) 7,595.34 Daily trad vol - 6m avg (mn) 9.8 Daily trad val - 6m avg (US$ mn) 10.5 Free float (%) 50.3 Major shareholders BAIC Group

Price (23 Mar 17 , HK$) 8.50 TP (prev. TP HK$) 9.80 (9.20) Est. pot. % chg. to TP 15 52-wk range (HK$) 9.12 - 4.89 Mkt cap (HK$/US$ mn) 64,560.4/ 8,312.5


Absolute (%) (6.0) 26.9 41.9 Relative (%) (7.1) 9.7 20.4

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 84,112 116,199 148,691 160,293 177,972 EBITDA (Rmb mn) 8,307 16,008 21,952 24,019 26,874 Net profit (Rmb mn) 3,319 6,367 8,142 8,237 8,620 EPS (CS adj. Rmb) 0.44 0.84 1.07 1.08 1.14 - Change from prev. EPS (%) n.a. n.a. 7.0 8.3 - Consensus EPS (Rmb) n.a. n.a. 0.94 1.04 0.66 EPS growth (%) (26.4) 91.9 27.9 1.2 4.7 P/E (x) 17.2 9.0 7.0 6.9 6.6 Dividend yield (%) 2.0 3.9 4.9 5.0 5.2 EV/EBITDA (x) 7.5 3.4 1.9 1.3 0.7 P/B (x) 1.6 1.4 1.3 1.1 1.0 ROE (%) 9.7 16.9 19.0 17.1 16.1 Net debt(cash)/equity (%) 10.3 (3.9) (20.7) (30.4) (39.7)

Note 1: BAIC Motor is the fifth-largest auto group in China with an 8% market share. It has joint ventures with Hyundai and Mercedes-Benz, in addition to its own-brand vehicle operation.



Asian Daily

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Asian Investment Conference ------------------------------------------------------------------------------ What will happen on Day One Manish Nigam / Research Analyst / 852 2101 7067 / [email protected] Mujtaba Rana / Research Analyst / 852 2102 6305 / [email protected]

● The 20th Annual Credit Suisse Asian Investment Conference (AIC) will take place during 27-30 March in Hong Kong.

● About 330 corporates from 15 countries in Asia Pacific have already confirmed their attendance for this event. With 7,000 private meetings and ~2,500 institutional investors, hedge funds and ultra and HNIs, it offers myriad opportunities to gather investment intelligence that sometimes defies commonplace thinking with informed, thoughtful alternative views.

● In addition, the conference will also feature an impressive line-up of keynote speakers. As in previous editions, the AIC will draw upon leading thinkers, renowned policy makers and corporate and political leaders (including current and former statesmen and central bankers), to deliver unique perspectives on the global economy and the capital markets.

● Last but not the least, Credit Suisse’s leading analysts, economists and strategists will also provide global, regional, sector and thematic thought leadership. Click here for the AIC agenda page.

See below for highlights of Day One at this year's event on Monday:

---------------------------------------------------------------------------------------------

Plenary session – Keynote Economics Panel: How are economic, monetary and fiscal policies being deployed around the world to ensure sustainable growth – and can they succeed?

(Glenn Hubbard, Dean and Russell L. Carson Professor of Finance and Economics, Columbia Business School; former Chairman, White House Council of Economic Advisers under George W. Bush (2001-2003); John B. Taylor, Professor, Stanford University; Senior Fellow in Economics, Hoover Institution; Fan Jianping, Research Fellow, State Information Centre, China)

Our Keynote Economics panel will tackle some of the key questions that matter to delegates in today’s unstable economic climate: What are the economic prospects for the global economy and where do the pressure points lie? What impact will these pressure points have on central bank rate decisions and currencies globally? How will the US and its economy fare under the new leadership, and what will be the impact on the interdependencies that exist between the US economy and the global economy? How will China position itself as pressures for increased polarization grow? Join our thought leaders from around the world, who will provide their insights into the key challenges facing their own economies, and globally.

--------------------------------------------------------------------------------------------

Panel: Can the new political leadership in China succeed?

(Professor Jing Huang, Lee Foundation Professor on US-China Relations and Director of Centre on Asia and Globalization at the Lee Kuan Yew School of Public Policy, Singapore, Dr. Qiang Wu, Independent Political Commentator and Former Lecturer of Department of Political Science, Tsinghua University)

China’s 19th Party congress in the autumn of 2017 is expected to bring a sweeping transition of political changes. Media reports have speculated that President Xi and Premier Li Keqiang have divergent

views. Combined with a number of top and mid/high-level positions in party, government and military that are expected to change, there will likely be a significant effect on Chinese economic policy. Our panel of Chinese political commentators will discuss China’s current political situation and the outlook for political change in the country.

--------------------------------------------------------------------------------------------

Luncheon Keynote Address: Past, present and future –

reflections on American monetary policy (Dennis P Lockhart, Former President and Former Chief Executive Officer, Federal Reserve Bank of Atlanta) Freshly-retired from his role as chief of the Federal Reserve Bank of Atlanta, Dennis P. Lockhart has been a centrist on the policy-setting Federal Open Market Committee and a reliable supporter of Chair Janet Yellen’s strategy to raise interest rates gradually. Mr. Lockhart will share his views on the direction that US economic policy needs to take in order to achieve sustainable growth and the tools available to accomplish this goal.. ---------------------------------------------------------------------------------------------

Address: What does the future hold for Hong Kong? (Paul Chan Mo-po, GBS, MH, JP, Financial Secretary, The Government of the Hong Kong Special Administrative Region)

Against a backdrop of global uncertainty, Hong Kong faces a number of challenges, but also exciting opportunities, not least those offered by Mainland China's continued growth and its ambitious "one belt one road" plan. Listen to Paul Chan, Financial Secretary and former Secretary for Development of Hong Kong as he discusses the city’s economic outlook and approaches in promoting a diversified and vibrant economy.

---------------------------------------------------------------------------------------------

Address: The future of the EU post Brexit – what now? (The Rt Hon Sir John Major KG CH, Former Prime Minister, United Kingdom: Senior Advisor, Credit Suisse)

Brexit and the forces it seems to have triggered in other European countries look set to reshape the way the continent will set its strategy and priorities in the future. Key questions remain. Where Britain leads, will others follow? What does Brexit really mean for the EU? Listen to the Rt Hon Sir John Major KG CH, former Prime Minister of the United Kingdom, as he discusses the outlook for the region, and what we can expect in the short and long term as the Brexit process gets underway.

https://www.credit-suisse.com/microsites/conferences/aic/en/agenda.html


Asian Daily

- 9 of 46 -

Regional

Asia Pacific Equity Strategy --------------------------------------------------------------------------------- New report: Malaysia has underperformed the region by 42% since taper. Time to Overweight? Sakthi Siva / Research Analyst / 65 6212 3027 / [email protected] Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected]

● While we upgraded Malaysia from zero weighting to Underweight on 2 December 2016 by adding Gamuda and IJM (our theme of adding ASEAN cyclicals), we are not yet tempted to move to Overweight for three reasons.

● One, valuations. While Malaysia has dropped out of the Expensive 4 club, it is just outside as the fifth-most overvalued market on our PBV-vs-ROE valuation model. Two, foreign investor capitulation has moderated. While foreigners are net sellers of Malaysia on a rolling 12-month basis, foreign investor capitulation currently is just 0.3% of market cap versus 1.6% in late 2015.

● Three, consensus EPS revisions. While in India’s case, investors appear willing to forgive the 2017E consensus EPS downgrades as being driven by demonetisation, we are not sure they will be as forgiving to Malaysia 0.6% downgrade in March versus the region’s 0.3% upgrade. Six of nine sectors in Malaysia are seeing downgrades in March.

● With Malaysia’s current ROE being 9.8% while implied ROE is 10.8%, we reiterate our Underweight call on Malaysia in an Asia Pacific context. Full report.

Figure 1: MSCI Malaysia/ MSCI Asia ex. Japan relative price performance

80

90

100

110

120

130

140

150

160

170

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

MSCI Malaysia vs MXASJ

High June 2013

-42%

Source: MSCI.

We reiterate our Underweight call on Malaysia

While we upgraded Malaysia from zero weighting to Underweight on 2 December 2016 (see our 2017 Outlook report) by adding Gamuda and IJM (our theme of adding ASEAN cyclicals), we are not yet tempted to move to Overweight for three reasons. One, valuations. While Malaysia has dropped out of the Expensive 4 club, it is just outside as the fifth-most overvalued market on our PBV-vs-ROE valuation model. Two, foreign investor capitulation has moderated. While foreigners are net sellers of Malaysia on a rolling 12-month basis, foreign investor capitulation currently is just 0.3% of market cap versus 1.6% in late 2015.

2017E Consensus EPS downgrades 2nd biggest after India

Three, consensus EPS revisions. While in India’s case, investors appear willing to forgive the 2017E consensus EPS downgrades as being driven by demonetisation, we are not sure they will be as forgiving to Malaysia’s 0.6% downgrade in March versus the region’s 0.3% upgrade. Six of nine sectors in Malaysia are seeing downgrades in March.

IJM and Gamuda top picks from the CS regional portfolio

With Malaysia’s current ROE being 9.8% while implied ROE is 10.8%, we reiterate our Underweight call on Malaysia in an Asia-Pacific context.

Figure 2: Countries sorted on our PBV-vs-ROE valuation model

-30%

-10%

10%

30%

50%

Kor

ea

MS

CI C

hina

Sin

gapo

re

Tha

iland

Hon

g K

ong

Tai

wan

Japa

n

Mal

aysi

a

Phi

lippi

nes

Aus

tral

ia

Indo

nesi

a

Indi

a

PB less ROE rel to Asia Pac ex-JP

Still the 5th mostovervalued market

Source: Company data, Credit Suisse estimates.

Figure 3: Malaysian rolling 12-month net foreign buying as % of mkt cap

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

Malaysia - net foreign buying as % of market cap (12 mths rolling)

-0.3% now

-1.6% Sep 2015

Source: Stock exchange of Malaysia.

Figure 4: Malaysia ROE—historical and implied

2%

4%

6%

8%

10%

12%

14%

16%

Dec-95 Dec-98 Dec-01 Dec-04 Dec-07 Dec-10 Dec-13 Dec-16

Malaysia - ROE

9.8% now

Implied ROE:

10.8%

Recent high 14.2% in 2010


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Asian Daily

- 10 of 46 -

Australia

Westpac ---------------------------------------------------------------------------------Maintain NEUTRAL As ever, wealth offers longer-term potential EPS: ◄► TP: ◄► Jarrod Martin / Research Analyst / 61 2 8205 4334 / [email protected] James Ellis / Research Analyst / 61 2 8205 4531 / [email protected] Brendon Ferreira / Research Analyst / 61 2 8205 4072 / [email protected]

● Following the wealth market update, we reiterate our A$34.00 TPt and NEUTRAL rating, with WBC highlighting near-term headwinds for their wealth business.

● Our view: Near term, WBC positioned the outlook for its wealth business cautiously, regarding compliance & restructuring spend and margin compression. Medium-term though wealth should generate improved performance metrics for WBC, emerging progressively throughout the forecast period as compliance and restructuring spend tapers, and targeted cost & capital efficiencies are realised. t

● WBC's structural positioning in wealth. It appears better positioned, lacking legacy life insurance exposure, group risk exposure, & wealth subsidiary double gearing of capital exposure.

● WBC appears committed to the sustained IT and compliance spend and to have avoided the degree of conduct-related issues in life insurance & advice impacting some of its peers.


Our view: Major banks and wealth management

Our (deflated) view on major bank involvement in wealth management is that it has fallen short of its purported promise: Namely, leverage to secular growth with an ageing demographic, and scope to enhance customer profitability through higher products per customer/longer life-time customer relationships (which in fact became complicated by deficiencies in bank sales & service cultures, remuneration structures, and privacy law constraints). Instead the involvement of commercial banks in wealth management has resulted in: (1) wealth earnings growth that has been lower and more volatile than banking earnings growth over time; (2) has generated in life insurance returns that typically have fallen short of group averages (with APRA's phasing out of wealth double-gearing further increasing the pressure here), whilst

(3) life insurance & advice have garnered a disproportionate share of conduct-related issues that the industry is contending with.

The implied strong earnings growth potential that underpinned the rationale for major bank landmark acquisitions in wealth during the 2000-02 period appeared to be undermined by selective industry mis-pricing of insurance risk, and technology reinvestment & compliance costs; the industry growth outlook for investments & superannuation (accumulation and pension phases) continues to be relatively strong, but on margins that are a fraction of those in commercial banking. Interestingly, WBC stated at its briefing that (relatively low) wealth product penetration in the banking customer base has reached a plateau given falling customer branch visit rates (-15%), which in turn has undermined the usual face-to-face forum for achieving such sales.

While acknowledging scope for banks sensibly offering wealth products for distribution, we were never convinced that commercial banks in Australia bring sustainable competitive advantage to the fund management product manufacturing function (in investment management) nor to the insurance underwriting risk function (in insurance). The group earnings leverage of major banks to wealth management, while material, is still subordinate to banking earnings.

Our view: WBC and wealth management

In this circumspect context, we are more positive on WBC's involvement in wealth management:

● WBC lacks much of a legacy life insurance exposure (group or income protection products), notably by virtue of its joint venturing off its life insurance business to AMP in the early 1990s, followed by a full divestment of this joint venture interest to AMP in 1996 (even if the current benefits of these events have come to WBC more by luck than design);

● WBC has avoided group risk exposures, which have generated negative experience variation for many of WBC's peers;

● WBC does not (and never did) carry any wealth management subsidiary double-gearing exposure, which is in the process of being phased out by the other major banks;

● WBC appears committed to the sustained technology and compliance spend necessary in wealth to sustain its market presence (over time such costs should create industry barriers to entry and scale economies that may ultimately lead to oligopolistic pricing power within the wealth industry, provided that margins are not excessively competed away in the interim period); and

● WBC appears to have avoided the degree of conduct-related issues in life insurance & advice impacting some of its peers.

(This is an extract from the Westpac report, published on 23 March

2017. For details, please see the CS Plus website.)

Bbg/RIC WBC AU / WBC.AX Rating (prev. rating) N (N) Shares outstanding (mn) 3,356.61 Daily trad vol - 6m avg (mn) 5.5 Daily trad val - 6m avg (US$ mn) 231.1 Free float (%) 99.1 Major shareholders

Price (24 Mar 17 , A$) 33.74 TP (prev. TP A$) 34.00 (34.00) Est. pot. % chg. to TP 1 52-wk range (A$) 35.1 - 28.2 Mkt cap (A$/US$ bn) 113.3/ 86.3


Absolute (%) (1.5) 3.4 9.4 Relative (%) 0.2 1.9 (2.9)

Year 09/15A 09/16A 09/17E 09/18E 09/19E

Pre-prov Op profit (A$ mn) 11,905.0 12,305.0 12,960.1 13,724.4 14,357.0 Net profit (A$ mn) 7,820 7,822 8,176 8,573 8,955 EPS (CS adj. A$) 2.44 2.28 2.36 2.45 2.54 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (A$) n.a. n.a. 2.41 2.49 2.58 EPS growth (%) 1.8 (6.4) 3.2 4.1 3.7 P/E (x) 13.8 14.8 14.3 13.8 13.3 Dividend yield (%) 5.5 5.6 5.6 5.6 5.6 BVPS (CS adj. A$) 16.7 17.4 18.0 18.7 19.5 P/B (x) 2.02 1.94 1.88 1.81 1.73 ROE (%) 15.8 14.0 13.8 13.7 13.5 ROA (%) 1.0 0.9 0.9 0.9 0.9 Tier 1 ratio (%) 11.4 11.2 11.0 11.0 11.2

Note 1: ORD/ADR=1.00. Note 2: Westpac Banking Corporation (Westpac) is a banking organization. The company provides a range of banking and financial services in these markets, including retail, business and institutional banking and wealth management services.

https://rave.credit-suisse.com/research/company/financials?ric=WBC.AX

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- 11 of 46 -

China

Brilliance China Automotive Holdings Limited ----------------------------Maintain NEUTRAL 2016 results in line; management guided to >20% YoY volume growth in 2017 EPS: ▲ TP: ▲ Bin Wang / Research Analyst / 852 2101 6702 / [email protected] Mark Mao / Research Analyst / 852 2101 6710 / [email protected]

● In line with the cross-read from BMW AG's results, Brilliance's 2016 net profit rose 5% YoY to Rmb3.7 bn. BMW JV's net profit rose 4.5% YoY to Rmb8.0 bn, due to a new generation X1 SUV's debut whose 2016 sales jumped 33% YoY and price discount fell notably.

● Management guided that BMW JV targets over 20% YoY volume growth in 2017, along with a worsened product mix (5-series sedan volume down 10-15% YoY due to old 5-series inventory clearance). It also guided its new energy vehicle related R&D expense would fall 25% YoY to around Rmb600 mn in 2017.

● We fine-tune our 2017-18 estimates by 0.3-1.7%, considering the above mentioned volume and R&D cost guidance, which has resulted in a slightly higher TP of HK$12.20 (from HK$12.10).

● Among the two luxury car plays, we prefer BAIC to Brilliance, given that: (1) Mercedes-Benz's appealing design is more sustainable than BMW's new model cycle, especially for a first-time luxury customer dominant market like China, and (2) BAIC's cheaper valuation at 7x 2017E P/E vs Brilliance's 10.5x 17E P/E.


On 11 November 2016, Audi AG signed a cooperation framework agreement with SAIC, the long-time partner of Volkswagen Group, implicating potentially to develop its second joint venture with SAIC in China. Moreover, SAIC-Audi may also develop their new dealer networks separately from the existing FAW-Audi distribution channels. Audi AG's decision has triggered a major backlash among FAW-Audi dealers—the discontented dealer union decided not to take cars from Audi and refused to complete Audi's 1Q and 2Q 2017 volume targets.

As a result, Audi's sales volume declined 27% YoY in January-February 2017, notably underperforming China luxury car market's 13% YoY growth in the same period. BAIC Benz and Brilliance BMW, as Audi's key rivals, gained shares amid the Audi-dealer disputes. Meanwhile, luxury car sales were not negatively impacted much by

the vehicle purchase tax rate increase, as most these cars are equipped with big engines (>1.6L).

Among the two luxury car plays—BAIC (1958 HK) and Brilliance (1114 HK)—we prefer BAIC to Brilliance, due to (1) Mercedes-Benz's more sustainable competitive edge from appealing exterior and internal design than BMW's model cycle, especially for a first-time luxury customer dominant market such as China; and (2) BAIC's cheaper valuation—7x 2017E P/E vs Brilliance' 10.5x 2017E P/E.

Figure 1: Brilliance BMW retail price discount by model

0%

5%

10%

15%

20%

25%

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

BMW 3 Series BMW 5 Series BMW 2 Series BMW X1

Source: Thinkercar

Figure 2: Brilliance BMW JV annual net profit outlook

4,650

6,871

11,072

7,654 7,997

11,478

14,631

16,590

35%

48%

61%

-31%

4%

44%

27%

13%

-40%

-20%

0%

20%

40%

60%

80%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2013 2014 2015 2016 2017e 2018e 2019e

Rmb Mn

BMW JV's earnings YoY growth

Source: Company data, Credit Suisse estimates

Bbg/RIC 1114 HK / 1114.HK Rating (prev. rating) N (N) [V] Shares outstanding (mn) 5,039.87 Daily trad vol - 6m avg (mn) 14.6 Daily trad val - 6m avg (US$ mn) 20.8 Free float (%) 57.4 Major shareholders Huachen

Price (24 Mar 17, HK$) 12.78 TP (prev. TP HK$) 12.20 (12.10) Est. pot. % chg. to TP (5) 52-wk range (HK$) 13.42 - 7.00 Mkt cap (HK$/US$ mn) 64,409.5/ 8,292.6


Absolute (%) 0.8 26.0 79.2 Relative (%) (0.6) 8.5 57.4

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 4,863 5,125 5,139 5,539 6,139 EBITDA (Rmb mn) (470.3) (471.8) (447.6) (495.4) (547.5) Net profit (Rmb mn) 3,495 3,682 5,430 6,938 7,854 EPS (CS adj. Rmb) 0.69 0.73 1.08 1.38 1.56 - Change from prev. EPS (%) n.a. n.a. 1.7 0.3 - Consensus EPS (Rmb) n.a. n.a. 0.93 1.15 1.53 EPS growth (%) (35.3) 5.4 47.5 27.8 13.2 P/E (x) 16.4 15.5 10.5 8.2 7.3 Dividend yield (%) 0.8 0 0 0 0 EV/EBITDA (x) (123.0) (123.8) (129.5) (115.0) (101.7) P/B (x) 2.9 2.4 2.0 1.6 1.3 ROE (%) 19.0 16.9 20.5 21.3 19.6 Net debt(cash)/equity (%) 3.5 5.5 2.8 (0.6) (3.5)

Note 1: ORD/ADR=50.00. Note 2: Brilliance, a proxy for the China luxury car sector, is involved in a 50:50 JV with BMW, and produces BMW 3-series, 5-series sedans and X1 SUV in China. It is also China's largest light bus maker.



Asian Daily

- 12 of 46 -

China Merchants Bank Co Ltd ------------------------------------------- Maintain OUTPERFORM 4Q16 results: In line; new NPL formation announced for the first time EPS: ◄► TP: ◄► Sanjay Jain / Research Analyst / 65 6306 0668 / [email protected] Eric Cui / Research Analyst / 852 2101 7071 / [email protected]

● FY16 net profit of Rmb62 bn (+7.6%) was in line with pre-announcement. 4Q16 NPAT growth picked up to 8.1% YoY from 7.6% in 3Q, boosted by strong non-int. income (53% YoY) and lower expense from VAT reform. FY dividend payout 30%, flat.

● For the first time, CMB reported NPL formation of 2.24% in 2016 (down 102 bp) and indicated each quarter saw a declining rate YoY. Special-mention/ overdue loan ratio dropped by 39/56 bp HoH to 2.09%/2.14%, while NPL ratio came flat QoQ at 1.87% partly due to stricter recognition (NPL/>90d overdue ratio 1.28x vs. 1.05 in 2015). Credit cost=228bp in 4Q and 212 bp for FY16.

● Retail business was further strengthened in 2016, with higher contribution of 57% in pre-tax profit (49% in 2015) and 48%/52% in revenue/fee income. Fee income momentum came from wealth mgmt., settlement and bank card business, likely to continue.

● The results suggest that new NPL formation may have peaked for now. The bank plans to keep CET1/Tier1/Total CAR above 9.5%/10.5%/12.5% by 2018. Retain Outperform rating.


New NPLs mainly originated from mining and manufacturing factors, together accounting for 25% of total. We believe these two sectors should see cash flow improvement on the back of commodity price rally.

CET1 ratio rose 71 bp YoY to 11.54% in 2016, partly thanks to its retail-focused strategy. However, CMB announced preference share issuance of no more than Rmb35 bn=104bp of AT1.

The stock trades at 1.04x 2017E P/B with a 4.2% cash yield.

Figure 1: Key financials snapshot-CMB Quarterly analysis Yearly analysis

(Rmb bn) 4Q15 3Q16 4Q16 QoQ (%) YoY (%) 2015 2016 YoY (%)

Net int. inc 36 33 34 1.9 (5.4) 138 135 (2.2)

Net fees 8 11 12 1.5 37.5 53 61 14.8

Non-int. inc 10 15 15 4.0 52.7 65 75 16.7

Revenue 46 48 49 2.5 7.2 202 210 3.8

Opex (19) (15) (19) 30.8 (1.3) (68) (65) (4.1)

- Opex excl. biz tax (17) (14) (18) 28.5 9.4 (56) (59) 4.9

PPOP 26 33 30 (10.2) 13.4 134 145 7.9

Provision (15) (11) (19) 61.5 20.9 (59) (66) 11.6

Attri.profits 9 17 10 (41.2) 8.1 58 62 7.6

Gross loan 2,824 3,173 3,262 2.8 15.5 2,824 3,262 15.5

Total asset 5,475 5,564 5,942 6.8 8.5 5,475 5,942 8.5

Total deposit 3,572 3,616 3,802 5.1 6.4 3,572 3,802 6.4

Loan/dep ratio 79 88 86 -2 pp 7 pp 79 86 7 pp

SML loans 74 na 68 na (8) 74 68 (8)

Overdue loan 80 na 70 na (13) 80 70 (13)

>90D overdue loan 45 na 48 na. 6 45 48 6

NPLs 47 59 61 3 29 47 61 29

Asset yield 4.59% 4.07% 3.69% -0.38% -0.90% 4.74% 4.00% -0.74%

Funding cost 1.93% 1.68% 1.45% -0.23% -0.48% 2.14% 1.63% -0.51%

NIM 2.82% 2.52% 2.39% -0.13% -0.43% 2.77% 2.50% -0.27%

Non-int. inc/revenue 22% 30% 31% 0% 9% 32% 36% 4%

CIR (excl. biz taxes) 36.4% 29.6% 37.1% 7.5% 0.8% 27.7% 28.0% 0.3%

Credit cost (bp) 206 142 228 86 22 215 212 (3)

ROA 0.69% 1.22% 0.69% -0.53% 0.00% 1.13% 1.09% -0.04%

ROE 10.4% 17.5% 10.0% -7.5% -0.4% 17.0% 16.2% -0.8%

SML ratio 2.61% na 2.09% na -0.52% 2.61% 2.09% -0.52%

Overdue ratio 2.85% na 2.14% na -0.70% 2.85% 2.14% -0.70%

>90D overdue ratio 1.59% na 1.47% na -0.12% 1.59% 1.47% -0.12%

NPL ratio 1.68% 1.87% 1.87% 0.01% 0.20% 1.68% 1.87% 0.20%

NPL/>90D overdue 1.05 na 1.28 na 0.22 1.05 1.28 0.22

NPL coverage 179% 186% 180% -6% 1% 179% 180% 1%

LLR/loans 3.32% 3.48% 3.37% -0.11% 0.06% 3.00% 3.37% 0.37%

CET1 ratio 10.83% 12.43% 11.54% -0.89% 0.71% 10.83% 11.54% 0.71%

Tier 1 ratio 10.83% 12.44% 11.54% -0.90% 0.71% 10.83% 11.54% 0.71%

CAR 12.57% 14.16% 13.33% -0.83% 0.76% 12.57% 13.33% 0.76% Source: Company data, Credit Suisse estimates.

Figure 2: Key financials comparison of China banks results (4Q16, %) CMB CITIC PAB CQRC BOCQ

YoY growth (%)

Revenues 7.2 1.7 2.9 (4.5) 5.1

- Net inc inomce (5.4) (3.9) 7.9 (6.9) 0.3

- Net fee income 37.5 17.7 (4.5) 28.4 26.7

Optg expenses (1.3) (16.6) (36.8) (13.5) (26.3)

Pre-prov.op.pr. 13.4 13.9 24.8 3.3 35.5

Provision 20.9 46.0 41.3 (13.3) 53.8

Net profits 8.1 (13.9) (9.7) 13.9 9.4

Gross loan 15.5 13.8 21.4 11.9 21.0

Total asset 8.5 15.8 17.8 12.0 16.7

Total deposits 6.4 14.3 10.8 10.2 15.2

Key ratios

NIM 2.39% 1.95% 2.72% 2.62% 2.31%

- QoQ chg (bp) (13) 0 6 (2) 4

Non-int. inc/revenes 31% 31% 15% 11% 21%

ROA 0.69% 0.49% 0.52% 0.85% 0.60%

ROE 10.0% 7.9% 7.4% 13.0% 9.1%

NPL ratio 1.87% 1.69% 1.74% 0.96% 0.96%

- QoQ chg (bp) 1 19 18 (0) (1)

SML ratio 2.09% 2.65% 4.11% 2.70% 3.96%

- HoH chg (bp) (39) 4 (22) 13 (146)

NPL coverage ratio 180% 156% 155% 428% 293%

LLR/loans 3.37% 2.62% 2.71% 4.10% 2.80%

NPL/>90d overdue 1.28 0.84 0.63 1.05 0.63

Credit cost (bp) 228 215 393 114 114

CET-1 ratio 11.54% 8.64% 8.36% 9.85% 9.82%

- QoQ chg (bp) (89) (37) (28) (6) (97)

CAR 13.3% 12.0% 11.5% 12.7% 11.8% Source: Company data, Credit Suisse estimates.

Bbg/RIC 3968 HK / 3968.HK Rating (prev. rating) O (O) Shares outstanding (mn) 25,220 Daily trad vol - 6m avg (mn) 14.7 Daily trad val - 6m avg (US$ mn) 37.1 Free float (%) 100.0 Major shareholders China Merchants

Stream Navigation Co. 12.40%; China

Ocean Shipping Group 6.22%




Year 12/14A 12/15A 12/16E 12/17E 12/18E

Pre-prov Op profit (Rmb mn) 104,954.0 134,209.0 143,715.7 159,436.2 174,265.8 Net profit (Rmb mn) 55,911 57,696 61,910 65,861 71,487 EPS (CS adj. Rmb) 2.22 2.29 2.45 2.61 2.83 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 2.41 2.62 2.86 EPS growth (%) (3.7) 3.2 7.3 6.4 8.5 P/E (x) 8.4 8.2 7.6 7.2 6.6 Dividend yield (%) 3.6 3.7 3.9 4.2 4.5 BVPS (CS adj. Rmb) 12.5 14.3 16.1 17.9 20.0 P/B (x) 1.50 1.31 1.16 1.04 0.93 ROE (%) 19.3 17.1 16.2 15.4 14.9 ROA (%) 1.3 1.1 1.1 1.1 1.1 Tier 1 ratio (%) 10.4 10.8 12.6 13.5 13.9

Note 1: ORD/ADR=5.00. Note 2: CMB Co Ltd provides a wide range of commercial banking services including deposit, loan, bill discount, government bonds underwriting and trading, interbank lending, letter of credit, bank guarantee, and other related services.



Asian Daily

- 13 of 46 -

China World Trade Center Co., Ltd.--------------------------------------------Maintain NEUTRAL Quality company with limited growth EPS: ▼ TP: ▼ Jizhou Dong, CFA / Research Analyst / 852 2101 6538 / [email protected] Alvin Wong / Research Analyst / 852 2101 6486 / [email protected] Kelvin Tam, CFA / Research Analyst / 852 2101 6582 / [email protected]

● China World Trade Center (CWTC) reported in-line FY16 results with 11.4% YoY growth in core profit, largely driven by improvement in margins (core margin +2.1 pp YoY). The company also declared a Rmb0.3 dividend per share, or 1.5% yield.

● CWTC’s rental income demonstrated healthy growth in FY16, especially for office (+7.8% YoY) and hotel (+4.9% YoY). However, we expect to see profit decline in 2017E due to lifted costs incurred by the initial completion of Phase III-B project.

● With the Phase III-B project gradually maturing over 2017-18, CWTC will see steady core profit growth (17-19E CAGR of 16.8%). However, the growth will mainly result from efficiency improvement of existing properties, rather than new expansion.

● Leveraging its unique assets located in Beijing’s core CBD, CWTC is equipped with good execution as well. On the other hand, given its limited growth potential and unattractive dividend yield, we maintain our NEUTRAL rating with a reduced TP of Rmb22.1 (from Rmb23.6). We also change our FY17E/18E earnings estimates by -36%/-38%.


In-line FY16 results with better margin

China World Trade Center (CWTC) reported in-line FY16 results. Revenue increased by 3.4% YoY to Rmb2.3 bn. Core profit increased by 11.4% YoY to Rmb687 mn. Core profit margin saw 2.1 pp improvement YoY to 29.2%. Meanwhile, the company declared a final dividend of Rmb0.3 per share, implying a 1.5% dividend yield based on the last close price.

Investment properties showed continuous improvement

CWTC’s rental income demonstrated healthy growth in FY16, especially for its office (+7.8% YoY) and hotel (+4.9% YoY) due to continued increase in the rental rates. However, we expect to see

profit decline in 2017E due to the lifted costs (such as marketing and financing costs) incurred by the initial completion of Phase III-B project.

Figure 1: CWTC operating data in FY16

LFA

(sqm)

Average Rental Rate

(Rmb / sqm / month) Average Occupancy

2016 2015 YoY

Chg 2016 2015

YoY

Chg

Office

Phase I 49,115 531 528 0.6% 97 97 0.1%

Phase II 35,218 509 520 -2.1% 98 97 0.3%

Phase III-A 82,587 664 580 14.5% 99 98 1.3%

Retail

Phase I 14,740 1,396 1,430 -2.4% 97 99 -1.4%

Phase II 3,888 817 959 -14.8% 93 100 -6.8%

Phase III-A 18,181 547 561 -2.5% 90 96 -5.9%

Phase III-B 26,169 408 - n.m 23 - n.m

Apartment 50,246 236 233 1.3% 88 85 2.4%

Hotel 278 r’m 1,633 1,713 -4.7% 63 59 3.8%


Limited growth potential after Phase III-B completion

With the Phase III-B project gradually maturing over 2017-18, CWTC will see steady core profit growth (17-19E CAGR of 16.8% under our estimate). However, the profit growth will mainly result from the efficiency improvement of the company’s existing properties, rather than from any new project expansion. We also do not expect other material growth in the near future.

Maintain NEUTRAL with a new target price of Rmb22.1

Leveraging its unique assets located in Beijing’s core CBD, CWTC is equipped with good execution capability as well. On the other hand, given its limited growth potential and unattractive dividend yield, we maintain our NEUTRAL rating of the company. We also reduce our target price to Rmb22.1 (from Rmb23.6) to factor in the lower margin forecasts in 2017E. Our target price is based on 40% discount to the FY17E net asset value estimate. We also change our FY17E/18E earnings estimates by -36%/-38%.

Figure 2: CWTC’s FY16 results summary FY16 FY15 YoY change (%)

Revenue (Rmb mn) 2,349 2,271 3.4%

Gross margin (%) 55.4% 51.3% 4.0 p.p.

Core profit (Rmb mn) 687 617 11.4%

Core margin (%) 29.2% 27.2% 2.1 p.p.

EPS (Rmb) 0.68 0.61 11.4%

DPS (Rmb) 0.30 0.20 50.0%

End 16 End 15 YoY change (%)

Total debt (Rmb mn) 3,000 3,327 -9.8%

Total cash (Rmb mn) 424 473 -10.4%

Equity (Rmb mn) 6,135 5,650 8.6%

Net gearing (%) 42.0% 50.5% -8.5 p.p.

BVPS (Rmb) 6.09 5.61 8.6% Source: Company data, Credit Suisse estimates

Bbg/RIC 600007 CH / 600007.SS Rating (prev. rating) N (N) Shares outstanding (mn) 1,007.28 Daily trad vol - 6m avg (mn) 2.9 Daily trad val - 6m avg (US$ mn) 8.1 Free float (%) 11.7 Major shareholders CWTC Company

(80.7%)

Price (23 Mar 17 , Rmb) 20.48 TP (prev. TP Rmb) 22.10 (23.60) Est. pot. % chg. to TP 8 52-wk range (Rmb) 23.8 - 15.0 Mkt cap (Rmb/US$ mn)

20,629.1/ 2,996.5


Absolute (%) 9.0 21.3 36.9 Relative (%) 9.8 16.6 28.1

Year 12/15A 12/16A 12/17E 12/18E 12/19E

EBITDA (Rmb mn) 1,218 1,264 1,163 1,285 1,450 Net profit (Rmb mn) 616.8 686.9 572.0 639.6 779.9 EPS (CS adj. Rmb) 0.61 0.68 0.57 0.63 0.77 - Change from prev. EPS (%) n.a. n.a. (36.2) (38.4) - Consensus EPS (Rmb) n.a. n.a. 0.74 0.87 EPS growth (%) 14.3 11.4 (16.7) 11.8 21.9 P/E (x) 33.4 30.0 36.1 32.3 26.5 Dividend yield (%) 1.0 1.5 1.4 1.6 1.9 EV/EBITDA (x) 19.3 18.4 19.7 17.5 15.2 ROE (%) 11.3 11.7 9.1 9.7 11.2 Net debt(cash)/equity (%) 50.5 42.0 35.2 27.4 18.6 NAV per share (Rmb) — 36.7 36.9 — — Disc./(prem.) to NAV (%) — 44.2 44.5 — —

Note 1: CWTC is a professional office, apartment and hotel landlord based in Beijing CBD area. Its China World Trade tower is the flagship building in Beijing CBD.

https://rave.credit-suisse.com/research/company/financials?ric=600007.SS


Asian Daily

- 14 of 46 -

Dali Foods Group --------------------------------------------------------------------Maintain NEUTRAL 2016 result in line; new soy milk showcased EPS: ◄► TP: ◄► Mark Mao / Research Analyst / 852 2101 6710 / [email protected] Michael Shen / Research Analyst / 852 2101 6711 / [email protected] Raymond Ching / Research Analyst / 852 2101 7852 / [email protected]

● In line with expectations, Dali 2016 earnings grew 8% YoY to Rmb3.1 bn. Revenue increased 6% YoY, gross margin expanded 3.9 pp, but was offset by higher selling expenses. Operating margin remained flat. We highlight that the company offered a 70% dividend payout, which implies a 4% dividend yield.

● By product, high-tiger sales increased 44% YoY, becoming the No.2 brand in the segment; herbal tea increased 6% YoY and remains the No.3 brand; biscuits sales achieved 10% growth, thanks mainly to cookies; chips increased by 5% with new products and packaging; plant based beverages declined 16% YoY due to sector deterioration and fierce competition.

● Dali showcased its new soy milk "Doubendou" today, which is likely to hit the market in April. It has three product series—organic, sugarless and original, targeting different pricing and client segment. It will have seven SKUs.

● We stay NEUTRAL with earnings forecast unchanged. We expect revenue to increase 5% in 2017E, as soy milk and high-tiger will drive the growth. Target price of HK$4.6 is derived from 17x 2017E P/E.


2017 outlook: Sales/earnings to grow 5%/2% YoY

Looking into 2017, we expect net earnings growth to decelerate to 2% (from 8% in 2016), because of (1) 5% top-line growth, driven by 4% growth of food segment and 11% growth of beverage segment, and (2) higher selling expense for new products branding.

New products are well known by investors, and it does take time to see earnings contribution

China soy milk is a fragmented market, with major players being local/regional companies and family-based street vendors. Dali estimates the market size of Rmb30-50 bn (about 10-15% of the milk market).

Dali will launch the new soy milk product in 2Q17. Current capacity is sufficient to support Rmb2-3 bn sales. Considering the ramp up period,

we believe it will still take time to see meaningful earnings contribution from soy milk.

We stay NEUTRAL with earnings forecast unchanged. Soymilk and High-tiger are two major products to drive sales. Our Target price is HK$4.6, which is based on 17x 2017E P/E.

Figure 1: Dali P&L and key products breakdown P&L (Rmb mn) 2015 2016 2017 2018 YoY 2016 YoY 2017

Revenue 16,865 17,842 18,669 19,701 6% 5%

COGS (11,049) (11,001) (11,201) (11,723) 0% 2%

Gross profit 5,816 6,840 7,468 7,978 18% 9%

SG&A (2,385) (3,219) (3,598) (3,805) 35% 12%

- Selling expense (2,046) (2,788) (3,224) (3,403) 36% 16%

- G&A (339) (431) (373) (402) 27% -13%

Operating profit 3,431 3,621 3,870 4,173 6% 7%

Finance expense (27) (5) (37) (39) -82% 694%

Other income 277 360 224 278 30% -38%

Profits before tax 3,681 3,977 4,057 4,412 8% 2%

Income tax (769) (840) (852) (926) 9% 1%

Net profit 2,912 3,137 3,205 3,485 8% 2%

Margin 2015 2016 2017 2018 YoY 2016 YoY 2017

Gross margin 34.5% 38.3% 40.0% 40.5% 3.9% 1.7%

Selling expanses 14.1% 18.0% 19.3% 19.3% 3.9% 1.2%

- Selling expense 12.1% 15.6% 17.3% 17.3% 3.5% 1.6%

- G&A 2.0% 2.4% 2.0% 2.0% 0.4% -0.4%

Operating margin 20.3% 20.3% 20.7% 21.2% 0.0% 0.4%

Finance expense -0.2% 0.0% -0.2% -0.2% 0.1% -0.2%

Other income 1.6% 2.0% 1.2% 1.4% 0.4% -0.8%

PBT margin 21.8% 22.3% 21.7% 22.4% 0.5% -0.6%

Tax rate 20.9% 21.1% 21.0% 21.0% 0.2% -0.1%

Net margin 17.3% 17.6% 17.2% 17.7% 0.3% -0.4%

By product 2015 2016 2017 2018 YoY 2016 YoY 2017

Revenue 16,865 17,842 18,669 19,701 6% 5%

- Food 9,519 9,765 10,178 10,754 3% 4%

- Beverage 7,346 7,645 8,490 8,946 4% 11%

- Others 432

Gross profit 5,816 6,840 7,468 7,978 18% 9%

- Food 2,888 3,340 3,562 3,818 16% 7%

- Beverage 2,928 3,487 3,906 4,160 19% 12%

- Others 14

Gross margin 34.5% 38.3% 40.0% 40.5% 3.9% 1.7%

- Food 30.3% 34.2% 35.0% 35.5% 3.9% 0.8%

- Beverage 39.9% 45.6% 46.0% 46.5% 5.7% 0.4%

- Others 3.2% Source: Company data, Credit Suisse estimates

Bbg/RIC 3799 HK / 3799.HK Rating (prev. rating) N (N) Shares outstanding (mn) 13,694 Daily trad vol - 6m avg (mn) 7.9 Daily trad val - 6m avg (US$ mn) 4.3 Free float (%) 15.0 Major shareholders Founder & family

85%



Absolute (%) 2.0 9.7 (1.3) Relative (%) 0.9 (7.5) (22.8)

Year 12/14A 12/15A 12/16E 12/17E 12/18E

Revenue (Rmb mn) 14,894 16,865 17,842 18,669 19,701 EBITDA (Rmb mn) 3,128 3,956 3,993 4,268 4,595 Net profit (Rmb mn) 2,077 2,912 3,137 3,205 3,485 EPS (CS adj. Rmb) 0.15 0.21 0.23 0.23 0.25 - Change from prev. EPS (%) n.a. n.a. 2.1 0 0 - Consensus EPS (Rmb) n.a. n.a. 0.23 0.24 0.27 EPS growth (%) 74.4 40.2 7.7 2.2 8.7 P/E (x) 26.4 18.8 17.5 17.1 15.7 Dividend yield (%) 0 3.2 4.0 4.1 4.5 EV/EBITDA (x) 17.3 12.0 11.7 10.6 9.8 P/B (x) 99.5 4.6 4.1 3.8 3.5 ROE (%) 90.6 46.8 24.9 23.2 23.3 Net debt(cash)/equity (%) (114.3) (62.5) (58.8) (65.1) (61.8)

Note 1: Dali Foods is a leading snack food and beverage company in China.



Asian Daily

- 15 of 46 -

Dongfang Electric Corporation Limited --------------------------------------Maintain NEUTRAL Big loss in 2016 after provision, largely in line EPS: ◄► TP: ◄► Edmond Huang, CFA / Research Analyst / 852 2101 6701 / [email protected] Amy Ji / Research Analyst / 852 2101 7735 / [email protected]

● DEC reported a net loss of Rmb1.78 bn in 2016, in line with its profit warning. We attribute the weak result to (1) weakening power equipment demand and intensifying competition, (2) loss for the wind power contracts entered previously, (3) increasing warrant expense, (4) ~Rmb1.5,bn asset impairment and (5) increase in provision for termination benefits.

● All segments except wind business registered double-digit sales decline. Gross margin contracted by 4.8 pp due to (1) lower ASP, (2) increasing contribution from low-margin wind business, (3) negative margin for several hydro and engineering projects.

● We maintain our cautious view on domestic coal-fired power equipment demand. While DEC recorded Rmb36.6 bn new order in 2016 (flat YoY), it implied 2H16 new order was weak (-47% YoY) with only Rmb 2.2bn new order for high efficiency & clean energy.

● We maintain our forecast. Our TP of HK$8.50 is based on 0.8x 2017E P/B given improved profitability on the back of injected asset and better cost control. Maintain NEUTRAL.


Rmb 1.78bn net loss in line with previous profit warning DEC reported a net loss of Rmb1.78 bn in 2016 compared to Rmb439 mn profit in 2015, within its profit warning range of Rmb 1.7-2.2 bn loss announced on 25 Jan 2017. Top line was down by 7.8%. We attribute the weak result to (1) a sluggish macro economy, weakening power equipment demand and intensifying competition, which

dragged down the ASP and gross margin in 2016, (2) loss for the wind power contracts entered previously, (3) a 50% increase in selling expense due to increasing warrant expenses. (4) ~Rmb1.5 bn asset impairment cost for account receivables and inventories, (5) increase in provision for termination benefits. Sales and margin still in the downtrend Only wind business registered robust growth (+115% YoY) from a low base, leading new energy business up by 73%. Besides, all other segments faced double-digit sales decline. Gross margin contracted by 4.8 pp to 12% in 2016. We think it is mainly due to (1) lower ASP for key products (such as thermal power equipment), (2) increasing contribution from low-margin wind business, (3) negative margin for several hydro and engineering projects. New order weak in 2H16 DEC recorded Rmb36.6 bn new order in 2016, flat YoY. However, implied 2H16 new order was weak, down 47% YoY with only Rmb2.2 bn new order for high efficiency and clean energy. We maintain our cautious view on domestic coal-fired power equipment demand. Maintain our forecast and NEUTRAL rating We maintain our forecast. Our TP of HK$8.50 is based on 0.8x 2017E P/B given improved profitability on the back of injected asset and better cost control. Maintain NEUTRAL.

Figure 1: 2016 result review

Rmb mn 2016 2015 YoY% 2H16 2H15 YoY%

High efficiency clean energy 19,674 23,032 -15% 8,534 10,939 -22%

New energy 7,937 4,585 73% 4,048 2,708 49%

Hydro & environmental 1,604 2,629 -39% 910 1,595 -43%

Construction & services 3,893 5,523 -30% 1,593 2,694 -41%

Turnover 33,286 36,018 -8% 15,066 17,813 -15%

Business tax (378) (330) 14% (268) (184) 46%

Net turnover 32,908 35,688 -8% 14,798 17,629 -16%

COGS (29,278) (29,960) -2% (13,069) (13,924) -6%

Gross profit 3,630 5,728 -37% 1,729 3,705 -53%

Distribution expenses (1,447) (965) 50% (936) (621) 51%

Admin expenses (3,563) (3,362) 6% (2,096) (1,916) 9%

Asset impairment (1,498) (1,665) -10% (844) 1,548) -45%

Others 45 154 -71% 54 131 -59%

EBIT reported (2,832) (110) 2481% (2,092) (249) 742%

JV & associates 246 166 49% 104 135 -23%

Finance expenses 641 477 34% 388 385 1%

Profit before tax (1,944) 533 -465% (1,600) 272 -689%

Tax 185 (73) -352% 178 0 40418%

Minority interest (25) (20) 22% (20) (1) 1527%

Reported profit (1,784) 439 -506% (1,443) 271 -633%

Gross margin 11.0% 16.1% 11.7% 21.0%

EBIT margin -8.6% -0.3% -14.1% -1.4%

Net margin -5.4% 1.2% -9.7% 1.5%


Valuation metrics Company Ticker Rating

(prev. Price TP

Chg Up/dn to TP

Year EPS Chg(%) EPS EPS grth (%) P/E (x) Div. yld (%)

ROE (%)

P/B (x)

rating) Local Target (%) (%) T T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+1 T+1

Dongfang Electric (H) 1072.HK N (N) 8.35 8.50 (8.50) 0 2 12/16 0.0 0.0 0.25 0.30 n.m. 16 29.1 25.1 — 2.8 0.8

Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

Bbg/RIC 1072 HK / 1072.HK Rating (prev. rating) N (N) Shares outstanding (mn) 2,676.90 Daily trad vol - 6m avg (mn) 1.9 Daily trad val - 6m avg (US$ mn) 1.8 Free float (%) 49.9 Major shareholders Dongfang Electric

Group




Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 35,688 32,908 37,846 38,010 37,847 EBITDA (Rmb mn) 877 (1790) 829 1,018 1,189 Net profit (Rmb mn) 316 (1983) 692 916 1,109 EPS (CS adj. Rmb) 0.14 (0.85) 0.25 0.30 0.36 - Change from prev. EPS (%) n.a. n.a. 0.0 0.0 - Consensus EPS (Rmb) n.a. n.a. 0.02 0.16 EPS growth (%) (76.1) n.m. n.m. 16.0 21.1 P/E (x) 53.4 n.m. 29.1 25.1 20.7 Dividend yield (%) 0.8 0 0 0 0 EV/EBITDA (x) 10.7 (0.5) (3.6) (4.9) (5.9) P/B (x) 0.7 0.8 0.8 0.8 0.7 ROE (%) 1.5 (9.0) 2.8 3.1 3.7 Net debt(cash)/equity (%) (76.6) (121.5) (103.5) (106.9) (109.6)

Note 1: ORD/ADR=10.00. Note 2: Dongfang Electric is a state-owned power equipment manufacturer, producing hydro, thermal, wind, nuclear power generation equipment, and environmental protection equipment. It is listed in both Shanghai and Hong Kong.



Asian Daily

- 16 of 46 -

Dynagreen Environmental Protection--------------------------------- Maintain OUTPERFORM FY16A results summary: Results slightly beat; improved operation EPS: ▼ TP: ▲ Joy Zhang / Research Analyst / 852 2101 7083 / [email protected] Trina Chen / Research Analyst / 852 2101 7031 / [email protected]

● Dynagreen's FY16 NP was Rmb356 mn (EPS Rmb0.341, up 57%

YoY). Excluding one-offs, recurring profit was Rmb353 mn, up 45%

YoY, 4% ahead of expectations due to lower finance cost.

● BOT construction revenue surged by 64% YoY in 2016A, yet was

18% lower than our expectation, likely due to recognition of

construction progress. Gross profit from treatment operation was

Rmb387 mn, 66% of the total, up 31% YoY, with 17% increase in

waste received, combined with better power sales/waste received.

● Dynagreen has 12 kt/d of projects in the pipeline (including 0.7 kt/d

announced in 2016, and 2.5 kt/d in long delay), vs. an operating

capacity of 8.45 kt/day. We expect its current project pipeline to

support 20% operational earnings growth from 2017-20E.

● We revise down 2017E EPS by 16% but revise up 2018E EPS by

11% to incorporate the latest new projects’ progress. Our revised

target price is HK$6.0/sh (from HK$5.7), mostly reflecting the

improved operational profit. Maintain OUTPERFORM.


Huizhou and Jixian projects started to operate in May 2016, adding the number of operating projects to ten. The company still has 4kt/d capacity under construction, including Beijing Tongzhou, which is expected to operate in 2018E. Projects including Shantou, Yulin, Miyun, Longhui and Hong’an with capacity of 4.2kt/d are under preparation for construction.

Figure 1: FY16 results summary—Dynagreen

FY16A FY15A YoY FY16E A vs. E

Revenue Rmb mn 1,874 1,258 49% 2,097 -11%

COGS Rmb mn (1,287) (840) 53% (1,504) -14%

Gross profit Rmb mn 587 418 41% 592 -1%

Other revenue Rmb mn 74 46 61% 73 1%

Admin cost Rmb mn (112) (98) 15% (116) -3%

Operating profit Rmb mn 548 365 50% 549 0%

Finance costs Rmb mn (120) (109) 10% (137) -12%

Income tax Rmb mn (71) (29) 142% (73) -2%

Net profit Rmb mn 356 227 57% 340 5%

Net profit-recurring Rmb mn 353 244 45% 340 4%

EPS Rmb/sh 0.341 0.217 57% 0.325 5%

EPS-recurring Rmb/sh 0.338 0.233 45% 0.325 4%

Revenue Rmb mn 1,874 1,258 49% 2,097 -11%

WTE construction Rmb mn 1,209 738 64% 1,480 -18%

WTE operation Rmb mn 521 397 31% 464 12%

Finance income Rmb mn 144 123 17% 153 -6%

Waste - received mn tons 3.17 2.71 17% 3.22 -1%

Power sales GWh 0.77 0.57 36% 0.67 14%

Power sales/waste received KWh/t 243 208 17% 210 16%

Unit ASP - WTE Rmb/t 244 217 12% 224 9%

Unit cash op cost- WTE Rmb/t 109 104 4% 106 2%

Unit EBIT adj-WTE Rmb/t 123 101 22% 106 16%

Gross profit Rmb mn 587 418 41% 592 -1%

WTE construction Rmb mn 200 123 63% 247 -19%

WTE operation Rmb mn 387 295 31% 345 12%

BOT construction income Rmb mn 200 123 63% 247 -19%

BOT NP in % of total NP % 34% 29% 5% 42% -8%

OCF-rpt Rmb mn (484) (429) 13% (136) 257%

Net debt Rmb mn 2,087 1,364 53% 1,937 8%

Net gearing, ex MI % 76% 57% 20% 70% 6%

A/R days days 98 131 -25% 131 -25%


Figure 2: Key assumptions and financials—Dynagreen 2015A 2016A 2017E 2018E 2019E

Capacity-WTE y.e. kt/day 5.85 8.45 8.95 15.51 17.32

Waste - incinerated mn tons 2.17 2.54 2.77 3.84 5.54

Power sold GWh 0.57 0.77 0.84 1.14 1.66

Power/waste-received KWh/t 208 243 242 237 239

Unit ASP - WTE Rmb/t 217 244 242 239 237

Unit EBIT adj-WTE Rmb/t 101 123 121 117 113

Revenue Rmb mn 1,258 1,874 2,264 3,129 2,273

WTE construction Rmb mn 738 1,209 1,544 2,148 873

WTE operation Rmb mn 397 521 540 752 1,134

Finance income Rmb mn 123 144 181 229 265

Net Profit Rmb mn 227 356 398 540 495

EPS Rmb/sh 0.217 0.341 0.381 0.516 0.474

EPS-operation Rmb/sh 0.153 0.225 0.236 0.316 0.400

EPS-EPC Rmb/sh - - - - -

EPS-BOT const Rmb/sh 0.064 0.116 0.145 0.200 0.074

% of operating profit % 71% 66% 62% 61% 84%

OCF-rpt Rmb mn (429) (484) 278 (366) 808

OCF-ex BOT Rmb mn (123) (112) 410 590 617

Free cash flow Rmb mn (430) (586) (544) (1,188) (15)

Gearing (D/(E+M)) Rmb mn 57% 76% 86% 108% 97%

ROE-rpt % 10% 14% 14% 16% 13%

ROIC % 8% 9% 9% 10% 8%


Bbg/RIC 1330 HK / 1330.HK Rating (prev. rating) O (O) Shares outstanding (mn) 1,045.00 Daily trad vol - 6m avg (mn) 1.6 Daily trad val - 6m avg (US$ mn) 0.8 Free float (%) 36.3 Major shareholders BSAM

Price (24 Mar 17 , HK$) 4.52 TP (prev. TP HK$) 6.00 (5.70) Est. pot. % chg. to TP 33 52-wk range (HK$) 4.52 - 3.22 Mkt cap (HK$/US$ mn) 4,723.4/ 608.1


Absolute (%) 21.2 35.7 21.2 Relative (%) 19.8 18.2 (0.6)

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 1,258 1,874 2,264 3,129 2,273 EBITDA (Rmb mn) 421 623 725 987 1,025 Net profit (Rmb mn) 226.8 356.5 397.9 539.6 494.9 EPS (CS adj. Rmb) 0.22 0.34 0.38 0.52 0.47 - Change from prev. EPS (%) n.a. n.a. (15.9) 11.2 (4.4) - Consensus EPS (Rmb) n.a. n.a. 0.39 0.42 EPS growth (%) 35.0 57.2 11.6 35.6 (8.3) P/E (x) 18.5 11.8 10.5 7.8 8.5 Dividend yield (%) 0 1.5 1.7 2.3 2.1 EV/EBITDA (x) 13.2 10.1 9.4 8.1 7.8 P/B (x) 1.7 1.5 1.4 1.2 1.1 ROE (%) 9.9 13.8 13.7 16.3 13.2 Net debt(cash)/equity (%) 56.6 76.0 85.5 107.7 97.2

Note 1: Dynagreen is principally engaged in the waste-to-energy project construction and operation services.



Asian Daily

- 17 of 46 -

Great Wall Motor ---------------------------------------------------------------------Maintain NEUTRAL 2016 results in line; 'red pocket' program likely to hurt margin EPS: ▲ TP: ▲ Bin Wang / Research Analyst / 852 2101 6702 / [email protected] Mark Mao / Research Analyst / 852 2101 6710 / [email protected]

● In line with preliminary result announcement, Great Wall's 2016 net profit jumped 31% YoY to Rmb10.55 bn. Growth was driven by 26.4% YoY volume growth and 3% YoY ASP increase, while its net margin was flat YoY at 11% due to a combination of improving product mix and the tagged price cut of H2 and H6.

● Great Wall kicked off 2017 weakly with Jan and Feb's combined volume up 13% YoY, below 17% YoY full-year 2017 growth target. Statistic from Thinkercar showed that Great Wall's weak sales continued in March 2017 – up 3% YoY in the first three weeks.

● As a result, Great Wall kicked off the Rmb1 bn "red-pocket" cash incentive program on 16 March. Customers can win Rmb1K-5K lucky draws if they purchase the Haval-series SUVs (H2 /H5 /H6 /H7 /H8 /H9). Great Wall also lowered interest rates on auto finance.

● Thus, we lower our gross margin assumption by 1 pp along with a higher volume assumption. Considering the company's volume guidance on WEY brand (monthly 10K unit by end-2017), we revise up 2017-18 EPS by 3-6%, resulting in a higher TP of HK$8.7 (from HK$7.4).


We rate Great Wall a NEUTRAL due to a combination of factors (1) concerns about Great Wall's margins due to a sector-wide price war; and (2) some relief from the in-house transmission plant and potential

● China passenger vehicle sales growth further decelerated in Mar— first three weeks' wholesales (from auto makers to dealers) rose 5% YoY, as compared to Nov-16/Dec-16/Jan+Feb's 21%/ 11%/ 8% YoY. After two months' restocking at the dealer level (around 200k units), dealers generally increase price discount in March at their own cost, i.e., Roewe RX5 SUVs started offering an

Rmb5,000 discount. Car makers—Great Wall —whose YTD17

sales growth was below their full-year growth targets, had kicked off a heavy promotion campaign. Great Wall kicked off its Rmb1.0 bn "red pocket" program on 16 Mar, which offered Rmb1k-5k discount for H2, H5, H6, H6 coupe, H7, H8 and H9 along with the

existing Rmb5k for H1. Considering the escalating sector-wide price fight, we see downside risk in both consensus earnings estimate and sentiment on stocks.

● Some relief from in-house transmission plant. Great Wall will start producing 7-speed dual-clutch transmission (DCT) in 1H 2017, which will gradually replace the currently outsourced 6-speed automated transmission (from Hyundai Power Tech, HPT) and the 6-speed dual-clutch transmission (from Getrag). This vertical integration move is likely to result in some cost saving.

Figure 1: Great Wall Motor passenger vehicle sales in Mar. first 3 weeks

(unit) Mar-17 Mar-16 Feb-17 YoY MoM

1-17 1-18 1-24

13 14 17

Total Sales 40,478 42,438 55,112 3% -4.0%

SUV 39,932 40,249 54,606 7% -4%

Haval H1 1,543 3,715 1,214 -55% 66%

Haval H2 14,361 8,970 20,308 72% -8%

Haval H5 484 1,053 672 -51% -6%

Haval H6 20,798 25,745 28,383 -13% -4%

Haval H7 1,870 0 3,108 -21%

Haval H8 371 357 418 12% 16%

Haval H9 505 409 503 33% 31%

Sedan 546 2,189 506 -73% 41% Source: Thinker car, Credit Suisse estimates.

Figure 2: Great Wall earnings and gross margin outlook

3,426

5,692

8,224 8,042 8,059

10,551

8,819 8,747 22%24%

26% 25%22%

22%

19% 18%

0%

5%

10%

15%

20%

25%

30%

-

2,000

4,000

6,000

8,000

10,000

12,000

2011 2012 2013 2014 2015 2016 2017E 2018E

Rmb mn

Earnings Gross margin Source: Company data, Credit Suisse estimates.

Bbg/RIC 2333 HK / 2333.HK Rating (prev. rating) N (N) [V] Shares outstanding (mn) 9,127.27 Daily trad vol - 6m avg (mn) 49.7 Daily trad val - 6m avg (US$ mn) 53.1 Free float (%) 44.0 Major shareholders Wei Jianjun

Price (24 Mar 17 , HK$) 9.10 TP (prev. TP HK$) 8.70 (7.40) Est. pot. % chg. to TP (4) 52-wk range (HK$) 9.90 - 5.54 Mkt cap (HK$/US$ bn) 113.2/ 14.6



Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 73,147 94,783 113,689 124,600 123,948 EBITDA (Rmb mn) 11,781 15,414 13,555 13,950 14,385 Net profit (Rmb mn) 8,059 10,551 8,819 8,747 8,751 EPS (CS adj. Rmb) 0.88 1.16 0.97 0.96 0.96 - Change from prev. EPS (%) n.a. n.a. 3.1 6.2 - Consensus EPS (Rmb) n.a. n.a. 1.11 1.14 1.14 EPS growth (%) 0.2 30.9 (16.4) (0.8) 0.0 P/E (x) 9.1 7.0 8.4 8.4 8.4 Dividend yield (%) 3.4 4.3 3.6 3.6 3.6 EV/EBITDA (x) 8.3 6.4 7.1 6.7 6.2 P/B (x) 1.9 1.6 1.4 1.2 1.1 ROE (%) 22.4 24.6 17.5 15.5 14.0 Net debt(cash)/equity (%) (8.6) (3.9) (7.5) (12.0) (17.5)

Note 1: ORD/ADR=10.00. Note 2: Great Wall is China's leading local brand passenger vehicle maker. The company is now the largest SUV and pick-up producer in China, and is diversifying its product portfolio to sedan segment.



Asian Daily

- 18 of 46 -

Guangfa Securities - A ----------------------------------------------------- Downgrade to NEUTRAL FY16 results: strong IBD and asset management to offset weak investment trading EPS: ▼ TP: ▼ Steven Zhu / Research Analyst / 852 2101 6535 / [email protected] Charles Zhou, CFA / Research Analyst / 852 2101 6177 / [email protected]

● GFS's net profit reached Rmb8 bn in FY16 (down 39% YoY, better than sector's 50%), in line with consensus. This implies a 14% QoQ decline in 4Q16 earnings, likely hurt by bond correction.

● IBD and asset management segments remain the key earnings driver. Their revenue grew 55% and 16% YoY respectively in FY16, mainly thanks to GFS's strong IPO pipeline (rank #2 among peers) and active management capability (~70% of total AUM).

● GFS reported Rmb123 mn loss in FV change in financial assets in 2H16, suggesting some impacts from falling bond price in 4Q. GFS has cut down on-B/S bond balance to Rmb89 bn (down 12% HoH) and its prop fixed income to net capital ratio declined to 157% in FY16 (-56 pp YoY). Given 49% of bond assets classified as AFS (vs. peers' 20%), it still implies earnings uncertainty if GFS sells these bonds amid an unfavourable bond market.

● We revise down FY17E/18E EPS by 13% and 19% to factor in bond market correction and regulatory tightening in placement & asset management. We downgrade GFS-A to NEUTRAL and lower our TP to Rmb17.5 due to demanding valuation.


Strong IBD and AM to offset weak investment trading

GFS reported stronger-than-peers revenue growth in IBD and asset management segments, up 55% and 16% YoY respectively in FY16 (vs. CITICS's 20% / 4% and CICC's 23% / -10%), mainly supported by its strong IPO pipeline (rank #2 among peers) and decent active management capability (~70% of total AUM). However, the investment trading showed weakness in 2H16 with Rmb123 mn loss, largely due to bond market correction in 4Q16. GFS has one of the highest investment exposure in bonds and only 51% of bond assets are classified as trading (vs. peers' ~80%). Though it has cut down on-B/S bond balance to Rmb89 bn in FY16 (-12% HoH), we expect the earnings pressure to persist if GFS is forced to sell these bonds amid an unfavourable market going forward.

Figure 1: GFS' results snapshot Results (Rmb mn) 2014 2015 2016 YoY 1H16 2H16 HoH

Gross op income 13,058 33,157 20,309 -39% 9,928 10,381 5%

Brokerage 5,053 13,721 5,381 -61% 2,851 2,531 -11%

IB 1,742 2,113 3,281 55% 1,408 1,873 33%

AM 1,123 3,593 4,158 16% 2,017 2,141 6%

NII 1,499 2,930 728 -75% 163 565 246%

Trading 3,577 10,322 6,530 -37% 3,382 3,147 -7%

Others 63 478 231 -52% 107 124 16%

Opex (6,842) (15,767) (10,186) -35% (4,844) (5,342) 10%

OP income 6,216 17,389 10,123 -42% 5,084 5,040 -1%

NPAT 5,023 13,201 8,030 -39% 4,030 4,000 -1%

Key metrics

ROAE 13.5% 22.5% 10.3% -12.2% 10.6% 10.5% -0.1%

ROAA 2.9% 4.1% 2.2% -2.0% 2.2% 2.2% 0.0%

Total leverage(x) 6.06 5.41 4.58 -82% 4.80 4.58 -22%

CIR 52% 48% 50% 3% 49% 51% 3%

Investment yield 6.7% 8.5% 3.9% -4.6% 3.9% 3.9% 0.0%

Net commission rate(bp) 6.5 4.8 3.7 -23% 3.80 3.52 -28%

Figure 2: GFS's market share change in different segments

4.8

2.9

5.9

2.4

5.7

4.5 4.4 4.3

5.1

3.7

5.8

4.1

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Brokerage IPO Follow-ups Bond MF AM

2015 2016

Source: Company data, Credit Suisse research.

Figure 3: GFS's on-B/S bond investment balance shrunk in 2H16

67

92 101

89

0%

50%

100%

150%

200%

250%

-

50

100

150

1H15 FY15 1H16 FY16

Bond investment balance (Rmb bn) FIS % of net capital (RHS)

Source: Company data, Credit Suisse research.

Bbg/RIC 000776 CH / 000776.SZ Rating (prev. rating) N (O) [V] Shares outstanding (mn) 7,621.09 Daily trad vol - 6m avg (mn) 3.4 Daily trad val - 6m avg (US$ mn) 7.6 Free float (%) 28.7 Major shareholders Liaoning Chengda

21.12%; Jilin Aodong 21.03%

Price (24 Mar 17 , Rmb) 17.27 TP (prev. TP Rmb) 17.50 (22.40) Est. pot. % chg. to TP 1 52-wk range (Rmb) 19.8 - 15.2 Mkt cap (Rmb/US$ bn) 127.6/ 18.5


Absolute (%) (3.1) 1.8 5.8 Relative (%) (3.6) (3.2) (3.4)

Year 12/14A 12/15A 12/16E 12/17E 12/18E

Pre-prov Op profit (Rmb mn) 6,216.1 17,389.4 10,123.4 11,080.5 12,523.5 Net profit (Rmb mn) 5,023 13,201 8,030 8,894 10,024 EPS (CS adj. Rmb) 0.85 1.87 1.05 1.17 1.32 - Change from prev. EPS (%) n.a. n.a. (4) (13) (19) - Consensus EPS (Rmb) n.a. n.a. 1.08 1.24 1.51 EPS growth (%) 78.6 120.6 (43.7) 10.8 12.7 P/E (x) 20.4 9.2 16.4 14.8 13.1 Dividend yield (%) 1.2 5.0 2.0 2.2 2.5 BVPS (CS adj. Rmb) 6.4 9.8 10.1 10.9 11.8 P/B (x) 2.71 1.76 1.72 1.59 1.46 ROE (%) 14.0 23.5 10.6 11.1 11.6 ROA (%) 2.8 4.0 2.1 2.4 2.5 Tier 1 ratio (%) — — — — —

Note 1: GF Securities Company Limited is a company principally engaged in securities business. The Company operates its businesses through securities brokerage; investment banking business; asset management; bond selling and trading; stock distribution.



Asian Daily

- 19 of 46 -

Guangfa Securities - H ----------------------------------------------------- Maintain OUTPERFORM FY16 results: Strong IBD and asset management to offset weak investment trading EPS: ▼ TP: ▼ Steven Zhu / Research Analyst / 852 2101 6535 / [email protected] Charles Zhou, CFA / Research Analyst / 852 2101 6177 / [email protected]

● GFS's net profit reached Rmb8 bn in FY16 (down 39% YoY, better than sector's 50%), in line with consensus. This implies a 14% QoQ decline in 4Q16 earnings, likely hurt by bond correction.

● IBD and asset management segments remain the key earnings driver. Their revenue grew 55% and 16% YoY, respectively, in FY16, mainly thanks to GFS's strong IPO pipeline (rank #2 among peers) and active management capability (~70% of total AUM).

● GFS reported Rmb123 mn loss in FV change in financial assets in 2H16, suggesting some impact from falling bond price in 4Q. GFS has cut down on-B/S bond balance to Rmb89 bn (down 12% HoH) and its prop fixed income to net capital ratio declined to 157% in FY16 (-56 pp YoY). Given 49% of bond assets classified as AFS (vs. peers' 20%), it still implies some earnings pressure if GFS sells these bonds amid unfavourable bond market.

● We revise down FY17E/18E EPS by 13% and 19% to factor in weaker-than-expected market turnovers, bond market correction and regulatory tightening in placement and asset management. Stay Outperform and revise down TP to HK$19.5 (from HK$21.6).


Valuation metrics Company Ticker Rating Price Year P/E (x) P/B

(x)

Local Target T T+1 T+2 T+1

GF Securities (H) 1776.HK O (O) 16.82 19.50 (21.60) 12/15 14.1 12.8 1.5


Strong IBD and AM to offset weak investment trading

GFS reported stronger-than-peers revenue growth in IBD and asset management segments, up 55% and 16% YoY, respectively, in FY16 (vs. CITICS's 20% / 4% and CICC's 23% / -10%), mainly supported by its strong IPO pipeline (rank #2 among peers) and decent active management capability (~70% of total AUM). However, the investment trading showed weakness in 2H16 with Rmb123 mn loss, largely due to bond market correction in 4Q16. GFS has one of the highest

investment exposure in bonds and only 51% of bond assets are classified as trading (vs. peers' ~80%). Though it has cut down on-B/S bond balance to Rmb89 bn in FY16 (-12% HoH), we expect the earnings pressure to persist if GFS is forced to sell these bonds amid unfavourable market going forward.

Figure 1: GFS' results snapshot Results (Rmb mn) 2014 2015 2016 YoY 1H16 2H16 HoH

Gross op income 13,058 33,157 20,309 -39% 9,928 10,381 5%

Brokerage 5,053 13,721 5,381 -61% 2,851 2,531 -11%

IB 1,742 2,113 3,281 55% 1,408 1,873 33%

AM 1,123 3,593 4,158 16% 2,017 2,141 6%

NII 1,499 2,930 728 -75% 163 565 246%

Trading 3,577 10,322 6,530 -37% 3,382 3,147 -7%

Others 63 478 231 -52% 107 124 16%

Opex (6,842) (15,767) (10,186) -35% (4,844) (5,342) 10%

OP income 6,216 17,389 10,123 -42% 5,084 5,040 -1%

NPAT 5,023 13,201 8,030 -39% 4,030 4,000 -1%

Key metrics

ROAE 13.5% 22.5% 10.3% -12.2% 10.6% 10.5% -0.1%

ROAA 2.9% 4.1% 2.2% -2.0% 2.2% 2.2% 0.0%

Total leverage(x) 6.06 5.41 4.58 -82% 4.80 4.58 -22%

CIR 52% 48% 50% 3% 49% 51% 3%

Investment yield 6.7% 8.5% 3.9% -4.6% 3.9% 3.9% 0.0%

Net commission rate(bp) 6.5 4.8 3.7 -23% 3.80 3.52 -28% Source: Company data, Credit Suisse research.

Figure 2: GFS's market share change in different segments

4.8

2.9

5.9

2.4

5.7

4.5 4.4 4.3

5.1

3.7

5.8

4.1

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Brokerage IPO Follow-ups Bond MF AM

2015 2016 Source: Company data, Credit Suisse research.

Figure 3: GFS's on-B/S bond investment balance shrunk in 2H16

67

92 101

89

0%

50%

100%

150%

200%

250%

-

50

100

150

1H15 FY15 1H16 FY16

Bond investment balance (Rmb bn) FIS % of net capital (RHS) Source: Company data, Credit Suisse research.

Bbg/RIC 1776 HK / 1776.HK Rating (prev. rating) O (O) Shares outstanding (mn) 7,621.09 Daily trad vol - 6m avg (mn) 3.4 Daily trad val - 6m avg (US$ mn) 7.6 Free float (%) 28.7 Major shareholders Liaoning Chengda

21.12%; Jilin Aodong 21.03%



Absolute (%) (2.9) 5.3 (6.8) Relative (%) (5.3) (12.3) (28.6)

Year 12/14A 12/15A 12/16E 12/17E 12/18E

Pre-prov Op profit (Rmb mn) 6,216.1 17,389.4 10,123.4 11,080.5 12,523.5 Net profit (Rmb mn) 5,023 13,201 8,030 8,894 10,024 EPS (CS adj. Rmb) 0.85 1.87 1.05 1.17 1.32 - Change from prev. EPS (%) n.a. n.a. (4) (13) (19) - Consensus EPS (Rmb) n.a. n.a. 1.07 1.25 1.52 EPS growth (%) 78.6 120.6 (43.7) 10.8 12.7 P/E (x) 17.6 8.0 14.1 12.8 11.3 Dividend yield (%) 1.3 5.8 2.3 2.6 2.9 BVPS (CS adj. Rmb) 6.4 9.8 10.1 10.9 11.8 P/B (x) 2.34 1.52 1.48 1.37 1.26 ROE (%) 14.0 23.5 10.6 11.1 11.6 ROA (%) 2.8 4.0 2.1 2.4 2.5 Tier 1 ratio (%) — — — — —

Note 1: GF Securities Company Limited is a company principally engaged in securities business. The Company operates its businesses through securities brokerage; investment banking business; asset management; bond selling and trading; stock distribution.



Asian Daily

- 20 of 46 -

Hilong ---------------------------------------------------------------------------- Maintain OUTPERFORM FY16 results a miss; expect near-term weakness, but recovery story remains intact EPS: ▼ TP: ▼ Horace Tse / Research Analyst / 852 2101 7379 / [email protected] Jessie Xu / Research Analyst / 852 2101 7650 / [email protected] Beatrice Lam / Research Analyst / 852 2101 7693 / [email protected]

● Hilong’s FY16 results were a miss and are 16% below CS/consensus estimates. FY16 net profit came in at Rmb125 mn, down 23% YoY. FY16 dividend payout was cut to 12% (from 18%), causing a 47% YoY decline in dividend payment.

● The main drag was due to higher finance costs, where Hilong recorded Rmb157 mn of FX loss from financing activities. In addition, core operating profit was 11% below our estimates after stripping out an Rmb222 mn FX gain booked in other gains. Oilfield Svcs and Offshore Engineering are the two segments facing weaker margins.

● We think Hilong’s share price should be under pressure in the near term, but with the strong order wins YTD particularly in Russia & Central Asia, the recovery story remains intact. We assume a 35% YoY increase in drill pipe volumes in 2017. Our 2017-18 earnings are cut by 13-17% post model update.

● Our TP is lowered to HK$2.4 (from HK$2.7) as we lower our target multiple to 1.1x 2017E P/B (from 1.3x) to reflect the weaker-than-expected profitability. Maintain OUTPERFORM.


FY16 results a miss, dividend payout declined

Hilong reported FY16 results on 24 March evening where the headline FY16 earnings were a miss. FY16 net profit of Rmb125 mn (-23% YoY) was 16% below CS & consensus estimates although top line was broadly in line. On the operating profit level, the headline OP came in at Rmb493 mn and appears to be ahead of our estimate of Rmb393 mn. Nevertheless, there is an Rmb222 mn of exchange gain booked in the other gains line on the P&L (above operating profit), and if we strip this out, actual operating profit would have been 11% below our estimates.

Another negative aspect is the dividend cut – FY16 payout saw a 6 pp decrease YoY to 12% (vs 18% in FY15). Coupled with the decline in net profit, this means that FY16 dividend payment will see a 47% YoY decline.

Figure 1: Hilong – FY16 results summary

(Rmb mn) 2016 2015 YoY% 2H16 YoY% HoH%

Revenue 1,929 2,484 -22% 1,007 -15% 9%

Oilfield Equipment Manufacturing 781 676 15% 379 12% -6%

Line Pipe Technology 371 295 26% 229 22% 62%

Oilfield Services 709 923 -23% 364 -24% 6%

Offshore Engineering Services 68 590 -88% 35 -81% 5%

Operating profit 557 483 15% 298 0% 15%

Oilfield Equipment Manufacturing 274 147 86% 109 -28% -34%

Line Pipe Technology 63 30 111% 56 77% 648%

Oilfield Services 222 225 -2% 131 -1% 44%

Offshore Engineering Services (2) 80 n/m 2 -113% -156%

Corporate Overheads (65) (58) -11% (34) -18% -7%

Net profit 125 161 -23% 58 -30% -14%

EPS (Rmb) 0.07 0.09 -23% 0.03 -30% -14%

Dividend 15 28 -47% - - -

Payout ratio (%) 12% 18% -5.5% - - -


New businesses were the weakest link, traditional businesses resilient

Segment-wise, Offshore Engineering was the weakest link where 2016 revenue fell 88% YoY and swung into loss-making on the OP level. Oilfield Services (i.e., land rigs) was also weaker than expected – our calculation suggests that rig dayrates have seen a 25% YoY decline in 2016. Oilfield Equipment Manufacturing (i.e., drill pipes) and Line Pipe Technology (i.e., coating) were in line with our expectations.

Near-term share price weakness expected, but we retain our OUTPERFORM rating

Given the earnings miss, Hilong’s share price should be under pressure in the near term, in our view. However we still believe that Hilong’s recovery story remains intact, driven by the strong order win momentum seen YTD in the Russia market and Central Asia (Uzbekistan). Our 2017-18 earnings are cut by 13-17% post model update. Our TP is lowered to HK$2.4 (from HK$2.7) as we lower our target multiple to 1.1x 2017E P/B (from 1.3x) to reflect the weaker-than-expected profitability. Maintain OUTPERFORM.

Figure 2: Hilong – P/B vs ROE chart

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0.0

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1.0

1.5

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3.5

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Hilong - P/B (LHS) Hilong - ROE (RHS)

(x)


Bbg/RIC 1623 HK / 1623.HK Rating (prev. rating) O (O) [V] Shares outstanding (mn) 1,696.44 Daily trad vol - 6m avg (mn) 4.7 Daily trad val - 6m avg (US$ mn) 1.1 Free float (%) 37.9 Major shareholders Zhang Jun 62%

Price (24 Mar 17 , HK$) 1.99 TP (prev. TP HK$) 2.40 (2.70) Est. pot. % chg. to TP 21 52-wk range (HK$) 2.53 - 0.78 Mkt cap (HK$/US$ mn) 3,375.9/ 434.7


Absolute (%) 17.8 (5.2) 114.0 Relative (%) 16.5 (22.8) 92.1

Year 12/14A 12/15A 12/16E 12/17E 12/18E

Revenue (Rmb mn) 2,576 2,484 1,929 2,467 2,875 EBITDA (Rmb mn) 700.3 616.2 734.6 717.8 805.7 Net profit (Rmb mn) 417.4 144.3 127.7 202.5 252.9 EPS (CS adj. Rmb) 0.25 0.09 0.08 0.12 0.15 - Change from prev. EPS (%) n.a. n.a. (14.4) (16.8) (13.3) - Consensus EPS (Rmb) n.a. n.a. 0.09 0.13 0.17 EPS growth (%) 18.7 (65.4) (11.5) 58.6 24.9 P/E (x) 7.2 20.7 23.4 14.8 11.8 Dividend yield (%) 2.2 1.0 0.5 1.0 1.3 EV/EBITDA (x) 6.9 7.7 6.7 6.4 5.9 P/B (x) 1.0 1.0 0.9 0.9 0.8 ROE (%) 15.0 4.9 4.1 6.0 7.1 Net debt(cash)/equity (%) 58.2 54.8 55.4 44.2 44.5

Note 1: Hilong is the largest drill pipe manufacturer and OCTG coating materials supplier in China, and the second largest globally. Hilong is segregated into 3 business divisions - Drill Pipes, Coating Materials and Oilfield Services.



Asian Daily

- 21 of 46 -

Huaneng Power International Inc - A ------------------------------ Maintain UNDERPERFORM Industry leader confirming our concerns EPS: ▲ TP: ◄► Dave Dai, CFA / Research Analyst / 852 2101 7358 / [email protected] Gary Zhou, CFA / Research Analyst / 852 2101 6648 / [email protected] Gloria Yan / Research Analyst / 852 2101 7369 / [email protected]

● Three out of the four IPPs under our coverage have reported FY16 results with recurring earnings down 35-41% largely on tariff pressure. In FY17E, we expect higher average coal prices to be a bigger challenge.

● At the analyst briefing, Huaneng Power (HNP) expected unit coal cost to rise another 15-16% YoY in FY17 (flat in FY16), the most bearish guidance so far. We see likelihood of a net loss in 1Q17 as the higher coal price impact may have not been fully reflected in 4Q16.

● Tariff pressure remains but not a surprise. HNP expects low-tariff direct sales to account for 30-35% of FY17 output (25% in FY16) with narrowing discounts. Plus, utilisation may drop slightly with lasting industry oversupply.

● These forecasts are largely in line with our assumptions except that we forecast an 18% rise in coal cost with the latest CS house view. FY17-18E EPS are little changed even after adding recently purchased assets, which we expect to face similar earnings challenges. HNP is one of our top Underperforms in the IPP sector.


FY16 results miss consensus. Huaneng Power's (HNP) FY16 total net profit declined by 38% YoY to Rmb8.5 bn (in IFRS). Reported core earnings (in PRC GAAP) dropped by 41% YoY to Rmb7.98 bn, largely in line our estimate of Rmb7.8 bn but 10% below Bloomberg consensus estimate. In PRC GAAP, HNP turned into a loss of Rmb1.3 bn in 4Q16, the first loss since FY08. Revenue from power sales fell by 12% YoY largely due to a 2% output fall and an 11% tariff drop. Following the recent asset injection from parentco (completed on 1 January 2017), HNP grew its capacity by 15.6GW. Total fuel cost dropped by 4% YoY, along with output decline. Total unit fuel cost declined by 2% YoY partially helped by the gas prices drop. Interest expense declined by 14% thanks to the RMB interest rate cuts (average borrowing cost dropped to 4.27% in 2016). Total impairment loss was ~Rmb1.2 bn (in line with our expectation). Final dividend

declared was Rmb0.29 per share (38% YoY drop) and payout ratio remained at 52%.

Key guidance. At the analyst briefing held on 24 March, management provided key guidance for 2017: (1) the company expects coal price to increase by 15-16% YoY in 2017 (referring to government's price guidance at Rmb500-570/t), which confirms our concerns on the persisting cost pressure in this year. Management believes the current tariff adjustment frequency (once a year) is too low. (2) HNP's coal-fired utilisation hours may drop another 3% in FY17 to 3800 hours. (3) Direct power sales accounted for 25% of its power output in 2016, with an average discount of 6 cent/kWh (or 15%). Management expects direct supply to expand to 30-35% of its output in 2017. (4) Fifteen of its power plants were loss-making in FY16, accounting for 12% of its total capacity. (5) The company targets to install 5GW of wind and 1GW of solar power by 2020, and it currently hasn’t started to prepare for the coming green certificate trading and renewables portfolio standards, given few details at the moment. (6) There is currently no plan to increase the dividend payout ratio going forward.

Figure 1: Key FY17 guidance from coal-fired IPPs

HNP CRP DTP

Direct supply as % of FY16 output 25% 21% 19%

Direct supply as % of FY17E output 30-35% 35% >20%

Direct supply tariff discount in FY16 15% 11% 17%

Unit coal cost guidance for FY17E up 15-16% up 10-12% coal price stays high

Utilization hours for FY17E down 3% down slightly down slightly


Maintain UNDERPERFORM. Our FY17-18E EPS are little changed even after incorporating the recent asset injection (16GW in Shandong, Jilin & Heilongjiang, mainly thermal power), mostly offset by higher coal cost assumptions from CS commodity team. TP is unchanged at Rmb3.2. We expect increasing likelihood of a net loss in 1Q17 as the higher coal price impact may have not been fully reflected in 4Q16. We do not recommend buying the IPPs with valuation ~35% above trough. Additional risks that may not have been captured by the market are green certificates and carbon trade. HNP is one of our top Underperforms in the IPP sector.

Figure 2: Valuation summary

Company Ticker Rat. TP P/E P/B D/Y EPS

CAGR

17E 18E 17E 18E 16E 17E 18E 16-18E

HNP 600011.SS U 3.2 32.7 28.4 1.3 1.2 4.0 1.6 1.8 -32.6

HDP 600027.SS U 2.2 -129.5 34.8 1.1 1.1 2.7 0.0 1.1 -34.3

DTP 601991.SS U 1.5 80.3 52.8 1.5 1.5 0.0 0.0 0.0 n.a.


Bbg/RIC 600011 CH / 600011.SS Rating (prev. rating) U (U) Shares outstanding (mn) 15,200 Daily trad vol - 6m avg (mn) 33.5 Daily trad val - 6m avg (US$ mn) 21.9 Free float (%) 47.2 Major shareholders HIPDC 35.14%

Price (24 Mar 17 , Rmb) 7.25 TP (prev. TP Rmb) 3.20 (3.20) Est. pot. % chg. to TP (56) 52-wk range (Rmb) 8.05 - 7.04 Mkt cap (Rmb/US$ bn) 98.3/ 14.3


Absolute (%) (4.6) 2.3 (6.8) Relative (%) (5.9) (15.3) (28.6)

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 128,905 113,814 136,908 140,473 144,264 EBITDA (Rmb mn) 43,555 33,193 28,612 30,408 31,724 Net profit (Rmb mn) 13,685 8,546 3,368 3,882 4,184 EPS (CS adj. Rmb) 0.94 0.56 0.22 0.26 0.28 - Change from prev. EPS (%) n.a. n.a. 0.5 0.0 0.8 - Consensus EPS (Rmb) n.a. n.a. 0.41 0.41 0.50 EPS growth (%) 25.0 (40.4) (60.6) 15.3 7.8 P/E (x) 7.7 12.9 32.7 28.4 26.3 Dividend yield (%) 6.5 4.0 1.6 1.8 2.0 EV/EBITDA (x) 6.0 8.0 10.1 9.6 9.2 P/B (x) 1.3 1.3 1.3 1.2 1.2 ROE (%) 17.7 10.0 3.9 4.4 4.6 Net debt(cash)/equity (%) 160.1 163.6 183.4 179.7 175.7

Note 1: ORD/ADR=40.00. Note 2: Huaneng Power Int'l Inc. is principally engaged in the investment, construction, operation and management of power plants. The company’s electricity generation business covers Northeast China Grid, North China Grid, Northwest China Grid, East China.



Asian Daily

- 22 of 46 -

Huaneng Power International Inc - H ------------------------------ Maintain UNDERPERFORM Industry leader confirming our concerns EPS: ▲ TP: ◄► Dave Dai, CFA / Research Analyst / 852 2101 7358 / [email protected] Gary Zhou, CFA / Research Analyst / 852 2101 6648 / [email protected] Gloria Yan / Research Analyst / 852 2101 7369 / [email protected]

● Three out of four IPPs under our coverage have reported FY16 results with recurring earnings down 35-41% largely on tariff pressure. In FY17E, we expect higher average coal prices to be a bigger challenge.

● At the analyst briefing, Huaneng Power (HNP) expected unit coal cost to rise another 15-16% YoY in FY17 (flat in FY16), the most bearish guidance so far. We see likelihood of a net loss in 1Q17 as the higher coal price impact may have not been fully reflected in 4Q16.

● Tariff pressure remains but not a surprise. HNP expects low-tariff direct sales to account for 30-35% of FY17 output (25% in FY16) with narrowing discounts. Plus, utilisation may drop slightly with lasting industry oversupply.

● These forecasts are largely in line with our assumptions except that we forecast an 18% rise in coal cost with the latest CS house view. FY17-18E EPS are little changed even after adding recently purchased assets, which we expect to face similar earnings challenges. HNP is one of our top Underperforms in the IPP sector.


FY16 results miss consensus. Huaneng Power's (HNP) FY16 total net profit declined by 38% YoY to Rmb8.5 bn (in IFRS). Reported core earnings (in PRC GAAP) dropped by 41% YoY to Rmb7.98 bn, largely in line our estimate of Rmb7.8 bn but 10% below Bloomberg consensus estimate. In PRC GAAP, HNP turned into a loss of Rmb1.3 bn in 4Q16, the first loss since FY08. Revenue from power sales fell by 12% YoY largely due to a 2% output fall and an 11% tariff drop. Following the recent asset injection from parentco (completed on 1 January 2017), HNP grew its capacity by 15.6GW. Total fuel cost dropped by 4% YoY, along with output decline. Total unit fuel cost declined by 2% YoY partially helped by the gas prices drop. Interest expense declined by 14% thanks to the RMB interest rate cuts (average borrowing cost dropped to 4.27% in 2016). Total impairment loss was ~Rmb1.2 bn (in line with our expectation). Final dividend

declared was Rmb0.29 per share (38% YoY drop) and payout ratio remained at 52%.

Key guidance. At the analyst briefing held on 24 March, management provided key guidance for 2017: (1) the company expects coal price may increase by 15-16% YoY in 2017 (referring to government's price guidance at Rmb500-570/t), which confirms our concerns on the persisting cost pressure in this year. Management believes the current tariff adjustment frequency (once a year) is too low. (2) HNP's coal-fired utilisation hours may drop another 3% in FY17 to 3800 hours. (3) Direct power sales accounted for 25% of its power output in 2016, with an average discount of 6 cent/kWh (or 15%). Management expects direct supply to expand to 30-35% of its output in 2017. (4) Fifteen of its power plants were loss-making in FY16, accounting for 12% of its total capacity. (5) The company targets to install 5GW of wind and 1GW of solar power by 2020, and it currently hasn’t started to prepare for the coming green certificate trading and renewables portfolio standards, given few details at the moment. (6) There is currently no plan to increase dividend payout ratio going forward.

Figure 1: Key FY17 guidance from coal-fired IPPs

HNP CRP DTP

Direct supply as % of FY16 output 25% 21% 19%

Direct supply as % of FY17E output 30-35% 35% >20%

Direct supply tariff discount in FY16 15% 11% 17%

Unit coal cost guidance for FY17E up 15-16% up 10-12% coal price stays high

Utilization hours for FY17E down 3% down slightly down slightly


Maintain UNDERPERFORM. Our FY17-18E EPS are little changed even after incorporating recent asset injection (16GW in Shandong, Jilin & Heilongjiang, mainly thermal power), mostly offset by higher coal cost assumptions from CS commodity team. TP is unchanged at HK$3.5. We see increasing likelihood of a net loss in 1Q17 as the higher coal price impact may have not been fully reflected in 4Q16. We do not recommend buying the IPPs with valuation ~35% above trough. Additional risks that may not have been captured by the market are green certificates and carbon trade. HNP is one of our top Underperforms in the IPP sector.

Figure 2: Valuation summary

Company Ticker Rat. TP P/E P/B D/Y EPS

CAGR

17E 18E 17E 18E 16E 17E 18E 16-18E

HNP 0902.HK U 3.50 21.3 18.5 0.8 0.8 6.1 2.4 2.8 -32.6

HDP 1071.HK U 2.40 -78.7 21.2 0.7 0.7 4.4 0.0 1.9 -34.3

CRP 0836.HK U 9.80 12.8 13.2 1.0 1.0 6.1 6.1 6.1 -18.0

DTP 0991.HK U 1.70 32.8 21.6 0.6 0.6 0.0 0.0 0.0 n.a.


Bbg/RIC 902 HK / 0902.HK Rating (prev. rating) U (U) Shares outstanding (mn) 15,200 Daily trad vol - 6m avg (mn) 33.5 Daily trad val - 6m avg (US$ mn) 21.9 Free float (%) 47.2 Major shareholders HIPDC 35.14%



Absolute (%) — 8.6 (21.6) Relative (%) (1.3) (9.0) (43.5)

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 128,905 113,814 136,908 140,473 144,264 EBITDA (Rmb mn) 43,555 33,193 28,612 30,408 31,724 Net profit (Rmb mn) 13,685 8,546 3,368 3,882 4,184 EPS (CS adj. Rmb) 0.94 0.56 0.22 0.26 0.28 - Change from prev. EPS (%) n.a. n.a. 0.5 0.0 0.8 - Consensus EPS (Rmb) n.a. n.a. 0.42 0.40 EPS growth (%) 25.0 (40.4) (60.6) 15.3 7.8 P/E (x) 5.0 8.4 21.3 18.5 17.2 Dividend yield (%) 10.0 6.1 2.4 2.8 3.0 EV/EBITDA (x) 6.0 8.0 10.1 9.6 9.2 P/B (x) 0.8 0.8 0.8 0.8 0.8 ROE (%) 17.7 10.0 3.9 4.4 4.6 Net debt(cash)/equity (%) 160.1 163.6 183.4 179.7 175.7

Note 1: ORD/ADR=40.00. Note 2: Huaneng Power Int'l Inc. is principally engaged in the investment, construction, operation and management of power plants. The company’s electricity generation business covers Northeast China Grid, North China Grid, Northwest China Grid, East China.



Asian Daily

- 23 of 46 -

Longfor Properties ---------------------------------------------------------- Maintain OUTPERFORM Well-deserved position as the best non-SOE developer EPS: ▼ TP: ▲ Alvin Wong / Research Analyst / 852 2101 6486 / [email protected] Kelvin Tam, CFA / Research Analyst / 852 2101 6582 / [email protected] Jizhou Dong, CFA / Research Analyst / 852 2101 6538 / [email protected]

● Longfor once again delivered a very strong set of results: (1) core profit up 14% YoY to Rmb7.7 bn; (2) GP margin improved 1.7 pp to 29.1%; (3) net gearing stayed low at 66% (vs FY15's 62%); and (3) full-year dividends increased 31% to Rmb0.466/share.

● Credit should be given on its growing rental income, up 35% YoY to Rmb1.9 bn. Longfor is scheduled to complete 11 new shopping malls by end-2019 (currently 21 malls). This should result in annual rental of >Rmb3.5 bn, fully covering its interest expense.

● Longfor’s existing land bank fully covers all the ten preferred cities that we picked in our previous report. The slowing sales in some tightened tier 1 cities will be offset by the sales pick-up in some lagging tier 2 cities, such as Shenyang and Qingdao. We are comfortable with its 2017 full-year sales target of Rmb110 bn.

● Longfor targets balanced development by differentiating from those who simply grow the business scale. This is the only winning formula in the long run, in our view. Longfor may not be a beta stock but definitely an alpha one to enhance the quality of investors’ portfolio. We maintain OUTPERFORM with a new TP of HK$16 (from HK$14), reflecting better margins and higher rental income.


FY16 results review

FY16 revenue was up 15.6% YoY to Rmb54.8 bn. Of this, revenue from property development increased 14.3% YoY to Rmb51.4 bn. Rental income advanced 35.2% YoY to Rmb1.9 bn, while revenue from property management jumped 42.4% YoY to Rmb1.4 bn.

Gross margin improved to 29.1%, from FY15's 27.4%. In particular, margin for property development increased to 27.6% from 26.2%. With unbooked sales of Rmb74 bn at high margin of 27-28%, management expects the high margin should be sustainable.

Core profit increased 13.8% YoY to Rmb7.7 bn with core margin slipping slightly to 14.1%. Core EPS was also up 14.3% YoY to

Rmb1.32. Longfor declared a FY16 DPS of Rmb0.466, up 30.5% YoY, representing a 35% payout ratio.

Net gearing increased to 65.6% (vs FY15’s 61.9%). Over the period, the company experienced a net cash outflow of Rmb5.7 bn (inflow of Rmb69.0 bn versus an outflow of Rmb74.8 bn). Average funding cost further improved to 4.9% in FY16.

Total land bank amounted to 41.5 mn sq m (or 32.9 mn sq m attributable) GFA at an AV of Rmb4,039 per sq m as of end-FY16. During FY16, Longfor spent Rmb49.0 bn to add attributable land bank of 7.74 mn sq m. All the newly acquired projects are located in tier 1 and 2 cities, and new cites include Tianjin and Wuhan.

Full-year sales target was set at Rmb110 bn (25% higher than the contracted sales in FY16). Total saleable resources amounted to Rmb170 bn, implying a sell-through of 65%.

The chairlady remains positive on tier 1 and tier 2 cities' property development, despite tightening still being in place. Not only Hefei, which the company has newly entered, she is also interested in some lower-tier satellite cities of Beijing and Shanghai. With expected rental income exceeding Rmb5 bn by end-2020, the chairlady expects more room to increase the dividend payout ratio, which is currently at 35%.

Figure 1: Longfor—FY16 results summary FY16 FY15 YoY change (%)

Revenue (Rmb mn) 54,799 47,423 15.6%

Gross margin (%) 29.1% 27.4% 1.7 p.p

Core profit (Rmb mn) 7,709 6,773 13.8%

Core margin (%) 14.1% 14.3% -0.2 p.p

EPS (Rmb) 1.32 1.16 14.3%

DPS (Rmb) 0.47 0.36 30.5%


Total debt (Rmb mn) 57,872 52,266 10.7%

Total cash (Rmb mn) 17,355 18,160 -4.4%

Equity (Rmb mn) 61,765 55,125 12.0%

Net gearing (%) 65.6% 61.9% 3.7 p.p

BVPS (Rmb) 10.57 9.45 11.9% Source: Company data, Credit Suisse

Figure 2: Longfor—FY17E cash flow

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Construction cost Land premium Expenses Cash inflow

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Bbg/RIC 960 HK / 0960.HK Rating (prev. rating) O (O) Shares outstanding (mn) 5,844.43 Daily trad vol - 6m avg (mn) 6.0 Daily trad val - 6m avg (US$ mn) 8.8 Free float (%) 23.3 Major shareholders Wu Yajun (44.1%)

Price (24 Mar 17, HK$) 13.78 TP (prev. TP HK$) 16.00 (14.00) Est. pot. % chg. to TP 16 52-wk range (HK$) 13.8 - 9.6 Mkt cap (HK$/US$ bn) 80.5/ 10.4



Year 12/15A 12/16A 12/17E 12/18E 12/19E

EBITDA (Rmb mn) 10,595 12,521 14,393 16,196 17,681 Net profit (Rmb mn) 6,773 7,709 8,725 9,762 10,796 EPS (CS adj. Rmb) 1.16 1.32 1.49 1.67 1.85 - Change from prev. EPS (%) n.a. n.a. (8.1) (7.0) - Consensus EPS (Rmb) n.a. n.a. 1.63 1.83 EPS growth (%) (8.5) 14.3 13.1 11.9 10.6 P/E (x) 10.6 9.3 8.2 7.3 6.6 Dividend yield (%) 2.9 3.8 4.3 4.8 5.3 EV/EBITDA (x) 10.0 8.9 8.2 7.7 7.3 ROE (%) 13.2 13.2 13.5 13.7 13.8 Net debt(cash)/equity (%) 54.6 53.9 56.5 59.3 59.0 NAV per share (Rmb) — 24.1 24.7 — — Disc./(prem.) to NAV (%) — 49.2 50.5 — —

Note 1: ORD/ADR=10.00. Note 2: Longfor Properties Co. Ltd. is a Beijing-based property company engaged in property development and investment. The company was originated from Chongqing in 1993 and listed its shares on HKSE in 2009.

https://plus.credit-suisse.com/r/V6t2X41AF-WElY95



Asian Daily

- 24 of 46 -

PICC P&C ----------------------------------------------------------------------- Maintain OUTPERFORM FY16 result: Weak CoR of non-auto, but one-off; focus on motor outlook EPS: ◄► TP: ◄► Charles Zhou, CFA / Research Analyst / 852 2101 6177 / [email protected] Steven Zhu / Research Analyst / 852 2101 6535 / [email protected]

● PICC P&C posted NPAT of Rmb18 bn, 3% above consensus. The beat was driven by fair value gains from Hua Xia bank deal. Final dividend of Rmb0.309 was declared (25% full-year payout ratio).

● Combined ratio (CoR), however, was 98.1% (1H/2H: 95/101%), weaker than our expectation, dragged by agriculture (+14.2 pp), commercial property (+14.5 pp), others (+15.8 pp). 2H heavy catastrophes lowered underwriting profitability, but were one-off. The Rmb7 bn profit from motor was better than earlier news of Rmb6.4 bn.

● Solvency position was strong at 287%, after issuance of Rmb15 bn capital supplementary bond in 4Q16. Investment should trend better in FY17, driven by (1) higher income on rising yields, and (2) Rmb4 bn profit contribution from associate investment of HX bank.

● Investors may view FY16 CoR disappointing, especially non-motor lines, but we think some are one-off factors (catastrophes, results kitchen sink). Instead, we suggest investor focus on structural change (if any) of motor and agro lines this year. It is the intent of CIRC for motor reform to be neutral, so we do not expect material impact on profitability. At 1.2x P/B, risk/reward is attractive.

Weak CoR of non-auto, but one-off; focus on motor outlook

CoR increased to 98.1% (96.5% in FY16), weaker than our/market expectation, mainly dragged by non-motor lines (1) agriculture (CoR, +14.2 pp YoY), (2) commercial property (+14.5 pp), (3) others (+15.8 pp). Indeed, heavy catastrophes in 2H lowered underwriting profitability, but we think they were one-off to some lines (commercial property and others, except agriculture is a combination of structural change of competition landscape and one-off catastrophes). In motor line, underwriting profit was Rmb7 bn (CoR 96.7%), better than earlier local news reports at Rmb6.4 bn (CoR 97%). Looking ahead, non-motor CoR should trend better (103.3% in FY16, 97.8% in FY15), and we are more concerned with motor business outlook, particularly updates and new policy in commercial motor pricing reform.

Figure 1: Results snapshot

2016 2015 YoY 2H16 2H15 YoY

GWP 311,160 281,698 10% 149,267 135,466 10%

- Motor 225,640 204,266 10% 117,243 105,459 11%

- Accident 23,432 18,560 26% 7,003 6,381 10%

- Agriculture 19,535 18,944 3% 6,758 6,356 6%

- Liability 13,703 11,558 19% 6,380 5,439 17%

- Commercial 12,321 12,916 -5% 4,517 4,711 -4%

- Other 16,529 15,454 7% 7,366 7,120 3%

Combined ratio 98.1% 96.5% 1.7ppt 101.0% 98.1% 2.9ppt

- Motor 96.7% 96.1% 0.6ppt 97.8% 96.5% 1.3ppt

- Accident 101.5% 106.9% -5.4ppt 102.9% 109.5% -6.6ppt

- Agriculture 97.4% 83.2% 14.2ppt 104.5% 85.4% 19.1ppt

- Liability 94.4% 96.9% -2.5ppt 97.2% 101.4% -4.3ppt

- Commercial 123.4% 108.9% 14.5ppt 157.6% 131.7% 25.8ppt

- Other 109.3% 96.7% 12.5ppt 119.2% 110.5% 8.8ppt

Underwriting results 5,024 8,604 -42% -1,422 2,413 n.a.

Investment income 15,995 20,830 -23% 8,551 7,695 11%

Others 1,432 (1,231) n.a. 1,694 (453) n.a.

PBT 22,451 28,203 -20% 8,823 9,655 -9%

PAT 18,021 21,847 -18% 7,373 7,425 -1%

Source: Company data, Credit Suisse Estimates, Other includes Cargo insurance.

Strong solvency with better investment outlook in 2017

Total /net investment yield fell to 4.4/4.2% from 6.5/4.5% in FY15. Into 2017, however, we expect investment to trend better, driven by (1) higher income on rising yields, and (2) Rmb4 bn profit contribution from associate investment of HX bank. Solvency position was strong at 287%, after issuance of Rmb15 bn capital supplementary bond in 4Q16. This should allow PICC to increase its dividend pay-out, a key contribution for PICC Group to meet requirements of Ministry of Finance (dividend policy is similar to CTIH; progressive payout).

Figure 2: Motor profit remains largely solid

-2

3

8

2010 2011 2012 2013 2014 2015 2016

Prof

it (R

mb

bn)

Motor Commercial propertyCargo LiabilityAccident AgricultureOther Underwriting profit


At 8.5x PE and 1.2x P/B, risk/reward is attractive

Investors may view FY16 CoR disappointing, especially non-motor lines, but we think some are one-off factors (catastrophes, result kitchen sink). As far as motor outlook is concerned, we do not expect material impact on profitability this year as it is the intent of CIRC for motor pricing reform to be neutral. We understand that investors do not like HX bank investment. Even stripping out Rmb4 bn profit contribution from associate investment of HX bank, FY17 ROE remains solid. With 8.5x P/E and 1.2x P/B, we think risk/reward of PICC P&C is attractive.

Bbg/RIC 2328 HK / 2328.HK Rating (prev. rating) O (O) Shares outstanding (mn) 14,829 Daily trad vol - 6m avg (mn) 28.9 Daily trad val - 6m avg (US$ mn) 46.8 Free float (%) 100.0 Major shareholders PICC Group - 69%

Price (27 Feb 17 , HK$) 12.00 TP (prev. TP HK$) 15.50 (15.50) Est. pot. % chg. to TP 29 52-wk range (HK$) 14.7 - 11.4 Mkt cap (HK$/US$ bn) 177.9/ 22.9


Absolute (%) 1.5 (7.7) (0.2) Relative (%) (3.1) (15.1) (28.4)

Year 12/14A 12/15A 12/16E 12/17E 12/18E

Life GWP (Rmb bn) — — — — — P&C GWP (Rmb bn) 253.0 281.7 311.6 340.7 375.4 Net profit (Rmb bn) 15.1 21.8 16.1 18.5 20.8 EPS (CS adj. Rmb) 1.06 1.47 1.08 1.25 1.40 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 1.21 1.35 1.42 EPS growth (%) 39.0 38.9 (26.5) 15.1 12.4 P/E (x) 10.0 7.2 9.8 8.5 7.6 NTA per share (Rmb) 5.8 7.3 8.0 9.0 10.0 EV per share (Rmb) Dividend yield (%) 2.5 2.9 2.5 3.5 4.0 EV/EBITDA (x) 8.2 5.5 7.3 6.2 5.4 P/B (x) 1.8 1.4 1.3 1.2 1.1 ROE (%) 21.1 22.4 14.1 14.7 14.8 P&C combined ratio (%) 96.5 96.5 97.5 97.4 97.5

Note 1: ORD/ADR=25.00. Note 2: PICC P&C is China's largest insurer of property and casualty insurance.

http://insurance.hexun.com/2017-03-08/188408741.html

http://insurance.hexun.com/2017-03-08/188408741.html


Asian Daily

- 25 of 46 -

Ping An Bank --------------------------------------------------------------------------Maintain NEUTRAL Limited impact from Huishan Dairy; FY17: Retail strategy to continue EPS: ▼ TP: ▼ Sanjay Jain / Research Analyst / 65 6306 0668 / [email protected] Eric Cui / Research Analyst / 852 2101 7071 / [email protected]

● Shares of Huishan Dairy (6863 HK) plunged 90% on Friday before trading suspension, and the market suspects it may default on bank loans. Ping An Bank confirmed it had loans of HK$2.1 bn (Rmb1.9 bn) pledged by 3.4 bn (25.48%) Huishan's shares.

● Huishan advised its fund chain broke and would introduce strategic investors, while the government asked banks to establish a creditors committee and not to withdraw loans. PAB will see limited impact with its exposure being ~0.1% of FY17E gross loans and 6% of net profit assuming no recovery, by our estimate.

● PAB has been reshuffling the management team and we believe the bank would take more steps in its retail transformation strategy. However, its asset quality remained under pressure in 2016, indicated by elevated credit cost and SML/overdue ratios.

● Margins (excl. VAT impact) should stabilise this year. We revise down 2017/18 forecasts by 9%/6% and introduce 2019, deriving a new TP of HK$9.2 (from HK$10.1) based on a Gordon Growth Model. The bank is trading at 0.7x 2017E P/B. Neutral.


Limited exposure to Huishan Dairy

According to Ping An Bank, its only exposure is HK$2.1 bn (Rmb1.9 bn) of loans pledged by 3.4 bn Huishan's shares, which accounted for only 0.1% of PAB's loan book. Assuming full loss, the bank's FY17E net profit would be trimmed by 6%. Given the local government has stepped in, final loss may be less than that.

Asset quality may improve gradually

Bad loans of China's banks system may have peaked, but PAB's inflection point has not come yet. Annualised credit cost surged to 393 bp/338 bp in 4Q16 and FY16, likely higher than the joint-stock banking peers, and its asset quality will remain under pressure near term. Anyway, we believe the corporate cash flow improvement and accelerated nominal GDP growth in macro environment will translate into better asset quality for PAB with a lag.

The bank has established "Special Asset Mgmt. Dept." at headquarter level to actively deal with non-performing loans and it wants to transform the NPL strategy from traditional collection/disposals to management, which may to some extent alleviate the asset quality pressure this year.

Figure 1: NPL ratios of PAB versus the banking system

0.8%

0.9%

1.0%

1.1%

1.2%

1.3%

1.4%

1.5%

1.6%

1.7%

1.8%

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

PAB China's banking system

Source: CBRC; Company data, Credit Suisse research.

Expect more moves for retail

PAB introduced a transformation strategy last year, but we saw little delivered likely due to the management reshuffle in 2016. Retail loan balance grew by 23% YoY in 2016 (vs. 21% for corporate), accounting for only 38% of incremental loans.

According to the FY16 results briefing, the bank will significantly promote its retail strategy this year with more resources such as new loan quota allocated to the retail side. We believe the parents’ resources will help its comprehensive operations, and expect more retail client flow and cross-sell from group or sister companies. Retail business saw good momentum year-to-early March, and the transformation had witnessed initial success, per the President Mr XIE Yonglin.

Valuation and risks

We introduce 2019 forecasts and trim 2017/18 by 9%/6%, to reflect potential loss from the Huishan Dairy case and the persistent asset quality pressure. Our new target price of Rmb9.20 is based on a Gordon Growth Model, with mid-term ROE (using avg. of 2017-19E) of 12.2%, cost of equity of 12.6% and terminal growth of 5%. The new target price implied zero difference to current price. Maintain Neutral.

Bbg/RIC 000001 CH / 000001.SZ Rating (prev. rating) N (N) Shares outstanding (mn) 17,170 Daily trad vol - 6m avg (mn) 55.2 Daily trad val - 6m avg (US$ mn) 74.7 Free float (%) 48.0 Major shareholders Ping An Insurance

Group (50.2%)




Year 12/15A 12/16A 12/17E 12/18E 12/19E

Pre-prov Op profit (Rmb mn) 59,380.0 76,297.0 85,256.0 96,968.3 111,334.9 Net profit (Rmb mn) 21,865 22,599 22,860 26,277 29,530 EPS (CS adj. Rmb) 1.56 1.32 1.33 1.53 1.72 - Change from prev. EPS (%) n.a. n.a. (9) (6) - Consensus EPS (Rmb) n.a. n.a. 1.43 1.51 1.58 EPS growth (%) 7.7 (15.4) 1.2 14.9 12.4 P/E (x) 5.9 7.0 6.9 6.0 5.3 Dividend yield (%) 1.7 1.7 1.7 2.0 2.2 BVPS (CS adj. Rmb) 11.3 11.8 12.9 14.3 15.9 P/B (x) 0.81 0.78 0.71 0.64 0.58 ROE (%) 15.0 12.4 10.8 11.2 11.4 ROA (%) 0.9 0.8 0.7 0.7 0.7 Tier 1 ratio (%) 9.0 9.3 9.5 9.1 8.7

Note 1: PAB is a commercial bank that operates its business through corporate banking business, personal banking business as well as capital business, including financial market business and investment banking business.

https://rave.credit-suisse.com/research/company/financials?ric=000001.SZ


Asian Daily

- 26 of 46 -

Postal Savings Bank of China Co., Ltd. -------------------------- Maintain UNDERPERFORM 4Q16 result: Beat on investment gains and provision reversal; div payout 15%, yield 1.7% EPS: ◄► TP: ◄► Sanjay Jain / Research Analyst / 65 6306 0668 / [email protected] Eric Cui / Research Analyst / 852 2101 7071 / [email protected]

● FY16 NPAT of PSBC grew by 14% YoY to Rmb40 bn, 6%/8% ahead of Bloomberg/CS, mainly due to gains on investment (up by 15x to Rmb15.5 bn) and provision reversal from non-loan assets (Rmb3.4 bn in FY16). 2H profit grew by 19% YoY (11% in 1H) on lower provisioning (-30% YoY) and investment gains.

● Net interest margin dropped 13 bp to 2.17% HoH in 2H, partly on VAT reform. 2H deposit cost was 1.45% (funding cost 1.55%), but was actually 2.35% if we adjust for agency deposit fee. 2H fee income remained strong, driven by agency and wealth mgmt. business, lifting up its contribution to 6% of revenue (+1 pp YoY).

● Loan/deposit ratio increased 2 pp to 41% in 2016, with 61%/14% of new loans flowing to mortgage and financial services, targeted >48% by 2018E. NPL ratios rose 10 bp HoH to 0.87%, while special mention/overdue loans declined 45/5 bp to 0.81%/0.96%.

● CET1 ratio rose to 8.63% post-IPO, and may face pressure when achieving higher LDR. PSBC plans to issue preference share of Rmb50 bn. FY16 ROE at 12.9% and dividend pay-out at 15%.


PSBC reported bottom-line beat by higher gains on investment securities and large provision reversal on non-loan assets, both of which are unsustainable in our view. Asset quality looks fine, but NPL ratio of retail business loans (gross loan bal -3% YoY) and credit card (bal +57% YoY), surged by 116/38 bp to 3.62%/1.75%.

The bank completed Rmb20 bn of tier-2 capital bond in Feb-17 and has approval for another Rmb30 bn. Including the newly announced preference share, total CAR would rise 250 bp to 11.13% (end-16).

PSBC shares performed well YTD, likely due to inclusion by index and benefit from interbank tightening in China. The stock traded at 0.9x 2017E P/B, not cheap on inferior ROE versus peers.

Figure 1: Key financials snapshot-PSBC Half-yearly analysis Yearly analysis

(Rmb bn) 2H15 1H16 2H16 HoH (%) YoY (%) 2015 2016 YoY (%)

Net int. inc 92 82 76 (7.0) (17.0) 179 158 (12.1)

- *Adj. Net int. inc 64 52 44 (14.9) (30.8) 125 96 (23.0)

Net fees 5 6 6 (4.0) 24.3 9 11 32.6

Non-int. inc 7 12 20 74.8 208.6 11 32 181.5

Revenue 98 93 96 3.2 (1.9) 191 190 (0.5)

- *Adj. Revenue 70 64 65 1.5 (8.4) 136 128 (5.9)

Opex (65) (62) (68) 8.7 3.3 (124) (130) 5.0

- Opex excl. biz tax (61) (59) (67) 12.2 8.5 (116) (126) 8.9

- *Adj. Opex excl. biz tax (26) (24) (24) 0.4 (8.3) (50) (48) (3.4)

PPOP 33 31 29 (7.6) (12.2) 67 60 (10.7)

Provision (17) (5) (12) 140.5 (29.7) (26) (17) (34.1)

Attri.profits 14 23 17 (28.7) 19.2 35 40 14.2

Gross loan 2,472 2,760 3,011 9.1 21.8 2,472 3,011 21.8

Total asset 7,296 7,974 8,266 3.7 13.3 7,296 8,266 13.3

Total deposit 6,305 6,896 7,286 5.7 15.6 6,305 7,286 15.6

Loan/dep ratio 39 40 41 1 pp 2 pp 39 41 2 pp

SML loans 37 35 24 (30) (34) 37 24 (34)

Overdue loan 25 28 29 4 18 25 29 18

>90D overdue loan 17 19 21 9 23 17 21 23

NPLs 20 21 26 23 32 20 26 32

Asset yield 4.52% 4.02% 3.89% -0.13% -0.63% 4.66% 3.95% -0.71%

Funding cost 1.85% 1.68% 1.55% -0.12% -0.29% 1.94% 1.61% -0.33%

- Deposit cost 1.85% 1.56% 1.45% -0.11% -0.40% 1.93% 1.49% -0.44%

- *Adj. deposit cost 2.75% 2.46% 2.35% -0.11% -0.41% 2.83% 2.39% -0.44%

NIM 2.75% 2.30% 2.17% -0.13% -0.58% 2.78% 2.24% -0.54%

- *Adj. NIM 1.95% 1.47% 1.28% -0.19% -0.67% 1.93% 1.37% -0.57%

Non-int. inc/revenue 7% 12% 21% 9% 14% 6% 17% 11%

CIR (excl. biz taxes) 62.6% 63.6% 69.2% 5.5% 6.6% 60.7% 66.4% 5.7%

- *Adj. CIR (excl. biz taxes) 47.9% 46.6% 54.0% 7.4% 6.1% 45.0% 50.4% 5.3%

Credit cost (bp) 122 62 81 19 (41) 107 74 (33)

ROA 0.40% 0.61% 0.40% -0.21% 0.00% 0.51% 0.51% 0.00%

ROE 11.6% 16.8% 9.6% -7.2% -2.0% 15.2% 12.9% -2.3%

SML ratio 1.50% 1.25% 0.81% -0.45% -0.69% 1.50% 0.81% -0.69%

Overdue ratio 0.99% 1.01% 0.96% -0.05% -0.03% 0.99% 0.96% -0.03%

>90D overdue ratio 0.68% 0.69% 0.69% 0.00% 0.01% 0.68% 0.69% 0.01%

NPL ratio 0.80% 0.78% 0.87% 0.10% 0.07% 0.80% 0.87% 0.07%

NPL/>90D overdue 1.18 1.13 1.27 0.14 0.09 1.18 1.27 0.09

NPL coverage 298% 293% 272% -22% -26% 298% 272% -26%

LLR/loans 2.40% 2.28% 2.37% 0.10% -0.02% 2.40% 2.37% -0.02%

CET1 ratio 8.53% 8.17% 8.63% 0.46% 0.10% 8.53% 8.63% 0.10%

Tier 1 ratio 8.53% 8.17% 8.63% 0.46% 0.10% 8.53% 8.63% 0.10%

CAR 10.46% 10.04% 11.13% 1.09% 0.67% 10.46% 11.13% 0.67% *Adjusted by deposit agency fee. Source: Company data, Credit Suisse estimates.

Figure 2: P/B and ROE comparison across H-share banks

-

0.2

0.4

0.6

0.8

1.0

1.2

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

CMB CCB ICBC ABC MSB CEB BOC CITIC BCOM PSBC

Avg. 2017-18E ROE 2017E P/B (RHS)

Source: Credit Suisse estimates.

Bbg/RIC 1658 HK / 1658.HK Rating (prev. rating) U (U) [V] Shares outstanding (mn) 80,710 Daily trad vol - 6m avg (mn) 43.7 Daily trad val - 6m avg (US$ mn) 26.3 Free float (%) 27.3 Major shareholders China Post 69%;

UBS 4.2%



Absolute (%) 0.4 16.1 — Relative (%) (0.9) (1.4) —

Year 12/14A 12/15A 12/16E 12/17E 12/18E

Pre-prov Op profit (Rmb mn) 59,749.0 67,023.0 60,711.2 72,233.6 84,930.0 Net profit (Rmb mn) 32,567 34,857 36,751 39,848 42,053 EPS (CS adj. Rmb) 0.69 0.61 0.51 0.49 0.52 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 0.49 0.52 0.59 EPS growth (%) 5.0 (12.0) (15.8) (3.9) 5.5 P/E (x) 6.2 7.0 8.3 8.7 8.2 Dividend yield (%) 0 3.1 1.6 1.7 1.8 BVPS (CS adj. Rmb) 3.30 3.94 4.30 4.72 5.17 P/B (x) 1.30 1.08 0.99 0.90 0.83 ROE (%) 19.8 15.2 11.9 10.9 10.5 ROA (%) 0.5 0.5 0.5 0.4 0.4 Tier 1 ratio (%) 8.4 8.5 9.2 9.7 9.0

Note 1: Postal Savings Bank of China was the fifth-largest commercial bank in China by assets as of 31 March 2016. It has the largest distribution in China thanks to its agency outlets, which are post offices owned by China Post Group.



Asian Daily

- 27 of 46 -

Shanghai Lujiazui Finance & Trade Zone Development ---- Maintain UNDERPERFORM Potential increase in office supply adds more uncertainties EPS: ▼ TP: ▼ Jizhou Dong, CFA / Research Analyst / 852 2101 6538 / [email protected] Alvin Wong / Research Analyst / 852 2101 6486 / [email protected] Kelvin Tam, CFA / Research Analyst / 852 2101 6582 / [email protected]

● Shanghai Lujiazui (LJZ) reported lower-than-expected core profit margin of 16.8% in FY16, despite robust core profit growth of 19.2% YoY. Meanwhile, LJZ declared dividend of Rmb0.394 per share, implying unexciting yield of 1.7% based on current price.

● LJZ currently holds >1,150k of Grade-A and premium offices, majority of which are located in Shanghai. With the increase in Shanghai office supply and tenants' decentralisation, we expect to see LJZ’s IP face some rental pressure over FY17-18E.

● While we understand LJZ’s strategy to expand to new regions by acquiring Suzhou Lv’an, we do not expect it to generate immediate earnings contribution to LJZ in FY17. Moreover, the integration of Lujiazui Finance will also take time before maturing.

● LJZ’s current valuation is unattractive at 25% FY17E NAV discount and 32x FY17E P/E. We revise down our FY17E/18E earnings forecasts by 6.2%/9.8% to factor in lower-than-expected margins. We maintain our UNDERPERFORM rating on LJZ with a new target price of Rmb19.1 (vs Rmb19.2 previously).


Robust earnings growth, but disappointing margin

Shanghai Lujiazui (LJZ) reported the first full-year results after its new strategic initiative to step into financial services business in 2016. Despite its robust core profit growth of 19.2% YoY to Rmb2.2 bn in FY16, the company has actually experienced lower-than-expected core profit margin of 16.8% (vs 23.9% in FY15). Meanwhile, LJZ declared a final dividend of Rmb0.394 per share, implying unexciting yield of 1.7% based on current price. The company’s net gearing increased significantly to 167% as of end 2016 (vs 57% as of end 2015), largely due to (1) increase in long-term debt for M&A and (2) decrease of capital reserve due to the integration of Lujiazui Finance.

Rental portfolio to face pressure in 2017E

LJZ currently holds >1,150k of Grade-A and premium offices, majority of which are located in Shanghai. More than 10% of its rental portfolio

will need to renew the leasing contracts by the end of 2017. With the increase in Shanghai office supply as well as the decentralisation of tenants, we expect to see LJZ’s Shanghai investment properties to face some rental pressure over FY17-18E.

Figure 1: LJZ’s main investment properties

2016 2015

GFA (k

sqm)

Occ'y (%)

*

Average

Rental *

GFA

(sqm)

Occ'y (%)

*

Average

Rental *

Grade-A Offices c.1,150 97.5% 7.64 c.1,150 98.0% 6.94

Other Offices c.210 97.4% 5.11 c.200 100.0% 4.81

Retail c.100 c.99% 8.38-9.65 c.90 c.92% 7.72-8.21

Note: * Occupancy rates and average rental rates for Grade-A offices are those operated for one year or more. Rental unit is Rmb / sqm / day. Source: Company data, Credit Suisse estimates

No immediate earnings contribution from Suzhou Lv’an projects

LJZ’s purchase of 95% stake of Suzhou Lv’an projects totalling 1.08 mn sqm has provided new saleable resources for LJZ over the next few years. While we agree that it is necessary for LJZ to expand to new regions out of Shanghai and Tianjin, we do not expect the asset purchase to generate immediate earnings contribution to the company in FY17. On the other hand, the integration of Lujiazui Finance will also take time before maturing.

Expensive valuation; maintain UNDERPERFORM

LJZ’s current valuation is unattractive at 25% FY17E NAV discount and 32x FY17E P/E. To factor in the lower-than-expected core margin estimates, we revise down our FY17E/18E earnings forecasts by 6.2%/9.8%. We also cut our target price to Rmb19.1 (Rmb19.2 previously), which is based on sum-of-the-parts valuation, in which we apply 40% discount to the property business and par valuation to the financial services business, implying a 36% discount to our FY17 net asset value (NAV) estimate. We maintain our UNDERPERFORM rating on LJZ.

Figure 2: LJZ’s FY16 results summary

FY16 FY15 YoY change (%)

Revenue (Rmb mn) 12,807 7,565 69.3%

Gross margin (%) 47.2% 54.3% -7.1 p.p.

Core profit (Rmb mn) 2,157 1,809 19.2%

Core margin (%) 16.8% 23.9% -7.1 p.p.

EPS (Rmb) 0.64 0.54 19.2%

DPS (Rmb) 0.39 0.28 39.6%


Total debt (Rmb mn) 28,843 20,633 39.8%

Total cash (Rmb mn) 6,101 8,836 -30.9%

Equity (Rmb mn) 13,658 20,536 -33.5%

Net gearing (%) 167% 57% 109.1 p.p.

BVPS (Rmb) 4.06 6.11 -33.5% Source: Company data, Credit Suisse estimates

Bbg/RIC 600663 CH / 600663.SS Rating (prev. rating) U (U) Shares outstanding (mn) 2,444.55 Daily trad vol - 6m avg (mn) 4.4 Daily trad val - 6m avg (US$ mn) 15.0 Free float (%) 16.0 Major shareholders Lujiazui Group

(56.4%)

Price (23 Mar 17, Rmb) 22.59 TP (prev. TP Rmb) 19.10 (19.20) Est. pot. % chg. to TP (15) 52-wk range (Rmb) 27.3 - 21.7 Mkt cap (Rmb/US$ mn)

55,222.4/ 8,010.6


Absolute (%) (2.7) (1.5) 5.3 Relative (%) (1.9) (6.2) (3.5)

Year 12/15A 12/16A 12/17E 12/18E 12/19E

EBITDA (Rmb mn) 3,275 5,069 5,595 6,093 7,103 Net profit (Rmb mn) 1,809 2,157 2,343 2,676 3,125 EPS (CS adj. Rmb) 0.54 0.64 0.70 0.80 0.93 - Change from prev. EPS (%) n.a. n.a. (6.2) (9.8) - Consensus EPS (Rmb) n.a. n.a. 0.79 0.95 EPS growth (%) 25.2 19.2 8.6 14.2 16.8 P/E (x) 42.0 35.2 32.4 28.4 24.3 Dividend yield (%) 2.2 1.7 1.5 1.8 2.1 EV/EBITDA (x) 20.5 15.4 14.6 13.0 11.1 ROE (%) 11.3 12.6 15.8 15.4 15.4 Net debt (cash)/equity (%) 44.6 112.1 115.9 93.9 81.8 NAV per share (Rmb) — 29.9 30.0 — — Disc./(prem.) to NAV (%) — 24.4 24.7 — —

Note 1: Lujiazui is an office landlord based in Shanghai, mainly focusing on the rental and operation of office buildings in the Shanghai Lujiazui finance area.



Asian Daily

- 28 of 46 -

Sinopec - A --------------------------------------------------------------------- Maintain OUTPERFORM FY16 results 20% ahead of street estimates, dividend payout rises to 65% EPS: ▲ TP: ▲ Horace Tse / Research Analyst / 852 2101 7379 / [email protected] Jessie Xu / Research Analyst / 852 2101 7650 / [email protected] Beatrice Lam / Research Analyst / 852 2101 7693 / [email protected]

● Sinopec reported a strong FY16 result with FY16 EPS at Rmb0.385, up 44% YoY, 10/20% ahead of CS/consensus estimates. FY16 dividend payout was raised to 65% (from 56% in FY15), the highest payout level since its listing, implying a 5% yield. Sinopec also issued a profit alert, expecting 1Q17 EPS to reach Rmb0.13 (+150% YoY).

● Headline 4Q16 EPS was Rmb0.14, up 211% YoY/63% QoQ. Stripping out the one-offs (20.6 bn pipeline sale gain, 16.4 bn asset impairment) core 4Q16 EPS would have been Rmb0.10, up 127% YoY/20% QoQ, supported by solid & resilient downstream earnings.

● Non-fuel Marketing continued to deliver robust growth, with 4Q16/ FY16 non-fuel revenue growing at 45%/42%, respectively, paving way for its upcoming listing (CS assumes end-2017). We expect management to give clarity on the timeline at its analyst briefing.

● Our TP of Sinopec (A) is raised to Rmb7.8 (from Rmb6.9) suggesting 34% potential upside. Our 2017-19 EPS are revised up by 2-7% and our new 2017 EPS of Rmb0.57 is 39% above consensus. Given the solid results we expect a round of earnings upgrades to come. Re-iterate OUTPERFORM.


Robust FY16 results with dividend payout increased to 65%

Sinopec reported FY16 results on 26 March evening which are above market expectations and solid on all counts. FY16 EPS came in at Rmb0.385/sh, up 44% YoY, 10%/20% ahead of CS/consensus estimates. Dividend payout was raised to a record-high 65% in FY16 (vs 56% in FY15), which implies a 5% dividend yield at current share price, the highest within the China Oil Sector.

4Q16 earnings solid excluding one-offs

4Q16 is a demonstration of Sinopec’s core competence on its downstream profitability. 4Q16 included an Rmb20.6 bn of Sichuan-East pipeline disposal gain and Rmb16.4 bn of asset impairment loss. Stripping these out, its core 4Q16 EPS would have been c.Rmb0.1/sh, up 127% YoY / 20% QoQ, a demonstration of its downstream earnings resilience under a low oil price environment.

Segment-wise performance

E&P: FY16 E&P EBIT loss was Rmb36.6 bn and 4Q16 EBIT loss was Rmb6.2 bn, narrowed by 55% YoY/27% QoQ. Full-year realised oil price was $35/bbl, a 22% discount to Brent. Sinopec booked Rmb11.6 bn of E&P impairment loss in 2016 vs Rmb4.9 bn in 2015.

Refining: FY16 Refining EBIT was Rmb56 bn, up 168% YoY and the highest in history, of which Rmb13 bn was from the $40 price floor policy in 1H16. 4Q16 Refining EBIT was Rmb13.9 bn which includes Rmb3.8 bn of inventory gain amid higher oil price QoQ. Sinopec is now generating a core Refining EBIT of Rmb9-10 bn per quarter, a stable & resilient performance.

Marketing: FY16 Marketing EBIT came in at Rmb32 bn, up 11% YoY; 4Q16 Marketing EBIT was Rmb7.9 bn, +7% YoY / -7% QoQ. Non-fuel business continues to be the bright spot with 4Q16 non-fuel revenue growing at 45% YoY.

Chemical: FY16 Chemical EBIT came in at Rmb20.6 bn, up 6% YoY; 4Q16 Chemical EBIT was Rmb5.2 bn, +16% YoY / -10% QoQ, slightly weaker than expected given Asia petchem margins have seen a c.20% rally in 4Q16.

Figure 1: Sinopec – Quarterly earnings by segment

(Rmb mn) 1Q16 2Q16 3Q16 4Q16 YoY% QoQ%

EBIT 13,057 22,051 16,322 25,763 251% 58%

E&P (12,526) (9,403) (8,487) (6,225) 55% 27%

Refining 13,443 19,145 9,804 13,873 129% 42%

Marketing 7,690 8,087 8,496 7,880 7% -7%

Chemicals 4,581 5,097 5,774 5,171 16% -10%

Others (131) (875) 735 5,064 47% 589%

Net profit 6,663 13,256 10,188 16,565 208% 63%

EPS (RMB) 0.055 0.110 0.084 0.137 211% 63%


Other operational highlights

Reserves: Sinopec’s reserve base has faced a rather significant deterioration in 2016 amid the lower oil price YoY. 1P oil reserves were written down by 36% YoY; together with the 29% YoY decline seen in 2015 it means that its oil reserves have been written down by 55% vs 2014 levels. This brings Sinopec’s oil reserve life to 4.6 years, the lowest level since its listing. Sinopec gave a new disclosure in its annual report that a 10% decrease in oil price would lead to an additional Rmb3 bn impairment loss.

Capex: 2016 capex came in at Rmb76 bn, 24% below its year-beginning target of Rmb100 bn. Upstream was the main area of squeeze with E&P capex down 41% YoY. Sinopec is guiding for Rmb110 bn of capex in 2017 (+44% YoY) which is back to 2015 levels.

Bbg/RIC 600028 CH / 600028.SS Rating (prev. rating) O (O) Shares outstanding (mn) 121,071 Daily trad vol - 6m avg (mn) 85.9 Daily trad val - 6m avg (US$ mn) 64.1 Free float (%) 26.1 Major shareholders Sinopec Group

73.8%



Absolute (%) (0.2) 2.3 27.8 Relative (%) (0.6) (2.7) 18.6

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 2,020,375 1,930,911 2,211,572 2,478,588 2,553,002 EBITDA (Rmb mn) 153,282 185,618 200,427 211,730 211,488 Net profit (Rmb mn) 32,512 46,672 69,355 77,155 68,631 EPS (CS adj. Rmb) 0.27 0.39 0.57 0.64 0.57 - Change from prev. EPS (%) n.a. n.a. 6.8 5.3 2.3 - Consensus EPS (Rmb) n.a. n.a. 0.43 0.50 0.27 EPS growth (%) (32.4) 43.3 48.6 11.2 (11.0) P/E (x) 21.6 15.0 10.1 9.1 10.2 Dividend yield (%) 2.6 4.3 6.4 7.1 6.4 EV/EBITDA (x) 5.7 4.1 3.7 3.4 3.3 P/B (x) 1.0 1.0 1.0 0.9 0.9 ROE (%) 5.1 6.7 9.6 10.3 8.9 Net debt(cash)/equity (%) 23.6 8.2 5.6 3.5 0.5

Note 1: ORD/ADR=100.00. Note 2: Sinopec is a leading integrated oil & gas and the largest downstream producer in China. Its principal operations include exploration & production of oil & gas, refining & marketing of refined products and chemicals, and natural gas transmission.



Asian Daily

- 29 of 46 -

ZTE Corporation - A ----------------------------------------------------- Maintain UNDERPERFORM 4Q16 results in line: Some positive signals for 2017 EPS: ◄► TP: ◄► Sam Li / Research Analyst / 852 2101 6775 / [email protected] Kyna Wong / Research Analyst / 852 2101 6950 / [email protected] Suzie Xu / Research Analyst / 852 2101 6776 / [email protected]

● ZTE 4Q16 revenue/net income of Rmb30 bn/Rmb-5.2 bn (down 6%/964% YoY) were in line with its prior preliminary results. Excluding the US sanction fine, 4Q16 revenue/net income would be Rmb30 bn/Rmb966 mn, -6%/60% YoY and 25%/-12% QoQ. The company also guided previously that 1Q17 net income will be around Rmb1.15-1.25 bn, representing 21-32% YoY growth.

● Overall, we see a few positive signals for 2017 during a muted capex cycle, including strict cost control, the conclusion of the US sanction, new broadband demand from SARFT and the recovery of enterprise and consumer businesses in 1Q17.

● We see further movements by the Tsinghua Unigroup, quarterly earnings, and new capex initiatives for China telco carriers (and TV operators) as being key share price catalysts.

● We maintain our 2017/18E EPS, and introduce a 2019E EPS of Rmb0.97. Our target price stays at Rmb13.6, still based on 14x historical -1 SD P/E and 2018E EPS. Maintain our UNDERPERFORM rating.


4Q16 results in line with prelim results

ZTE reported 4Q16 results after market close on 23 March. Revenue/ net income of Rmb30 bn/Rmb-5.2 bn (down 6%/964% YoY) were in line with its prior preliminary results. Excluding the US sanction fine, 4Q16 revenue/net income would be Rmb30 bn/Rmb966 mn, -6%/60%

YoY and 25%/-12% QoQ. The company also guided previously that 1Q17 net income will be around Rmb1.15-1.25 bn, representing 21-32% YoY growth.

A few positive signals in a mute capex cycle

Overall, we see a few positive signals for 2017 during a muted capex cycle. Key takeaways: (1) 4Q16 opex of Rmb7.4 bn was far below our estimate of Rmb8.7 bn, showing strict cost principles during a muted global capex cycle. (2) For FY16, China revenue rose 10% YoY to Rmb58.6 bn, while overseas sales declined 9% YoY, due to muted capex and the US sanction, in our view. But, with the conclusion of the US sanction, we see the oversea sales environment is improving. (3) Despite the year-on-year decline of the three telcos’ capex in China, we note that on 21 Mar the State Administration of Radio Film & Television (SARFT) governor announced the phase 1 investment of Rmb31 bn for broadband and phase 2 of Rmb69 bn (by Sina news). This could be some add-on to wireline demand for ZTE. (4) Growth guidance for 1Q17 implies enterprise and consumer businesses are somehow recovering, after the conclusion of the US sanction.

Catalysts We see further movements by the Tsinghua Unigroup, quarterly earnings, and new capex initiatives for China telco carriers (and TV operators) as being key share price catalysts.

Maintain UNDERPERFORM We maintain our 2017/18E EPS, and introduce a 2019E EPS of Rmb0.97. Our target price stays at Rmb13.6, still based on 14x historical -1 SD P/E and 2018E EPS. Maintaining UNDERPERFORM. Key risks: Faster-/slower-than-expected share gains in China and overseas, better-/worse-than-expected opex control and high volatility in non-operating items, such as interest/forex/investment gains.

Figure 1: 4Q16 results summary

Rmb mn 4Q15 4Q16 YoY (%) 4Q16E Diff. (%)

Sales 31,663 29,669 -6.3% 29,669 0.0%

GP 8,230 8,506 3.3% 8,502 0.0%

EBIT (316) 1,107 -450.2% (187) -692.1%

PBT 827 (4,954) -698.8% (4,954) 0.0%

NI 604 (5,216) -964.0% (5,216) 0.0%

GPM 26.0% 28.7% 2.7% 28.7% 0.0%

OPM -1.0% 3.7% 4.7% -0.6% 4.4%

NPM 1.9% -17.6% -19.5% -17.6% 0.0%


Valuation Metrics Company Ticker Rating

(prev. Price TP

Chg Up/dn to TP

Year EPS Chg(%) EPS EPS grth (%) P/E (x) Div. yld (%)

ROE (%)

P/B (x)

rating) Local Target (%) (%) T T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+1 T+1

ZTE (A) 000063.SZ U (U) 17.40 13.60 (13.60)

0 (22) 12/17 0 0 0.98 0.97 n.m. (1) 17.7 18.0 1.7 14.8 2.5


Bbg/RIC 000063 CH / 000063.SZ Rating (prev. rating) U (U) Shares outstanding (mn) 4,880.55 Daily trad vol - 6m avg (mn) 44.0 Daily trad val - 6m avg (US$ mn) 97.9 Free float (%) 58.0 Major shareholders Zhongxingxin

Price (23 Mar 17 , Rmb) 17.40 TP (prev. TP Rmb) 13.60 (13.60) Est. pot. % chg. to TP (22) 52-wk range (Rmb) 17.5 - 13.2 Mkt cap (Rmb/US$ bn) 81.7/ 11.9



Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rmb mn) 100,186 101,233 112,796 117,356 121,108 EBITDA (Rmb mn) 5,541 5,023 5,936 5,844 5,283 Net profit (Rmb mn) 3,208 (2357) 4,110 4,050 4,059 EPS (CS adj. Rmb) 0.77 (0.56) 0.98 0.97 0.97 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 1.05 1.15 0.91 EPS growth (%) 0.9 n.m. n.m. (1.5) 0.2 P/E (x) 22.5 n.m. 17.7 18.0 17.9 Dividend yield (%) 1.5 0 1.7 1.7 1.7 EV/EBITDA (x) 14.8 16.6 13.4 13.2 13.9 P/B (x) 2.4 2.8 2.5 2.3 2.1 ROE (%) 11.8 (8.4) 14.8 13.2 12.1 Net debt(cash)/equity (%) 0.9 3.5 (4.6) (9.7) (15.0)

Note 1: ORD/ADR=2.00. Note 2: ZTE is one of the major suppliers of telecom equipment, mobile devices and software in China.

https://rave.credit-suisse.com/research/company/financials?ric=000063.SZ


Asian Daily

- 30 of 46 -

Hong Kong

Hong Kong Economics --------------------------------------------------------------------------------------- Carrie Lam elected as the new Chief Executive Christiaan Tuntono / Economist / 852 2101 7409 / [email protected]

● Carrie Lam has been elected as the new Chief Executive of Hong Kong. Lam won 777 votes in a 1,194-member Election Committee, attaining close to 67% of the valid vote casted. Lam will be appointed on 1 July.

● Lam has made two tax reduction proposals in her manifesto: (1) a two-tier profit tax to relieve SME’s burden; (2) tax deductions for corporate R&D expenditure. We think these proposals could be launched at the early stage of her administration.

● On housing, Lam aims to rebuild the “housing ladder” and introduce starter homes for Hong Kong citizens. We expect Lam to continue on the government’s 10-year home supply target by sourcing more land and maintaining public housing production.

● On education, Lam aims to increase the recurrent expenditure on education by HK$5 bn per year, raising it to 22.6% of total government spending. On healthcare, Lam aims to accelerate the 10-year HK$200 bn Public Hospital Development Plan.

Figure 1: 2017 Hong Kong Chief Executive Election result

Candidates Number of valid votes obtained

Carrie Lam Cheng Yuet-ngor 777

John Tsang Chun-wah 365

Woo Kwok-hing 21

Source: Electoral Affairs Commission, Credit Suisse.

Carrie Lam as the new Chief Executive

Carrie Lam was elected as the new Chief Executive of Hong Kong. Lam won 777 votes in a 1,194-people Election Committee, attaining close to 67% of the valid vote casted. Lam will be appointed on 1 July.

Tax deduction to support SME and R&D

Lam has proposed a competitive tax policy to promote business and economic development. She has made two tax reduction proposals, which we think could be implemented at the early stage of her administration.

(1) A two-tier profits tax to relieve the burden on SMEs. Lam has proposed the first HK$2 mn in reported profits should be taxed at 10% from current 16.5%. Tax rate for profits above HK$2 million shall remain unchanged.

(2) Super Tax Deductions for corporate expenditure in R&D. Lam has proposed giving corporates a tax deduction higher than the invested amount to promote research and development activities. The same approach may apply to investment on environmental improvement, culture, art and design.

Lam also said she will host a summit on “New Directions for Taxation” to review the structure of the Hong Kong’s tax system.

Increase housing supply

Lam aims to rebuild the “housing ladder” and introduce starter homes for Hong Kong citizens. She also aims to increase the supply of Home Ownership Scheme (HOS) rental units. We expect Lam to continue on the government’s 10-year home supply target by sourcing more land supply and maintaining public housing production targets.

Education and talent development

Lam aims to increase recurrent expenditure on education by HK$5 bn per year, raising it by 1 pp to 22.6% of total government spending.

She plans to assist students attending local self-financing tertiary institutions and study more flexible student loan repayment arrangements.

Lam said she aims to expand the economy and create employment opportunities for the young, especially in innovative, technological and creative industries. She also aims to provide more assistance and opportunities for start-ups.

Consolidate and upgrade the healthcare system

Lam aims to accelerate the 10-year HK$200 bn Public Hospital Development Plan and study expansion of the Chinese University of Hong Kong Medical Centre. She aims to formulate long-term professional manpower policy for healthcare so as to allocate resources more appropriately.

Lam said she would strive to ensure all local medical graduates are employed in the local healthcare system, stabilise the supply of specialists and develop measures to retain talent in public healthcare.

Promote external affairs

Lam seeks to sign a comprehensive “Belt and Road” co-operation agreement with the Mainland to build Hong Kong into a financial service hub for “Belt and Road” projects. She plans to organise regular, high-level trade delegations to different economies including the “Belt and Road” countries. Lam also aims to set up more economic and trade offices and set concrete targets to identify trade opportunities for Hong Kong. This includes signing more bilateral and multilateral trade agreements with other economies.


Asian Daily

- 31 of 46 -

Kerry Logistics ---------------------------------------------------------------- Maintain OUTPERFORM Potential special dividend post asset disposal EPS: ▼ TP: ▼ Alvin Wong / Research Analyst / 852 2101 6486 / [email protected] Kelvin Tam, CFA / Research Analyst / 852 2101 6582 / [email protected] Jizhou Dong, CFA / Research Analyst / 852 2101 6538 / [email protected]

● Kerry Logistics (KL) reported in-line FY16 results with revenue of HK$24 bn (+14% YoY) and core profit of HK$1.1 bn (+4% YoY). Final dividend of HK$0.12, together with its interim dividend of HK$0.07, implies dividend yield of 1.7%.

● Segment-wise, the IFF business registered strong EBIT growth of 24% YoY to HK$448 mn while the IL business improved by only 1% YoY to HK$1.7 bn. Looking into FY17E, we expect its IFF business to keep growing faster than its IL business.

● Net debt increased by HK$2.1 bn to HK$3.6 bn, resulting in higher net gearing of 24% (vs FY15: 10%). While management stated it will consider special dividend post disposal of Airfreight Terminal, we believe most proceeds will be used to pay down the debt.

● Overall, we foresee steady core profit growth of 5-6% over FY17-19E. We maintain our OUTPERFORM rating, with a new TP of HK13.0 (from HK$13.2), based on the same 19x 2017 P/E. In this report, we also slightly revise our FY17E/18E EPS by -4.3%/0.9%.


FY16 results review

FY16 revenue was up 14% YoY to HK$24 bn. Of this, the Integrated Logistics (IL) business increased by 8% YoY to HK$11.4 bn while the International Freight Forwarding (IFF) business grew by 21% YoY to HK$12.7 bn. From the geographic perspective, the South & Southeast Asia region delivered the fastest growth of 16% YoY while Europe was the only region to report revenue decline (-8% YoY).

Gross margin dropped 1.2 pp YoY to 15.0%, partly due to the acquisition of APEX Meritime. We expect gradual margin recovery from FY17E onward.

Segment profit increased by 5% YoY to HK$2.1 bn. Among this, EBIT of logistics operations and Hong Kong warehouses slightly grew by 1% YoY and 2% YoY to HK$1.1 bn and HK$522 mn, respectively.

The major driver came from its IFF business, with EBIT up 24% YoY to HK$448 mn.

Core net profit and EPS increased by 4% YoY to HK$1.1 bn and HK$0.65, respectively. The company recommended a final dividend of HK$0.12, together with its interim dividend of HK$0.07; the total dividend amounted to HK$0.19, a payout of 29%.

Net gearing was up 14 pp YoY to 24%. Over the period, the company spent HK$3.0 bn for capex, which consisted of (1) HK$1.5 bn for additions of PPE, investment properties and land use rights; and (2) HK$1.5 bn for subsidiaries & associates acquisitions. This resulted in rising net debt to HK$3.6 bn by end-16, from HK$1.5 bn by end-15.

Management expects to see continuous earnings improvements especially from its IFF business. Americas region will become the new earnings driver post the acquisition of APEX Meritime. KL will continue to leverage the "One Belt One Road" opportunity to extend its network across Asia. The company will also consider a special dividend after the completion of the disposal of its Airfreight Terminal (ATT).

Figure 1: KL—FY16 results summary

FY16 FY15 YoY change (%)

Revenue (HK$ mn) 24,036 21,079 14.0%

Gross margin (%) 15.0% 16.2% -1.2 p.p.

Core profit (HK$ mn) 1,104 1,061 4.1%

Core margin (%) 4.6% 5.0% -0.4 p.p.

EPS (HK$) 0.65 0.63 4.0%

DPS (HK$) 0.19 0.16 3.0 p.p.


Total debt (HK$ mn) 6,933 5,217 32.9%

Total cash (HK$ mn) 3,335 3,733 -10.7%

Equity (HK$ mn) 15,300 15,429 -0.8%

Net gearing (%) 23.5% 9.6% 13.9 p.p.

BVPS (HK$) 9.03 9.11 -0.9%


Bbg/RIC 636 HK / 0636.HK Rating (prev. rating) O (O) Shares outstanding (mn) 1,695.42 Daily trad vol - 6m avg (mn) 0.9 Daily trad val - 6m avg (US$ mn) 1.2 Free float (%) 33.6 Major shareholders Kerry Group Ltd

(66.35%)



Absolute (%) 6.6 14.3 (3.0) Relative (%) 5.0 1.4 (22.7)

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (HK$ mn) 21,079 24,036 25,324 26,695 27,786 EBITDAR 2,291.3 2,397.0 2,542.8 2,695.6 2,852.6 Net profit (HK$ mn) 1,061 1,104 1,161 1,227 1,294 EPS (CS adj. HK$) 0.63 0.65 0.68 0.72 0.76 - Change from prev. EPS (%) n.a. n.a. (4.3) 0.9 - Consensus EPS (HK$) n.a. n.a. 0.77 0.82 0.80 EPS growth (%) 8.5 4.0 5.1 5.7 5.5 P/E (x) 17.5 16.9 16.0 15.2 14.4 Dividend yield (%) 1.5 1.7 1.9 2.0 2.1 EV/EBITDAR (x) 8.8 8.2 7.8 7.5 7.1 P/B (x) 1.2 1.2 1.1 1.0 0.9 ROE (%) 7.0 7.2 7.2 7.0 6.7 Net debt(cash)/equity (%) 8.2 19.9 19.9 19.4 18.5

Note 1: Kerry Logistics is principally engaged in the integrated logistics and international freight forwarding businesses, and currently has more than 400 service locations n 35 countries and territories across Asia, Australia, Europe, North and South America.



Asian Daily

- 32 of 46 -

India

India Market Strategy ------------------------------------------------------------------------------------------ State govt borrowings: Could adverse seasonality be driving the spike in yield spreads for SDLs? Neelkanth Mishra / Research Analyst / 91 22 6777 3716 / [email protected] Prateek Singh / Research Analyst / 91 22 6777 3894 / [email protected] Ravi Shankar / Research Analyst / 91 22 6777 3869 / [email protected]

● FY18b central fiscal deficit is similar to that in FY12, with the ratio to GDP much lower. Combined FY18b deficit would be the 3rd lowest since 1980 (Fig 1), but rising state deficits have offset this. As ~80% of state deficits are financed through SDLs (state bonds), state borrowing has been increasing steadily (Fig 2).

● SDLs are 76% of net central borrowing in FY17 (Fig 3): this surge has pushed up SDL yields, with spread over the 10-yr GSec now 99 bp (Fig 4): it has only been higher in Jul-Sep-13. Timing of issuance is an important factor: central borrowing is 1H-heavy (60:40 1H:2H), but state borrowing is the reverse (40:60).

● As weight of state borrowing rises, 2H is seeing more aggregate government bond issuances (Fig 5), and 1HFY18 burden may be lighter for the bond market. State FY18b budgets point to lower borrowing growth (+16% vs. +28% in FY17; state + centre +6%).

● This may help bring down interest rates in the economy: part of the reason we remain constructive on housing finance companies. This should also pressure NIMs for banks, particularly PSU banks (link), and help companies with heavy debt (construction, metals).

State borrowing rising but combined deficits still lower

Figure 1: Rise in state fiscal deficits has offset some but not all gains

0%

2%

4%

6%

8%

10%

12%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Union Fiscal Deficit (% of GDP) State Fiscal Deficit UDAY

Source: State Budgets, Union Budget documents, Credit Suisse estimates

FY18b fiscal deficit at the centre is similar to that in FY12, and the ratio to GDP is half that of the recent peak in FY10. Increase in state deficits has offset some of these gains, even though the combined deficit in FY18b would still be the third lowest since 1980 (Fig 1).

Figure 2: State government borrowing

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1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17

SDLs Raised by States Total for FY (RHS)

Rs tn

Source: RBI, Credit Suisse estimates

As ~80% of state fiscal deficits are financed through SDLs (state bonds), state government borrowing has been rising steadily (Fig 2), and is 76% of net central government borrowing in FY17 (Fig 3).

Figure 3: State govt borrowing/year now 76% of net central borrowing

31% 31%35%

46%

59%

76%

0%

20%

40%

60%

80%

2012 2013 2014 2015 2016 2017

State/Centre Gross State/Centre Net

Ratio of Annual Borrowing (ex-UDAY)

Source: RBI, Credit Suisse estimates.

This surge in borrowing has pushed up yields on SDLs, and spread over the 10-yr GSec has spiked to 100 bp (Fig 4): it has only been higher during the 2013 crisis, i.e. Jul-Sep-13.

Figure 4: SDL yield spread over G-Secs highest after Jul-Sep-13 period

0

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Avg Auction Cut-off Yield SDL Spread wrt G-Sec 10Y (RHS)

bps

Source: RBI, Credit Suisse estimates.

Part of the surprise for the bond market has been the timing of bond issuance: central government borrowing is 1H-heavy (60:40 1H:2H), but state borrowing is the reverse (40:60), and increasingly 2H heavy. As weight of state borrowing rises, 2H is seeing more bond issuances.

Figure 5: Central borrowing 1H heavy, states' 2H heavy

0%

20%

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100%

'13 '14 '15 '16 '17 '13 '14 '15 '16 '17 '13 '14 '15 '16 '17

1H 2H

Centre States Aggregate

Sha

re o

f Bor

row

ings

in 1

H a

nd 2

H

Source: RBI, Credit Suisse estimates

https://plus.credit-suisse.com/u/V62Upm1AN-XZjj


Asian Daily

- 33 of 46 -

India Financial Sector ----------------------------------------------------------------------------------------- Big trouble in little loans? Ashish Gupta / Research Analyst / 91 22 6777 3895 / [email protected] Prashant Kumar / Research Analyst / 91 22 6777 3942 / [email protected] Sunil Tirumalai / Research Analyst / 91 22 6777 3714 / [email protected]

● Microfinance segment witnessed a rise in delinquency post demonetisation in 3Q; however, recent industry feedback indicates that in 4Q,even as cash levels are being replenished, delinquencies for MFIs moved up further to over 10% vs ~7.5% as of Dec-16.

● Recovery rates on overdue loans haven’t picked-up fast enough, and therefore migration into subsequent buckets has remained high. 60 days overdue loans are now at 2.5-11%, while 30 days overdue loans have moved up to 5-23% as of Feb’17 from 3-13%.

● Stress remains concentrated in a few districts and states (UP /Maharashtra /Karnataka), and even post elections, delinquencies are not improving, presumably on talks around loan waiver impacting collections. With improving cash flows, MFI disbursements have picked up in 4Q, though surprisingly this has not reflected in improvement in collections.

● Most private banks have been growing their MFI exposure indirectly (total ~1-4% of loans). However, with double-digit delinquencies for the sector, they may see overshoot of credit enhancement, resulting in credit losses on the portfolio.

No signs of recovery for MFI sector delinquencies

The microfinance segment witnessed a rise in delinquency post demonetisation in 3Q; however, recent industry feedback indicates that surprisingly in 4Q, even as cash levels are being replenished, delinquencies level for the industry have moved up further to over 10% vs ~7.5% as of Dec-16. Overdue loans (30 day dpd) for most MFIs have further worsened from Dec’16 level (of 3-13%) reaching 5-31% as of Feb’17. Movement of overdue loans into subsequent buckets hasn’t really decelerated, indicating no meaningful recovery from the stressed accounts.

There is a wide divergence within the industry as well which could be partly attributed to geographical concentration and partly to seasoning of loan book. Also, MFIs with stronger collection have been able to pull back on par with overdue loans, while others have suffered.

Figure 1: Overdue loans (30 days dpd) has increased to 5-31%

12.9%

5.1%3.8%

2.8%

31.0%

22.9%

7.9%

5.5% 5.0%

0%

5%

10%

15%

20%

25%

30%

35%

Satin JanaLakshmi BFIL Ujjivan Equitas*

Overdue loans (30 days dpd, %) Dec-16 Feb-16

Source: Company data, ICRA, Credit Suisse estimates.

Figure 2: 60 days overdue loans now at 2.5-16%

16.0%

11.0%

5.6%

2.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Satin JanaLakshmi BFIL Ujjivan

Overdue loans (60 days dpd, %) Feb-16


Risk increasing for banks with large MFI exposure

Stress remains concentrated in a few districts and states (UP /Maharashtra /Karnataka), and even post elections some districts in Tamil Nadu have started showing stress. Delinquencies are not improving presumably on talks around loan waiver impacting collections. With improving cash flows, MFI disbursements have picked up in 4Q, though surprisingly this has not reflected in improvement in collections.

Private banks have been growing their MFI book with exposure now at ~1-4% of loans for the larger banks (larger exposure for few small sized banks). Banks with larger indirect exposure (though BCs) have first loss protection available, however with the MFI industry level delinquencies now crossing double digits, there is a risk of overshoot on credit enhancements resulting in likely credit losses for the portfolio.

Figure 3: MFI exposure at 1-4% of loans for larger banks

0.8%

4%

14%

3.1%

0.8%

3.6%

0.4%0%

4%

8%

12%

16%

0

5

10

15

20

25

30

35

40

45

HDFCbank

Yes Bank RBL IndusInd Axis IDFCbank*

Kotak*

MFI Exposure (Rs bn)

Direct/Through BCs In-direct (on-lending) Total (% of loans)



Asian Daily

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Mahindra & Mahindra ---------------------------------------------------------------Maintain NEUTRAL Analyst meet update EPS: ◄► TP: ◄► Jatin Chawla / Research Analyst / 91 22 6777 3719 / [email protected] Vaibhav Jain / Research Analyst / 91 22 6777 3968 / [email protected]

● Mahindra held an analyst meet with Dr Pawan Goenka and other senior management. The focus was on longer term direction the company is taking on both autos and tractors.

● On the autos side, management feels that the industry faces unprecedented challenges with changes happening on emissions (BS-VI), powertrains (electric vehicles), connectivity, etc.

● On electric vehicles, M&M feels that for the first time it is sensing a real urgency amongst all stake holders. It is planning to have a dual strategy on EVs with focus on mass models on commercial side (3W, buses, taxis) and on the higher end for personal usage. On its current UV products, management shared the changes in product or selling strategy done to revive volumes.

● FY17 has been a very good year for M&M on the tractors side as it has gained 2% share. Going forward, it feels there will be big changes on the farming side too with sharing business model starting to emerge for both tractors and implements. It is also trying to focus on a few crops and become an end-to-end solutions provider for those crops.


Company hopeful of better volumes from current products, new launches (FY18/FY19): The company highlighted that Bolero Plus is doing well (launched in Oct-16 to replace Bolero, which was losing traction). Scorpio volumes are also good. Management believes that XUV, KUV and TUV should also do well in coming months as they have fixed some product and sales strategy issues. Among new launches, U321, designed in the US, will be launched in FY18 and S201, designed in Korea, will be launched in FY19.

Auto industry facing unprecedented challenges: Management believes that the auto industry not just globally but in India is facing a lot of uncertainty. The biggest challenge for OEMs today is BS-VI implementation will lead to a major change in industry dynamics. There is a big challenge in making the single cylinder small diesel engine compliant with BS-VI norms and there is a proposal to exempt

the smaller diesel engines. In case they are not exempted, existing vehicles will be modified to launch gasoline and CNG variants.

Management highlighted that in addition to BS-VI products (fuel efficiency) and electric vehicles, they are also focusing on connectivity, safety and design. In India, M&M is the first company to have launched Digisense, which helps in real time monitoring of various parameters of the vehicle. Further, the company is also working towards creating digital solutions for sales and service of products. Pininfarina, acquired in 2015, can help them address design and styling aspects of new cars. M&M is also considering launching a high end electric car under the Pininfarina brand.

Electric Vehicles – Expect pick up in adoption; M&M to have an early mover advantage: For the first time, management is sensing a real urgency to make electric vehicles work. OEMs are working to make electric vehicles more efficient and less expensive, while the government will possibly come out with a support scheme to make vehicles more affordable. The government is quite keen to get higher acceptance in commercial vehicles (three wheelers, buses, taxis) as positive impact (pollution, fuel bill) is higher as compared to personal vehicles. The company expects strong traction in next 12 months on this front, and believes that more players will enter the market as they see this opportunity. M&M already has e2o (entry segment car), eVerito (sedan) and eSupro (cargo/passenger van) and is working on a three-wheeler product to capitalise on electric vehicles’ adoption.

Market share gains in farm equipment business: Management shared that industry growth is likely at ~17% in FY17 and M&M has increased its market share by ~2%. Tractors accounted for 85% of revenues in FY17 with remaining sales from farm machinery. Management highlighted four key aspects of their recent success: (1) Product launches – Yuvo and Arjun Novo – both seen as technologically superior products, (2) sales network improvement in specific areas of weakness, (3) effective positioning of Swaraj and M&M brands separately and (4) induction of new personnel in senior management. Management highlighted that other players have also done well in tractors business, and hence, have the ability to compete well (for volumes in case growth weakens).

Looking to provide end to end solutions in agri business: It is looking to expand its business into everything related to agri sector including soil, seeds, nutrients, tractors and farm mechanisation. The aim is to become a meaningful player globally. The approach is to acquire small companies in specific niche areas and help them develop become larger players over time. Management also highlighted that they are looking to scale up five of their segments to US$1 bn of sales. These include agri business (current sales of US$130 mn), farm machinery (US$60 mn), Africa business (US$60 mn), Mahindra USA (US$500 mn) and Power train business (US$175 mn).

Bbg/RIC MM IN / MAHM.BO Rating (prev. rating) N (N) Shares outstanding (mn) 621.09 Daily trad vol - 6m avg (mn) 1.1 Daily trad val - 6m avg (US$ mn) 20.9 Free float (%) 73.4 Major shareholders Mahindra group

Price (24 Mar 17 , Rs) 1,275.90 TP (prev. TP Rs) 1,390 (1,390) Est. pot. % chg. to TP 9 52-wk range (Rs) 1497.4 - 1143.9 Mkt cap (Rs/US$ bn) 792.5/ 12.1



Year 03/15A 03/16A 03/17E 03/18E 03/19E

Revenue (Rs mn) 389,454 408,850 433,320 481,039 535,693 EBITDA (Rs mn) 41,734 45,702 46,967 52,651 59,727 Net profit (Rs mn) 29,854 30,987 32,091 35,139 40,138 EPS (CS adj. Rs) 48.6 50.5 52.3 57.2 65.4 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 58.4 65.7 74.8 EPS growth (%) (19.4) 3.8 3.6 9.5 14.2 P/E (x) 26.2 25.3 24.4 22.3 19.5 Dividend yield (%) 1.1 1.1 1.1 1.1 1.1 EV/EBITDA (x) 19.0 17.0 16.3 14.4 12.4 P/B (x) 4.1 3.6 3.2 2.9 2.6 ROE (%) 16.6 15.1 13.9 13.5 13.9 Net debt(cash)/equity (%) (0.5) (8.1) (10.2) (13.0) (17.5)

Note 1: ORD/ADR=1.00. Note 2: M&M is India based company in passenger vehicles business and tractor business

https://rave.credit-suisse.com/research/company/financials?ric=MAHM.BO


Asian Daily

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Indonesia

Indofood CBP -------------------------------------------------------------------------Maintain NEUTRAL Contribution derived from higher noodle and dairy prices EPS: ◄► TP: ◄► Ella Nusantoro / Research Analyst / 62 21 2553 7917 / [email protected]

● Indofood CBP reported FY16 financials in line with our expectations, with net profit up 20% YoY to Rp3.6tn, on 9% higher revenue YoY to Rp34.5tn. Margins improved on the back of lower soft commodity prices and a stronger Rp to USD currency rate. Gross profit rose 13% YoY to Rp10.9tn, with gross margin improving to 31.5%, from 30.3% in FY15. Operating profit rose 22% YoY to Rp4.9tn, and the operating margin increased to 14.1% from 12.6% in FY15.

● As at FY16, ICBP was in a net cash position of Rp6.3tn, with Rp2tn of debt. This was higher than FY15’s Rp4.8tn of net cash.

● In 4Q16, ICBP reported weaker figures due to seasonality. Its revenue was 4% lower QoQ (+5% YoY) with gross profit -11% QoQ, +8% YoY. Operating profit fell 27% QoQ (+13% YoY) to Rp895 bn. Net profit stood at Rp768 bn (-10% QoQ, +38% YoY) and net margin stood at 10%.

● We have a NEUTRAL rating on the stock as we believe stronger catalysts are needed for the stock at a time of rising raw material (soft commodity) prices.


Indofood CBP reported FY16 financials in line with our expectations, with net profit up 20% YoY to Rp3.6tn, on 9% higher revenue YoY to Rp34.5tn. Margins improved on the back of lower soft commodity prices as well as a stronger Rp to USD exchange rate. Gross profit rose 13% YoY to Rp10.9tn, with the gross margin improving to 31.5%, from 30.3% in FY15. Operating profit rose 22% YoY to Rp4.9tn, and the operating margin increased to 14.1% from 12.6% in FY15.

As at the end of 2016, ICBP was in net cash position of Rp6.3tn, with Rp2tn of debt. This was higher than the Rp4.8tn of net cash as at the end of 2015. As such, the company reported lower finance income of Rp504bn (-5.1% YoY) and finance expense was 43% lower at Rp179bn.

By division, noodle continued to be the company’s backbone, contributing 65% of revenue (Rp22.5 tn,+7% YoY) and 79% of

operating profit (Rp3.9 tn, +11.5% YoY), followed by dairy at 20% (Rp6.8 tn, +16% YoY) and 23% (Rp1.1tn, +101% YoY), respectively, in FY 16. Compared to 2015, noodle contributed 65% of revenue and 89% of operating profit, and dairy 19% and 15%, respectively. Noodle volume was flat, with a 7% higher ASP, while dairy volume rose 17% YoY with a 1% lower ASP. Noodle’s operating margin stood at 17.2%, from 16.6% in FY15, while dairy’s was 16.8%, from 9.7%.

Beverages continued to suffer with 3% lower volume YoY and a 6% lower ASP. This was due to the ongoing transition of distribution (shift to sister company, Indomarco), lower volume of the cup-sized products (Club and Frutamin), and the change of raw materials for Pepsi Cola Blue. As such, the beverage division reported 9% lower revenue YoY and 1.5% lower operating profit YoY at Rp336 bn.

In 4Q16, ICBP reported weaker figures due to seasonality. Its revenue was 4% lower QoQ (+5% YoY) at Rp8 tn, with gross profit of Rp2.4 tn (-11% QoQ, +8% YoY) and gross margin down to 30%, from 32.5% in 3Q16, or 29% in 4Q15. Operating profit fell 27% QoQ (+13% YoY) to Rp895 bn and the operating margin was squeezed to 11%, from 15% in 3Q16, and 10% in 4Q15. Net profit stood at Rp768 bn (-10% QoQ, +38% YoY) and net margin stood at 10%.

Noodle’s volume in 4Q16 was down by 9% QoQ (-3% YoY) and dairy’s was down 4% QoQ (+4% YoY). ASP for noodle was 8% higher QoQ (+10%YoY) while dairy’s was 4% lower QoQ (-1% YoY), due to product mix. Noodle reported 2% lower revenue QoQ (+6% YoY) on flat operating profit QoQ (+46% YoY) whilst dairy was down by 8% QoQ (+2% YoY) on 51% lower operating profit QoQ (+3% YoY).

Figure 1: ICBP—FY and quarterly financial results

QoQ YoY

Rpbn FY15 FY16 Chg 4Q15 3Q16 4Q16 Chg Chg

Revenue 31,741 34,466 8.6% 7,645 8,296 7,995 -3.6% 4.6%

Gross profit 9,619 10,859 12.9% 2,227 2,700 2,399 -11.1% 7.7%

Operating profit 3,992 4,864 21.8% 796 1,232 895 -27.3% 12.5%

Net profit 3,001 3,600 20.0% 557 853 768 -9.9% 38.0%

Margins analysis:

Gross 30.3% 31.5% 29.1% 32.5% 30.0%

Operating 12.6% 14.1% 10.4% 14.8% 11.2%

Net 9.5% 10.4% 7.3% 10.3% 9.6%

Volume:

Noodles (bn packs) 12.7 12.7 0.0% 2.9 3.1 2.8 -9.2% -3.3%

Dairy (000 tons) 372.5 435.8 17.0% 100.8 109.0 104.3 -4.3% 3.5%

FS (tons) 76,388 76,388 0.0% 15,149 14,181 15,761 11.1% 4.0%

SF (tons) 30,221 37,172 23.0% 6,794 8,636 9,294 7.6% 36.8%

NSF (tons) 12,912 13,816 7.0% 3,168 3,320 3,780 13.8% 19.3%

Beverages (mn tons) 1,365 1,324 -3.0% 0.386 0.330 0.316 -4.3% -18.2%

ASP:

Noodles (Rp/ pack) 1,651 1,773 7.4% 1,690 1,721 1,853 7.7% 9.6%

Dairy (Rp/ tonne) 15,784 15,618 -1.1% 15,301 15,659 15,091 -3.6% -1.4%

FS (Ths Rp/ t) 16.3 18.8 15.0% 16.3 20.1 21.5 6.9% 32.0%

SF (Ths Rp/ t) 65.8 63.0 -4.4% 65.5 62.3 58.3 -6.4% -11.0%

NSF (Ths Rp/ t) 47.3 47.9 1.4% 48.9 49.2 46.8 -4.8% -4.3%

Beverages (Ths Rp/t) 1,349 1,263 -6.4% 1,213 1,305 1,146 -12.2% -5.5%

Source: Company data.

Bbg/RIC ICBP IJ / ICBP.JK Rating (prev. rating) N (N) Shares outstanding (mn) 11,662 Daily trad vol - 6m avg (mn) 4.5 Daily trad val - 6m avg (US$ mn) 3.0 Free float (%) 19.4 Major shareholders Indofood Sukses

Makmur

Price (23 Mar 17 , Rp) 8,775.00 TP (prev. TP Rp) 9,500 (9,500) Est. pot. % chg. to TP 8 52-wk range (Rp) 10000.0 - 7250.0 Mkt cap (Rp/US$ bn) 102,333.2/ 7.7



Year 12/14A 12/15A 12/16E 12/17E 12/18E

Revenue (Rp bn) 30,022 31,741 34,912 38,669 42,650 EBITDA (Rp bn) 3,805 4,691 5,878 6,232 6,842 Net profit (Rp bn) 2,645 3,001 3,642 3,776 4,103 EPS (CS adj. Rp) 227 257 312 324 352 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rp) n.a. n.a. 315 344 380 EPS growth (%) 18.9 13.5 21.4 3.7 8.7 P/E (x) 38.7 34.1 28.1 27.1 24.9 Dividend yield (%) 1.1 1.2 1.5 1.8 1.8 EV/EBITDA (x) 25.8 20.8 16.3 15.2 13.6 P/B (x) 7.5 6.6 5.8 5.2 4.7 ROE (%) 20.5 20.6 22.0 20.3 19.9 Net debt(cash)/equity (%) (27.4) (29.8) (35.4) (37.9) (41.1)

Note 1: ORD/ADR=20.00. Note 2: Indofood CBP, a subsidiary of Indofood Sukses Makmur (INDF.JK), is an established market-leading producer of packaged food products. It has a diverse range of products providing everyday food solutions. Its five business units include noodles, dairy, seaf

https://rave.credit-suisse.com/research/company/financials?ric=ICBP.JK


Asian Daily

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Tower Bersama -----------------------------------------------------------------------Maintain NEUTRAL FY16 results: Revenue growth weaker than expected EPS: ▼ TP: ◄► Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected]

● Results snap reaction—below expectations. Tower Bersama (TBIG) reported 8.1% YoY revenue growth in 4Q16. This implies an ongoing recovery versus the FY15 YoY revenue growth rate of 3.5%, but does not match the explosive growth rate enjoyed during the 3G rollout phase.

● TBIG's EBITDA margin was broadly stable YoY in 4Q16 at 86.5%, resulting in 8.4% YoY growth in EBITDA into the quarter. TBIG missed our FY16 revenue forecast by 4.9%, and but missed our EBITDA forecast by just 2.2%.

● Across FY16 as a whole net profit declined by 9.8% YoY, largely due to non-recurrence of a large deferred tax gain booked in FY15, and FY16 net profit missed our forecast by 21.1%.

● Factoring in the lower revenue trajectory, we cut our FY17 sales, EBITDA and EPS forecasts by 8.9%, 5.6% and 7.5% respectively. However, given lower-than-expected capex in FY16, after rolling our DCF to 12 months forward, our target price remains unchanged at Rp5,650. NEUTRAL rating maintained.


Revenue recovery continues, but no longer 'explosive'

Tower Bersama (TBIG)'s organic growth rate was 8.1% in 4Q16, slightly below the 8.4% achieved in 3Q16. The company added just 72 additional towers in 4Q16, and the tenancy ratio edged down slightly from 1.65x in 3Q16 to 1.63x in 4Q16 as 'Flexi' leases were finally terminated by PT Telkom. On the other hand, this helped revenue per tenant rise 1.4% YoY and 2.2% QoQ to Rp15.1mn/month.

While the 8.1% YoY growth rate is an improvement compared with TBIG's FY15 revenue growth rate of 3.5%, it still represents a very material slowdown versus TBIG's FY14 YoY revenue growth rate of 22.9%. We conclude that while 4G network rollout is helping to drive a YoY growth recovery, the fact that only three operators are investing meaningfully, and the fact that their rollouts are occurring on the 1800MHz frequency, is clearly resulting in less explosive growth for Tower Bersama than enjoyed during the 3G investment phase across 2011-2014. On the other hand TBIG's strong relationship with

Telkomsel (Not listed), which appears to be the main customer for 'build to suit' towers so far this year, has meant that TBIG has at least benefited from the market growth that is available. Across FY16 as a whole, revenue grew by 8.5% YoY but missed our forecast by 4.9%.

EBITDA and EBIT growing but miss our forecasts

TBIG's EBITDA margin was broadly stable YoY in 4Q16 at 86.5%, resulting in 8.4% YoY growth in EBITDA into the quarter. However, the removal of the Telkomsel utility bill pass-through was implemented in 1H15, and so TBIG reported EBITDA margin expansion of 1.7 pp YoY across FY16 as a whole, to reach 86.8%. The FY16 EBITDA figure therefore missed our forecast by just 2.2% despite the weak revenue result. EBIT increased by 8.8% YoY into 4Q16, and grew by 11.9% YoY across FY16 as a whole, but missed our forecast by 2.8%.

Net profit dipped YoY as FY15 tax gains did not recur

Headline net profit bounced QoQ but declined YoY due to a deferred tax benefit booked in 4Q15. Across FY16 as a whole net profit declined by 9.8% YoY, again largely due to the huge 4Q15 deferred tax gain, and FY16 net profit missed our forecast by 21.1%.

Model amendments

Factoring in the lower revenue trajectory, we cut our FY17 sales, EBITDA and EPS forecasts by 8.9%, 5.6% and 7.5%, respectively. However, given lower-than-expected capex in FY16, after rolling our DCF to 12 months forward our target price remains unchanged at Rp5,650.

NEUTRAL rating maintained

While the consolidation of cellular operators towards three large players is resulting in less spectacular growth rates for TBIG, the FY15 base has been reset, and faster 4G network rollout is resulting in a moderate YoY improvement in the revenue growth rate. However, this is already baked into our target price of Rp5,650. With 4Q16 results slightly on the weak side, TBIG looks fully valued and we maintain our NEUTRAL rating.

Figure 1: TBIG FY16 result—YoY analysis and versus CS forecasts

Rp bn FY16 FY15 YoY CSFY16E Diff as %

Operating revenue 3,711 3,421 8.5% 3,902 (4.9%)

EBITDA 3,220 2,911 10.6% 3,293 (2.2%)

EBITDA margin (%) 86.8% 85.1% 1.7pp 84.4% 2.4pp

Depreciation (242) (250) (3.3%) (229) 5.5%

EBIT 2,978 2,661 11.9% 3,064 (2.8%)

Net Interest (1,785) (1,599) 11.6% (1,177) 51.7%

Other inc./exp. 171 28 515.7%

PBT 1,364 1,089 25.2% 1,893 (28.0%)

Taxation (63) 356 (117.6%) (155) (59.5%)

Net Profit 1,290 1,430 (9.8%) 1,635 (21.1%)


Bbg/RIC TBIG IJ / TBIG.JK Rating (prev. rating) N (N) Shares outstanding (mn) 4,531.40 Daily trad vol - 6m avg (mn) 2.9 Daily trad val - 6m avg (US$ mn) 1.2 Free float (%) 32.3 Major shareholders Saratoga

Infrastruktur PT (26%)

Price (23 Mar 17 , Rp) 5,700.00 TP (prev. TP Rp) 5,650 (5,650) Est. pot. % chg. to TP (1) 52-wk range (Rp) 6800.0 - 4940.0 Mkt cap (Rp/US$ bn) 25,829.0/ 1.9


Absolute (%) 8.1 14.5 (5.8) Relative (%) 4.3 3.9 (20.9)

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (Rp bn) 3,421 3,711 4,206 4,776 5,328 EBITDA (Rp bn) 2,911 3,220 3,617 4,107 4,582 Net profit (Rp bn) 1,430 1,290 2,249 2,635 3,028 EPS (CS adj. Rp) 305 286 505 592 681 - Change from prev. EPS (%) n.a. n.a. (7.5) (5.6) (4.7) - Consensus EPS (Rp) n.a. n.a. 290 339 388 EPS growth (%) 12.3 (6.3) 77.0 17.2 14.9 P/E (x) 18.7 20.0 11.3 9.6 8.4 Dividend yield (%) 1.6 1.3 4.4 5.2 6.0 EV/EBITDA (x) 15.1 13.8 12.4 11.1 9.9 P/B (x) 17.5 16.6 9.5 6.3 4.6 ROE (%) 51.9 83.6 106.2 78.9 63.7 Net debt(cash)/equity (%) 1,131.1 1,141.7 662.6 447.2 321.8

Note 1: ORD/ADR=50.00. Note 2: PT Tower Bersama Infrastructure Tbk is an Indonesia-based company engaged in operating telecommunication infrastructure for lease to cellular operators.

https://rave.credit-suisse.com/research/company/financials?ric=TBIG.JK


Asian Daily

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Japan

Koito Manufacturing ---------------------------------------------------- Maintain UNDERPERFORM New models drive Japan business; focus turns to North America and China auto output EPS: ▲ TP: ▲ Koji Takahashi / Research Analyst / 81 3 4550 7884 / [email protected] Masahiro Akita / Research Analyst / 81 3 4550 7361 / [email protected]

● We increase our forecasts for Koito and raise our target price from ¥4,100 to ¥4,800 (potential return -18%), mainly reflecting revisions to our valuation multiple. Reiterate UNDERPERFORM.

● New model launches by Japanese automakers during FY3/17 have supported earnings expansion for Koito in Japan and in North America. Koito’s earnings growth is being driven more by increased vehicle production than the higher ASP resulting from the shift to LED headlamps. Meanwhile, earnings growth momentum is slowing in China and the wider Asian region, both of which have been key growth drivers.

● We raise our OP forecasts for FY3/17-18 to ¥90.0 bn (prev ¥82.0 bn) and ¥96.0 bn (¥85.5 bn), respectively. The upward revisions reflect the current increase in vehicle production volumes in Japan and a change in our USD/JPY assumption from ¥103/$ to ¥115/$.

● Our ¥4,800 TP is based on a P/E of 12.9x and our FY3/18E EPS of ¥375.2. We previously based our target price on FY3/18E BPS of ¥2,239 and a target P/B of 1.85x. Full report.


We increase our forecasts for Koito and raise our target price from ¥4,100 to ¥4,800 (potential return -18%), mainly reflecting revisions to our valuation multiple. We reiterate our UNDERPERFORM rating.

New model launches by Japanese automakers during FY3/17 have supported earnings expansion for Koito in Japan and in North America. Koito's earnings growth is being driven more by increased vehicle production than the higher ASP resulting from the shift to LED headlamps. Meanwhile, earnings growth momentum is slowing in China and the wider Asian region, both of which have been key growth drivers. The stock has underperformed the auto parts sector since 3Q FY3/17, due partly to a temporary increase in fixed costs driven by increased production volumes. Looking ahead to FY3/18 and beyond, our focus will be on automobile production trends in North America and China, two key growth drivers, and the impact on Koito’s earnings. The China

automobile market has a relatively strong influence on Koito's earnings, and the possibility of a slowdown in that market after the end of tax breaks on compact cars is likely to be a negative risk for Koito. Valuation on the stock has been kept at high level, as the expanding use of LED headlamps has supported solid sales growth. However, we will keep a close eye on unit volume momentum.

We raise our OP forecasts for FY3/17-18 to ¥90.0 bn (previously ¥82.0 bn) and ¥96.0 bn (¥85.5 bn), respectively. The upward revisions reflect the current increase in vehicle production volumes in Japan and a change in our USD/JPY assumption from ¥103/$ to ¥115/$.

Catalysts include lower LED headlamp prices and lower sales volumes in Japan, the Americas, and China. Risks include greater uptake of LED headlamps and market share gains.

Valuation: Our ¥4,800 TP is based on a P/E of 12.9x and our FY3/18E EPS of ¥375.2. We previously based our target price on FY3/18E BPS of ¥2,239 and a target P/B of 1.85x.

(This is an extract of Koji Takahashi's report "New models drive Japan business; focus turns to North America and China auto output" published on 24 March 2017. For the full report, please visit our CS Plus website.)

Bbg/RIC 7276 JP / 7276.T Rating (prev. rating) U (U) Shares outstanding (mn) 160.69 Daily trad vol - 6m avg (mn) 0.5 Daily trad val - 6m avg (US$ mn) 27.1 Free float (%) 60.0 Major shareholders

Price (23 Mar 17, ¥) 5,760.00 TP (prev. TP ¥) 4,800 (4,100) Est. pot. % chg. to TP (18) 52-wk range (¥) 6350.0 - 4340.0 Mkt cap (¥/US$ bn) 941.7/ 8.5


Absolute (%) (0.3) (5.9) 17.8 Relative (%) 0.5 (5.9) 3.8

Year 03/15A 03/16A 03/17E 03/18E 03/19E

Revenue (¥ bn) 706.5 813.5 834.2 856.5 894.0 EBITDA (¥ bn) 90.1 113.9 121.3 131.5 139.2 Net profit (¥ bn) 36.1 46.3 56.2 60.3 63.4 EPS (CS adj. ¥) 224 288 350 375 395 - Change from prev. EPS (%) n.a. n.a. 12.6 13.1 14.6 - Consensus EPS (¥) n.a. n.a. 348 389 418 EPS growth (%) 68.7 28.4 21.4 7.3 5.1 P/E (x) 26.1 20.3 16.8 15.6 14.9 Dividend yield (%) 0.7 0.6 0.7 0.9 0.9 EV/EBITDA (x) 9.5 7.2 6.3 5.4 4.7 P/B (x) 3.5 3.3 2.8 2.4 2.1 ROE (%) 14.7 16.7 18.1 16.7 15.3 Net debt (cash)/equity (%) (27.0) (36.6) (44.7) (51.5) (55.3)

Note 1: KOITO MANUFACTURING CO., LTD. is engaged in the manufacture and sale of automotive lighting equipment, aircraft equipment, railway cargo parts, electronic and measurement equipment.

https://plus.credit-suisse.com/r/V67t9B1AF-WElY95

https://rave.credit-suisse.com/research/company/financials?ric=7276.T


Asian Daily

- 38 of 46 -

Philippines

Cebu Air Inc -------------------------------------------------------------------- Downgrade to NEUTRAL 4Q16: Have profits peaked for now? EPS: ▲ TP: ▼ Muzhafar Mukhtar, CFA / Research Analyst / 60 3 2723 2084 / [email protected]

● Excluding unrealised forex losses and hedging gains, CEB’s 4Q16 NPATAMI (net profit after taxes and minority interest) came in at P3.3 bn (+93% YoY). FY16 NPATAMI of P10.1 bn (+48% YoY) was close to the Bloomberg consensus expectation of P9.8 bn (CS estimate: P9.6 bn).

● The higher profitability came from both increasing yield (pax yield up 7% YoY) and lower unit costs (down 2% YoY, mainly due to a 20% drop in realised unit fuel costs), outweighing a 3 pp decline in load factor.

● The cycle has peaked, and we expect profitability for ASEAN airlines to be negatively impacted in 2017 as fuel prices and competitive pressure strengthen. Fundamentally, Cebu seems better positioned than many peers, but even it can’t fight the cycle.

● We raise our EPS forecasts 3-10% on higher capacity and yield assumptions, but cut TP to P90 (long-term excess return on our EVA model reduced to 0.5%) from P130. Downgrade to NEUTRAL.


4Q16 core earnings within expectations

Excluding unrealised forex losses and hedging gains, CEB’s 4Q16 NPATAMI came in at P3.3 bn (+93% YoY). FY16 NPATAMI of P10.1 bn (+48% YoY) was close to the Bloomberg consensus expectation of P9.8 bn (CS estimate: P9.6 bn).

What do the results mean?

As we noted previously, the cycle probably peaked in 2016, and we expect profitability for ASEAN airlines to be impacted negatively in 2017 as fuel prices strengthen and industry capacity expansion accelerates. In mitigation, the supply/demand balance for the Philippines seems much better than ASEAN peers. Cebu’s domestic dominance continues to pay dividends, with yields in that segment strong enough to offset the weakness elsewhere, driving the overall yield up. Airport capacity constraints act as a buffer against stiffer competition. Nonetheless, we think profitability will be under some pressure in 2017; considering the modest capacity growth, the resulting earnings growth promised seems unexciting. We raise our

EPS expectations 3-10% on higher capacity and yield assumptions, but cut our TP to P90 (long-term excess return on our EVA model reduced to 0.5%). Fundamentally, Cebu seems much better positioned than many of its peers (which is reflected in its superior profitability metrics), but even it can’t fight the cycle. We downgrade the stock to NEUTRAL.

Key numbers and takeaways

Earnings. 4Q16 NPATAMI jumped 93% as revenue inched up 7%, EBIT margin expanded 5 pp; a larger tax credit also helped flatter the bottom-line improvement. Higher profitability came from both increasing yield (pax yield up 7% YoY) and lower unit costs (down 2% YoY, mainly due to a 20% drop in realised unit fuel costs), outweighing a 3 pp decline in load factor.

Capacity. Management guided for 7% seat growth in 2017. Fleet size expectations were raised, and implied a 12% CAGR in the number of planes by 2018 (from 2016) vs 10% previously. Constraints at Manila continue to require Cebu to upgauge the aircraft there; eventually all its operations at Manila will be using jets, with ATR hubs in Cebu and other locations.

Yields. Domestically, yield was up YoY and this trend was expected to continue in 2017. Short-haul international saw flattish movement as weakness in some markets was offset by improvements in others. Long-haul yield decline continued to be driven by irrational capacity growth by a number of players (excluding Australia).

Borrowings. Adjusted for capitalised operating leases, net gearing fell 23% to 2.0x in 2016. Cebu has begun funding its plane purchases with PHP loans, as part of its strategy to reduce the currency mismatch between revenue and costs.

Figure 1: Results summary

Financial data 4Q16 4Q15 Δ 12M16 12M15 Δ

Revenue (P mn) 15,208 14,243 7% 61,899 56,502 10%

EBITDAR (P mn) 5,091 4,087 25% 21,206 16,088 32%

EBIT (P mn) 2,620 1,674 57% 10,954 6,952 58%

EBIT margin (%) 17 12 5 pp 16 11 6 pp

NPATAMI (P mn) 3,264 1,693 93% 10,113 6,856 48%

Net adjusted D/E 2.0 2.5 -23% 2.0 2.5 -23%

Operating stats

ASK (mn) 6,404 6,270 2% 25,994 24,898 4%

Load factor (%) 80 83 -2 pp 82 80 2 pp

Revenue per RPK 3.0 2.7 8% 2.9 2.8 3%

CASK (inc r. hedging) 2.0 2.0 -2% 2.0 2.0 -2%

RASK-CASK gap 0.4 0.3 53% 0.4 0.3 51%

USD/PHP (ave) 49.11 46.88 5% 47.49 45.52 4%


Bbg/RIC CEB PM / CEB.PS Rating (prev. rating) N (O) Shares outstanding (mn) 605.95 Daily trad vol - 6m avg (mn) 0.5 Daily trad val - 6m avg (US$ mn) 1.0 Free float (%) 32.3 Major shareholders CPAir Holdings, JG

Summit Holdings

Price (24 Mar 17, P) 91.20 TP (prev. TP P) 90.00 (130.00) Est. pot. % chg. to TP (1) 52-wk range (P) 125.0 - 85.9 Mkt cap (P/US$ mn) 55,262.9/ 1,097.8


Absolute (%) (2.4) (0.9) 1.9 Relative (%) (1.9) (11.6) 3.2

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Revenue (P mn) 56,502 61,899 74,171 94,289 100,293 EBITDAR 16,088.1 21,206.1 21,193.3 25,343.8 22,323.1 Net profit (P mn) 6,856 10,113 9,090 8,361 7,410 EPS (CS adj. P) 11.3 16.7 15.0 13.8 12.2 - Change from prev. EPS (%) n.a. n.a. 10.1 3.0 - Consensus EPS (P) n.a. n.a. 14.3 14.1 EPS growth (%) 101.2 47.5 (10.1) (8.0) (11.4) P/E (x) 8.1 5.5 6.1 6.6 7.5 Dividend yield (%) 1.6 2.2 2.1 1.9 1.7 EV/EBITDAR (x) 7.3 5.6 5.9 5.8 5.7 P/B (x) 2.2 1.6 1.3 1.1 1.0 ROE (%) 29.3 34.4 24.1 18.4 14.2 Net debt(cash)/equity (%) 127.8 97.0 92.4 127.6 128.3

Note 1: ORD/ADR=5.00. Note 2: Cebu Air operates air transportation services out of the Philippines.

https://rave.credit-suisse.com/research/company/financials?ric=CEB.PS


Asian Daily

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Taiwan

Fubon Financial Holding ----------------------------------------------------------Maintain NEUTRAL In-line 4Q16 results with moderate guidance for 2017 EPS: ▼ TP: ▲ Chung Hsu, CFA / Research Analyst / 886 2 2715 6362 / [email protected] Chien Po Huang / Research Analyst / 886 2 2715 6342 / [email protected]

● Fubon FHC hosted an analyst meeting to review its 4Q16 net profits of NT$8 bn, +48% YoY vs a very weak 4Q15, supported by higher life profits on strong realised gains, while bank profits were 33% lower YoY due to weak PPoP.

● 2016 FYP declined by 0.5%, but 2016 VNB grew 55.2% YoY, which is better than mgmt's original target of 30% due to much higher regular paid product sales. Meanwhile, pre-hedged recurring yield declined 21 bp after Fubon Life realised NT$24 bn fixed income gains in 2016, though mgmt guides for a moderate rise in 2017.

● The bank subsidiary posted lower profits in 4Q16 on lower PPoP with guidance for moderate PPoP growth (moderate NII and fee income growth) and a lower credit costs in 2017.

● We lower FY17-18E by 6-7% after factoring in higher forex hedging costs and introduce our FY19E. However, we raise target price for Fubon FHC to NT$58 (from NT$55) after we tweak our investment return assumptions for Fubon Life's new money to 3.4% (from 3.2%) to reflect higher market rates. Maintain NEUTRAL.


Figure 1: Fubon FHC's quarterly profits by major subsidiaries

(NT$ mn) 4Q15 1Q16 2Q16 3Q16 4Q16 QoQ YoY

Taipei Fubon Bank 2,732 4,933 3,714 3,992 1,827 -54% -33%

Fubon Life 2,169 2,137 10,858 10,463 5,230 -50% 141%

Fubon Insurance 595 516 1,077 874 652 -25% 10%

Fubon Securities 560 358 432 832 (118) -114% -121%

Fubon FHC 5,450 8,774 14,936 16,623 8,088 -51% 48%

Source: Company data, Credit Suisse Research

4Q16 result on better life profits

Fubon Life's 4Q16 net profits increased by 141% YoY mainly because of a very weak investment gains in 4Q15. Meanwhile, the bank's 4Q16 PPoP declined by 31% YoY, dragged by lower NIM, weak fee income and lower trading income.

Figure 2: Taipei Fubon Bank's quarterly financials

(NT$ mn) 4Q15 1Q16 2Q16 3Q16 4Q16 QoQ YoY

Net interest income 6,143 5,846 5,857 5,624 5,528 -2% -10%

Non-interest income 4,024 5,654 4,294 4,707 3,163 -33% -21%

Fee income -net 2,592 3,390 3,056 3,164 2,386 -25% -8%

Trading and others 1,432 2,264 1,238 1,543 777 -50% -46%

Operating income 10,167 11,500 10,151 10,331 8,690 -16% -15%

Operating expenses (5,537) (5,188) (5,095) (5,219) (5,480) 5% -1%

PPOP 4,630 6,312 5,056 5,113 3,210 -37% -31%

Provisions (1,279) (186) (408) (244) (534) 119% -58%

Pre-tax profits 3,351 6,126 4,648 4,869 2,676 -45% -20%

Net profits 2,732 4,933 3,714 3,992 1,827 -54% -33%


Figure 3: Fubon Life and Taipei Fubon Bank's key ratios

2015 2016E 2017E 2018E 2019E

FYP growth 8% -7% 5% 5% 5%

Investment yield 4.97% 4.25% 4.03% 4.05% 4.07%

Hedging cost (bp) 50 92 95 85 90

Loan growth 3.6% -0.3% 4.4% 5.0% 5.0%

Net interest margin 1.07% 1.01% 1.04% 1.08% 1.12%

Loan to deposit ratio 75% 71% 70% 69% 69%

Cost to income ratio 49% 53% 52% 52% 51%

NPL ratio 0.12% 0.17% 0.21% 0.25% 0.28%

NPL coverage ratio 924% 695% 561% 492% 467%

Credit cost (bp) 1 10 19 24 31


Guiding for moderate 2017 outlook

For 2017, Fubon Life targets for positive VNB growth through product mix adjustments (details to be announced in 1Q17 analyst meeting). For investments, Fubon Life indicates it can re-invest equivalent to 15% of life asset each year amid rising market rates. For bank, the company provides a conservative guidance of: (1) flattish loan growth with modest NIM expansion, (2) mild fee income growth and (3) lower credit cost (vs took TRF provisions last year).

We lower our FY17-18E by 6-7% to account for higher forex hedging cost and less realised investment gains. We raised our TP to NT$58 (from NT$55) after adjusting for higher investment return for its new business, given the rising market rates environment. Fubon's share is currently trading at 11.2x FY17E P/E.

Figure 4: Fubon's share is trading at 11.2x FY17E forward P/E

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Fubon 1-yr forward P/E Average +1d -1d +2d -2d(x)

Source: TEJ, Credit Suisse estimates

Bbg/RIC 2881 TT / 2881.TW Rating (prev. rating) N (N) Shares outstanding (mn) 10,234 Daily trad vol - 6m avg (mn) 16.7 Daily trad val - 6m avg (US$ mn) 27.0 Free float (%) 50.0 Major shareholders Tsai family(31%),

TPE City Gov't(13%)

Price (24 Mar 17, NT$) 52.70 TP (prev. TP NT$) 58.00 (55.00) Est. pot. % chg. to TP 10 52-wk range (NT$) 53.1 - 35.7 Mkt cap (NT$/US$ bn) 539.3/ 17.7


Absolute (%) 5.0 5.8 32.4 Relative (%) 3.7 (3.3) 19.1

Year 12/15A 12/16A 12/17E 12/18E 12/19E

Pre-prov Op profit (NT$ mn) 77,994.3 54,453.8 55,723.9 64,465.2 70,849.9 Net profit (NT$ mn) 63,593 48,508 46,052 51,170 55,252 EPS (CS adj. NT$) 6.21 4.74 4.50 5.00 5.40 - Change from prev. EPS (%) n.a. n.a. (7) (6) - Consensus EPS (NT$) n.a. n.a. 5.13 5.68 EPS growth (%) 5.6 (23.7) (5.1) 11.1 8.0 P/E (x) 8.5 11.1 11.7 10.5 9.8 Dividend yield (%) 3.8 3.1 3.0 3.3 3.6 BVPS (CS adjusted NT$) 35.9 41.8 42.2 44.8 47.7 P/B (x) 1.47 1.26 1.25 1.18 1.10 ROE (%) 16.4 12.2 10.7 11.5 11.7 ROA (%) 1.1 0.8 0.7 0.7 0.7 Tier 1 ratio (%) 11.3 10.8 11.4 11.3 11.3

Note 1: ORD/ADR=10.00. Note 2: Fubon Financial Holding Co., Ltd. is a Taiwan-based financial holding company. It operates its businesses through property insurance; commercial banking; security business; life insurance; as well as investment trust, telephone distribution.

https://rave.credit-suisse.com/research/company/financials?ric=2884.TW


Asian Daily

- 40 of 46 -

Teco --------------------------------------------------------------------------- Upgrade to OUTPERFORM Motor business to recover in 2017-18; upgrade to OUTPERFORM EPS: ▲ TP: ▲ Jerry Su / Research Analyst / 886 2 2715 6361 / [email protected]

● Beneficiary of Keystone XL project. We expect Teco to benefit from the pipeline construction for Keystone XL phase IV project. We estimate shipment will begin from 4Q17 and should last into 2018. We believe the restart of Keystone XL, US economy recovery, and infrastructure spending will support its motor sales to recover.

● Motor to resume growth in 2017-18E. Teco’s motor business (45-50% of sales) has been declining for the past three years. We think its motor business is set to recover, mainly driven by better large motor demand, while small motor will also improve on better economy. We forecast motor sales to grow 7-8% YoY in 2017-18.

● 4Q16 results ahead. 4Q EPS of NT$0.43 came in ahead of our forecast on higher revenue and better margins. 4Q OPM of 8.2% was up 0.7 pp YoY and reached a seven-year high. Its BoD proposed dividend of NT$0.88 (51% payout), implying 2.9% yield.

● Upgrade to OUTPERFORM. We raise 2017-18 EPS by 6-8% on better sales for motor and system automation. We upgrade Teco to Outperform with a new TP of NT$37, based on 1.4x 12M P/B (vs prior 1.05x), average fwd P/B during last upcycle in 2013-14.


4Q16 results ahead of expectations

Teco posted 4Q headline numbers after market close on 24 March. 4Q EPS of NT$0.43 came in ahead of our expectation on better sales and higher margins. 4Q revenue of NT$13.4 bn was up 12% QoQ (vs seasonality of down QoQ) and up 8% YoY as various sectors saw better growth. OP of NT$1.1 bn was up 27% QoQ (first time of QoQ increase for 4Q since 2010) and was up 18% YoY. OPM of 8.2% increased by 0.7 pp YoY and reached a seven-year high in 4Q. Its BoD proposed NT$0.88/share dividend (51% payout), implying 2.9% yield. By segment, we estimate 4Q motor and system automation sales grew 10-15% QoQ, while M&E construction also saw 30%+ QoQ growth on year-end booking. For 2016, we estimate motor accounted for 44% of sales, system automation 10%, home appliance 17%, M&E construction 6%, telecom equipment 8%, and the balance for others.

Figure 1: Teco 4Q16 OP and EPS ahead of expectations

(NT$ mn) 4Q16 QoQ % YoY % CS 4Q old Diff.% Street Diff.%

Sales 13,428 12 8 12,452 8 13,208 2

Operating profit 1,100 27 18 972 13 1,016 8

Net income 865 (4) 51 761 14 832 4

EPS (NT$) 0.43 (4) 51 0.38 14 0.42 4

OP margin % 8.2 7.8 7.7

Net margin % 6.4 6.1 6.3

Source: Company data, Bloomberg, Credit Suisse estimates.

Key beneficiary of Keystone XL and US economy recovery

We believe Teco will benefit from the restart of the pipeline construction for the Keystone XL phase IV project. The phase IV pipeline will start from Alberta, Canada, passes through Baker, Montana, and arrives at Steele City, Nebraska. The total length of the pipelines is projected of ~1,900 KM, and we estimate it will require ~20 pump stations. We expect Teco’s large motor shipments for these pump stations to start from 4Q17 (late 3Q at the earliest) and will continue into 2018.

We also believe the US economy recovery and higher infrastructure spending (water treatment, power plant, etc.) will help Teco’s large and small motor business (motor is 45-50% of total sales and 30-40% is from the US). Moreover, the motor demand under China’s one-belt-one-road remains stable and the conversion of its production lines to manufacture Motovario’s gear reducer for Asia market should further support its sales growth in 2017. We estimate Teco’s motor business to resume growth in 2017-18 with 7-8% YoY sales growth, reversing the three-year declining trend in 2014-16 (excl. Motovario M&A).

System automation also seeing recovery

We estimate Teco’s system automation sales has declined by ~5% YoY in 2016, given the slower demand in China and weaker sales of distributing Yaskawa’s servo motor, as well as less demand of electromagnetic switch and circuit breakers in Taiwan. Nevertheless, we believe the improving China automation demand, new capex cycle for smartphone and display industry, and leveraging Motovario’s European distribution channels should help its system automation sales to recover in 2017. We estimate Teco’s system automation sales to grow 12% YoY in 2017 for low-teens sales contribution.

Upgrade to OUTPERFORM, new TP of NT$37

We raise our 2017-18 EPS by 6-8% on better top-line growth driven by stronger motor and system automation demand, as well as better assumption of OPM on operating leverage (opex up 2% YoY). We upgrade Teco to OUTPERFORM with a new TP of NT$37, based on 1.4x 12M P/B (vs prior 1.05x), average forward P/B during last upcycle in 2013-14 (vs 1.2-1.6x forward P/B range during the same period). Risks include higher material prices, weaker-than-expected demand from NA, and a slower recovery of motor and system automation demand in China.

Figure 2: Teco quarterly P/L

NT$ mn 3Q16 4Q16 1Q17E 2Q17E 3Q17E 4Q17E 2016 2017E

Revenue 12,004 13,428 12,202 13,578 13,972 13,890 49,924 53,642

Gross profit 3,106 3,528 3,261 3,681 3,785 3,641 13,258 14,367

Operating profit 870 1,100 1,027 1,403 1,490 1,215 4,189 5,135

Net profit 899 865 722 959 1,223 922 3,481 3,825

EPS (NT$) 0.45 0.43 0.36 0.48 0.61 0.46 1.74 1.91

Gross margin (%) 25.9 26.3 26.7 27.1 27.1 26.2 26.6 26.8

OP margin (%) 7.2 8.2 8.4 10.3 10.7 8.7 8.4 9.6


Bbg/RIC 1504 TT / 1504.TW Rating (prev. rating) O (N) Shares outstanding (mn) 2,002.69 Daily trad vol - 6m avg (mn) 2.7 Daily trad val - 6m avg (US$ mn) 2.5 Free float (%) 80.0 Major shareholders Vanguard (3.5%)

Price (24 Mar 17 , NT$) 30.20 TP (prev. TP NT$) 37.00 (27.00) Est. pot. % chg. to TP 23 52-wk range (NT$) 30.3 - 24.4 Mkt cap (NT$/US$ mn) 60,481.3/ 1,991.9


Absolute (%) 7.3 12.7 12.9 Relative (%) 5.9 3.6 (0.9)

Year 12/14A 12/15A 12/16E 12/17E 12/18E

Revenue (NT$ mn) 53,821 48,599 49,924 53,642 56,739 EBITDA (NT$ mn) 5,746 5,095 5,710 6,615 7,191 Net profit (NT$ mn) 4,067 3,177 3,481 3,825 4,212 EPS (CS adj. NT$) 2.03 1.59 1.74 1.91 2.10 - Change from prev. EPS (%) n.a. n.a. 3.1 6.0 7.9 - Consensus EPS (NT$) n.a. n.a. 1.74 1.89 2.10 EPS growth (%) 3.7 (21.9) 9.6 9.9 10.1 P/E (x) 14.9 19.0 17.4 15.8 14.4 Dividend yield (%) 3.6 2.6 2.9 3.6 3.9 EV/EBITDA (x) 9.2 11.6 10.4 8.4 7.5 P/B (x) 1.2 1.3 1.2 1.1 1.1 ROE (%) 8.8 6.6 7.1 7.4 7.8 Net debt(cash)/equity (%) (14.4) (2.7) (1.7) (8.1) (11.0)

Founded in 1956, Teco is specialised in distribution and manufacturing of motors.

https://rave.credit-suisse.com/research/company/financials?ric=1504.TW


Asian Daily

- 41 of 46 -

Recently Published Research

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Asian Daily

- 42 of 46 -

Companies mentioned

Agricultural Bank of China (1288.HK, HK$3.59) AMP (AMP.AX, A$4.96) Astra International (ASII.JK, Rp8,525) Axis Bank Limited (AXBK.BO, Rs488.1) BAIC Motor Corporation Limited (1958.HK, HK$8.58, OUTPERFORM[V], TP HK$9.8) Bank of China Ltd (3988.HK, HK$3.92) Bank of Chong Qing (1963.HK, HK$6.77) Bank of Communications (3328.HK, HK$6.09) BFIL (BHAF.NS, Rs841.65) BMW (BMWG.DE, €83.08) Brilliance China Automotive Holdings Limited (1114.HK, HK$12.78, NEUTRAL[V], TP HK$12.2) Cebu Air Inc (CEB.PS, P91.2, NEUTRAL, TP P90.0) China Citic Bank (0998.HK, HK$5.24) China Citic Bank (601998.SS, Rmb6.7) China Construction Bank (0939.HK, HK$6.39) China Merchants Bank Co Ltd (3968.HK, HK$21.1, OUTPERFORM, TP HK$25.0) China Merchants Bank Co Ltd (600036.SS, Rmb18.78, OUTPERFORM, TP Rmb22.4) China Minsheng Banking Co Ltd (1988.HK, HK$8.58) China Resources Power Holdings (0836.HK, HK$14.34) China Taiping (0966.HK, HK$19.2) China World Trade Center Co., Ltd. (600007.SS, Rmb20.48, NEUTRAL, TP Rmb22.1) Chongqing Rural Commercial Bank (3618.HK, HK$5.33) Chongqing Rural Commercial Bank (3618.HK, HK$5.33) CICC (3908.HK, HK$11.82) Citic Securities (6030.HK, HK$16.58) Daimler (DAIGn.DE, €70.58) Dali Foods Group (3799.HK, HK$4.51, NEUTRAL, TP HK$4.6) Datang International Power Generation (601991.SS, Rmb4.71) Dongfang Electric Corporation Limited (1072.HK, HK$8.35, NEUTRAL, TP HK$8.5) Dynagreen Environmental Protection (1330.HK, HK$4.52, OUTPERFORM, TP HK$6.0) Equitas Hldg (EQHL.NS, Rs158.95) Fubon Financial Holding (2881.TW, NT$52.7, NEUTRAL, TP NT$58.0) Gamuda (GAMU.KL, RM5.25, OUTPERFORM, TP RM5.9) Great Wall Motor (2333.HK, HK$9.1, NEUTRAL[V], TP HK$8.7) Guangfa Securities (000776.SZ, Rmb17.27, NEUTRAL[V], TP Rmb17.5) Guangfa Securities (1776.HK, HK$16.82, OUTPERFORM, TP HK$19.5)

Gudang Garam (GGRM.JK, Rp64,925) Hanjaya Mandala Sampoerna (HMSP.JK, Rp4,000) HDFC Bank (HDBK.BO, Rs1430.7) Hilong (1623.HK, HK$1.99, OUTPERFORM[V], TP HK$2.4) Huadian Power International (600027.SS, Rmb5.04) Huaneng Power International Inc (600011.SS, Rmb7.25, UNDERPERFORM, TP Rmb3.2) Huaxia Bank (600015.SS, Rmb11.22) Huishan (6863.HK, HK$0.42) Hyundai Motor (005385.KS, W104,000) IDFC Bank (IDFB.BO, Rs60.5) IJM Corporation Berhad (IJMS.KL, RM3.5, OUTPERFORM, TP RM4.0) Indofood CBP (ICBP.JK, Rp8,775, NEUTRAL, TP Rp9,500) IndusInd Bank (INBK.BO, Rs1383.15) Industrial & Commercial Bank of China (1398.HK, HK$5.16) Kerry Logistics (0636.HK, HK$10.98, OUTPERFORM, TP HK$13.0) Koito Manufacturing (7276.T, ¥5,760, UNDERPERFORM, TP ¥4,800) Kotak Mahindra Bank Ltd (KTKM.BO, Rs870.2) Longfor Properties (0960.HK, HK$13.78, OUTPERFORM, TP HK$16.0) Mahindra & Mahindra (MAHM.BO, Rs1275.9, NEUTRAL, TP Rs1390.0) Matahari Department Store (LPPF.JK, Rp13,900) Mitra Adiperkasa (MAPI.JK, Rp5,925) PICC Group (1339.HK, HK$3.29) PICC P&C (2328.HK, HK$12.46, OUTPERFORM, TP HK$15.5) Ping An Bank (000001.SZ, Rmb9.19, NEUTRAL, TP Rmb9.2) Postal Savings Bank of China Co., Ltd. (1658.HK, HK$4.82, UNDERPERFORM[V], TP HK$3.5) PT Bank Negara Indonesia (Persero) Tbk (BBNI.JK, Rp6,800) PT Bank Pembangunan Daerah Jawa Timur Tbk (BJTM.JK, Rp640) PT Bumi Serpong Damai Tbk (BSDE.JK, Rp1,865) PT Indosat Tbk (ISAT.JK, Rp6,975) Pt Link Net Tbk (LINK.JK, Rp5,325) PT Mitra Keluarga Karyasehat Tbk (MIKA.JK, Rp2,600) PT Sarana Menara Nusantara (TOWR.JK, Rp4,000) PT Telkom (Telekomunikasi Indo.) (TLKM.JK, Rp4,090) RBL Bank Limited (RATB.BO, Rs499.9) Satin Creditcare (SATR.NS, Rs369.5) Shanghai Lujiazui Finance & Trade Zone Development (600663.SS, Rmb22.59, UNDERPERFORM, TP Rmb19.1) Siloam International Hospitals (SILO.JK, Rp14,200) Teco (1504.TW, NT$30.2, OUTPERFORM, TP NT$37.0) THTF (600100.SS, Rmb13.91) Tower Bersama (TBIG.JK, Rp5,700, NEUTRAL, TP Rp5,650) Ujjivan (UJVF.NS, Rs424.25) Unilever Indonesia (UNVR.JK, Rp43,150) Volkswagen (VOWG_p.DE, €136.25) Westpac (WBC.AX, A$33.74, NEUTRAL, TP A$34.0) XL Axiata Tbk (EXCL.JK, Rp3,270) XL Axiata Tbk (EXCL.JK, Rp3,280) Yaskawa Electric Corp (6506.T, ¥2,274) Yes Bank Ltd (YESB.BO, Rs1516.05) ZTE Corporation (000063.SZ, Rmb17.4, UNDERPERFORM, TP Rmb13.6)


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Disclosure Appendix

Analyst Certification

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less a ttractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Eu ropean ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd O ctober 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.

Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

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Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 45% (64% banking clients)

Neutral/Hold* 39% (61% banking clients)

Underperform/Sell* 14% (53% banking clients)

Restricted 2%

*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other indivi dual factors.

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This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2017 CREDIT SUISSE AG and/or its affiliates. All rights reserved.

Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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monday, 27 march 2017 asean contractors: enter the dragon

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