23 August 2017 Utilities

Deutsche Bank Markets Research

Rating Company Date Buy Kunlun Energy 23 August 2017 Results Asia Reuters Bloomberg Exchange Ticker Price at 21 Aug 2017 (HKD) 7.45 Utilities 0135.HK 135 HK HSI 0135 Price target - 12mth (HKD) 8.50 Utilities 52-week range (HKD) 7.95 - 5.55 HANG SENG INDEX 27,155 Core profit growth in line; robust volume with slightly lower margin Valuation & Risks Kunlun's 1H17 core net profit rose by 14% yoy to Rmb2.7bn, in line with our Hanyu Zhang expectations and accounting for 58/62% of DBe/consensus full year forecast. Research Analyst Volume was as strong as expected with 12-184% yoy growth in four gas related +852-2203 6207 segments. Similar with gas utilities peers, Kunlun recorded a Rmb2cents/cm Michael Tong, CFA yoy (flat hoh) decline in EBITDA margin for gas sales segment due to market competition and failure to pass through PetroChina's winter citygate price hike. Research Analyst Mgmt expect the volume momentum to continue and margins to recover a bit +852-2203 6167 HoH in 2H17. Kunlun is the beneficiary of China's structural growth in both piped gas and the LNG value chain and is trading at an undemanding valuation of 11x Price/price relative 2018E P/E. Maintain Buy. 10

7.5

By segment results review 5 Kunlun's 1H17 reported net profit was flat yoy at Rmb2.4bn. If adding back 2.5 Rmb325mn attributable impairment loss, core net profit rose by 14% yoy to Jan '16 Jul '16 Jan '17 Jul '17

Rmb2.7bn. On the positive side, transmission segment net profit increased by Kunlun Energy HANG SENG INDEX (Rebased) 9% yoy to Rmb1.9bn (accounting for 70% of total core profit) driven by 15% volume growth. E&P segment turned profitable with a Rmb161mn net profit (vs. Performance (%) 1m 3m 12m Rmb188mn loss in 1H16). LNG terminal segment net profit more than doubled Absolute -3.1 5.8 22.9 yoy to Rmb313mn. While on the negative side, gas sales segment core PBT HANG SENG INDEX 1.7 7.9 18.4 declined by 15% yoy mainly dragged by higher financial cost and a Rmb2cents/ Source: Deutsche Bank cm yoy (flat hoh) decline in EBITDA margin (excl. one-off impairment) despite a Key indicators (FY1) volume growth of 12%. LNG processing segment continued to make losses as ROE (%) 12.5 expected. Net debt/equity (%) 13.1 Book value/share (HKD) 5.64 SJ line tariff cut still in discussion and we believe the risks well priced in Price/book (x) 1.3 Kunlun's mgmt is actively bargaining with the central govt for a potential tariff Net interest cover (x) 53.6 cut of the SJ pipeline and will put Line IV into operations asap (target by end Operating profit margin (%) 13.1 2017) to ensure those assets are included in the ROA calculation. Kunlun's Source: Deutsche Bank mgmt is confident about future volume growth and expects a better gas sales dollar margin for 2H17 vs. 1H17 with less impact from PetroChina's winter price hike. Kunlun has lower-than-peer dollar margins with Rmb0.54/cm for residential, Rmb0.41/cm for industrial and Rmb0.53/cm for commercial users, which makes it less vulnerable to potential dollar margin/return control by local govts.

Valuation and risks Our TP of HKD8.5 is based on SOTP (Fig.3). Key risks:lower-than-expected volume growth, a harsher-than-expected SJ tariff cut, and lower oil prices.

Deutsche Bank AG/ Distributed on: 23/08/2017 15:12:06 GMT Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. 0bed7b6cf11c 23 August 2017 Utilities Kunlun Energy

Forecasts and ratios Year End Dec 31 2015A 2016A 2017E 2018E 2019E Sales (HKDm) 41,641 81,882 87,355 87,832 92,865 EBITDA (HKDm) 12,448 12,915 17,810 15,628 16,398 Reported NPAT (HKDm) 137 659 5,418 5,394 6,328 Reported EPS FD(HKD) 0.017 0.082 0.671 0.668 0.784 DB EPS FD (HKD) 0.463 0.544 0.671 0.668 0.784 DB EPS growth (%) -33.9 17.4 23.4 -0.4 17.3 PER (x) 15.7 11.1 11.1 11.2 9.5 Price/BV (x) 1.1 1.1 1.3 1.2 1.1 EV/EBITDA (x) 7.0 6.3 5.1 6.0 5.5 DPS (net) (HKD) 0.200 0.060 0.074 0.101 0.134 Yield (net) (%) 2.8 1.0 1.0 1.4 1.8 ROE (%) 0.3 1.5 12.5 11.3 12.1 Source: Deutsche Bank estimates, company data

Page 2 Deutsche Bank AG/Hong Kong 23 August 2017 Utilities Kunlun Energy

1H17 results review and by segment analysis

Kunlun's 1H17 reported net profit was flat yoy at Rmb2.4bn. If adding back one- off impairments (Rmb100 impairment in Zhaoqing plant and Rmb329 impairment on accounts receivables in gas sales segment, with a total of Rmb325mn loss on attributable basis), core net profit increased by 14% yoy to Rmb2.7bn. Adjusted EBITDA (after adding back impairment) increased by 18% yoy to Rm9.5bn,

At profit before tax (PBT) level, we see positive growth momentum in transmission (+10% yoy), LNG terminal (+273% yoy) and E&P segment (turn profitable from loss). While on the other hand, gas sales segment PBT dropped by 15% yoy (excl. impairment) dragged down by lower margins and higher financial costs. LNG processing segment is still making losses as expected. See detailed analysis by segment below:

Gas transmission segment: robust volume growth with tariff risks priced in In 1H17, Kunlun's total transmission volume increased by 15% yoy to 20.2bcm of which ShaanJing pipeline recorded a 13% volume growth to 18.7cm. The ASP edged down by Rmb2cents/cm yoy to Rmb0.31/cm mainly due to the mix change, i.e higher volume growth for short-distance gas sales.

Kunlun aims to put the SJ pipeline IV into operation by end-2017, after which the total transmission capacity should expand to 50bcm from 35bcm. Mgmt expect Kunlun's transmission volume to continue to benefit from China's accelerating gas demand growth especially in Beijing-Tianjin-Hebei area.

Mgmt is still in active negotiations with the central government about the magnitude and timing of the tariff cut and argues that the SJ IV pipeline asset should be included in the asset base calculation. We believe the share price has already priced in the potential ShaanJing tariff cut, which has been discussed by the market for more than a year. We assume a potential 27% tariff cut would occur in Oct 2017. Every RMB1cent/cm change in the tariff would affect 3.5% of Kunlun’s earnings.

Gas sales segment: accelerating volume growth offset by weaker margins In 1H17, Kunlun's gas sales volume (incl.LPG) growth accelerates to 12% yoy (vs. 4% in 2016) and city gas segment recorded 18% yoy volume growth. However, similar with peers, Kunlun recorded a EBITDA margin squeeze of Rmb2cents/cm yoy (or flat hoh) in gas sales segment (after adding back Rmb329mn impairment on accounts receivables) , which is mainly due to the failure of pass-through of PetroChina winter citygate price hike (Nov 16-Mar 17).

Dragged down by margin squeeze, higher financial costs and the impairment, gas sales segment PBT was down 35% yoy to Rmb1.0bn. If excl. impairment, core PBT was down 15% yoy (or up 20% hoh) to Rmb1.3bn. Gas sales segment profit is quite sensitive to EBITDA margins as it is very thin at Rmb0.18/cm. Every Rmb1cent/cm change in EBITDA margin impacts segment PBT by 12%.

Mgmt expects margins to recover a bit HoH in 2H17, with less impact from seasonal citygate price hikes (2.5-3.0 months impact in 1H vs. at most 1.5 months impact in 2H). Kunlun has a lower-than-peer dollar margins with Rmb0.54/cm for residential, Rmb0.41/cm for industrial and Rmb0.53/cm for commercial users,

Deutsche Bank AG/Hong Kong Page 3 23 August 2017 Utilities Kunlun Energy which makes it less vulnerable to potential dollar margin/return control by local govts.

LNG receiving terminal: volume/profit growth accelerates meaningfully in 1H17, Kunlun's LNG terminal processing volume surged by 90% yoy to 3.6bcm, accelerating from 22% yoy growth in 2016. We believe the strong volume growth is driven by China's increasing gap of domestic production and demand growth, as well as the execution of long-term import contract signed by PetroChina in past few years.

In the long run, Kunlun’s LNG terminals are also beneficiaries of the execution of third party access as it is positive for utilization.

E&P segment turned profitable due to higher oil prices In 1H17, Kunlun's E&P segment turned profitable with a Rmb161mn net profit (vs. Rmb188mn net loss in 1H16) mainly due to recovery in oil prices (Brent +30% yoy to USD53/b). Production dropped by 22% yoy to 6.4mnbbl due to the termination of Xinjiang contract in 2016

LNG processing segment: still marking losses but recovery ahead In 1H17, Kunlun's LNG plant processing volume increased by 184% to 0.5bcm and the segment EBITDA is still negative at Rmb0.14/cm, partially due to the increasing per unit opex incurred by the 7 new LNG plants commencing operations in 1H17.

We expect the margins of LNG plants to improve gradually, with increasing LNG demand and more disciplined capacity expansion:

LNG demand should be boosted by 1) improving LNG vehicle station utilization with more vehicle willing to covert to LNG due to improved gas price competitiveness, 2) more peak shaving in demand from city-gas projects after coal-to-gas conversion, and 3) increasing LNG direct delivery demand from industrial users.

Besides demand growth, we have witnessed a much slower capacity expansion (only 8% yoy) in 1H17, this compares to the 24%/23% yoy growth in 2015/16, which should also be helpful for the structural recovery of LNG sector.

Financial costs rose by 147% yoy in 1H17 but the impact should mitigate in 2H In 1H17, financial costs rose strongly by 147% yoy and 26% hoh to Rmb481mn, due to the increase in total debt related to the Kunlun Gas acquisition and the commencement of new LNG plants that released the once-capitalized interest expense. We expect the negative impacts from higher financial cost to mitigate in 2H given high-base in 2H16 and potential debt repayment by Kunlun.

Page 4 Deutsche Bank AG/Hong Kong 23 August 2017 Utilities Kunlun Energy

Figure 1: 1H17 operational data summary yoy yoy Key operating statistics 1H16 Upstream E&P business: Sales vol. (mil. bbl) 16.8 15.2 -9% 8.4 8.3 8.1 7.1 6.4 -22% Realized oil price (US$/bbl) 43.0 34.7 -19% 47.0 39.0 29.3 40.9 45.6 56% Mid-/downstream gas vol (mn cm): NG (ex. LNG processing) 22,280 23,233 4% 11,059 11,221 11,533 11,700 12,878 12% LNG processing 679 522 -23% 246 433 178 344 506 184% LNG terminal re-gasification 3,968 4,859 22% 2,217 1,751 1,908 2,951 3,630 90% Pipeline transmission 33,978 35,731 5% 16,634 17,344 17,567 18,164 20,160 15% EBITDA dollar margin (Rmb/cm): Natural gas 0.21 0.19 (0.03) 0.25 0.17 0.20 0.17 0.18 (0.03) LNG processing (0.28) 0.12 0.39 (0.60) (0.09) (0.05) 0.20 (0.14) (0.09) LNG terminal re-gasification 0.23 0.24 0.01 0.25 0.21 0.24 0.24 0.27 0.03 Pipeline transmission 0.28 0.27 (0.00) 0.28 0.27 0.28 0.26 0.27 (0.01) EBIT dollar margin (Rmb/cm): Natural gas 0.10 0.09 (0.01) 0.15 0.06 0.11 0.08 0.09 (0.02) LNG processing (0.60) (0.56) 0.04 (1.00) (0.37) (0.92) (0.37) (0.56) 0.37 LNG terminal re-gasification 0.09 0.12 0.03 0.12 0.05 0.09 0.14 0.19 0.09 Pipeline transmission 0.23 0.22 (0.00) 0.23 0.22 0.23 0.22 0.22 (0.01)

Source: Company data

*note: EBITDA/EBIT margin excludes impairments

Deutsche Bank AG/Hong Kong Page 5 23 August 2017 Utilities Kunlun Energy

Figure 2: 1H17 P&L by-segment summary yoy yoy Summary P&L (Rmb mn) 1H16 Revenue 77,839 69,027 -11% 39,467 38,372 33,659 35,368 40,078 Other gain/(loss) 561 668 19% 492 68 493 175 563 14% Purchases, services & others (56,304) (47,783) -15% (28,390) (27,914) (23,148) (24,635) (28,271) 22% Employee compensation (3,829) (3,777) -1% (1,880) (1,949) (1,783) (1,994) (1,839) 3% SG&A (3,087) (2,865) -7% (1,339) (1,749) (1,182) (1,683) (1,664) 41% Tax other than income taxes (563) (502) -11% (266) (297) (260) (242) (215) -17% Impariment (1,393) (3,879) 179% - (1,393) - (3,879) (100) EBITDA 13,223 10,887 -18% 8,084 5,139 7,779 3,108 8,552 Depreciation and amortisation (5,406) (5,366) -1% (2,920) (2,485) (2,725) (2,641) (2,665) -2% Profit from operation 7,817 5,522 -29% 5,164 2,654 5,054 5,887 E&P business (1,599) (513) -68% (238) (1,361) (267) (246) 22 -108% Natural gas sales 2,326 2,203 -5% 1,645 681 1,289 914 851 -34% LNG processing (407) (4,175) 925% (245) (162) (166) (4,009) (281) 69% LNG terminal 371 603 63% 277 94 179 424 674 277% Natural gas pipeline 7,654 7,984 4% 3,763 3,891 4,075 3,909 4,465 10% Others (528) (580) 10% (39) (488) (56) (524) 156 -379% Interest income -9% -40% Finance costs (544) (577) (235) (308) (195) (382) (481) Share of profits from JCs 196 161 -18% 98 97 73 88 112 53% Share of profits from associates (1,687) 599 -135% (62) (1,625) 185 414 402 117% Profit before tax 6,104 5,998 -2% 5,124 5,325 6,045 E&P business (3,134) 12 -100% (127) (3,007) (151) 163 416 -375% Natural gas sales 2,519 2,730 8% 1,701 819 1,595 1,135 1,029 -35% LNG processing (701) (4,486) 540% (388) (313) (286) (4,200) (400) 40% LNG terminal 326 593 82% 246 81 180 413 672 273% Natural gas pipeline 7,579 7,976 5% 3,705 3,874 4,062 3,914 4,452 10% Others (485) (826) 70% (12) (473) (75) (751) (124) 65% Tax (2,687) (3,120) 16% (1,399) (1,288) (1,374) (1,746) (1,878) 37% Profit after tax 3,418 2,878 -16% 3,725 (307) 3,951 (1,073) 4,167 Minority interest (2,213) (2,322) 5% (1,501) (713) (1,542) (780) (1,748) 13% Net profit 1,205 -54% 2,224 (1,020) 2,409 (1,853) 2,419 E&P business (2,348) (180) -92% (106) (2,242) (188) 8 161 -186% NG sales (incl. LNG processing) 625 (2,120) -439% 608 18 833 (2,953) 180 -78% LNG terminal 175 287 65% 115 59 94 193 313 233% Natural gas pipeline 3,256 3,573 10% 1,611 1,645 1,755 1,818 1,913 9% Others (503) (1,005) 100% (3) (500) (85) (920) (148) 74% Adding back one-off items: Attributable impairment 1,393 3,147 126% 0 1,393 0 3,147 325 Attributable Fx loss of Actobe project 1,520 0 -100% 0 1,520 0 0 0 Recurring Net profit 4,118 3,702 -10% 2,224 1,893 2,409 1,293 2,744

Source: Company data

Figure 3: Kunlun SOTP valuation SOTP summary beta WACC HKDm % SOTP value Shaanxi-Beijing Pipeline 0.90 8.94% 7.92% 33,326 43% LNG terminal 1.00 9.50% 8.34% 16,988 22% Downstrem gas 0.80 8.38% 7.50% 32,255 41% LNG processing 1.50 12.30% 10.44% 2,493 3% E&P 1.20 10.62% 9.18% 537 1% Corporate and others 1.00 9.50% 8.34% -7,186 -9% Total value 78,413 minus: Net debt 9,472 Total Equity value 6 8,941 Target price (HKD/sh) 8 .50

Source: Company data, Deutsche Bank estimates

Page 6 Deutsche Bank AG/Hong Kong 23 August 2017 Utilities Kunlun Energy

Deutsche Bank AG/Hong Kong Page 7 23 August 2017 Utilities Kunlun Energy

Model updated: 19 July 2017 Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E Running the numbers Financial Summary Asia DB EPS (HKD) 0.70 0.46 0.54 0.67 0.67 0.78 Reported EPS (HKD) 0.67 0.02 0.08 0.67 0.67 0.78 China DPS (HKD) 0.23 0.20 0.06 0.07 0.10 0.13 Utilities BVPS (HKD) 6.6 6.1 5.1 5.6 6.2 6.8 Weighted average shares (m) 8,070 8,072 8,072 8,072 8,072 8,072 Average market cap (HKDm) 96,337 58,633 48,752 59,812 59,812 59,812 Kunlun Energy Enterprise value (HKDm) 125,497 87,615 81,708 91,205 93,674 89,669 Reuters: 0135.HK Bloomberg: 135 HK Valuation Metrics P/E (DB) (x) 17.0 15.7 11.1 11.1 11.2 9.5 Buy P/E (Reported) (x) 17.8 428.1 74.0 11.1 11.2 9.5 P/BV (x) 1.12 1.13 1.14 1.32 1.21 1.10 Price (21 Aug 17) HKD 7.45 FCF Yield (%) 4.3 12.7 13.4 7.6 nm 11.3 Target Price HKD 8.50 Dividend Yield (%) 1.9 2.8 1.0 1.0 1.4 1.8 EV/Sales (x) 2.6 2.1 1.0 1.0 1.1 1.0 52 Week range HKD 5.55 - 7.95 EV/EBITDA (x) 7.5 7.0 6.3 5.1 6.0 5.5 EV/EBIT (x) 11.2 12.2 12.5 8.0 10.0 8.5 Market cap (m) HKDm 59,812 USDm 7,643.3 Income Statement (HKDm) Sales revenue 48,044 41,641 81,882 87,355 87,832 92,865 Company Profile Gross profit 21,690 18,757 25,200 25,972 23,903 25,033 Kunlun Energy (formerly known as CNPC (Hong Kong)) is EBITDA 16,645 12,448 12,915 17,810 15,628 16,398 principally engaged in the midstream and downstream gas Depreciation 5,392 5,281 6,365 6,375 6,227 5,791 sales in mainland China. The company also involves in the Amortisation 0 0 0 0 0 0 exploration and production (E&P) of oil and gas in mainland EBIT 11,253 7,167 6,550 11,435 9,401 10,606 China, , , Peru, , , and Net interest income(expense) -269 -352 -336 -213 97 154 . China National Corporation, through Associates/affiliates 972 -1,888 901 1,290 1,665 1,717 PetroChina (0857.HK), is the controlling shareholder of the Exceptionals/extraordinaries 0 0 0 0 0 0 company holding c.57% stake. Other pre-tax income/(expense) -192 0 0 0 0 0 Profit before tax 11,764 4,927 7,115 12,512 11,163 12,477 Price Performance Income tax expense 3,080 2,607 3,701 3,585 3,005 3,216 9 Minorities 3,266 2,183 2,755 3,509 2,764 2,933 8 Other post-tax income/(expense) 0 0 0 0 0 0 7 Net profit 5,418 137 659 5,418 5,394 6,328 6 DB adjustments (including dilution) 240 3,605 3,733 0 0 0 5 DB Net profit 5,658 3,742 4,392 5,418 5,394 6,328 4 3 Jan '16 Jul '16 Jan '17 Jul '17 Cash Flow (HKDm)

Kunlun Energy HANG SENG INDEX (Rebased) Cash flow from operations 13,698 13,370 15,749 16,255 14,048 15,176 Net Capex -9,553 -5,917 -9,207 -11,661 -14,340 -8,372 Margin Trends Free cash flow 4,145 7,453 6,542 4,594 -292 6,803 Equity raised/(bought back) 0 0 0 0 0 0 40 Dividends paid -5,722 -4,206 -1,320 -3,157 -2,490 -2,994 30 Net inc/(dec) in borrowings -6,209 -1,195 10,557 -1,102 -264 -3,651 Other investing/financing cash flows 3,734 -202 -10,898 1,290 1,665 1,717 20 Net cash flow -4,052 1,850 4,881 1,624 -1,381 1,874 10 Change in working capital -651 -1,084 1,227 2,243 1,328 1,840 0 14 15 16 17E 18E 19E Balance Sheet (HKDm) EBITDA Margin EBIT Margin Cash and other liquid assets 10,729 11,771 21,566 23,190 21,809 23,684 Tangible fixed assets 86,442 80,390 93,488 98,774 106,887 109,468 Growth & Profitibility Goodwill/intangible assets 0 0 0 0 0 0 150 15 Associates/investments 6,226 3,587 4,615 4,615 4,615 4,615 Other assets 14,313 12,333 19,100 19,402 19,428 19,705 100 10 Total assets 117,710 108,081 138,769 145,980 152,739 157,472 50 5 Interest bearing debt 24,689 23,139 33,765 32,663 32,398 28,747 Other liabilities 18,707 14,618 38,701 41,245 42,600 44,717 0 0 Total liabilities 43,396 37,757 72,466 73,908 74,998 73,464 -50 -5 Shareholders' equity 52,888 49,123 40,931 45,536 49,852 54,598 14 15 16 17E 18E 19E Minorities 21,426 21,201 25,372 26,536 27,888 29,409 Total shareholders' equity 74,314 70,324 66,303 72,073 77,740 84,007 Sales growth (LHS) ROE (RHS) Net debt 13,960 11,368 12,199 9,472 10,589 5,064

Solvency Key Company Metrics 25 60 20 50 Sales growth (%) 10.6 -13.3 96.6 6.7 0.5 5.7 DB EPS growth (%) -16.8 -33.9 17.4 23.4 -0.4 17.3 15 40 EBITDA Margin (%) 34.6 29.9 15.8 20.4 17.8 17.7 10 30 EBIT Margin (%) 23.4 17.2 8.0 13.1 10.7 11.4 5 20 Payout ratio (%) 34.3 nm 73.4 11.0 15.1 17.0 0 10 ROE (%) 10.5 0.3 1.5 12.5 11.3 12.1 14 15 16 17E 18E 19E Capex/sales (%) 19.9 14.2 12.1 13.3 16.3 9.0 Capex/depreciation (x) 1.8 1.1 1.6 1.8 2.3 1.4 Net debt/equity (LHS) Net interest cover (RHS) Net debt/equity (%) 18.8 16.2 18.4 13.1 13.6 6.0 Hanyu Zhang Net interest cover (x) 41.8 20.4 19.5 53.6 nm nm +852 2203 6207 [email protected] Source: Company data, Deutsche Securities estimates

Page 8 Deutsche Bank AG/Hong Kong 23 August 2017 Utilities Kunlun Energy Appendix 1

Important Disclosures *Other information available upon request

Disclosure checklist Company Ticker Recent price* Disclosure Kunlun Energy 0135.HK 7.54 (HKD) 22 Aug 2017 6, 8, 9, 13 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg, and other vendors. Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/ DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm/db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of a class of common equity securities of this company calculated under computational methods required by US law. 8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months. Important Disclosures Required by Non-U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of a class of common equity securities of this company calculated under computational methods required by US law. 9. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by India law. 13. As of the end of the preceding week, Deutsche Bank and/or its affiliate(s) owns one percent or more of a class of common equity securities of this company. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Hanyu Zhang

Deutsche Bank AG/Hong Kong Page 9 23 August 2017 Utilities Kunlun Energy

Historical recommendations and target price. Kunlun Energy (0135.HK) (as of 08/21/2017) 10.00 Current Recommendations Buy Hold Sell 7 5 Not Rated 7.50 6 1 2 Suspended Rating

3 4 ** Analyst is no longer at Deutsche Bank 5.00 Security price

2.50

0.00 Sep '15 Jan '16 May '16 Sep '16 Jan '17 May '17 Date

1. 11/30/2015 Hold, Target Price Change HKD 6,60 Michael Tong, 5. 03/29/2017 Sell, Target Price Change HKD 5,60 Hanyu Zhang CFA 2. 06/08/2016 Downgraded to Sell, Target Price Change HKD 5,40 6. 05/10/2017 Upgraded to Hold, Target Price Change HKD 6,40 Hanyu Zhang Hanyu Zhang 3. 08/21/2016 Sell, Target Price Change HKD 5,50 Hanyu Zhang 7. 07/19/2017 Upgraded to Buy, Target Price Change HKD 8,50 Hanyu Zhang 4. 11/27/2016 Sell, Target Price Change HKD 4,90 Hanyu Zhang

§§§§$$$$$§§§§§

Equity Rating Key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock. Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Newly issued research recommendations and target prices supersede previously published research.

Page 10 Deutsche Bank AG/Hong Kong 23 August 2017 Utilities Kunlun Energy

Additional Information

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Page 14 Deutsche Bank AG/Hong Kong David Folkerts-Landau Group Chief Economist and Global Head of Research

Raj Hindocha Michael Spencer Steve Pollard Global Chief Operating Officer Head of APAC Research Head of Americas Research Research Global Head of Economics Global Head of Equity Research

Anthony Klarman Paul Reynolds Dave Clark Pam Finelli Global Head of Head of EMEA Head of APAC Global Head of Debt Research Equity Research Equity Research Equity Derivatives Research

Andreas Neubauer Spyros Mesomeris Head of Research - Germany Global Head of Quantitative and QIS Research

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