Travelsky Technology (696 HK) Travel Sky T Echnol Ogy

China Information Technology 17 December 2015

TravelSky Technology (696 HK) Travel Sky T echnol ogy

Target price: HKD13.50 (from HKD13.50) Share price (16 Dec): HKD13.58 | Up/downside: -0.5%

Time to take a breather

 We see the stock as fairly valued at the current level Kelvin Lau (852) 2848 4467  But, we remain positive on the long-term outlook for the company [email protected]  Downgrading to Hold (3); keeping target price at HKD13.50

What's new: We downgrade our rating on TravelSky to Hold (3), from Buy Forecast revisions (%) (1), as we believe the shares are fairly valued, having rallied by 32% in the Year to 31 Dec 15E 16E 17E past 3 months. While we remain positive on the long-term fundamental Revenue change (0.6) (1.0) (1.4) Net profit change (1.6) (1.4) (0.9) outlook for TravelSky, we recommend that investors await a better entry Core EPS (FD) change (1.6) (1.4) (0.9) point. Source: Daiwa forecasts

What's the impact: Valuation on par with peers. The stock is trading Share price performance currently at a 2016E PER of 21x, on par with global peers such as (HKD) (%) Amadeus and Sabre (both not rated) and, in our view, is fairly valued. On 16 180 the one hand, we believe TravelSky merits a premium to its past-3-year 14 158 average PER of 13x, given the improving margin trend that we expect to 12 135 9 113 kick off in 2015. On the other hand, we not do not expect the stock to trade 7 90 at a premium to its global peers (currently at 2016E PER of 21x on Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 consensus forecasts), as we forecast it to see an earnings CAGR of 15% Travelsky (LHS) Relative to HSI (RHS) for 2015-17E, which is better than the consensus forecast of a 10% CAGR for Amadeus, but well below the 42% CAGR forecast for Sabre. 12-month range 7.74-15.56 Market cap (USDbn) 5.12 Long-term positive. We remain upbeat on the long-term outlook for 3m avg daily turnover (USDm) 11.09 TravelSky and highlight several potential share-price catalysts in the Shares outstanding (m) 2,926 Major shareholder China TravelSky Hldg Co (29.3%) coming years, including: 1) a possible ASP increase due to additional IT services offered to China airlines as a result of its new-generation system Financial summary (CNY) (which had a trial launch in 2015 and should ensure that TravelSky sees a Year to 31 Dec 15E 16E 17E smaller increase in staff expenses over our forecast horizon compared with Revenue (m) 5,616 6,232 6,919 prior years), 2) the monetisation and/or acceptance of strategic investment Operating profit (m) 1,396 1,616 1,864 Net profit (m) 1,359 1,575 1,808 in the mobile app, Umetrip, and 3) the provision of Big Data services. Also, Core EPS (fully-diluted) 0.464 0.538 0.618 we think China’s ongoing SOE reforms, including changes to management EPS change (%) 13.1 15.9 14.8 incentives, will help sharpen the company’s commercial instincts in the long Daiwa vs Cons. EPS (%) (10.7) (4.7) 1.3 term. Incorporating the most recent book data (YTD October), we revise PER (x) 24.4 21.1 18.4 Dividend yield (%) 1.8 1.6 1.9 down our traffic-booking volume growth forecast to 10.8-11.0% YoY for DPS 0.201 0.183 0.210 2015-17E (previously 11.7-12.0% YoY) and, in turn, 2015-17E EPS by 1- PBR (x) 2.8 2.6 2.4 2%. EV/EBITDA (x) 16.0 14.3 11.9 ROE (%) 12.4 13.0 13.6

What we recommend: We downgrade our rating to Hold (3), from Buy (1), Source: FactSet, Daiwa forecasts as the current share price is close to our DCF-based TP of HKD13.50, and we foresee no imminent share-price catalysts. The key downside and upside risks to our call would be lower-or-higher-than-expected booking growth.

How we differ: The Bloomberg consensus earnings forecasts comprise only 2 sets of forecasts, and hence the variance between Daiwa’s numbers and the market’s is not particularly meaningful.

See important disclosures, including any required research certifications, beginning on page 15

TravelSky Technology (696 HK): 17 December 2015

How do we justify our view? Growth outlook Valuation Earnings revisions

Growth outlook TravelSky: net profit forecasts We forecast TravelSky to see net profit growth of 13-16% (CNYm) YoY for 2015-17E, driven mainly by growth in China 2,000 20% aviation, for which we forecast 11% YoY growth in the 15% booking volume, driven by strong outbound traffic. Also, we 1,500 forecast the company’s EBIT margin to widen from 24% in 10% 1,000 2014 to 27% in 2017E due to the planned launch in 2017 5% of its next-generation system, which we expect to slow the 500 rise in staff expenses and related charges relative to the 0% past 3 years. 0 (5%) 2010 2011 2012 2013 2014 2015E 2016E 2017E Net profit (LHS) YoY Growth (RHS)

Source: Company, Daiwa forecasts

Valuation TravelSky: 1-year forward PER (x) We find the stock is currently trading at a 2016E PER of (PER) 21x, above its past 3-year average and on par with global 25 peers such as Amadeus and Sabre. We can see grounds for the stock to trade a premium to its past average, given 20 that we expect 2015 to herald the start of a margin 15 improvement trend in contrast to the deteriorating trend of the past 3 years. But, if we compare TravelSky with its 10 peers on net profit growth, ROE and net gearing for 2015- 17E, we believe it should trade only in line with those 5

stocks (currently at 2016E PER multiple of 21x, on

Jul-15 Jul-12 Jul-13 Jul-14

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

Mar-15 Mar-12 Mar-13 Mar-14

Sep-12 Nov-12 Sep-13 Nov-13 Sep-14 Nov-14 Sep-15 Nov-15

May-13 May-14 May-15 Bloomberg consensus forecasts). May-12 PER: +1 SD Average PER -1 SD Source: Bloomberg, Daiwa forecasts

Earnings revisions TravelSky: Bloomberg consensus EPS forecast revisions

On 2015-16E EPS, our forecasts are below those of the (CNY) consensus, likely because we exclude government 0.55 subsidies that we consider to be one-off in nature. We do 0.50 not expect the government subsidies to remain in place 0.45 beyond 2016. 0.40

0.35

0.30

0.25

Jul-14 Jul-15

Apr-14 Oct-14 Apr-15 Oct-15

Jan-14 Jun-14 Jan-15 Jun-15

Feb-14 Mar-14 Feb-15 Mar-15

Aug-14 Sep-14 Nov-14 Dec-14 Aug-15 Sep-15 Nov-15 Dec-15

May-14 May-15 2015E 2016E

Source: Bloomberg

TravelSky Technology (696 HK): 17 December 2015

Financial summary Key assumptions Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E

Overall passenger booking growth (%) 17.2 9.2 8.9 10.5 10.7 11.0 10.8 10.8

Domestic passenger booking growth 15.5 8.6 7.8 10.3 9.7 10.0 10.0 10.0 (%) Int'l passenger booking growth (%) 28.4 12.8 15.3 11.9 16.2 16.1 14.7 14.5 Foreign airlines passenger booking 29.6 15.5 27.5 6.8 11.3 11.0 11.0 10.0 growth (%) PRC airlines' int'l passenger booking 27.9 11.8 10.8 14.0 18.2 18.0 16.0 16.0 growth (%)

Profit and loss (CNYm) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Aviation information technology 2,083 2,259 2,436 2,582 2,854 3,106 3,373 3,663 services Accounting, settlement and clearing 296 380 430 431 432 477 520 565 Other Revenue 566 899 1,091 1,465 2,029 2,034 2,340 2,691 Total Revenue 2,945 3,538 3,956 4,479 5,315 5,616 6,232 6,919 Other income 0 0 0 0 0 0 0 0 COGS (1,160) (1,497) (1,916) (2,403) (3,039) (3,009) (3,239) (3,472) SG&A (393) (452) (491) (461) (574) (701) (816) (949) Other op.expenses (404) (406) (331) (381) (447) (511) (561) (633) Operating profit 988 1,182 1,218 1,234 1,255 1,396 1,616 1,864 Net-interest inc./(exp.) 39 64 49 64 131 144 158 174 Assoc/forex/extraord./others 20 37 38 15 519 430 22 23 Pre-tax profit 1,047 1,283 1,304 1,312 1,905 1,970 1,796 2,062 Tax (130) (208) (142) (73) (213) (197) (180) (206) Min. int./pref. div./others (22) (28) (30) (34) (39) (45) (41) (47) Net profit (reported) 894 1,047 1,133 1,206 1,653 1,728 1,575 1,808 Net profit (adjusted) 894 1,047 1,133 1,128 1,202 1,359 1,575 1,808 EPS (reported)(CNY) 0.306 0.358 0.387 0.412 0.565 0.591 0.538 0.618 EPS (adjusted)(CNY) 0.306 0.358 0.387 0.385 0.411 0.464 0.538 0.618 EPS (adjusted fully-diluted)(CNY) 0.306 0.358 0.387 0.385 0.411 0.464 0.538 0.618 DPS (CNY) 0.105 0.120 0.133 0.140 0.133 0.201 0.183 0.210 EBIT 988 1,182 1,218 1,234 1,255 1,396 1,616 1,864 EBITDA 1,446 1,686 1,549 1,614 1,702 1,907 2,177 2,497

Cash flow (CNYm) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Profit before tax 1,047 1,283 1,304 1,312 1,905 1,970 1,796 2,062 Depreciation and amortisation 359 354 279 328 394 458 508 581 Tax paid (143) (135) (249) (84) (149) (197) (180) (206) Change in working capital 54 (169) (570) 218 (233) 36 108 119 Other operational CF items (14) (14) (67) (30) (39) (108) (124) (142) Cash flow from operations 1,303 1,319 697 1,744 1,878 2,159 2,108 2,413 Capex (2,345) (212) (363) (979) (964) (2,274) (2,348) (600) Net (acquisitions)/disposals 565 (354) 1,058 (100) (130) 249 249 249 Other investing CF items 66 (444) (181) 335 (720) (99) (83) (68) Cash flow from investing (1,715) (1,010) 514 (745) (1,814) (2,124) (2,183) (419) Change in debt 0 0 0 0 0 0 0 0 Net share issues/(repurchases) 0 0 0 0 0 0 0 0 Dividends paid (243) (316) (358) (398) (418) (397) (595) (543) Other financing CF items 0 0 0 7 0 0 0 0 Cash flow from financing (243) (316) (358) (391) (418) (397) (595) (543) Forex effect/others (2,522) (1,742) (2,461) (1,087) (1,511) (1,263) (1,263) (1,263) Change in cash (3,177) (1,748) (1,608) (479) (1,865) (1,625) (1,933) 188 Free cash flow (1,041) 1,107 334 764 914 (115) (240) 1,813 Source: FactSet, Daiwa forecasts

TravelSky Technology (696 HK): 17 December 2015

Financial summary continued … Balance sheet (CNYm) As at 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Cash & short-term investment 2,638 2,983 2,771 3,481 3,258 2,896 2,227 3,678 Inventory 8 4 29 9 15 15 15 15 Accounts receivable 1,628 2,059 2,543 2,642 3,021 3,064 3,152 3,249 Other current assets 265 763 1,228 915 1,791 1,791 1,791 1,791 Total current assets 4,539 5,809 6,571 7,047 8,086 7,767 7,185 8,733 Fixed assets 1,098 950 897 1,458 1,988 3,454 4,988 5,057 Goodwill & intangibles 104 51 63 202 432 432 432 432 Other non-current assets 2,219 2,196 2,350 2,434 2,224 2,540 2,813 2,732 Total assets 7,960 9,007 9,881 11,142 12,730 14,193 15,417 16,954 Short-term debt 0 0 0 0 0 0 0 0 Accounts payable 1,033 1,321 1,408 1,771 2,096 2,175 2,370 2,587 Other current liabilities 41 40 24 52 34 34 34 34 Total current liabilities 1,073 1,362 1,432 1,823 2,130 2,209 2,404 2,621 Long-term debt 0 0 0 0 0 0 0 0 Other non-current liabilities 19 18 17 18 23 23 23 23 Total liabilities 1,093 1,380 1,449 1,841 2,153 2,232 2,428 2,644 Share capital 1,951 2,926 2,926 2,926 2,926 2,926 2,926 2,926 Reserves/R.E./others 4,792 4,555 5,337 6,151 7,392 8,731 9,719 10,992 Shareholders' equity 6,743 7,481 8,263 9,078 10,319 11,657 12,645 13,918 Minority interests 124 145 168 223 258 303 344 392 Total equity & liabilities 7,960 9,007 9,881 11,142 12,730 14,193 15,417 16,954 EV 30,546 30,199 30,425 29,775 30,011 30,418 31,129 29,726 Net debt/(cash) (2,638) (2,983) (2,771) (3,481) (3,258) (2,896) (2,227) (3,678) BVPS (CNY) 2.304 2.557 2.824 3.102 3.526 3.984 4.321 4.756

Key ratios (%) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Sales (YoY) 16.5 20.1 11.8 13.2 18.7 5.7 11.0 11.0 EBITDA (YoY) 19.3 16.6 (8.1) 4.2 5.4 12.0 14.2 14.7 Operating profit (YoY) 23.8 19.6 3.0 1.3 1.7 11.2 15.7 15.4 Net profit (YoY) 15.3 17.1 8.2 (0.5) 6.6 13.1 15.9 14.8 Core EPS (fully-diluted) (YoY) 13.5 17.1 8.2 (0.5) 6.6 13.1 15.9 14.8 Gross-profit margin 60.6 57.7 51.6 46.3 42.8 46.4 48.0 49.8 EBITDA margin 49.1 47.7 39.2 36.0 32.0 34.0 34.9 36.1 Operating-profit margin 33.5 33.4 30.8 27.5 23.6 24.9 25.9 26.9 Net profit margin 30.4 29.6 28.6 25.2 22.6 24.2 25.3 26.1 ROAE 13.9 14.7 14.4 13.0 12.4 12.4 13.0 13.6 ROAA 11.9 12.3 12.0 10.7 10.1 10.1 10.6 11.2 ROCE 15.1 16.3 15.2 13.9 12.6 12.4 13.0 13.7 ROIC 26.2 22.3 21.1 20.3 17.0 15.3 14.7 15.7 Net debt to equity n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Effective tax rate 12.5 16.2 10.9 5.5 11.2 10.0 10.0 10.0 Accounts receivable (days) 197.6 190.2 212.3 211.3 194.4 197.7 182.0 168.8 Current ratio (x) 4.2 4.3 4.6 3.9 3.8 3.5 3.0 3.3 Net interest cover (x) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Net dividend payout 34.2 33.5 34.4 34.0 23.6 34.0 34.0 34.0 Free cash flow yield n.a. 3.3 1.0 2.3 2.8 n.a. n.a. 5.5 Source: FactSet, Daiwa forecasts

Company profile

TravelSky Technology is the dominant service provider of aviation information technology in China. For 2014, the total number of bookings processed by the company was 425m. The China TravelSky Holding Company has a 29.3% stake in the company.

TravelSky Technology (696 HK): 17 December 2015

Time to take a breather Improving outlooks appears to be priced in We expect EBIT margins to start improving in 2015 Less recruitment needed Increase in staff Following our recent discussion with management, we expect TravelSky’s EBIT margin to expenses likely to be continue to improve for full-year 2015, backed by its next-generation system, which had a lower in 2015-17E than in trial launch in 2015. We believe the new system will ensure that TravelSky sees a smaller the past 3 years increase in staff expenses over our forecast horizon compared with prior years; we assume its staff expenses will rise by 6-8% YoY for 2015-17E, compared with 14-26% YoY over the past 3 years, when the company was recruiting IT staff for the development of the next- generation system. On our forecasts, staff expenses will account for around 28-30% of operating expenditure for 2015-17E.

Increase in depreciation expenses offset by operating lease savings Rental-income and We expect the new operations centre in Beijing to commence operation in earnest in 2018, operating-lease savings though we think the office portion could come on stream in 2016. Other areas, including should offset rise in the general service area and part of the server area, should be completed by end-2017, depreciation expenses according to management. In turn, we estimate there will be an additional depreciation expense of CNY100-120m per year in 2018. However, as TravelSky plans to shift its offices to the new centre, we believe it will be able to save around CNY100m per year on office leases. In addition, the company says it could realise rental income if it leases out some of the office space it owns. Hence, we believe that the potential rental income and savings on operating leases should offset much of the additional depreciation expenses that we forecast.

Fairly valued at the current level Current valuation in line The share price has risen by 32% in the past 3 months and is now trading at a 2016E PER with peers of 21x, which is 1SD higher than its past 3-year average and in line with global peers Amadeus and Sabre. Since we expect TraveSky’s EBIT margin to improve, in contrast to the deterioration over the past 3 years, we could make the case for the stock’s higher PER relative to its historical average.

However, if we compare TravelSky with its global peers on prospective net earnings growth, it is in the middle of the range: the Bloomberg consensus is looking for a Sabre to see a 42% CAGR for 2015-17E, and Amadeus to see a 10% CAGR for the same period, while our forecasts call for TravelSky to have a 15% CAGR. Although on the same basis (Bloomberg consensus for its peers, Daiwa forecasts for TravelSky), TravelSky has the lowest forecast net gearing, it has the lowest ROE too. Net net, we believe it is justified for the stock to trade in line with its peers, at a 2016E PER of 21x. In other words, we do not see scope for a further rerating.

Comparison of key metrics: TravelSky, Amadeus and Sabre PER on 16E ROE for FY16 Net debt-equity as of 30 June 2015 EPS Adj CAGR for 2015-17E TravelSky * 21.1 13% net cash 15% Amadeus 21.2 36% 78% 10% Sabre 20.7 63% 847% 42%

Source: Bloomberg, Daiwa forecasts Note: * Daiwa forecasts

TravelSky Technology (696 HK): 17 December 2015

PER comparison: TravelSky, Amadeus and Sabre (PER) (PER) 25 25

20 20

15 15

10 10

5 5

Jul-12 Jul-13 Jul-14 Jul-15

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

Mar-15 Mar-12 Mar-13 Mar-14

Sep-12 Nov-12 Sep-13 Nov-13 Sep-14 Nov-14 Sep-15 Nov-15

May-12 May-13 May-14 May-15 TravelSky PER Amadeus PER Sabre PER Source: Bloomberg, Daiwa forecasts

Long-term drivers intact Next-generation system offer more opportunities We believe TravelSky TravelSky’s next-generation system is now undergoing a trial run, with some modules may be able to generate currently being user tested. Management expects the system to be rolled out officially in additional revenue from around 2017. We believe the system offers a more user-friendly interface that will make it new features easier to train new users among airline and travel agent staff. At the same time, it features more advanced search technology and makes it easier to select service items such as flight upgrades and seat and meal preferences, which historically have been processed manually. Following our discussions with the airlines, we believe there is a possibility that TravelSky will be able to increase its ASP in the long run if it can incorporate additional features such as those Amadeus is already charging for. Although we do not expect the existing pricing scheme to be changed, we see scope for TravelSky to collect additional charges depending upon the service requirements of users, ie, incremental revenue over and above that derived from the existing aviation information technology service.

TravelSky’s next- Besides, we see there is a possibility for TravelSky to expand the usage of this system to generation system may airlines overseas. Currently, only Amadeus has developed a next-generation system. have a cost advantage Therefore, we believe TravelSky will have a technological advantage over other over Amadeus competitors, such as Sabre and Travelport, which are less focused on aviation IT. Hence, we believe TravelSky may be in a position to sell its next-generation system to airlines overseas. While we think the Amadeus system is more technologically advanced, we believe TravelSky could deepen its penetration among airlines by charging a lower price than Amadeus charges.

Monetisation of Umetrip and its database We see potential for The number of registered users of TravelSky’s mobile app, Umetrip, now exceeds 10m and Umetrip to provide add- is, in our view, likely to expand further. Management estimates the frequent flyer market in on functions for other China totals around 40m people, and believes the data collected from Umetrip, as well as mobile apps the company’s original aviation IT system, would be useful for corporates such as airlines, travel agents, and even financial institutions in analysing travel patterns and the business potential of certain routes and destinations. Moreover, we believe the instant flight information available within Umetrip would be attractive to some online travel agents (OTAs), airlines and Internet companies, perhaps as a supplement to their own existing platforms. Hence, we expect TravelSky to monetise the app either through advertising or inviting strategic investors in the long term. For now, we believe management’s main focus is on accumulating more users.

TravelSky Technology (696 HK): 17 December 2015

TravelSky: Umetrip mobile interface

Source: Umetrip

SOE reforms could help TravelSky to unlock its commercial value Share incentives could One of the major goals of the ongoing SOE reforms in China is to give company prompt management to management teams an incentive to improve the efficiency of their businesses. One way to focus more on sharpen their focus on profitability would be through share incentives for management. In profitability our view, TravelSky’s monopoly status in China, allied with ongoing growth in the China aviation market and the possibility of overseas expansion, should present more opportunities for TravelSky to unlock its commercial value. We believe that share incentives would prompt management teams to focus less on national service and more on profitability. Among the areas of TravelSky’s business that we believe could be improved are the pricing scheme (given the government is encouraging market pricing in many sectors), monetisation of its database, and expansion overseas. Indeed, we expect changes in these areas of the business to bear fruit in the long term.

Top line forecast to move in line with growth in the China aviation market We forecast China air Aviation IT revenue is determined by the number of sectors flown, which in turn closely traffic volume to see a tracks the volume growth of the China aviation market. For the forthcoming 13th FYP CAGR of 10% for 2016- (2016-20), we forecast China’s air traffic volume to see a CAGR of 10%, with higher growth 20 of 11% for 2016-17E due to strong outbound traffic, and then a gradual slowdown to 8% YoY by 2020. We expect TravelSky’s booking growth to be in line with air traffic growth. As for international airlines’ booking growth, we forecast a CAGR of 14% for 2016-20, as we expect international traffic into and out of China to grow by 15% YoY for 2016 and 2017, slowing to 12% YoY by 2020. In sum, we expect the domestic airlines’ international booking growth to be faster, at 13-16% YoY, compared with 8-11% for international airlines for 2016-20E

LCCs will still need Although some observers are concerned that the emergence of low-cost carriers (LCCs) TravelSky may result in more airlines using their own systems (Spring Airlines already does), we note that today many of the LCCs operate under full-service carriers, and in such circumstances it makes sense to share the same IT platform provided by TravelSky. Also, looking back at the evolution of RyanAir and EasyJet, both also started to use Amadeus once they had reached a certain size. We believe that only small airlines with point-to-point networks may be able to do without TravelSky’s system. Hence, we expect the airlines to remain reliant on TravelSky going forward.

TravelSky Technology (696 HK): 17 December 2015

TravelSky: booking forecast by types of airlines (YoY) TravelSky: booking forecast by types of routes (YoY) (YoY %) (YoY %) (YoY %) (YoY %) 30% 30% 30% 30% 25% 25% 25% 25% 20% 20% 20% 20% 15% 15% 15% 15% 10% 10%

10% 10% 5% 5% 0% 0% 5% 5% -5% -5%

0% 0% -10% -10%

2007 2012 2008 2009 2010 2011 2013 2014

2009 2007 2008 2010 2011 2012 2013 2014

2015E 2016E 2017E 2018E 2019E 2020E

2020E 2015E 2016E 2017E 2018E 2019E Booking for Chinese airlines, YoY (LHS) Booking for domestic routes, YoY (LHS) Booking for foreign airline, YoY (RHS) Book for international routes, YoY (RHS) Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

TravelSky Technology (696 HK): 17 December 2015

Recommendation and valuation Downgrading to Hold (3) We do not foresee a rerating or derating on a 12-month horizon We downgrade based on We revise down 2015-17 EPS by 1-2%, factoring in the YTD October booking data, which valuation call prompted us to revise down booking growth to 10.8-11.0% YoY for 2015-17E (previously 11.7-12% YoY). The modest earnings revisions have little impact on our DCF value for TravelSky, and therefore we maintain our 12-month TP of HKD13.50.

With the share price having risen by 32% in the past 3 months, we downgrade our recommendation to Hold (3), from Buy (1). The stock is trading currently in line with its global peers, which we consider to be justified, and we do not foresee a rerating or derating on a 12-month view.

TravelSky: DCF calculation TravelSky: DCF sensitivity Target gearing (debt/capital) (%) 0.0 Discount NPV of FCF Enterprise Value Equity Value Equity Value Per Share Market risk premium (%) 9.2 Rate (CNY m) (CNY m) (CNY m) (HKD) Risk-free rate (%) 3.5 11.65% 26,586 42,283 45,180 18.20 Cost of debt (%) 5.0 12.15% 25,529 39,487 42,383 17.00 Cost of equity (%) 14.1 12.65% 24,526 36,967 39,863 16.00 WACC (%) 14.1 13.15% 23,575 34,688 37,584 15.10 DCF Valuation 13.65% 22,672 32,619 35,515 14.30 NPV of Forecasts (CNYm) 21,815 14.15% 21,815 30,734 33,631 13.50 NPV of Terminal Value (CNYm) 8,919 14.65% 21,001 29,013 31,909 12.80 Enterprise Value (CNYm) 30,734 15.15% 20,227 27,436 30,333 12.20 Equity Value (CNYm) 33,631 15.65% 19,492 25,988 28,885 11.60 No. Shares (m) 2,926 16.15% 18,792 24,655 27,551 11.10 Per Share Equity Value (HKD) 13.50 16.65% 18,126 23,425 26,321 10.60

Source: Daiwa forecasts Source: Daiwa forecasts

Risks to our call Downside risks Lower-than-expected booking growth The major downside risk to our call would be lower-than-expected booking growth following a slowdown in travel demand, perhaps as a result of subdued travel sentiment caused by macro concerns. Also, the depreciation of the Renminbi may affect sentiment on the possibility of airlines shifting to foreign GDS companies.

Opening-up of the local GDS market to foreign airlines We assume that the foreign GDS players will still not be able to sell tickets for the domestic China airlines for the foreseeable future. However, if the government does allow the China airlines to use the international GDS systems, this would threaten TravelSky’s monopoly status and could cloud its long-term outlook.

Upside risks Higher-than-expected booking growth The major upside risk to our call would be higher-than-expected booking growth as a result of stronger-than-expected domestic and outbound traffic growth. This could happen if foreign currencies were to depreciate against the CNY by more than we expect or if the macro slowdown in China turns out to be less severe than we expect.

Earlier-than-expected monetisation of Umetrip We currently assume that Umetrip will not be monetised in 2016 (which would include the arrival of strategic investors and/or collecting advertising revenue from the mobile app). However, if the monetisation were to happen in 2016, we believe the share price would react positively, especially if the company were to secure large Internet companies as strategic partners.

TravelSky Technology (696 HK): 17 December 2015

Strong A-share market We believe TravelSky is a well-known stock among Mainland A-share investors (because of Umetrip), fuelled by the Hong Kong-Shanghai Stock Connect. So if market sentiment on the A-share market were to pick up again, as was the case in April 2015, the trading sentiment on TravelSky is likely to surge as well. Therefore, we could see an upside risk to TravelSky’s share price should there be another strong rally in the A-share market.

Travel-related IT valuation comparison 1-Yr Bloomberg Trading Share target Name Code Currency price Rating price PER (x) PBR (x) EV/EBITDA(x) Div yield (%) ROE (%) 16-Dec-15 FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E

TravelSky Technology Ltd-H * 696 HK HKD 13.58 Hold 13.50 24.4 21.1 2.8 2.6 16.0 14.3 1.8 1.6 12.4 13.0 SABRE CORP SABR US USD 28.90 NR NR 26.5 20.7 15.5 10.3 11.7 10.0 1.2 1.5 105.2 63.0

Amadeus It Holding Sa-A Shs AMS SM EUR 38.88 NR NR 23.3 21.2 8.3 7.2 13.1 12.0 2.0 2.3 37.1 35.9 Total Weighted average 24.3 21.1 9.3 7.3 13.2 11.8 1.8 2.0 50.4 39.1

Source: Bloomberg, *Daiwa forecasts

TravelSky Technology (696 HK): 17 December 2015

Appendix Background Shareholder structure a double-edged sword TravelSky was established on 18 October 2000 as part of the restructuring of the China Aviation industry. The company was listed on the Stock Exchange of Hong Kong on 7 February 2001. As of the end of 2014, the major shareholder was China TravelSky Holding Company (29%). Separately, the big-three airlines together hold a 39% interest in the company (China Southern Air Holding Company [14%], China Eastern Air Holding Company [12%] and China National Aviation Holding Company [12%]). Currently, 35% of its publicly held shares are H shares and the remainder are domestic shares. We believe this shareholding structure discourages the big-three airlines from shifting to other providers, but that it also might lessen the ability of TravelSky to raise its prices.

TravelSky: organisation chart (as of June 2015)

China TravelSky China Southern Air China Eastern Air China National Aviation Other shareholders Holding Company Holding Company Holding Company Holding Company 34.5% 29.29% 14.19% 12.21% 12.21%

TravelSky (696.HK)

Source: Company

Monopoly status likely to remain TravelSky is the dominant provider of information technology for the China aviation and travel industry. The company’s aviation information technology (AIT) service includes an electronic travel distribution (ETD) service (including Inventory Control System [ICS], Computer Reservation System [CRS] and Airport Passenger Processing System [APP]). Besides, it is also responsible for promoting many activities concerning the development of the Mainland aviation industry, such as online electronic ticketing, interline electronic ticketing (IET), the Common Use Self Service (CUSS) system, and data transfer with global alliance partners. The company’s major customers are airlines, airports and travel agents. Currently, most domestic airlines, airports and travel agents depend on TravelSky’s technology (LCC Spring Airlines is a notable exception).

International airlines’ The arrival of international Global Distribution System (GDS) players in the China market in competing GDS faces late-2012 has not so far affected TravelSky’s market share in China, though the company obstacles in China has stepped up promotional activity to guard against market-share losses. From our recent visits with travel agents, we learned that the major obstacle for GDS in China is that financial settlement with Amadeus and Sabre is more complicated than using TravelSky. At the same time, the regulatory regime is a problem, as the airlines bear extra legal responsibility when using international GDS in China. As it stands, we see little incentive for airlines and travel agents in China to use Amadeus and Sabre. Indeed, given TravelSky has the backing of the Mainland government and its big-three airline shareholders, we believe the company will be able to maintain its monopoly position as the information technology service provider in China aviation industry.

TravelSky Technology (696 HK): 17 December 2015

TravelSky: booking YoY trending above China GDP YoY Weighted average operating profit of TravelSky and Sabre {YoY %) (YoY %) (Operating profit, USDm) (Operating profit, USDm) 20% 20% 1,200 20,000

1,000 15% 15% 15,000 800

10% 10% 600 10,000 400 5,000 5% 5% 200

0 0 0% 0% 2,007 2,008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014 Airline sector op profit (RHS) TravelSky booking YoY growth (LHS) China GDP real growth (RHS) Weighted avg of op profit of TravelSky and Amadeus (LHS) Source: Company, National Bureau of Statistics Source: Bloomberg

Growth cycle of GDS (US example) Revenue

Travelsky Mature to slightly Mature stage (1990- declining stage (2004 2004) – network reaches onwards) – GDS most of the world’s deregulation, more prosperous regions. The competition leads to Growth stage (1970-90s) increasing use of the declining margins, more – fast expansion in which Internet for reservations M&A in the industry. Pioneer GDS see market share and ticketing encourages stage (1960-70s) rising . – airlines create GDS airlines to begin divesting and travel agents start to use GDS. GDS. Pioneer Growth Mature Declining

Source: Daiwa

TravelSky: sources of revenue

Travel agents book System integration service Cargo, hotel and public Accounting Centre of Airlines CRS/ICS Airport DCS (APP) through 1E system for airports data service China Aviation (ACCA)

Charge per Charge per Charge per Installation fee Charge per % Charge per month sector sector booking transaction amount

Revenue for TravelSky

Source: Company Note: CRS stands for computer reservation system, ICS stands for inventory control system, DCS stands for departure control system, APP stands for airport passenger processing

TravelSky: business coverage 2009 2010 2011 2012 2013 2014 Links and networking with Airlines 82 90 95 105 113 116 Covering cities (domestic & international) 400 400 400 400 400 400 Travel agencies 6,000 6,000 6,000 6,000 7,000 7,000 Sales terminals 60,000 60,000 60,000 60,000 60,000 60,000 Number of transactions processed through agents (m) 181 216 242 263 304 335 Number of hotel room nights 1,078,600 2,197,000 1,850,300 1,424,300 990,300 1,058,600 Total booking (m) 249 292 319 347 386 425

TravelSky Technology (696 HK): 17 December 2015

Source: CompanyDaiwa’s Asia Pacific Research Directory HONG KONG SOUTH KOREA Takashi FUJIKURA (852) 2848 4051 [email protected] Sung Yop CHUNG (82) 2 787 9157 [email protected] Regional Research Head Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Kosuke MIZUNO (852) 2848 4949 / [email protected] Shipbuilding; Steel (852) 2773 8273 Mike OH (82) 2 787 9179 [email protected] Regional Research Co-head Banking; Capital Goods (Construction and Machinery) John HETHERINGTON (852) 2773 8787 [email protected] Iris PARK (82) 2 787 9165 [email protected] Regional Deputy Head of Asia Pacific Research Consumer/Retail Rohan DALZIELL (852) 2848 4938 [email protected] SK KIM (82) 2 787 9173 [email protected] Regional Head of Product Management IT/Electronics – Semiconductor/Display and Tech Hardware Kevin LAI (852) 2848 4926 [email protected] Thomas Y KWON (82) 2 787 9181 [email protected] Chief Economist for Asia ex-Japan; Macro Economics (Regional) Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Game Junjie TANG (852) 2773 8736 [email protected] Kevin JIN (82) 2 787 9168 [email protected] Macro Economics (China) Small/Mid Cap Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong and China Property TAIWAN Cynthia CHAN (852) 2773 8243 [email protected] Rick HSU (886) 2 8758 6261 [email protected] Property (China) Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design Leon QI (852) 2532 4381 [email protected] (Regional) Banking (Hong Kong/China); Broker (China); Insurance (China) Christie CHIEN (886) 2 8758 6257 [email protected] Anson CHAN (852) 2532 4350 [email protected] Banking; Insurance (Taiwan); Macro Economics (Regional) Consumer (Hong Kong/China) Steven TSENG (886) 2 8758 6252 [email protected] Jamie SOO (852) 2773 8529 [email protected] IT/Technology Hardware (PC Hardware) Gaming and Leisure (Hong Kong/China) Christine WANG (886) 2 8758 6249 [email protected] Dennis IP (852) 2848 4068 [email protected] IT/Technology Hardware (Automation); Pharmaceuticals and Healthcare; Consumer Power; Utilities; Renewables and Environment (Hong Kong/China) Kylie HUANG (886) 2 8758 6248 [email protected] John CHOI (852) 2773 8730 [email protected] IT/Technology Hardware (Handsets and Components) Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Helen CHIEN (886) 2 8758 6254 [email protected] Kelvin LAU (852) 2848 4467 [email protected] Small/Mid Cap Head of Automobiles; Transportation and Industrial (Hong Kong/China) Brian LAM (852) 2532 4341 [email protected] INDIA Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Transportation – Railway; Construction and Engineering (China) Jibo MA (852) 2848 4489 [email protected] Head of India Research; Strategy; Banking/Finance Saurabh MEHTA (91) 22 6622 1009 [email protected] Head of Custom Products Group Thomas HO (852) 2773 8716 [email protected] Capital Goods; Utilities

Custom Products Group SINGAPORE Ramakrishna MARUVADA (65) 6499 6543 [email protected] PHILIPPINES Bianca SOLEMA (63) 2 737 3023 [email protected] Head of Singapore Research; Telecommunications (China/ASEAN/India) Utilities and Energy Royston TAN (65) 6321 3086 [email protected]

Oil and Gas; Capital Goods David LUM (65) 6329 2102 [email protected] Property and REITs Shane GOH (65) 64996546 [email protected] Small/Mid Cap (Singapore) Jame OSMAN (65) 6321 3092 [email protected] Telecommunications (ASEAN/India); Pharmaceuticals and Healthcare; Consumer (Singapore)

TravelSky Technology (696 HK): 17 December 2015

Daiwa’s Offices Office / Branch / Affiliate Address Tel Fax DAIWA SECURITIES GROUP INC HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661 Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726 Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129 Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

Daiwa Capital Markets America Inc. New York Head Office Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100 Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935 Daiwa Capital Markets Europe Limited, London Head Office 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600 Daiwa Capital Markets Europe Limited, Frankfurt Branch Neue Mainzer Str. 1, 60311 Frankfurt/Main, Germany (49) 69 717 080 (49) 69 723 340 Daiwa Capital Markets Europe Limited, Paris Representative Office 17, rue de Surène 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808 Daiwa Capital Markets Europe Limited, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441 Daiwa Capital Markets Europe Limited, Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, (7) 495 641 3416 (7) 495 775 6238 Moscow Representative Office Russian Federation Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, (973) 17 534 452 (973) 17 535 113 Manama, Bahrain Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621 Daiwa Capital Markets Singapore Limited 6 Shenton Way #26-08, OUE Downtown 2, Singapore 068809, (65) 6220 3666 (65) 6223 6198 Republic of Singapore Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, (61) 3 9916 1300 (61) 3 9916 1330 Victoria 3000, Australia DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, (632) 813 7344 (632) 848 0105 Makati City, Republic of the Philippines Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638 Daiwa Securities Capital Markets Korea Co., Ltd. 20 Fl.& 21Fl. One IFC, 10 Gukjegeumyung-Ro, Yeongdeungpo-gu, (82) 2 787 9100 (82) 2 787 9191 Seoul, Korea Daiwa Securities Co. Ltd., Beijing Representative Office Room 301/302，Kerry Center，1 Guanghua Road，Chaoyang District， (86) 10 6500 6688 (86) 10 6500 3594 Beijing 100020, People’s Republic of China Daiwa (Shanghai) Corporate Strategic Advisory Co. Ltd. 44/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road, Pudong, (86) 21 3858 2000 (86) 21 3858 2111 Shanghai China 200120 , People’s Republic of China Daiwa Securities Co. Ltd., Bangkok Representative Office 18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road, (66) 2 252 5650 (66) 2 252 5665 Lumpini, Pathumwan, Bangkok 10330, Thailand Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, (91) 22 6622 1000 (91) 22 6622 1019 Bandra East, Mumbai – 400051, India Daiwa Securities Co. Ltd., Hanoi Representative Office Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, (84) 4 3946 0460 (84) 4 3946 0461 Hoan Kiem Dist. Hanoi, Vietnam

DAIWA INSTITUTE OF RESEARCH LTD HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603 MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417 London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550

TravelSky Technology (696 HK): 17 December 2015

Important Disclosures and Disclaimer

This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Group Inc., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.

Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including market making activities, derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures.

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

Japan Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc. Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Investment Banking Relationship Within the preceding 12 months, the subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Modern Land (China) Co. Ltd (1107 HK); econtext Asia Ltd (1390 HK); Accordia Golf Trust (AGT SP); GF Securities Co Ltd (1776 HK); Mirae Asset Life Insurance Co Ltd (085620 KS); China Reinsurance Group Corporation (1508 HK). *Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司), Daiwa Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd.

Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research.

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

Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.

Australia This research is distributed in Australia by Daiwa Capital Markets Australia Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.

India This research is distributed in India to Institutional Clients only by Daiwa Capital Markets India Private Limited (Daiwa India) which is an intermediary registered with Securities & Exchange Board of India as a Stock Broker, Merchant Bank and Research Analyst. Daiwa India, its Research Analyst and their family members and its associates do not have any financial interest save as disclosed or other undisclosed material conflict of interest in the securities or derivatives of any companies under coverage. Daiwa India and its associates may have received compensation for any products other than Investment Banking (as disclosed) or brokerage services from the subject company in this report during the past 12 months. Unless otherwise stated in BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action, Daiwa India and its associates do not hold more than 1% of any companies covered in this research report.

There is no material disciplinary action against Daiwa India by any regulatory authority impacting equity research analysis activities as of the date of this report.

Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.

Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE links at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively.

Thailand This research is distributed to only institutional investors in Thailand primarily by Thanachart Securities Public Company Limited (“TNS”). This report is prepared by analysts who are employed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees accept any liability whatsoever for any direct or consequential loss arising from any use of this research or its contents. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable. However, Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user. Daiwa Securities Group Inc. and/or its non-U.S. affiliates perform and seek to perform business with companies covered in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates, their respective directors, officers, servants and employees may have positions and financial interest in securities mentioned in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this research. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this research.

United Kingdom This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

TravelSky Technology (696 HK): 17 December 2015

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory.

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

Bahrain This research material is distributed in Bahrain by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113

United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (Tel no. 212-612-7000).

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

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

DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.

Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.

The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months.

Disclosure of investment ratings Rating Percentage of total Buy* 63.8% Hold** 22.2% Sell*** 14.0% Source: Daiwa Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 September 2015. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings.

Additional information may be available upon request.

Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.  In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.  In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.  For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.  There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.  There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.  Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

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

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