Taiwan – Equity abc

Global Research

 HSBC is hosting its 3rd Annual Taiwan Taiwan Discovery Discovery Forum on 5 November in Hong Forum Kong and 6 November in Singapore  Twelve corporates are attending, represented by top management

4 November 2013  This report includes profiles for all the companies presenting Jenny Lai*, CFA Head of Taiwan Research, PC Sector Analyst HSBC Securities (Taiwan) Corporation Limited +886 2 6631 2860 [email protected] Discovering Taiwan

Todd Dunivant* Welcome to HSBC’s 3rd Annual Taiwan Discovery Forum. Head of Banks Research, Asia Pacific During the two-day conference, clients will have the The Hongkong and Shanghai Banking Corporation Limited opportunity to meet with Taiwanese companies in various +852 2996 6599 [email protected] sectors. Twelve companies are participating, represented by Abel Lee* senior executives and other management. Non-Tech Analyst HSBC Securities (Taiwan) Corporation Limited The Forum is designed to connect Taiwan’s exciting +886 2 6631 2866 [email protected] up-and-coming corporates with our large and sophisticated Carrie Liu* institutional investor clients. Participating companies will Technology Analyst HSBC Securities (Taiwan) Corporation Limited come from a wide array of industries, ranging from domestic +886 2 6631 2864 [email protected] consumer companies to China plays and pure exporters. Jerry Tsai* Investors will seek to gain insight into how Taiwan’s growth Technology Analyst players and navigating the global economic seas, and HSBC Securities (Taiwan) Corporation Limited +886 2 6631 2863 [email protected] capturing new business opportunities onshore and aboard.

Bruce B. Warden* The format of the event will be one-on-one and small-group Financials Analyst HSBC Securities (Taiwan) Corporation Limited meetings. +8862 6631 2868 [email protected] We look forward to your participation. Yolanda Wang* Technology Analyst HSBC Securities (Taiwan) Corporation Limited +886 2 8725 6027 [email protected]

Tse-yong Yao* Technology Analyst HSBC Securities (Taiwan) Corporation Limited +8862 6631 2861 [email protected]

View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: HSBC Securities (Taiwan) Corporation Limited Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Contents

Stocks under our coverage 3 Clevo, 2362 TT, OW 4

Huaku Development, 2548 TT, OW 6

Ju Teng Int’l, 3336 HK, OW(V) 8

Kinsus Interconnect, 3189 TT, OW 10

Orise Technology, 3545 TT, N(V) 12

SinoPac FHC, 2890 TT, OW 14

Taiflex Scientific, 8039 TT, N 16

Stocks not under our coverage 19 ASPEED, 5274 TT, Not Rated 20

Ledlink, 5230 TT, Not Rated 21

Teco, 1504 TT, Not Rated 22

Tong Yang, 1319 TT, Not Rated 23

Wah Lee, 3010 TT, Not Rated 24

Disclosure appendix 28

Disclaimer 31

2 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Stocks under our coverage

3 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Clevo, 2362 TT, OW

Jenny Lai*, CFA Target price (TWD) 69.00 Index Taiwan Weighted Analyst Share price (TWD) 60.30 Reuters code 2362.TW HSBC Securities (Taiwan) Corporation Limited Forecast dividend yield (%) 5.1 Market cap (USDm) 1,432 +8862 6631 2860 [email protected] Free float (%) 76 Julie Wang* Performance (%) 1M 3M 12M Associate Absolute 2.7 7.5 52.0 HSBC Securities (Taiwan) Corporation Limited Relative 0.2 3.0 33.8 +8862 6631 2870 [email protected]

Note: Priced at close of 28 October 2013. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations. Source: HSBC estimates, Bloomberg

Business description  Clevo is the sole owner of Buynow, the No. 1 electronics retail shopping mall operator in China. Buynow has 23 stores and plans to open 10 more stores in the next three years. Buynow enjoys high rental yield, mainly due to low land cost and prime locations. Clevo owns 30% of Chicony Square, which is a department store operator in China. Clevo has two stores located in Chengdu and Wuhan and will open a store in Xian in 2015. The company has a small operation in notebook ODM services, which we expect to account for 5-10% of 2013e earnings. Key points  Low-cost prime locations, new store openings and a strategy shift to boost rentals. Buynow’s competitive advantage is its low land cost and prime property locations in major cities in China. Its rental yield, in our estimate, is as high as 11% and 4% based on its current book value and appraised value, respectively. Management’s new strategy to expand to non-IT retail businesses could generate additional marketing fee income and sustain its occupancy rates and rental income. It is targeting to add three more stores each in 2013 and 2014 to its current portfolio of 22 stores. We expect the growing number of stores to improve capital efficiency with expanding revenue baseline.

 Monetising property assets. According to Economic Daily, Clevo plans to package some of its Buynow assets into an RMB-denominated REIT or spin off Buynow through an IPO in Taiwan. On a purely hypothetical basis, using the appraised value for Buynow’s assets provided by DTZ (an independent appraiser) and assuming a hypothetical payout ratio of 50-70%, such a move could result in a revaluation gain of TWD24-33 per share, equivalent to c40-55% of the current share price. Valuation and risks  Our target price of TWD69 is based on a sum-of-the-parts approach. We value Buynow and Chicony Square by assigning a 45% discount to NAV, the same as for Franshion Properties (817 HK, OW, TP: HKD4.10), as Franshion has a business model similar to that of Buynow and Chicony Square. We apply 9x 2014e PE (average multiple of Taiwan-listed notebook ODM companies) to the notebook business. We use DTZ’s appraised value for Taiwan property, book value for property under construction, and market value for holdings in Chicony (2385 TT, N, TP: TWD76). Downside risks: Rental increases could level off, as there is limited room to hike rental rates further. Therefore, growth will likely become reliant on new malls. Therefore, there is execution risk on new stores as well as some risk to the store occupancy rate.

Financial forecasts (TWDm) Year to December 2012 2013e 2014e 2015e Key ratios 2012 2013e 2014e 2015e Revenue 18,186 17,807 19,021 19,133 Gross margin (%) 32.5 32.9 36.3 37.5 Gross profit 5,909 5,861 6,911 7,177 Operating margin (%) 12.1 12.2 13.7 14.1 Operating profit* 2,205 2,166 2,602 2,698 Net margin (%) 7.2 16.2 15.4 15.7 Net income 1,311 2,888 2,920 3,007 EPS y-o-y (%) 4.0 103.4 1.1 3.0 EPS (TWD) 2.16 4.40 4.45 4.58 ROE (%) 13.9 25.4 23.3 22.3

Source: Company data, HSBC estimates; *Operating profit includes rental income of Buynow and recurring notebook business contribution.

4 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Financials & valuation: Clevo Overweight

Financial statements Valuation data Year to 12/2012a 12/2013e 12/2014e 12/2015e Year to 12/2012a 12/2013e 12/2014e 12/2015e Profit & loss summary (TWDm) EV/sales 2.9 1.6 1.5 1.5 EV/EBITDA 15.6 8.9 7.9 7.3 Revenue 18,186 17,807 19,021 19,133 EV/IC 1.5 0.8 0.7 0.7 EBITDA 3,407 3,262 3,688 3,905 PE* 27.9 13.7 13.5 13.2 Depreciation & amortisation -1,202 -1,096 -1,086 -1,207 P/Book value 3.4 3.3 3.0 2.8 Operating profit/EBIT 2,205 2,166 2,602 2,698 FCF yield (%) -4.0 870.5 8.3 49.5 Net interest -820 -707 -725 -725 Dividend yield (%) 3.3 5.1 5.2 5.3 PBT 1,915 3,422 3,835 3,984 HSBC PBT 1,915 3,422 3,835 3,984 Note: * = Based on HSBC EPS (fully diluted) Taxation -605 -534 -915 -977 Net profit 1,311 2,888 2,920 3,007 HSBC net profit 1,311 2,888 2,920 3,007 Issuer information

Cash flow summary (TWDm) Share price (TWD) 60.30 Target price (TWD) 69.00 Cash flow from operations 3,149 3,876 3,899 4,203 Reuters (Equity) 2362.TW Bloomberg (Equity) 2362 TT Capex -3,726 20,722 -1,800 -1,800 Market cap (USDm) 1,452 Market cap (TWDm) 42,689 Cash flow from investment -4,141 -1,339 -2,686 -2,721 Free float (%) 76 Enterprise value (TWDm) 29082 Dividends -1,402 -1,979 -2,011 -2,043 Country Taiwan Sector Real Estate Change in net debt 762 1,284 798 561 Analyst Jenny Lai Contact +8862 6631 2860 FCF equity -1,108 22,635 142 393

Balance sheet summary (TWDm) Price relative Intangible fixed assets 0 0 0 0 74 74 Tangible fixed assets 23,153 1,334 2,048 2,642 69 69 Current assets 7,514 7,952 7,336 6,742 64 64 Cash & others 4,255 4,853 4,055 3,493 59 59 Total assets 45,509 49,375 50,358 51,280 54 54 Operating liabilities 5,410 5,936 6,011 5,968 49 49 Gross debt 29,452 31,334 31,334 31,334 44 44 Net debt 25,198 26,482 27,280 27,841 39 39 Shareholders’ funds 10,647 12,104 13,013 13,977 34 34 Invested capital 35,845 38,586 40,293 41,818 29 29 2011 2012 2013 2014 Clevo Rel to TAIWAN WEIGHTED INDEX Ratio, growth and per share analysis Source: HSBC

Year to 12/2012a 12/2013e 12/2014e 12/2015e Y-o-y % change Note: price at close of 28 Oct 2013 Revenue 6.6 -2.1 6.8 0.6 EBITDA 25.8 -4.2 13.1 5.9 Operating profit 31.4 -1.8 20.1 3.7 PBT 0.9 78.7 12.1 3.9 HSBC EPS 4.0 103.4 1.1 3.0 Ratios (%) Revenue/IC (x) 0.5 0.5 0.5 0.5 ROIC 4.4 4.9 5.0 5.0 ROE 13.9 25.4 23.3 22.3 ROA 2.9 6.0 5.7 5.8 EBITDA margin 18.7 18.3 19.4 20.4 Operating profit margin 12.1 12.2 13.7 14.1 EBITDA/net interest (x) 4.2 4.6 5.1 5.4 Net debt/equity 236.7 218.8 209.6 199.2 Net debt/EBITDA (x) 7.4 8.1 7.4 7.1 CF from operations/net debt 12.5 14.6 14.3 15.1 Per share data (TWD) EPS Rep (fully diluted) 2.16 4.40 4.45 4.58 HSBC EPS (fully diluted) 2.16 4.40 4.45 4.58 DPS 2.00 3.10 3.15 3.20 Book value 17.58 18.45 19.83 21.30

5 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Huaku Development, 2548 TT, OW

Abel Lee* Target price (TWD) 105.00 Index Taiwan Weighted Analyst Share price (TWD) 84.60 Reuters code 2548.TW HSBC Securities (Taiwan) Corporation Limited Forecast dividend yield (%) 6.5 Market cap (USDm) 828 +8862 6631 2866 [email protected] Free float (%) 79 Julie Wang* Performance (%) 1M 3M 12M Associate Absolute -0.2 -12.4 39.3 HSBC Securities (Taiwan) Corporation Limited Relative -2.7 -16.2 22.6 +8862 6631 2870 [email protected]

Notes: Priced at close of 28 October 2013. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations. Source: HSBC estimates, Bloomberg

Business description

 Huaku is a property developer in both commercial and residential markets. It is a quality brand with high recognition. Huaku focuses on the Greater Taipei city area and has sufficient land bank. Key points

 Strong presales on track. We expect Huaku to deliver solid presales of its new projects launched recently thanks to management’s good execution. Correct projects positioning is the key to success, in our view. Mainstream demand has come more from first home and upgrade/replacement buyers but less from investment speculators after the implementation of the luxury tax in 2011.

 New project pipeline to drive earnings growth in 2015-16. After it launched Songjian and Chiyan1 with good results in 1H13, Huaku will have four new projects in 2H13, including Tianmu, Chiyan2, Tuchen and Taoyuan. Chiyuan2 is 90% presold, Tuchen is likely to be 100% presold (launched in September), and ASPs of the Tianmu project could reach TWD1.8-1.9m per ping (USD18-1900 sq ft; ping is a traditional unit of measurement in Taiwan, which is equivalent to 3.306 sq m). We believe the strong pre-sale results will increase its earnings visibility in 2015-16. Valuation and risks

 Our target price of TWD105 is based on a 22% discount (three-year average plus 0.5 standard deviations) to our NAV estimate of TWD134. Downside risks: Worse-than-expected demand in the office market, unfavourable government policies and a weaker-than-expected macroeconomic environment.

Financial forecasts (TWDm) Year to December 2012 2013e 2014e 2015e Key ratios 2012 2013e 2014e 2015e Revenue 5,536 10,826 9,063 10,083 Gross margin (%) 39.2 38.3 41.9 41.0 Gross profit 2,169 4,149 3,801 4,138 Operating margin (%) 32.4 27.8 31.4 30.5 Operating profit 1,795 3,012 2,849 3,079 Net margin (%) 30.5 26.8 30.3 29.5 Net income 1,686 2,906 2,747 2,976 EPS y-o-y (%) -39.8 72.3 -5.5 8.3 EPS (TWD) 6.10 10.50 9.93 10.76 ROE (%) 14.1 22.3 18.7 18.6

Source: Company data, HSBC estimates

6 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Financials & valuation: Huaku Development Overweight

Financial statements Valuation data Year to 12/2012a 12/2013e 12/2014e 12/2015e Year to 12/2012a 12/2013e 12/2014e 12/2015e Profit & loss summary (TWDm) EV/sales 5.5 2.8 3.2 2.7 EV/EBITDA 17.0 10.2 10.1 9.0 Revenue 5,536 10,826 9,063 10,083 EV/IC 1.7 1.5 1.5 1.4 EBITDA 1,801 3,018 2,855 3,085 PE* 13.9 8.1 8.5 7.9 Depreciation & amortisation -6 -6 -6 -6 P/Book value 1.9 1.7 1.5 1.4 Operating profit/EBIT 1,795 3,012 2,849 3,079 FCF yield (%) 9.4 2.9 15.5 13.0 Net interest -38 -38 -39 -33 Dividend yield (%) 5.3 6.5 6.5 6.5 PBT 1,784 2,999 2,835 3,072 HSBC PBT 1,784 2,999 2,835 3,072 Note: * = Based on HSBC EPS (fully diluted) Taxation -97 -93 -88 -96 Net profit 1,686 2,906 2,747 2,976 HSBC net profit 1,686 2,906 2,747 2,976 Issuer information

Cash flow summary (TWDm) Share price (TWD) 84.60 Target price (TWD) 105.00 Cash flow from operations 2,160 703 3,545 3,085 Reuters (Equity) 2548.TW Bloomberg (Equity) 2548 TT Capex -6 -11 -3 -4 Market cap (USDm) 828 Market cap (TWDm) 24,360 Cash flow from investment -481 -4 -1,004 -1,000 Free float (%) 79 Enterprise value (TWDm) 30723 Dividends -1,520 -1,246 -1,522 -1,522 Country Taiwan Sector Real Estate Change in net debt -138 175 -2,018 -1,081 Analyst Abel Lee Contact +8862 6631 2866 FCF equity 2,128 666 3,516 2,953

Balance sheet summary (TWDm) Price relative Intangible fixed assets 0 0 0 0 126 126 Tangible fixed assets 8 6 4 2 116 116 Current assets 24,038 27,500 26,333 24,975 106 106 Cash & others 1,072 897 1,916 1,997 96 96 Total assets 25,705 29,165 27,996 26,636 Operating liabilities 4,755 6,183 4,789 2,976 86 86 Gross debt 8,920 8,920 7,920 6,920 76 76 Net debt 7,848 8,023 6,004 4,924 66 66 Shareholders’ funds 12,030 14,062 15,286 16,740 56 56 Invested capital 18,218 20,425 19,631 20,004 46 46 2011 2012 2013 2014 Huaku Development Co. Ltd Rel to TAIWAN WEIGHTED INDEX Ratio, growth and per share analysis Source: HSBC

Year to 12/2012a 12/2013e 12/2014e 12/2015e Y-o-y % change Note: price at close of 28 Oct 2013 Revenue -34.9 95.5 -16.3 11.3 EBITDA -35.2 67.6 -5.4 8.1 Operating profit -35.3 67.8 -5.4 8.1 PBT -39.7 68.2 -5.5 8.3 HSBC EPS -39.8 72.3 -5.5 8.3 Ratios (%) Revenue/IC (x) 0.3 0.6 0.5 0.5 ROIC 9.2 15.1 13.8 15.1 ROE 14.1 22.3 18.7 18.6 ROA 6.9 10.7 9.7 11.0 EBITDA margin 32.5 27.9 31.5 30.6 Operating profit margin 32.4 27.8 31.4 30.5 EBITDA/net interest (x) 47.6 78.6 73.8 94.7 Net debt/equity 65.2 57.1 39.3 29.4 Net debt/EBITDA (x) 4.4 2.7 2.1 1.6 CF from operations/net debt 27.5 8.8 59.0 62.7 Per share data (TWD) EPS Rep (fully diluted) 6.10 10.50 9.93 10.76 HSBC EPS (fully diluted) 6.10 10.50 9.93 10.76 DPS 4.50 5.50 5.50 5.50 Book value 43.46 50.80 55.22 60.47

7 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Ju Teng Int’l, 3336 HK, OW(V)

Carrie Liu* Target price (HKD) 7.00 Index Hang Seng Analyst Share price (HKD) 5.10 Reuters code 3336.HK HSBC Securities (Taiwan) Corporation Limited Forecast dividend yield (%) 1.6 Market cap (USDm) 739 +8862 6631 2864 [email protected] Free float (%) 60 Jenny Lai*, CFA Performance (%) 1M 3M 12M Analyst Absolute 11.4 26.2 65.6 HSBC Securities (Taiwan) Corporation Limited Relative 13.8 22.2 57.2 +8862 6631 2860 [email protected]

Note: Priced at close of 28 October 2013. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations. Source: HSBC estimates, Bloomberg

Business description

 Ju Teng International manufactures casings for notebook computers, including plastic injection moulding, spray painting, metal tooling and stamping. Key points

 Margin expansion to accelerate on positive mix shifts. The company’s guidance is for 2H sales to grow 10-15% h-o-h and gross margin to reach 20% on rising non-plastic mix. We believe this is achievable as the plastic mix is guided to be down to 65% of sales on multiple new project wins for NBs, tablets, and smartphones that are designed with either metal or composite material casings. The metal/composite material casing is yielding >25% of gross margin vs. that of plastic at around 12-15%, given the higher entry barrier on mould design and the manufacturing process.

 Positive mix shifts to continue. We believe the product design trend that goes for metal/hybrid and carbon fibre casings in notebook/tablet space favours Ju Teng, which is well positioned as a total solution provider. We also view Ju Teng’s recent announcement on supplying smartphone casings based on composite materials starting from 2H as positive, since the company is expanding its product portfolio with better margins. Management indicated that it expects to add another two smartphone customers next year; the new growth engine should underpin further margin expansion. Valuation and risks

 Our TP of HKD7.0 is based on 9x forward earnings (sum of 2H13 and 1H14). We expect the favourable product design trend, rising mix of non-plastic casings, and growth opportunities in the smartphone arena to continue to drive margin expansion. Downside risks: Slower-than-expected improvement in margins, lower-than-expected contribution from light metal casing and intensified pricing competition.

Financial forecasts (HKDm) Year to December 2012 2013e 2014e 2015e Key ratios 2012 2013e 2014e 2015e Revenue 9,201 9,407 10,124 11,398 Gross margin (%) 15.2 19.7 20.9 22.2 EBITDA 1,396 1,884 2,147 2,518 EBITDA margin (%) 15.2 20.0 21.2 22.1 EBIT 777 1,197 1,411 1,731 EBIT margin (%) 8.4 12.7 13.9 15.2 Net income 601 766 981 1,191 Net margin (%) 6.5 8.1 9.7 10.5 EPS (HKD) 0.53 0.67 0.85 1.04 ROE (%) 11.9 13.3 14.7 15.4

Source: Company data, HSBC estimates

8 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Financials & valuation: Ju Teng International Overweight (V)

Financial statements Key forecast drivers Year to 12/2012a 12/2013e 12/2014e 12/2015e Year to 12/2012a 12/2013e 12/2014e Profit & loss summary (HKDm) Global NB PC shipment (m) 219 251 298 Global LCD TV shipment (m) 244 280 323 Revenue 9,201 9,407 10,124 11,398 Global DSLR shipment (m) 13 15 17 EBITDA 1,396 1,884 2,147 2,518 Depreciation & amortisation -619 -687 -736 -787 Operating profit/EBIT 777 1,197 1,411 1,731 Net interest -62 -53 -61 -68 Valuation data PBT 788 1,154 1,361 1,692 Year to 12/2012a 12/2013e 12/2014e 12/2015e HSBC PBT 788 1,154 1,361 1,692 Taxation -129 -267 -259 -338 EV/sales 1.0 0.9 0.8 0.6 Net profit 601 766 981 1,191 EV/EBITDA 6.3 4.5 3.6 2.7 HSBC net profit 601 766 981 1,191 EV/IC 0.9 0.8 0.7 0.6 PE* 9.6 7.6 6.0 4.9 Cash flow summary (HKDm) P/Book value 1.1 0.9 0.8 0.7 Cash flow from operations 198 796 1,277 1,673 FCF yield (%) 14.5 15.6 23.5 27.8 Capex -357 -650 -450 -484 Dividend yield (%) 0.2 1.6 2.0 2.5 Cash flow from investment -707 -450 -400 -484 Note: * = Based on HSBC EPS (fully diluted) Dividends -14 -90 -115 -147 Change in net debt 951 -256 -762 -1,043 FCF equity 848 914 1,378 1,628 Issuer information

Balance sheet summary (HKDm) Share price (HKD) 5.10 Target price (HKD) 7.00 Intangible fixed assets 40 40 40 40 Reuters (Equity) 3336.HK Bloomberg (Equity) 3336 HK Tangible fixed assets 6,846 7,757 8,530 9,281 Market cap (USDm) 757 Market cap (HKDm) 5,866 Current assets 6,363 6,230 6,623 7,412 Free float (%) 60 Enterprise value (HKDm) 8528 Cash & others 1,163 1,136 1,637 2,439 Country Hong Kong Sector Electronic Equipment Total assets 13,249 14,027 15,193 16,733 Analyst Carrie Liu Contact +8862 6631 2864 Operating liabilities 2,546 2,591 2,734 2,959 Gross debt 4,082 3,798 3,537 3,296 Net debt 2,919 2,662 1,900 857 Price relative Shareholders’ funds 5,386 6,156 7,145 8,345 7 7 Invested capital 9,540 10,300 10,822 11,335 6 6 5 5 Ratio, growth and per share analysis 4 4 Year to 12/2012a 12/2013e 12/2014e 12/2015e 3 3 2 2 Y-o-y % change 1 1 Revenue 11.7 2.2 7.6 12.6 0 0 EBITDA 60.0 35.0 14.0 17.3 2011 2012 2013 2014 Operating profit 166.1 54.0 17.9 22.7 Ju Teng International Hol Rel to HANG SENG INDEX PBT 174.5 46.4 17.9 24.4 HSBC EPS 134.9 26.3 26.9 21.5 Source: HSBC

Ratios (%) Note: price at close of 28 Oct 2013 Revenue/IC (x) 1.1 0.9 1.0 1.0 ROIC 7.5 9.3 10.8 12.5 ROE 11.9 13.3 14.7 15.4 ROA 5.8 6.8 7.9 8.8 EBITDA margin 15.2 20.0 21.2 22.1 Operating profit margin 8.4 12.7 13.9 15.2 EBITDA/net interest (x) 22.5 35.5 35.3 36.8 Net debt/equity 44.1 34.9 21.3 8.2 Net debt/EBITDA (x) 2.1 1.4 0.9 0.3 CF from operations/net debt 6.8 29.9 67.2 195.1 Per share data (HKD) EPS Rep (fully diluted) 0.53 0.67 0.85 1.04 HSBC EPS (fully diluted) 0.53 0.67 0.85 1.04 DPS 0.01 0.08 0.10 0.13 Book value 4.77 5.40 6.21 7.26

9 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Kinsus Interconnect, 3189 TT, OW

Tse-yong Yao* Target price (TWD) 128.00 Index Taiwan Weighted Analyst Share price (TWD) 106.00 Reuters code 3189.TW HSBC Securities (Taiwan) Corporation Limited Forecast dividend yield (%) 2.8 Market cap (USDm) 1,608 +8862 6631 2861 [email protected] Free float (%) 58 Louis Cheng* Performance (%) 1M 3M 12M Associate Absolute 1.9 -3.2 34.2 HSBC Securities (Taiwan) Corporation Limited Relative -0.2 -6.2 13.8 +8862 6631 2865 [email protected]

Note: Priced at close of 28 October 2013. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations. Source: HSBC estimates, Bloomberg

Business description

 Kinsus manufactures organic substrates (also called packages) for integrated circuits (IC), with a focus on communication markets (both wired and wireless). Kinsus’s product lines include flip chip (FC) ball grid array (BGA), FC chip scale package (CSP), plastic BGA, multi-chip module BGA, mini BGA, and thermal enhanced BGA. Key points

 Apple still packs a margin punch. We present three reasons for investors to re-visit this story: 1) we think Kinsus’ market share assumptions for 2014 (we estimate just 5% overall share) are very modest, leaving plenty of further upside for 2015 and beyond; 2) we believe investors are under-estimating the margin upside, which this share gain can drive; 3) the shares have consolidated over the past six months, now presenting an ideal buying opportunity from a tactical perspective.

 “Desktop class” tablets a potential boon for flip-chip CSP demand. With the new iPhones now available and extensively evaluated, the consensus among product reviewers is that Apple’s claim of “desktop class” performance is justified. We believe that this step-up in IC performance could re-invigorate the high end of the tablet market. As more viable notebook replacements happen, notebook cannibalisation could re-accelerate, hastening the transition from Intel x86 CPUs to ARM-based CPUs and thus from ajinomoto build-up film (ABF)-based FC BGA substrates to bismaleimide traizine (BT)-based FC CSP substrates. Valuation and risks

 Our TP of TWD128 is based on 14x 2014e EPS. The 14x PE multiple is higher than the midpoint of 7-17x historical trading range to reflect the potential upside of Apple ramp-up next year (as Apple migrates its supply chain from Korea to Taiwan). Downside risks: Pricing and margin pressure as competitors, such as Unimicron (3037 TT, N(V), TP: TWD30), Nanya PCB (8046 TT, UW, TP: TWD21) and LG Innotek (011070 KS, OW, TP: KRW113,000), push more aggressively into the FC CSP space and a potential migration of wireless IC package designs to FC BGA.

Financial forecasts (TWDm) Year to December 2012 2013e 2014e 2015e Key ratios 2012 2013e 2014e 2015e Revenue 22,034 23,188 26,163 29,604 Gross margin (%) 23.7 26.9 30.3 32.0 EBITDA 5,664 6,402 7,687 8,928 EBITDA margin (%) 25.7 27.6 29.4 30.2 EBIT 2,808 3,487 4,765 6,006 EBIT margin (%) 12.7 15.0 18.2 20.3 Net income 2,798 3,199 4,081 5,110 Net margin (%) 12.7 13.8 15.6 17.3 EPS (TWD) 6.27 7.17 9.15 11.46 ROE (%) 11.8 12.1 14.3 16.4

Source: Company data, HSBC estimates

10 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Financials & valuation: Kinsus Interconnect Overweight

Financial statements Valuation data Year to 12/2012a 12/2013e 12/2014e 12/2015e Year to 12/2012a 12/2013e 12/2014e 12/2015e Profit & loss summary (TWDm) EV/sales 1.7 1.6 1.5 1.3 EV/EBITDA 6.7 5.9 5.1 4.3 Revenue 22,034 23,188 26,163 29,604 EV/IC 2.1 1.8 1.5 1.4 EBITDA 5,664 6,402 7,687 8,928 PE* 16.9 14.8 11.6 9.3 Depreciation & amortisation -2,856 -2,924 -2,922 -2,922 P/Book value 1.9 1.7 1.6 1.4 Operating profit/EBIT 2,808 3,478 4,765 6,006 FCF yield (%) 7.1 2.9 0.9 6.4 Net interest 71 145 12 12 Dividend yield (%) 2.8 2.8 3.6 4.7 PBT 2,879 3,624 4,777 6,018 HSBC PBT 2,879 3,624 4,777 6,018 Note: * = Based on HSBC EPS (fully diluted) Taxation -496 -537 -717 -903 Net profit 2,798 3,199 4,081 5,110 HSBC net profit 2,798 3,199 4,081 5,110 Issuer information

Cash flow summary (TWDm) Share price (TWD) 106.00 Target price (TWD) 128.00 Cash flow from operations 5,428 5,797 5,855 7,630 Reuters (Equity) 3189.TW Bloomberg (Equity) 3189 TT Capex -2,720 -4,449 -5,450 -4,600 Market cap (USDm) 1,608 Market cap (TWDm) 47,276 Cash flow from investment -2,758 -4,424 -5,450 -4,600 Free float (%) 58 Enterprise value (TWDm) 38066 Dividends -1,338 -1,338 -1,698 -2,233 Country Taiwan Sector Electronic Equipment Change in net debt -1,335 -126 1,180 -914 Analyst Tse-yong Yao Contact +8862 6631 2861 FCF equity 3,367 1,371 405 3,030

Balance sheet summary (TWDm) Price relative Tangible fixed assets 15,164 17,305 19,829 21,506 143 143 Current assets 21,037 21,163 21,519 23,052 133 133 Cash & others 14,525 14,199 13,093 14,083 123 123 Total assets 36,201 38,468 41,348 44,558 Operating liabilities 3,645 2,566 2,903 3,038 113 113 Gross debt 5,442 4,989 5,063 5,140 103 103 Net debt -9,083 -9,210 -8,030 -8,944 93 93 Shareholders’ funds 25,465 27,367 29,730 32,612 83 83 Invested capital 18,031 21,703 25,352 27,437 73 73 63 63 2011 2012 2013 2014 Ratio, growth and per share analysis Kinsus Interconnect Rel to TAIWAN WEIGHTED INDEX Year to 12/2012a 12/2013e 12/2014e 12/2015e Source: HSBC

Y-o-y % change Note: price at close of 28 Oct 2013 Revenue 30.6 5.2 12.8 13.2 EBITDA 3.9 13.0 20.1 16.1 Operating profit -23.1 23.9 37.0 26.0 PBT -9.7 25.9 31.8 26.0 HSBC EPS 0.0 14.4 27.6 25.2 Ratios (%) Revenue/IC (x) 1.5 1.2 1.1 1.1 ROIC 16.1 14.9 17.2 19.3 ROE 11.8 12.1 14.3 16.4 ROA 7.3 7.9 10.1 11.9 EBITDA margin 25.7 27.6 29.4 30.2 Operating profit margin 12.7 15.0 18.2 20.3 Net debt/equity -35.7 -33.7 -27.0 -27.4 Net debt/EBITDA (x) -1.6 -1.4 -1.0 -1.0 Per share data (TWD) EPS Rep (fully diluted) 6.27 7.17 9.15 11.46 HSBC EPS (fully diluted) 6.27 7.17 9.15 11.46 DPS 3.00 3.00 3.81 5.01 Book value 57.10 61.36 66.66 73.12

11 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Orise Technology, 3545 TT, N(V)

Yolanda Wang* Target price (TWD) 55.00 Index Taiwan Weighted Analyst Share price (TWD) 46.40 Reuters code 3545.TW HSBC Securities (Taiwan) Corporation Limited Forecast dividend yield (%) 3.5 Market cap (USDm) 220 +8862 6631 2867 [email protected] Free float (%) 65 Joyce Chen* Performance (%) 1M 3M 12M Associate Absolute -8.1 -19.4 41.7 HSBC Securities (Taiwan) Corporation Limited Relative -9.4 -21.3 21.1 +8862 6631 2862 [email protected]

Note: Priced at close of 28 October 2013. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations. Source: HSBC estimates, Bloomberg

Business description  Spun off from Sunplus Technology in 2006, Orise is a leading IC design company focusing on small- to medium-sized panel driver ICs in China market. As of 3Q13, 83% of Orise’s sales were from the mobile segment. The company has 365 employees including 266 R&D staff as of end-3Q13. Key points  In-line 4Q13 guidance. Orise guided 4Q13 sales to be flat q-o-q, reflecting the increasing contribution of the lower ASP RAM-less panel driver IC and delays in various new China smartphone models. We expect the Hongmi phone launch (4.7inch HD display with RMB799 price tag) to speed up the price erosion trend in the Chinese smartphone market and therefore on components. As a result, RAM-less driver IC represented c70% of Orise’s 3Q13 sales vs. 45-50% for 2Q13.

 Increasing competition. As we highlighted in our 6 July 2013 report, Downgrade to N(V): Share gain largely priced in, there are now more players in the China smartphone panel driver IC market. iLitek has been promoting the wide video graphics array (WVGA) driver IC from 1H13, with major design wins. Moreover, FocalTech, a leading touch controller IC supplier in China, has also ramped up its driver IC shipment from 4Q13/1Q14. As such, we believe the best scenario for Orise is to maintain its current share. Valuation and risks  Our target price of TWD55 is based on 15x FY14e earnings (unchanged). 15x is the multiple the stock has traded at when the product is entering a mid-cycle. Downside risks: Slower-than-expected display resolution migration in China and fiercer-than-expected price competition as Sitronix (8016 TT, Not Rated) and Ilitek (3098 TT, Not Rated) are trying to catch up. Upside risks are the opposite.

Financial forecasts (TWDm) Year to December 2012 2013e 2014e 2015e Key ratios 2012 2013e 2014e 2015e Revenue 5,007 9,528 10,014 10,339 PE(x) 52.1 12.7 12.6 12.2 EBITDA 220 636 695 717 ROE(%) 4.8 18.3 16.4 15.6 EBIT 168 618 676 695 Price to book (x) 2.5 2.2 2.0 1.8 Net income 123 508 512 527 EV/EBITDA (x) 29.8 8.9 8.5 7.0 EPS (TWD) 0.89 3.65 3.68 3.79 Dividend yield (%) 1.5 3.5 4.5 4.6

Source: Company data, HSBC estimates

12 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Financials & valuation: Orise Technology Neutral (V)

Financial statements Key forecast drivers Year to 12/2012a 12/2013e 12/2014e 12/2015e Year to 12/2012a 12/2013e 12/2014e 12/2015e Profit & loss summary (TWDm) STN driver 180 184 182 32 Mid. Size panel driver 758 929 917 231 Revenue 5,007 9,528 10,014 10,339 SoC-AV 396 352 369 78 EBITDA 220 636 695 717 Large size panel driver 144 95 98 18 Depreciation & amortisation -52 -18 -20 -22 SoC-Mobile 3,470 7,905 8,368 1,845 Operating profit/EBIT 168 618 676 695 Total sales 5,007 9,528 10,014 10,339 Net interest 4 -18 -32 -32 PBT 144 608 644 663 Taxation -21 -100 -132 -136 Net profit 123 508 512 527 Valuation data HSBC net profit 123 508 512 527 Year to 12/2012a 12/2013e 12/2014e 12/2015e Cash flow summary (TWDm) EV/sales 1.3 0.6 0.6 0.5 Cash flow from operations -374 974 34 1,177 EV/EBITDA 29.8 8.9 8.5 7.0 Capex -21 -21 -21 -21 EV/IC 2.5 2.6 2.1 2.2 Cash flow from investment -403 -21 -21 -21 PE* 52.1 12.7 12.6 12.2 Dividends -111 -97 -229 -290 P/Book value 2.5 2.2 2.0 1.8 Change in net debt 897 -856 215 -866 FCF yield (%) -6.4 12.9 -2.3 15.3 FCF equity -412 836 -150 988 Dividend yield (%) 1.5 3.5 4.5 4.6 Balance sheet summary (TWDm) Note: * = Based on HSBC EPS (fully diluted)

Tangible fixed assets 47 50 51 50 Current assets 4,069 4,625 5,028 5,491 Issuer information

Cash & others 234 1,090 874 1,740 Total assets 4,197 4,732 5,004 5,330 Share price (TWD) 46.40 Target price (TWD) 55.00 Operating liabilities 1,312 1,435 1,424 1,513 Reuters (Equity) 3545.TW Bloomberg (Equity) 3545 TT Gross debt 319 319 319 319 Market cap (USDm) 220 Market cap (TWDm) 6,457 Net debt 86 -770 -555 -1,421 Free float (%) 65 Enterprise value (TWDm) 5,687 Shareholders’ funds 2,566 2,977 3,260 3,498 Country Taiwan Sector Semiconductors Invested capital 2,570 2,150 2,780 2,288 Analyst Yolanda Wang Contact +8862 6631 2867

Ratio, growth and per share analysis Price relative [Production pls format in HSBC style - thx] Year to 12/2012a 12/2013e 12/2014e 12/2015e 86 86 Y-o-y % change 76 76 66 66 Revenue 20.2 90.3 5.1 3.2 56 56 EBITDA 9.5 189.6 9.4 3.1 Operating profit 15.8 268.4 9.3 2.9 46 46 PBT -4.4 321.7 5.8 3.0 36 36 HSBC EPS -10.1 310.1 0.7 3.0 26 26 Ratios (%) 16 16 2011 2012 2013 2014 Revenue/IC (x) 2.4 4.0 4.1 4.1 Orise Technology Co Ltd Rel to TAIWAN WEIGHTED INDEX ROIC 6.8 21.9 21.8 21.8 ROE 4.8 18.3 16.4 15.6 Source: HSBC ROA 3.3 11.4 10.5 10.2 EBITDA margin 4.4 6.7 6.9 6.9 Note: price at close of 28 Oct 2013 Operating profit margin 3.4 6.5 6.7 6.7 EBITDA/net interest (x) 35.9 21.7 22.4 Net debt/equity 3.3 -25.9 -17.0 -40.6 Net debt/EBITDA (x) 0.4 -1.2 -0.8 -2.0 Per share data (TWD) EPS Rep (fully diluted) 0.89 3.65 3.68 3.79 HSBC EPS (fully diluted) 0.89 3.65 3.68 3.79 DPS 0.70 1.64 2.08 2.14 Book value 18.54 21.38 23.41 25.12

13 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

SinoPac FHC, 2890 TT, OW

Bruce B. Warden* Target price (TWD) 16.67 Index Taiwan Weighted Analyst Share price (TWD) 14.60 Reuters code 2890.TW HSBC Securities (Taiwan) Corp. Ltd. Forecast dividend yield (%) 2.4 Market cap (USDm) 4,076 +8862 6631 2868 [email protected] Free float (%) 82 Todd Dunivant* Performance (%) 1M 3M 12M Analyst Absolute 6.6 4.0 38.9 The Hongkong and Shanghai Banking Corporation Limited Relative 5.3 1.8 21.4 +852 2996 6599 [email protected]

Note: Priced at close of 28 October 2013. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations. Source: HSBC estimates, Bloomberg

Business description

 SinoPac is a mid-sized, private-sector financial holding company that is bank centric, though with a significant securities component. Controlled by the Ho family of Yuen Foong Yu Paper, SinoPac’s major operating subsidiaries include Bank SinoPac and SinoPac Securities. It also owns California-based Far East National Bank. Key points

 A relatively new management team is now keenly focused on developing non-interest income – fees and transaction income – with particular attention to leading the market in RMB-related products and services.

 SinoPac plans to open a subsidiary in Nanjing in late-2013/early-2014, a first for a Taiwan bank, which will allow it to serve retail customers, and may allow it to build out distribution in China faster than Taiwan peers. ICBC (1398 HK, OW, TP: HKD7.1) plans to purchase 20% of the bank subsidiary, Bank SinoPac, after the service ECFA agreement is finalised, and that should launch significant strategic cooperation between the two. Valuation and risks

 Our TWD16.67 target price implies a 1.2x mid-2014 PB (historical average 1.1x) and reflects a 17-18% discount to our DCF-based SOTP fair values (TWD19.37/shr 2013e and TWD21.02 for 2014e) to factor in the dilution risk related to ICBC’s planned acquisition of a 20% stake in Bank SinoPac, the group’s most important operating subsidiary. Downside risks: Other than the generic risk to growth, low margins and asset quality are a recurring concern at SinoPac. One particular SinoPac-specific risk is the potential for a relapse of asset quality problems at its US subsidiary (Far East National Bank). Earnings dilution and an equity drag from ICBC’s shareholding will hurt existing shareholders if management cannot generate new growth quickly enough.

Financial forecasts (TWDbn) Year to December 2012 2013e 2014e 2015e Key ratios 2012 2013e 2014e 2015e Operating revenue 26.46 31.16 34.49 38.16 ROA 0.73 0.81 0.82 0.86 PPOP 10.46 13.98 15.86 18.10 ROE, common 10.1 10.7 10.6 11.0 Pretax profit 11.21 12.99 13.96 15.72 P/E, diluted (x) 12.5 10.9 10.1 9.0 Net income 9.54 10.98 11.81 13.28 P/BV, diluted (x) 1.20 1.12 1.03 0.95 EPS (TWD) 1.17 1.34 1.44 1.62 Dividend yield (%) 2.1 2.4 2.4 2.7

Source: HSBC estimates, Taiwan Stock Exchange, Company data

14 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

SinoPac Holdings – Financials and valuations Consolidated P&L (TWDbn) Balance sheet (TWDbn) FY12 FY13E FY14E FY15E FY12 FY13E FY14E FY15E Interest income 25.96 27.35 34.46 39.84 Cash & equivalents 13.5 14.9 16.3 18.7 Interest expense 10.10 11.01 15.73 18.49 Due from banks & CBC 99.2 98.0 107.1 114.2 Net interest 15.86 16.34 18.73 21.35 Marketable securities 56.9 341.8 367.3 388.0 Net dealing income 2.98 4.47 4.25 4.40 Receivables 84.2 69.7 75.2 79.9 Net F/X income 0.38 0.93 0.98 1.05 Net loans 771.4 816.7 884.0 939.7 Net fee income 6.74 8.60 9.69 10.51 Long-term investment 306.3 12.4 13.0 13.6 Insurance underwriting - - - - Fixed assets, net 12.0 11.9 12.1 12.4 Net investment 0.01 - - - Other assets 11.0 19.5 20.8 21.8 Other income 0.50 0.82 0.83 0.85 Total assets 1,357.1 1,387.5 1,498.3 1,590.8 Non-interest income 10.60 14.82 15.76 16.81 Deposits 1,026.1 1,071.1 1,156.8 1,226.2 Operating income 26.46 31.16 34.49 38.16 Due to banks & CBC 70.5 71.9 81.8 87.4 Operating expenses 16.01 17.19 18.62 20.06 Payables 51.8 51.5 57.8 64.3 Pre-provision profit 10.46 13.98 15.86 18.10 Total borrowings 75.2 68.5 67.7 67.8 Provisions (0.58) 1.27 2.24 2.74 Reserves 0.2 - - - Operating profit 11.03 12.71 13.62 15.37 Other liabilities 34.5 17.6 18.3 18.9 Net non-operating income 0.18 0.28 0.34 0.35 Total liabilities 1,258.4 1,280.6 1,382.5 1,464.6 Pretax profit 11.21 12.99 13.96 15.72 Common shares 75.4 82.1 82.1 82.1 Tax 1.67 2.00 2.16 2.44 Preferred equity - 0.0 0.0 0.0 Ordinary income 9.54 10.98 11.81 13.28 Other reserves 2.1 1.2 1.2 1.2 Extraordinaries - - -- Retained earnings 20.8 23.2 32.1 42.5 Net profit bef. minorities 9.54 10.98 11.81 13.28 Adjustments 0.4 0.4 0.4 0.4 Minorities & others - - - - Treasury stock - - - - Net profit, reported 9.54 10.98 11.81 13.28 Minority interests - - - - Preferred dividends - - - - Total equity 98.7 106.9 115.8 126.2 Net profit, HSBC 9.54 10.98 11.81 13.28 Total liabilities & equity 1,357.1 1,387.5 1,498.3 1,590.8 Subsidiary earnings Dupont P&L Bank SinoPac 8.22 9.59 10.15 11.60 Revenue/assets 1.99 2.27 2.39 2.47 SinoPac Securities 1.21 1.36 1.60 1.63 Opex/assets 1.20 1.25 1.29 1.30 Net others 0.41 0.40 0.40 0.40 PPOP/assets 0.79 1.02 1.10 1.17 Affiliate income 9.84 11.35 12.15 13.63 Provisions/assets (0.04) 0.09 0.16 0.18 Op-income/assets 0.83 0.93 0.94 0.99 ROA 0.73 0.81 0.82 0.86 ROE, common 10.1 10.7 10.6 11.0 Corporate structure Equity Assets Bank stats (%) (At December 2011) (TWDbn) (%) (TWDbn) (%) NIM 1.19 1.23 1.32 1.41 Bank SinoPac 70.5 71.7 1,215.5 93.5 LDR 74.8 74.7 74.7 74.7 SinoPac Securities 22.2 22.5 53.5 4.1 NPLs 0.31 0.33 0.33 0.33 Others 5.7 5.8 30.9 2.4 NPL coverage 341.4 345.0 350.0 350.0 Affiliates total 98.4 100.0 LLR/loans 1.06 1.14 1.16 1.16 Consolidated total 1,300.0 100.0 Bank CAR 13.68 13.98 13.80 13.92 Tier 1 9.13 9.53 9.58 9.88 Lending mix (%) FY11 FY12 Per share values Corporate 47.5 48.1 EPS, basic (TWD) 1.17 1.34 1.44 1.62 Large & SOE 35.6 33.4 EPS, diluted (TWD) 1.17 1.34 1.44 1.62 SME 11.8 14.7 BVPS, diluted (TWD) 12.12 13.02 14.11 15.38 Consumer 51.0 50.2 DPS (TWD) 0.31 0.35 0.35 0.40 Mortgage 49.0 47.8 Payout (%) 26.5 26.1 24.3 24.7 Other consumer 2.0 2.3 Valuation metrics Gov’t 1.5 1.7 P/E, diluted (x) 12.5 10.9 10.1 9.0 P/BV, diluted (x) 1.20 1.12 1.03 0.95 Divi yield (%) 2.1 2.4 2.4 2.7

Source: Company, HSBC estimates

15 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Taiflex Scientific, 8039 TT, N

Tse-yong Yao* Target price (TWD) 66.50 Index Taiwan Weighted Analyst Share price (TWD) 64.00 Reuters code 8039.TWO HSBC Securities (Taiwan) Corporation Limited Forecast dividend yield (%) 2.3 Market cap (USDm) 441 +8862 6631 2861 [email protected] Free float (%) 66 Louis Cheng* Performance (%) 1M 3M 12M Associate Absolute 31.0 47.3 102.9 HSBC Securities (Taiwan) Corporation Limited Relative 26.9 40.4 72.4 +8862 6631 2865 [email protected]

Note: Priced at close of 01 November 2013. Source: HSBC estimates, Bloomberg.*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Business description

 Taiflex is the largest flexible copper clad laminate (FCCL) supplier in Taiwan, and the third largest globally. The company is widely seen as the technology leader in Taiwan, helped by solid partnerships with Arisawa (based in Japan, the second largest FCCL supplier globally and the largest shareholder of Taiflex) and DuPont (Taiflex is DuPont’s largest buyer of polyimide film). Key points

 Robust structural turnaround trend of solar. Major solar module makers reported 2Q13 shipments, which were up q-o-q, with improving margins, suggesting industry supply-demand rebalance is happening. The removal of EU anti-dumping uncertainty and China government subsidy programme are near-term catalysts. Taiflex management indicates China solar demand to reach 10GW at least in 2014 (vs. global demand of c35GW in 2013).

 FCCL momentum supported by rapidly growing China demand. Despite recent FPC demand uncertainty on Apple and 4G development, we expect increasing demand from China whitebox makers to likely offset this. China whitebox makers accounted for 25% of Taiflex’s total FCCL sales in 1H13 (vs. below 10% in FY12), and one of its China customers became the top 5 customer for the first time. Valuation and risks

 Our TP of TWD66.5 is based on 12x 2014e earnings. The 12x PE multiple is the mid-point of the stock’s historical trading range of 7-17x PE. Downside risks: Pricing pressure (for both solar backsheet and FCCL) and the ongoing viability of financially weaker solar module manufacturers. Upside risks: Stronger-than-expected FPC pull-in and structural solar industry turnaround.

Financial forecasts (TWDm) Year to December 2012 2013e 2014e 2015e Key ratios 2012 2013e 2014e 2015e Revenue 7,853 10,144 11,770 13,026 Gross margin (%) 19.9 21.1 21.4 21.0 EBITDA 1,047 1,408 1,661 1,736 EBITDA margin (%) 13.3 13.9 14.1 13.3 EBIT 782 1,162 1,419 1,494 EBIT margin (%) 10.0 11.5 12.1 11.5 Net income 619 991 1,125 1,185 Net margin (%) 7.9 9.8 9.6 9.1 EPS (TWD) 3.06 4.89 5.55 5.85 ROE (%) 11.4 15.5 15.2 15.2

Source: Company data, HSBC estimates

16 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Financials & valuation: Taiflex Scientific Neutral

Financial statements Valuation data Year to 12/2012a 12/2013e 12/2014e 12/2015e Year to 12/2012a 12/2013e 12/2014e 12/2015e Profit & loss summary (TWDm) EV/sales 1.6 1.2 1.0 0.9 EV/EBITDA 11.9 8.3 6.9 6.7 Revenue 7,853 10,144 11,770 13,026 EV/IC 2.5 2.0 1.9 1.8 EBITDA 1,047 1,408 1,661 1,736 PE* 20.9 13.1 11.5 10.9 Depreciation & amortisation -265 -247 -242 -242 P/Book value 2.3 1.8 1.7 1.6 Operating profit/EBIT 782 1,162 1,419 1,494 FCF yield (%) 2.4 -0.3 7.3 5.4 Net interest -45 78 -13 -12 Dividend yield (%) 2.8 2.3 5.0 5.6 PBT 737 1,240 1,406 1,482 Note: * = Based on HSBC EPS (fully diluted) HSBC PBT 737 1,240 1,406 1,482 Taxation -134 -241 -281 -296 Net profit 619 991 1,125 1,185 Issuer information

HSBC net profit 619 991 1,125 1,185 Share price (TWD) 64.00 Target price (TWD) 66.50 Cash flow summary (TWDm) Reuters (Equity) 8039.TWO Bloomberg (Equity) 8039 TT Cash flow from operations 503 368 1,145 893 Market cap (USDm) 441 Market cap (TWDm) 12,966 Capex -148 -389 -200 -200 Free float (%) 66 Enterprise value (TWDm) 11,733 Cash flow from investment -136 -323 -200 -200 Country Taiwan Sector Electronic Equipment Dividends -364 -304 -651 -731 Analyst Tse-yong Yao Contact +8862 6631 2861 Change in net debt 29 -705 -242 92 FCF equity 313 -36 945 693 Balance sheet summary (TWDm) Price relative Tangible fixed assets 2,373 2,601 2,563 2,521 81 81 Current assets 6,958 9,628 10,248 10,975 71 71 Cash & others 2,590 3,722 4,017 3,980 Total assets 9,373 12,261 12,846 13,531 61 61 Operating liabilities 1,715 2,532 2,667 2,900 51 51 Gross debt 2,094 2,521 2,574 2,629 Net debt -496 -1,201 -1,443 -1,350 41 41 Shareholders’ funds 5,565 7,209 7,605 8,002 31 31 Invested capital 5,026 5,975 6,128 6,616 21 21 2011 2012 2013 2014 Taiflex Scientific Rel to TAIWAN WEIGHTED INDEX Ratio, growth and per share analysis Source: HSBC Year to 12/2012a 12/2013e 12/2014e 12/2015e

Y-o-y % change Note: price at close of 01 Nov 2013 Revenue 21.1 29.2 16.0 10.7 EBITDA 12.7 34.5 17.9 4.5 Operating profit 13.6 48.6 22.1 5.3 PBT -5.0 68.2 13.4 5.4 HSBC EPS 8.9 59.9 13.5 5.4 Ratios (%) Revenue/IC (x) 1.6 1.8 1.9 2.0 ROIC 13.1 17.0 18.8 18.8 ROE 11.4 15.5 15.2 15.2 ROA 7.0 8.6 9.0 9.1 EBITDA margin 13.3 13.9 14.1 13.3 Operating profit margin 10.0 11.5 12.1 11.5 Net debt/equity -8.9 -16.7 -19.0 -16.9 Net debt/EBITDA (x) -0.5 -0.9 -0.9 -0.8 Per share data (TWD) EPS Rep (fully diluted) 3.06 4.89 5.55 5.85 HSBC EPS (fully diluted) 3.06 4.89 5.55 5.85 DPS 1.80 1.50 3.21 3.61 Book value 27.49 35.58 37.53 39.50

17 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

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18 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Stocks not under our coverage

19 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

ASPEED, 5274 TT, Not Rated

Jenny Lai*, CFA Share price (TWD) 149.5 Index Taiwan Weighted Analyst Reuters code 5274 TT HSBC Securities (Taiwan) Corporation Ltd. Market cap (USDm) 121 +886 2 6631 2860 [email protected] Free float (%) 68 Performance (%) 1M 3M 12M Absolute (14.6) 31.5 27.1 Relative (16.7) 12.9 18.1

Notes: Priced at close of 28 October 2013. Source: HSBC, Bloomberg, Thomson Reuters Datastream. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Business description

 ASPEED is the No. 2 global supplier of baseband management controllers (BMCs), mainly for remote control of status parameters on servers at a different physical location from IT personnel. Roughly 80-90% of ASPEED’s BMC business is from white-box server ODMs in the fast growing area of cloud computing, where internet service providers (ISPs) such as Google and Facebook have sophisticated software capabilities, so they tend to skip OEMs and need only firmware and hardware support from ODMs. ASPEED has a 50-60% share of the white-box server market segment. Management stated it was confident of its ability to gain further share by leveraging its R&D technology and service network. Key competitors include Renesas and Emulex. Key points

 ASPEED’s new PC/AV extension solution accounts for 10% of the company’s total revenue and is used to extend message displays from a central location to multiple indoor and outdoor locations for commercial use.

 Desktop virtualisation is another product, enabling local client devices to use software and operating systems on corporate servers. Desktop virtualisation is dominated by VMware, Microsoft, and Citrix. Microsoft’s desktop virtualisation solutions for Windows 8/8.1 require chips for compression/de-compression of data. ASPEED has been selected by Microsoft as one of two chip suppliers, with product launch slated for 1Q14.

 Management believes 30%-plus top-line growth is sustainable on three factors: Strong organic growth in cloud computing, new products, and market share gains.

Financial forecasts (TWDm) Year to December 2011 2012 2013e 2014e Key ratios 2011 2012 2013e 2014e Revenue 185 397 611 676 Gross margin (%) 57.2 55.3 55 55 Gross profit 200 269 335 370 Operating margin (%) 31.6 32.7 31.3 33.0 Operating profit 106 154 191 223 Net margin (%) 29.9 29.3 29.4 32.9 Net income 90 136 180 222 EPS y-o-y (%) (15.7) 39.3 18.8 14.2 EPS (TWD) 4.6 6.4 7.6 8.6 ROE (%) 31.0 29.7 34.6 33.2

Source: Company data, Bloomberg consensus estimates

20 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Ledlink, 5230 TT, Not Rated

Jerry Tsai* Share price (TWD) 82.5 Index Taiwan Weighted Analyst Reuters code 5230.TWO HSBC Securities (Taiwan) Corporation Limited Market cap (USDm) 83.1 +8862 6631 2863 [email protected] Free float (%) 70% Louis Cheng* Performance (%) 1M 3M 12M Associate Absolute -7.7 3.7 40.9 HSBC Securities (Taiwan) Corporation Limited Relative -9.8 -1.7 15.6 +8862 6631 2865 [email protected]

Notes: Priced at close of 28 October 2013. Source: HSBC, Bloomberg, Thomson Reuters Datastream. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Business description

 Ledlink, established in March 2008, is a leading LED lighting optical component supplier for Cree, Edison, Lumileds, Nichia, Osram, Seoul, and other LED manufacturers. Its mission is to help customers optimise optics performance in creating solid state lighting products. Lenses are available in a variety of packages with numerous beam pattern options and size, such as residential lighting, commercial lighting, street lighting, and architectural lighting. Ledlink’s monthly manufacturing capacity is 12m units. Key points

 Ledlink has 35% of global market share in the secondary lens market for LED lighting, according to management’s estimate.

 HSBC’s own study has shown that optical lens is the component that’s subject to least pricing pressure, and thus has the best prospect for the overall market growth among all LED components, which often experience severe price erosion (and offset the robust volume growth).

 Due to resources needed for design and manufacturing, major LED lighting suppliers are moving toward the outsourcing model for LED lighting optics.

Financial forecasts (TWDm) Year to December 2011 2012 2013e Key ratios 2011 2012 2013e Revenue 652.8 963.5 1,201.1 Gross margin (%) 49.7 47.9 47.3 EBITDA 149.6 250.3 370.2 EBITDA margin (%) 22.8 26.0 30.8 EBIT 91.7 170.4 243.5 EBIT margin (%) 13.9 17.7 20.3 Net income 80.6 160.2 201.0 Net margin (%) 12.2 16.6 16.7 EPS (TWD) 2.59 4.49 5.34 ROE (%) 13.6 18.9 17.2

Source: Company data, Bloomberg consensus estimates

21 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Teco, 1504 TT, Not Rated

Jenny Lai*, CFA Share price (TWD) 31.9 Index Taiwan Weighted Analyst Reuters code 1504.TW HSBC Securities (Taiwan) Corporation Limited Market cap (USDm) 2,086 +8862 6631 2860 [email protected] Free float (%) 85 Performance (%) 1M 3M 12M Absolute 1.9 -1.1 64.9 Relative -0.9 -5.1 46.3

Notes: Priced at close of 28 October 2013. Source: HSBC, Bloomberg, Thomson Reuters Datastream. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Business description

 Established in 1956, Teco is a leading motor and automation component supplier. The company is ranked No. 3 globally in the medium- and large-voltage industrial motor sector by revenue, a key component used for production of equipment. Its core competence is to provide customised, high-efficiency motor designs based on a design library with over a 100-year database from the heritage Westinghouse’s motor division, a business acquired by Teco in 1995. Teco remains the owner of the Westinghouse brand in motor business, which is a brand well recognised in matured markets such as the US. Key points

 Leading motor maker. The motor industry has high entry barriers as it requires high technology and a comprehensive customer database to design customised products. Teco acquired Westinghouse Motor in 1995, which is a 100 year-old motor maker in the US. The strong client database supports Teco to maintain its leading position in the motor industry. Key competitors in the motor segment include Siemens (SIE GR, N, TP: EUR90), ABB (ABBN VX, UW, TP: CHF20), WEG, and Hyundai Heavy Industries (009540 KS, UW, TP: KRW160,000).

 Regulation favours leading players. With increasing requirement of energy efficiency, management expects low energy efficiency products to largely fade out from the market. Hence the leading players will gain share on replacement demand at the expense of low-tier makers.

 Industrial motor demand rebound. Management indicates the end demand on motor products has been healthy year-to- date. Demand on small voltage motor has rebounded with improving PMI. Demand on high voltage motor has improved driven by the oil & gas segment and auto supply chain in the US.

Financial forecasts (TWDm) Year to December 2012 2013e 2014e 2015e Key ratios 2012 2013e 2014e 2015e Revenue 48,730 56,591 61,339 66,387 Gross margin (%) 23.3 23.6 24.4 23.9 Gross profit 11,303 13,380 14,967 15,866 Operating margin (%) 8.3 8.3 9.3 9.3 Operating profit 3,636 4,888 5,789 6,668 Net margin (%) 6.5 6.7 7.0 7.1 Net income 2,972 3,805 4,277 4,697 EPS y-o-y (%) 6.0 22.1 12.1 9.0 EPS (TWD) 1.6 2.0 2.2 2.4 ROE (%) 7.9 8.8 9.8 9.9

Source: Company data, Bloomberg consensus estimates

22 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Tong Yang, 1319 TT, Not Rated

Jenny Lai*, CFA Share price (TWD) 47.0 Index Taiwan Weighted Analyst Reuters code 1319 TT HSBC Securities (Taiwan) Corporation Ltd. Market cap (USDm) 947 +886 2 66312860 [email protected] Free float (%) 59 Performance (%) 1M 3M 12M Absolute 6.8 107.0 66.8 Relative 4.6 88.4 57.8

Notes: Priced at close of 28 October 2013. Source: HSBC, Bloomberg, Thomson Reuters Datastream. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Business description

 Tong Yang was founded in 1952. The company has two major business groups: aftermarket (AM) and OEM, accounting for 87% and 13% of sales in 2012, respectively. The AM business includes plastic products, sheet metal products, cooling system, radiators, condensers, etc. Tong Yang is the leading player in the AM segment. The company enjoys 70% market share in plastic products. The OEM business includes products such as instrument panels, front/rear bumpers, radiator grilles, hood moulding, side moulding, fender over, etc. Tong Yang’s customers are spread across the world such as Nissan, GM, Chrysler (US), Honda (South America), Ford (South Africa), Honda (Middle East), etc. Tong Yang has 89% of sales for export in 2012. Key points

 According to the company, it would operate 19 plants in total in China and Taiwan in 2014. The total annual capacity for AM BU would therefore include 8.5m bumpers (AM BU only), 4.2m sheet metal and 0.9m cooling systems while the total annual capacity for OEM BU would include 8.5m bumpers (OEM BU only), 390K instrument panels and 360K radiator grilles. The new capacity should provide revenue upside, as per the company.

 Tong Yang’s AM business group preliminary pre-tax income improved 97% y-o-y from 1Q-3Q cumulative thanks to the auto market recovery in North America and Europe. Tong Yang expects to further maintain its competitive edge in the AM segment through increasing its capacity in plastic, sheet metal and cooling system as well as being ahead of its peers in launching new products.

 Tong Yang’s OEM business group preliminary pre-tax income improved 79% y-o-y from 1Q-3Q cumulative, and the company expects to improve its product mix to enhance the margin portfolio.

Financial forecasts (TWDm) Year to December 2011 2012 2013e 2014e Key ratios 2011 2012 2013e 2014e Revenue 18,279 17,005 19,382 21,577 Gross margin (%) 15.9 17.1 24 24 Gross profit 2,906 2,915 4,567 5,157 Operating margin (%) 3.7 4.0 9.2 9.6 Operating profit 685 673 1,507 1,756 Net margin (%) 3.7 4.0 7.5 7.8 Net income 1,181 811 1,462 1,693 EPS y-o-y (8.8) (31.5) 78.6 17.7 EPS (TWD) 2.0 1.4 2.5 2.9 ROE (%) 8.2 5.4 8.5 9.2

Source: Company data, Bloomberg consensus estimates

23 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Wah Lee, 3010 TT, Not Rated

Tse-Yong Yao* Share price (TWD) 45.5 Index Taiwan Weighted Analyst Reuters code 3010.TW HSBC Securities (Taiwan) Corporation Limited Market cap (USDm) 315.0 +8862 6631 2861 [email protected] Free float (%) 60.1 Louis Cheng* Performance (%) 1M 3M 12M Associate Absolute 8.7 6.9 28.5 HSBC Securities (Taiwan) Corporation Limited Relative 7.3 3.1 10.2 +8862 6631 2865 [email protected]

Notes: Priced at close of 28 October 2013. Source: HSBC, Bloomberg, Thomson Reuters Datastream. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Business description

 Wah Lee Industrial has a long history (founded in 1968) of providing upstream raw materials to customers as diverse as Hon Hai (2317 TT, N, TP: TWD75.45), Unimicron and TSMC (2330 TT, OW, TP: TWD124). Its core businesses include: (1) engineering plastics to the computing and communications customers such as Hon Hai (used in casings, lenses and connectors); (2) process chemicals and gases to semiconductor customers such as Powerchip and TSMC; and (3) copper clad laminates (CCL) and dry films to printed circuit board customers such as Unimicron. Key points

 More than just a distributor. Wah Lee provides a number of value-added services to its customers, which help generate gross margins of 9-10%, above the mid-single digits typically generated by companies with a pure distribution model. The value-added services include logistics support, local inventory management as well as field application engineers to support its customer’s products.

 Growth driven by display and green energy. Management sees near-term growth opportunities coming from: (1) timing controller and touch sensor IC sales and (2) solar wafer sales from GCL Poly (3800 HK, N(V), TP: HKD2.10) to Taiwanese solar module producers.

 Focused on delivering consistent shareholder value. Given the broad customer base, management believes the company is relatively more resistant to industry down-cycles and is focused on delivering consistent shareholder returns.

Financial forecasts (TWDm) Year to December 2011 2012 2013e Key ratios 2011 2012 2013e Revenue 31,225 31,545 34,163 Gross margin (%) 9.0 9.1 8.7 EBITDA 1,043 935 EBITDA margin (%) 3.3 3.0 EBIT 940 834 972 EBIT margin (%) 3.0 2.6 2.8 Net income 952 981 1,140 Net margin (%) 3.0 3.1 3.3 EPS (TWD) 4.12 4.24 4.92 ROE (%) 12.7 12.5

Source: Company data, Bloomberg consensus estimates

24 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

A note on our stock ratings

Under HSBC’s equity research model, the Neutral rating band equals the local hurdle rate set by our Global Equity Strategy Team, plus or minus 10ppt for volatile stocks or 5ppt for non-volatile stocks. The hurdle rate for Taiwan is 9%; this translates into a band of -1 to 19% for volatile and 4-14% for non-volatile Taiwan stocks. The hurdle rate for Hong Kong is 8.5%; this translates into a band of -1.5 to 18.5% for volatile and 3.5-13.5% for non-volatile Hong Kong stocks. According to whether our target prices imply potential returns above, below, or within these bands, we rate the stocks Overweight, Underweight, or Neutral, respectively, with a (V) if the stock is volatile (see Disclosure appendix for HSBC’s definition of volatility). Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated.

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Notes

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Notes

27 Taiwan Discovery Forum Taiwan – Equity abc 4 November 2013

Disclosure appendix

Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Jenny Lai, Carrie Liu, Bruce Warden, Todd Dunivant, Tse-yong Yao, Louis Cheng, Yolanda Wang, Joyce Chen, Julie Wang, Abel Lee and Jerry Tsai Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice. Rating definitions for long-term investment opportunities Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.

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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change. Rating distribution for long-term investment opportunities As of 01 November 2013, the distribution of all ratings published is as follows: Overweight (Buy) 45% (33% of these provided with Investment Banking Services) Neutral (Hold) 37% (35% of these provided with Investment Banking Services) Underweight (Sell) 18% (27% of these provided with Investment Banking Services)

Information regarding company share price performance and history of HSBC ratings and price targets in respect of its long- term investment opportunities for the companies the subject of this report,is available from www.hsbcnet.com/research. HSBC & Analyst disclosures Disclosure checklist Company Ticker Recent price Price Date Disclosure HUAKU DEVELOPMENT CO. LTD. 5527.TWO 82.30 31-Oct-2013 4 KINSUS INTERCONNECT 3189.TW 105.00 31-Oct-2013 4 SINOPAC FHC 2890.TW 14.50 31-Oct-2013 2, 4, 6, 7 TECO 1504.TW 31.35 31-Oct-2013 4, 6 TONG YANG GROUP 1319.TW 45.70 31-Oct-2013 4, 6

Source: HSBC

1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 30 September 2013 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 30 September 2013, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 30 September 2013, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 30 September 2013, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

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Additional disclosures 1 This report is dated as at 04 November 2013. 2 All market data included in this report are dated as at close 28 October 2013, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Disclaimer

* Legal entities as at 8 August 2012 Issuer of report ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (Taiwan) Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Corporation Limited Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, 13th Floor, 333 Keelung Road, Sec. 1, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Taipei, Taiwan Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Telephone: + 886 2 2722 8458 Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Fax: + 886 2 2722 2056 Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, Website: www.research.hsbc.com London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR This document has been issued by HSBC Securities (Taiwan) Corporation Limited in the conduct of its Taiwan regulated business for the information of its institutional and professional customers. It is not intended for and should not be distributed to retail customers in Taiwan. This recommendation material is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. HSBC Securities (Taiwan) Corporation Limited is regulated by the Securities and Futures Bureau. All enquires by recipients in Taiwan must be directed to your HSBC contact in Taiwan. If this report is received by a customer of an affiliate of HSBC, it's provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are subject to change without notice. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. HSBC Research may not be distributed to the public media or quoted or used by the public media without the express written consent of HSBC Securities (Taiwan) Corporation Limited. Reports written by Taiwan- based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations governing securities firms recommending trades in securities to customers and as such HSBC Securities (Taiwan) Corporation Limited may not execute transactions for clients in these securities/instruments. In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. HSBC Securities (USA) Inc. accepts responsibility for this research report prepared by its foreign affiliate. All U.S. persons receiving this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with the foreign affiliate, the issuer of this report. Note, however, that HSBC Securities (USA) Inc. is not distributing this report and has not contributed to or participated in its preparation. In Korea, this publication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR. In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. It may not be further distributed in whole or in part for any purpose. In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed “Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or “research”), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). © Copyright 2013, HSBC Securities (Taiwan) Corporation Limited, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Securities (Taiwan) Corporation Limited. MICA (P) 118/04/2013, MICA (P) 068/04/2013 and MICA (P) 110/01/2013 [392391]

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Asia Research Team

Asia Research Management Equities Consumer Permada (Mada) Darmono 65 6658 0613 Head of Research, Asia Pacific Hong Kong Ananita M Kusumaningsih 65 6658 0610 Equity Strategy Dilip Shahani 852 2822 4520 Real Estate Garry Evans 852 2996 6916 Pratik Burman Ray 65 6658 0611 Herald van der Linde 852 2996 6575 David Choo 65 6658 0612 Head of Equity Research, Asia Pacific Devendra Joshi 852 2996 6592 David May 852 2996 6753 Steven Sun 852 2822 4298 Telecoms Roger Xie 852 2822 4297 Luis Hilado 65 6658 0607 Rajesh Raman 65 6658 0608 Banks Deputy of Equity Research and Head of Equity Todd Dunivant 852 2996 6599 Taiwan Strategy, Asia Pacific York Pun 852 2822 4396 Herald van der Linde 852 2996 6575 Michael Chu 852 2996 6926 Technology Donger Wang 852 2996 6584 Jenny Lai 8862 6631 2860 Alice Li 852 2822 2981 Head of Research, Taiwan Global Management Conglomerates & Transport Yolanda Wang 8862 6631 2867 CEO, Global Research Mark Webb 852 2996 6574 Tse-Yong Yao 8862 6631 2861 Stuart Parkinson 44 20 7991 6705 Parash Jain 852 2996 6717 Joyce Chen 8862 6631 2862 Jerry Tsai 8862 6631 2863 Economics Shishir Singh 852 2822 4292 Carrie Liu 8862 6631 2864 Stephen King 44 20 7991 6700 Stephen Wan 852 2996 6566 Rajani Khetan 852 3941 0830 Julie Wang 8862 6631 2870 Fixed Income Jingyuan Zhai 852 3941 7009 Steven Major 44 20 7991 5980 Banks Construction & Engineering Bruce Warden 8862 6631 2868 Currency Strategy David Bloom 44 20 7991 5969 Anderson Chow 852 2996 6669 Non-tech Carson Ng 852 2822 4397 Climate Change Centre of Excellence Abel Lee 8862 6631 2866 Walden Shing 852 2996 6751 Nick Robins 44 20 7991 6778 Wei Sim 852 2996 6602 Lesley Liu 852 2822 4524 Korea

Asia Research Marketing Consumer Industrials Erwan Rambourg 852 2996 6572 Brian Cho 822 3706 8750 Colin Davis 852 2996 6635 Head of Research, Korea Jenny Li 852 2822 8245 Chris Zee 852 2822 2912 Christopher Leung 852 2996 6531 Paul Choi 822 3706 8758 Economics Lina Yan 852 2822 4344 Yeon Lee 822 3706 8778 Qu Hongbin 852 2822 2025 Catherine Chao 852 2996 6570 Jena Han 822 3706 8772 Charlene Liu 852 2822 4398 Frederic Neumann 852 2822 4556 Banks Leif Eskesen 65 6658 8962 Alice Chan 852 2996 6535 Walden Shing 852 2996 6751 Kathy Park 822 3706 8755 Paul Bloxham 612 9255 2635 Sinyoung Park 822 3706 8770 Adam Richardson 612 9006 5848 Healthcare Sojung Park 822 3706 8756 Trinh Nguyen 852 2996 6975 Nam Park 852 2996 6591 Ronald Man 852 2996 6743 Carolyn Poon 852 2996 6586 Consumer, Brands and Retail Sun Junwei 86 10 5999 8234 Karen Choi 822 3706 8781 Ma Xiaoping 86 10 5999 8232 Insurance Jena Han 822 3706 8772 Su Sian Lim 65 6658 8963 James Garner 852 2822 4321 Izumi Devalier 852 2822 1647 Michael Chang 852 2996 6555 TMT Julia Wang 852 2996 6568 Brian Sohn 822 3706 8765 Metals & Mining Joseph Incalcaterra 852 2822 4687 So-Yun Shin 822 3706 8774 Simon Francis 852 2996 6620 Ricky Seo 822 3706 8777 Thomas Zhu, CFA 852 2822 4325 Quantitative Hongsik Jo 822 3706 8774 Chris Chen 852 2822 4277 Freddie Siu 852 2996 6558 Jeff Yuan 852 3941 7010 Insurance Winnie Ma 852 2822 4393 Sinyoung Park 822 3706 8770

Oil & Gas / Chemicals Sojung Park 822 3706 8756 Fixed Income – Credit Thomas Hilboldt 852 2822 2922 Dilip Shahani 852 2822 4520 Dennis Yoo 852 2996 6917 Metals & Mining Zhi Ming Zhang 852 2822 4523 SI Tingting 852 2822 4337 Brian Cho 822 3706 8750 Devendran Mahendran 852 2822 4521 Jena Han 822 3706 8772 Philip Wickham 65 6658 0618 Real Estate Derek Kwong 852 2996 6629 Keith Chan 852 2822 4522 India Louisa Lam 852 2822 4527 Michelle Kwok 852 2996 6918 Yi Hu 852 2996 6539 Perveen Wong 852 2996 6571 Jitendra Sriram 91 22 2268 1271 Helen Huang 852 2996 6585 Ken Luo 852 2822 4395 Head of Research, India Frank Lee 852 3941 7008 Crystal Zhao 852 2996 6514 Kelly Fu 852 3941 7066 Technology Banks Lan Lan 852 3941 7186 Steven Pelayo 852 2822 4391 Sachin Sheth 91 22 2268 1224 Christopher Li 852 2822 3232 Tejas Mehta 91 22 2268 1243 Telecoms Fixed Income – Rates Tucker Grinnan 852 2822 4686 Consumer André de Silva, CFA 852 2822 2217 Neale Anderson 852 2996 6716 Amit Sachdeva 91 22 2268 1240 Pin-ru Tan 852 2822 4665 Chi Tsang 852 2822 2590

Himanshu Malik 852 3941 7006 Healthcare Dayeon Hong 852 3941 7009 Utilities Jenny Cosgrove 852 2996 6619 Girish Bakhru 91 22 2268 1638

FX Strategy Gloria Ho 852 2996 6941 Summer Y Y Huang 852 2996 6976 Industrials Paul Mackel 852 2996 6565 Arun K Singh 91 22 2268 1778 Dominic Bunning 852 2822 1672 Ju Wang 852 2822 4340 Singapore IT Services/Autos Julia Wang 852 2996 6568 Yogesh Aggarwal 91 22 2268 1246 Industrials Neel Sinha 65 6658 0606 Metals & Mining Climate Change Strategy Head of Research, Singapore Jigar Mistry, CFA 91 22 2268 1079 Wai-shin Chan 852 2822 4870 Kristy Lee 65 6658 0616 Oil & Gas / Chemicals Banks Kumar Manish 91 22 2268 1238 Kar Weng Loo 65 6658 0621 Puneet Gulati 91 22 2268 1235 Xiushi Cai 65 6658 0617 Real Estate Commodities Ashutosh Narkar 91 22 2268 1474

Thilan A Wickramasinghe 65 6658 0609 Telecoms Rajiv Sharma 91 22 2268 1239