Bank of East Asia Version 1 | Bloomberg: 23 HK EQUITY | Reuters: 0023.HK Refer to Important Disclosures at the End of This Report

China / Hong Kong Company Guide

Bank of East Asia Version 1 | Bloomberg: 23 HK EQUITY | Reuters: 0023.HK Refer to important disclosures at the end of this report

DBS Group Research . Equity 11 Apr 2017

FULLY VALUED (Re-initiating coverage) Building defences Last Traded Price: HK$32.15 (HSI:24,262) Minding its own business; FULLY VALUED. Bank of East Asia (BEA) was Price Target 12-mth: HK$27.80 (-14% downside) a first mover into Mainland China, and it has the largest Mainland Potential Catalyst: M&A exposure among HK banks (45% of loan book). While its Greater China Where we differ: Higher credit cost assumption footprint has always been sought after, this element has been a drag on BEA’s performance in the past year. Nevertheless, BEA continues to Analyst Sue Lin LIM +65 8332 6843 [email protected] keep its Greater China business as a key focus, despite near term headwinds. While we believe an M&A would eventually pan out for the Investment thesis smaller banks in HK, we do not see this materialising for BEA in the  Continued drag from Mainland operations to cap near term. Hence, we expect valuations to de-rate, in proper reflection earnings and ROE of its current fundamentals.

 Benefit from higher interest rates limited due to Defence mechanism in place; no M&A for now. BEA is the only other smaller portion of USD and HKD assets as well as low family-owned bank in HK, apart from Dah Sing Bank, which naturally CASA ratio attracts M&A speculation. However, the earnings drag from its  Not time for an M&A offer at this juncture due to Mainland exposure and its fragmented shareholding reduces the muted earnings and fragmented shareholdings likelihood of M&A occurring in the near term. The change in  Reinitiate coverage with FULLY VALUED and shareholding to Criteria Caixa from Caixa Bank did reignite the HK$27.80 TP; an eventual M&A could provide upside likelihood for an M&A to happen, but it was quickly quashed. The Li surprise family looks to be here to stay to run the bank for a while more.

Sub-5% core ROE in FY17. BEA is expected to book a gain of Price Relative c.HK$3.1bn in 1H17 from the disposal of its stake in Tricor. As such, we HK$ Relative Index 38.9 would not discount the possibility of a special dividend in FY17. Our 214 earnings forecast has imputed this one-off gain, but not a special 194 33.9 174 dividend. Excluding this one-off gain, core ROE is on a weak footing, at 154 less than 4% in FY17. While higher interest rates is positive to BEA, the 28.9 134 impact is expected to be small, given that it has a smaller portion of 23.9 114 USD and HKD assets as well as low CASA ratio. We assume that net 94 interest margin (NIM) will be stable in FY17. 18.9 74 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Valuation: Bank of East Asia (LHS) Relative HSI (RHS) We rate BEA as FULLY VALUED with HK$27.80 TP based on the Gordon Growth Model (6% ROE, 2% growth and 8% cost of equity). Forecasts and Valuation BEA is facing pressure in terms of growth and managing asset quality FY Dec (HK$ m) 2016A 2017F 2018F 2019F issues, which would limit share price upside. M&A, while still a possible Pre-prov. Profit 6,508 7,356 7,678 7,920 Pre-prov. Profit Gth (%) (11) 13 4 3 angle, has low probability at this juncture. Pretax Profit 4,896 7,908 6,102 7,085 Net Profit 3,723 6,155 4,749 5,514 Key Risks to Our View: EPS (HK$) 1.41 2.33 1.80 2.09 Key risk to our bearish view on BEA would be its ability to weather EPS Gth (%) (33) 65 (23) 16 through its asset quality woes quicker than expected and grow its HK PE (X) 22.8 13.8 17.9 15.4 business at a faster pace, ramping up ROE back to historical levels. An DPS (HK$) 0.57 0.93 0.72 0.84 unexpected high-priced M&A bid for the bank could surprise on the Div Yield (%) 1.8 2.9 2.2 2.6 BV Per Share (HK$) 31.60 33.00 34.07 34.07 valuation front. P/Book Value (x) 1.0 1.0 0.9 0.9 At A Glance ROAE (%) 4.5 7.2 5.4 6.1 Issued Capital (m shrs) 2,723 ROAE (ex-exceptional 2.8 3.7 5.4 6.1 Mkt. Cap (HK$m/US$m) 87,558 / 11,268 (%) Major Shareholders ROA (%) 0.50 0.81 0.61 0.68 Sumitomo Mitsui (%) 19.0

Earnings Rev (%) N/A N/A N/A Criteria Caixa (%) 17.3 Consensus EPS (HK$) 2.17 1.81 2.19 Guoco Group (%) 14.2 Other Broker Recs: B: 0 S: 6 H: 3 Elliott Capital (%) 7.0 Source of all data on this page: Company, DBSV, Thomson Reuters, Free Float (%) 42.5 HKEX 3m Avg. Daily Val. (US$m) 8.3 ICB Industry : Financials / Banks

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ed-JS/ sa- AH

Company Guide

Bank of East Asia

Margin Trends CRITICAL DATA POINTS TO WATCH HK$ m 12,000 1.9% 10,000 1.8% 1.8% 8,000 Earnings Drivers: 1.7% Mainland operations still in focus over the long term. Despite the 6,000 1.7% pain BEA is carrying from its Mainland operations, BEA believes 4,000 1.6% 1.6% 2,000 these operations remain key to its growth in the long term. BEA 1.5% 0 1.5% was a first mover into Mainland China, and it has the largest 2015A 2016A 2017F 2018F 2019F

Mainland exposure among HK banks (c. 45%). While its Greater Net Interest Income Net Interest Income Margin China footprint has always been sought after, this element has been a drag on BEA’s performance in the past year due to asset quality pressure. Nevertheless, BEA continues to keep its Mainland operations as a key focus, despite near term Gross Loan& Growth HK$ m headwinds. 500,000 10% 9% 400,000 8% 7% Forecasting loans to grow at 3-4%, while deposit growth is 300,000 6% 5% expected to stand at 3% p.a. Although there were some positive 200,000 4% 3% signals in it HK operations, we opine that it is still insufficient to 100,000 2% 1% change its earnings trajectory in the near term. BEA believes 0 0% 2015A 2016A 2017F 2018F 2019F there is room for upside to NIM, given the favourable interest Gross Loan (LHS) Gross Loan Growth (%) (YoY) (RHS) rate environment and ample liquidity, which bodes well for yields and cost of funds, respectively. We have imputed stable NIM.

Customer Deposit & Growth Three-year cost saving plan on track. BEA initiated a 3-year cost HK$ m 600,000 10% saving plan targeting to reap HKD700m of gross savings. The 9% 500,000 8% programme is slated for completion in FY18. In FY16, 40% of 400,000 7% 6% the savings were achieved, which was reflected in the significant 300,000 5% 4% decline in expenses by 14%. This was achieved through 200,000 3% 100,000 2% headcount reduction (reduction of 12-13% in HK and more than 1% 0 0% 10% in Mainland China) and streamlining of branches (closed 8 2015A 2016A 2017F 2018F 2019F branches in both HK and Mainland China). More efforts Customer Deposits (LHS) Customer Deposits Growth (%) (YoY) (RHS) underway to improve efficiency, through restructuring of mid and back office operations, simplification of platforms and re- design of work processes as well as digitisation of the bank. Our forecast assumes a decline in expenses in FY17 and benign Loan-to-Deposit Ratio Trend growth in FY18-19. This results in cost-to-income eventually HK$ bn 695,213 93% dipping below 50% in FY19F. 645,213 88% 595,213

Credit cost has been on the rise for BEA since 2014, when it 545,213 83%

started to pay for the price of its substantial Mainland China 495,213 78% exposure. In mid-2014, BEA had tightened loan underwriting 445,213 standards, centralised loan approval processes and shifted to 395,213 73% 2015A 2016A 2017F 2018F 2019F larger SOE companies to alleviate asset quality pressures. Loans Deposit Loan-to-Deposit Ratio (RHS) However, BEA expects FY17 to see lower credit cost as the bulk of the provisions was done in the previous years. To that end, we expect to see credit cost declining to 63bps (from 77bps in

FY16). In our forecast, we have assumed that credit cost Cost & Income Structure HK$ m continues to decline, reaching 43bps and 27bps in FY18 and 18,000 58% 16,000 56% FY19, respectively. This remains higher than its historical average 14,000 12,000 54% credit cost of around 10bps. 10,000 52% 8,000 6,000 50% 4,000 48% 2,000 0 46% 2015A 2016A 2017F 2018F 2019F Net Interest Income Non-interest Income Cost-to-income Ratio

Source: Company, DBS Vickers

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Company Guide Bank of East Asia

Asset Quality 2.0% 1.8% Balance Sheet: 1.6% Disposal of Tricor. On 5 Oct 2016, BEA announced that it is disposing 1.4% 1.2% its equity stake in Tricor Holdings Limited (Tricor) and is expected to 1.0% 0.8% book a gain of cHK$3.1bn in 1H17. As such, we would not discount 0.6% 0.4% the possibility of a special dividend in FY17. Our earnings forecast has 0.2% 0.0% imputed this one-off gain, but not a special dividend. Typically, 2015A 2016A 2017F 2018F 2019F excluding special dividend, BEA pays out 40% of its profits. NPL Ratio Provision Charge-Off Rate Notwithstanding the disposal, BEA’s capital ratio comfortably meets the minimum requirement.

Dealing with asset quality and Mainland exposure. We believe these Capitalisation (%) 22.0% two issues remain the key overhang for BEA’s valuations. While non- 21.0% performing loans (NPLs) at its HK operations appear more contained 20.0% 19.0% (vs Mainland), there are still risks mainly due to the renminbi (RMB) 18.0% volatility and slower economic activity in HK. 17.0% 16.0% 15.0% 14.0% Share Price Drivers: 13.0% Eventual M&A? As the only other family-owned bank remaining in 2015A 2016A 2017F 2018F 2019F

HK apart from Dah Sing Banking Group, BEA naturally attracts M&A Tier-1 CAR Total CAR speculation among investors. However, given that BEA is still feeling the pain of its Mainland China exposure, this angle may be dimmed ROE (%) by the likelihood of weaker bargaining power in pricing. Furthermore, 7.0% a fragmented shareholding structure makes it difficult for a takeover 6.0% to materialise. BEA’s largest shareholders are Criteria Caixa and 5.0% Sumitomo Mitsui Banking Corporation, each with a 17.2% stake. 4.0% 3.0% Following these is Guoco Group with a 14% stake. The Li family is 2.0% believed to hold an indirect stake of close to 8%. 1.0%

0.0% Valuations to de-rate to reflect current fundamentals. With 2015A 2016A 2017F 2018F 2019F prospective ROE of only 5%, the franchise should be trading below BV. However, BEA is trading at 1x BV, which we believe prices in a possible M&A. The change in shareholding to Criteria Caixa from Caixa Bank did reignite the likelihood for an M&A to happen, but it PE Band (x) was quickly quashed. The Li family looks to stay to run the bank for 41.7 36.7 the time being. While we believe an M&A would eventually pan out, 31.7 +2sd: 32.3x we see little risk of this occurring in the near term. Hence, we expect 26.7 +1sd: 24.7x valuation to de-rate going forward, in proper reflection of its current 21.7 fundamentals. 16.7 Avg: 17.1x 11.7 ‐1sd: 9.5x 6.7 Key Risks: 1.7 ‐2sd: 1.9x China-heavy loan book puts BEA’s profitability more at risk than its 2013 2014 2015 2016 2017 peers. On the flip side, quicker-than-expected resolution of its asset quality situation could pose upside risk to our numbers. PB Band

Overly competitive loan pricing may compromise NIM. Competition 1.4 (x)

1.3 for mortgage loans in HK remains intense, and may not have reached +2sd: 1.27x 1.2 a peak yet. Given that BEA is a small player in the mortgage space, in +1sd: 1.16x 1.1 our opinion, BEA would follow suit with the low pricing offered by Avg: 1.04x 1.0 ‐1sd: 0.93x the bigger banks that enjoy lower cost of funds (due to stronger 0.9 deposit franchise). 0.8 ‐2sd: 0.81x 0.7

0.6 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Company Background: Incorporated in 1918, Bank of East Asia is one of the last two family- owned banks left in Hong Kong. BEA was a first mover into Mainland China, through its wholly owned subsidiary Bank of East Asia (China). Source: Company, DBS Vickers

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Company Guide

Bank of East Asia

Chart 1: Core earnings trend Chart 2: Non-interest income composition HKD m % 120% 7,000 50 100% 6,000 30 28% 26% 80% 43% 34% 42% 46% 13% 5,000 10 60% 17% 16% 4% 23% 4,000 14% 20% 18% 27% (10) 40% 16% 15% 16% 3,000 19% 17% 17% 20% 20% 12% 11% (30) 9% 10% 9% 2,000 11% 7% 9% 0% 5% 7% 6% 9% 6% 1,000 (50) -3% -20% - (70)

FY12 FY13 FY14 FY15 FY16 FY17F FY11 FY12 FY13 FY14 FY15 FY16 Broking + Asset mgmt Trade finance Loan commission Core net profit (LHS) Growth (RHS) Core ROE (RHS) Cards Net trading income Others

Source: Company, DBS Bank Source: Company, DBS Bank

Chart 3: Loan portfolio 100% 90% 80% 70% 55% 58% 60% 57% 56% 57% 60% 50% 3% 1% 40% 1% 1% 1% 1% 30% 27% 27% 26% 29% 27% 26% 20% 10% 6% 6% 6% 5% 6% 7% 9% 8% 7% 8% 9% 9% 0% FY11 FY12 FY13 FY14 FY15 FY16 Residential property Other individual Business Trade finance Outside of HK

Source: Company, DBS Bank

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Company Guide Bank of East Asia

Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F NIM (%) 1.56 1.48 1.48 1.47 1.45 Loan growth (%) 0 3 3 4 4 Cost-to-income (%) 57 56 52 51 51 Credit cost (%) 0.4 0.7 0.6 0.4 0.2 Source: Company, DBS Vickers Small increase from rising interest rate Income Statement (HK$ m) FY Dec 2015A 2016A 2017F 2018F 2019F Net Interest Income 11,934 11,098 11,143 11,351 11,471 Non-Interest Income 5,130 3,752 4,139 4,332 4,534 Operating Income 17,064 14,850 15,282 15,684 16,005 Operating Expenses (9,732) (8,342) (7,927) (8,005) (8,085) Pre-provision Profit 7,332 6,508 7,356 7,678 7,920 Provisions (2,059) (3,463) (2,900) (2,051) (1,334) Associates 558 431 453 475 499 Exceptionals 918 1,420 3,000 0 0 Pre-tax Profit 6,749 4,896 7,908 6,102 7,085 Taxation (1,111) (1,067) (1,582) (1,220) (1,417) Minority Interests (116) (106) (171) (132) (153) Preference Dividend 0 0 0 0 0 Net Profit 5,522 3,723 6,155 4,749 5,514 Net Profit bef Except 4,604 2,303 3,155 4,749 5,514

Growth (%) Net Interest Income Gth (5.85) (7.01) 0.41 1.87 1.06 Net Profit Gth (17.10) (32.58) 65.33 (22.84) 16.10 Improvement expected

from BEA’s cost cutting Margins, Costs & Efficiency (%) initiatives Spread 1.29 1.19 1.20 1.45 1.48 Net Interest Margin 1.73 1.59 1.59 1.58 1.57 Cost-to-Income Ratio 57.0 56.2 51.9 51.0 50.5

Business Mix (%) Net Int. Inc / Opg Inc. 69.9 74.7 72.9 72.4 71.7 Non-Int. Inc / Opg inc. 30.1 25.3 27.1 27.6 28.3 Fee Inc / Opg Income 24.0 17.5 18.6 19.1 19.6 Oth Non-Int Inc/Opg Inc 6.0 7.8 8.5 8.6 8.7

Profitability (%) ROAE Pre Ex. 6.1 2.8 3.7 5.4 6.1 ROAE 7.3 4.5 7.2 5.4 6.1 ROA Pre Ex. 0.6 0.4 0.5 0.6 0.7 ROA 0.7 0.5 0.8 0.6 0.7 Source: Company, DBS Vickers

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Company Guide

Bank of East Asia

Interim Income Statement (HK$ m) FY Dec 2H2014 1H2015 2H2015 1H2016 2H2016

Net Interest Income 6,427 6,186 5,748 5,483 5,615 Non-Interest Income 2,603 2,513 2,617 1,647 2,105 Operating Income 9,030 8,699 8,365 7,130 7,720 Operating Expenses (4,956) (4,620) (5,112) (4,239) (4,103) Pre-Provision Profit 4,074 4,079 3,253 2,891 3,617 Provisions (685) (776) (1,277) (1,241) (2,222) Associates 336 254 304 192 239 Exceptionals 217 507 411 874 546 Pretax Profit 3,942 4,064 2,691 2,716 2,180 Taxation (800) (643) (468) (727) (340) Minority Interests (61) (61) (55) (8) (98) Net Profit 3,081 3,360 2,168 1,981 1,742

Growth (%) 2H16 net profit dragged Net Interest Income Gth (1.2) (1.0) (10.6) (11.4) (2.3) by higher provisions Net Profit Gth (4.8) (6.1) (29.6) (41.0) (19.6)

Source: Company, DBS Vickers

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Company Guide Bank of East Asia

Balance Sheet (HK$ m) FY Dec 2015A 2016A 2017F 2018F 2019F

Cash/Bank Balance 69,122 65,720 66,866 63,746 54,242 Government Securities 0 0 0 0 0 Inter Bank Assets 80,828 44,052 44,933 45,832 46,748 Total Net Loans & Advs. 439,125 450,445 462,580 477,798 498,245 Investment 115,670 133,050 135,542 135,652 136,208 Associates 5,763 6,011 6,464 6,939 6,939 Fixed Assets 13,297 11,990 11,391 10,821 10,280 Goodwill 3,883 2,639 2,639 2,639 2,639 Other Assets 53,676 51,799 63,121 75,590 85,350 Total Assets 781,364 765,706 793,536 819,016 840,651

Customer Deposits 540,743 535,789 557,221 579,509 602,690 Inter Bank Deposits 32,126 26,475 33,433 34,771 36,161 Debts/Borrowings 30,593 36,011 41,413 45,554 47,832 Others 92,261 80,795 71,140 66,003 60,790 Minorities 3,212 3,189 3,189 3,189 3,189 Shareholders' Funds 82,429 83,447 87,140 89,990 89,990 Total Liab& S/H’s Funds 781,364 765,706 793,536 819,016 840,651

Source: Company, DBS Vickers

Financial Stability Measures (%) FY Dec 2015A 2016A 2017F 2018F 2019F

Balance Sheet Structure Loan-to-Deposit Ratio 81.6 84.8 84.0 83.7 83.9 Net Loans / Total Assets 56.2 58.8 58.3 58.3 59.3 Investment / Total Assets 14.8 17.4 17.1 16.6 16.2 Cust . Dep./Int. Bear. Liab. 99.3 99.5 102.0 88.5 88.3 Interbank Dep / Int. Bear. 5.9 4.9 6.1 5.3 5.3 Asset quality pressures largely from Mainland exposure Asset Quality NPL / Total Gross Loans 1.1 1.5 1.3 1.2 1.0 NPL / Total Assets 0.6 0.9 0.8 0.7 0.6 Loan Loss Reserve Coverage 47.9 56.1 88.7 122.8 142.1 Provision Charge-Off Rate 0.5 0.8 0.6 0.4 0.3

Capital Strength Total CAR 17.2 21.3 21.6 21.6 20.9 Tier-1 CAR 13.7 17.3 17.7 17.6 17.0

Source: Company, DBS Vickers

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Company Guide

Bank of East Asia

DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 11 Apr 2017 09:39:19 (HKT) Dissemination Date: 11 Apr 2017 15:09:48 (HKT)

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSVHK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”) and DBSVHK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBSVS and DBSVHK, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market- making.

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Company Guide Bank of East Asia

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended/mentioned in this report as of 10 Apr 1. 2017.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from The Bank Of East Asia Limited (23 HK) as of 31 Mar 2017.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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Company Guide

Bank of East Asia

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be

contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”) or DBS Vickers (Hong Kong) Limited (“DBSVHK”), which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSVHK is regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA. Hong Kong This report is being distributed in Hong Kong by DBSVHK which is licensed and regulated by the Hong Kong Securities and

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Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from,

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ASIAN INSIGHTS VICKERS SECURITIES

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