Australian Investment Strategy

Home , IRESS, NextDC, TechnologyOne, Worley (company)

2 November 2016 Asia Pacific/Australia Equity Research Investment Strategy

Australian Investment Strategy Research Analysts STRATEGY Hasan Tevfik ,CFA 61 2 8205 4284 [email protected] Aussie darlings Peter Liu 61 2 8205 4071 ■ Aussies love their darlings: Australia currently has the most expensive [email protected] equity market "Darlings" in the world. Our darlings trade on a forward P/E Damien Boey of 38x. The other commodity-focused market, Canada, has the second 61 2 8205 4615 [email protected] most expensive darlings. Darlings in Australia have been more expensive only during the Nasdaq bubble when they touched 45x. ■ Darling derating: Buying Australian darlings at these valuations has been a poor strategy in the past. Also, the current high valuation for Australia's darlings suggest they are especially vulnerable to rising bond yields and the coming end of the Australian profits recession. A rising discount rate and a lower premium for growth suggest investors should focus on stocks that could be future darlings. ■ Hello Daaarling: Future market darlings have shared many similar characteristics over the last 20 years. They are generally well managed, have strong balance sheets and operate on high margins. Our "Hello Daaarling" strategy highlights potential future darlings and they currently trade on just 17x P/E and include Caltex, Eclipx, Mayne Pharma, Nufarm, Star Entertainment and South 32. We add Eclipx to our long Portfolio.

Figure 1: Australia has the most expensive darlings in the world Median 12-month forward P/E of "market darlings" around the world*

10 Australia Canada Cont. Europe US Hong Kong Japan UK Korea (ASX 200) (TSX 240) (DJ Stoxx) (S&P 500) (HS Comp) (Nikkei 225) (FTSE 350) (KOSPI 200)

* The current batch of Australian darlings includes Acconex, Cochlear, Treasury Wines, NextDC, Transurban, Domino's Pizza, Babcor, Sydney Airport, Technology One and Corp Travel. Source: Company data, I/B/E/S, Thomson Reuters Datastream, Credit Suisse

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 2 November 2016

Aussies and their darlings Every market has its darlings and Aussies clearly love theirs. Our market darlings trade on a median 12-month forward P/E of 38x and are the most expensive in the world. They are also amongst the most expensive we have had in Australia over the last 20 years. In this report we highlight the lessons market darlings have provided over the last two decades. We look at how darlings have changed through time and the strategies investors should adopt for today's batch. High valuations, rising bond yields and the coming end of the profits recession suggest investors should refrain from a blanket buy of the current darlings. Rather we try and anticipate the up and coming darlings. Our analysis reveals darlings share many consistent features through time and in our "Hello Daaarling" strategy we highlight our best future darling ideas. They trade on 17x and include Caltex, Eclipx, Mayne Pharma, Nufarm, Star Entertainment and South 32. We add Eclipx to our long Portfolio and remove Macquarie Group. Aussies love their darlings Every equity market has its share of darlings. These stocks are most adored by investors. They have a history of solid performance and trade on some of the most expensive valuations of the time. Darlings tend to dominate much of the discussion we have with institutional investors and we find there is no middle-ground view. Growth managers love them, value investors avoid them. Darling definition We take a quantitative approach to define a market darling. We assume 5% of an equity index are darlings at any one time. So the ASX 200 always has 10 market darlings. The S&P 500 has 25. The Nikkei 225 has 11. Our darlings are ranked top on an equally weighted combination of; (1) the highest 12-month forward P/E over the last 18 months (we remove companies with a distorted P/E on the verge of loss making), (2) most number of months, in the last 18, where the stock has delivered positive total returns and (3) the highest risk adjusted total return over the last 18 months.

Figure 2: Australia has the most expensive market darlings in the world Median 12-month forward P/E of "market darlings" around the world

10 Australia Canada Cont. Europe US Hong Kong Japan UK Korea (ASX 200) (TSX 240) (DJ Stoxx) (S&P 500) (HS Comp) (Nikkei 225) (FTSE 350) (KOSPI 200)

Source: Company data, I/B/E/S, Thomson Reuters Datastream, Credit Suisse

Australian Investment Strategy2 2 November 2016

Darlings around the world Currently the market darlings in Australia trade on a median P/E of 38x. While this is lower than the 40x we encountered at the end of September, it is clear Australia has the most expensive darlings in the world. By comparison, US market darlings trade on a mere 25x. Some of the cheapest darlings in the world are in Korea and trade on a puny 20x (Figure 2). In the US the current batch of darlings includes well known Technology companies like Amazon, Facebook, Netflix and Adobe. In the UK we find defensive companies like Rentokil (support services) and Reckitt Benckiser (consumer staple). Also there is Burberry Group and Rightmove (online property advertising). In Japan the darlings are also dominated by defensives like Terumo (medical devices), Shiseido (personal goods) and Meiji (consumer staples). In Hong Kong the darlings include defensives like China Resources Beer (beverages) and MTR (railway). But also include tech companies like BYD (electric cars), and Tencent (internet service portal). In Canada darlings include Agnico Eagle Mines (gold producer), Innergex Renewable (hydro, wind and solar energy) and Northland Power (renewable energy). Two decades of darling Not only do Australia's market darlings trade at a premium to their international peers, but they also trade at a premium to their predecessors. Since 1995 we calculate that market darlings traded on an average P/E of 22x forward earnings and P/E relative of 1.6x. Currently they are trading on 38x and 2.4x, respectively. Aussies are especially smitten with their darlings right now.

Figure 3: Current Aussie darlings trade on 38x P/E Figure 4: Expensive in an already expensive market Median 12 month forward P/E of ASX 200 Darlings. Quarterly in millions, unless otherwise stated

50 3.0

45 2.8 2.6 40 2.4 35 2.2 30 2.0

25 1.8 Average = 22x Average = 1.6x 1.6 20 1.4 15 1.2 10 1.0 95 97 99 01 03 05 07 09 11 13 15 95 97 99 01 03 05 07 09 11 13 15

Source: Company data, IBES, Credit Suisse Source: Company data, IBES, Credit Suisse

In 1995, when our time-series begins, there was certainly a domestic consumption tilt to the Aussie darlings. Back then Australia's most loved stocks included Harvey Norman, Westfield, Village Roadshow, Coca-Cola and Woolworths. By today's standards the darlings in 1995 were relatively cheap and traded on 17x forward earnings. This was just a 50% premium to the ASX 200 at the time. As we progressed through the late 1990s the Nasdaq bubble continued to brew and the Aussie darlings certainly had an aura of new-economy about them. In 1999 they included Computershare, Citect (software developer in automation), Aristocrat, ERG Group (smartcard readers) and Energy Developments (power generation from renewable and

Australian Investment Strategy3 2 November 2016

waste fuels). This was also the time when darling euphoria was greatest. They traded on an incredible 45x forward earnings. During the aftermath of the Tech bubble the market darlings de-rated considerably and hit a P/E low of 15x in 2002. Given that interest rates were cut significantly, and the property market was booming, the darlings of the time included a number of real estate exposed stocks like Gandel and St George Bank. The combination of a sluggish macro backdrop and lower discount rates helped a number of consumer staples stocks to be darlings including Foodland, Coca-Cola and Woolworths. The next peak in market darling P/Es coincided again with a peak in the equity market, in late 2007. The Aussie market darlings were a mix of energy companies (Queensland Gas Company, Arrow Energy, Worley Parson), consumer stocks (Flight Centre, David Jones, Woolworths) and others like CSL and InvoCare (funeral operator). The Aussie darlings hit an absolute P/E high of 26x in 2007. Still this was not the relative high of the time. That happened about a year later when the market de-rated and the darlings included beneficiaries of rising energy prices like Origin, Santos, Felix Resources and Ausenco. Valuations for the market darlings floundered over the next few years and hit a cycle low of 16x P/E in 2011. But this was still 70% higher than the ASX 200 average of just under 10x. Since then the P/E for the darlings has more than doubled. We detail today's darlings in Figure 5. Instead of domestic consumption companies like we had 15 years ago they include stocks exposed to Chinese consumption. There are no REITs but we do have two infrastructure stocks. Also in the list are those stocks where the cost of capital is extraordinarily low of the growth potential seems almost endless, like the tech companies.

Figure 5: Current batch of Aussie Market Darlings Market Darlings for ASX 200 as of 31 October 2016. Ranked in order of "Darlingness". Name Sector Mkt cap 12mth 12mth fwd 12 month total (A$bn) fwd P/E div yield return Aconex Software & Services 1.1 67.4 0.0% 22.2% Cochlear Health Care Equipment & Services 7.1 31.6 2.2% 46.4% Treasury Wine Food, Beverage & Tobacco 7.8 26.2 2.5% 54.5% NextDC Software & Services 1.0 69.9 0.0% 46.3% Transurban Infrastructure 21.1 55.2 5.0% 4.3% Domino's Pizza Consumer Services 5.5 42.5 1.6% 39.0% Bapcor Retailing 1.4 20.4 3.0% 46.4% Sydney Airport Infrastructure 14.0 38.6 5.3% 1.4% TechnologyOne Software & Services 1.7 37.2 2.0% 48.0% Corp Travel (CTM) Consumer Services 1.8 31.7 1.7% 70.7% Median 3.6 37.9 2.1% 46% Average 6.2 42.1 2.3% 38% Source: Company data, Thomson Reuters Datastream, I/B/E/S, Credit Suisse

It is clear many of the darlings over the last two decades share similar characteristics. Almost all are considered growth stocks. Indeed the two-year forward consensus EPS growth forecast for our darlings through time has averaged 15% (p.a.) or 4 percentage points more than the market average (Figure 6). Supporting the superior growth outlook for the darlings is often a convincing macro story. In the mid-1990s it was strong domestic consumption, in the late 1990s it was the new economy, property in the early 2000s, superannuation also features as does Chinese industrialisation and now Chinese consumption. Many of the market darlings have a history of strong management. Indeed, CSL is often considered one of Australia's best managed companies and it is at the very top of our list of the most darlinged stocks since 1995 (Figure 7). It has been a darling for 35 quarters. Also, a larger than normal proportion of our darlings are closely held and controlled — management have plenty of skin in the game and seem willing to look beyond the next quarter or so.

Australian Investment Strategy4 2 November 2016

Figure 6: Growth is especially scarce right now Figure 7: Australia's most darlinged companies 2 year forward EPS growth forecast for Aussie Darlings and ASX 200 Number of qtrs stock has been a market darling (Dec-95 to Oct-16)

30% 40 Darlings 35 25% 30 25 20% 20

15% 15 10 10% 5 0 l t t r s k s e p a e L h e ASX 200 n T r S X l a a t r a r I h l n e u d a t r 5% o S l S o i t S u a e E a t l c o r b B n p s b C

r r A E r C e C e h o o i e R - d t e u

m R o c p c G l H a o w A s I s r

g l

v a i o e r S c o r r n e y o y A n d o C o I a B A a o e P P W n r e C s

0% n a A T W G d m

G y t

Mar 99 Sep 01 Mar 04 Sep 06 Mar 09 Sep 11 Mar 14 a S S R

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Darling strategies So what is the most appropriate Darling strategy now? Should investors buy the current batch or try and predict the future market darlings? At 38x P/E and a 140% premium to the market investors are not really getting cheap darlings. The only time they were more expensive was during the last stages of the Tech bubble in the early 2000s. The Aussie Darlings could be starting to de-rate and we with think there will be further pressure for valuations to decline. This will be driven by two big changes for Aussie investors. First, as we highlighted in Figure 6, the current batch of Darlings benefit from a bigger than usual growth premium because there is precious little growth elsewhere in the ASX 200. There has never been a gap as big as it is now between the expected EPS growth outlook for the market darlings and the ASX 200. We believe the Aussie profits recession is ending and as a consequence, the premium associated with growth stocks like the Darlings should diminish. (We are not surprised that the most expensive darlings in the world are in the commodity markets of Australia and Canada. The scarcity of growth, and the premium associated with growth stocks, should peak and begin to decline as commodity company profits begin to recover). Second, we expect the current batch of Darlings will suffer disproportionately as the Bondcano continues to rumble and bond yields rise. Long duration assets, like many of the market darlings, are some of the most vulnerable to rising discount rates. But the current group of darlings, which includes two infrastructure stocks, are probably even more sensitive to rising bond yields than their predecessors. Investors fearing the Bondcano should be weary of the darlings. In the past, investors have struggled to make gains over the next two years after buying Aussie Darlings at these valuations (Figure 8). Importantly, we find current valuations have been more important in determining future darling returns than EPS growth forecasts (Figure 9). At best, we think those considering a blanket buy of the darlings should treat it as a trade, not an investment. Rather, at current valuations, we think investors are better placed to try and pick the future darlings, instead of concentrating on the current batch.

Australian Investment Strategy5 2 November 2016

Figure 8: Buying darlings above 30x has been a Figure 9: Little relationship between current EPS poor investment strategy forecasts and subsequent darling returns Spot 12 month forward P/E vs subsequent 2 year total returns for the Spot 2-year forward EPS forecast vs subsequent 2 year total returns ASX 200 Market Darlings

50 30% PE 2-year fwd 45 EPS forecast 25% 40 20% 35

30 15%

25 10% 20 5% 15 2-year forward total return 2yr fwd total return 10 0% -50% 0% 50% 100% -40% -20% 0% 20% 40% 60% 80% 100%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Future market darlings An investor who has benefitted from perfect foresight and correctly bought the Aussie Market Darlings, two years before they reach darling status, would have generated annual average returns of 40% per annum since the mid-1990s. Of course, there is no such investor good enough to do this but given the testing multiple of the current batch of darlings, searching for the new batch should be the preferred option. So what do future market darlings look like now? Investors need to consider a range of quantitative and qualitative factors. We have already outlined some of the qualitative factors above and they include strong management and a supportive macro theme. Below we paint a quantitative profile of what an Australian stock looks like two years before it reaches darling status. But we warn, our framework would not have picked every market darling over the last 20 years, there are always exceptions to these rules. Sector and size Non-financial stocks have made up 80% of our darlings since 1995. Of the 20% which are financial, half were REITs. We are not surprised to find there have been more defensive than cyclical darlings. After-all, defensive stocks are more likely to provide the steady growth profile associated with being a darling. The market cap of the darlings is not particularly small. When a stock reaches darling status there has been a two-out-three chance they are in the top two quintiles of ASX 200 market cap. If we go back two years before, we find two-thirds of the future darlings are in the top three quintiles of market cap (right now the third quintile of ASX 200 market cap starts at $1.9b). Perhaps the smaller stocks are just too volatile to provide the stable returns required to be a darling. Saying that, a small proportion of our darlings were not even listed two years before darling-status.

Australian Investment Strategy6 2 November 2016

Figure 10: Defensives dominate Darling stocks Figure 11: Darlings are not that small (market cap) Economic sector of a ASX 200 Market Darling Market cap quintile of stocks two years before they reach Darling status and when a Market Darling. Universe = ASX 200.

50% 40% When a Darling 35% 40% 2yrs before Darling 30% REITs 30% 25%

20% 20% 15%

10% 10% 5% 0% Defensives Cyclicals Financials 0% Smallest 4th 3rd 2nd Top Quintile Quintile

Source: Company data, Credit Suisse Source: Company data, Datastream, Credit Suisse P/Es and P/E relative We find more than 80% of future Darlings trade on a P/E of 25x or less, two years before darling-hood (Figure 12). This equates to a P/E premium of roughly 75% or less (Figure 13). A fifth of all future darlings have traded in a discount to the market two years before darling-hood. While future darlings have not been particularly cheap, they have not been that expensive either given the strong growth profile which we outline below.

Figure 12: Future Darlings usually trade on <25x… Figure 13: …and less than a 75% P/E premium Distribution of Darling P/Es (12m forward) 24 months prior to being a Distribution of Darling P/E rel (12m forward) 24 months prior to being Market Darling a Market Darling 40% 30%

35% 25% 30% 20% 25% 15% 20% 10% 15% 10% 5% 5% 0% ( 1 1 1 2 > d - . . - 2 2 5 i 1 2 s . < 5 - 5 . . c 2 1 5

0% - x 1 o 5 1 . x 7 x u x . 5 5 <10x 10-12 12-15 15-20 20-25 25-30 >30x n x x t )

Source: Company data, I/B/E/S Source: Company data, I/B/E/S Sales, earnings and dividends As we should expect, growth expectations for future market darlings have been strong. We find that future market darlings have enjoyed sales forecasts (for the non-financials) of 5% p.a. or more. The median has been 8%. Meanwhile, they usually benefit from EPS growth forecasts of 10% p.a. or more (median has been 13%). Also, DPS forecasts are in the

Australian Investment Strategy7 2 November 2016

same range but average close to 9%). Consistent with a solid growth outlook we find our market darlings are also enjoying positive EPS and DPS momentum (positive changes in 12 month forward EPS and DPS). This may be a reason why the market darlings are well owned by momentum focused fund managers.

Figure 14: Solid growth forecast for future darlings Figure 15: Future darlings distribute large amounts Distribution of future darling 2-year growth forecast Distribution of Darling payout ratios (12m forward) 24 months prior to being a Market Darling 45% 40% EPS growth 40% 35% DPS growth 35% 30% 30% 25% Sales growth 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% D 0 2 5 7 D 5 0 5 P P t o S t t t S

0% o o o < 0 5 1 2 3 > 2

= > - - 0 0 0 4 5 5 7 1 0 5 1

- - - 0 0 5 0 0 E % % 0 2 3 4 % 0 % 0 0 0 P % % % S

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

To our surprise we find market darlings are distributing a large proportion of their earnings before they reach darling status. Most (60%) future darlings have payout ratios of 50% or more. Only 1 in 20 future darlings have payout ratios of 25% or less. It is clear darlings are trying to win over their dividend focused Aussie investors. Leverage and Profit Margins A DuPont analysis of future darlings highlights that they benefit from high EBITDA margins and low leverage. RoEs are generally double-digit. We find a third of future market darlings operate on a stunning EBITDA margin of more than 40% (Figure 16) with a median of 28%. Fat margins suggests operating cash-flows are very strong. Indeed, we find more than a fifth have net-cash on their balance-sheets. Another 40% have net-debt to EBITDA of less than 1.5x (Figure 17). We think the combination of solid cash-flows and sound balance sheets is a reason why these high growth companies are not big equity issuers. Future darlings, in general, issue less than 10% of their market cap during the 24 months pre darling status. Almost a tenth of the darlings are net-retirers of equity. While darlings are loved by equity investors, they are not big users of new equity capital.

Australian Investment Strategy8 2 November 2016

Figure 16: Future Darlings operate on fat margins… Figure 17: …and have strong balance sheets Distribution of EBITDA margin (12 month forward) of future market Distribution of net-debt to EBITDA of Future Market Darlings Darlings 40% 30% 35% 25% 30% 20% 25% 20% 15%

15% 10% 10% 5% 5% 0% 0% n 0 1 1 2 2 > < 0 5 1 1 2 3 > e - - . - . 3 5 5 1 1 2 - - 0 5 0 0 4 t x 0 5 1 - - x . . - - - - 0 c 5 2 5 3 % 0 1 2 3 4 a % x x x x % 5 0 0 0 s % % % % h

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Hello Daaarling Using history we can try and predict the future market darlings. In Figure 18 we highlight those companies that fulfill most of the darling criteria we identify above. They include (1) P/E less than 25x, (2) two-year forward sales, EPS and DPS growth of more than 5%, 10% and 5%, (3) positive EPS and DPS momentum, (4) EBITDA margins of more than 20%, (5) net debt to EBITDA of less than 1.5x and (6) less than 10% equity issuance over the last two years. Our analysts also believe most of these companies are well managed. Some of these companies have been market darlings recently — ARB, Blackmores, Vocas — and have since de-rated. We have tried to include stocks from a range of sectors. So while we are cautious on the REITs at the momentum, we identify two of them as potential future darlings. Our Hello Daaarling stocks trade on a median 12-month forward P/E of 17x. Higher than the market but less than half the P/E for the current batch of darlings. Our future darlings are expected to deliver 13% EPS growth over each of the next two years. While this is half the level expected for the current batch, we know valuation has been a much better indicator of future returns than forecast growth. Stock changes We already own three of these stocks in our Long Portfolio — Caltex, AGL Energy and South 32 — and today we add Eclipx. Other than being a financial company that may have to issue equity to grow, Eclipx has many of the hall-marks of a future darling. Importantly, we believe it is prudently managed and could be in the process of consolidating a fragmented industry like Domino's Pizza is doing right now. However it trades at one-third of the P/E ratio of Domino's. To make room for Eclipx we take profits in Macquarie Group. James Ellis recently noted that earnings for the financial conglomerate may be beginning to slow.

Australian Investment Strategy9 2 November 2016

Figure 18: Credit Suisse "Hello Daaarling" Strategy Stocks in a position to be future market darlings. CS covered, where the analyst believes management are strong and fulfill most of the following: 12m fwd P/E < 25x, 2 year forward sales growth >5%, 2y fwd EPS growth >10%, 2y fwd DPS growth > 5%, positive EPS momentum, positive DPS momentum, EBITDA Margins > 20%, Net-Debt/EBITDA < 1.5x, <10% increase in shares on issue. Growth outlook Momentum Potential Future Darling Sector Mkt P/E Sales EPS DPS Payout EPS DPS EBITDA Net-Debt/ Equity Cap Margin EBITDA Issuance Ridley Corporation Food Prod 0.4 12.9 5% 13% 18% 50% 9% 9% 6% 0.4 0% Vocus Comm Telecoms 3.2 12.9 34% 20% 18% 52% 40% 111% 24% 1.6 485% Incitec Pivot Chemicals 5.0 13.9 6% 24% 25% 56% -25% -16% 23% 2.0 2% Eclipx Group Cons Fins 1.0 14.5 n.a. 14% 13% 62% 14% 15% n.a n.a 10% APN Outdoor Media 0.8 14.1 8% 12% 13% 57% 43% 40% 27% 0.7 0% Caltex Energy 7.9 14.5 6% 5% 6% 52% -3% -7% 6% 0.4 -3% oOh!media Media 0.7 14.6 10% 18% 20% 50% 67% 39% 24% 1.2 9% Goodman Group REITs 12.3 15.8 n.a. 6% 6% 60% 8% 7% n.a. n.a. 3% Challenger Fin Serv 5.9 15.1 n.a. 10% 8% 52% 12% 10% n.a n.a 0% Nufarm Chemicals 2.3 15.8 3% 26% 20% 27% 11% 12% 14% 1.3 1% AGL Energy Utilities 13.1 16.4 1% 10% 13% 74% 10% 20% 16% 1.53 1% Star Entertainment Leisure 4.0 16.5 4% 5% 10% 52% 1% 5% 23% 1.5 0% Wesfarmers Retailing 45.5 16.6 5% 9% 8% 85% 4% -3% 8% 1.1 0% Premier Investments Retail 2.2 16.8 9% 13% 11% 71% 25% 17% 16% -1.1 1% Adelaide Brighton Construction 3.4 17.1 2% 1% -1% 89% 4% 28% 24% 0.8 1% Scentre Group REITs 22.9 18.1 n.a. 6% 4% 93% 3% 3% n.a. n.a. 0% South 32 Mining 10.6 17.5 3% 28% 37% 42% 36% 31% 27% -0.4 0% Mayne Pharma Health Care 2.4 18.2 34% 21% 0% 0% 76% -100% 39% 0.3 133% ResMed Health Care 8.1 19.5 9% 10% 31% 112% 5% 139% 29% 0.3 0% Sigma Pharma Health Care 1.4 19.3 6% 9% 16% 84% 18% 25% 3% 0.7 -3% carsales.com.au Internet 2.5 20.1 7% 11% 11% 82% 7% 8% 51% 0.9 1% Aristocrat Leisure Leisure 9.5 21.1 10% 16% 30% 47% 52% 37% 37% 1.1 1% IRESS IT Services 1.9 21.3 8% 14% 11% 95% 10% 9% 31% 1.0 6% Breville Group H/hold Durable 1.2 21.5 6% 9% 9% 74% 7% 6% 15% -0.4 0% James Hardie Construction 6.3 21.6 11% 15% 12% 70% 4% -6% 26% 1.0 -1% Seek Prof Serv 4.9 22.7 9% 16% 13% 69% 2% 14% 38% 0.6 2% Blackmores Pers Prod 2.0 22.8 6% 3% 5% 75% 27% 28% 18% 0.1 0% REA Group Media 6.5 23.7 16% 20% 21% 51% 12% 14% 56% 0.5 0% ARB Corp Auto Comp 1.3 24.4 8% 12% 10% 53% 6% 10% 21% -0.1 9% CSL Biotech 33.9 24.7 9% 18% 12% 47% -5% 5% 31% 1.4 -4% Source: Company data, I/B/E/S, Credit Suisse Strategy outlook We could be at the cusp of two important turning points — the end of the Australian profits recession and rising bond yields. An environment where growth is less scarce and the discount rate is rising should be a negative one for the current batch of market darlings. They trade on 38x P/E which has not been a profitable entry point in the past. Rather than worry which of the current market darlings will outperform from here, we believe investors should focus on which stocks could be the future darlings. Our "Hello Daaarling" strategy highlights 30 stocks that fulfill many of the characteristics we have seen in future market darlings over the past 20 years. Importantly they trade on 17x which is less than half the multiple of the current darlings. They should be less vulnerable as the scarcity of growth diminishes and discount rates rise. They include Caltex, Eclipx, Mayne Pharma, Nufarm, Star Entertainment and South 32. We add Eclipx to our long Portfolio and remove Macquarie Group.

Australian Investment Strategy 10 2 November 2016

Companies Mentioned (Price as of 02-Nov-2016) AGL Energy (AGL.AX, A$19.45) APN Outdoor Group Limited (APO.AX, A$4.65) ARB Corp (ARB.AX, A$16.58) Aconex (ACX.AX, A$5.33) Adelaide Brighton (ABC.AX, A$5.27) Adobe Systems Inc. (ADBE.OQ, $106.87) Agnico Eagle Mines Limited (AEM.N, $51.62) Amazon com Inc. (AMZN.OQ, $785.41) Aristocrat Leisure (ALL.AX, A$14.88) Arrow Energy (AOE.AX^H10, A$4.68) Ausenco (AAX.AX, A$0.395) BYD Co Ltd (1211.HK, HK$50.7) Bapcor (BAP.AX, A$5.01) Blackmores Ltd (BKL.AX, A$113.48) Breville Group (BRG.AX, A$9.22) Burberry Group (BRBY.L, 1471.0p) CSL Ltd (CSL.AX, A$97.49) Caltex Australia (CTX.AX, A$30.37) Centaurus Metals (CTM.AX, A$0.0065) Challenger Limited (CGF.AX, A$10.38) China Resources Beer (Holdings) Company Limited (0291.HK, HK$16.76) Citect (CTL.AX^D06, A$2.2) Coca-Cola Amatil (CCL.AX, A$9.63) Cochlear (COH.AX, A$124.7) Computershare (CPU.AX, A$10.27) David Jones (DJS.AX^H14, A$3.99) Domino's Pizza (DMP.AX, A$61.55) Eclipx Group (ECX.AX, A$3.8) Energy Developments (ENE.AX^J15, A$7.98) Facebook Inc. (FB.OQ, $129.5) Felix Rsc (FLX.AX^L09, A$16.91) Flight Centre (FLT.AX, A$33.16) Goodman Group (GMG.AX, A$6.88) Harvey Norman (HVN.AX, A$4.93) IGA Distribution (FOA.AX^L05, A$28.95) IRESS (IRE.AX, A$11.0) Incitec Pivot (IPL.AX, A$2.94) Innergex (INE.TO, C$14.76) Invocare Group (IVC.AX, A$12.77) James Hardie Industries plc (JHX.AX, A$18.83) Macquarie Group (MQG.AX, A$77.8) Mantra Group Limited (MTR.AX, A$3.21) Mayne Pharma (MYX.AX, A$1.58) Meiji Holdings (2269.T, ¥10,410) Netflix, Inc. (NFLX.OQ, $123.3) NextDC (NXT.AX, A$3.38) North Power (NPI.TO, C$23.98) Nufarm (NUF.AX, A$8.67) Origin Energy (ORG.AX, A$5.25) Premier Investments (PMV.AX, A$13.83) REA Group (REA.AX, A$49.35) Reckitt Benckiser (RB.L, 7252.0p) Rentokil (RTO.L, 227.7p) ResMed Inc. (RMD.AX, A$7.52) Ridley Corporation Limited (RIC.AX, A$1.2) Rightmove PLC (RMV.L, 3875.0p) Santos Ltd (STO.AX, A$3.36) Scentre Group (SCG.AX, A$4.3) Seek (SEK.AX, A$14.21) Shiseido (4911.T, ¥2,622) Sigma Pharmaceuticals (SIP.AX, A$1.28) South 32 (S32.AX, A$2.62) St George Bank (SGB.AX^D09, A$22.1) Star Entertainment Group (SGR.AX, A$4.84) Sydney Airport (SYD.AX, A$6.24) TechnologyOne (TNE.AX, A$5.46) Tencent Holdings (0700.HK, HK$204.4) Terumo (4543.T, ¥3,985) Transurban (TCL.AX, A$10.35) Treasury Wine (TWE.AX, A$10.61) Videlli (VID.AX^G09, A$0.004) Village Road (VRL.AX, A$5.04) Vocus Communications (VOC.AX, A$5.24) Wesfarmers (WES.AX, A$40.35) Westfield Corporation (WFD.AX, A$8.71) Woolworths (WOW.AX, A$23.09) WorleyParsons (WOR.AX, A$8.18) carsales.com.au (CAR.AX, A$10.42) oOh!media Limited (OML.AX, A$4.19)

Australian Investment Strategy 11 2 November 2016

Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 43% (63% banking clients) Neutral/Hold* 39% (60% banking clients) Underperform/Sell* 15% (56% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. See the Companies Mentioned section for full company names The subject company (RB.L, NUF.AX, 0700.HK, S32.AX, BRBY.L, WES.AX, SCG.AX, MYX.AX, WFD.AX, ORG.AX, CCL.AX, RTO.L, CTX.AX, MQG.AX, NFLX.OQ, MTR.AX, PMV.AX, AEM.N, NXT.AX, AMZN.OQ, ADBE.OQ, WOW.AX, VOC.AX, TCL.AX, 2269.T, ABC.AX, IPL.AX, REA.AX, FB.OQ, 0291.HK, RIC.AX, SEK.AX, OML.AX) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (MYX.AX, WFD.AX, ORG.AX, MQG.AX, MTR.AX, ADBE.OQ, VOC.AX, REA.AX, FB.OQ, SEK.AX) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (ORG.AX, MQG.AX) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (MYX.AX, VOC.AX) within the past 12 months.

Australian Investment Strategy 12 2 November 2016

Credit Suisse has received investment banking related compensation from the subject company (MYX.AX, WFD.AX, ORG.AX, MQG.AX, MTR.AX, ADBE.OQ, VOC.AX, REA.AX, FB.OQ, SEK.AX) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (RB.L, NUF.AX, 0700.HK, GMG.AX, S32.AX, BRBY.L, FLT.AX, WES.AX, SCG.AX, MYX.AX, WFD.AX, CPU.AX, ORG.AX, CCL.AX, ACX.AX, RTO.L, CTX.AX, MQG.AX, CGF.AX, NFLX.OQ, MTR.AX, PMV.AX, AEM.N, NXT.AX, CSL.AX, STO.AX, AMZN.OQ, ADBE.OQ, WOW.AX, APO.AX, VOC.AX, TWE.AX, TCL.AX, 2269.T, ABC.AX, IPL.AX, REA.AX, FB.OQ, 0291.HK, RIC.AX, 1211.HK, SEK.AX, SGR.AX, 4543.T, 4911.T, AGL.AX, OML.AX) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (ORG.AX, MQG.AX) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (NFLX.OQ, AMZN.OQ, ADBE.OQ, FB.OQ). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (NUF.AX, S32.AX, FLT.AX, SCG.AX, RMV.L, CTX.AX, APO.AX, SGR.AX, OML.AX). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (NUF.AX). Credit Suisse has a material conflict of interest with the subject company (FB.OQ) . Credit Suisse has been named as a defendant in various putative shareholder class-action lawsuits relating to Facebook, Inc.’s May 2012 initial public offering. Credit Suisse’s practice is not to comment in research reports on pending litigations to which it is a party. Nothing in this report should be construed as an opinion on the merits or potential outcome of the lawsuits. Credit Suisse has a material conflict of interest with the subject company (AGL.AX) . Peter Wilson has approx. A$1,000 worth of AGL shares as part of an employee share purchase plan. They won’t become unrestricted for 3 years. For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit- suisse.com/disclosures/view/report?i=267591&v=6pww8gpnvdo6dz55yi6amnxmt . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. The following disclosed European company/ies have estimates that comply with IFRS: (RB.L, RTO.L). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (NUF.AX, 0700.HK, SCG.AX, MYX.AX, ECX.AX, MQG.AX, VOC.AX, FB.OQ, SEK.AX) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Equities (Australia) Limited...... Hasan Tevfik ,CFA ; Peter Liu ; Damien Boey To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Equities (Australia) Limited...... Hasan Tevfik ,CFA ; Peter Liu ; Damien Boey For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Australian Investment Strategy 13 2 November 2016

This report is produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are This report may contain material that 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 or which would subject Credit Suisse or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates.The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in European Union (except Switzerland): by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Germany: Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). United States and Canada: Credit Suisse Securities (USA) LLC; Switzerland: Credit Suisse AG; Brazil: Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; Mexico: Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); Japan: by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau ( Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; Hong Kong: Credit Suisse (Hong Kong) Limited; Australia: Credit Suisse Equities (Australia) Limited; Thailand: Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok10500, Thailand, Tel. +66 2614 6000; Malaysia: Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch; India: Credit Suisse Securities (India) Private Limited (CIN no.U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777; South Korea: Credit Suisse Securities (Europe) Limited, Seoul Branch; Taiwan: Credit Suisse AG Taipei Securities Branch; Indonesia: PT Credit Suisse Securities Indonesia; Philippines: Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Additional Regional Disclaimers Hong Kong: Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Malaysia: Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. Singapore: This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. UAE: This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates. EU: This report has been produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-US customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. US customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the US. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials,management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2016 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

Australian Investment Strategy 14