Thursday, 13 February 2014

(Global Edition) Asian Daily EPS, TP and Rating changes Top of the pack ... EPS TP (% change) T+1 T+2 Chg Up/Dn Rating Commonwealth Bank 3 2 0 0 U (U) Asia Equity Strategy Sakthi Siva (3) Australia New report: Cyclicals have outperformed defensives YTD. Continue?

China Mengniu Dairy (6) (7) 20 25 O (O) PRADA S.p.A. (10) (12) (5) 29 O (O) India IT Services Sector Anantha Narayan (4) Apollo Tyres 8 2 10 22 O (O) Is it too crowded for further performance? Cipla Limited (6) 0 0 1 N (N) Jaiprakash Power Ventures (60) (17) (14) 107 O (O) Page Industries 3 3 2 13 O (O) Asia Technology Sector Keon Han (5) Perusahaan Gas Negara (1) 1 2 31 O (O) New report: LED—entering expansion phase

Softbank 0 0 — R (R) UMW Oil & Gas 0 (7) 31 3 N (N) China Mengniu Dairy (2319.HK) – Maintain O Kevin Yin (6) Universal Robina Corp. 1 1 0 18 O (O) 2014 outlook: Should pass through 10% raw milk price inflation; EPS likely to grow 35.9% YoY Huaku Development (3) (1) (5) 32 O (O) Novatek Microelectronics 3 1 3 (18) U (U) CS pic of the day Sinopac Holdings 2 2 3 8 N (N) AIS PCL (4) (7) (4) 29 O (O) Global general lighting and LED lighting market size Siam City Cement 0 (2) (5) 0 U (U) The LED general lighting industry is now shifting from the initial penetration phase to a rapid expansionary TAC PCL 0 0 0 44 O (O) phase. According to our estimates, as the general lighting market reaches US$98 bn by 2016E, LED revenues alone could rise to 46%, or US$45 bn, from US$18 bn in 2002. In the meantime, the addressable market size Connecting clients to corporates should continue to expand quickly.

Hong Kong / China US$bn Seoul Semiconductor Co Ltd (046890.KQ) 120 46% 50% Date 19-21 February, Hong Kong 37% Analyst Keon Han 100 40% 80 29% Linc Energy (LINC.SI) 21% 30% 60 Date 24-25 February, Hong Kong 16% 20% Analyst David Hewitt 40 11% 7% 20 10% Singapore 0 0% Seoul Semiconductor Co Ltd (046890.KQ) 2010 2011 2012 2013E 2014E 2015E 2016E Date 17-18 February, Singapore Global general lighting market LED lighting revenues LED penetration Analyst Keon Han Source: Company data, Credit Suisse estimates.

Linc Energy (LINC.SI)

Date 24 February, Singapore Analyst David Hewitt ... and the whole pack

Global US Pacific Basin Shipping Ltd (2343.HK) Global Equity Strategy Andrew Garthwaite (7) Date 03-07 March, US Emerging markets: What is better and what is worse than in 1997? Analyst Timothy Ross Global Equity Strategy Andrew Garthwaite (8)

Europe GEM: When is it time to buy? HDFC (HDBK.BO) Regional Date 10-13 February, Europe Asia Equity Strategy Sakthi Siva (3) Analyst Ashish Gupta New report: Cyclicals have outperformed defensives YTD. Continue?

Contact [email protected] or Your usual sales Asia Technology Sector Keon Han (5) representative. New report: LED—entering expansion phase Australia [NEW] Ansell Limited (ANN.AX) – Maintain N William Dunlop, CFA (9) Emerging pressure [NEW] Commonwealth Bank Australia (CBA.AX) – Maintain U Jarrod Martin (10) Solid result for an expensive stock China China Mengniu Dairy (2319.HK) – Maintain O Kevin Yin (6) 2014 outlook: Should pass through 10% raw milk price inflation; EPS likely to grow 35.9% YoY China Mengniu Dairy (2319.HK) – Maintain O Kevin Yin (11) Danone pays 15% valuation premium and becomes Mengniu’s second largest shareholder Sungy Mobile Limited (GOMO.OQ) – Maintain O Dick Wei (12) GetJar acquisition: Long-term positive to enhance global app distribution power

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. 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 CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION TM Client-Driven Solutions, Insights, and Access

Thursday, 13 February 2014

Asian Daily

Asian indices - performance Hong Kong (% change) Latest 1D 1W 3M YTD PRADA S.p.A. (1913.HK) – Maintain O Karim P. Salamatian, CFA (13) ASX300 5,264 0.0 3.5 (0.2) (0.8) CSEALL 6,084 (0.5) (1.4) 4.6 2.9 Trading update: Capping off a year of deceleration; trend to turn in FY15 Hang Seng 22,228 (0.3) 3.8 (1.0) (4.6) India H-SHARE 9,911 (0.9) 3.9 (3.6) (8.4) [NEW] India Economics: CPI (Jan) & Ind. Prod. (Dec) Robert Prior-Wandesforde (14) JCI 4,494 (0.1) 1.6 4.5 5.1 KLSE 1,821 (0.3) 1.3 2.2 (2.5) Dovish but not dovish enough for the RBI KOSPI 1,934 (0.1) 1.4 (1.5) (3.9) India IT Services Sector Anantha Narayan (4) KSE100 26,677 1.7 (0.7) 14.6 5.6 Is it too crowded for further performance? NIFTY 6,085 0.0 0.8 1.6 (3.5) NIKKEI 14,637 (1.1) 3.2 0.5 (10.2) Apollo Tyres (APLO.BO) – Maintain O Jatin Chawla (15) TOPIX 1,206 (1.1) 3.7 0.1 (7.4) 3Q FY14: Operationally in line, one-offs boost profits PCOMP 6,102 (0.2) 3.2 (3.5) 3.6 Cipla Limited (CIPL.BO) – Maintain N Anubhav Aggarwal (16) RED CHIP 4,293 (0.2) 4.9 (1.9) (5.7) Bumpy road to heaven: Our concerns have started playing out SET 1,313 (0.1) 1.4 (6.5) 1.1 VNINDEX 569 0.8 2.5 14.6 12.7 Jaiprakash Power Ventures Ltd (JAPR.BO) – Maintain O Amish Shah, CFA (17) Thomson Financial Datastream Cashflow gap widens on increasing capex at pipeline projects Asian currencies (vs US$) Page Industries (PAGE.BO) – Maintain O Arnab Mitra (18) (% change) Latest 1D 1W 3M YTD 3Q FY14: Stellar show continues A$ 1.1 (0.1) (0.2) (4.5) 0.3 Bt 32.6 (0.7) 0.7 (3.3) 0.4 Indonesia D 21,110.0 0.0 0.0 (0.1) (0.1) Perusahaan Gas Negara (PGAS.JK) – Maintain O Ami Tantri (19) JPY 102.1 0.1 0.0 (2.8) 3.1 New report: Looking for upside risk to distribution volume NT$ 30.3 (0.2) 0.0 (2.3) (1.7) P 44.9 (0.5) 0.6 (2.7) (1.2) PT Bank Danamon Indonesia Tbk (BDMN.JK) – Maintain U Sanjay Jain (20) PRs 105.2 0.0 0.2 2.2 0.1 4Q13 results in-line: Lower LDR drives margin compression Rp 12,078.0 (0.5) 1.0 (3.9) 0.8 Japan Rs 62.1 (0.2) 0.4 1.9 (0.5) S$ 1.3 (0.1) 0.1 (1.6) (0.3) Softbank (9984.T) – R Hitoshi Hayakawa (21) W 1,064.4 (0.8) 1.4 0.8 (1.4) Transition period; clear slowdown in domestic profits Thomson Financial Datastream Malaysia Global indices (% change) Latest 1D 1W 3M YTD UMW Oil & Gas (UMOG.KL) – Maintain N Annuar Aziz (22) DJIA 15,964 (0.2) 3.4 0.9 (3.7) Buys two jack-up rigs for delivery in 2H 2014 S&P 500 1,819 0.0 3.9 2.1 (1.6) Philippines NASDAQ 4,201 0.2 4.7 5.9 0.6 Universal Robina Corp. (URC.PS) – Maintain O Karim P. Salamatian, CFA (23) SOX 549 0.8 6.0 8.2 2.7 The art of delivery EU-STOX 2,917 0.8 4.1 2.0 (0.1) FTSE 6,675 0.0 3.4 0.7 (1.1) Singapore DAX 9,540 0.6 4.6 5.4 (0.1) Biosensors International Group Ltd. (BIOS.SI) – Maintain N Iris Wang (24) CAC-40 4,306 0.5 4.6 1.5 0.2 NEUTRAL rating for the short-term earnings weakness; but going private could be a viable option 10 YR LB 3 0.3 2.5 2.5 (8.6) 2 YR LB 0 (1.2) 4.8 12.4 (11.8) South Korea US$:E 1.36 0.2 0.2 0.9 (0.9) [NEW] Korea Economics Christiaan Tuntono (25) US$:Y 102.12 0.4 0.0 (2.8) 3.1 The BoK remains on hold in February, but expresses some concerns over EM growth and domestic BRENT 108.19 (0.2) 1.0 1.2 (2.4) demand GOLD 1,289.7 (0.1) 2.5 0.6 7.0 VIX 14.3 (1.4) (28.3) 14.2 4.2 Taiwan Thomson Financial Datastream Asia Semiconductor Sector Randy Abrams, CFA (26) MSCI Asian indices – valuation & perf. Taiwan January Sales: Sales led by TSMC, Vanguard, Mediatek, ASE and SPIL EPS grth. P/E (x) Performance MSCI Index 13E 14E 13E 14E 1D 1M YTD Huaku Development Co Ltd (2548.TW) – Maintain O Jeremy Chen (27) Asia F X Japan 12 12 11.0 9.8 0.0 (1.9) (4.0) Building on fundamentals; reiterate OUTPERFORM Asia Pac F X J. 12 11 11.8 10.6 0.0 (1.3) (2.9) Novatek Microelectronics Corp Ltd (3034.TW) – Maintain U Jerry Su (28) Australia (3) 7 15.8 14.8 1.1 0.8 0.2 4Q13 miss, margin remains a concern in 2014 China 9 12 8.5 7.6 1.2 (1.5) (5.3) Hong Kong 9 11 14.5 13.1 1.5 (2.7) (3.6) Sinopac Holdings (2890.TW) – Maintain N Chung Hsu, CFA (29) India 18 15 13.5 11.8 0.5 (2.5) (3.9) Moderate 4Q13 profit slowdown on higher bank provisions Indonesia 11 14 13.6 12.0 1.2 6.8 7.3 Thailand Korea 19 11 8.9 8.0 1.0 (0.2) (5.5) Malaysia 7 10 15.6 14.3 0.4 (2.0) (3.9) Advanced Info Service PCL (ADVA.BK) – Maintain O Colin McCallum, CA (30) Pakistan 22 16 8.7 7.5 2.0 (2.2) 1.3 Regulatory benefits are being retained, and so Bt40 bn in capex worth spending Philippines 8 15 17.8 15.5 0.7 4.1 2.8 Siam City Cement (SCCC.BK) – Maintain U Paworamon (Poom) Suvarnatemee, CFA (31) Singapore 8 10 13.1 11.9 0.1 (3.7) (5.3) Medium-term risk remains high Sri Lanka 10 11 14.3 12.9 1.5 3.5 1.0 Taiwan 11 11 11.2 10.1 2.0 5.0 1.8 Total Access Communication PCL (DTAC.BK) – Maintain O Colin McCallum, CA (32) Japan 35 74 23.7 15.6 0.0 0.0 0.0 EBITDA rises 11.2% QoQ and 17.7% YoY as regulatory benefits are retained * IBES estimates

O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight Research mailing options To make any changes to your existing research mailing details, please e-mail us directly at [email protected] Sales Contact Hong Kong 852 2101 7211 Singapore 65 6212 3052 London 44 20 7888 4367 New York 1 212 325 5955 Boston 1 617 556 5634

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Top of the pack ... Asia Equity Strategy ------New report: Cyclicals have outperformed defensives YTD. Continue? Sakthi Siva / Research Analyst / 65 6212 3027 / [email protected] Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected] ● While MSCI Asia ex-Japan cyclicals have outperformed Cyclicals, Energy, Materials and Industrials as Cyclicals and defensives by 0.4% YTD, we highlight that this outperformance Consumer Staples, Telcos and Utilities as Defensives. While some of follows 14% outperformance in 2H 2013. We define Tech, the recent US macro data has been disappointing (ISM, payrolls), we Consumer Cyclicals, Energy, Materials and Industrials as believe some of that weakness is seasonal and weather related. We Cyclicals and Consumer Staples, Telcos and Utilities as continue to Overweight cyclicals – US recovery basket and selected Defensives. Click here for full report. Materials (Chinese Cement, Australian Resources). ● While some of the recent US macro data has been disappointing US Recovery basket has outperformed by 5.1% YTD (ISM, payrolls), we believe some of this weakness is seasonal and While HCL Tech continues to be associated with the strongest weather related. We continue to Overweight cyclicals – US upgrades to 2014E consensus EPS, we also highlight TSMC and recovery basket and selected Materials (Chinese Cement, Hyundai Mobis where 2014E consensus EPS downgrades appear to Australian Resources). be ending. ● While HCL Tech continues to be associated with the strongest China Basic Materials four consecutive months of upgrades to 2014E consensus EPS, we also highlight TSMC and upgrades Hyundai Mobis where 2014E consensus EPS downgrades appear This is in contrast to Staples seeing continued downgrades to 2014E to be ending. consensus EPS. ● This is in contrast to Staples seeing continued downgrades to 2014E consensus EPS. Figure 2: MSCI Asia ex-Japan Cyclicals price-to-book less Defensives price-to-book

Figure 1: MSCI Asia ex Japan Cyclicals/ defensives relative price 0.2 performance – daily 2010, 2011, 2012, 2013 and YTD 2014 115 0.0 110 -0.2 105 -0.47x currently 100 -0.4 95 -0.6 90

85 -0.8 -0.74 Dec 2008 -0.71x April 2013

MXASJ MXASJ Cyclicals vs Defensives 80 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Asia ex-JP Trailing PB - Cyclicals less Defensives 75 Jan Mar May Jul Sep Nov Source: MSCI. 2010 2011 2012 2013 2014

Source: MSCI. Cyclicals have outperformed defensives by 0.4% YTD While MSCI Asia ex-Japan cyclicals have outperformed defensives by 0.4% YTD (Figure 1), we highlight that this outperformance follows the 14% outperformance in 2H 2013. We define Tech, Consumer

Figure 3: US Recovery Basket Name Code Price (Local$) Market Cap PB ROE PB rel less ROE Target Price Rating Share price performance 11-Feb-14 (US$m) rel to APxJ 2013 YoY% 2014 YTD% Kia Motors 000270 KS 53,200 20,139 0.89 16.2% -77.6% 60,000 Neutral 0.7% -6.5% Samsung Electronics 005930 KS 1,311,000 180,341 1.18 17.8% -72.3% 1,760,000 Outperform -8.6% -5.8% Hyundai Motor 005380 KS 231,000 45,145 0.99 15.9% -68.5% 294,000 Outperform 9.8% -3.7% Hyundai Mobis 012330 KS 312,000 28,363 1.25 16.0% -52.6% 374,000 Outperform 3.4% 4.8% TSMC 2330 TT 104.50 89,410 3.17 22.4% 19.0% 116.00 Outperform 6.0% -2.7% Tech Mahindra TECHM IN 1,862.35 6,980 4.49 28.2% 57.0% 2,200.00 Outperform 74.6% 0.6% Wipro WPRO IN 562.90 22,172 4.16 22.7% 81.3% 650.00 Outperform 42.9% 0.0% Infosys INFO IN 3,595.80 33,022 4.49 23.1% 99.9% 3,800.00 Neutral 33.2% 2.5% HCL Techno HCLT IN 1,473.75 16,561 5.98 31.0% 130.6% 1,675.00 Outperform 80.8% 15.9% Tata Consultancy TCS IN 2,101.00 66,141 7.97 35.7% 221.4% 2,750.00 Outperform 53.2% -3.9% US Recovery Basket 29.6% 0.1% MXASJ 0.7% -5.0% Source: MSCI, Bloomberg, Company data, Credit Suisse estimates.

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India IT Services Sector ------Is it too crowded for further performance? Anantha Narayan / Research Analyst / 91 22 6777 3730 / [email protected] Sagar Rastogi / Research Analyst / 91 22 6777 3851 / [email protected]

● Our recent interactions with investors, and recent analysts' (brokers') Figure 1: Indian IT—performance when average analysts' ratings were reports, suggest that both the buy-side and the sell-side are largely similar to current levels positive on the Indian IT sector. The question is whether this trade has Abs price performance. Rel price performance. now got too crowded for stocks to continue to perform. Stock Date 6m 12m 6m 12m TCS Sep-09 38% 57% 33% 41% ● We think not. We believe that Indian IT can continue to perform Infosys Jan-11 -13% -20% -9% -4% for a while. We note that, in the past, stocks have delivered good Infosys Feb-10 22% 30% 7% 15% performance even when they have been consensus buys. Infosys Sep-03 17% 45% -7% 21% Infosys Oct-01 33% 31% 16% 30% ● In our view, the key driver for Indian IT stocks remains revenue Wipro Jan-10 -9% 15% -7% 0% growth. We believe that there is some room for companies to Wipro May-08 -51% -32% -3% 2% surprise positively vs current expectations. Also, valuations do not Wipro Oct-05 38% 49% 0% -9% Wipro Apr-04 22% 9% 24% 3% look stretched—they are still below the highs seen during the Wipro Feb-02 -26% -14% -12% -5% 2009-11 recovery. HCLT Jun-07 -6% -13% -48% -21% ● The upcoming general elections in India do create uncertainty Note: Relative performance is wrt BSE Sensex. Source: Bloomberg, Thomson Reuters about relative performance. However, even if the markets were to Figure 2: Key segments have accelerated for three quarters rally significantly, the stocks might relatively underperform, but Top 4 Indian IT companies revenue growth deliver decent returns in absolute terms as long as the demand YoY, US$ (LTM) environment remains favourable. Our top picks are HCLT, TCS 30% and TechM. 20% 10% Valuation metrics Company Ticker Rating Price Year P/E (x) P/B (x) 0%

Local Target T T+1 T+2 T+1

Jun-12 Jun-13

Mar-12 Mar-13

Dec-11 Dec-12 Sep-13 Dec-13 Tata Consultancy TCS.BO O 2,104 2,750 03/13 22.1 19.1 8.2 Sep-12 Infosys Ltd INFY.BO N 3,600 3,800 03/13 19.2 16.5 4.6 BFSI US Europe Wipro WIPR.BO O 562 650 03/13 18.1 15.3 4.1 Source: Company data HCL Tech HCLT.BO O 1,492 1,675 06/13 17.1 15.0 5.5 Tech Mahindra TEML.BO O 1,876 2,200 03/13 16.2 14.7 5.1 Figure 3: Discretionary spending can create extra growth Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Top 4 Indian IT companies revenue growth Source: Company data, Credit Suisse estimates YoY, US$ (LTM) Stocks can continue to outperform even if consensus is largely positive 30% 20% We looked at historical data from Bloomberg to find the points in time 10% when the average analyst rating had increased to current levels for 0%

the top four Indian IT stocks.

Jun-12 Jun-13

Mar-12 Mar-13

Dec-11 Dec-12 Dec-13 Sep-13 As shown in Figure 1, we find that in several such instances, the stock Sep-12 performed well over the next 6-12 months. ERP Source: Company data Trends in the demand environment are positive Overall revenue growth has been accelerating for the past three Figure 4: Current P/E discount to 2011-13 highs quarters and the US, financials, Europe—three important segments— 0% are all accelerating. Discretionary spending is picking up, and this -5% could create incremental growth. Telecoms remains muted but is -10% -15% -10% showing some signs of pick-up and could be a "dark horse" in 2014. -13% -20% The above trends indicate that there could be some upside surprise to -25% revenue growth numbers in FY15. While we believe a FY11 type -30% -26% -35% -32% acceleration is unlikely, any upside surprise should drive upward -40% earnings estimate revisions and keep P/E multiples steady or possibly TCS Infosys Wipro HCLT even rerate them to some extent. Source: Thomson Reuters (consensus estimates)

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Asian Daily

Asia Technology Sector ------New report: LED—entering expansion phase Keon Han / Research Analyst / 82 2 3707 3740 / [email protected] John Sung / Research Analyst / 82 2 3707 3739 / [email protected] Derrick Yang / Research Analyst / 886 2 2715 6367 / [email protected] Jerry Su / Research Analyst / 886 2 2715 6361 / [email protected] Ray Kim / Research Analyst / 82 2 3707 3776 / [email protected] ● Bullish sentiment toward LEDs has shifted higher since the mix, the stocks tend to perform better. This is clearly because better beginning of 2014. Key reasons are: 1) generally tougher return lighting mix drives faster earnings growth. Therefore, Seoul Semi, with profile in other IT subsectors; 2) LED’s appeal due to rapid growth of highest general light mix, yields the highest OPM and has the best stock the addressable market driven by general lighting; and 3) notable performance among the LED chip makers for the past one year or so. improvements in utilisation rates and earnings leverage which has led to most LED stocks in the region to perform well YTD. DRAM industry take-off case study We believe the current LED industry conditions resembles the five- ● Current LED industry conditions resemble the DRAM up-cycle year upcycle that the DRAM industry experienced during the PC home driven by PC home penetration from 1990-1995. During that time the DRAM industry grew from US$6 bn to US$41 bn. penetration era from 1990-1995. During that phase, the DRAM industry value grew from US$6 bn to US$41 bn, driven by rising PC ● The commonalities are: 1) rapid industry growth driven by new applications penetration rates. and low penetration; 2) large scale addressable market; 3) rapid cost declines—Moore’s vs Heitz’s law; and 4) supplier fragmentation— Key cases for continued growth are: 1) New demand applications— producers enjoyed high profit levels for an extended period of time. the expansionary phase of LED demand growth will be driven by the ● Driven by the better profitability trend, most LED stocks appear residential usage and standardisation of LED lighting engines; 2) to be riding the “rising tide” theme across the industry. We prefer Rapid growth in addressable market—historical LED demand drivers Seoul Semi (O), Epistar (O) and Lextar (O) in the region. Our sells have been backlighting for display screens from mobile displays to are LG Innotek (U) and Everlight (U). The rationale for our top picks is LCD TVs, which peaked at US$7 bn in value. The value of LED during the LED general lighting expansionary phase, much of the general lighting could reach US$45 bn by 2016 from the current created value will benefit the LED chipmakers first. Full report. US$18 bn size; 3) Rapid cost decline—DRAM has been driven by Bullish sentiment toward LEDs Moore's law that enabled DRAM density to double every 18 months Valuation metrics for the same price. Heitz’s law stipulates US$/lumens will fall sharply Company Ticker Rating Price Year P/E (x) P/B (x) over time, driving costs low enough for the mass market; and 4) Local Target T T+1 T+2 T+1 Supplier fragmentation—despite many suppliers, most producers SSC 046890.KQ O 45,250 53,000 12/12 51.7 23.8 4.0 Epistar 2448.TW O 68.70 75.00 12/12 370.2 33.2 1.3 were able to enjoy high levels of profit during the “rising tide” phase of Lextar 3698.TW O 34.55 37.00 12/12 18.6 19.8 1.6 industry growth as demand remained strong. LGI 011070.KS U 88,000 64,000 12/11 n.m. 114.9 1.4 Everlight 2393.TW U 76.10 62.00 12/12 21.6 19.8 2.1 Rationale for our top picks Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM We believe, during the LED general lighting expansionary phase, Source: Company data, Credit Suisse estimates much of the value being created will cluster around the LED Sentiment on LED plays has shifted another leg higher since the chipmakers first. Key reason is that the installed base of chip beginning of 2014. Key reasons are: 1) generally tougher return profile manufacturing capacity is being absorbed by rising demand. As in other IT subsectors; 2) LED’s appeal due to rapid growth of the utilisation rates climb, profit will likely cluster around this segment of addressable market from US$7 bn in 2011 to US$45 bn by 2016, the value chain first. In addition, the trend is for the upstream driven by general lighting; 3) notable improvements in utilisation rates chipmakers to vertically integrate more of the value chain (capturing and earnings leverage which has led to most LED stocks in the region incremental value) including package and module, and now even to perform well YTD. toward the engines as in the case of Seoul Semi. LED chipmakers, margins are expanding quickly Driven by better profitability trend, most LED stocks appear to be The favourable industry backdrop is already having positive impact on riding the “rising tide” theme across the industry. We like Seoul Semi LED chipmakers’ profitability. As LED general lighting usage broadens, (O) in Korea. In Taiwan we are positive on Epistar (O) and Lextar (O). we are clearly seeing revenue mix improvement at leading chip LG Innotek (U) has challenging fundamentals and weaker cost manufacturers, some reaching as high as 40% of revenue mix. This in structure. Everlight (U) was recently downgraded on stretched turn is driving OPM expansion towards solid profitable territory valuations and some fundamental concerns. The rationale for our top compared with the deep losses the industry experienced in as recent as picks is during the LED general lighting expansionary phase, much of 2011. The LED lighting segment is difficult to penetrate but it is the created value will benefit the LED chipmakers first. experiencing rapid growth. It requires stronger technology IP and proven R&D track record. Also, end-customers remain highly fragmented, requiring much more distribution efforts. Currently, OPM for LED general lighting product can reach as high as 25%. Therefore as general lighting revenues grow, operating leverage drives faster earnings growth. LED stocks breaking out LED stocks have performed well 2014 YTD across the region. One common theme has been that the higher the general lighting revenue

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Asian Daily

China Mengniu Dairy ------Maintain OUTPERFORM 2014 outlook: Should pass through 10% raw milk price inflation; EPS likely to grow 35.9% YoY EPS: ▼ TP: ▲ Kevin Yin / Research Analyst / 852 2101 7655 / [email protected] ● Mengniu is one of our 2014 top picks in the China consumer Mengniu's raw milk cost increase to decelerate from 15% YoY in 2013 universe. It was also ranked in CS’s China strategy report, What to 10% YoY in 2014, on the back of: (1) premium raw milk price stocks to buy after recent correction. We like Mengniu's near-term increase of 10-12% YoY (i.e., CMD and YST) and (2) average-grade fundamental improvement story, as well as its strong outlook for raw milk price increase of 8-10% YoY. the long term. GP and OP margins should expand in 2014 ● 2H13 was tough, as a 15% raw milk inflation led to a sector-wide Assuming a 10% YoY raw milk cost inflation, we expect 20 bp and 30 margin erosion and earnings miss. Mengniu's successful ASP hikes bp expansion in 2014 GP and OP margins, respectively. We attribute and mix upgrade make it stand out among peers. Anticipating a the improvement to the following: (1) the 2% ASP hike in 4Q13 serves 10% YoY raw milk inflation in 2014, we estimate Mengniu's OPM as a margin buffer for 2014; (2) an additional 2% ASP hike in 2014 will expand 30 bp and EPS will grow 33.3% YoY in 2014. (consumers are able to absorb another 10% direct ASP hike, ● Following management change, Mengniu has built up a strategic according to our expert interview; and (3) more room for mix upgrade alliance with global/local experts for a high-margin business: (Delux now accounts for 16% of total sales vs 10% in 2010; high- Danone (yougurt), Arla (powder/ice cream), Yashili (powder), margin products now account for over 30% of total sales, vs 22-24% CMD (fresh milk), White Wave (beverage). On a fully consolidated in 2010. In addition, starting from 2013, new management cut off 30% basis, our 2015 OP margin assumption of 6.9% compares with non-performing products, and became more proactive in new product Mengniu's 4.8% (2012) and 6.5% (2009), suggesting EPS upside. launch). ● We trim our 2013-15 EPS estimates by 5-7%. Our new TP of 30% earnings CAGR for the three years down the road HK$47.5 (from HK$39.5) is based on 32x forward P/E. Mengniu's 2013 results are due on 24 March. We trim our 2013-15 Bbg/RIC 2319 HK / 2319.HK Price (12 Feb 14, HK$) 37.95 EPS estimates by 5-7%, factoring in: (1) raw milk supply shortage and Rating (prev. rating) O (O) TP (prev. TP HK$) 47.50 (39.50) margin pressure, and (2) 1.5% 2014 EPS dilution (see Danone pays Shares outstanding (mn) 1,835.97 Est. pot. % chg. to TP 25 15% valuation premium and becomes Mengniu’s second largest Daily trad vol - 6m avg (mn) 5.8 52-wk range (HK$) 38.0 - 21.0 Daily trad val - 6m avg (US$ mn) 26.1 Mkt cap (HK$/US$ mn) 69,675.0/ 8,983.9 shareholder, published on 13 Feb). For the three years down the road,

Free float (%) 68.0 Performance 1M 3M 12M we expect Mengniu's earnings to witness a 32% CAGR, of which 23% Major shareholders COFCO(16.3%) Absolute (%) 2.6 16.4 69.4 should from organic growth of Mengniu's core business and the Relative (%) 4.4 17.8 75.5 remainder from its stakes in Yashili/CMD. Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (Rmb mn) 37,388 36,080 40,273 46,553 54,000 Our top pick in the China consumer space EBITDA (Rmb mn) 3,107 2,749 2,905 3,454 4,073 Our new target price of HK$47.5 (from HK$39.5) is based on 32x 12- Net profit (Rmb mn) 1,589 1,257 1,487 2,169 2,639 month forward P/E, implying 1x PEG (vs 1.2-2.2x trading PEG for EPS (Rmb) 0.90 0.71 0.83 1.11 1.35 - Change from prev. EPS (%) n.a. n.a. (6) (7) (5) most China consumer names). Since 2009, Mengniu's 12-month - Consensus EPS (Rmb) n.a. n.a. 0.86 1.16 1.46 forward P/E averaged 23.1x (with range of 12-34x), implying an EPS growth (%) 27.3 (21.4) 17.0 33.3 21.7 average PEG of 2.4x (with a range of 0.7-8.2x). We reiterate our P/E (x) 32.8 41.7 35.7 26.8 22.0 OUTPERFORM rating. Dividend yield (%) 0.7 0.7 1.1 1.9 2.7 EV/EBITDA (x) 15.6 17.9 18.0 14.9 12.5 Figure 1: Income statement (2011-15E) P/B (x) 4.5 4.2 4.0 4.0 3.8 2011 1H12 2H12 2012 1H13 2H13E 2013E 2014E 2015E ROE (%) 15.0 10.5 11.5 15.6 17.7 Sales 37,388 18,244 17,836 36,080 20,668 19,606 40,273 46,553 54,000 Net debt(cash)/equity (%) (48.7) (39.6) (14.9) (20.3) (20.2) - Sales YoY 23.5% -1.8% -5.2% -3.5% 13.3% 9.9% 11.6% 15.6% 16.0%

Note 1: ORD/ADR=25.00. Note 2: China Mengniu Dairy Co Ltd and its subsidiaries manufacture and Gross margin 25.7% 25.2% 25.0% 25.1% 26.7% 25.4% 26.1% 26.3% 26.6% distribute quality dairy products in China. It is one of the leading dairy product manufacturers in SG&A / sales 20.9% 20.7% 22.5% 21.6% 22.8% 22.0% 22.4% 22.2% 22.2% China, with MENGNIU as the core brand. The group boasts a diverse product range in milk.

EBIT margin 6.0% 5.6% 4.0% 4.8% 5.2% 4.2% 4.7% 5.0% 5.2%

Click here for detailed financials Liquid Milk 6.0% 6.2% 5.1% 5.7% 6.0% 5.4% 5.7% 5.8% 6.0% ASP raised by four times in 2013 - UHT 6.0% 6.2% 5.1% 5.7% 6.0% 5.4% 5.7% 6.0% 6.5% Mengniu directly raised selling prices four times in 2013: (1) 5-10% for - M beverages 6.0% 6.6% 5.7% 6.2% 6.4% 5.8% 6.1% 5.2% 4.1% - Yogurt 6.0% 5.6% 4.0% 4.8% 5.2% 4.8% 5.0% 6.0% 7.0% low-end UHT in January; (2) 5-8% for high-end UHT (Delux and Ice cream 1.0% 2.8% -2.0% 1.2% 2.1% 1.3% 1.8% 2.5% 3.5% Zhenguoli) in May; (3) 5-10% for more than 20 types of low-end UHT in 27.99% stake in CMD 76 76 227 334 August; and (4) 2-3% for Delux, more than 10% for Future Star, and 1- * 65% Yashili (net fin exp) 65 65 417 549 2% for select products in late November and early December. Excluding Effective tax 13.4% 17.4% 11.4% 14.6% 17.9% 11.8% 15.0% 15.0% 15.0% Net earnings 1,589 633 624 1,257 749 738 1,487 2,169 2,639 the fourth round of ASP hikes in late November, we estimate nearly 4% - YoY 28.4% -19.8% -22.0% -20.9% 18.4% 18.3% 18.3% 45.9% 21.7% YoY direct ASP hike in 2013 (2% YoY in 1H13 and 4-5% YoY in 2H13). - Margin 4.3% 3.5% 3.5% 3.5% 3.6% 3.8% 3.7% 4.7% 4.9% Note: * Equity accounting for Yashili. Source: Company data, Credit Suisse estimates Raw milk price increase likely to decelerate in 2014 Despite an 11% YoY raw milk cost inflation in 1H13, Mengniu's GP margin expanded from 25.2% (1H12) to 26.7% (1H13), benefiting from direct ASP hikes and effective product mix upgrade. Mengniu's raw milk cost increased 16-17% YoY in 2H13. Factoring in a 6-8% HoH raw milk inflation, we estimate GP margins of 25.4% in 2H13 (vs 26.7% in 1H13) and 26.1% in 2013 (vs 25.1% in 2012). We estimate

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Asian Daily

Global Global Equity Strategy ------Emerging markets: What is better and what is worse than in 1997? Andrew Garthwaite / Research Analyst / 44 20 7883 6477 / [email protected] ● This report compares the current bout of emerging market What is better? weakness with the Asian crisis in the mid-1990s. Full report. GEM FX-denominated debt is lower (25% of GDP, cf. 40% in the 1990s), ● What is the same? In both cases, a global growth recovery is led FX reserves are higher (30% of GDP, cf. 10% of GDP in the 1990s), current deficits are smaller (ex China, 2% of GDP in 1997, cf. a 1% peak by developed markets (US and Europe) against the backdrop of a in the current cycle), GEM GDP growth has already slowed by a third, to stronger dollar, a falling yen and weaker commodity prices—all 5% (whereas prior to the Asia crisis, it was running at a 10-year high) and factors that hurt GEM. oil prices are unlikely to fall as much as they did in the 1990s. ● What is better? GEM FX-denominated debt is lower (25% of GDP, cf. 40% in the 1990s), FX reserves are higher (30% of GDP, cf. Figure 3: GEM FX-denominated debt as a proportion of GDP is close to 10% of GDP in the 1990s), current deficits are smaller (ex China, a 30-year low 2% of GDP in 1997, cf. a 1% peak in the current cycle), GEM GDP growth has already slowed by a third, to 5%, and oil prices are unlikely to fall as much as they did in the 1990s. ● What is worse? Private sector leverage is higher (15% above trend cf. 5% in 1997, especially in China), labour markets are tighter, demographics are worse and emerging markets more exposed to a slowdown in China.

Figure 1: As in the 1990s, low US real rates have led to high GEM portfolio inflows

Source: Thomson Reuters, Credit Suisse research What is worse? Private sector leverage is higher (15% above trend cf. 5% in 1997, especially in China), labour markets are tighter, demographics are worse and emerging markets more exposed to a slowdown in China. Figure 4: The GEM GDP growth premium and commodity prices have moved up at the same time

Source: Thomson Reuters, Credit Suisse research This report compares the current bout of emerging market weakness with the Asian crisis in the mid-1990s. What is the same? In both cases, a global growth recovery is led by developed markets (US, Europe) against the backdrop of a stronger dollar, a falling yen and weaker commodity prices—all factors that hurt GEM. Further, in both cases, abnormally low real Fed Funds rates have led to large GEM portfolio inflows (4% of GDP in the early 1990s, compared to 3% of GDP now), pushing up leverage and turning current account surpluses into deficits. As US real rates start rising, portfolio flows reverse, leading to falling asset prices and currencies as well as weaker growth.

Figure 2: In the mid-1990s – as now – the acceleration of global growth Source: Thomson Reuters, Credit Suisse research was driven by the US, while Chinese growth slowed Conclusion While the macro drivers underlying the current turmoil are similar to those in the mid-1990s, GEM fundamentals look modestly better. Consequently, valuations should trough at higher levels than they did in the late 1990s (a 10-15% discount to global markets on a sector- adjusted P/B, compared to a 40% trough discount back then and parity now; see our report GEM: when is it time to buy?, also published today). The GEM slowdown is unlikely to lead us to alter our positive stance on equities – unless Chinese GDP growth falls below 5% or the RmB devalues by 10%+. (This is an extract from the Global Equity Strategy report published on 12 February 2013. Refer to R&A for details.)

Source: Thomson Reuters, Credit Suisse research

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Asian Daily

Global Equity Strategy ------GEM: When is it time to buy? Andrew Garthwaite / Research Analyst / 44 20 7883 6477 / [email protected] ● We identify four key catalysts to buy strategically (in order of local equity markets of troubled economies have often troughed when importance). the current account has moved into balance (or, in the case of ● One, when currencies are cheap: Discounts to PPP (ex China) Thailand post 1997, when the current account went into a large are only at average levels—still 10% above 2009 lows and 15% surplus). This is because a balanced current account de facto means above their 2002 lows. (Currency depreciation leads to higher a country can finance itself internally. inflation, interest rates, net foreign debt and capital outflows). (4) When some of the macro issues are resolved: We think ● Two, when equity markets are cheap: The sector-adjusted P/B is currencies or equities are likely to become cheap before macro trading at parity to developed markets—marginally above its fundamentals improve significantly. Nevertheless, there are two main historical norm. The Asian crisis saw a 40% discount. We think a macro fundamentals hitting GEM markets: (i) excess leverage; and (ii) 10-15% discount is required (as this time the fundamentals of unemployment is still low. GEM are better). (5) If commodities stop underperforming the cycle: There is a tight ● Three, when macro fundamentals improve: Clear spare capacity correlation between GEM currencies and commodity prices and in the labour market or private sector deleveraging (private relative GEM equity performance and mining's relative performance. indebtedness is further above trend now than in 1998). In the Emerging markets tend to underperform when commodity prices fall. Asian and Mexican currency crises, crisis currencies did not stabilise until there was a balanced current account. Four, if (6) GEMs embrace genuine reform: There are some attractive commodities start to outperform the cycle (very unlikely). Click proposals coming through in India, China, Malaysia, Russia and here for full report. Korea. The issue is that reforms tend to be expedited only during a severe crisis. We think political appetite for reform will be reduced by Figure 1: GEM's sector-adjusted P/B relative is slightly above its average the fact that many emerging markets have general elections this year (India, Brazil, South Africa, Indonesia and Turkey are all due to hold elections this year). (7) Margins show signs of improving: Emerging market margins have been declining relative to the global market since 2003. We need to see an improvement—or at least a stabilisation—in margins. Part of the reason for this margin decline is tightness in the labour market. Tactically, we monitor the following: capitulation (not yet), US TIPS yield falling sharply (allowing the carry trade to continue), EM bond spreads rising to 400 bp. We still see China as the biggest global risk

Source: Thomson Reuters, Credit Suisse research We continue to believe that China represents the biggest macro risk We discuss the factors that we believe investors should watch to (relative to the consensus view) over the next few years. In determine when to start turning more positive on emerging markets. particular, we see the following problems for the Chinese growth These conditions are not yet met—but we believe there are already outlook: a loss of economic momentum; a credit bubble; severe attractive opportunities in individual markets. We remain benchmark margin pressures; an investment bubble; a real estate bubble; and in aggregate. tightening in lending conditions. (1) A clearly cheap equity market: We think that investors need to The good news is that there is some potential for a policy response as look at valuations on a sector-adjusted basis (given that emerging government debt to GDP is now officially only 58% (however, our markets are overweight low P/E and P/B sectors, such as financials economists believe the figure is closer to 80% although we note that and resources). the Beijing Academy of Social Sciences believes that government (2) Clearly cheap GEM currencies: To some extent, this is the most debt is closer to 155% of GDP once the debt of the SoEs has been important criterion. A weakening currency raises inflation (and thus incorporated into government accounts). interest rates), with 5% to 10% of the currency depreciation passing This is an extract from the Global Equity Strategy report published on through to higher prices. Currency weakness leads to portfolio 12 February 2014. Please see CS's R&A website for more details. outflows (and thus often falling money supply growth) and often leads to higher net external debt. Hence, GEM equities underperform when their currencies weaken against the dollar. Once a currency stabilises or appreciates, the vicious circle turns into a virtuous circle. (3) A balanced current account: We note that, since tapering concerns first surfaced in May 2013, currency weakness appears to have been rational and closely correlated to the size of the current account deficit/financial needs. During past emerging market crises,

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Asian Daily

Australia Ansell Limited ------Maintain NEUTRAL Emerging pressure EPS: ◄► TP: ◄► William Dunlop, CFA / Research Analyst / 61 2 8205 4405 / [email protected] Saul Hadassin / Research Analyst / 61 2 8205 4679 / [email protected] ● In our view, clarification of large FX movements is important as While recent declines in these currencies have been sharp, declining ANN does not provide constant currency guidance. EM currencies is not a new trend. ● Recent declines in EM currencies (those relevant for ANN's Figure 1: ANN's EM sales currencies have consistently lost value vs USD revenues include the Brazilian Real, Russian Ruble, Turkish Lira 170 and the AUD, which we include as an EM given its trading links to 160

China) should cause FY14F EBIT to be 4-5% lower (~US$9 mn) 150

than rates used in ANN's original FY14F guidance (provided in 140

Aug 2013) and are a ~10% EBIT headwind compared to FY13. 130 1H11 1H11 100 = ● We believe there may be downside risk to ANN's FY14F guidance - 120

in the near term; however, a recent 10% fall in the latex price may Index 110

offset FX pressure in 2H14F. We note that relief from declines in 100

manufacturing cost currencies (Malaysian ringgit, Thai baht and Sri 90 Lankan rupee) will not be recognised until FY15F as ANN hedges 80 manufacturing currencies (but not EM revenue currencies). 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14F USD:BRL USD:RUB USD:TRY USD:INR USD:AUD ● With FY14F growth being impacted by FX, FY15F EBIT should Source: Company data, Credit Suisse estimates. benefit not only from a lack of EM revenue headwinds, but also from But nonetheless, the declines in these currencies compared to the an estimated ~US$4 mn of benefit from EM cost currency hedges USD have been more acute in FY14F. On a revenue-weighted basis, vs FY14F. Click here for full report. we estimate that the key EM currencies have declined 11.7% in Bbg/RIC ANN AU / ANN.AX Price (12 Feb 14, A$) 19.18 FY14F compared to only -5.6% in FY13. Rating (prev. rating) N (N) TP (prev. TP A$) 21.00 (21.00) As a result, we estimate that ANN's revenue will decline by US$43 mn Shares outstanding (mn) 152.76 Est. pot. % chg. to TP 9 Daily trad vol - 6m avg (mn) 0.6 52-wk range (A$) 22.1 - 14.9 in FY14F due to emerging market FX changes alone; a 2.6% impact Daily trad val - 6m avg (US$ mn) 12.3 Mkt cap (A$/US$ mn) 2,930.0/ 2,653.4 on ANN's total revenues in FY14F.

Free float (%) 98.1 Performance 1M 3M 12M Offset by cost currency relief… Major shareholders Absolute (%) (4.5) (2.3) 13.4 Relative (%) (4.9) (1.4) 6.3 Conversely, ANN's EM cost-base benefits from a fall in EM currencies.

Year 06/12A 06/13A 06/14E 06/15E 06/16E ANN's key manufacturing facilities are located in Malaysia, Thailand and Revenue (US$ mn) 1,255 1,373 1,607 1,830 1,916 Sri Lanka, with facilities also in Mexico, India and Portugal. While ANN EBITDA (US$ mn) 175.7 199.1 247.9 297.1 321.1 does not disclose the proportion of total COGS in each currency, the Net profit (US$ mn) 133.0 139.2 161.9 194.4 214.3 EPS (US$) 1.01 1.06 1.12 1.26 1.38 key manufacturing cost currencies (Malaysian ringgit, Thai baht and Sri - Change from prev. EPS (%) n.a. n.a. 0 0 0 Lankan rupee) are on track to fall by an average of 7.3% in FY14F - Consensus EPS (US$) n.a. n.a. 1.11 1.30 1.43 versus the USD, as compared to 5.9% in FY13 and 4.9% in FY12. EPS growth (%) 10.6 4.7 5.6 12.3 9.5 P/E (x) 17.2 16.4 15.5 13.8 12.6 We understand that the types of manufacturing costs affected are Dividend yield (%) 2.0 2.2 2.3 2.7 3.0 factory overheads, employee expenses and some raw materials EV/EBITDA (x) 15.4 14.5 12.6 10.2 9.0 purchases and outsourced products. ANN does not specify which P/B (x) 3.2 3.0 2.2 2.0 1.9 transactions are specifically in USD and which are in other currencies, ROE (%) 18.8 19.0 16.5 15.4 15.4 Net debt(cash)/equity (%) 7.2 29.9 38.9 27.0 16.8 however we understand that the majority of factory overheads and

Note 1: ORD/ADR=4.00. Note 2: Ansell Limited is a manufacturer, innovator and marketer of employee expenses are in local (EM) currencies and that raw materials personal protective products including industrial gloves, medical gloves and condoms. It operates (latex, synthetic latex) and insourced products are primarily purchased four global business units: Industrial, Medical, Specialty Markets and Sexual Wellness. in USD, or linked to indexes that fluctuate with the USD.

Click here for detailed financials Using assumptions based on this knowledge, we estimate that the Emerging pressure… proportion of ANN's total COGS denominated in these currencies is 24%. We examine the impact of the recent sell-off in emerging market (EM) Hence, excluding BarrierSafe (which we assume operates in USD), total equities on ANN's income. EM will comprise an estimated 30% of COGS denominated in MYR, THB and SRL is estimated to be US$201 revenues in 2014E—they contributed an estimated 33% in FY13 mn. With an average decline in these currencies of 7.3%, the FX benefit (BarrierSafe acquisition dilutes EM contribution from FY14F+). Note to ANN is expected to be US$15 mn. that we include the Australian market in this calculation given Australia's exposure to the Chinese-demand led mining industry. This is an extract from the Ansell Limited report published on 12 February 2014. Please see CS's R&A website for more details. Of these revenues, we estimate approximately 23% have been materially impacted by recent declines in currencies—only the Chinese RMB, Mexican Peso and Eastern European currencies (i.e., Polish Zloty, Czech Krona) have remained relatively unscathed.

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Asian Daily

Commonwealth Bank Australia ------Maintain UNDERPERFORM Solid result for an expensive stock EPS: ▲ TP: ◄► Jarrod Martin / Research Analyst / 61 2 8205 4334 / [email protected] James Ellis / Research Analyst / 61 2 8205 4531 / [email protected]

● Following the 1H14 result, we have increased our estimates by 1- Figure 1: Broadly based cash earnings growth 3% throughout the forecast period, with an unchanged $76.00 CBA divisional half-yearly cash earnings target price and UNDERPERFORM rating. $1,800m ● We viewed this result positively, with modest earnings and DPS $1,600m $1,400m

surprise being driven out of revenues (financial markets, lending $1,200m growth). What we liked about the result: Strong banking revenue $1,000m growth; reasonable lending balance momentum; declining $800m impaireds and commercial troublesome assets; equity Tier 1 ratio $600m and ROE rising together; moderating adverse life experience $400m variation; and rising franking balance. $200m $0m Retail Banking Business & Institutional BankWest Wealth NZ Other ● What we didn’t like: Elevated cost growth; increased capital Services Private Banking Banking & accumulation given decision not to neutralise the DRP; and Markets 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 softening collective provision coverage. Source: Company data, Credit Suisse estimates. ● Notwithstanding the strength of the result, CBA continues to look What we liked about the result relatively expensive compared to its peers. CBA currently trades (1) Strong banking revenue growth (6% sequentially) including banking on 14.8x 12-month prospective earnings (13% premium to the non-interest income growth of 9% (markets income, and commission major banks vs an 11% four-year average premium), income on the back of card and mortgage package fees and FX product corresponding to a book multiple of 2.6x. Full report sales, although lending fees were impacted by lower commitment fees). Bbg/RIC CBA AU / CBA.AX Price (12 Feb 14 , A$) 76.20 Rating (prev. rating) U (U) TP (prev. TP A$) 76.00 (76.00) (2) Reasonable lending balance growth (4% sequentially) in both Shares outstanding (mn) 1,611.93 Est. pot. % chg. to TP 0 housing and non-housing (notwithstanding continued contraction / Daily trad vol - 6m avg (mn) 3.2 52-wk range (A$) 79.3 - 64.8 tactical run-off in BankWest's business lending balances), with 5% Daily trad val - 6m avg (US$ mn) 266.2 Mkt cap (A$/US$ bn) 122.8/ 111.2 growth in average earning assets driven particularly out of Institutional Free float (%) 100.4 Performance 1M 3M 12M Major shareholders Banking & Markets (13%, asset leasing, largely in the UK and Asia; Absolute (%) (1.0) (1.3) 16.3 Relative (%) (1.4) (0.4) 9.2 average loan balances, particularly in the natural resources sector). (3)

Year 06/12A 06/13A 06/14E 06/15E 06/16E Declining impaireds ratio (0.68% vs 0.78% 2H13) with the dollar value of Pre-prov Op profit (A$ mn) 10,954.0 11,811.0 12,801.7 13,148.2 13,546.2 impaired balances also declining (along with commercial troublesome Net profit (A$ mn) 7,071 7,720 8,458 8,536 8,762 balances declining from $5.2bn to $4.3bn). (4) Rising equity Tier 1 ratio EPS (CS adj. A$) 4.34 4.69 5.11 5.11 5.24 - Change from prev. EPS (%) n.a. n.a. 2.8 1.8 1.0 (8.54% vs 8.21% 2H13) with sequential growth in Tier 1 capital (4%) - Consensus EPS (A$) n.a. n.a. 5.06 5.25 5.47 exceeding growth in RWA (2%). EPS growth (%) 3.1 8.1 9.1 0 2.4 What we didn’t like P/E (x) 17.6 16.3 14.9 14.9 14.5 Dividend yield (%) 4.4 4.8 5.2 5.2 5.3 (1) Cost growth was relatively high (5% sequentially). By division BVPS (CS adj. A$) 25.2 27.3 29.5 31.1 32.5 sequential cost growth was notable in Retail Banking Services (5%, P/B (x) 3.03 2.79 2.58 2.45 2.34 capitalised software write-off, "staff expenses", higher loyalty card ROE (%) 18.7 18.4 18.5 17.3 16.9 redemptions), Wealth (5%, inflation related salary increased, AUD ROA (%) 1.0 1.1 1.1 1.0 1.0 Tier 1 Ratio (%) 10.0 10.3 10.9 11.1 11.0 depreciation), New Zealand (9%, but 1% in NZD), and Corporate

Note 1: ORD/ADR=3.00. Note 2: The Commonwealth Bank is Australia’s leading provider of Centre (17%, software write-offs). (2) Collective provision coverage integrated financial services including retail banking, premium banking, business banking, very modestly declined, with CBA referring to reduced BankWest institutional banking, funds management, superannuation, insurance, investment and sharebroking products. collective provisions (continued run-off of troublesome loans).

Click here for detailed financials What was in line CBA reported 1H14 cash earnings (company defined) of $4,268mn Net interest margin decline of 3bp 1H14 sequentially was in line with (up 14% on $3,750mn pcp) which was better than the $4.16bn expectations, reflecting the benefit of portfolio mix changes (+3bp, consensus and 2% better than Credit Suisse at $4,176mn. Interim favourable currency translation impacts on New Zealand mortgage DPS of $1.83 (up 12% on $1.64 pcp) was $0.02 better than balances, favourable funding mix) but impacted by funding costs (-2bp, consensus and $0.03 better than Credit Suisse. Compositionally, we deposit competition, impact of lower cash rates on low cost deposits), saw this as a solid result with: 1) better-than-expected revenues (5% basis risk (-1bp, increased cash / BBSW spread) and other items sequential growth) and 2) lower-than-expected bad debts (0.16% vs (-3bp, impact of lower cash rates on free equity funding, increased 0.17% 2H13, notably down in BankWest) albeit partially offset by holdings of liquid assets). higher-than-expected costs. Divisionally sequential earnings growth This is an extract from the Commonwealth Bank Australia report published was seen across the board, with many divisions reporting double-digit on 12 February 2014. Please see CS's R&A website for more details. sequential earnings growth.

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Asian Daily

China China Mengniu Dairy ------Maintain OUTPERFORM Danone pays 15% valuation premium and becomes Mengniu’s second largest shareholder EPS: ◄► TP: ◄► Kevin Yin / Research Analyst / 852 2101 7655 / [email protected] ● China Mengniu announced the issuance of 6.2% new shares at Danone pays 15% premium to lift its stake from 4% to 9.9% 15.3% price premium to Danone, who will then become Mengniu's Mengniu announced the issuance of 121.2 mn new shares (6.2% of second largest shareholder with 9.9% stake (vs COFCO's 16.3%). total enlarged shares) to a concert group (COFCO/Danone/Arla) at ● We are positive on the deal, as (1) the 4.7% earnings accretion HK$42.5/share (15.3% premium over last close of HK$36.85/share). would largely offset the 6.2% holding dilution, leading to only 1.5% Upon transaction closed: (1) Danone's stake will increase to 9.9% 2014 EPS dilution; (2) Mengniu is to turn net cash position from from 4%, being the second largest shareholder of Mengniu; (2) 40% net gearing; (3) we expect closer partnership and stronger COFCO's stake down to 16.3% from 17.5%, remaining the largest shareholder support from Danone; and (4) Mengniu remains its shareholder; and (3) Arla's stake down to 5.3% from 5.8%. There will controlling rights (no change in board directors; Danone/Arla be no change in the board of directors. The issuance is subject to invest in Mengniu through a concert group (in which, COFCO approval by EGM in mid-March. A three-year lock-up period is applied. owns 51.7%, and Danone/Arla owns 31.4%/16.9%)). Rationales behind the transaction ● On the same day, it was announced that Mengniu will be included Mengniu plans to use the HK$5.2 bn proceeds to repay its debt as a component stock in Hang Seng Index from 10 March. (mainly the bridge loan for Yashili acquisition), which would lead to net ● Our HK$47.5 TP is based on 32x 12M fwd P/E, implying 1x PEG cash position from the previous 40% net gearing, as per our estimates. (vs 1.2-2.2x for most China consumer names). 2014 outlook: Compared with public placement, Mengniu management feels more Should pass through 10% raw milk price inflation; EPS likely to comfortable with private placement to a global leader at 15% premium. grow 35.9% YoY. OUTPERFORM. We expect closer strategic alliance between the two in the future, though Mengniu is unable to elaborate more on it now. Bbg/RIC 2319 HK / 2319.HK Price (12 Feb 14, HK$) 37.95 Rating (prev. rating) O (O) TP (prev. TP HK$) 47.50 (39.50) Impact on Mengniu: Net-net, 1.5% 2014 EPS dilution Shares outstanding (mn) 1,835.97 Est. pot. % chg. to TP 25 Negative: 6.2% holding dilution for existing shareholders. Positive: Daily trad vol - 6m avg (mn) 5.8 52-wk range (HK$) 38.0 - 21.0 Daily trad val - 6m avg (US$ mn) 26.1 Mkt cap (HK$/US$ mn) 69,675.0/ 8,983.9 4.7% accretion in 2014 earnings due to interest expense saving

Free float (%) 68.0 Performance 1M 3M 12M (bridge loan balance of US$630 mn; interest rate of 2% – average of Major shareholders COFCO(16.3%) Absolute (%) 2.6 16.4 69.4 1.5% bridge loan rate mature in 2014 July and 3.5% market rate). Net Relative (%) 4.4 17.8 75.5 net: 1.5% dilution of 2014 EPS, as per our estimation. Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (Rmb mn) 37,388 36,080 40,273 46,553 54,000 Updates on the 80:20 JV between Mengniu and Danone EBITDA (Rmb mn) 3,107 2,749 2,905 3,454 4,073 In May 2013, Mengniu and Danone established an 80:20 JV for Net profit (Rmb mn) 1,589 1,257 1,487 2,169 2,639 Danone yoghurt production and sales in China (with 30-year EPS (Rmb) 0.90 0.71 0.83 1.11 1.35 - Change from prev. EPS (%) n.a. n.a. (6) (7) (5) exclusivity). Danone China's GM became the JV's GM, reporting to - Consensus EPS (Rmb) n.a. n.a. 0.86 1.16 1.46 Sun Yiping (Mengniu's CEO). The JV started to sell Biyou yoghurt in EPS growth (%) 27.3 (21.4) 17.0 33.3 21.7 last October in six cities, and now expanded to ten cities. Given P/E (x) 32.8 41.7 35.7 26.8 22.0 logistics bottleneck and deleverage (Danone owns only two plants in Dividend yield (%) 0.7 0.7 1.1 1.9 2.7 EV/EBITDA (x) 15.6 17.9 18.0 14.9 12.5 Shanghai and Guangzhou with 2% market share, vs Mengniu's 20%), P/B (x) 4.5 4.2 4.0 4.0 3.8 Danone's OP margin was even lower than Mengniu's 4.8%. Following ROE (%) 15.0 10.5 11.5 15.6 17.7 the integration in production, distribution and logistics, we expect the Net debt (cash)/equity (%) (48.7) (39.6) (14.9) (20.3) (20.2) segment margin to improve. We are modeling 7% OP margin in 2015, Note 1: ORD/ADR=25.00. Note 2: China Mengniu Dairy Co Ltd and its subsidiaries manufacture and distribute quality dairy products in China. It is one of the leading dairy product manufacturers in vs Danone's global level of 12%. China, with MENGNIU as the core brand. The Group boasts a diverse product range in milk.

Click here for detailed financials Figure 1: Mengniu's holding structure

Management COFCO Arla Foods Danone Others Free-float

3.7% 16.3% 5.3% 9.9% 8.0% 56.8% China Mengniu Dairy (2319.HK)

100% 80% 65% 28% 51% >50% Core/old biz a 80/20 JV w ith Danone Yashili (1230.HK) Arla Foods CMD (1117.HK) a JV w / WhiteWave a JV w ith CMD Mengniu ow ns 80% stake of the JV. The (1) focus on infant formula Cooperation w ith Vertical integration: UHT, milk Mengniu ow ns 51% a potential JV w ith JV focuses on mid/high-end Yoghurt; (existing brands include Arla Foods in (1) more than 70% of beverage, ice stake of the JV w ith CMD (1117.HK) for prepare to integrate in Sept; JV to "Yashily" and "Scient"); (2) high-end infant CMD's quality raw cream, WhiteWave pasteurised milk; establish in Dec; 1 plant in SH + 1 plant in leading position in 2nd & 3rd- formula; (2) ice milk should be yoghurt; under (WWAV.N). The JV one brand; MN on GZ; Danone's old sales team focus on tier cities; (3) market share cream; (3) UHT supplied to MN, brand name of w ill focus on milk branding & mkting, SH&GZ; to leverage MN's distribution (value): 2nd among domestic, organic milk; and (4) based on off-take MN and JLB beverage. CMD on production coverage in the rest of China 5th in all farming contract

Note: Danone and Arla own Mengniu 2319.HK through a COFCO Dairy Inv't (a concert group in which, COFCO owns 51.7%, Danone Asia 31.4%, and Arla 16.9%); Source: Company data; Bloomberg

- 11 of 35 - Thursday, 13 February 2014

Asian Daily

Sungy Mobile Limited ------Maintain OUTPERFORM GetJar acquisition: Long-term positive to enhance global app distribution power EPS: ◄► TP: ◄► Dick Wei / Research Analyst / 852 2101 7339 / [email protected] Evan Zhou / Research Analyst / 852 2101 6745 / [email protected] ● GOMO announced it would acquire GetJar, a leading mobile ad than 160,000 apps, and reached 451 mn users/month by Dec-13, network based in California for US$5.3 mn in cash along with according to its official website. potential earn-out payments by 1,443,074 Class A ordinary share Sungy started its partnership with GetJar in 2012. It got involved in issuance by early 2016 (0.65% potential dilution). If priced as of the GetJar’s virtual credit programme and listed its top apps such as GO closing of 11 February 2014, the base-case earn-out portion is Launcher and GO SMS on GetJar's ad network. Users can download worth ~US$5 mn. paid content of GO Series app from GetJar app with the credits they ● We believe the core value of the deal lies in (1) GetJar's ad network earn. Sungy will then get a revenue share from GetJar based on the and back-end system providing broader reach and better targeting total value of content purchased. Sungy also participates in GetJar's capability to Sungy; and (2) GetJar's global advertiser resources ad network to earn ad dollars from the latter's advertisers. and sales team realising more revenue synergies on GO series' distribution power. These shall further solidify GOMO's position in GetJar was previously backed by Accel and Tiger with a ~US$42 mn the global Android apps distribution market in the long run. cumulatively invested fund, according to CrunchBase. In the IPO last ● We see limited financial impact from the deal, as we expect the November, GOMO raised ~US$90 mn (including green shoe). potential loss from GetJar to be limited to GOMO. A major step forward in the international business and ad ● Maintain OUTPERFORM with a target price of US$24. We remain network capability positive on GOMO's monetisation prospects. Our target price is We believe the core value of the deal lies in (1) GetJar's ad network based on 25.4x 2015E P/E, with reference to other leading mobile and back-end system providing broader reach and better targeting platforms and ads comps. capability; and (2) GetJar's global advertiser resources and sales Bbg/RIC GOMO US / GOMO.OQ Price (12 Feb 14 , US$) 21.06 team realising more revenue synergies on GO series' distribution Rating (prev. rating) O (O) [V] TP (prev. TP US$) 24.00 (24.00) power. These should further solidify GOMO's position in the global Shares outstanding (mn) 33.41 Est. pot. % chg. to TP 14 Daily trad vol - 6m avg (mn) 0.2 52-wk range (US$) 24.0 - 13.4 Android apps distribution market in the long run. GOMO will likely Daily trad val - 6m avg (US$ mn) 3.4 Mkt cap (US$ mn) 703.5 shorten the process of building international sales team and own an

Free float (%) 61.3 Performance 1M 3M 12M ad system to sell inventories to a broader array of advertisers. Major shareholders Deng Yuqiang (20%) Absolute (%) 3.7 — — GetJar's data analytical expertise also should help GOMO further Relative (%) 5.5 — — enhance its targeting capability. Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (Rmb mn) 96.6 185.2 323.7 449.7 598.1 Maintain OUTPERFORM; US$24 TP EBITDA (Rmb mn) (31.0) 13.1 85.8 137.9 217.0 Net profit (Rmb mn) (42.5) 15.6 101.2 169.1 217.8 We maintain our OUTPERFORM rating and a US$24 TP. We remain EPS (Rmb) (1.15) 0.42 2.74 4.54 5.79 positive on GOMO's monetisation prospects. Our target price is based - Change from prev. EPS (%) n.a. n.a. 0 0 0 on 25.4x 2015E P/E, with reference to other leading mobile platforms - Consensus EPS (Rmb) n.a. n.a. 2.42 4.53 6.84 and ads comps. Our target price implies 54x 2013E and 32x 2014E P/E EPS growth (%) n.m. n.m. 550.1 65.6 27.5 P/E (x) n.m. 302.4 46.5 28.1 22.0 and PEG of 0.56 on the back of a 46% EPS CAGR in the next two years. Dividend yield (%) 0 0 0 0 0 Figure 1: Leading mobile platforms and mobile ad comps* EV/EBITDA (x) (135.1) 318.0 40.9 24.4 14.6 Close Mkt cap PE P/B (x) (16.4) (14.3) 14.0 9.3 6.6 Company Ticker Ccy price (US$ mn) 2013E 2014E 2015E ROE (%) 14.7 (5.1) 2,573.5 40.0 35.2 Tencent 700 HK HKD 538 129,306 46.1x 37.5x 30.3x Net debt(cash)/equity (%) (79.5) (71.0) (91.7) (91.1) (91.5) Baidu BIDU US USD 166 58,164 31.8x 23.4x 18.2x Note 1: Sungy Mobile Ltd. is a leading provider of mobile internet products and services globally Qihoo QIHU US USD 96 11,127 68.5x 43.7x 27.3x with a focus on applications and mobile platform development.

Naver 035420.KS KRW 741000 22,982 56.3x 38.4x 28.2x Click here for detailed financials Facebook FB.OQ USD 65 165,376 73.7x 51.9x 38.7x GetJar: A leading mobile ad network globally Millennial Media MM.N USD 7 764 -43.6x 107.3x 27.0x Founded in 2004, GetJar was one of the earliest app stores. After Kingsoft 3888 HK HKD 24 3,674 35.8x 28.4x 23.1x Android/iOS became mainstream, GetJar switched its business model Average 38.4x 47.2x 27.6x in 2012 and launched an ad network and an Android app named ‘GetJar: *Closing price of 11 Feb 2014; Source: Company data, Thomson-Reuters, Credit Paid Apps for free’ that enables the Offer Wall function—users can earn Suisse estimates credits by downloading free apps and use the credits to buy paid apps, themes, etc. Third-party apps can also embed GetJar codes to enable Offer Wall function as a revenue source. GetJar monetises by getting CPI (cost per installation) promotion fees from app developers. It also provides in-app ad network service similar to Admob. According to recent comments of Ilja Laurs, Founder and CEO of GetJar, at IDCEE 2013, as at 4Q13, GetJar app had 30 mn MAU and reached 250 mn Android users. Over 100 mn apps get downloaded from the GetJar app every month. The largest player in the virtual credit market is Tapjoy, which provides monetisation solutions to more

- 12 of 35 - Thursday, 13 February 2014

Asian Daily

Hong Kong PRADA S.p.A. ------Maintain OUTPERFORM Trading update: Capping off a year of deceleration; trend to turn in FY15 EPS: ▼ TP: ▼ Karim P. Salamatian, CFA / Research Analyst / 852 2101 7996 / [email protected] Rebecca Kwee / Research Analyst / 852 2101 7951 / [email protected] ● FY14 was a transitional year whereby top-line trends decelerated 3) PRADA brand relevance continues to rise. Based on the recent to 13% constant FX and 9% in reported currency. We were CS Emerging Consumer Survey, PRADA is now the #7 luxury leather anticipating a modest pick-up in pace for the final quarter, but this goods brands that Chinese consumers are willing to pay more for. A did not materialise and sales fell 5% short. FX headwinds plus the year ago it was #12 and the year prior it was #20. The PRADA brand impact from wholesale exits and weaker trends in Europe were is also strengthening in the US and Japan. greater than anticipated. Figure 1: Sales trends set to improve in FY15 ● PRADA group and PRADA brand remain among the fastest YoY constant FX growth growing in global luxury, which is a testament to the brand's rising FY12 FY13 FY14 FY15E FY15E Trend relevance. Positive surprises for FY14 were in the US (retail +36% Retail 39.0% 29.0% 18.0% 17.9% Flat Wholesale (5.0%) 3.0% (6.0%) 0.7% Up constant FX) and Japan (+24% constant FX). Disappointments Asia ex-Japan 45.0% 23.0% 14.0% 18.8% Up Americas 26.0% 15.0% 15.0% 12.6% Down were in Europe (+6% constant FX). Europe 21.0% 34.0% 6.0% 9.8% Up Japan 12.0% 8.0% 24.0% 8.9% Down ● These results are unlikely to encourage street upgrades until the PRADA 26.0% 26.0% 16.0% 15.7% Flat accelerating sales trend for FY15 materialises. This implies the Miu Miu 25.0% 11.0% 6.0% 13.8% Up stock treads water for another three months, but we believe in the Total 26.0% 23.0% 13.0% 15.3% Up Source: Company data, Credit Suisse estimates brand's strength; so now remains an opportunistic time for Decelerated but still tops investors who are willing to wait. Despite the deceleration of growth over the past 12 months, PRADA ● We have revised our earnings forecasts lower to reflect lower brand and PRADA group remain among the fastest growing in global FY14 sales, lower operating margins and a higher tax rate. luxury. This is not being reflected in the stock price as PRADA stock Bbg/RIC 1913 HK / 1913.HK Price (12 Feb 14, HK$) 63.65 trades in line with the global peer group on 12mf P/E and at the lowest Rating (prev. rating) O (O) TP (prev. TP HK$) 82.00 (86.00) PEG ratio. This relationship should change once the inflection point in Shares outstanding (mn) 2,558.82 Est. pot. % chg. to TP 29 top line materialises. Daily trad vol - 6m avg (mn) 2.4 52-wk range (HK$) 82.3 - 57.0 Daily trad val - 6m avg (US$ mn) 21.6 Mkt cap (HK$/US$ bn) 162.9/ 21.0 Figure 2: PRADA brand sales growth remains highest out of peers Free float (%) 20.0 Performance 1M 3M 12M Latest full-year sales growth (constant FX) Major shareholders Prada Holding B.V. Absolute (%) (3.0) (17.3) (10.6) (80%) 16% 16% Relative (%) (0.8) (14.0) (6.6)

Year 01/12A 01/13A 01/14E 01/15E 01/16E 13% 13% 13% Revenue (Eu mn) 2,556 3,297 3,643 4,195 4,806 EBITDA (Eu mn) 755 1,052 1,192 1,404 1,686 11% Net profit (Eu mn) 432 625 709 836 1,022 8% EPS (Eu) 0.17 0.24 0.28 0.33 0.40 6% 6% - Change from prev. EPS (%) n.a. n.a. (10) (12) (10) 5% - Consensus EPS (Eu) n.a. n.a. 0.27 0.31 0.35 EPS growth (%) 69.8 43.3 13.5 17.9 22.3 2% 2% P/E (x) 35.3 24.7 21.7 18.4 15.1 Dividend yield (%) 0.0 0.0 1.8 2.2 2.7 EV/EBITDA (x) 20.4 14.3 12.6 10.5 8.5 P/B (x) 8.4 6.6 5.6 4.7 4.0 ROE (%) 28.5 30.2 28.0 27.9 28.8

Net debt(cash)/equity (%) (1.0) (13.6) (12.8) (21.0) (28.5) Source: Company data, Credit Suisse estimates Note 1: ORD/ADR=2.00. Note 2: Prada is an Italian fashion label specializing in luxury goods (ready-to-wear, leather accessories, footwear, etc). The company operates in more than 70 We have reduced our earnings forecasts by ~10% to reflect the lower countries and through four distinct brands: Prada, Miu Miu, Church's and Car Shoe.

sales figure for FY14, less margin improvement (60 bp/year down Click here for detailed financials from 80 bp/year) and a sustained higher tax rate of 30%. The year of transition now in the past We did underestimate the impact decelerating top-line trends would Following our reduction in earnings forecasts, we lower our target have on the stock as evidenced by the 11% share price decline in the price to HK$82 (from HK$86). PRADA is 16% undervalued on our past 12 months. Looking forward from today, we are confident that an Branding Anatomy model by virtue that long-term returns on capital accelerating trend is in store for FY15 for three key reasons. will improve at a quicker rate than the market is currently pricing in. We continue to recommend PRADA shares, but do acknowledge that 1) Wholesale rationalisation complete. We expect wholesale sales until the acceleration inflection point is in hand, the stock is likely to growth to be flat/slightly positive starting FY15 after a year of negative tread water. growth, and will be less a drag since total contribution will likely decrease to 13% vs 20% historically. 2) Neutral FX impact. While currency depreciation remains a risk, we believe the impact on sales and margins for PRADA will lessen as both the yen and the euro have stabilised YTD.

- 13 of 35 - Thursday, 13 February 2014

Asian Daily

India India Economics: CPI (Jan) & Ind. Prod. (Dec) ------Dovish but not dovish enough for the RBI Robert Prior-Wandesforde / Research Analyst / 65 6212 3707 / [email protected] ● While it is tempting to think that a second sharp fall in consumer Good news was provided by the drop in the headline CPI rate price inflation (to 8.8%) and a third consecutive contraction in mentioned above, which is not a million miles away from the unofficial industrial production will encourage the RBI to at least think about objective of 8% by early 2015. Once again, however, most of the fall easing monetary conditions, we very much doubt that will be the was explained by a lower food price rise (9.9% from 12% in December case. and 14.5% in December), while fuel price inflation also slipped (6.5% ● Governor Rajan has made it clear that CPI inflation is his sole from 7.0%). focus and while he will be pleased with the drop in the headline We estimate that the core rate, which strips out food and energy, was rate he won't be so happy with the core rate. The latter was stable unchanged at 8.0%, still marginally above where it was in May and at 8% and has really gone no-where over the past 18 months. June last year. Although the RBI's main focus is the headline CPI rate, This will almost certainly need to fall if the RBI is to get anywhere Rajan did express his frustration with the failure of core inflation to close to meeting the 6% target (as per the Urjit Committee report) soften following the end-January RBI meeting. Looking ahead, we set for early 2016. believe there is a significant danger that the core rate will actually ● In our view, core CPI inflation is more likely to rise than fall in the move higher in the next few months as the lagged effects of the earlier next few months and the same goes for the policy rate as well. rise in food price inflation seeps through. Our regression analysis ● Meanwhile, the detail of the industrial release showed that the suggests food inflation typically has sizeable second-round effects on production of consumer durables remains the main drag (-16% core prices. year-on-year). Capital goods output is consistent with roughly 5% Industrial production (Dec) – Flat for three years year-on-year gains in real investment growth. The contraction in December industrial output was the third consecutive year-on-year fall and, according to our estimates, Figure 1: Production has been moving sideways consistent with a 0.6% drop on a seasonally adjusted month-on-month Index basis. Meanwhile, in the December quarter as a whole, we estimate 180 Seasonally adjusted industrial production production fell an annualised 6.2%, ending hopes that the near 170 double-digit bounce in the September quarter represented the start of 160 a long-awaited industrial recovery. 150 Notwithstanding a few ups and downs, however, Figure 1 makes clear 140 that the level of Indian industrial production has been essentially flat 130 since the beginning of 2011. Merchandise export values have done 120 better than industrial production over the same period, rising 15% - all 110 of which has come since June 2013. The difference is testament to 100 the weakness of Indian domestic demand as well as perhaps pointing 05 06 07 08 09 10 11 12 13 to some de-stocking.

Source: CEIC, Credit Suisse The breakdown of the industrial series showed another worrisome contraction in consumer durables of 16%. Although this was better Summary & policy implications than the 22% fall of the previous month it was the fourth consecutive India's two data releases last night provided dovish news. Although double-digit year-on-year decline and the sixth in the past eight December industrial production was stronger than the consensus months. Consumer non-durables did eke out a rise, but only of expected, a 0.6% year-on-year decline could hardly be described as 1.6%. In truth, the relationship between the production of all consumer bullish, while, more importantly, headline consumer price inflation goods and private consumption growth is far from perfect, but clearly dropped to 8.8% in January from 9.9%, comfortably beating the the former is not exactly encouraging. We continue to believe that consensus on the downside. The CPI rate has fallen from a local stronger agricultural output will have beneficial second-round effects peak of 11.2% over the last couple of months. on consumer spending, although there is still little or no sign of this Despite the data, industry calls for a rate cut will almost certainly go emerging as yet. unheeded at the RBI's next meeting on 1 April and probably for a long Capital goods output has a closer relationship with a three-month time yet. In fact, we believe the next move is more likely to be up than moving average of capex spending growth and is currently consistent down, particularly as Governor Rajan begins to focus on the task of with roughly 5% year-on-year gains. brining headline consumer price inflation down to 6% by early 2016. Consumer price inflation (Jan) – Down…on food again Following the publication of the Urjit committee report last month and Governor Rajan's justification for the 25 bp repo rate hike on 28 January, it is clear that the CPI has become the RBI's main inflation indicator (as opposed to wholesale prices – the January numbers for which will be released this Friday).

- 14 of 35 - Thursday, 13 February 2014

Asian Daily

Apollo Tyres ------Maintain OUTPERFORM 3Q FY14: Operationally in line, one-offs boost profits EPS: ▲ TP: ▲ Jatin Chawla / Research Analyst / 91 22 6777 3719 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected] ● Apollo's consolidated EBITDA was in line with our estimate with refund from the Government of Tamil Nadu, of which only Rs100 mn per the strength in European operations offsetting the slight quarter would be recurring, and Rs280 mn from the sale of its IT disappointment in India. PAT was boosted by higher other income services arm—it was serving the South African plant and sold to SRI). due to one-off gains worth ~Rs1 bn. Figure 1: 3Q FY14 standalone results summary ● Top line for Indian operations recovered a bit, growing ~5% YoY; (Rs mn) 3Q13A 2Q14A 3Q14A YoY QoQ the company continues to see OEM demand scenario remaining Net sales 20,361 21,068 21,436 5.3% 1.7% weak, while replacement is growing in low single digit. European RM/sales 70.9% 67.7% 67.6% Adj EBITDA 2,050 2,680 2,579 25.8% -3.8% business volumes grew 14%, outperforming the industry Adj EBITDA margin 10.1% 12.7% 12.0% significantly, led by market share gains in summer tyres. PAT 738 1,091 1,103 49.4% 1.1% ● Another positive was the reduction in net debt, which halved Source: Company data, Credit Suisse estimates International business: European business top line in INR terms grew during the quarter. This is seasonally the best quarter for working ~33% YoY, led by ~14% growth in volumes, and ~23% growth from capital in Europe and hence debt would pick up a bit; given capex exchange rates, while there was ~4% decline in pricing. Vredestein has will pick up only in FY16E, debt reduction should continue. made big gains this year, led by summer tyres (the company has been ● All tyre companies have witnessed strong margin expansion this year historically known for winter tyres). The market share gain in the on remarkable pricing discipline in the industry and with rubber prices summer tyre segment has led to the company growing much ahead of again coming down (after a brief increase in 2Q on INR depreciation); the industry, even with a mild winter this year. For CY13, the winter tyre margins should at least be sustained at these levels. We raise our industry in Europe has declined 4%; the overall tyre industry has FY15/16E earnings by ~3%; TP increases to Rs144 (from Rs131). declined 1%, while Vredestein's volumes have grown at 11% YoY. Bbg/RIC APTY IN / APLO.BO Price (12 Feb 14, Rs) 118.40 EBITDA margins in Europe were strong at 22% compared to normal Rating (prev. rating) O (O) TP (prev. TP Rs) 144.00 (131.00) ~20% levels in this quarter (which is seasonally the best for Shares outstanding (mn) 504.02 Est. pot. % chg. to TP 22 Vredestein). This has been driven by improving capacity utilisation, Daily trad vol - 6m avg (mn) 7.9 52-wk range (Rs) 118.6 - 56.4 which has increased through the year and now stands at ~95%. Daily trad val - 6m avg (US$ mn) 11.7 Mkt cap (Rs/US$ mn) 59,676.5/ 960.3

Free float (%) 39.4 Performance 1M 3M 12M While South Africa top line declined ~10% YoY, the comparison is not Major shareholders Promoters Absolute (%) 1.2 64.0 39.1 valid, given that the company has sold off a plant and hence for one Relative (%) 4.4 63.7 34.6 month of this quarter was running a plant less compared to the previous Year 03/12A 03/13A 03/14E 03/15E 03/16E year. Like in Europe, South Africa margins were also strong at 8.5% Revenue (Rs mn) 121,533 127,946 134,586 150,701 168,868 compared to the usual 4% range. However, these were boosted by export EBITDA (Rs mn) 11,661 14,567 17,172 18,773 21,249 benefits given by the South African government (a 75 mn rand benefit). Net profit (Rs mn) 4,327 6,020 8,071 8,556 10,124 EPS (Rs) 8.6 11.9 16.0 17.0 20.1 Figure 2: 3Q FY14 consolidated results summary - Change from prev. EPS (%) n.a. n.a. 8 2 2 (Rs mn) 3Q13A 2Q14A 3Q14A YoY QoQ - Consensus EPS (Rs) n.a. n.a. 14.7 16.1 18.4 Net Sales 32,173 34,335 34,751 8.0% 1.2% EPS growth (%) (1.8) 39.1 34.1 6.0 18.3 RM/ Sales 62.5% 58.9% 58.6% P/E (x) 13.8 9.9 7.4 7.0 5.9 EBITDA 3,822 4,220 4,847 26.8% 14.9% Dividend yield (%) 0.4 0.4 0.4 0.4 0.4 EBITDA margin 11.9% 12.3% 13.9% EV/EBITDA (x) 7.5 5.6 4.5 3.8 3.4 PAT 1,806 2,195 3,380 87.2% 54.0% P/B (x) 2.1 1.8 1.4 1.2 1.0 Source: Company data, Credit Suisse estimates ROE (%) 16.5 19.3 21.0 18.3 18.1 Other takeaways: The company's net debt at the consolidated level Net debt(cash)/equity (%) 96.4 66.2 40.0 23.9 19.3

Note 1: Apollo Tyres Ltd is an India-based tyre manufacturer. It produces the entire range of reduced significantly (Rs12.5 bn as of Dec-13 end compared to ~Rs24 automotive tyres for passenger cars, truck and bus, farm, off-the-road, industrial and specialty as of Sep-13 end). This was driven by low capex during the year applications like mining, retreaded tyres and retreading material.

(nothing material other than the usual Rs2 bn maintenance), Click here for detailed financials exceptionally low working capital at European operations, and cash from Domestic operations: Apollo's Indian business top line recovered a the South Africa plant sale. Going forward this should increase, given bit—growth of 5% YoY after four straight quarters of decline to flat that the company is evaluating setting up a greenfield plant in Eastern growth. This was largely led by volumes (volume growth of ~4% and Europe or South-East Asia (one new plant with a capacity of 16,000 car price growth of 1%). Management said that industry growth remains tyres per day takes up a capex of US$350 mn) and also working capital subdued, especially for the OEM segment (whose share has fallen from in Europe should correct. Given that management is very comfortable 28% to 22% for Apollo in the past year), while both car and truck with the current balance sheet strength, it will be first taking up debt for replacement segments are growing in low single digits with small market funding new facilities before considering alternate options such as QIP. share gains for Apollo. Gross margins were stable QoQ; the company expects a small deterioration on the RM front (on account of inventory and other RM as rubber prices have been coming down). Pricing discipline has held up well in the industry and there were no price cuts this quarter, even though most players are operating at low utilisations (Apollo is operating at ~75% utilisation in India). Its profit in the third quarter was boosted by two one-offs in other income (Rs840 mn in VAT

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Asian Daily

Cipla Limited ------Maintain NEUTRAL Bumpy road to heaven: Our concerns have started playing out EPS: ▼ TP: ◄► Anubhav Aggarwal / Research Analyst / 91 22 6777 3808 / [email protected] Chunky Shah / Research Analyst / 91 22 6777 3872 / [email protected] ● Our concerns on Cipla are playing out, and this justifies why our Croatia Seretide approval does not mean decentralised estimates have been 10% lower than consensus. Consensus has approval process for Cipla started in EU been ignoring the impact of the ESOP issuance (at face value) and The market is likely to be excited with Cipla's approval for Seretide in lower R&D spend by Cipla so far—impact of both was visible in 3Q Croatia. However, we note that Croatia joined the EU in July 2013, and where PAT missed estimates by 26%. Cipla further guided that R&D therefore, likely that Cipla's approval in Croatia does not qualify for is likely to increase by 100 bp next year (4.5% of sales in 3Q). decentralised approval in rest of the Europe. Cipla mentioned that they ● Market is likely to be excited with Cipla's approval for Seretide in expect Seretide approval in some geographies in late FY15 but did not Croatia. However, we note that Croatia joined the EU in July specify a country. The market for Seretide in Croatia is small and will 2013, and therefore, it is likely that Cipla's approval in Croatia mostly be useful as test grounds for the rollout in larger EU markets. does not qualify for decentralised approval in the rest of Europe. Cipla confirmed that their MDI inhaler is substitutable in Croatia. ● 3Q EBITDA margins declined by 370 bp sequentially as: (1) R&D Stay NEUTRAL: Stock expensive at 18x FY16 expenses increased 90 bp sequentially, (2) gross margins declined 70 We are positive on Cipla in the medium term (new strategy of own bp, (3) personnel cost increased by 120 bp where one-third impact front ends and strong hires), but near-term margins will stay weak and was due to the ESOP issuance, (4) the rest of the impact was due to the stock is already trading at 18x FY16 EPS. We cut FY14E EPS by the full-quarter impact of Medpro and Uganda sub-integration. 6% to reflect a miss in the Dec-13 quarter. 3Q results show why our ● We are positive on Cipla in the mid term (new strategy of own front estimates are 10% lower than consensus. Consensus has been ends and strong hires), but near-term margins will stay weak and the ignoring the impact of the ESOP issuance (at face value) and lower stock is already trading at 18x FY16E EPS. Retain NEUTRAL. R&D spend by Cipla so far. Bbg/RIC CIPLA IN / CIPL.BO Price (12 Feb 14, Rs) 412.80 Takeaways from conference call Rating (prev. rating) N (N) TP (prev. TP Rs) 415.00 (415.00) ● Xopenex launch: This will be Cipla's own launch and currently Shares outstanding (mn) 802.92 Est. pot. % chg. to TP 1 Daily trad vol - 6m avg (mn) 1.4 52-wk range (Rs) 440.6 - 360.8 Cipla is discussing the launch with its customers. Cipla has 35 Daily trad val - 6m avg (US$ mn) 9.1 Mkt cap (Rs/US$ bn) 331.4/ 5.3 pending ANDAs where 17 are Cipla's own products (large part

Free float (%) 47.8 Performance 1M 3M 12M reflects products returned by its partners) and the rest are partner Major shareholders Promoter 39% Absolute (%) 2.5 2.2 5.1 ANDAs. This year, Cipla filed three ANDAs (three own, three Relative (%) 5.8 1.9 0.6 partners) and got approval of six ANDAs. Year 03/12A 03/13A 03/14E 03/15E 03/16E Revenue (Rs mn) 69,598 82,477 99,516 111,996 127,380 ● Cipla's growth in India was 13% YoY in 3Q and Cipla mentioned EBITDA (Rs mn) 15,980 21,663 21,901 23,649 26,753 that it is expanding presence in the Institutional segment now. Net profit (Rs mn) 11,442 15,449 14,572 16,221 18,617 EPS (Rs) 14.3 19.2 18.1 20.2 23.2 ● Capex for FY14 likely to be Rs5.5 bn (3Q capex was Rs0.9 bn) - Change from prev. EPS (%) n.a. n.a. (6) 0 and Cipla has derivatives of $220 mn taken at 65. - Consensus EPS (Rs) n.a. n.a. 19.6 22.7 26.8 EPS growth (%) 15.6 35.0 (5.7) 11.3 14.8 Figure 1: 3Q14—16% EBITDA miss driven by higher R&D and ESOP P/E (x) 29.0 21.5 22.7 20.4 17.8 impact on personnel cost Dividend yield (%) 0.6 0.6 0.9 1.0 0 Rs mn 3Q14A 3Q14E Diff (%) 3Q13A Y/Y % EV/EBITDA (x) 20.1 14.7 14.4 13.2 11.3 Net sales 25,526 24,834 3% 20,307 26% P/B (x) 4.3 3.7 3.3 2.9 2.5 India sales 10,440 10,450 0% 9,270 13% ROE (%) 16.0 18.5 15.2 15.0 15.0 Formulation exports 13,520 12,781 6% 10,060 34% Net debt (cash)/equity (%) (12.8) (14.0) (14.8) (17.1) (22.0) API exports 1,570 1,603 -2% 1,375 14%

Note 1: Cipla Limited is an Indian-based pharmaceutical company. During the fiscal year ended Total expenditure 21,135 19,579 8% 15,776 34% March 31, 2010, the company introduced a number of new drugs and formulations, such as Advent Material cost 9,991 9,543 5% 7,976 25% Forte, a combination antibiotic for infections.

Personnel cost 4,028 3,233 25% 2,586 56%

Click here for detailed financials Other expenses 7,116 6,804 5% 5,214 36% Weak quarter: Concerns on R&D and ESOPs playing out EBITDA 4,391 5,255 -16% 4,531 -3% 3Q EBITDA missed estimates by 16% due to weak margins. EBITDA EBITDA margin 17.2% 21.2% -4.0% 22.3% -5.11% margins declined by 370 bp sequentially as: (1) R&D expenses Depreciation 912 914 0% 780 17% Other operating income 282 470 -40% 398 -29% increased 90 bp sequentially, (2) gross margins declined 70 bp, (3) Other income 524 762 -31% 535 -2% personnel cost increased by 120 bp where one-third impact was due Interest cost 333 450 -26% 93 258% to ESOP issuance, (4) rest of the impact was due to full-quarter PBT 3,952 5,122 -23% 4,591 -14% impact of Medpro and Uganda sub-integration. Tax 987 1,255 -21% 1,203 -18% Net income 2,843 3,867 -26% 3,388 -16% We have been highlighting that ESOPs issuance at Cipla impacts Source: Company data, Credit Suisse estimates profits by 5% as the options have been issued at face value. This impact played out in the current quarter. Also, Cipla's R&D spend has been low this year (1H: 3.5% of sales and 4.5% in 3Q), despite its guidance of increasing filings in the US. Management guided that R&D expense will further increase by 100 bp next year from 3Q level.

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Asian Daily

Jaiprakash Power Ventures Ltd ------Maintain OUTPERFORM Cashflow gap widens on increasing capex at pipeline projects EPS: ▼ TP: ▼ Amish Shah, CFA / Research Analyst / 91 22 6777 3743 / [email protected] Abhishek Bansal / Research Analyst / 91 22 6777 3968 / [email protected] ● Project costs for JPVL's pipeline projects, mainly 1.32GW Nigrie conservatively assume that the regulated tariff shall be approved project and 1.98GW Bara-I project, have continued to witness based on original project cost. escalation, which is concerning. While Nigrie project was originally Bara-I project was awarded under Case-II bidding wherein 90% output envisaged to be set up at a project cost of Rs80 bn (Rs61 mn/MW), shall be sold to the Uttar Pradesh government at levelised tariff of the revised cost now stands at ~Rs115 bn (Rs87 mn/MW). Rs3.02/kWh. While the fuel cost is a pass-through in tariff, hit due to ● Our analysis suggests that the the JPA group is now likely to face escalation in project cost shall have to be borne by JPVL. cash gap of Rs79 bn (vs Rs60 bn earlier expected) over FY14-15. Out of this, Rs54 bn cash gap is expected at JPVL. While the Cash gap widens but could be addressed through asset sale overall cash gap could still get largely addressed through stake Our cashflow gap analysis for JPA suggests that the group is now sale in hydro assets, we believe JPA shall have to expedite the likely to face cash gap of Rs79 bn (versus Rs60 bn earlier expected) sale as the group otherwise is likely to face severe cash stress in over FY14-15. Out of this, Rs54 bn cash gap is likely at the power the near term. business. While the overall cash gap could still get largely addressed ● We reckon that JPVL could require loan restructuring unless asset through stake sale in hydro assets (recent note), we believe JPA shall sales fructify. We cut our FY14-16 EPS estimates by 17-60% led by have to expedite the sale soon as the group is otherwise likely to face revised assumptions of escalated project costs, lower utilisation at severe cash stress in the near term. Bina-I in FY14 and higher cost of borrowing in the near term. Figure 2: JPA—cash flow analysis across businesses ● Considering that the fair value of JPVL's assets does not appear to JCCL/ Jaypee be fully reflected in the company's current market cap., we maintain JPA JPVL Cement JVs Infratech JP Sports our OUTPERFORM rating with a revised TP of Rs30 (Rs35 earlier). (Rs bn) FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15 Cash inflows Bbg/RIC JPVL IN / JAPR.BO Price (11 Feb 14 , Rs) 14.48 Operating cashflow excl. 29.5 29.9 21.1 39.7 2.3 2.1 26.8 26.3 0.6 0.6 Rating (prev. rating) O (O) [V] TP (prev. TP Rs) 30.00 (35.00) interest Shares outstanding (mn) 2,938.00 Est. pot. % chg. to TP 107 Cashflow from JPIN OFS 5.6 ------Daily trad vol - 6m avg (mn) 7.2 52-wk range (Rs) 32.85 - 8.79 Cashflow from asset sale - 16.5 - - - - 15.0 - - - Daily trad val - 6m avg (US$ mn) 1.9 Mkt cap (Rs/US$ mn) 42,542.3/ 684.6 Total cash inflows 35.1 46.4 21.1 39.7 2.3 2.1 41.8 26.3 0.6 0.6

Free float (%) 15.0 Performance 1M 3M 12M Cash outflows Major shareholders Promoter (76.49%) Interest expense (26.4) (23.7) (15.2) (25.7) (4.5) (3.4) (7.9) (8.1) (2.9) (2.6) Absolute (%) (16.5) (17.7) (54.6) Relative (%) (13.5) (18.1) (59.3) Dividend payment (1.4) (1.4) (0.9) (0.9) - - (1.6) (1.6) - - Loan repayment (38.0) (35.0) (11.1) (18.0) (1.1) (1.0) (7.6) (7.0) (3.0) (2.7) Year 03/12A 03/13A 03/14E 03/15E 03/16E Equity for capex (3.2) (4.9) (17.8) (6.8) ------Revenue (Rs mn) 16,156 24,586 26,890 57,054 88,974 Working capital change 8.6 4.8 (12.0) (6.8) (0.9) 1.2 (4.3) (0.5) - - EBITDA (Rs mn) 14,560 19,584 21,179 40,174 55,090 Total cash outflows (60.5) (60.2) (56.9) (58.0) (6.5) (3.1) (21.4) (17.2) (5.9) (5.3) Net profit (Rs mn) 3,995 3,512 861 2,271 6,178

EPS (Rs) 1.52 1.20 0.29 0.77 2.10 Net cash surplus/ (deficit) (25.4) (13.8) (35.9) (18.3) (4.2) (1.0) 20.4 9.0 (5.4) (4.7) - Change from prev. EPS (%) n.a. n.a. (60) (17) (40) Total cash surplus/ (39.2) (54.2) (5.2) 29.5 (10.1) - Consensus EPS (Rs) n.a. n.a. 0.92 2.30 3.76 (deficit) over FY14-15 EPS growth (%) 132.5 (21.5) (75.5) 163.9 172.0 Total cash surplus/ (deficit) for JPA Group (79.2) P/E (x) 9.5 12.1 49.4 18.7 6.9 Potential equity value of hydro asset sales (as per media reports)* 76.3 Dividend yield (%) 0 1.7 1.7 1.7 1.7 Potential cash surplus/ (deficit) for JPA Group post hydro asset sale (2.9) EV/EBITDA (x) 12.9 12.5 15.4 8.5 6.3 *Based on EV value of Rs125 bn. Source: Company data, Credit Suisse estimates P/B (x) 0.7 0.7 0.7 0.6 0.6 ROE (%) 7.5 5.9 1.3 3.5 9.0 Near term concerns remain; assets' fair value not fully Net debt(cash)/equity (%) 263.1 302.9 425.6 436.1 412.0 reflected

Note 1: Jaiprakash Power Ventures Limited (JPVL) is an India-based company. The Company We reckon that JPVL is likely to face cash flow stress in the near term operates in a single segment, which is generation of power and transmission.

and could require loan restructuring for its projects unless asset sales Click here for detailed financials fructify. We cut our FY14-16 EPS estimates by 17-60% led by revised Rising capex in pipeline projects a concern Project costs for JPVL's pipeline projects, mainly 1.32GW Nigrie project assumptions of escalated project costs, lower utilisation at Bina-I in and 1.98GW Bara-I project, have continued to witness escalation which is FY14 and higher cost of borrowing in the near term. concerning. While Nigrie project was originally envisaged to be set up at a However, considering that the fair value of JPVL's assets does not project cost of Rs80 bn (Rs61 mn/MW), the revised cost now stands at appear to be fully reflected in the company's current market ~Rs115 bn (Rs87 mn/MW). Similarly, in case of Bara-I, project's revised capitalisation, we maintain our OUTPERFORM rating on the stock cost stands at ~Rs61 mn/MW versus Rs54 mn/MW envisaged earlier. with a revised target price of Rs30 (Rs35 earlier). Figure 1: Cost escalation at JPVL's pipeline projects (Rs bn) Original cost Final/ revised cost % escalation Bina-I^ (500 MW) 27 32 20% Nigrie (1320 MW) 80 115 44% Bara-I (1980 MW) 108 120 11% ^Project commissioned. Source: Company data, Credit Suisse estimates In case of Nigrie project, 30% output shall be sold to the Madhya Pradesh government on a cost-plus-RoE basis. We currently

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Asian Daily

Page Industries ------Maintain OUTPERFORM 3Q FY14: Stellar show continues EPS: ▲ TP: ▲ Arnab Mitra / Research Analyst / 91 22 6777 3806 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected]

● Page delivered very strong 36% YoY PAT growth, driven by Figure 1: Page Industries—3Q FY14 results revenue growth of 40%. EBITDA grew 50% YoY, but lower other (Rs mn) 3QFY13 3QFY14 % YoY income and higher tax rate lowered PAT growth. Net sales 2,162 3,025 39.9 EBITDA 367 550 49.9 ● Volume growth accelerated to 19% YoY, driven by women's EBITDA margin (%) 17.0 18.2 120 bps innerwear and leisurewear which grew volumes by over 30% YoY. Other income 53 40 -25.6 Management has not seen any major growth moderation in January. Interest 17 28 65.6 Depreciation 29 36 25.9 ● EBITDA margin expanded 120 bp YoY as operating leverage PBT 375 526 40.3 more than offset the 130 bp lower gross margin. The company Tax 121 180 49.1 took a ~5% price hike in January to pass on input cost pressures. Tax rate (%) -32.2 -34.3 -201 bps PAT 254 346 36.1 If gross margins hold YoY we should see EBITDA margins Cost heads (% of sales) expand due to operating leverage. Raw materials 47.9 49.3 134 bps ● We continue to prefer Page Industries in the India consumer Staff costs 16.9 16.2 -71 bps Other expenditure 18.2 16.3 -184 bps discretionary space. Growth drivers here are bottom up—market Segment details share gain from the unorganised sector and distribution expansion Value (Rs mn) off a low base—which are likely to sustain even in the midst of a Men innerwear 1,168 1,462 25.2 macroeconomic slowdown. We increase earnings estimates by Women innerwear 345 532 54.1 Leisure wear 635 1,005 58.3 ~3% and target price to Rs6,350 (vs Rs6,200) post these results; Volumes ('000 Pcs) maintain OUTPERFORM. Men innerwear 13,896 15,352 10.5 Women innerwear 3,905 5,048 29.3 Bbg/RIC PAG IN / PAGE.BO Price (12 Feb 14 , Rs) 5,633.40 Leisure wear 3,852 5,266 36.7 Rating (prev. rating) O (O) TP (prev. TP Rs) 6,350 (6,200) Realisations (Rs/Unit) Shares outstanding (mn) 11.15 Est. pot. % chg. to TP 13 Men innerwear 84 95 13.3 Daily trad vol - 6m avg (mn) 0.0 52-wk range (Rs) 5847.9 - 3210.8 Women innerwear 88 105 19.2 Daily trad val - 6m avg (US$ mn) 0.6 Mkt cap (Rs/US$ mn) 62,834.2/ 1,011.1 Leisure wear 165 191 15.8 Free float (%) 42.6 Performance 1M 3M 12M Major shareholders Promoters Figure 2: Volume and revenue growth both accelerated in 3Q Absolute (%) 4.1 13.4 73.1 Relative (%) 7.4 13.2 68.5 50%

Year 03/12A 03/13A 03/14E 03/15E 03/16E Revenue (Rs mn) 7,018 8,843 11,876 14,697 18,649 40% EBITDA (Rs mn) 1,514 1,850 2,556 3,222 4,088 Net profit (Rs mn) 900 1,125 1,527 1,937 2,504 30% EPS (Rs) 81 101 137 174 224 - Change from prev. EPS (%) n.a. n.a. 3 3 3 20% - Consensus EPS (Rs) n.a. n.a. 135 173 219 EPS growth (%) 57.6 25.1 35.7 26.9 29.3 10% P/E (x) 69.8 55.8 41.2 32.4 25.1 Dividend yield (%) 0.7 0.8 0.9 1.1 1.4 0% EV/EBITDA (x) 42.0 34.5 25.1 19.8 15.5 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 P/B (x) 37.9 29.4 21.1 15.4 11.2 ROE (%) 62.2 59.3 59.8 54.9 51.8 Volume grow th (% YoY) Realization grow th Net debt(cash)/equity (%) 43.9 44.6 42.3 25.6 6.6 Source: Company data, Credit Suisse estimates.

Note 1: Page industries has the franchisee of Jockey in India and is the largest player in Indian premium innerwear industry Figure 3: Women's innerwear and leisurewear drove growth

Click here for detailed financials 80% Growth drivers remain intact, women's innerwear and leisurewear will drive growth. Page is a bottom-up story with market share gain 60% from unorganised competition and distribution expansion as the two main drivers. The macroeconomic slowdown thus has limited impact on 40% the company. With women's innerwear having a 92% share of local/unorganised competition, Page can grow strongly on its base of 20% 2% market share. Leisurewear is gaining from the large number of new products being put in and the unorganised sector. Men's innerwear also 0% Mens Womens Leisure has a ~70% share of unorganised competition. Page's distribution of 1HFY14 3QFY14 ~23,000 outlets lags its competitor Rupa at ~100,000 outlets. Speedo Source: Company data, Credit Suisse estimates. and new geographies (UAE, and other possible Middle East countries) will also add to growth. The company has high pricing power and hence we expect gross margins to remain stable.

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Asian Daily

Indonesia Perusahaan Gas Negara ------Maintain OUTPERFORM New report: Looking for upside risk to distribution volume EPS: ▲ TP: ▲ Ami Tantri / Research Analyst / 62 21 2553 7976 / [email protected]

● PGAS indicated that the performance of its existing major Figure 1: Distribution and transmission volume suppliers has improved to 870mmcfd (million cubic feet per day) in 1,200 4Q13, up from 770mmcfd in 3Q13. The diversion of COPI's gas to Distribution From LNG 1,000 the domestic market provides potential upside for PGAS to get Transmission additional supply. 800 ● Domestic gas demand has never become a concern; however, it may take time to absorb both 300mmcfd gas supply potential from 600 COPI and 100mmcfd from LNG terminal as more distribution Mmcfd network needs to be built to connect with new customers. 400

● Saka Energi, a subsidiary of PGAS, has used its pre-emptive right 200 to acquire the remaining 75% working interest in Pangkah Psc from Hess for US$650 mn or around US$8.4/boe. We prefer to 0 FY02 FY04 FY06 FY08 FY10 FY12 FY14E see Saka hold only minority working interest in E&P rather than become an operator. Source: Company data, Credit Suisse estimates ● Maintain OUTPERFORM with TP raised from Rp6,200 to Rp6,300 Domestic gas demand has never become a concern; however it may on the back of higher distribution volume, but partially offset by take time to absorb both 300mmcfd gas supply potential from COPI lower volume from LNG terminal in West Java. Full report. and 100mmcfd from LNG terminal as more distribution network needs to be built to connect with new customers. Bbg/RIC PGAS IJ / PGAS.JK Price (12 Feb 14, Rp) 4,805.00 Rating (prev. rating) O (O) TP (prev. TP Rp) 6,300 (6,200) Get more into upstream oil/gas operation (E&P) Shares outstanding (mn) 24,242 Est. pot. % chg. to TP 31 Saka Energi, upstream oil gas upstream exploration and production Daily trad vol - 6m avg (mn) 25.7 52-wk range (Rp) 6350.0 - 4250.0 Daily trad val - 6m avg (US$ mn) 10.5 Mkt cap (Rp/US$ bn) 116,480.4/ 9.6 subsidiary of PGAS, has used its pre-emptive right to acquire the

Free float (%) 43.0 Performance 1M 3M 12M remaining 75% working interest in Pangkah Psc from Hess for Major shareholders Government of Absolute (%) 8.7 (2.4) 0.6 US$650 mn or around US$8.4/boe (barrel of oil equivalent). PGAS Indonesia (57%) Relative (%) 6.3 (5.4) 1.8 owns 99% stake of Saka. With 100% working interest, Saka has Year 12/11A 12/12A 12/13E 12/14E 12/15E become the operator of Pangkah Psc. Saka retains the existing Revenue (US$ mn) 2,230 2,576 2,964 3,425 4,020 workers of the fields; however, we are concerned on the ability of the EBITDA (US$ mn) 1,093 1,209 1,084 1,120 1,148 Net profit (US$ mn) 680.8 890.9 885.2 895.1 976.4 company to operate the fields. We prefer to see Saka hold only EPS (US$) 0.03 0.04 0.04 0.04 0.04 minority working interest in E&P rather than become an operator. - Change from prev. EPS (%) n.a. n.a. (1) 1 3 - Consensus EPS (US$) n.a. n.a. 0.03 0.04 0.04 Saka has also acquired approximately 8.9% stake of Korea National EPS growth (%) (0.9) 30.9 (0.6) 1.1 9.1 Oil Corp in South East Sumatra oil and gas block for US$46 mn. The P/E (x) 14.1 10.8 10.9 10.8 9.9 company claimed that the decision to invest in the block is because Dividend yield (%) 3.9 5.5 4.8 4.6 4.7 EV/EBITDA (x) 8.9 7.4 8.5 8.5 7.6 the block still has abundant reserves. South East Sumatera block P/B (x) 5.6 4.4 3.8 3.2 2.7 pumps around 48,400boepd. However, we have not yet included this ROE (%) 41.6 45.3 37.2 32.1 29.8 in our estimate due to the lack of details. The intention of going to the Net debt (cash)/equity (%) 5.3 (28.0) (15.9) (5.1) (24.5) E&P is to get direct access for the gas supply. Note 1: ORD/ADR=50.00. Note 2: PT Perusahaan Gas Negara operates in the distribution and transmission of natural gas to industrial, commercial, and household users.

Maintain OUTPERFORM with TP raised to Rp6,300 Click here for detailed financials On the back of higher distribution volume, but partially offset by lower Upside risk to distribution volume volume from LNG terminal in West Java, we revise up our FY14-15E PGAS indicated that the performance of its existing major suppliers earnings estimate by 1-3%. Our new target price of Rp 6,300 is based has improved to 870mmcfd (million cubic feet per day) in 4Q13, up on DCF valuation with WACC of 11.2% and long-term distribution from 770mmcfd in 3Q13. Conoco Phillips (COPI), one of the major margin target of US$3.5/mmbtu. Maintain OUTPERFORM. suppliers, sells gas to Singapore through Transgasindo's pipeline. As Singapore intends to stop gas import through Indonesia pipelines, this Figure 2: Sensitivity analysis on PGAS' distribution volume and margin will release around 300mmcfd of gas from COPI. The supply from Changes COPI to PGAS has reached the contracted volume of 450mmcfd and Earnings sometimes it goes higher. The diversion of COPI's gas to the domestic FY13E FY14E FY15E Valuation Distribution volume -10% -10.9% -11.0% -10.8% -3.2% market provides potential upside for PGAS to get additional supply. Distribution margin -10% (from -10.6% -10.9% -10.6% -11.1% On the negative side, this will reduce transmission volume on US$0.39/mmbtu to Transgasindo's pipeline as PGAS owns 60% stake of the company. US$3.61/mmbtu) Source: Company data, Credit Suisse estimates

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Asian Daily

PT Bank Danamon Indonesia Tbk ------Maintain UNDERPERFORM 4Q13 results in-line: Lower LDR drives margin compression EPS: ◄► TP: ◄► Sanjay Jain / Research Analyst / 852 2101 6088 / [email protected] Vineet Thodge / Research Analyst / 852 2101 7466 / [email protected]

● Danamon reported 4Q13 net profit of Rp1,035 mn (+1% Figure 2: Danamon—deposit growth snapshot QoQ/YoY). Full profit came in at Rp4,042 mn (+1% YoY), in-line (Rp bn, %) 4Q12 3Q13 4Q13 QoQ YoY % shr with consensus. Net interest margin compressed by 60 bp QoQ Current account 15,854 20,705 21,132 2.1 33.3 19.1 as the bank reduced loan-deposit ratio sharply during 2H13. Savings account 27,270 26,494 32,053 21.0 17.5 28.9 Time deposit 48,552 55,123 57,621 4.5 18.7 52.0 ● Loan growth remained strong (4.9% QoQ, 16.3% YoY), driven by Total deposits 91,676 102,322 110,806 8.3 20.9 100.0 the non-mass market segment (corporate/commercial/SME). The Source: Company data, Credit Suisse estimates mass market segment continues to remain weak as loan growth in The full impact of higher cost of funds (and lower LDR) would keep both Adira Finance and the Micro segment remains muted. the margins under pressure in 2014. The bank has guided for net ● Margins declined 60 bp QoQ as deposit cost rose 100 bp while interest margins of 8.8-8.5% in 2014 (vs 9.1% NIM in 4Q13). lending yields widened 10-30 bp. Asset quality showed some signs Figure 3: Danamon—lending yield, deposit cost and net interest margins of improvement as NPL ratio improved in the corporate/commercial (%) 1Q13 2Q13 3Q13 4Q13 QoQ segment. Mass market lending yield 24.6 24.3 24.1 24.2 0.1 Non-mass market lending yield 11.9 11.7 11.9 12.2 0.3 ● For 2014, Danamon is targeting a 16-17% loan growth while Deposit cost (IDR) 4.6 4.8 5.2 6.2 1.0 maintaining the bank-only LDR at the current levels (mid-nineties). Net interest margin 10.1 9.7 9.7 9.1 -0.6 The bank expects margins to face further continued pressure and Source: Company data, Credit Suisse estimates guided for NIM to be 8.8-8.5% (vs 9.1% in 4Q13). It expects credit Asset quality showed some signs of improvement cost to stay around 2013 levels. Credit cost came down to 227 bp (down 37 bp QoQ, 8bp YoY) as the Bbg/RIC BDMN IJ / BDMN.JK Price (12 Feb 14, Rp) 4,625.00 bank did not take any charge on legacy assets as it did during the first Rating (prev. rating) U (U) TP (prev. TP Rp) 3,000 (3,000) three quarters of 2013. Overall NPL ratio declined to 1.9% as asset Shares outstanding (mn) 9,488.80 Est. pot. % chg. to TP (35) quality in the corporate/commercial (SEMC) segment improved. Daily trad vol - 6m avg (mn) 4.6 52-wk range (Rp) 6450.0 - 3550.0 Daily trad val - 6m avg (US$ mn) 1.5 Mkt cap (Rp/US$ bn) 43,885.7/ 3.6 Figure 4: Danamon—Quarterly results snapshot Free float (%) 32.6 Performance 1M 3M 12M (Rp mn, %) 4Q12 3Q13 4Q13 QoQ YoY 2012 2013 YoY Major shareholders Asia Financial Absolute (%) 15.6 20.9 (22.9) Net interest income 3,332 3,421 3,427 0.2 2.9 12,922 13,531 4.7 (67.6%) Relative (%) 13.2 18.0 (21.8) Non-interest inc 1,130 1,322 1,232 -6.8 9.0 4,433 4,929 11.2 Year 12/11A 12/12A 12/13E 12/14E 12/15E Total revenue 4,462 4,743 4,659 -1.8 4.4 17,355 18,460 6.4 Pre-prov Op profit (Rp bn) 7,070.0 8,710.1 9,095.6 10,009.9 10,992.8 Operating expense -2,348 -2,507 -2,489 -0.7 6.0 -8,809 -9,695 10.1 Net profit (Rp bn) 3,336 4,012 4,049 4,086 4,332 Pre-prov optg profit 2,114 2,236 2,170 -3.0 2.6 8,546 8,765 2.6 EPS (CS adj. Rp) 379 419 422 426 452 Provisions -675 -835 -751 -10.1 11.3 -2,984 -3,184 6.7 - Change from prev. EPS (%) n.a. n.a. 0 0 0 Net profit 1,021 1,022 1,035 1.3 1.4 4,012 4,042 0.7 - Consensus EPS (Rp) n.a. n.a. 408 413 487 ROA (annualised) 2.7 2.5 2.3 -0.2 -0.4 2.7 9.5 6.8 EPS growth (%) 10.6 10.5 0.9 0.9 6.0 ROE (annualised) 14.6 13.7 13.5 -0.3 -1.1 14.9 13.5 -1.3 P/E (x) 12.2 11.0 10.9 10.8 10.2 Loan deposit ratio 127 126 122 -4.0 -4.8 127 122 -4.8 Dividend yield (%) 2.5 3.2 3.2 3.2 3.4 Non int inc to rev 25.3 27.9 26.4 -1.4 1.1 25.5 26.7 1.2 BVPS (CS adj. Rp) 2,910 2,973 3,257 3,536 3,839 Cost income ratio 52.6 52.9 53.4 0.6 0.8 50.8 52.5 1.8 P/B (x) 1.59 1.56 1.42 1.31 1.20 Credit cost* 235 264 227 -37 -8 256 253 -3 ROE (%) 15.1 14.8 13.6 12.6 12.3 NPL ratio 2.4 2.2 1.9 -0.3 -0.5 2.4 1.9 -0.5 ROA (%) 2.6 2.7 2.4 2.2 2.0 LLR to total loans 2.6 2.6 2.4 -0.2 -0.2 2.6 2.4 -0.2 Tier 1 Ratio (%) 17.1 18.3 18.4 17.9 17.2 * bp of loans Source: Company data, Credit Suisse estimates Note 1: PT Bank Danamon Indonesia Tbk is an Indonesia-based financial institution. The bank's products and services include consumer banking, credit card, small to medium-sized enterprise Danamon expects one more rate hike of 25 bp in 2014 (SME) and commercial, trade finance, treasury product, cash management.

Danamon is targeting loan growth of 16-17% for 2014 (in-line with the Loan growth target of 16-17% for 2014 BI guidance of 15-17%). With the tight liquidity situation and since the Danamon intends to grow its loans by 16-17% in 2014 driven by SME, bank intends to maintain a lower LDR, margins would come under and corporate/commercial loans (expected loan growth of 18-20%) pressure. Danamon has guided for a further margin compression of while loan growth is expected to remain muted at Adira Finance and 30-60 bp from 4Q13 levels (implying a 80-100 bp of compression on a the micro segment (expected loan growth of 10-12%). full year basis). Credit cost are expected to remain around similar levels as of 2013 (higher than 4Q13) to factor for some slowdown in Figure 1: Danamon—loan growth snapshot (Rp bn, %) 4Q12 3Q13 4Q13 QoQ YoY % shr the economy. Wholesale 12.7 16.8 18.8 11.9 48.7 13.9 SME & commercial 30.5 35.0 37.6 7.3 23.1 27.8 Retail 7.1 8.2 9.0 9.3 26.3 6.6 Mass market 66.1 69.0 70.0 1.4 5.9 51.7 Total 116.4 129.1 135.4 4.9 16.3 100.0 Source: Company data, Credit Suisse estimates Brought down LDR at the expense of margins In 2H13, bank-only LDR came down to 95% (122% consolidated) from 105% (133% consol) in Jun-13. Deposits grew 19.2% HoH (8.3% QoQ in 4Q) while loans advanced 9.2% HoH (4.9% QoQ in 4Q) during 2H13.

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Japan Softbank ------RESTRICTED Transition period; clear slowdown in domestic profits Hitoshi Hayakawa / Research Analyst / 81 3 4550 9952 / [email protected] ● Third-quarter results were disappointing. Softbank’s adoption of However, based on IFRS, the company reported 1–3Q OP of ¥924.2 IFRS accounting standards and changes in the scope of bn and record EBITDA of ¥1.3 tn. We believe full-year consolidated consolidation due to M&A render profit comparison with previous OP guidance of ¥1 tn is now within reach. On a Japanese GAAP basis, periods difficult. 1–3Q consolidated OP was ¥622.3 bn (under IFRS standards, OP ● However, based on IFRS, the company reported 1–3Q OP of includes extraordinary gains of around ¥300 bn from profits related to the ¥924.2 bn and record EBITDA of ¥1.3 tn. We believe full-year acquisition of subsidiaries). Total OP of segment profits was only ¥209.6 consolidated OP guidance of ¥1 tn is now within reach. On a bn (vs ¥241.8 bn in 1Q, ¥224.1 bn in 2Q), with a boost from the Japanese GAAP basis, 1–3Q consolidated OP was ¥622.3 bn. consolidation of Supercell cancelled out by wider losses at the Sprint business. Softbank is currently on our Restricted list. ● Results for the domestic mobile communications segment confirmed to us again that the market has moved into the latter phase of the Outlook and investment opinion: Slightly negative eight-year cycle, with competition intensifying and smartphone sales Results for the domestic mobile communications segment confirmed approaching a ceiling. Four new subsidiaries have been added to the to us again that the market has moved into the latter phase of the mobile communications segment in FY3/14—eAccess, Willcom, eight-year cycle, with competition intensifying and smartphone sales GungHo Online Entertainment, Supercell. approaching a ceiling. Four new subsidiaries have been added to the ● Losses in the Sprint business widened from ¥22.3 bn in 2Q to mobile communications segment in FY3/14—eAccess, Willcom, ¥35.8 bn in 3Q. The business reported positive EBITDA of ¥116.5 GungHo Online Entertainment and Supercell. Excluding the impact of bn, but this was flat versus ¥111.8 bn in 2Q. Full report. these companies, 3Q OP in the segment was ¥156.8bn (vs. ¥149.1 bn in 1Q, ¥152.5 bn in 2Q), barely growing QoQ. The EBITDA margin in Bbg/RIC 9984 JP / 9984.T Price (12 Feb 14, ¥) 7,782.00 the domestic mobile communications business (excluding Rating (prev. rating) R (R) TP (prev. TP ¥) — Shares outstanding (mn) 1,200.66 Est. pot. % chg. to TP — consolidations) was 34%, down from 36.9% in 1Q and 36.7% in 2Q, Daily trad vol - 6m avg (mn) 12.9 52-wk range (¥) 9220.0 - 3310.0 reflecting increases in product costs and sales commissions related to Daily trad val - 6m avg (US$ mn) 983.0 Mkt cap (¥/US$ bn) 9,343.5/ 91.1 rising sales of smartphones, especially the iPhone. Free float (%) 65.0 Performance 1M 3M 12M Major shareholders Absolute (%) (13.7) 2.4 119.5 Figure 1: Quarterly results summary Relative (%) (7.7) 2.3 93.6 3Q Full Year Guidance JPY (mn) Year 03/12A 03/13A 03/14E 03/15E 03/16E Current Previous YoY (%) New Sales 1,963,091 842,328 133.1% Over JPY6trn Revenue (¥ bn) 3,202 3,378 6,537 7,791 7,708 Operating Profit 209,158 202,393 3.3% Over JPY1trn EBITDA (¥ bn) 1,014 1,150 1,919 2,451 2,663 Recurring Profit 191,874 189,854 1.1% - Net profit (¥ bn) 313.8 289.4 512.8 415.3 535.6 Net Profit attributable to parent company 93,315 94,231 -1.0% - EPS (¥) 279 254 430 349 450 Diluted EPS 78.12 84.27 -7.3% - - Change from prev. EPS (%) n.a. n.a. 0 0 0 Dividend (JPY) 40 - Consensus EPS (¥) n.a. n.a. 383 362 466 Source: Company data, Credit Suisse EPS growth (%) 65.4 (8.8) 69.4 (19.0) 29.0 Losses in the Sprint business widened from ¥22.3 bn in 2Q to ¥35.8 P/E (x) 27.9 30.6 18.1 22.3 17.3 Dividend yield (%) 0.5 0.5 0.5 0.5 0.5 bn in 3Q. The business reported positive EBITDA of ¥116.5 bn, but EV/EBITDA (x) 10.3 9.4 7.7 5.9 5.2 this was flat versus ¥111.8 bn in 2Q. Underlying performance in the P/B (x) 8.9 6.6 4.7 3.7 3.0 Sprint business was disappointing. Net subscriber adds (Oct–Dec: ROE (%) 39.1 24.1 30.0 18.5 19.1 +466,000) rose on the back of higher tablet sales, and EBITDA beat Net debt (cash)/equity (%) 73.3 69.2 185.3 152.1 111.3

Note 1: ORD/ADR=0.5. Note 2: SOFTBANK CORP. is a Japan-based company engaged in the the market consensus, but this mainly reflected under-budget telecommunications and Internet business. It operates in six business segments: Mobile; Broadband spending on customer acquisition due to weak sales of mobile phones. and Infrastructure; Fixed Communication ; E-Commerce;Internet Culture; & Others.

Amid a slowdown in the domestic business, we are looking for Click here for detailed financials Softbank to deliver recovery and growth in the US business. Share price impact: Slightly negative Third-quarter results were disappointing. Softbank’s adoption of IFRS (This is an extract from Hitoshi Hayakawa report, “Transition period; clear accounting standards and changes in the scope of consolidation due slowdown in domestic profits,” published on 12 February 2014. For details, to M&A render profit comparison with previous periods difficult. please see the CS Research & Analytics website.)

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Asian Daily

Malaysia UMW Oil & Gas ------Maintain NEUTRAL Buys two jack-up rigs for delivery in 2H 2014 EPS: ▲ TP: ▲ Annuar Aziz / Research Analyst / 60 3 2723 2084 / [email protected] ● UMW-OG is buying two China-built jack-up rigs for US$217 mn eight units (four at end-FY13). We had hoped that the company would each that will be delivered in Sep-14 and Dec-14. This is on top of secure all its rigs from Singapore yards such as Keppel, and are last week's order placed with Keppel for a new jack-up rig slated mindful of potential delays in the delivery of the China-built rigs. for Sep-15 delivery. Earnings upgrade ● With these orders, UMW-OG would double its fleet size to eight We are lowering our FY14E EPS by 7% due to the later-than- drilling rigs by end-FY15. This is in line with plans to grow the fleet expected delivery of rigs in 2014. We had previously expected to tap into the growth in drilling activity in Malaysia and the delivery of a jack-up rig in mid-2014. However, we have raised our ASEAN region. FY15E EPS by 17% to reflect the full-year impact of the two new ● FY14E EPS cut by 7% due to the later-than-expected delivery of China-made rigs, plus the maiden contribution from the Keppel-built rigs in 2014, but FY15E EPS is raised by 17% to reflect the full- rig from 4Q 2015. year impact of the two new China-made rigs and the maiden Figure 1: Change in key assumptions contribution from the new Keppel built rig. New Old Change ● We have raised our target price to RM4.60 (+31% from RM3.50), 2014E 2015E 2014E 2015E 2014E 2015E using 24x FY15E P/E (from 24x FY14E P/E) to better reflect its No of semi-sub 1 1 1 1 - - growth qualities. However, given the potential limited upside, we No of jack-ups 7 8 5 5 2 3 Working days 1,823 2,683 1,883 2,143 -3% 25% remain NEUTRAL on UMW-OG. Drilling day rate (US$ 000) 149 155 151 154 -1% 1% Bbg/RIC UMWOG MK / UMOG.KL Price (12 Feb 14 , RM) 4.48 Source: Credit Suisse estimates. Rating (prev. rating) N (N) [V] TP (prev. TP RM) 4.60 (3.50) Maintain NEUTRAL Shares outstanding (mn) 2,162.00 Est. pot. % chg. to TP 3 We are changing our valuation methodology from 24x FY14E P/E to Daily trad vol - 6m avg (mn) 9.6 52-wk range (RM) 4.58 - 3.10 Daily trad val - 6m avg (US$ mn) 9.8 Mkt cap (RM/US$ mn) 9,685.8/ 2,913.4 24x FY15E P/E, to better reflect the growth properties of the stock.

Free float (%) 45.0 Performance 1M 3M 12M This new multiple is at a 15% premium to the average multiple for Major shareholders UMW Holdings 55% Absolute (%) 5.4 31.8 — large-cap Malaysian oil & gas stocks. Thus, we derive a new target Relative (%) 5.9 29.4 — price of RM4.60 (+31% from RM3.50). With 3% potential upside, we Year 12/11A 12/12A 12/13E 12/14E 12/15E believe that the stock is fairly priced. We thus maintain a NEUTRAL Revenue (RM mn) 550 724 777 1,097 1,584 EBITDA (RM mn) 185.2 192.0 271.4 467.6 685.4 rating on UMW-OG. Net profit (RM mn) 83.7 85.9 182.2 294.0 412.4 EPS (RM) 0.04 0.04 0.08 0.14 0.19 Figure 2: Malaysian large cap oil & gas P/E 2015E - Change from prev. EPS (%) n.a. n.a. 0 (7) 17 30.0 x - Consensus EPS (RM) n.a. n.a. 0.08 0.14 0.18 2015 Av erage 25.0 x EPS growth (%) n.a. 2.6 112.1 61.3 40.3 20.6 x P/E (x) 115.7 112.8 53.2 32.9 23.5 20.0 x Dividend yield (%) 0 0 0 0 0 15.0 x EV/EBITDA (x) 59.2 57.7 35.9 24.5 16.8 25.0 x P/B (x) 65.9 45.6 9.6 7.4 5.7 21.2 x 23.5 x 10.0 x 17.5 x ROE (%) 57.0 47.8 29.9 25.5 27.4 16.0 x 5.0 x Net debt(cash)/equity (%) 865.0 647.6 3.1 73.8 64.5

Note 1: UMW Oil & Gas is an oilfield services company involved in offshore drilling. The company 0.0 x also provides hydraulic workover (HWU) services & oil country tubular good (OCTG) threading services.

Click here for detailed financials New rig orders UMW-OG announced it is buying two jack-up rigs from Tianjin Source: Company data, IBES consensus estimates, Credit Suisse estimates. Haiheng Shipbuilding & Offshore Engineering (unlisted) for US$217 Note that if the company were to secure an additional jack-up rig for mn each. Currently being constructed by China Merchant Industry, the delivery in mid-2015, all things being equal we would raise FY EPS by two rigs are expected to be delivered to UMW in September and 5% (10% full-year impact) and raise our target price by 4% to RM4.80. December 2014. Last week, UMW-OG placed an order with Keppel Figure 3: UMW-OG's target price based on differing P/E and rig count for a new jack-up rig for US$218 mn, with delivery slated for P/E (x) 20 22 24 26 28 September 2015. FY15E EPS (sen) 0.19 0.19 0.19 0.19 0.19 Target price (RM) 3.8 4.2 4.6 5.0 5.3 The new rig orders are in line with the company's aim to aggressively FY15E ESP with ninth rig (sen) 0.20 0.20 0.20 0.20 0.20 grow its fleet to cater for the increasingly intense drilling activity in Target price (RM) 4.0 4.4 4.8 5.2 5.6 Malaysia and the ASEAN region. With the delivery of the Keppel-built Source: Credit Suisse estimates. rig in 2015, UMW-OG would have doubled its drilling rig fleet size to

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Philippines Universal Robina Corp. ------Maintain OUTPERFORM The art of delivery EPS: ▲ TP: ◄► Karim P. Salamatian, CFA / Research Analyst / 852 2101 7996 / [email protected] Rebecca Kwee / Research Analyst / 852 2101 7951 / [email protected] ● Universal Robina reported strong 1Q FY14 results as net income Domestic strength more than offset weaker trends in International where of Bt2.9 bn beat our above-consensus estimate by 13%. URC has Vietnam had a modest decline in sales YoY, but Thailand proved more solidified its position as one of the best earnings stories in NJA resilient than we had expected. Through the balance of the year, we consumer with five consecutive quarters of positive surprises. expect International sales growth to pick up to 19% for the year. ● Several factors led to a consumption surge in the Philippines in Figure 1: URC—1Q FY14 summary 4Q13, and this came through in URC's numbers. Domestic Ps mn except per share data 1Q14 1Q14E 1Q13 vs CS YoY QoQ Revenue 22,705 22,710 20,084 0.0% 13.1% 8.6% branded foods' revenues rose 28% YoY, which when combined BCFG 18,839 n.a. 15,658 n.a. 20.3% 6.1% with modestly more favourable material prices drove very high CFG 1,826 n.a. 2,446 n.a. -25.3% 36.2% AIG 2,040 n.a. 1,980 n.a. 3.0% 12.5% operational leverage. Management suggested margins are Gross profit 6,702 6,700 5,569 0.0% 20.3% 12.9% sustainable for most of FY14, implying guidance could increase. EBITDA 4,247 3,887 3,185 9.3% 33.3% 14.7% EBIT 3,342 2,975 2,353 12.3% 42.0% 26.5% ● We believe earnings upgrades are likely on the back of the strong Other income (incl. F/X) 94 0 198 n.a. -52.5% -117.4% operating results. That being said, the potential for further Pre-tax income 3,455 2,998 2,551 15.3% 35.4% 64.2% Recurring Net Income 2,889 2,563 2,295 12.7% 25.9% 80.1% earnings surprises remains as demand growth remains strong and EPS (f.d.) 1.32 1.17 1.04 12.7% 27.3% 80.1% there is a real possibility margins can be sustained, in our view. Operating Data GM 29.5% 29.5% 27.7% 02bps 179bps 112bps ● URC is one of our favourite consumer ideas in NJA because it is EBIT margin 14.7% 13.1% 11.7% 162bps 300bps 1,472bps executing well, earnings record is impressive, valuation looks EBITDA margin 18.7% 17.1% 15.9% 159bps 285bps 99bps Net margin 12.7% 11.3% 11.4% 144bps 130bps 505bps reasonable and the balance sheet lends itself to potential total return Operating margin by segment: surprises over the coming 12-15 months. BCFG PH 15.5% 13.6% 12.0% 190bps 347bps 270bps BCFG Int'l 10.5% 10.8% 9.6% -30bps 94bps 90bps Bbg/RIC URC PM / URC.PS Price (12 Feb 14 , P) 122.80 CFG 45.3% 43.0% 32.7% 230bps 1,260bps 1,280bps Rating (prev. rating) O (O) TP (prev. TP P) 145.00 (145.00) AIG 8.8% 9.0% 8.0% -20bps 80bps -260bps Shares outstanding (mn) 2,061.50 Est. pot. % chg. to TP 18 Source: Company data, Credit Suisse estimates. Daily trad vol - 6m avg (mn) 2.7 52-wk range (P) 133.5 - 91.0 Daily trad val - 6m avg (US$ mn) 7.2 Mkt cap (P/US$ bn) 253.2/ 5.6 Figure 2: URC EBIT margins to continue upward trend

Free float (%) 37.3 Performance 1M 3M 12M Group EBIT margin BCFG PH EBIT margin Major shareholders JG Summit Holdings Absolute (%) 2.8 (2.4) 34.9 (60.52%) BCFG Int'l EBIT margin Relative (%) 5.4 (0.8) 38.9

Year 09/12A 09/13A 09/14E 09/15E 09/16E 17% Revenue (P mn) 71,202 80,995 92,637 104,510 119,582 15% EBITDA (P mn) 11,220 13,901 16,911 19,866 23,422 13% Net profit (P mn) 7,736 10,045 10,834 12,737 15,220 EPS (P) 3.69 4.60 4.97 5.84 6.98 11% - Change from prev. EPS (%) n.a. n.a. 1 1 1 9% - Consensus EPS (P) n.a. n.a. 4.91 5.62 6.92 EPS growth (%) 64.2 24.8 7.9 17.6 19.5 7% P/E (x) 33.3 26.7 24.7 21.0 17.6 5% Dividend yield (%) 1.5 2.0 2.6 3.3 3.9 EV/EBITDA (x) 23.1 17.5 14.5 12.3 10.3 P/B (x) 5.5 5.3 4.9 4.6 4.2 ROE (%) 17.7 20.6 20.5 22.5 24.9 Source: Company data, Credit Suisse estimates. Net debt(cash)/equity (%) 13.4 (19.8) (14.8) (16.5) (18.8) Total return surprise potential

Note 1: Universal Robina Corporation (URC) is one of the largest branded food product companies URC has a balance sheet that lends itself to higher cash distributions to in the Philippines, with a growing presence in ASEAN and China. The Company is involved in the manufacture and distribution of branded consumer foods. shareholders. Cash at quarter-end was P16 bn, P6.5 bn will be used for

the recently announced 25% dividend increase, and expanded capex Click here for detailed financials Demand surge should be funded by operating cash flow. At end-FY14, we expect P10 bn The coincidence of super typhoon Yolanda (boost in remittances) and of net debt. We do not believe the board will let this sit idle and there is a declining PHP led to a domestic consumption surge in the room for a positive cash distribution surprise in the next 12-15 months. Philippines for the December quarter. With stronger purchasing power, In light of very strong 1Q FY14 results, we are surprised that Filipinos are spending more on low ASP goods such as packaged management did not increase its guidance of low-to-mid teen sales foods. URC's results are the first sign of this and we suspect that growth and mid-teen EBIT growth. It has been savvy in over-delivering many of its local peers including Jollibee will see similar boosts. in recent years, and it looks to us that it is positioning similarly in 2014. We forecast 25% YoY growth in EBIT for FY14. URC's domestic branded consumer segment was once again the key driver of the top line, margins and earnings. Domestic EBIT margin Our above-consensus EPS estimates rise moderately because the increase expansion of 347 bp was primarily a function of sales growth and in our operating income is largely offset by a 400 bp increase in the tax rate. operating leverage. Raw material price trends remain favourable, but these were not the key driver of margin expansion as in FY13. Further evidence of the surge in demand was the improved trend in snack foods that increased 20% YoY versus low single-digits in 2013. Beverage increased 44% YoY with coffee up ~60% YoY.

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Singapore Biosensors International Group Ltd. ------Maintain NEUTRAL NEUTRAL rating for the short-term earnings weakness; but going private could be a viable option EPS: ◄► TP: ◄► Iris Wang / Research Analyst / 852 2101 7646 / [email protected]

● 3Q FY14 core earnings declined 44.7% YoY. China revenue was Figure 1: Biosensors' 3Q FY14 P&L highlights flat as the volume growth was offset by the ASP cut of 15-20%. (US$ mn, FYE 31 March) 3Q FY13 3Q FY14 YoY Product revenue 67.61 71.72 6.1% ● R&D and SG&A expenses rose sharply due to consolidated -Critical care 3.64 3.66 0.7% expenses from SpectrumDynamics and ongoing clinical trials -Interventional cardiology products 63.97 65.46 2.3% including those for Excel 2 in China, the global study of -Cardiac diagnostic 2.60 BioFreedom and the new protocol studies of SpectrumDynamics. Licensing & Royalty 13.72 10.78 (21.4%) Total revenue 81.33 82.49 1.4% ● We believe going private and IPO in Hong Kong or China Gross profits 68.90 63.77 (7.4%) domestic exchange is a viable option for Biosensors to unlock its Sales and marketing -25.57 -27.96 9.3% value, given: (1) it has ~US$500 mn cash (and equivalents) with a General and administrative -9.85 -10.81 9.8% Research and development -5.62 -9.95 77.1% 37.5% share held by two of the largest PE firms in China and Profit from operations 27.15 17.82 (34.4%) ~52% free float; (2) it recently appointed the industry veteran Mr. Financial expenses (net) -0.22 -1.66 662.7% JIANG Qiang (the ex-CFO of Shandong Weigao) as COO; and (3) Income tax 1.46 -0.47 (132.1%) Citic PE's recent share acquisition price of $1.05 (purchased from Net profit 24.94 11.13 (55.4%) CS net profit 28.39 15.70 (44.7%) Shandong Weigao). ● We cut our FY14E earnings and maintain NEUTRAL rating for the Gross margin 84.7% 77.3% short-term earnings weakness, but we believe the stock is Sales and marketing / product revenue 37.8% 39.0% General and administrative / product revenue 14.6% 15.1% currently undervalued for its long-term growth potential. Research and development / product revenue 8.3% 13.9% Operating margin - for product revenue only 40.2% 24.9% Bbg/RIC BIG SP / BIOS.SI Price (12 Feb 14 , S$) 0.87 CS net margin 34.9% 19.0% Rating (prev. rating) N (N) TP (prev. TP S$) 1.00 (1.00) Source: Company data Shares outstanding (mn) 1,757.15 Est. pot. % chg. to TP 15 Daily trad vol - 6m avg (mn) 4.0 52-wk range (S$) 1.36 - 0.83 Privatisation and re-IPO in Hong Kong may happen Daily trad val - 6m avg (US$ mn) 2.8 Mkt cap (S$/US$ mn) 1,528.7/ 1,208.5 Biosensors appointed Mr. JIANG Qiang as the COO on 29 January Free float (%) 52.0 Performance 1M 3M 12M 2014. Mr. Jiang is the former CFO of Shandong Weigao and has Major shareholders Citic PE 21.7%, Hony Absolute (%) (5.4) 1.8 (34.6) Capital 15.8% extensive experience in accounting and financial management. He will Relative (%) (2.2) 6.6 (27.4)

Year 03/12A 03/13A 03/14E 03/15E 03/16E take full responsibilities of business development in his new position. Revenue (US$ mn) 292.1 336.2 340.4 351.4 394.9 Given that Biosensors has US$689 mn cash with a 37.5% share held by EBITDA (US$ mn) 119.8 147.1 95.5 122.1 121.1 two of the largest PE firms in China (Hony Capital and Citic PE), and Net profit (US$ mn) 101.0 111.6 48.7 76.4 77.9 EPS (US$) 0.07 0.06 0.03 0.04 0.04 recently appointed the industry veteran Mr. Jiang as COO, we believe - Change from prev. EPS (%) n.a. n.a. (26) (13) (8) going private and relisting in Hong Kong could be a viable option. - Consensus EPS (US$) n.a. n.a. 0.04 0.05 0.06 Our studies of Sihuan Pharma and China Animal Healthcare, both got EPS growth (%) 38.2 (2.5) (56.2) 57.2 1.9 P/E (x) 10.5 10.8 24.6 15.6 15.3 de-listed from Singapore Exchange and re-listed in Hong Kong, show Dividend yield (%) 0 0 2.9 0 0 that re-listing in Hong Kong is likely to lead to higher valuation and EV/EBITDA (x) 7.8 5.9 8.3 5.7 5.1 better liquidity. We maintain a NEUTRAL rating for the short-term P/B (x) 0.9 0.9 0.9 0.8 0.8 earnings weakness but remain positive on its long-term growth ROE (%) 13.5 9.4 3.8 5.7 5.4 Net debt(cash)/equity (%) (24.7) (27.0) (31.5) (36.9) (40.2) potential. Plus the repurchase programme started in November 2012

Note 1: ORD/ADR=20.00. Note 2: Biosensors International Group, Ltd. is an investment holding is going to provide downside protection. company engaged in licensing of medical technology. It operates in three segments: interventional cardiology, critical care and licensing revenue. Figure 2: Re-listing in HK improves valuation and liquidity

Click here for detailed financials 20 Weakness in China and Japan continues 140% 88% The recent ASP cut and weak market sentiment due to the anti- 16 167% corruption campaign continue to put pressure on revenue in China, 12 despite the double-digit volume growth. Licensing revenue from Japan has started to stabilise, but still saw the eighth consecutive quarter of 8 sales growth decline. We believe the company's DES revenue will 4 62% remain weak for the full year. 0 R&D expenses increased due to new product development Trading v olume Forw ard Trading v olume Forward In 3Q14, Biosensors recorded a significant increase in R&D expense of (US$ mn) 12M PE (US$ mn) 12M PE 77.1% YoY. The R&D expense is mainly utilised to support clinical trials Sihuan China Animal Health for two Excel programmes, two new protocols of Spectrum Dynamics Singapore-listed HK-listed and the ongoing Leaders programme that involves ~1,800 patients. Source: Bloomberg, Credit Suisse research

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Asian Daily

South Korea Korea Economics ------The BoK remains on hold in February, but expresses some concerns over EM growth and domestic demand Christiaan Tuntono / Research Analyst / 852 2101 7409 / [email protected] ● The Bank of Korea kept its benchmark policy base rate base rate could still be sometime in the future. We maintain our view unchanged at 2.5% in the February meeting, in line with market for the BoK to keep the policy base rate on hold in 2014. Chances to consensus. see a rate hike in 2H may exist if the global economy poses a ● Despite some near-term softness expected in the macro data, we stronger-than-expected rebound in the year which closes Korea's believe the Korean economy should continue to cruise on a output gap earlier than expected, and we see supply and demand- gradual recovery path. This should lessen the need for the BoK to side price pressure picking up. lower the policy base rate in support of the economy. Less positive on international and domestic economies ● China and other emerging economies are likely to see some Following are the highlights in the February policy statement that headwinds ahead, but as long as the demand from G3 continue to reflect the BoK’s latest thoughts on growth and inflation: improve we believe Korea is likely to benefit from them. We (1) Tone on the global economy has turned less positive from the maintain our view for the BoK to keep rate on hold in 2014. previous month, due to concerns over emerging market growth. The ● In the press statement, the BoK appears less positive on the BoK says that the trend of the US economic recovery has been international and domestic economies, citing some concerns over sustained and that Europe’s sluggishness appears to have continued signs of weaker EM growth and the temporal weakness in to ease, but it expressed concern over signs of weakening in some domestic demand indicators. EM countries. Overall, the committee maintains its view that the global economy should sustain its modest recovery going forward, but added Figure 1: BoK stays on hold again in February, but expresses some the weakening of EM growth as a risk factor, along with the possibility concerns over EM growth and domestic demand of changes in the global financial market conditions stemming from the Fed’s QE tapering. (2) The BoK appears to stay sanguine on the domestic economy, despite signs of weaker domestic demand seen lately. The committee says that some indicators related to domestic demand (December's consumption and construction, in our view) have slumped temporarily, but as exports continue to grow, economic recovery should continue to be in line with the trend of growth. The central bank has kept its assessment that the domestic economy will sustain a negative output gap for a considerable time going forward, though it forecasts that the gap will narrow.

(3) On inflation, the BoK reckons that the January headline CPI has Source: BoK, Credit Suisse. remained the same as in the prior month (at 1.1%), as the changes Policy rate is kept on hold again in February from petroleum and agricultural prices offset each other. The committee notes that core inflation has slightly declined to 1.7% YoY The Bank of Korea kept its benchmark policy base rate unchanged at from 1.9% YoY before, lowered by weaker inflation in non-petroleum 2.5% in the February meeting, in line with market consensus. The industrial products. The committee expects that inflation will gradually decision was unanimous, according to Governor Kim Choong-soo. rise, although it will remain low for the time being due largely to the We expect to see some softness in the Korean macro data in the near stability in international commodity prices. term as global industrial activities take a breather. But that said, we believe the Korean economy should continue to cruise on a gradual recovery path, driven by the improvement in the global economy over the year. This should lessen the need for the BoK to lower the policy base rate in support of the economy at this juncture. In our view, Korea's external demand remains very much dependent on those stemming from the developed world. Although China and other emerging economies are likely to see some headwinds ahead, as long as the demand from G3 continues to improve we believe Korea is likely to benefit from them. (please see Korea & Taiwan: Recovery set in stone? How weaker global demand may affect exports and growth, 10 February) Meanwhile, inflationary pressure remains at bay, suppressed by the low agricultural and fuel price changes. We think continued growth and a low inflation threat suggest that the timing for raising the policy

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Asian Daily

Taiwan Asia Semiconductor Sector ------Taiwan January Sales: Sales led by TSMC, Vanguard, Mediatek, ASE and SPIL Randy Abrams, CFA / Research Analyst / 886 2 2715 6366 / [email protected] ● January sales wrap. We publish our Taiwan Jan sales summary track to 1Q14 guidance midpoint for a 12-15% QoQ decline. USI (a and summarise takeaways for the upstream (see link for our joint division of ASE) was down 18% MoM as the SiP and Wifi module for update with CS semi analyst John Pitzer). Most of the group came high-end smartphones end the seasonal build, taking consolidated in above expectations, putting the sector well on track for 1Q14. January sales on track at -13% MoM, above CS -18% MoM, reaching ● TSMC 1Q14 should reach the high-end. TSMC Jan sales +3.5% 35.1% of -20% QoQ guidance. SPIL January sales declined 1.1% MoM, reaching 37.4% of down 5-7% QoQ guidance. Better Jan MoM, above CS -4.0% MoM, keeping the company on track to its was due to customers' significant inventory depletion in 4Q13, guidance for a 4-8% QoQ decline in 1Q14. Sales are led by especially QCOM and MTK and some expedited shipments ahead communications, with consumer and computing down and memory of CNY, implying a pullback in February and flattish March. slightly down. Powertech January sales declined 2.9% MoM, slightly above CS -4.5% MoM. We believe 1Q14 sales should decline single ● Back-end on track to 1Q14 guidance. ASE IC ATM sales -9.9% digits, in-line with seasonality. MoM and USI down 18% MoM as the SiP and Wifi module for high-end smartphones end the seasonal build. SPIL sales -1.1% Figure 2: TSMC tracking to high-end, Vanguard above, the group in-line MoM, led by comms, with consumer/computing/memory down. 1Q-14 1Q-14 1Q14 1Q-14 4Q-13 1Q CS 1Q Street Qtr vs. 2Q QoQ 2Q QoQ QTD CS CS CS Actual QoQ QoQ 1Q-14 Guide Guide (CS) (Street) TSMC 51,430 137,366 37.4% 137,366 145,806 -5.8% -5.5% -5.4-6.7% High-end 15.0% 20.0% ● IC Design momentum led by Mediatek. Mediatek's Jan sales UMC 10,063 30,807 32.7% 30,807 30,719 0.3% -0.1% Flat to -4% On track 9.5% 10.5% Vanguard 1,812 4,960 36.5% 4,960 5,402 -8.2% -6.9% Feb 17th Above 15.0% 10.3% down 1.9% MoM, due to an early CNY, reaching 34.2% of its Foundries 63,305 173,133 36.6% 173,133 181,927 -4.8% -4.6% Above 14.0% 18.0% ASE (ATM) 11,133 33,125 33.6% 33,125 37,900 -14.5% N/A -12-15% On track 12.5% N/A above-seasonal guidance of down 2-10% QoQ, excluding MStar, ASE (Cons.) 18,589 53,019 35.1% 53,019 64,165 -20.0% -13.1% -20% On track 5.9% 8.8% SPIL 6,024 17,807 33.8% 17,807 18,844 -5.5% -7.1% -4-8% On track 8.0% 9.6% as China and export demand is holding up well. Powertech 3,024 8,930 33.9% 8,930 9,595 -6.9% -4.7% Feb 14th On track 8.0% 9.0% Back-end 27,637 79,756 34.7% 79,756 92,604 -15.7% -10.4% On track 6.6% 9.0% Figure 1: Foundries and Back-end lead the growth Mediatek* 12,844 42,470 30.2% 42,470 39,798 6.7% 0.6% -2-10%* On track 12.2% 15.9% Realtek 2,587 7,333 35.3% 7,333 7,303 0.4% -2.5% Flat to down On track 6.9% 9.1% Jan Jan Vs. CS MoM MoM Jan WPG 33,217 101,317 32.8% 101,317 111,314 -9.0% -11.7% -10-15% On track 13.5% 12.4% Actual Latest Latest Jan vs. CS (Actual) (Latest) Actual Jan-13A YoY IC Design 48,648 151,120 32.2% 151,120 158,416 -4.6% -1.2% On track 12.8% 13.2% TSMC 51,430 46,203 11.3% Above 3.5% -7.0% 51,430 47,439 8.4% Total 139,590 404,009 34.6% 404,009 432,946 -7.1% -4.7% 12.1% 14.5% UMC 10,063 10,104 -0.4% In-line 1.6% 2.0% 10,063 9,452 6.5% Vanguard 1,812 1,722 5.2% Above 0.0% -5.0% 1,812 1,669 8.6% Source: Company data, CS estimates, Bloomberg. *Mediatek guidance ex. MStar Foundries 63,305 58,526 8.2% Above 3.1% -4.7% 63,305 58,560 8.1% ASE (ATM) 11,133 11,120 0.1% In-line -9.9% -10.0% 11,133 10,372 7.3% IC Design sales momentum led by Mediatek ASE (Cons.) 18,589 17,785 4.5% Above -13.2% -17.0% 18,589 16,607 11.9% Mediatek's January sales were down 1.9% MoM, above CS -3.7% SPIL 6,024 5,846 3.1% Slightly Above -1.1% -4.0% 6,024 4,602 30.9% Powertech 3,076 3,024 1.7% Slightly Above -2.9% -4.5% 3,076 3,167 -2.9% MoM, reaching 34.2% of its above-seasonal guidance of down 2-10% Back-end 27,689 26,655 3.9% Above -9.8% -13.1% 27,689 24,376 13.6% Mediatek 12,844 12,604 1.9% Slightly Above -1.9% -3.7% 12,844 8,453 52.0% QoQ, excluding MStar, as China and export demand is holding up Realtek 2,587 2,514 2.9% Slightly Above 1.9% -1.0% 2,587 2,532 2.2% WPG 33,217 33,100 0.4% In-line -12.4% -12.0% 33,217 32,110 3.4% well. Sales declined slightly MoM from December as the last week of IC Design 48,648 51,133 -4.9% Slightly Above -9.1% -4.5% 48,648 43,095 12.9% the month saw slowdown in China activity due to an early Chinese Total 139,642 136,314 2.4% Above -4.1% -6.4% 139,642 126,031 10.8% Source: Company data, Credit Suisse Estimates, TEJ New Year. We expect Mediatek 1Q14 down 6%, excluding MStar (up Taiwan sales summary for 110 companies 6.7% QoQ including 2 months of MStar) and 2Q14 up 12.2% QoQ In conjunction with our US semiconductor team, we publish our with catalyst also coming from initial shipments of the LTE stand-alone monthly summary of 110 Taiwan companies’ sales and analysis on modem (MT6590). Realtek January sales grew 1.9% MoM, below our semis coverage. The Taiwan upstream reported Jan sales +2.4% seasonal -12.5% MoM, above CS down 1.0% MoM, putting Realtek MoM, with TSMC tracking better and rest of the group in line for 1Q14. on track to flat to slightly down guidance. WPG’s January sales Foundry sales top expectations in January declined 12.4% MoM, below seasonal +0.6% MoM and CS -12% The Foundry sector reported January sales +3.1% MoM, above CS MoM, still at least keeping it on-track to -10-15% QoQ guidance. -4.7% MoM, helped by 2% boost from the NTD depreciation. TSMC Top Asian semiconductor picks: TSMC, Mediatek, ASE, SPIL Jan sales were up 3.5% MoM, above CS -7.0% MoM, reaching 37.4% We maintain our positive view on Mediatek due to market share gains of its -5.4-6.7% QoQ guidance and CS -5.8% QoQ, due to customers' in smartphone and tablets, ASP upside from new products, improving significant inventory depletion in 4Q13 (notably QCOM and Mediatek), mix as it ramps into multi-core and LTE. We favour ASE and SPIL for driving some restocking and pre-CNY pull-ins. We expect the good demand, share gains, capex control and lower drag from company to reach the upper end of the guidance. UMC January sales material costs to drive additional margin expansion. TSMC's 28nm were up 1.6% MoM, in line with CS +2.0% MoM, putting the company HPM and 28nm market share is holding well this year and potentially on track to its guidance. We model 1Q14 sales 0.3% QoQ growth and into 2015 where scheduled tape-out activity on 16nm is already strong near break-even profitability. Vanguard January sales were flat MoM, and competitive challenges pushing out another node to 10nm. above CS -5.0% MoM and has now booked 36.5% of CS and street estimates for a high single digit decline. We expect Vanguard to guide above expectations, down low single digits vs CS/Street down 7-8% QoQ. Sales upside is from low-cost smartphones and restocking in large panels. The better FX rate and lower depreciation cost will also offset the fall-off in the high margin PMIC in 1Q14. Back-end on track to 1Q14 guidance The back-end January sales declined 9.8% MoM, better than CS -13.1% MoM. ASE’s Jan IC ATM revenue -9.9% MoM, putting it on-

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Asian Daily

Huaku Development Co Ltd ------Maintain OUTPERFORM Building on fundamentals; reiterate OUTPERFORM EPS: ▼ TP: ▼ Jeremy Chen / Research Analyst / 886 2 2715 6368 / [email protected] ● With a major election in December, we think policy risk on the 2014 earnings outlook: 2H-loaded property market will linger through the year. However, in view of We expect sales and earnings to be light through 1H14 as Huaku’s the stock’s currently implied NAV discount of 47% (vs past 5-year major project completion this year will likely fall in 4Q. The major average of 27%), we believe that the market has discounted most earnings contributor will come from the NT$5.5 bn Songjiang project, of the risks, if not overly bearish on Huaku’s fundamental outlook. which should be completed in 4Q14. This project will contribute ● We remained encouraged by Huaku’s good project sell-through, NT$1.8 bn of profit (representing 60% of CS FY14e estimate), based strong upcoming project pipeline, high earnings visibility in on a GPM forecast of 36%. 2014/15, and a solid 6.6% dividend yield. Although we trim our Strong project pipeline for 2014 2013E EPS by 3% due to lower 4Q13 sales and our TP by 4% to In 2014, Huaku plans to launch 3 projects: (1) NT$11.2 bn Jinmei NT$106 to incorporate a bigger NAV discount (25% to 30%), the residential project, (2) NT$8.6 bn Dunbei residential project, and (3) stock’s risk/reward profile still appears attractive. We retain our NT$5.4 bn Jiangzicui residential project at Xinbei city. Jinmei is a 70- OUTPERFORM rating. year surface rights project. The location is near a MRT station and our check suggests that the asking price is likely to start below ● We expect Huaku to launch 3 projects in 2014 totalling NT$25.2 NT$400k/ping, which is 40-50% lower than the average selling price in bn in project value. All three projects are located in the Greater the neighbourhood. We are confident that this project could attract Taipei area, where we believe property pricing/demand will be strong interest from first-time homebuyers. Dunbei is a luxury project relatively less vulnerable to oversupply/policy risk. located near Taipei Arena, It is a short five-minute drive to Songshan ● We expect sales and earnings to be light through 1H14 as Airport. We believe this project could appeal to rich overseas Huaku’s major project completion this year will likely fall in 4Q. Taiwanese businessmen, given the close proximity to the airport and Bbg/RIC 2548 TT / 2548.TW Price (12 Feb 14, NT$) 80.40 the Minsheng business district. Rating (prev. rating) O (O) TP (prev. TP NT$) 106.00 (111.00) Maintain OUTPERFORM Shares outstanding (mn) 276.81 Est. pot. % chg. to TP 32 Daily trad vol - 6m avg (mn) 1.1 52-wk range (NT$) 109.0 - 72.1 Amidst the concerns over government’s property cooling measures, Daily trad val - 6m avg (US$ mn) 3.2 Mkt cap (NT$/US$ mn) 22,255.7/ 735.0 Huaku’s share price has slumped 5% YTD vs Taiex’s 1% decline. At

Free float (%) 80.4 Performance 1M 3M 12M the current level, the stock is trading at a NAV discount of 47% (vs Major shareholders Chung Shan Absolute (%) 4.4 (7.1) 5.5 past 5-year average of 27% and low of 51%). We feel that the market Investment (5.42%) Relative (%) 5.1 (11.7) (2.1) has discounted most of the risks, if not overly bearish on Huaku’s Year 12/11A 12/12A 12/13E 12/14E 12/15E fundamental outlook. We anticipate strong sell-through of its project EBITDA (NT$ mn) 2,780 1,813 3,141 3,289 3,533 Net profit (NT$ mn) 2,802 1,686 2,947 3,085 3,323 this year to regain investors' confidence and drive the share price EPS (NT$) 10.2 6.1 10.7 11.2 12.0 upside. Notwithstanding, we trim our target price by 4% to NT$106, to - Change from prev. EPS (%) n.a. n.a. (3) (1) (1) incorporate a bigger NAV discount (from 25% to 30%) to reflect the weak - Consensus EPS (NT$) n.a. n.a. 9.7 8.0 10.5 sentiments over the sector. With 32% share price upside potential, we EPS growth (%) (5.4) (40.1) 74.8 4.7 7.7 P/E (x) 7.9 13.2 7.5 7.2 6.7 maintain our OUTPERFORM rating. Key risks include sudden interest Dividend yield (%) 7.0 6.2 6.6 6.9 7.5 rate spike, construction delay and disappointing sell-through. EV/EBITDA (x) 10.9 16.8 9.8 8.3 6.8 Figure 1: Huaku—currently traded at trough discount-to-NAV ROE (%) 25.0 14.1 23.0 21.5 20.8 Net debt(cash)/equity (%) 66.9 67.0 61.5 33.3 10.9 30% NAV per share (NT$) 100 151 — — — 20% 10% Disc./(prem.) to NAV (%) 19.2 46.9 — — — 0% Note 1: Huaku is a major property developer focusing on Greater Taipei projects. The company -10% provides a full range of products, including office buildings, mid- to low-end residential houses and -20% luxury/top end residential projects.

-30% Click here for detailed financials -40% -47% 2013 earnings preview -50% -60%

We expect Huaku to report 2013 net income of NT$2,947 mn (up 75%

3Q07 2Q08 1Q09

Feb-12 Feb-10 Feb-11 Feb-13 Feb-14

Nov-09 Nov-13 Aug-09 Aug-10 Nov-10 Aug-11 Nov-11 Aug-12 Nov-12 Aug-13

May-11 May-12 May-13 YoY) or NT$10.7 per share on NT$10.3b revenue. This is 3% below May-10 our prior expectation due to lower 4Q13 sales. Huaku explained that it Discount to NAV only booked 50% of the sales from its ShaHeWan (China Chengdu) Source: Company data, Credit Suisse estimates project, rather than previously guided 70%.

Valuation metrics Rating TP Up/dn Div. yld ROE P/B Company Ticker (prev. Price chg to TP Year EPS Chg(%) EPS EPS grth (%) P/E (x) (%) (%) (x) rating) Local Target (%) (%) T T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+1 T+1 Huaku 2548.TW O (O) 80.40 106.00 (5) 32 12/12 (3) (1) 10.7 11.2 75 5 7.5 7.2 6.6 23.0 1.6 Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

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Asian Daily

Novatek Microelectronics Corp Ltd ------Maintain UNDERPERFORM 4Q13 miss, margin remains a concern in 2014 EPS: ▲ TP: ▲ Jerry Su / Research Analyst / 886 2 2715 6361 / [email protected] ● 4Q13 miss. Novatek reported 4Q13 EPS of NT$1.96, below our TV chipsets, FRC). For 2014, it expects 4K2K TV panel shipment of 15- and consensus estimates on lower margins. 4Q13 GM of 27.36% 20 mn units (vs 2013 ~2mn) for 7-8% penetration (in line). It admits was lower than our/consensus and below mid-point of guidance rising competition in DDI but still aims for flattish GM YoY as it expects (27.0-28.0%). OM was also below on lower GM and higher opex. TV SOC to see faster growth than DDI in 2014. ● 1Q14 in line. 1Q14 sales is guided at NT$10.3-10.7 bn (down 3% to Figure 1: Novatek 4Q13 results missed expectations on lower GM up 1% QoQ), GM of 27-28%, and OM of 12-14%. It thinks large-sized (NT$ mn) 4Q13A QoQ % YoY % CS old Diff.% Street Diff.% driver IC sales will decline single digit QoQ, while handset sales will Sales 10,610 0 (1) 10,610 (0) 10,610 - Gross profit 2,902 (2) (6) 3,005 (3) 2,942 (1) stay flattish QoQ. SOC remains the bright spot as sales will grow QoQ Operating profit 1,338 (4) (10) 1,431 (6) 1,433 (7) on lower 4Q13 base and new products ramp. Net income 1,191 (4) (10) 1,285 (7) 1,248 (5) ● Margin remains a concern. We continue to think Novatek's GM EPS (NT$) 1.96 (4) (11) 2.11 (7) 2.05 (5) Gross margin % 27.4 28.3 27.7 remains challenging in 2014-15 given the competition in both large- Op margin % 12.6 13.5 13.5 sized and smartphone driver ICs. Its expansion into CIS requires Source: Company data, Credit Suisse estimates. more OPEX vs limited sales in 2014 and is also GM dilutive. Intense competition + higher opex = lower margin ● Maintain UNDERPERFORM. We lower our 2014-15E OP by 1% on We remain concerned about Novatek's GM in 2014-15. For large DDI, higher opex but raise our 2014-15E EPS by 3%/1% on lower tax rate we think it will face more competition from peers and the contribution from "cool driver" remains minimal given most of the 4K2K TV in 2014 (~14% vs prior ~16%). We lift TP to NT$107 (from NT$104), based on will be low-end models. For smartphone DDI, we forecast WVGA will the same 12.5x 2014E P/E. We see downside to street's GM/OM post remain the mainstream (~50%) in China and competition for 4Q miss and do not expect Novatek to win Renesas SP bidding. HD720/FHD will heat up after 2Q14 as Ilitek/Himax catch up. Novatek Bbg/RIC 3034 TT / 3034.TW Price (12 Feb 14 , NT$) 130.50 also plans to step into CIS (CMOS Image Sensor) but is currently Rating (prev. rating) U (U) TP (prev. TP NT$) 107.00 (104.00) behind global and local peers on BSI technology, not to mention the Shares outstanding (mn) 608.51 Est. pot. % chg. to TP (18) competition from Chinese players like Galaxycore. Though it will need Daily trad vol - 6m avg (mn) 3.8 52-wk range (NT$) 156.5 - 107.0 Daily trad val - 6m avg (US$ mn) 15.1 Mkt cap (NT$/US$ mn) 79,410.7/ 2,622.5 more opex to catch up, we think stepping into CIS might be GM dilutive

Free float (%) 75.5 Performance 1M 3M 12M as global leader OVTI has had only 15-20% GM over the past two years. Major shareholders UMC (2.7%) Absolute (%) 0.4 17.0 11.1 Maintain UNDERPERFORM, less likely to win RSP bidding Relative (%) 1.0 12.4 3.4 We raise 2014-15E EPS on lower tax and lift TP to NT$107 using same Year 12/12A 12/13A 12/14E 12/15E 12/16E 12.5x 2014E P/E. We think Novatek is less likely to win the Renesas SP Revenue (NT$ mn) 37,029 41,450 46,444 50,524 — EBITDA (NT$ mn) 5,370 5,874 6,346 6,831 — bidding as we believe the US bidders (BRCM SYNA, CY) have a better Net profit (NT$ mn) 4,437 4,745 5,219 5,596 — opportunity given less conflicts with RSP's main customer Apple. EPS (NT$) 7.4 7.8 8.6 9.2 Figure 2: Novatek 2014-15 earnings revisions - Change from prev. EPS (%) n.a. n.a. 3 1 - Consensus EPS (NT$) n.a. n.a. 9.4 10.7 2014 2015 EPS growth (%) 19.5 6.3 9.8 7.2 n.a. New Old Chg. New Old Chg. P/E (x) 17.7 16.7 15.2 14.2 — Sales 46,444 45,911 1% 50,524 50,239 1% Dividend yield (%) 4.3 4.6 5.4 5.8 Gross profit 12,618 12,473 1% 13,404 13,346 0% EV/EBITDA (x) 12.8 11.4 10.4 9.6 — Operating profit 5,874 5,906 -1% 6,330 6,408 -1% P/B (x) 3.3 3.2 3.0 2.9 — Net income 5,219 5,080 3% 5,596 5,526 1% ROE (%) 19.3 19.6 20.5 20.8 — EPS (NT$) 8.58 8.35 3% 9.19 9.08 1% Net debt(cash)/equity (%) (44.9) (50.2) (50.4) (49.7) — Gross margin % 27.2 27.2 26.5 26.6

Op margin % 12.6 12.9 12.5 12.8 Click here for detailed financials Source: Company data, Credit Suisse estimates. 4Q13 miss, EPS down 4% QoQ/11% YoY on GM erosion Figure 3: Novatek quarterly P/L forecast Novatek's 4Q13 EPS missed our and street expectations on lower GM, NT$ mn 3Q13 4Q13 1Q14E 2Q14E 3Q14E 4Q14E 2013 2014E though sales were ahead of guidance. We note its 4Q13 sales were Revenue 10,574 10,610 10,621 11,600 12,369 11,854 41,450 46,444 flattish QoQ and YoY but EPS declined by 4% and 11%, respectively Gross profit 2,957 2,902 2,934 3,171 3,356 3,157 11,493 12,618 on GM erosion. Management noted better 4Q13 sales were mainly Operating profit 1,398 1,338 1,368 1,498 1,568 1,439 5,431 5,874 Net profit 1,239 1,191 1,232 1,276 1,418 1,293 4,745 5,219 due to early pull-in of large-sized DDI given early CNY holiday, while EPS (NT$) 2.04 1.96 2.02 2.10 2.33 2.13 7.81 8.58 GM decline is mainly due to product mix (lower SOC sales). We think Gross margin (%) 28.0 27.4 27.6 27.3 27.1 26.6 27.7 27.2 weaker GM is mainly impacted by aggressive pricing competition for Op margin (%) 13.2 12.6 12.9 12.9 12.7 12.1 13.1 12.6 both large-sized and smartphone DDIs (~80% of sales), which was a Source: Company data, Credit Suisse estimates. surprise to us as we thought this should happen after 2Q14. 1Q14 guidance in line 1Q14 sales/GM/OM guidance were in line with our/street's latest expectations. It guided large-sized DDI sales will decline single digit QoQ on seasonality and expects mobile DDI sales to remain flattish QoQ on higher-ASP HD720 shipments, though total mobile DDI shipment might decline QoQ. SOC remains the bright spot as it expects sales to grow QoQ on lower 4Q base and ramp of new products (4K2K

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Asian Daily

Sinopac Holdings ------Maintain NEUTRAL Moderate 4Q13 profit slowdown on higher bank provisions EPS: ▲ TP: ◄► Chung Hsu, CFA / Research Analyst / 886 2 2715 6362 / [email protected] Michelle Chou, CFA / Research Analyst / 886 2 2715 6363 / [email protected] ● SinoPac FHC reported 4Q13 profit of NT$2.4 bn and 2013 profit spread contracted by 3 bp. The bank has been adjusting loan of NT$10.7 bn (EPS: NT$1.31). We tweak our estimates by 2% portfolio/RWA and guided moderate loan growth for 2014 after mild post results. 2.5% full-year loan growth in 2013. This is likely capped by the bank's ● In 4Q13, PPoP declined 9% QoQ on slightly lower TMU income, Tier 1 ratio of 8.3% after the set-up of Nanjing subsidiary. The loan and a NT$300 mn donation to NCHU. Yet, full-year PPoP rose growth will likely remain modest, until the ICBC deal is completed later 29% on better fee and TMU. Meanwhile, NIM edged higher by 2 this year, whereby Bank SinoPac will receive NT$20 bn capital. bp with better ALM and higher interbank lending despite a very Figure 2: Bank SinoPac’s quarterly key ratios moderate loan growth. SinoPac stepped up provisioning in 4Q Key ratios (%) 4Q12 1Q13 2Q13 3Q13 4Q13 (TMT and GP) with credit cost of 57 bp (or 25 bp for 2013). The NIM (%) 1.15 1.15 1.14 1.15 1.17 bank took more provisions in January on the back of strong top LDR (%) 75.7 72.5 74.7 73.1 73.9 line and is now complied with 1% GP requirement. NPL ratio (%) 0.30 0.29 0.28 0.44 0.37 Coverage ratio (%) 337 358 368 241 290 ● SinoPac is renewing share subscription agreement with ICBC and CIR (%) 56.75 47.16 47.81 47.86 51.88 the cooperation with ICBC is still ongoing. The deal is still pending Source: Company data, Credit Suisse on the Legislative Yuan's approval on the cross-strait service Figure 3: Bank SinoPac quarterly P&L agreement. Meanwhile, the bank will focus on ALM and its new 4Q12 1Q13 2Q13 3Q13 4Q13 QoQ YoY global cash management platform to drive non-interest income. Net interest income 3,304 3,303 3,412 3,490 3,581 3% 8% Fee income 913 1,141 1,076 997 1,005 1% 10% ● We have a NEUTRAL rating but adjust TP to NT$15.5 (from NT$15). FX& derivatives gains 664 1,221 1,542 1,325 1,120 -15% 69% Bbg/RIC 2890 TT / 2890.TW Price (12 Feb 14 , NT$) 14.40 Other non-NII 49 475 470 424 523 23% 967% Rating (prev. rating) N (N) TP (prev. TP NT$) 15.50 (15.00) Total operating income 4,930 6,140 6,500 6,236 6,229 0% 26% Shares outstanding (mn) 8,207.74 Est. pot. % chg. to TP 8 Operating expense (2,847) (2,957) (3,171) (3,010) (3,289) 9% 16% Daily trad vol - 6m avg (mn) 12.7 52-wk range (NT$) 14.9 - 12.5 Pre-provision profits 2,084 3,182 3,329 3,226 2,940 -9% 41% Daily trad val - 6m avg (US$ mn) 5.9 Mkt cap (NT$/US$ bn) 118.2/ 3.9 Provision charges 35 (38) (35) (819) (1,200) 47% nm

Free float (%) 60.0 Performance 1M 3M 12M Net profit 1,895 2,792 2,942 2,053 1,725 -16% -9% Major shareholders Ho family (19%), Absolute (%) (0.3) 0.3 14.3 Source: Company data, Credit Suisse Research Dr. Hong (5%), Relative (%) 0.3 (4.3) 6.7 Complied with 1% GDP in January 2014 Mr. Yin (4%) SinoPac stepped up provisioning in 3Q (TMT and GP) with credit cost Year 12/11A 12/12A 12/13E 12/14E 12/15E Pre-prov Op profit (NT$ mn) 6,875.8 11,676.8 13,521.5 14,036.7 15,059.7 of 57 bp (annualised) vs 14 bp in 9M13. The bank's outstanding TMT Net profit (NT$ mn) 3,069 9,543 10,126 10,178 10,858 exposure (NT$1.2 bn) is 10% reserved as of Dec-2013. The bank took EPS (CS adj. NT$) 0.40 1.19 1.23 1.24 1.32 more provisions in January on the back of strong top-line momentum - Change from prev. EPS (%) n.a. n.a. 2 2 0 and is now complied with 1% general provision requirement. With - Consensus EPS (NT$) n.a. n.a. 1.31 1.28 1.35 EPS growth (%) (38.7) 199.8 3.7 0.5 6.7 some TMT exposure and potential regulatory change on provision P/E (x) 36.3 12.1 11.7 11.6 10.9 requirement for Class 2 loan, we expect a similar provision level for Dividend yield (%) 0 3.5 3.4 3.4 3.7 2014 (vs. 25 bp in 2013). BVPS (CS adj. NT$) 12.3 13.0 12.8 13.5 14.4 P/B (x) 1.17 1.10 1.13 1.06 1.00 In the process of renewing the ICBC contract ROE (%) 3.5 10.1 10.0 9.4 9.5 Acceding to management, SinoPac is in the process of renewing ROA (%) 0.2 0.7 0.7 0.7 0.7 ICBC's share subscription agreement that will provide NT$20 bn cash Tier 1 Ratio (%) 8.93 8.86 8.33 8.50 8.48

Note 1: SinoPac Holdings was publicly listed on the Taiwan Stock Exchange on May 9, 2006. Its injection into Bank SinoPac. The deal is still pending for the subsidiaries include banking, securities, credit cards, customer service technology, insurance Legislative Yuan's approval on the cross-strait service and trade brokerage, venture capital investing, management consulting firm.

agreement. In the meantime, management indicated that it will Click here for detailed financials continue to focus on asset/liability management to enhance net Figure 1: SinoPac FHC’s quarterly earnings by subsidiary interest margin. We have a NEUTRAL rating on SinoPac and adjust NT$ mn 4Q12 1Q13 2Q13 3Q13 4Q13 QoQ YoY Bank 1,895 2,792 2,942 2,053 1,725 -16% -9% our target price to NT$15.5 (from NT$15). Securities 82 115 30 384 464 21% 463% FHC 2,045 2,873 2,998 2,462 2,371 -4% 16% Source: Company data, Credit Suisse Research. In 4Q13, PPoP was down 9% QoQ, with slightly lower TMU income (- 15% QoQ) and a NT$300 mn donation to National Chung Hsing University (NCHU). Excluding the donation, PPoP was essentially flat in 4Q. For the full year, Bank SinoPac's PPoP showed a robust 29% improvement on strong fee income (+21% YoY) and TMU income doubled from 2012. Meanwhile, NII remained steady with NIM edged higher by 2 bp with better asset liability management and higher interbank lending (to China banks) despite very moderate loan growth of 1.3% QoQ and

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Asian Daily

Thailand Advanced Info Service PCL ------Maintain OUTPERFORM Regulatory benefits are being retained, and so Bt40 bn in capex worth spending EPS: ▼ TP: ▼ Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected] Jennifer Gao / Research Analyst / 852 2101 6479 / [email protected] ● AIS' FY13 service revenue forecast missed our estimate slightly Regulatory fees declines outweigh marketing cost (by 0.3%) but EBITDA beat our forecast by 0.4%. FY13 net profit As a reminder, the potential margin expansion from declining regulatory missed by 3.5% due to depreciation and tax. costs amounts to circa 21 pp (2G concession revenue share of 26.3% of ● Our thesis remains, unless selling and marketing costs continue to sales in 3Q12 versus an expected 5.25% under the new 3G license increase as a percentage of sales quarter after quarter, a portion regime). In 4Q13 marketing expenses increased by 10.1% QoQ, rising of the savings from the regulatory fees declining from circa 26.0% from 4.6% of net service revenue before interconnect in 3Q13 to 5.1% of service revenues to only 5.25% will drop through into rising of net service revenue in 4Q13. Against that, regulatory fees including EBITDA margins. revenue sharing fell by 11.6% QoQ from 22.2% of net service revenue before interconnect in 3Q13 to 19.6% of net service revenue before ● The 4Q13 results, and the FY14 guidance, suggest that this thesis interconnect in 4Q13. As a result, the EBITDA margin on net service is intact. As a result, we are not uncomfortable with AIS's strategy revenue before interconnect rose from 54.8% in 3Q13 to 58.2% in 4Q13, of spending Bt40.0 bn in capex in FY14 in order to position itself and EBITDA rose by 6.4% QoQ and 5.7% YoY. as a premium provider, retain share, and encourage 3G adoption. ● The front-loaded nature of the capex ramp-up contributes to our For FY13 as a whole, AIS achieved a net EBITDA margin of 56.6%, DCF-based target price declining by 3.6% to Bt270, but the 29.0% and a gross EBITDA margin of 44.6%, ahead of its (already-upwardly- potential upside still warrants an OUTPERFORM rating. revised) guidance of 43%, and EBITDA therefore grew by 3.7% YoY Depreciation and interest charges contribute to a 3.9% downward to Bt63,691 mn. This was slightly (0.4%) ahead of our forecast. revision in FY14 earnings, but we remain ahead of consensus. AIS choses to compete on capex rather than price AIS has withdrawn its three-year FY13-FY15 guidance of Bt70.0 bn in Bbg/RIC ADVANC TB / ADVANC.BK Price (11 Feb 14 , Bt) 209.00 capex and instead guided for FY14 capex of Bt40.0 bn—a much Rating (prev. rating) O (O) TP (prev. TP Bt) 270.00 (280.00) higher number than the Bt29.5 bn number we had projected. Clearly, Shares outstanding (mn) 2,973.10 Est. pot. % chg. to TP 29 Daily trad vol - 6m avg (mn) 7.1 52-wk range (Bt) 310.0 - 187.0 taking the FY13A capex figure (Bt28.5 bn) and adding Bt40.0 bn for Daily trad val - 6m avg (US$ mn) 50.5 Mkt cap (Bt/US$ bn) 621.4/ 19.0 FY14, AIS has accelerated its capex programme from three years to

Free float (%) 52.8 Performance 1M 3M 12M two years. This will facilitate a high quality 3G network (together with Major shareholders INTOUCH (40.45%) Absolute (%) — (9.1) 5.6 transmission network and a store revamp) covering 85.0% of the Thai Relative (%) (1.4) (1.1) 18.1 population by Y/E14. As mentioned above, AIS believes that this Year 12/12A 12/13A 12/14E 12/15E 12/16E Revenue (Bt mn) 126,615 132,182 143,648 152,676 159,096 rollout, and noticeable resulting improvement in service quality and EBITDA (Bt mn) 61,501 63,691 75,615 86,696 91,548 perception, will allow it to recapture some lost revenue market share Net profit (Bt mn) 34,883 36,274 43,754 50,359 54,364 without competing directly on price. We believe that this is sensible EPS (Bt) 11.7 12.2 14.7 16.9 18.3 positioning for value protection from the market share leader. - Change from prev. EPS (%) n.a. n.a. (4) (7) - Consensus EPS (Bt) n.a. n.a. 13.6 15.0 16.5 Capex raised, EBITDA trimmed, but still growing EPS growth (%) 31.1 4.0 20.6 15.1 8.0 We have followed management's guidance and increased our FY14 P/E (x) 17.8 17.1 14.2 12.3 11.4 Dividend yield (%) 5.2 5.8 7.0 8.1 8.7 capex forecast to Bt40.6bn. We broadly maintained our service EV/EBITDA (x) 10.1 9.8 8.7 7.6 7.1 revenue forecasts, which fall with AIS's guidance range of 6-8%, but P/B (x) 14.3 13.6 13.6 13.6 13.6 we have trimmed our EBITDA forecast by 1.0%. The impact of this, ROE (%) 84.5 81.4 95.6 110.1 118.8 together with higher depreciation and interest charges from the Net debt(cash)/equity (%) (7.3) 11.8 75.6 79.6 72.2

Note 1: ORD/ADR=1.00. Note 2: Advanced Info Service Public Company Limited is a leading increase in capex, lead to our FY14 earnings forecast declining by cellular service provider in Thailand. 3.9%, but we remain ahead of consensus. Our DCF-based target

Click here for detailed financials price declines by 3.6% to Bt270, but we maintain our OUTPERFORM For FY13 as a whole, AIS' net cellular service revenue excluding rating. interconnect grew only 3.9%. This was below AIS' guidance of 5-6% but largely expected by us and, we believe, by the stock market. AIS Figure 1: AIS FY13A—YoY and versus Credit Suisse forecasts therefore missed our FY13 revenue forecast by only 0.3%. However, Bt mn FY13A FY12A YoY% CSFY13E Diff% Service revenue 112,528 108,355 3.9% 112,852 -0.3% AIS guided that FY14 net service revenue before interconnect will EBITDA 63,691 61,437 3.7% 63,420 0.4% grow by circa 6-8% and this is very much in line with our forecast of Gross EBITDA margin 44.6% 43.4% 42.9% 6.9% growth. Management believes that this will be driven by data Depreciation and Amortization (17,083) (15,949) 7.1% (16,241) 5.2% revenue growth, resulting from rising smartphone penetration, which Tax (10,008) (10,715) -6.6% (9,394) Earnings 36,274 34,883 4.0% 37,576 -3.5% will in turn be driven by a faster rollout of 3G network than originally Source: Company data, Credit Suisse estimates planned. AIS' strategy can be best encapsulated by management's intention to provide 'superior network quality and coverage for competitive market pricing'. Broadly speaking, this would represent the same strategy as AIS had pursued under the 2G period from 1995 through 2012.

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Asian Daily

Siam City Cement ------Maintain UNDERPERFORM Medium-term risk remains high EPS: ◄► TP: ▼ Paworamon (Poom) Suvarnatemee, CFA / Research Analyst / 66 2 614 6210 / [email protected] Wattana Punyawattanakul / Research Analyst / 66 2 614 6215 / [email protected] ● We see the risk of cement demand undershooting its long-term that farmers have less money to spend compared to the high base in trend in 2014 due to ongoing political protest and the inability of 2012-13. Demand outside Bangkok is 80% of total cement consumption. the caretaker government to push through infrastructure projects. In 2007, when Thailand was run by interim, military-led Figure 1: Cement demand growth was poor in 2007 during interim govt government, cement demand dropped 12% YoY. 15% ● Cement price tends to lag demand direction. We forecast demand 10% growth of 3% and relatively flat cement price in 2014. Bigger 5%

downside risk is in 2015 when new supply is added in the region. 0%

● We believe that SCCC would see profit growth in 2014, driven by -5% restarting of its 1.5mnt plant earlier mothballed. Our forecast is in- line with consensus in 2014 but lower in 2015-16 due to our -10%

forecast of negative impact on prices from supply addition. -15%

2007 2008 2009 2010 2011 2012 2013 ● We maintain UNDERPERFORM as risk reward tradeoff is still 2006 Cement demand growth unattractive considering downside risk to demand in 2014 and supply growth in 2015. We expect high dividend yield to limit Source: Bank of Thailand share price downside. Our TP is cut to Bt360, based on historical Demand and supply balance: Less favourable in the region EV/EBITDA of 11x. We prefer SCC due to its diversification. Even without the downside risk to demand, Thailand cement market is Bbg/RIC SCCC TB / SCCC.BK Price (12 Feb 14, Bt) 359.00 faced with continuing supply increase of 2mnt in 2014 (SCC & SCCC) Rating (prev. rating) U (U) TP (prev. TP Bt) 360.00 (380.00) and 4.5mnt in 2015 (TPIPL). This is equivalent to 5% and 12% of Shares outstanding (mn) 230.00 Est. pot. % chg. to TP 0 domestic demand growth in 2014 and 2015, respectively. In addition, Daily trad vol - 6m avg (mn) 0.1 52-wk range (Bt) 500.0 - 350.0 SCC is adding 0.9mnt of new capacity in Cambodia in mid-2015, Daily trad val - 6m avg (US$ mn) 1.4 Mkt cap (Bt/US$ mn) 82,570.0/ 2,528.2

Free float (%) 26.0 Performance 1M 3M 12M resulting in lower need for import from Thailand. Further capacity Major shareholders Holcim (27.5%) addition in Myanmar in SCC may also result in a similar impact in Absolute (%) (10.7) (10.3) (10.7) Relative (%) (13.1) (3.1) 1.0 2016. Cambodia and Myanmar were the two biggest export markets Year 12/12A 12/13A 12/14E 12/15E 12/16E for Thai cement companies in 2013. Revenue (Bt mn) 26,427 29,950 32,363 33,456 35,003 EBITDA (Bt mn) 5,508 7,257 7,874 7,918 7,923 Risk reward tradeoff unattractive despite lower valuation premium Net profit (Bt mn) 3,636 4,796 5,207 5,199 5,212 We maintain UNDERPERFORM as risk reward tradeoff is still EPS (Bt) 15.8 20.9 22.6 22.6 22.7 unattractive considering downside risk to demand in 2014 and supply - Change from prev. EPS (%) n.a. n.a. 0 (2) - Consensus EPS (Bt) n.a. n.a. 23.6 24.7 28.3 growth in 2015. We expect high dividend yield to limit share price EPS growth (%) 10.4 31.9 8.6 (0.1) 0.2 downside. Our TP is cut to Bt360, based on historical EV/EBITDA of P/E (x) 22.7 17.2 15.9 15.9 15.8 11x. We prefer SCC due to its diversification Dividend yield (%) 3.6 4.2 4.4 4.4 4.4 EV/EBITDA (x) 15.5 12.0 11.0 10.9 10.8 Figure 2: EV/EBITDA—premium to Indonesian peers, but lower than the P/B (x) 4.7 4.3 4.0 3.8 3.6 peak in 1H13 ROE (%) 21.0 26.0 26.1 24.4 23.1 Net debt (cash)/equity (%) 16.7 23.4 20.5 15.5 11.3 (x)

Note 1: SCCC is the second largest cement company in Thailand. The company offers and customises 25 cement and mortar products under INSEE brands in nature powdered cement and clinker.

20 Click here for detailed financials SCCC's earnings: Below consensus 15 SCCC posted its 4Q13 earnings of Bt752 mn, in-line with our expectation but 24% below consensus estimates. Net profit declined 10 38% QoQ and 1% YoY. Stripping out FX loss of Bt121 mn at its 5 subsidiary, its core profit was Bt873 mn, still 12% below consensus

forecast. Sales revenue declined 1.6% QoQ, which could be 0

Jul-10

Oct-06 Apr-09 Oct-11 Apr-14

Jun-08 Jan-13 Jun-13

explained by the seasonal drop in demand in 4Q13. Jan-08

Mar-07 Mar-12

Feb-10

Dec-05 Nov-08 Dec-10 Nov-13

Aug-07 Sep-09 Aug-12 Sep-14

May-06 May-11 Downside risk on demand from ongoing protest Indocement Semen Gresik Holcim Indo SCCC

We believe that the real impact of the ongoing political conflict should Source: Company data, Credit Suisse estimates. start to hit the cement industry in 1Q14. Siam Cement disclosed in the analyst meeting that demand in the first three weeks of January rose 2% YoY. We see further downside risk if the protest prolongs or there is an interim government. In 2007, when Thailand was run by military-led government, cement demand dropped 12% YoY. In the scenario that the protest prolongs, the caretaker government is not expected to launch even smaller scale projects. Broader economy may be hurt by the fact

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Total Access Communication PCL------Maintain OUTPERFORM EBITDA rises 11.2% QoQ and 17.7% YoY as regulatory benefits are retained EPS: ▲ TP: ◄► Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected] Jennifer Gao / Research Analyst / 852 2101 6479 / [email protected] ● DTAC delivered 11.2% QoQ and 17.7% YoY EBITDA growth in excluding interconnect revenue will grow by 7.4%, and we therefore 4Q13, as regulatory savings outweighed increasing marketing remain comfortable with this forecast. expenses. For FY13, DTAC was 0.4% ahead of our service Regulatory fee declines outweighed marketing costs revenue forecast, 2.0% below on EBITDA (but above consensus) In 4Q13, selling and marketing expenses increased by 21.5% QoQ, and 13.4% below on headline earnings due to a slew of one-offs. rising from 6.7% of total net revenue to 6.9% of total net revenue. ● DTAC will miss a dividend payment in 4Q13 due to a non-cash However, we note that revenue sharing fell by 9.7% QoQ, from 28.4% impairment charge on 2G concession assets but, importantly, of total net revenue to 21.8%.Thus, EBITDA margin on net revenue DTAC is guiding for both revenue growth and further margin rose by 3.9pp from 41.1% in 3Q13 to 45.0% in 4Q14. With rising expansion into FY14, and our thesis that regulatory savings will revenue, EBITDA rose by 11.2% QoQ, and 17.7% YoY. continue to outweigh marketing cost increases remains intact. For FY13 as a whole, DTAC achieved gross EBITDA margin of 31.4%, ● Specifically, DTAC is guiding for net service revenue growth of slightly ahead of its guidance range of 30-31%, and EBITDA therefore 6.5-9.0% (Credit Suisse forecast 7.4%), gross EBITDA margin of grew by 10.9% YoY to Bt29,721 mn. This was 2.0% below our forecast 35-36% (Credit Suisse forecast 36.7%) and capex of 'minimum of Bt30,332 mn, but we note this result beat consensus of Bt28,975 mn. Bt13.0 bn' (Credit Suisse: Bt14.7 bn). The fact that gross EBITDA margin looks low relative to regional peers ● We therefore maintain our FY14 and FY15 forecasts and our in the prepaid market of course in part due to the inclusion of handset OUTPERFORM rating. The small 2% increase in FY16 is due to sales revenue—the EBITDA margin on net service revenue before interest costs. DTAC is currently our top pick within the Thai interconnection was 42.4%, up 0.2pp from FY12. telecoms sector. For FY14, DTAC has guided for gross EBITDA margin of 35-36%. Bbg/RIC DTAC TB / DTAC.BK Price (11 Feb 14 , Bt) 97.00 Rating (prev. rating) O (O) TP (prev. TP Bt) 140.00 (140.00) This clearly represents an improvement from the 31.4% delivered in Shares outstanding (mn) 2,367.81 Est. pot. % chg. to TP 44 FY13, and so DTAC is anticipating that regulatory benefits will Daily trad vol - 6m avg (mn) 3.3 52-wk range (Bt) 128.0 - 83.8 outweigh increased costs. We would agree entirely with this trajectory; Daily trad val - 6m avg (US$ mn) 10.6 Mkt cap (Bt/US$ bn) 229.7/ 7.0

Free float (%) 24.3 Performance 1M 3M 12M we currently forecast gross EBITDA margin of 36.7% for FY14. Major shareholders Telenor (35.0%) Absolute (%) (2.0) (7.6) 12.5 Thesis intact: Forecasts and rating maintained Relative (%) (3.0) 0.8 25.4 Our thesis remains that unless selling and marketing costs continue to Year 12/12A 12/13A 12/14E 12/15E 12/16E Revenue (Bt mn) 74,765 84,063 89,256 95,068 99,715 increase as a percentage of sales quarter after quarter, a portion of EBITDA (Bt mn) 26,809 29,721 38,337 44,483 48,253 the savings from regulatory fees declining from 30% of service Net profit (Bt mn) 11,278 10,567 15,898 19,056 21,172 revenues to only 5.25% of service revenues would indeed drop EPS (Bt) 4.76 4.46 6.71 8.05 8.94 through into rising EBITDA margins. Thus, we forecast that part of the - Change from prev. EPS (%) n.a. n.a. 0 0 2 - Consensus EPS (Bt) n.a. n.a. 5.79 7.21 regulatory benefit to be retained by DTAC (and AIS) rather than EPS growth (%) (4.5) (6.3) 50.5 19.9 11.1 competed away. With 4Q13 figures and FY14 guidance proving P/E (x) 20.4 21.7 14.4 12.1 10.8 supportive of this thesis we maintain our forecasts and Dividend yield (%) 5.2 3.8 6.9 8.3 9.2 OUTPERFORM rating. DTAC is currently our top pick within the Thai EV/EBITDA (x) 9.5 8.5 6.7 5.7 5.1 P/B (x) 6.6 7.0 7.0 7.0 7.0 telecoms sector. ROE (%) 32.3 31.2 48.6 58.3 64.7 Net debt(cash)/equity (%) 73.2 73.3 88.1 70.6 52.0 Figure 1: DTAC FY13A—YoY and versus Credit Suisse forecasts

Note 1: ORD/ADR=5.00. Note 2: TAC is the second largest cellular operator in Thailand. (Bt mn) FY13A FY12A YoY% CSFY13E Diff%

Click here for detailed financials Service rev - ex interconnect 70,105 63,503 10.4% 69,827 0.4% DTAC meets our FY13 revenue forecast Total rev - ex interconnect 84,063 74,765 12.4% 83,443 0.7% EBITDA 29,721 26,809 10.9% 30,332 -2.0% As expected, a stronger seasonal economy, together with the ongoing EBITDA margin* 42.4% 42.2% 43.4% structural driver of increasing data revenues due to rising smartphone EBITDA margin on total revenue 31.4% 29.9% penetration, was enough to counterbalance the impact of tariff cuts and Earnings 10,567 11,278 -6.3% 12,197 -13.4% airtime discounts (aka 'subsidies') in 4Q13. Thus, net cellular service Earnings - pre exceptional 11,410 11,278 1.2% 12,197 -6.5% Source: Company data, Credit Suisse estimates. *margin on service revenue excluding revenue excluding interconnect rose 1.6% QoQ and 5.8% YoY. Looking interconnect across FY13 as a whole, net cellular service revenue excluding interconnect grew by 10.4%, beating our forecast slightly (by 0.4%). DTAC guided that FY14 revenue will grow by circa 3-5%, but we reiterate that this is actually rather unhelpful guidance since it is on the basis of total revenue, which includes handset sales. FY13 guidance had been revenue growth of 5-7% in total revenue, though net cellular service revenue before interconnect grew by 10.4% as previously mentioned. Management stated that the guidance implied that net cellular service revenue before interconnect would grow by 6.5-9.0% in FY14; our current forecast is that FY14 net cellular service revenue

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Recently Published Research Date Title Author(s) Tel. E-mail Thu 13 Feb Asia Technology Sector - LED: Entering the expansion Keon Han 82 2 3707 3740 [email protected] phase John Sung 82 2 3707 3739 [email protected] Derrick Yang 886 2 2715 6367 [email protected] Ray Kim 82 2 3707 3776 [email protected] Thu 13 Feb Perusahaan Gas Negara - Looking for upside risk to Ami Tantri 62 21 2553 7976 [email protected] distribution volume Wed 12 Feb Asia Equity Strategy - Cyclicals have outperformed Sakthi Siva 65 6212 3027 [email protected] defensives YTD. Continue? Kin Nang Chik 852 2101 7482 [email protected] Wed 12 Feb Asia Insurance Weekly-Regional life trends remain strong Arjan van Veen 852 2101 7508 [email protected] (AIA / GE) Frances Feng 852 2101 6693 [email protected] Wed 12 Feb Asia Pacific Equity Strategy - Reporting season Sakthi Siva 65 6212 3027 [email protected] scorecard: NJA misses, Japan slightly up Kin Nang Chik 852 2101 7482 [email protected] Wed 12 Feb Hong Kong Property Sector - Primary market: Competitive Joyce Kwock 852 2101 7496 [email protected] pricing for a strong sell-through Wayne Lee 852 2101 7165 [email protected] Tue 11 Feb China Shipping Development - Profit turnaround and Davin Wu 852 2101 6917 [email protected] multiple catalysts Timothy Ross 65 6212 3337 [email protected] Tue 11 Feb Chinese Whispers: Monthly Survey Series on China - Vincent Chan 852 2101 6568 [email protected] Inflation expectations hit an 11-month high Tue 11 Feb Hong Kong Exchanges and Clearing - Robust start to Arjan van Veen 852 2101 7508 [email protected] 2014 Tue 11 Feb Hutchison Whampoa - Twenty-five billion reasons to Karim P. Salamatian 852 2101 7996 [email protected] monetise Rebecca Kwee 852 2101 7951 [email protected] Tue 11 Feb Tata Motors Ltd. - RR, RR Sport thesis playing out Jatin Chawla 91 22 6777 3719 [email protected] Akshay Saxena 91 22 6777 3825 [email protected]

Companies mentioned Advanced Info Service PCL (ADVANC.BK, Bt209.0, OUTPERFORM, TP Bt270.0) Advanced Semicon. Engr. (2311.TW, NT$29.15) Ansell Limited (ANN.AX, A$19.18, NEUTRAL, TP A$21.0) ANZ Banking Group (ANZ.AX, A$30.56, OUTPERFORM, TP A$35.8) Apollo Tyres (APLO.BO, Rs118.4, OUTPERFORM, TP Rs144.0) Apple Inc (AAPL.OQ, $535.96) Baidu Inc (BIDU.OQ, $166.29) Biosensors International Group Ltd. (BIOS.SI, S$0.87, NEUTRAL, TP S$1.0) Broadcom Corp. (BRCM.OQ, $30.79) Bumi Armada (BUAB.KL, RM4.02) Burberry Group (BRBY.L, 1505.0p) China Animal Hlt (0940.HK, HK$4.1) China Life (2628.HK, HK$21.6) China Mengniu Dairy (2319.HK, HK$36.7, OUTPERFORM, TP HK$47.5) China Merchant Holdings (0144.HK, HK$26.45) China Modern Dairy Holdings Ltd (1117.HK, HK$3.91) Cipla Limited (CIPL.BO, Rs412.8, NEUTRAL, TP Rs415.0) Commonwealth Bank Australia (CBA.AX, A$76.2, UNDERPERFORM, TP A$76.0) ConocoPhillips (COP.N, $65.57) Cypress Semiconductor Corp. (CY.OQ, $9.71) Danone (DANO.PA, €50.03) Dialog Group (DIAL.KL, RM3.2) eAccess (Unlisted) Epistar Corporation (2448.TW, NT$68.7, OUTPERFORM, TP NT$75.0) Everlight Electronics Co Ltd (2393.TW, NT$76.1, UNDERPERFORM, TP NT$62.0) Facebook Inc. (FB.OQ, $64.86) GungHo Online (3765.T, ¥669) HCL Technologies (HCLT.BO, Rs1491.6, OUTPERFORM, TP Rs1675.0) Hermes International (HRMS.PA, €240.65) Himax Technologies, Inc. (HIMX.OQ, $14.41) Huaku Development Co Ltd (2548.TW, NT$80.4, OUTPERFORM, TP NT$106.0) Hugo Boss (BOSSn.DE, €93.82) Hyundai Mobis (012330.KS, W312,000) Hyundai Motor (005380.KS, W231,000) ILI Tech (3598.TW, NT$55.2) Industrial & Commercial Bank of China (1398.HK, HK$4.82) Infosys Limited (INFY.BO, Rs3599.6, NEUTRAL, TP Rs3800.0) Jaiprakash Associates Ltd. (JAIA.BO, Rs39.9, OUTPERFORM[V], TP Rs65.0) Jaiprakash Power Ventures Ltd (JAPR.BO, Rs14.48, OUTPERFORM[V], TP Rs30.0) Jasmine International (JAS.BK, Bt7.5) Jollibee Foods Corporation (JFC.PS, P152.4) KDDI (9433.T, ¥5,470) Keppel Corporation (KPLM.SI, S$10.49) Kering (PRTP.PA, €154.1) DTAC4Q13daily.doc - 33 of 35 - Thursday, 13 February 2014

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Kia Motors (000270.KS, W53,200) Kingsoft (3888.HK, HK$24.1) Lextar (3698.TW, NT$34.55, OUTPERFORM[V], TP NT$37.0) LG Innotek (011070.KS, W88,000, UNDERPERFORM, TP W64,000) LVMH (LVMH.PA, €133.85) Macquarie Group (MQG.AX, A$53.52, OUTPERFORM, TP A$63.0) Malaysia Marine and Heavy Engineering Holdings Bhd (MHEB.KL, RM3.68) MCB Bank Limited (MCB.KA, PRs275.52, OUTPERFORM, TP PRs350.0) MediaTek Inc. (2454.TW, NT$434.0) Micron Technology Inc. (MU.OQ, $24.72) Millennial Media (MM.N, $7.19) National Bank of Pakistan (NBPK.KA, PRs58.13, NEUTRAL, TP PRs53.0) Naver Corp (035420.KS, W741,000) Nippon Telegraph and Telephone (9432.T, ¥5,673) Novatek Microelectronics Corp Ltd (3034.TW, NT$130.5, UNDERPERFORM, TP NT$107.0) NTT DoCoMo (9437.T, ¥1,653) OmniVision Techs (OVTI.OQ, $14.26) Page Industries (PAGE.BO, Rs5633.4, OUTPERFORM, TP Rs6350.0) Perusahaan Gas Negara (PGAS.JK, Rp4,805, OUTPERFORM, TP Rp6,300) Powertech Technology (6239.TW, NT$41.6) PRADA S.p.A. (1913.HK, HK$63.65, OUTPERFORM, TP HK$82.0) PT Bank Danamon Indonesia Tbk (BDMN.JK, Rp4,600, UNDERPERFORM, TP Rp3,000) Qihoo 360 Technology Co. Ltd. (QIHU.N, $96.36) Realtek Semiconductor (2379.TW, NT$85.0) Renesas Elec (6723.T, ¥549) Salvatore Ferragamo SpA (SFER.MI, €23.8) Samsung Electronics (005930.KS, W1,311,000) SapuraKencana (SKPE.KL, RM4.54) Seoul Semiconductor Co Ltd (046890.KQ, W45,250, OUTPERFORM, TP W53,000) Shandong Weigao Group Medical (1066.HK, HK$9.81) Shin Corporation (INTUCH.BK, Bt72.25) Siam Cement (SCC.BK, Bt420.0, NEUTRAL, TP Bt404.0) Siam City Cement (SCCC.BK, Bt359.0, UNDERPERFORM, TP Bt380.0) Sihuan Pharmaceutical Holdings Group Ltd. (0460.HK, HK$8.4) Siliconware Precision (2325.TW, NT$37.55) Sinopac Holdings (2890.TW, NT$14.4, NEUTRAL, TP NT$15.5) Softbank (9984.T, ¥7,782, RESTRICTED [V]) Sprint Corp (S.N, $7.9) SPT Energy (1251.HK, HK$5.16, UNDERPERFORM[V], TP HK$3.0) Sungy Mobile Limited (GOMO.OQ, $21.06, OUTPERFORM[V], TP $24.0) Supercell (Unlisted) Synaptics (SYNA.OQ, $57.03) Taiwan Semiconductor Manufacturing (2330.TW, NT$105.0) Tata Consultancy Services (TCS.BO, Rs2103.8, OUTPERFORM, TP Rs2750.0) Tech Mahindra Limited (TEML.BO, Rs1875.55, OUTPERFORM, TP Rs2200.0) Tencent Holdings (0700.HK, HK$538.0) The Whitewave Foods Company (WWAV.N, $23.6) Tod's Spa (TOD.MI, €98.0) Total Access Communication PCL (DTAC.BK, Bt97.0, OUTPERFORM, TP Bt140.0) TPI Polene (TPIPL.BK, Bt11.2) True Corp PCL (TRUE.BK, Bt7.2) TRUEGIF (TRUEIFu.BK, Bt9.6) UMW Oil & Gas (UMOG.KL, RM4.42, NEUTRAL[V], TP RM4.6) United Bank Limited (UBL.KA, PRs130.36, OUTPERFORM, TP PRs170.0) United Microelectronics (2303.TW, NT$12.2) Universal Robina Corp. (URC.PS, P122.8, OUTPERFORM, TP P145.0) Vanguard International Semiconductor (5347.TWO, NT$37.75) WILLCOM, Inc. (Unlisted) Wipro Ltd. (WIPR.BO, Rs562.15, OUTPERFORM, TP Rs650.0) WPG Holdings Ltd (3702.TW, NT$35.15) Yashily (1230.HK, HK$4.26)

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