2618 HK) % Upside 42% Attractive Valuation and Yield Limit Downside Risk Despite Lack of Catalysts

Pan Asia Research www.equities.htisec.com Target Price HK$8.30 Distributed by Societe Generale and its affiliates Current Price HK$5.84 TCL Communication Technology Holdings (2618 HK) % Upside 42% Attractive Valuation and Yield Limit Downside Risk Despite Lack of Catalysts

Technology Hardware  Revise Down Earnings Forecasts and Cut TP to HK$8.30 Hong Kong Summary: We recently held a non-deal roadshow with the management of TCL 25 Nov 2015 Communication Technology Holdings (TCLC) in Shanghai. In general, investors still seem to be concerned about the company’s growth prospects, given the recent slowdown in its sales of smartphones, reflecting weakening demand in emerging markets due to BUY currency depreciation against the USD. We estimate that TCLC derives at least 60% of its total sales from emerging markets. However, most investors also acknowledge the

Target: HK$8.30 attraction of the shares on a FY15–17 PER of 5.6–6.2x and dividend yield of 7.0–7.7%, % Upside: 42% which should limit the downside risk from the last close, we believe, even though we see no likely near-term catalyst for share price appreciation. Our BUY rating is on a 12-month 52wk Low HK$5.84 52wk High view, during which time TCLC’s sales of smartphones may pick up again when currencies HK$4.97 (-15%) 24 Nov 2015 HK$9.98 (71%) in emerging markets stabilize and demand picks up. Moreover, we believe that Unchanged improving stock market sentiment could lift TCLC’s multiples. Target Price and Catalyst: We have lowered our target price from HK$9.70 to HK$8.30, equal to 8.5x our new FY16 EPS forecast. Possible catalysts for share price appreciation Basic Share Information include (1) an earlier pick-up of demand in emerging markets than we expect, and Market cap HK$7.38b / US$0.95b (2) cooperation with leading Chinese internet companies to develop a new source of Daily volume (3mth) US$1.24m income from mobile internet services. Shares outstanding 1,259m

Free float 32%

Net debt-to-equity 27.1% Earnings: In view of a weaker outlook, we have lowered our sales and profit forecasts for 1 yr high HK$9.98 FY15–17. Q3 FY15 sales rose 8% QoQ but fell 9% YoY to HK$7.1bn, below our forecast of 1 yr low HK$4.97 HK$8.5bn and the consensus estimate of HK$8.3bn. Gross margin was 21.8%in Q3 FY15, Major shareholding 64% up from 19.0% in Q3 FY14 and 19.5% in Q2 FY15, exceeding our estimate of 19.4% and Last HTI contact w/ Co 6 Nov 15 the consensus estimate of 19.0%, mainly because of one-off sales of high-margin feature Note: Share prices and market data as of 24 November 2015 phones. OPM reached 3.2% in Q3 FY15, up from 2.7% in Q3 FY14 and 2.0% in Q2 FY15. NP in Q3 was HK$316mn, up 7.5% YoY and 18.1% QoQ but 8.6% below our estimate.

Price/Volume Valuation and Risks: Our new target price of HK$8.30 is based on a PER of 8.5x our new FY16 EPS estimate, whereas our previous target price of HK$9.70 was based on 9.0x the Price Close Rel. to Hang Seng Index (rhs) 10.4 119.0 average of our previous EPS forecasts for FY15 and FY16. We forecast an NP CAGR of 5% 9.4 109.0 8.4 99.0 for FY16–17, which translates into a PEG ratio of 1.7x. Our target PER of 8.5x is in line 7.4 89.0 6.4 79.0 with TCLC’s historical mean. We expect TCLC to maintain a dividend payout ratio above 5.4 69.0 4.4 59.0 40 40% through FY17. The main risks to the attainment of our target price are: (1) slower 30 20 growth in the company’s smartphone shipments than we project due to poor execution 10 Volume m Volume by the company and continuing slowing demand from emerging markets, and (2) stiff Nov-14 Feb-15 May-15 Aug-15 competition, which could weaken the growth of TCLC’s smartphone shipments and Source: Bloomberg margins. 1mth 3mth 12mth

Absolute 0.7% 16.3% -24.2% Dec-13A Dec-14A Dec-15E Dec-16E Dec-17E Trend Absolute USD 0.7% 16.3% -24.1% Total turnover (HK$m) 19,362 30,691 30,722 33,179 36,497 Relative to HSI 3.1% 10.0% -18.7% Operating profit (HK$m) 50.4 771.8 675.9 729.9 839.4 Pre-tax profit (HK$m) 298 1,149 1,246 1,280 1,369 Net income to ord equity (HK$m) 313 1,093 1,193 1,226 1,312 Jones Ku Net profit growth na 248.6% 9.2% 2.7% 7.0% Haitong International Research Ltd P/E (x) 21.23 6.38 6.16 6.00 5.61 [email protected] Adj EV/EBITDA (x) 5.86 3.66 3.43 2.85 2.32 Lily Xu P/B (x) 2.29 1.70 1.54 1.35 1.19 Haitong International Research Ltd ROE 12.0% 31.2% 26.9% 24.0% 22.5% Dividend yield 1.8% 6.8% 7.0% 7.2% 7.7% [email protected] EPS HTI old (HK$) 0.28 0.92 1.03 1.13 1.22

EPS HTI New (HK$) 0.28 0.92 0.95 0.97 1.04 Local Knowledge, Global Reach Consensus EPS (HK$) 0.25 0.89 0.89 0.88 0.94 Tokyo Office (81) 3 6402 7620 HTI EPS vs Consensus 11.4% 3.4% 6.6% 10.4% 10.6% London Office (44) 20 7397 2700 Source: Company data, Bloomberg, HTI estimates Click here to download the working model

Hong Kong Office (852) 2899 7090

This research is the product of Haitong International Research Limited (“HTIRL”), which is authorized and regulated by the Securities and Futures Commission (“SFC”) of Hong Kong. It is issued by HTIRL and distributed by Société Générale (“SG”) and its affiliates in their respective jurisdictions. See the Appendix at the end of this document for the HTIRL analyst certification and non-US HTIRL analyst disclosure, Important Disclosures and Disclaimers regarding HTIRL and SG and Distribution and RegionalThis Notices document which includeis being SG’s provided EU regulators for the in the exclusive “Notice to use UK Investors”.of SAMUEL ONG (HAITONG INTERNATIONAL)Powered by EFA Platform TCL Communication Technology Holdings (2618 HK) Buy

Valuation

P/E (x) vs EPS Growth 800 10,000% 700 8,500%  Investment Thesis 600 7,000% 500 5,500% 400 4,000% 300 2,500% 200 1,000% BUY 100 -500%

0 -2,000%

Jul-13 Jul-14 Jul-15

Jul-12 

Jan-15 Jan-13 Jan-14 Jan-12 While we see no likely near-term catalyst for share price appreciation, we see Rolling P/E (x) (lhs) EPS growth (rhs) limited downside risk for the share price from the 24 November 2015 close, given the Source: Company data, Bloomberg, HTI estimates company’s low PER and high dividend yield. Earnings Trends 2,000%  On our forecasts, the PER is 6.2x in FY15, falling to 5.6x in FY17,and the dividend 1,500% 1,000% yield is 7.0–7.7%. We believe that TCLC offers one of the highest dividend yields among 500% 0% Chinese technology hardware companies listed in Hong Kong.

-500%

Dec-14 Dec-15 Dec-13  We expect TCLC to continue to benefit from its broad exposure to emerging markets Revenue growth Operating profit growth outside China, where we foresee stronger growth in sales of smartphones than in China Net profit growth EPS growth Source: Company data, Bloomberg, HTI estimates over the next couple years.

Earnings: HTI vs Consensus  The company’s software business could emerge as a new earnings driver over the 0% 2% 4% 6% 8% next 2–3 years. HTI EPS HTI vs Consensus (top)  Potential cooperation and alliances with leading Chinese internet companies could Consensus EPS help boost the stock’s valuation over the medium term, although the earnings

0.84 0.86 0.88 0.9 0.92 0.94 0.96 contributions from such initiatives may come later.

-7% -6% -5% -4% -3% -2% -1% 0%  Vivek Misra and Alain Bokobza of Société Générale recommended in their Asia HTI P/E Equity Compass published on 22 September 2015 that investors buy Chinese stocks HTI P/E at Target listed in Hong Kong on compelling valuations and receding fears of a hard landing HTI vs Consensus Consensus P/E (top) among China's investors thanks to policy easing. We believe these factors could improve market sentiment and lift TCLC's valuations. 0 2 4 6 8 10 Source: Company data, Bloomberg, HTI estimates

FY15 Sales Breakdown 7.0% 4.0% Title: 36.5% Source: 52.5%  Company Snapshot Europe, Middle East and Africa TCL Communication Technology Holdings (TCLC) was founded in 2004 as a subsidiary of Please fill in the values above to have them entered in your report Americas TCL Industrial Holdings (unlisted) and listed on the Hong Kong Stock Exchange in 2004. The Asia Pacific company is a global mobile communications vendor that manufactures and markets China feature phones and smartphones. TCLC produces handsets under the brands TCL and

Source: HTI estimates Alcatel OneTouch, distributes mobile phone components, and manufactures fixed-line telephone products. It also develops software for mobile handsets. TCLC derives most of its sales from overseas markets (90% in FY14).

25 Nov 2015 2

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

 Key Investment Metrics  Revenue Growth We forecast flat YoY sales growth for FY15, 8% YoY growth for FY16, and 10% YoY growth for FY17 as consumers migrate more from feature phones to smartphones, driving up the company’s volume sales of smartphones. However, we expect YoY declines in the company’s selling prices due to the weakening of currencies in some emerging markets against the USD.  Profit Margins We project gross margin improvement from 19.3% in FY14 to 20.0% in FY15 but a gradual margin decline to 19.5% in FY16 and 19.4% in FY17 due to decreases in prices for both smartphones and feature phones. Despite some improvement in operating leverage, we see net margin falling from 3.9% in FY15 to 3.7% in FY16 and 3.6% in FY17.  Shareholder Returns We see ROE declining from 31.2% in FY14 to 26.9% in FY15, 24% in FY16, and 22.5% in FY17 as price declines pare margins. Nevertheless, our ROE projections are well above the average of the mid-teens for TCLC’s Chinese peers producing smartphones because TCLC’s gross margin on smartphones is higher than its peers’ margins due to its greater overseas exposure.  Balance Sheet Risks We expect the balance sheet to remain healthy despite the company’s net debt position (we project a net-debt-to-equity ratio of 7.4% for FY15). We see TCLC moving into a net cash position with a net-debt-to-equity ratio of -6.5% and -16.2% in FY17, due largely to increases in cash flow from its core business.

 Barriers to Entry TCLC is one of the top 10 smartphone brands globally. The barriers to entry into the smartphone business are relatively high as awareness of new producers’ brands among consumers would probably be low, these producers would likely have insufficient scale to be competitive, and they would not have established relationships with operators, retail channels or supply-chain companies. TCLC’s patents also represent a barrier to entry.  Asia Exposure TCLC’s sales in Asia are minor, with the Asia-Pacific region, including China, accounting for only about 10% of total sales in Q3 FY15. However, we believe that the company’s Asia exposure could trend up on increasing sales in China.  FX Exposure TCLC has high forex exposure due to its strong presence overseas, including in several emerging markets. The company has exposure to a variety of currencies, such as the EUR, USD, BRL, RUB, GBP, MYR and CNY, and has entered into forward currency contracts to hedge its forex exposure.  Corporate Governance In our view, corporate governance is relatively strong. The company has become more recognized globally since its acquisition of the Alcatel brand and retention of most of Alcatel’s key personnel. TCLC strives to achieve high standards of corporate governance in order to maintain its favorable corporate and brand images.

25 Nov 2015 3

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Our Model Assumptions Profit & Loss (HK$m) Dec-13A Dec-14A Dec-15E Dec-16E Dec-17E Total turnover 19,362 30,691 30,722 33,179 36,497

We project flat sales growth Cost of sales (15,690) (24,774) (24,577) (26,709) (29,417)

YoY for FY15, 8% YoY growth Gross profit 3,672 5,918 6,144 6,470 7,081

for FY16 and 10% growth for Total operating costs (3,622) (5,146) (5,468) (5,740) (6,241) Operating profit 50 772 676 730 839 FY17 Operating EBITDA 1,186 2,124 2,164 2,366 2,640 Depreciation and amortisation (1,136) (1,352) (1,488) (1,636) (1,800) We see gross margins of 19.4– Operating EBIT 50 772 676 730 839 20.0% over our forecast period Net income from investments (2) (0) - - - Other recurring income 242 408 390 410 410 We expect operating costs as Interest income 113 69 80 90 100 a percentage of sales to dip Interest expense (105) (100) (130) (130) (130) Exchange gains - - 230 180 150 from 17.8% in FY15 to 17.1% Pre-tax profit 298 1,149 1,246 1,280 1,369 in FY17 thanks to an increase Taxation 18 (41) (50) (51) (55) in operating leverage Minority interests (3) (15) (3) (3) (3) Net income to ord equity 313 1,093 1,193 1,226 1,312 The effective tax rate should Source: Company, HTI estimates be stable at 4% through FY17

Low Medium High

We forecast a sales CAGR of 6% for FY15–17 as consumers continue to migrate from  Key P/L Takeaway feature phones to smartphones, driving up TCLC’s smartphone sales volume. However, we We see NP rising 9% YoY in expect the company’s selling prices to decline YoY over this period due to the weakening FY15, 3% YoY in FY16 and 7% of currencies in some emerging markets against the USD. YoY in FY17, supported by top- line growth and a stable OPM We expect the gross margin to improve from 19.3% in FY14 to 20.0% in FY15 but then to gradually trend down to 19.5% in FY16 and 19.4% FY17 on decreases in prices for smartphones and feature phones. Despite some improvement in operating leverage, we see the net margin falling from 3.9% in FY15 to 3.7% in FY16 and 3.6% in FY17.

25 Nov 2015 4

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Our Model Assumptions Balance Sheet (HK$m) Dec-13A Dec-14A Dec-15E Dec-16E Dec-17E Total cash and equivalents 1,933 2,807 3,581 4,300 4,958 Inventories 2,649 3,293 3,267 3,551 3,911 We assume an inventory Accounts receivable 6,036 8,244 8,252 8,912 9,804 turnover period of 46–48 days Other current assets 1,248 1,661 1,330 1,149 1,011 through FY17 Total current assets 11,866 16,006 16,431 17,913 19,684 Tangible fixed assets 1,070 1,598 1,758 1,934 2,127 We project an accounts Intangible assets 1,210 1,514 1,514 1,514 1,514 receivable recovery period of Total investments 82 281 281 281 281 94–98 days during FY15–17 Total other assets 195 298 298 322 354 Total non-current assets 2,557 3,691 3,851 4,050 4,276 Total assets 14,423 19,696 20,282 21,963 23,960 Over our forecast period, we Short-term debt 2,205 3,941 3,941 3,941 3,941 anticipate an accounts payable Accounts payable 3,875 5,167 5,126 5,571 6,135 period of 72–76 days Other current liabilities 5,141 6,300 6,251 6,793 7,481 Total current liabilities 11,221 15,408 15,317 16,304 17,557 Total long-term debt 196 - - - - We expect stable interest- Other liabilities 93 109 109 109 109 bearing debt through FY17 Total non-current liabilities 289 109 109 109 109 Total liabilities 11,510 15,517 15,426 16,413 17,666 Common stocks 1,097 1,211 1,211 1,211 1,211 Other reserves 1,813 2,878 3,554 4,249 4,992 Shareholders' equity 2,909 4,089 4,765 5,460 6,203 Minority interests 4 90 90 90 90 Other equity 0 - 0 0 0 Total equity 2,913 4,179 4,855 5,550 6,293 Total liabilities & shareholders' equity 14,423 19,696 20,282 21,963 23,960 Source: Company, HTI estimates

We expect the balance sheet to remain healthy despite the company being in a net debt  Key B/S Takeaway position (we project a net-debt-to-equity ratio of 7.4% for FY15). From FY16, we see TCLC We forecast shareholders’ moving into a net cash position with a net-debt-to-equity ratio of -6.5% in FY16 and -16.2% equity to grow 13–17% in FY17, due largely to increasing cash flows from the core business. annually over our investment horizon, supported by earnings growth

25 Nov 2015 5

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Our Model Assumptions Cash Flow (HK$m) Dec-13A Dec-14A Dec-15E Dec-16E Dec-17E Operating profit 50 772 676 730 839 Depreciation and amortisation 1,136 1,352 1,488 1,636 1,800 We believe operating cash Changes in working capital 132 (1,140) 258 224 140 flow should remain positive Other operating cash flow 265 321 517 496 472 during FY15–17 thanks to cash Operating cash flow 1,582 1,305 2,939 3,086 3,252 generation by the core Cash flow from operations 1,582 1,305 2,939 3,086 3,252 business Capex (1,431) (1,881) (1,648) (1,812) (1,994) Other investing cash flow (154) (605) (0) (24) (32) Cash flow from investing activities (1,585) (2,486) (1,648) (1,836) (2,026) We expect capex to increase Increase in debt (3,625) 1,556 - - - in FY16 and FY17 as the Other financing cash flow 277 174 (517) (531) (568) company looks to meet its Cash flow from financing activities (3,348) 1,729 (517) (531) (568) production capacity needs Cash at beginning of period 5,191 1,840 2,388 3,162 3,881 Total cash generated (3,351) 548 774 719 658 Implied cash at end of period 1,840 2,388 3,162 3,881 4,539 Other than capex, we do not Free cash flow 151 (576) 1,291 1,274 1,258 anticipate any major changes Source: Company, HTI estimates in investment cash flow through FY17

We do not foresee any change in debt during FY15–17

TCLC’s operating cash flow should remain strong and its capex manageable over our  Key Cash Flow Takeaway forecast period. As such, we do not expect the company to turn to equity or debt financing TCLC should generate positive over the medium term unless there are major M&A opportunities that would be beneficial free cash during FY15–17, to its prospects. We project the company to maintain a dividend payout ratio above 40% supported by YoY increases in through FY17. operating cash flow and by manageable capex

25 Nov 2015 6

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Our Model Assumptions Per Share Data Dec-13A Dec-14A Dec-15E Dec-16E Dec-17E EPS (HK$) 0.28 0.92 0.95 0.97 1.04 We forecast EPS growth of 3% FDEPS (HK$) 0.27 0.88 0.95 0.97 1.04 YoY in FY15, 2% YoY in FY16 Revenue per share (HK$) 16.99 25.73 24.40 26.35 28.98 and 7% YoY in FY17 Operating EBITDA per share (HK$) 1.04 1.78 1.72 1.88 2.10 BVPS (HK$) 2.55 3.43 3.78 4.34 4.93 DPS (HK$) 0.10 0.40 0.41 0.42 0.45 We expect management to Recurrent cash flow per share (HK$) 1.39 1.09 2.33 2.45 2.58 maintain the dividend payout Shares in issue (million) 1,140 1,193 1,259 1,259 1,259 ratio above 40% throughout Year end adjusted shares in issue (m) 1,140 1,193 1,259 1,259 1,259 our forecast period Key Ratios Dec-13A Dec-14A Dec-15E Dec-16E Dec-17E Valuation Measures P/Sales (x) 0.34 0.23 0.24 0.22 0.20 We assume no change in the P/E (x) 21.23 6.38 6.16 6.00 5.61 number of shares outstanding P/CF (x) 4.21 5.34 2.50 2.38 2.26 during FY15–17 P/B (x) 2.29 1.70 1.54 1.35 1.19 Adj EV/EBITDA (x) 5.86 3.66 3.43 2.85 2.32 The dividend yield should rise Dividend yield 1.8% 6.8% 7.0% 7.2% 7.7% on earnings growth and a Growth stable payout ratio Revenue growth 60.9% 58.5% 0.1% 8.0% 10.0% Operating profit growth na 1430.5% (12.4%) 8.0% 15.0% Net profit growth na 248.6% 9.2% 2.7% 7.0% Margins Gross margin 19.0% 19.3% 20.0% 19.5% 19.4% Operating EBITDA margin 6.1% 6.9% 7.0% 7.1% 7.2% Operating margin 0.3% 2.5% 2.2% 2.2% 2.3% Pretax profit margin 1.5% 3.7% 4.1% 3.9% 3.8% Tax rate (6.0%) 3.6% 4.0% 4.0% 4.0% Net profit margin 1.6% 3.6% 3.9% 3.7% 3.6% Key Ratios ROE 12.0% 31.2% 26.9% 24.0% 22.5% ROA 2.3% 6.4% 6.0% 5.8% 5.7% Capex/revenue 7.4% 6.1% 5.4% 5.5% 5.5% Current ratio (x) 1.06 1.04 1.07 1.10 1.12 Creditor days 73.32 66.61 76.43 73.09 72.62 Debtor days 87.76 84.91 98.00 94.41 93.59 Inventory days 45.51 43.78 48.72 46.59 46.29 Sales/avg assets 1.40 1.80 1.54 1.57 1.59 Credit analysis EBITDA/interest paid (x) 11.30 21.35 16.64 18.20 20.30 OCF/interest paid (x) 15.07 13.11 22.61 23.74 25.01 Debt/EBITDA (x) 2.02 1.86 1.82 1.67 1.49 Debt/equity 82.4% 94.3% 81.2% 71.0% 62.6% Net debt to equity 16.1% 27.1% 7.4% (6.5%) (16.2%) Source: Company, HTI estimates

 Key Driver Takeaway We see ROE declining from 31.2% in FY14 to 26.9% in FY15, 24.0% in FY16 and 22.5% in We expect the balance sheet FY17 as price declines shrink margins. Nevertheless, these ROE figures are well above the to remain healthy over the average in the mid-teens for TCLC’s Chinese peers in smartphones because the company next few years, with the enjoys a much higher gross margin on its smartphones thanks to its greater overseas company’s key ratios exposure. reflecting its financial strength

25 Nov 2015 7

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Company Outline and Operational Review

We recently met TCLC’s management in Shanghai. In general, investors are still concerned In view of a weaker outlook, we about the company’s growth prospects, given the recent slowdown in its sales of have lowered our sales and profit smartphones, reflecting weakening demand in emerging markets due to currency forecasts for FY15–17 depreciation against the USD. However, we think most investors value the company’s for its low PER of 5.6–6.2x and high dividend yield of 7.0–7.7%, on our estimates.

While we see no likely catalysts for share price appreciation in the near term, we see limited downside risk from the 24 November 2015 close, given the company’s low PER and high dividend yield. Our BUY rating is on a 12-month view. Over the next 12 months, the company’s sales of smartphones may gain greater YoY growth when currencies in emerging markets stabilize against the USD and demand in these markets picks up. We estimate that TCLC currently generates at least 60% of its sales from emerging markets. Moreover, we believe that the improving stock market sentiment should help lift TCLC’s multiples.

However, in view of the weaker outlook, we have lowered our sales and profit forecasts for FY15–17, cutting our EPS forecasts by 8% for FY15, 14% for FY16, and 15% for FY17. We have also lowered our target price to from HK$9.70 (9x the average of our previous FY15 and FY16 EPS forecasts) to HK$8.30 (8.5x our new FY16 EPS forecast).

Possible but unlikely catalysts for share price appreciation include (1) an earlier pickup of demand in emerging markets than we expect, and (2) any concrete cooperation with leading Chinese internet companies to develop a new source of income from mobile internet services.

HTI Sales and Profit Forecasts for TCLC

HKD mn 2015E 2016E 2017E New Old Diff New Old Diff New Old Diff Sales 30,722 33,760 -9.0% 33,179 38,149 -13.0% 36,497 43,108 -15.3%

Gross profit 6,144 6,549 -6.2% 6,470 7,363 -12.1% 7,081 8,320 -14.9% Gross margin 20.0% 19.4% 19.5% 19.3% 19.4% 19.3%

Operating profit 676 726 -6.9% 730 897 -18.6% 839 1,056 -20.5% Operating margin 2.2% 2.2% 2.2% 2.4% 2.3% 2.5%

Net profit 1,193 1,226 -2.7% 1,226 1,349 -9.1% 1,312 1,458 -10.0% Net margin 3.9% 3.6% 3.7% 3.5% 3.6% 3.4%

EPS (HKD) 0.95 1.03 -7.8% 0.97 1.13 -13.9% 1.04 1.22 -14.8% Source: HTI estimates

Q3 FY15 Results Q3 FY15 net profit was 8–9% below Q3 FY15 sales totaled HK$7.1bn, up 8% QoQ but down 9% YoY and well below our forecast our forecast and the consensus of HK$8.5bn and the consensus estimate of HK$8.3bn. Gross margin was 21.8%, up from estimate 19.0% in Q3 FY14 and 19.5% in Q2 FY15, exceeding our estimate of 19.4% and the consensus figure of 19.0%, mainly due to one-off sales of high-margin phones. OPM reached 3.2%, up from 2.7% in Q3 FY14 and 2.0% in Q2 FY15. Net profit in Q3 came in at HK$316mn, up 7.5% YoY and 18.1% QoQ but 8.6% below our estimate.

25 Nov 2015 8

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

TCLC ’s Q3 FY15 Sales and Profits with YoY and QoQ Comparisons and Comparisons with HTI Estimates

HKD mn Q3 FY15 Q3 FY14 YoY Q2 FY15 QoQ Q3 FY15E Diff Sales 7,056 7,779 -9.3% 6,537 7.9% 8,479 -16.8%

Gross profit 1,537 1,481 3.8% 1,276 20.4% 1,641 -6.3% Gross margin 21.8% 19.0% 19.5% 19.4%

Operating profit 228 206 10.6% 131 73.9% 199 14.7% Operating margin 3.2% 2.7% 2.0% 2.4%

Net profit 316 294 7.5% 268 18.1% 346 -8.6% Net margin 4.5% 3.8% 4.1% 4.1% Source: Company data, HTI estimates

Q3 Results Highlights by Region North America In North America, overall sales volume almost doubled YoY to 10.6mn units in Q1–3 FY15, with smart device volume up 25% YoY to 4.6mn units. Sales value rose 30% YoY to HK$4.8bn. The North American business unit has consolidated its operator channels, expanded its open market channels and enhanced the YoY growth of its sales of tablet devices. In Q2 FY15, IDC ranked TCLC fourth in handset sales and sixth in smartphone sales in North America. In Q4, TCLC plans to aggressively promote sales of entry-level to mid- level 4G products.

South America In South America, Q1–3 FY15 sales volume declined 10% YoY to 17.6mn units, but sales of smart devices grew 17% YoY to 10.7mn units. Total sales value decreased 9% YoY to HK$6.0bn. In Q2 FY15, IDC ranked TCLC second in handset sales in the region and third in smartphone sales. TCLC has reinforced its collaboration with its operators and distributors to enhance sales in South America. In Q4, TCLC plans to implement stringent cost and credit control policies and to promote sales of entry-level to mid-level products in response to market changes.

Europe In Europe, Q1–3 FY15 sales volume rose 31% YoY to 13.5mn units, while sales value grew 2% YoY to HK$5.0bn. The sales volume of smart devices climbed 31% YoY to 7.5mn units in Q1–3 FY15. In Q2 FY15, IDC ranked TCLC as the fourth-largest seller of phones and the sixth-largest seller of smartphones in Europe. TCLC has secured market share in mid-range smartphones with its IDOL 3 model. In Q4, TCLC intends to introduce a range of cost- effective 4G products in Europe.

Middle East and Africa In the Middle East and Africa, TCLC’s sales volume advanced 17% YoY to 7.2mn units in Q1– 3 FY15. Smart device unit sales increased 35% YoY to 4.4mn units. Total sales value increased 13% YoY to HK$2.2bn. In Q2 FY15, Gartner ranked TCLC sixth in overall phone sales and fourth in smartphone sales in the region. TCLC entered new markets, such as Saudi Arabia and Nigeria, in Q3 FY15 and expects to continue to develop new markets while refining its entry-level products in Q4.

Asia-Pacific In the Asia-Pacific region, excluding China, Q1–3 FY15 sales volume plunged 37% YoY to 1.6mn units, while sales value dropped 44% YoY to HK$700mn. Smart device sales volume slumped 29% YoY to 1.1mn units. In Q3, TCLC embarked on various measures to streamline operations, and it plans to focus on e-commerce and operator channels for distribution.

25 Nov 2015 9

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

China In China, Q1–3 FY15 sales volume increased 5% YoY to 4.9mn units, while sales value declined 6% YoY to HK$1.6bn. Smart device sales increased 8% YoY to 2.8mn units. The number of 4G smartphones sold continued to grow YoY in Q1–3 FY15, particularly in Guizhou, Zhejiang and Jiangsu provinces. In Q4, TCLC plans to innovate in product definition and R&D to capture share in the operators’ market for entry-level devices.

Q1–3 FY15 Breakdown of TCLC Feature Phone and Q1–3 FY15 Breakdown of TCLC Smart Device Sales Other Product Sales by Region by Region

3% 3% Title: Title: 8% 8% 11% Source: Source: Rotate left: Rotate left: 33% 23%

28% 24% Please fill in the values above to have them enteredPlease in your fill report in the values above to have them entered in your report

26% 31%

China North America South America China North America South America Europe MEA APAC Europe MEA APAC

Source: Company data Source: Company data

TCLC’s Quarterly Sales (HK$bn), Q1 FY12–Q3 FY15

12 12 Title: 10.7 10 1.1 10 Source: Rotate left: 8 7.5 7.8 8 7.1 6.7 1.0 6.7 6.5 0.9 2.3 0.7 0.6 6 5.5 5.5 1.3 6 1.2 2.1 9.6 Please fill in the values above to have them entered in your report 4 3.9 4.0 4 3.1 6.8 3.0 2.4 1.5 6.0 5.9 6.2 2.1 2.0 5.2 5.4 1.9 1.5 4.3 2 1.2 3.4 2 1.5 1.9 2.5 1.1 1.6 1.2 0 0.6 0 Q1 FY12Q2 FY12Q3 FY12Q4 FY12Q1 FY13Q2 FY13Q3 FY13Q4 FY13Q1 FY14Q2 FY14Q3 FY14Q4 FY14Q1 FY15Q2 FY15Q3 FY15

Smart devices Feature phones and other products

Source: Company data

25 Nov 2015 10

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

TCLC’s Quarterly Smart Device Sales Volume Weighting and Average Selling Price (US$)

60 55.1 54.7 70% Title: 52.2 52.4 53.4 50.2 62% 62% 60% Source: 50 58% 47.1 45.4 53% 41.8 56% 42.0 46% 50% Rotate left: 40 37.1 37.1 37.0 53% 34.6 35.6 40% 34% 40% 30 27% 30% Please fill in the values above to have them entered in your report 19% 20 17% 17% 14% 20% 10% 10 10%

0 0% Q1 FY12Q2 FY12Q3 FY12Q4 FY12Q1 FY13Q2 FY13Q3 FY13Q4 FY13Q1 FY14Q2 FY14Q3 FY14Q4 FY14Q1 FY15Q2 FY15Q3 FY15

ASP Smart devices %

Source: Company data

Financial Analysis We see TCLC’s smartphone shipments climbing 13% YoY to 47mn units this year followed by growth of 11% YoY to 52mn units in FY16 and 12% YoY to 58mn units in FY17 as consumers continue to migrate from feature phones to smartphones. However, we expect the company’s average selling prices to decline YoY over this period due to the weakening of currencies in some emerging markets relative to the USD. We thus forecast flat total sales growth YoY for FY15, 8% YoY growth for FY16, and 10% YoY growth for FY17. We expect the gross margin to improve from 19.3% in FY14 to 20.0% in FY15 but then to gradually trend down over FY16 and FY17 due to YoY declines in the average selling prices of smartphones and feature phones. Despite some improvement in operating leverage, we see the net profit margin falling from 3.9% in FY15 to 3.7% in FY16 and 3.6% in FY17.

TCLC Sales (HK$mn) TCLC Gross Margin and OPM (%)

Title: Title: 40,000 36,497 70 25 61 Source: Source: 59 33,179 35,000 20.0 30,691 30,722 60 19.3 19.5 19.4 20 19.0 30,000 50 25,000 15 19,362 40 Please fill in the values above to have them entered in yourPlease report fill in the values above to have them entered in your report 20,000 30 15,000 10 20 10,000 8 10 5 2.5 2.3 5,000 10 2.2 2.2 0 0.3 - 0 0 FY13 FY14 FY15E FY16E FY17E FY13 FY14 FY15E FY16E FY17E

Sales YoY Growth Gross margin Operating margin

Source: Company data, HTI estimates Source: Company data, HTI estimates

We see ROE declining from 31.2% in FY14 to 26.9% in FY15, 24.0% in FY16 and 22.5% in FY17 as price declines shrink margins. Nevertheless, our ROE forecasts are well above the average in the mid-teens for TCLC’s Chinese peers because the company enjoys a much higher gross margin on its smartphones thanks to its greater overseas exposure.

25 Nov 2015 11

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

TCLC Net Income (HK$mn) TCLC ROE (%)

1,400 1,312 400 35 Title: Title: 1,193 1,226 31.2 Source: Source: 1,200 1,093 300 30 26.9 249 1,000 200 24.0 25 22.5 800 100 Please fill in the values above to have them entered in yourPlease report fill in the values above to have them entered in your report 9 3 7 20 600 0 15 400 313 -100 12.0

200 N/A -200 10

- -300 5 FY13 FY14 FY15E FY16E FY17E 0 Net Income YoY Growth FY13 FY14 FY15E FY16E FY17E

Source: Company data, HTI estimates Source: Company data, HTI estimates

Risks to the Attainment of Our Target Price We see the following as the main risks to the attainment of our target price.  Slower growth of smartphone shipments than we project due to poor execution by the company and a continuing slowing of demand from emerging markets.  Weak global shipments of smartphones as economies slow following robust shipment growth over the past 2–3 years.  Stiff competition from other major smartphone producers, such as Huawei (unlisted) and ZTE (763 HK, HK$18.16, HTI NEUTRAL) in Europe, the Middle East, Africa and the US, which could weaken TCLC’s smartphone shipments in these regions, given the similar prices for smartphones.

Valuation Our new target price of HK$8.30 is based on a PER of 8.5x our new FY16 EPS estimate. We forecast a NP CAGR of 5% for FY16–17, which translates into a PEG ratio of 1.7x. Our target PER of 8.5x is in line with TCLC’s historical mean. We expect TCLC to maintain a dividend payout ratio above 40% through FY17.

TCLC’s Rolling 3-Yr Forward PER (x) TCLC’s Rolling 3-Yr Forward PBR (x)

Title: Title: 14.0 3.5 Source: Source: 12.0 3.0 Rotate left: Rotate left: 2.5 10.0 2.0 8.0 Please fill in the values above to have them entered in your Pleasereport fill in the values above to have them entered in your report 1.5 6.0 1.0 4.0 0.5

2.0 0.0

Feb-13 Feb-14 Feb-15

Feb-14 Feb-13 Feb-15

Aug-13 Aug-14 Aug-15

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

May-13 May-14 May-15

Rolling 3y PER Mean Rolling 3y PBR Mean +1 SD -1 SD +1 SD -1 SD

Source: Bloomberg, HTI estimates Source: Bloomberg, HTI estimates

25 Nov 2015 12

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

P/E (x) vs EPS Growth (%) P/B (x) vs ROE PSR (x) vs OPM (%) 200 1,000% 3.50 35.0% 0.500 4.0% 180 800% 0.450 3.1% 3.00 27.9% 160 600% 0.400 2.2% 140 400% 2.50 20.7% 0.350 1.3% 120 200% 2.00 13.6% 0.300 0.4% 100 0% 0.250 -0.5% 1.50 6.4% 80 -200% 0.200 -1.4% 60 -400% 1.00 -0.7% 0.150 -2.3% 0.100 -3.2% 40 -600% 0.50 -7.9% 20 -800% 0.050 -4.1%

0 -1,000% 0.00 -15.0% 0.000 -5.0%

Jul-14 Jul-14

Jan-12 Jan-17 Jan-12 Jan-17

Jun-12 Jun-12 Jun-17 Jun-17

Oct-15 Oct-15

Apr-13 Apr-13

Sep-13 Feb-14 Sep-13 Feb-14

Jul-16 Dec-14 Dec-14 Jul-12 Jul-13 Jul-14 Jul-15 Jul-17

Aug-16 Aug-16

Nov-17 Nov-17 Nov-12 Nov-12

Mar-16 Mar-16

Jan-15 May-15 Jan-12 Jan-13 Jan-14 Jan-16 Jan-17 May-15 Rolling P/E (x) (lhs) EPS growth (rhs) Rolling PBV (lhs) ROE (rhs) Rolling P/Sales (x) (lhs) Operating margin (rhs) Source: Company data, Bloomberg, HTI estimates Source: Company data, Bloomberg, HTI estimates Source: Company data, Bloomberg, HTI estimates

Turnover and Growth - (HK$m) Gross Proft and Margin - (HK$m) Operating Profit and OP Growth - (HK$m) 40,000 70% 8,000 20.50% 1,000 1,600% 35,000 61% 7,000 19.94% 800 1,350% 30,000 53% 6,000 19.38% 600 1,100% 25,000 44% 5,000 18.81% 400 850% 20,000 35% 4,000 18.25% 200 600% 15,000 26% 3,000 17.69% 0 350% 10,000 18% 2,000 17.13% -200 100% 5,000 9% 1,000 16.56% -400 -150%

0 0% 0 16.00% -600 -400%

Dec-14 Dec-12 Dec-13 Dec-15 Dec-16 Dec-17 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Total turnover (lhs) Revenue growth (rhs) Gross profit (lhs) Gross margin (rhs) Operating profit (lhs) OP growth (rhs) Source: Company data, Bloomberg, HTI estimates Source: Company data, Bloomberg, HTI estimates Source: Company data, Bloomberg, HTI estimates

CF from operations vs Capex - (HK$m) Dividend Payout and Yield - (HK$) Net Debt to Equity (%) and Interest Cover (x) 3,500 0.500 9.0% 25.0 300% 0.450 8.1% 3,000 0.400 7.2% 20.0 240% 2,500 0.350 6.3% 2,000 0.300 5.4% 15.0 180% 0.250 4.5% 1,500 0.200 3.6% 10.0 120% 1,000 0.150 2.7% 0.100 1.8% 5.0 60% 500 0.050 0.9%

0 0.000 0.0% 0.0 0%

Dec-13 Dec-14 Dec-12 Dec-14 Dec-15 Dec-16 Dec-17 Dec-12 Dec-13 Dec-15 Dec-16 Dec-17

Dec-14 Dec-12 Dec-13 Dec-15 Dec-16 Dec-17 Cash flow from operations Capex DPS (lhs) Dividend yield (rhs) EBITDA/interest paid (x) (lhs) Debt/equity (rhs) Source: Company data, Bloomberg, HTI estimates Source: Company data, Bloomberg, HTI estimates Source: Company data, Bloomberg, HTI estimates

ROA (%) and Asset Turnover (x) Cash Operating Cycle Current Ratio (x) vs Quick Ratio (x) 2.00 7.0% 120 1.200 1.80 6.1% 100 1.60 5.2% 1.000 80 1.40 4.3% 0.800 1.20 3.4% 60 1.00 2.5% 0.600 40 0.80 1.6% 0.400 0.60 0.7% 20 0.40 -0.2% 0 0.200 0.20 -1.1%

0.00 -2.0% 0.000

Dec-15 Dec-12 Dec-13 Dec-14 Dec-16 Dec-17

Jul-14

Jan-17 Jan-12

Jun-12 Jun-17

Oct-15

Apr-13 Feb-14

Inventory days Debtor days Sep-13

Dec-14

Aug-16

Nov-12 Nov-17

Mar-16

Dec-17 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 May-15 Sales/avg assets (lhs) ROA (rhs) Creditor days Current ratio (x) Quick ratio (x) Source: Company data, Bloomberg, HTI estimates Source: Company data, Bloomberg, HTI estimates Source: Company data, Bloomberg, HTI estimates

25 Nov 2015 13

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Revenue Growth We forecast flat YoY sales growth for FY15, 8% YoY growth for FY16, and 10% YoY growth for FY17 as consumers continue to migrate from feature phones to smartphones, driving up the company’s sales volume of smartphones. However, we expect the company’s average selling prices to decline YoY due to the weakening of currencies in some emerging markets relative to the USD.

Profit Margins We expect the gross margin to improve from 19.3% in FY14 to 20.0% in FY15 but then to trend down to 19.5% in FY16 and 19.4% in

FY17 because of drops in prices for smartphones and feature phones. Despite some improvement in operating leverage, we see the net margin falling from 3.9% in FY15 to 3.7% in FY16 and 3.6% in FY17.

Shareholder Returns We see ROE declining from 31.2% in FY14 to 26.9% in FY15, 24.0% in FY16 and 22.5% in FY17 as price declines shrink margins. Nevertheless, our ROE forecasts are well above the average in the mid-teens for TCLC’s Chinese peers because the company enjoys a much higher gross margin on its smartphones thanks to its greater overseas exposure.

Balance Sheet Risks We expect the balance sheet to remain healthy despite the net debt position we project for FY15, when we see a net-debt-to- equity ratio of 7.4%. We see TCLC moving into a net cash position thereafter, with a net-debt-to-equity ratio of -6.5% in FY16 and

-16.2% in FY17, due largely to YoY increases in cash flows from the core business.

Investment Thesis – Target Price – Share Price Catalysts With a PER of just 5.6–6.2x on our earnings forecasts and a dividend yield of 7.0–7.7%, we believe TCLC offers one of the highest dividend yields among Chinese technology  Key Takeaway hardware makers listed in Hong Kong. We maintain our BUY rating on TCLC. While we see no likely catalyst for share price Our new target price of HK$8.30 is based on a PER of 8.5x our new FY16 EPS estimate. We appreciation in the near forecast a NP CAGR of 5% for FY16–17, which translates into a PEG ratio of 1.7x. Our target term, we see limited PER of 8.5x is in line with TCLC’s historical mean. downside risk, given the company’s low PER and high Possible but unlikely catalysts for share price appreciation are (1) an earlier pickup of dividend yield demand in emerging markets than we expect, and (2) any concrete cooperation with leading Chinese internet companies to develop a new source of income from mobile internet services.

25 Nov 2015 14

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

IMPORTANT DISCLOSURES REGARDING THE SG – HAITONG INTERNATIONAL RELATIONSHIP This report has been produced and distributed pursuant to a contractual agreement between Société Générale (“SG”) and Haitong International Securities Group Limited (“Haitong International”) for the production and distribution of research on certain Asia Pacific markets (the “Research”). The Research has been prepared solely by, and is issued, by Haitong International Research Limited (“HTIRL”), a Hong Kong affiliate of Haitong International. The Research is distributed by SG and its affiliates to its institutional clients globally (the “Recipients”), subject to the distribution and regional notices below. HTIRL also distributes the Research in a non co-branded format to Haitong International’s domestic Chinese clients. Under the contractual agreement, SG pays Haitong a quarterly fee for production of the Research. SG also pays Haitong International for the marketing ( sales support) of the Research a percentage of commissions received by SG in connection with trades executed by SG on behalf of recipients of the Research, in the Asia Pacific markets covered by the Research.

Recipients of the Research are advised that the Research is NOT a product of SG, SG Americas Securities, LLC (“SGAS”) or any of SG’s other affiliates. Under the terms of the agreement between SG and Haitong International, Haitong International has sole control over the content of the Research and is responsible for compliance with all applicable local laws, rules and regulations governing the Research. Neither SG, SGAS, nor any of SG’s other affiliates exercise any control over the contents of, or views expressed in, the Research. Except as required by any applicable law, rule or regulation, neither SG nor any of its affiliates has independently reviewed the Research and make no representation and express no view as to its completeness, accuracy, or contents. To the extent permissible under local law, rules and regulations, SG and its affiliates shall not be liable to Recipients or any third parties for any loss suffered as a result of reliance on the Research. HAITONG INTERNATIONAL DISCLAIMERS AND DISCLOSURES HTIRL Analyst Certification: We, Jones Ku and Lily Xu, certify that (i) the views expressed in this research report accurately reflect our personal views about any or all of the subject companies or issuers referred to in this research and (ii) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report; and that we have no beneficial interest in the security or securities discussed.

Conflict of Interest Disclosures Haitong International and certain of its affiliates may engage in investment banking business and/or may make markets or hold proprietary positions in a limited number of securities or companies covered by the Research. To the extent that this is the case, included below are disclosures regarding those relationships (if no disclosures are included, it means that there are currently no such relationships).

Ratings Definitions: Haitong International Research Limited (“HTIRL”) Rating Distribution has three ratings, which are defined below. The percentage of BUY, SELL or NEUTRAL ratings out of the total number of rated notes appears in the Ratings Distribution chart. ALL BUY and SELL rated stocks have a target price which represents the analyst’s best estimate of the fundamental value of the stock on a 12 month forward basis.

BUY> 15% absolute upside performance expected within the next 12 months

SELL> 15% absolute downside performance expected within the next 12 months

NEUTRAL: A stock under coverage with insufficient upside or downside to justify a BUY or SELL rating. For purposes only of FINRA/NYSE ratings distribution rules, our Neutral rating falls into a hold rating category.

Change in Ratings Definitions: Until end-May 2015, Haitong International Research Limited (“HTIRL”) had the following investment rating system based on the analyst’s best estimate of the fundamental value of the stock on a 9-12 month forward basis:  Buy: Target price +15% or more above the current price  Hold: Target price within 0% to +15% of the current price  Sell: Target price below the current price The Rating Distribution pie chart for the most recent full quarter is based on the new HTIRL rating system and the prior full quarter on the legacy HTIRL rating system. Haitong International Equity Research Ratings Distribution, as of September 30, 2015 BUY Neutral SELL (hold)

HTIRL Equity Research Coverage 64% 21% 15% IB clients* 3% 2% 0%

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Neutral rating falls into a hold rating category. Please note that stocks with an NR designation are not included in the table above. Haitong International Non-Rated Research: Haitong International Research Limited (“HTIRL”) publishes quantitative, screening or short reports which may rank stocks according to valuation and other metrics or may suggest prices based on possible valuation multiples. Such rankings or suggested prices do not purport to be stock ratings or target prices or fundamental values and are for information only.

25 Nov 2015 15

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

HTIRL IMPORTANT DISCLAIMER: The Research is issued by Haitong International Research Limited (“HTIRL”), a licensed corporation to carry on Type 4 regulated activity (advising on securities) for the purpose of the Securities and Futures Ordinance (Cap. 571), and is approved for distribution by Haitong International Securities Company Limited (“HTISCL”) and/or Haitong International Investment Services Limited (“HTIIS”), both licensed corporations to carry on Type 1 regulated activity (dealing in securities) in Hong Kong, in addition to SG pursuant to contractual agreement.

The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable and in good faith but no representation or warranty, express or implied, is made by HTIRL, HTISCL, HTIIS or any other members within the Haitong International Securities Group of Companies (“HTISG”) from which this document may be received, as to their accuracy, completeness or correctness. All opinions expressed herein are as of the date of this report and are subject to change without notice. This document is for information purpose only. Descriptions of any companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed expressly or impliedly as, an offer to buy or sell securities. The securities referred to in this document may not be eligible for buy or sale in some jurisdictions. If an investment product is denominated in a currency other than an investor's home currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Certain transactions, including those involving derivatives, give rise to substantial risk and are not suitable for all investors. You should also bear in mind that recommendations in this document are not tailor-made for you. The analyst has not taken into account your unique financial circumstances, such as your financial situation and risk appetite. You must, therefore, analyze and should, where applicable, consult your own legal, tax, accounting, financial and other professional advisers to evaluate whether the recommendations suits you before investment. Neither HTISG nor any of its directors, employees or agent accepts any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this document.

HTISG and our affiliates, officers, directors, and employees, excluding the analysts responsible for the content of this document, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this document. Sales, traders, and other professionals of HTISG may provide oral or written market commentary or trading strategies to the relevant clients and the companies within HTISG that reflect opinions that are contrary to the opinions expressed in this document. HTISG may make investment decisions that are inconsistent with the recommendations or views expressed in this document. HTIRL is under no obligation to ensure that such other trading ideas or recommendations are brought to the attention of any recipient of this document.

Please refer to HTIRL’s website www.equities.htisec.com for further information on HTIRL’s organisational and administrative arrangements set up for the prevention and avoidance of conflicts of interest with respect to Research.

Non U.S. Analyst Disclosure: The HTIRL analyst(s) listed on the cover of this Research is (are) not registered or qualified as a research analyst with FINRA and are not subject to U.S. FINRA Rule 2711 restrictions on communications with companies that are the subject of the Research; public appearances; and trading securities by a research analyst.

SG DISCLAIMERS AND DISCLOSURES Société Générale is a French credit institution (bank) which is regulated by the AMF and authorized and supervised by the Autorité de Contrôle Prudentiel. The information herein is not intended to be an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities, and including any expression of an opinion, has been obtained from or is based upon sources believed to be reliable, but is not guaranteed as to accuracy or completeness. SG and the affiliated companies in the SG Group may from time to time deal in, profit from the trading of, hold or act as market-makers or advisers, brokers or bankers in relation to the securities therein, of persons, firms or entities mentioned in this document or be represented on the board of such firms or entities. SG and the affiliated companies in the SG Group do, from time to time, act as a principal trader in securities that may be referred to in this report and hold securities positions. Employees of SG and the affiliated companies in the SG Group, or individuals connected to them, may from time to time have a position in or hold any of the investment mentioned in this document. SG and its affiliated companies have disclosed interests in the companies and/or securities referred to in this Research to the extent required by all applicable laws.

SG Third Party Research Disclosures

IMPORTANT DISCLOSURES

SG or its affiliates expect to receive or intend to seek compensation for investment banking services in the next 3 months from Alcatel-Lucent. SG received compensation for products and services other than investment banking services in the past 12 months from Alcatel-Lucent, ZTE. SGAS had a non-investment banking non-securities services client relationship during the past 12 months with Alcatel-Lucent, ZTE. SGAS received compensation for products and services other than investment banking services in the past 12 months from Alcatel-Lucent, ZTE.

25 Nov 2015 16

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

DISTRIBUTION AND REGIONAL NOTICES:

Under the agreement, SG and its affiliates is the non-exclusive distributor of the Research to SG’s institutional clients globally (the “Recipients”). Except as otherwise indicated below, any Recipient wishing to discuss this report or effect any transaction in any security discussed in the Research should contact their SG or Haitong International salesperson in their own country or region.

Asian Pacific Region Notice to Hong Kong investors: This research has been produced, and issued, by Haitong International Research Limited (“HTIRL”) a Hong Kong affiliate of Haitong International, which is licensed by the Securities and Futures Commission of Hong Kong under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ("SFO"), and which takes full responsibility for the contents of the Research. The Research is being distributed by SG Securities (HK) Limited which is licensed by the Securities and Futures Commission of Hong Kong under the SFO. This document does not constitute a solicitation or an offer of securities or an invitation to the public within the meaning of the SFO. This Research is only to be circulated to "professional investors" as defined in the SFO. This research has not been reviewed by Securities and Futures Commission. You should not make investment decisions solely on the basis of the information contained in this research.

Notice to Japanese investors: This research is issued by Haitong International Research Limited (“HTIRL”) a Hong Kong affiliate of Haitong International, which is licensed by the Securities and Futures Commission of Hong Kong under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ("SFO"), with the assistance of Haitong International Japaninvest KK, a Japanese affiliate of Haitong International, which is regulated as an Investment Adviser by the Kanto Finance Bureau of Japan, and which takes full responsibility for the contents of the research. This research is distributed in Japan by Société Générale Securities (North Pacific) Ltd., Tokyo Branch, which is regulated by the Financial Services Agency of Japan. This research is solely and exclusively directed at, and made available only to “Qualified Institutional Investors” as defined in the Financial Instruments and Exchange Law of Japan.

Notice to Singapore investors: This research has been produced by Haitong International Research Limited (“HTIRL”) a Hong Kong affiliate of Haitong International, which is licensed by the Securities and Futures Commission of Hong Kong under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ("SFO"). This document is provided in Singapore by or through Société Générale, Singapore Branch and is only provided to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and Futures Act, Cap. 289. Recipients of this document are to contact Société Générale, Singapore Branch in respect of any matters arising from, or in connection with, the document. If you are an accredited investor or expert investor, please be informed that in our dealings with you, we are relying on certain exemptions to the Financial Advisers Act. Cap. 110 (“FAA”) - (1) the exemption in Regulation 33 of the Financial Advisers Regulations (“FAR”), which exempts us from complying with Section 25 of the FAA on disclosure of product information to clients; (2) the exemption set out in Regulation 34 of the FAR, which exempts us from complying with Section 27 of the FAA on recommendations; and (3) the exemption set out in Regulation 35 of the FAR, which exempts us from complying with Section 36 of the FAA on disclosure of certain interests in securities.

Notice to Australian investors: This research is distributed in Australia by Société Générale. Societe Generale is exempt from the requirement to hold an Australian financial services license (AFSL) under the Corporations Act 2001 (CT) in respect of financial services, in reliance on ASIC Class Order 03/8240, a copy of which may be obtained at the web site of the Australian Securities and Investments Commission, http://www.asic.gov.au. The class order exempts financial services providers with a limited connection to Australia from the requirement to hold an AFSL where they provide financial services only to wholesale clients in Australia on certain conditions. Financial services provided by Societe Generale may be regulated under foreign laws and regulatory requirements, which are different from the laws applying in Australia.

Notice to Korean Investors: This report is distributed in Korea by SG Securities Korea Co., Ltd which is regulated by the Financial Supervisory Service and the Financial Services Commission.

Other Regions Notice to French investors: This publication is distributed in France by or through Société Générale (“SG”) which is regulated by the AMF and authorized and supervised by the Autorité de Contrôle Prudentiel.

Notice to UK investors: This publication is issued by Haitong International Research Limited (“HTIRL”) a Hong Kong affiliate of Haitong International, which is licensed by the Securities and Futures Commission of Hong Kong under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ("SFO"), and distributed by or through Société Générale, London Branch. Société Générale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel (the French Prudential Control Authority) and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.

Notice to US investors: This research is distributed in the US by SG Americas Securities LLC (“SGAS”) as third party research and its distribution is restricted to institutional clients only under SEC Rule 15a-6. Any U.S. SG client wishing to discuss this report or effect transactions in any security discussed herein should do so with or through their respective salesperson at SGAS. SGAS is a member of FINRA, NYSE, NFA and SIPC and its address is 245 Park Avenue, New York, NY, 10167. (212)-278-6000.

This research is intended for the Recipients only and may not be reproduced or redistributed without the written consent of Haitong International or SG.

25 Nov 2015 17

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Recommendation Chart Definitions for Key Investment Metrics Price Close

12.7 Recommendations & Target Price Business Growth na

10.7 9.70 This is the metric which matches the top line in our report. 8.7 Business profit This is the metric which best represents 6.7 operating profit in our report Shareholder Returns 4.7 Return on Equity 2.7 Balance Sheet Risk Buy Neutral Sell Not rated 0.7 Net Debt to Equity Nov-10 Sep-11 Aug-12 Jun-13 Apr-14 Feb-15

Date Recommendation Target (HKD) Price (HKD)

2015-08-07 Buy 9.70 5.35 Source: Company data Bloomberg, HTI estimates

25 Nov 2015 18

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Haitong International Coverage as of 2 Nov 2015

Pan Asia Resources Pan Asia TMT Core Coverage Universe Non-Coverage Universe Core Coverage Universe Non-Coverage Universe Sam Thawley (Team Leader) China Oil & Gas Group (603 HK) Neil Juggins (Team Leader) Alibaba Health Information Technology (241 HK) Angang Steel (347 HK) Dowa Holdings (5714 JP) Alibaba Group Holdings (BABA US) Alibaba Pictures (1060 HK) China Shenhua Energy (1088 HK) Iino Kaiun Kaisha (9119 JP) China Mobile (941 HK) Anxin-China Holdings (1149 HK) CNOOC (883 HK) Maruichi Steel Tube (5463 JP) China Telecom (728 HK) AV Concept Holdings (595 HK) Daido Steel (5471 JP) Nippon Coke & Engineering (3315 JP) China Unicom Hong Kong (762 HK) Bit-isle (3811 JP) Hanwa (8078 JP) NS United Kaiun Kaisha (9110 JP) Chunghwa Telecom (2412 TT) Boyaa Interactive International (434 HK) Kawasaki Kisen (9107 JP) Osaka Steel (5449 JP) Ctrip.com International (CTRP US) China All Access Holdings (633 HK) Kyoei Steel (5440 JP) Shandong Molong Petroleum Machinery (568 HK) Far EasTone Telecommunications (4904 TT) ChipMOS Technologies (8150 TT) Maanshan Iron & Steel (323 HK) Shougang Concord International Enterprises (697 HK) KDDI (9433 JP) Cogobuy (400 HK) Mitsui O.S.K. Lines (9104 JP) Yamato Kogyo (5444 JP) NetEase (NTES US) Comba Telecom Systems Holdings (2342 HK) Nippon Steel & Sumikin Bussan (9810 JP) Nippon Telegraph & Telephone (9432 JP) Digital China (861 HK) PetroChina (857 HK) NTT DoCoMo (9437 JP) DTS (9682 JP) Sanyo Special Steel (5481 JP) Softbank (9984 JP) Feiyu Technology International (1022 HK) Tokyo Steel Mfg. (5423 JP) Taiwan Mobile (3045 TT) Ferrotec (6890 JP) Fook Tat Cho Tencent Holdings (700 HK) FocalTech (5280 TT) Anton Oilfield Services (3337 HK) Steve Myers Forgame Holdings (484 HK) China Datang (1798 HK) Canon (7751 JP) Fujimi (5384 JP) China Longyuan Power (916 HK) Fujitsu (6702 JP) GMO Internet (9449 JP) China Singyes (750 HK) Hon Hai Precision Industry (2317 TT) Hua Hong Semiconductor (1347 HK) China Suntien (956 HK) Keyence (6861 JP) IGG (8002 HK) CIMC Enric (3899 HK) Konica Minolta Holdings (4902 JP) Internet Initiative Japan (3774 JP) GCL-Poly (3800 HK) LG Electronics (066570 KS) Megachips (6875 JP) Hilong (1623 HK) Nikon (7731 JP) Micro-Star International (2377 TT) Honghua Group (196 HK) Samsung Electronics (005930 KS) NetDragon Websoft (777 HK) Huadian Fuxin Energy (816 HK) Taiwan Semiconductor Mfg. Co. (2330 TT) Ourgame International Holdings (6899 HK) Huaneng Renewables (958 HK) Toshiba (6502 JP) Ryosan (8140 JP) SPT Energy (1251 HK) Jones Ku Shindengen Electric Mfg. (6844 JP) Xinjiang Goldwind (2208 HK) AAC Technologies (2018 HK) SIM Technology Group (2000 HK) BYD Electronic (285 HK) TCL Multimedia Technology Holdings (1070 HK) China Communications (552 HK) T-Gaia (3738 JP) Pan Asia Machinery & Industrial Coolpad Group (2369 HK) Tian Ge Interactive Holdings (1980 HK) Core Coverage Universe Non-Coverage Universe Sunny Optical (2382 HK) Truly International Holdings (732 HK) Gary Cheung Avic International Holdings (232 HK) TCL Communication (2618 HK) Unity Opto Technology (2499 TT) Airtac International Group (1590 TT) Chun Wo Development Holdings (711 HK) Tongda Group (698 HK) Varitronix International (710 HK) China Communications Construction (1800 HK) CW Group Holdings (1322 HK) ZTE (763 HK) Yangtze Optical Fibre & Cable (6869 HK) China Railway Construction (1186 HK) Shanghai Prime Machinery (2345 HK) Jean-Louis Lafayeedney China Railway Group (390 HK) TK Group Holdings (2283 HK) Advanced Semiconductor Engineering (2311 TT) First Tractor (38 HK) Wah Lee Industrial (3010 TT) ASM Pacific Technology (522 HK) Giant Manufacturing (9921 TT) Kato Works (6390 JP) Asustek Computer (2357 TT) Hiwin Technologies (2049 TT) Mitsui Engineering & Shipbuilding (7003 JP) AU Optronics (2409 TT) Merida (9914 TT) Nishio Rent All (9699 JP) Casetek Holdings (5264 TT) Shenzhen International (152 HK) Takeuchi Mfg. (6432 JP) HTC (2498 TT) Techtronic Industries (669 HK) Eagle Industry (6486 JP) Largan Precision (3008 TT) Teco Electric and Machinery (1504 TT) Komori (6349 JP) Lenovo (992 HK) Weichai Power (2338 HK) Modec (6269 JP) Nidec (6594 JP) Zhuzhou CSR Times Electric (3898 HK) Nachi-Fujikoshi (6474 JP) Siliconware Precision Industries (2325 TT) Zoomlion Heavy Industry (1157 HK) Toyo Engineering (6330 JP) Skyworth Digital Holdings (751 HK) Sho Fukuhara Justin Weiss Daikin Industries (6367 JP) Colopl (3668 JP) Fuji Seal International (7864 JP) Cookpad (2193 JP) Fujitsu General (6755 JP) CyberAgent (4751 JP) Glory (6457 JP) DeNA (2432 JP) Hitachi Construction Machinery (6305 JP) F@N Communications (2461 JP) IHI (7013 JP) GMO Payment Gateway (3769 JP) Kawasaki Heavy Industries (7012 JP) Gree (3632 JP) Komatsu (6301 JP) Gurunavi (2440 JP) Kubota (6326 JP) Infomart (2492 JP) KYB (7242 JP) Kakaku.com (2371 JP) Makita (6586 JP) Naver (035420 KS) Mitsubishi Heavy Industries (7011 JP) Nexon (3659 JP) Riso Kagaku (6413 JP) Rakuten (4755 JP) SMC (6273 JP) Start Today (3092 JP) THK (6481 JP) Yahoo Japan (4689 JP) Tony Moyer Amada (6113 JP) Azbil (6845 JP) Pan Asia Autos Chiyoda (6366 JP) Core Coverage Universe Non-Coverage Universe Daifuku (6383 JP) Steve Usher (Team Leader) Mabuchi Motor (6592 JP) Fanuc (6954 JP) Fuji Heavy Industries (7270 HK) Maruwa (5344 JP) JGC (1963 JP) Honda Motor (7267 JP) Press Kogyo (7246 JP) Nabtesco (6268 JP) Hyundai Mobis (012330 KS) TPR (6463 JP) Tsugami (6101 JP) Hyundai Motor (005380 KS) TS Tech (7313 JP) Yaskawa Electric (6506 JP) Kia Motors (000270 KS) Meidong Auto (1268 HK) Yokogawa Electric (6841 JP) Nissan Motor (7201 JP) China Yongda Auto (3669 HK) Suzuki Motor (7269 JP) Chaowei Power (951 HK) Toyota Motor (7203 JP) CAR Inc (699 HK) Yamaha Motor (7272 JP) Rebecca Tang Baoxin Auto (1293 HK) Brilliance China (1114 HK) BYD (1211 HK) Dongfeng Motor (489 HK) Geely Automobile (175 HK) Great Wall Motor (2333 HK) Guangzhou Automobile (2238 HK) Minth (425 HK) Nexteer (1316 HK) Kosuke Matsuda Isuzu Motors (7202 JP) Mazda (7261 JP) Mitsubishi Motors (7211 JP)

25 Nov 2015 19

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL) TCL Communication Technology Holdings (2618 HK) Buy

Haitong International Coverage as of 2 Nov 2015

China Real Estate Asia ex Small Cap Core Coverage Universe Non-Coverage Universe Core Coverage Universe Non-Coverage Universe Andy So (Team Leader) Joy City (207 HK) Yuanyuan Ji (Team Leader) Bolina Holding (1190 HK) Agile Property (3383 HK) China Merchant Prop (978 HK) Best Pacific International (2111 HK) Bonjour Holdings (653 HK) China Overseas Land & Investment (688 HK) Greenland HK (337 HK) Century Sage Scientific (1450 HK) Chigo Holding (449 HK) China Resources Land (1109 HK) Central China Real Estate (832 HK) China Aircraft Leasing Group (1848 HK) China Glass Holdings (3300 HK) Country Garden Holdings (2007 HK) Gemdale (535 HK) CPMC Holdings (906 HK) Goldpac Group (3315 HK) Dalian Wanda Commercial Properties (3699 HK) Yuzhou Properties (1628 HK) Daphne International Holdings (210 HK) Hisense Kelon Electrical Holdings (921 HK) Greentown China Holdings (3900 HK) Emperor International Holdings (163 HK) Dynagreen Environmental Protection (1330 HK) Hua-Han Bio-Pharmaceutical Holdings (587 HK) Guangzhou R&F Properties (2777 HK) Pacific Textiles Holdings (1382 HK) Ozone Water International Holding (2014 HK) KWG Property Holding (1813 HK) Pax Global Technology (327 HK) Sinosoft Technology Group (1297 HK) Shimao Property Holdings (813 HK) Sa Sa International Holdings (178 HK) Texhong Textile Group (2678 HK) Shanghai Fudan Microelectronics (1385 HK) Weiqiao Textile (2698 HK) Shenzhou International Group (2313 HK) Welling Holding (382 HK) Japan Real Estate Sinomedia Holding (623 HK) Yue Yuen Industrial Holdings (551 HK) Core Coverage Universe Non-Coverage Universe SITC International Holdings (1308 HK) Cosmax (192820 KS) Mark Brown (Team Leader) Daibiru (8806 JP) Wasion Group Holdings (3393 HK) DHP Korea (131030 KS) Daito Trust Construction (1878 JP) Daikyo (8840 JP) Kevin Leung Easy Bio (035810 KS) Daiwa House Industry (1925 JP) Haseko (1808 JP) APT Satellite (1045 HK) Hansol HomeDeco (025750 KS) Lixil Group (5938 JP) Hulic (3003 JP) Boer Power (1685 HK) Hanssem (009240 KS) Mitsubishi Estate (8802 JP) Kenedix (4321 JP) China Pioneer Pharma (1345 HK) Mando (204320 KS) Mitsui Fudosan (8801 JP) Sanwa Holdings (5929 JP) Cosmo Lady China (2298 HK) Medy-Tox (086900 KS) Noritz (5943 JP) Sumitomo Real Estate Sales (8870 JP) Fu Shou Yuan International (1448 HK) Naturalendo Tech (168330 KS) Obayashi (1802 JP) Man Wah Holdings (1999 HK) Sam Chun Dang Pharm (000250 KS) Sekisui House (1928 JP) PW Medtech (1358 HK) Sumitomo Realty & Development (8830 JP) Universal Health International (2211 HK) Taisei (1801 JP) Wisdom Holdings (1661 HK) Tokyo Tatemono (8804 JP) Yestar International (2393 HK) Justin Kim Aerospace Technology of Korea (067390 KS) China Consumer Cuckoo Electronics (192400 KS) Core Coverage Universe Non-Coverage Universe Kepco Plant Service (051600 KS) Nicolas Wang (Team Leader) Tenwow International (1219 HK) Jaesong Woo China Medical System (867 HK) Tibet 5100 Water (1115 HK) Hansae (105630 KS) China Mengniu Dairy (2319 HK) China Child Care (1259 HK) Hy-Lok (013030 KS) China Resources Enterprise (291 HK) Tsui Wah (1314 HK) Inbody 041830 KS) China Traditional Chinese Medicine (570 HK) Hosa (2200 HK) Korea Kolmar (161890 KS) CSPC Pharmaceutical Group (1093 HK) Goodbaby (1086 HK) Osstem Implant (048260 KS) Hengan International (1044 HK) Le Saunda (738 HK) Sung Kwang Bend (014620 KS) Shanghai Pharmaceuticals (2607 HK) Future Bright (703 HK) TK Corp. (023160 KS) Sinopharm Group (1099 HK) C.Banner (1028 HK) Youngone (111770 KS) Tingyi Cayman Islands Holding (322 HK) Dorsett Hospitality (2266 HK) Tsingtao Brewery (168 HK) China Travel International (308 HK) Uni-President China (220 HK) Shanghai Jinjiang International (2006 HK) Japan Small Cap Want Want China Holdings (151 HK) Core Coverage Universe Non-Coverage Universe Donald Cheng Hiroyuki Terada (Team Leader) Autobacs Seven (9832 JP) Galaxy Entertainment (27 HK) Accordia Golf (2131 JP) Fujibo Holdings (3104 JP) Macau Legend Development (1680 HK) Accretive (8423 JP) Meitec (9744 JP) MGM China (2282 HK) Dentsu (4324 JP) Monotaro (3064 JP) Paradise Entertainment (1180 HK) Gulliver International (7599 JP) Nichii Gakkan (9792 JP) Sands China (1928 HK) Kameda Seika (2220 JP) Tohokushinsha Film (2329 JP) SJM Holdings (880 HK) Pigeon (7956 JP) Wynn Macau (1128 HK) Pola Orbis (4927 JP) Recruit Holdings (6098 JP) Sanrio (8136 JP) Japan Consumer Shiseido (4911 JP) Core Coverage Universe Non-Coverage Universe Sohgo Security Services (2331 JP) James Moon (Team Leader) Aeon Mall (8905 JP) Technopro Holdings (6028 JP) Aoyama Trading (8219 JP) Avex Group Holdings (7860 JP) Yamato Holdings (9064 JP) Asics (7936 JP) DCM Holdings (3050 JP) Yumeshin Holdings (2362 JP) FamilyMart (8028 JP) H2O Retailing (8242 JP) Yusuke Suzuki Fast Retailing (9983 JP) Honeys (2792 JP) Ain Pharmaciez (9627 JP) Japan Tobacco (2914 JP) Parco (8251 JP) Doutor Nichires Holdings (3087 JP) Laox (8202 JP) FP (7947 JP) Seven & I Holdings (3382 JP) Nihon Nohyaku (4997 JP) Unicharm (8113 JP) Nihon Parkerizing (4095 JP) Optex (6914 JP) Sky Perfect JSAT Holdings (9412 JP) Sun Frontier Fudousan (8934 JP) Takara Leben (8897 JP) Tosei (8923 JP) Wowow (4839 JP) Tony Tanaka China Galaxy Securities (6881 HK) GCA Savvian (2174 JP) GF Securities (1776 HK) Nihon M&A Center (2127 JP) Zenkoku Hosho (7164 JP)

Latest Additions to Coverage Asics (7936 JP) — James Moon China Resources Land (1109 HK) — Andy So GF Securities (1776 HK) — Tony Tanaka Inbody 041830 KS) — Jaesong Woo Kameda Seika (2220 JP) — Hiroyuki Terada Kepco Plant Service & Engineering (051600 KS) — Justin Kim Optex (6914 JP) — Yusuke Suzuki Riso Kagaku (6413 JP) — Sho Fukuhara SITC International Holdings (1308 HK) — Yuanyuan Ji

Latest Drops from Coverage CRCC (1766 HK)

Latest Transfers of Coverage China Communications Construction (1800 HK) to Gary Cheung China Railway Construction (1186 HK) to Gary Cheung China Railway Group (390 HK) to Gary Cheung Shenzhen International (152 HK) to Gary Cheung

Zhuzhou CSR Times Electric (3898 HK) to Gary Cheung

25 Nov 2015 20

This document is being provided for the exclusive use of SAMUEL ONG (HAITONG INTERNATIONAL)