Tuesday, 14 May 2013

(Asia Edition) Asian Daily EPS, TP and Rating changes Top of the pack ... EPS TP (% change) T+1 T+2 Chg Up/Dn Rating Mirvac Group 0 1 0 10 O (O) Korea Semiconductor Sector Keon Han (4) Agile Property (2) (1) (9) (5) U (U) Expect further price squeeze-up

Glodon Software Co (4) (10) (2) (19) U (U) Ashok Leyland Ltd 14 (5) (4) 9 N (N) Shin Corporation (INTUCH.BK) – Maintain O Colin McCallum, CA (5) Cummins India 1 (7) (9) (6) N (N) An attractive way to gain access to AIS's strong cash flows Nestle India 0 (1) 6 (4) U (U) Pola Orbis Holdings 3 0 27 12 O (O) Shiseido 6 0 14 2 N (N) Japan Equity Strategy Tomohiro Okawa (6) Gamuda 1 (7) 29 23 O (O) New 'ABE' index to gauge asset bubble Hanwha Chemical n.m (56) 0 (13) U (U) Nan Ya Printed Circuit (37) (27) (3) 14 N (N) ... and the whole pack Board Silitech Tech. Corp (11) (11) (8) 11 N (O) Regional Wistron (7) (7) (6) 13 N (N) Asia Pacific Strategy Kin Nang Chik (7) Young Fast 5 5 0 22 N (N) Credit Suisse GEM valuation snapshot Optoelectronics Minor International (4) (3) 0 20 O (O) Asia Pacific Strategy Kin Nang Chik (8) CIB 18 27 17 N (N) Credit Suisse valuation snapshot BOB 4 (1) 20 O (O) Australia NJCB 8 (1) 3 N (N) NBCB 9 31 12 N (N) Mirvac Group (MGR.AX) – Maintain O John A.J Richmond (9) Analysing the deal, reiterate OUTPERFORM Connecting clients to corporates Primary Health Care (PRY.AX) – Maintain N Saul Hadassin (10) Hong Kong / China Pathology strength drives modest upgrade Teco (1504.TW) China Date 13-14 May, Hong Kong Coverage Analyst Jerry Su China Economics Dong Tao (11)

China Coal and Power Corporate Days Weak growth momentum continued in April Date 30-31 May, Mission Hills China Small and Medium Banks – Maintain OW Vincent Chan (12) Coverage Analyst Trina Chen Divergence in operating results enlarged China/Hong Kong Emerging Corporate Day China Property Sector Duo Chen (13) Date 19 June, Hong Kong Coverage Analyst Kenny Lau Weekly update: Primary market volume +17% WoW but -5% YoY, +43% YTD

APAC Transport Corporate Day China Airlines Sector – Maintain OW Davin Wu (14) Date 26 June, Hong Kong April's traffic impacted by multiple one-off factors Coverage Analyst Timothy Ross AAC Technologies (2018.HK) – Maintain O Yan Taw Boon (15) Singapore Meeting with CEO: Technology innovation is the key growth driver PT Sumberdaya Sewatama Agile Property (3383.HK) – Maintain U Jinsong Du (16) Date 14 May, Singapore April sales -27% MoM but +11% YoY; YTD only +16% underperforming peers Coverage Analyst Ami Tantri China Medical System Holdings Ltd. (0867.HK) – Maintain O Iris Wang (17) US Fundamentals intact, buy on share price weakness Jaypee Infratech Ltd (JYPE.BO) China Mobile Limited (0941.HK) – Maintain O Colin McCallum, CA (18) Date 13-15 May, US Moving to bundled tariffs to mitigate cannibalisation (positive) Coverage Analyst Amish Shah Glodon Software Co Ltd (002410.SZ) – Maintain U Vincent Chan (19) Acer Group (2353.TW) Date 13-17 May, US It is indeed cyclical rather than growth Coverage Analyst Thompson Wu Lonking Holdings Ltd. (3339.HK) – Maintain U Yang Y. Song (20)

SMIC Shanghai (SMI.N) Comment on April sales: Weak wheel loader sales, market share loss in excavator Date 16-24 May, US Hong Kong Coverage Analyst Randy Abrams

Cheung Kong Holdings (0001.HK) – Maintain O Focus list stock Cusson Leung (21) Europe Minimal impact from the cancellation of Apex Horizon Hotel deal ING Vysya Bank (VYSA.BO) Date 13-15 May, London Standard Chartered Plc (2888.HK) – Maintain U Sanjay Jain (22) Coverage Analyst Ashish Gupta Muddy Waters: We would not read too much into it

Contact [email protected] or Your usual sales India representative. India Consumer Price Inflation and Trade (Apr) Robert Prior-Wandesforde (23) Inflation down; 130% rise in gold imports!

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Tuesday, 14 May 2013

Asian Daily

Asian indices - performance India Market Strategy Neelkanth Mishra (24) (% change) Latest 1D 1W 3M YTD FII preference for large caps continues, insurance portfolio at odds with that of FIIs ASX300 5169 0.1 1.1 3.1 11.7 CSEALL 6239 (0.2) 1.9 7.1 10.6 Ashok Leyland Ltd (ASOK.BO) – Maintain N Jatin Chawla (25) Hang Seng 22990 (1.4) 0.3 (1.8) 1.5 No sign of recovery yet H-SHARE 11109 (2.1) 1.0 (6.0) (2.9) Cummins India (CUMM.BO) – Maintain N Amish Shah, CFA (26) JCI 5055 (1.0) 2.6 10.2 17.1 4Q13: Weak operating profitability led by sharp margin contraction KLSE 1788 0.9 2.0 9.6 5.9 KOSPI 1949 0.2 (0.7) (1.6) (2.4) Nestle India (NEST.BO) – Maintain U Arnab Mitra (27) KSE100 20245 1.6 5.1 14.4 19.8 No revival in volume growth NIFTY 5980 (2.1) 0.2 0.8 1.3 Reliance Power Ltd (RPOL.BO) – Maintain U Amish Shah, CFA (28) NIKKEI 14782.2 1.2 7.9 30.7 42.2 TOPIX 1232.2 1.8 6.8 29.0 43.3 4Q13 ahead of estimates led by strong performance at Rosa project PCOMP 7262 0.9 0.7 11.2 24.9 Japan RED CHIP 4425 (1.7) (1.1) (4.6) (2.3) SET 1618 (0.3) 2.5 6.0 16.2 Japan Equity Strategy Tomohiro Okawa (6) STI 3429 (0.4) 1.4 4.2 8.3 New 'ABE' index to gauge asset bubble TWSE 8248 (0.4) 1.0 4.3 7.1 Pola Orbis Holdings (4927) – Maintain O Satsuki Kawasaki (29) VNINDEX 489 0.6 0.1 (1.0) 18.2 Earnings stable; valuation compelling Asian currencies (vs US$) Shiseido (4911) – Maintain N Satsuki Kawasaki (30) (% change) Latest 1D 1W 3M YTD Conservative guidance; fundamentals suggest too early to buy A$ 1.0 (0.8) (2.2) (3.8) (4.2) Bt 29.7 (0.3) (0.3) 0.4 3.0 Malaysia D 20939.0 (0.0) (0.0) (0.5) (0.5) Gamuda (GAMU.KL) – Maintain O Danny Goh (31) JPY 101.9 (0.3) (2.8) (8.7) (15.0) NT$ 29.8 0.7 (0.9) (0.4) (2.6) Poised for sharp construction orderbook growth and possible dividend upside P 41.2 0.7 (0.6) (1.2) (0.4) Singapore PRs 98.4 0.0 (0.1) (0.4) (1.3) Rp 9741.0 0.2 (0.1) (1.1) 0.5 Biosensors International Group Ltd. (BIOS.SI) – Maintain O Iris Wang (32) Rs 54.7 1.0 (1.0) (1.7) 0.5 Biosensors to acquire Spectrum Dynamics - it is just a start S$ 1.2 0.3 (0.7) (0.5) (1.6) City Developments (CTDM.SI) – Maintain O Yvonne Voon (33) SLRs 126.3 0.0 0.1 0.3 1.1 W 1111.8 1.4 (1.6) (2.2) (4.3) 1Q13 missed; however, strong sales momentum to underpin future earnings growth

Global indices South Korea (% change) Latest 1D 1W 3M YTD Korea Semiconductor Sector Keon Han (4) DJIA 15087.2 (0.2) 0.8 7.9 15.1 Expect further price squeeze-up S&P 500 1632.6 (0.1) 0.9 7.4 14.5 NASDAQ 3438.6 0.1 1.3 7.6 13.9 Hanwha Chemical (009830.KS) – Maintain U A-Hyung Cho (34) SOX 461.7 (0.9) 1.8 8.0 20.2 1Q13 disappoints EU-STOX 2786.4 (0.3) 0.9 5.8 8.1 FTSE 6631.8 0.1 1.7 4.3 12.4 Taiwan DAX 8279.3 0.0 2.1 7.4 8.8 Taiwan Market Strategy Jeremy Chen (35) CAC-40 3945.2 (0.2) 1.0 6.7 8.4 Cash-for-clunkers program could be the first of many upcoming stimulus plans 10 YR LB 14782.2 1.2 7.9 30.7 42.2 2 YR LB 1232.2 1.8 6.8 29.0 43.3 Asia Semiconductor Sector Randy Abrams, CFA (36) US$:E 1.9 1.1 9.1 (5.4) 9.2 Taiwan April sales wrap: Strong month puts upstream on track to guidance US$:Y 0.2 0.0 11.7 (13.6) (4.1) Cheng Shin Rubber (2105.TW) – Maintain O Jeremy Chen (37) BRENT 1.3 (0.0) (0.8) (2.8) (1.7) 1Q13 results in line with forecasts as margin expansion offset weak top line GOLD 101.9 (0.0) (2.8) (8.7) (15.0) VIX 102.3 (1.0) (3.0) (14.2) (8.6) Chinatrust Financial Holding (2891.TW) – Maintain O Chung Hsu, CFA (38) Thomson Financial Datastream New report: Strong 1Q13 results MSCI Asian indices – valuation & perf. Nan Ya Printed Circuit Board (8046.TW) – Maintain N Pauline Chen (39) EPS grth. P/E (x) Performance MSCI Index 13E 14E 13E 14E 1D 1M YTD Eyes on a 2H recovery Asia F X Japan 18 12 12.1 10.8 0.0 5.1 2.5 Silitech Technology Corp (3311.TW) – Downgrade to N Pauline Chen (40) Asia Pac F X J. 14 12 12.8 11.4 0.0 3.4 4.0 Revenue recovery on track, but margin pressure underestimated Australia (2) 10 15.9 14.5 (0.2) -1.3 8.3 Wistron (3231.TW) – Maintain N Thompson Wu (41) China 11 10 9.7 8.7 (1.7) 3.9 (2.2) Hong Kong 11 11 16.1 14.6 (1.0) 4.1 7.0 Diversification setting a balance in 2Q India 15 16 14.2 12.3 (1.8) 6.9 0.7 Young Fast Optoelectronics (3622.TW) – Maintain N Jerry Su (42) Indonesia 17 16 15.8 13.6 (1.4) 1.2 13.7 1Q better on lower opex; revenue to see more momentum in 2H on new projects Japan 34 50 24.6 16.4 2.6 4.7 40.9 Korea 33 13 8.5 7.4 (0.3) 1.2 (8.4) Thailand Malaysia 1 10 16.1 14.7 0.6 7.4 9.7 BEC World (BEC.BK) – Maintain U Karim P. Salamatian, CFA (43) Pakistan 14 18 7.9 6.7 2.06 10.0 15.0 Inline quarter as margins reach near record-highs Philippines 8 13 21.6 20.0 0.0 5.6 24.2 Singapore 2 9 15.2 13.9 (0.7) 3.0 6.1 Minor International (MINT.BK) – Maintain O Thaniya Kevalee (44) Sri Lanka 16 11 15.3 13.7 0.3 6.4 20.6 1Q13 slightly below expectations ... long-term outlook remains solid Taiwan 33 12 15.5 13.9 (1.0) 6.7 5.1 Shin Corporation (INTUCH.BK) – Maintain O Colin McCallum, CA (5) Thailand 19 13 13.4 11.9 (0.5) 3.4 12.4 * IBES estimates An attractive way to gain access to AIS's strong cash flows 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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Asian Daily

SAVE THE DATE Connecting clients to corporates

Credit Suisse presents the following Corporate Access events:

Credit Suisse China Coal and Power Corporate Day 30-31 May 2013, Shenzhen Fundamentals of the thermal coal sector are hotly debated among investors, from both the cyclical and long-term structure perspectives. Our corporate day brings together a wide range of players along the industry value chain - with aims to include more than 30 companies and industry contacts: − Key coal producers (listed in both Shanghai and Hong Kong) − Rail transportation operators and MOR/NDRC − Coal traders − Major consultant on seaborne thermal coal market outlook

− Government and Associations on China’s energy plan − IPPs (thermal, hydro, wind, nuclear) − Players with exposures in gas/coal substitutions − Coal chemicals and equipment − Coal machinery − Environmental experts, related equipment suppliers

China/Hong Kong Emerging Corporate Day 19 June, 2013, Hong Kong China and Hong Kong stock markets have consolidated after the rally given hopes of a recovery. Mid and small cap companies, which are leveraged to China's end-demand improvement and which notably outperformed in the current rally, are resuming their attractiveness given their lowest valuation in the region. We plan to bring these unique, emerging companies in different sectors to the Corporate Day, to help investors gain first- hand information of how they are benefiting from the recovery.

APAC Transport Corporate Day 26 June, 2013, Hong Kong You are invited to attend Credit Suisse’s inaugural transport sector corporate day to be held in our Hong Kong offices on 26 June. We have gathered a group of speakers from across the transport complex and from around Asia to give investors the most complete picture of the key factors driving the sector in its entirety. Senior representatives from ports, airlines and shipping companies will participate in small group and 1:1 meetings, with the lunch time address provided by Mr. Tim Smith, Maersk Line’s CEO for North Asia.

Contact [email protected] or your Credit Suisse sales representative credit-suisse.com/corporateaccess

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Asian Daily

Top of the pack ... Korea Semiconductor Sector ------Expect further price squeeze-up Keon Han / Research Analyst / 822 3707 3740 / [email protected] Ray Kim / Research Analyst / 822 3707 3776 / [email protected] ● We believe the current global DRAM tightness stems from the Thus, blended DRAM prices are stronger than the outlook presented Samsung GS4 launch. Global channel inventory build of a only a few weeks ago. Server DRAM prices are now rising in absolute smartphone that is consuming 2GB of mobile DRAM is enough to terms and mobile DRAM price declines have moderated with signs of continue to tip the DRAM industry supply/demand balance further. pricing power returning. In the current conditions, we think 2Q13 ● While global PC unit sales continue to disappoint, PC DRAM earnings risk is to the upside for both Samsung and Hynix given the prices continue to surge. Wafers’ shift to mobile DRAM continues stronger prices. while rising demand from the server segment will likely push up Globally, PC demand has been weaker than anticipated. Despite this, PC DRAM prices further in the near term. PC DRAM prices have been surging. However, the relative burden to ● While we see marginal wafer load increases out of Taiwan, net- the BoM cost remains low on a historical basis for the PC makers. In net, global DRAM wafer count in total should continue to shrink addition, stronger demand from the server segment (driven by data this year as shifts toward mobile products continue. No new centres), which make up 18% of the DRAM market, is also competing DRAM fab builds are anticipated in 2013. for capacity against PCs. In essence, PC makers could be forced to ● Thus, blended DRAM prices are stronger than what the DRAM pay a higher price, given the shrinking supply. companies guided only a few weeks ago. Server DRAM prices are Figure 1: PC DRAM price movement for the past 6M now rising in absolute terms and mobile DRAM price declines (US$) have moderated with signs of pricing power returning. In the 1.5 current condition, we think 2Q13 earnings risk is to the upside for 1.3 both Samsung and Hynix given stronger price outlook.

Valuation metrics 1.1 Company Ticker Rating Price Year P/E (x) P/B (x) 0.9 Local Target T T+1 T+2 T+1 SEC 005930.KS O 1,476,000 1,900,000 12/11 9.1 6.4 1.7 0.7 SK Hynix 000660.KS O 29,100 41,000 12/11 n.m. 11.9 2.0 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM DDR3 2Gb 256Mx8 1333MHz contract Source: Company data, Credit Suisse estimates More DRAM price hikes expected. While not as strong as the recent Source: DRAMeXchange past, we believe PC DRAM prices are poised to move higher in the Figure 2: DRAM BoM cost per PC near term. As the DRAM industry supply continues to tighten, we see 20% the return of the pricing power spreading to other DRAM products to include the server and mobile DRAMs. As PC DRAM wafers continue 15% $50 to shift toward mobile DRAMs, the wafer tightness is now impacting 6.9% 11.6% 11.5% 6.2% 10% server DRAM availability. Additionally, mobile DRAM supply 9.8% 3.3% 3.4% 5% conditions are also tightening as Samsung GS4 production ramp is 5.7% 5.8% 4.9% 5.5% accelerating on strong backlog, in order to build and fill the global 4.0% 3.6% 3.6% 3.8% 4.1% $0 0% channel inventory. The GS4 smartphone model consumes 2GB of 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12E 1Q13F 2Q13F 3Q13F 4Q13F mobile DRAM per unit. Including Samsung’s mid-priced smartphone DRAM Cost BOM cost(%) volume, we believe the combination consumes over 25% of all global Source: Company data, Credit Suisse estimates. mobile DRAM produced. This is enough to continue to tip the DRAM Upside earnings risk for Korean DRAM makers. By value, industry supply/demand (S/D) balance further; we believe shortages Samsung controls about 42% of the global DRAM market. Hynix’s will persist—one of the key reasons for Samsung willing to procure M/S is about 25%. As 2Q13 progresses, the blended DRAM price mobile DRAMs from SK Hynix, its competitor. trend is stronger than what these companies have been anticipating. No meaningful capacity additions despite the tightness. While we Our current assumption for the blended DRAM prices is a decline of see marginal wafer load increases from Powerchip (15K wpm switch 2% on average. Given that the mobile DRAM price decline is slowing from beginning of 2013, this is largely offset by wafer capacity loss and server DRAM prices are rising, we think blended DRAM prices from the ongoing wafer shifts from PC to mobile DRAM (less dies per could climb on a QoQ basis by 2% to 5%. On a sensitivity calculation wafer compared to PC DRAMs) and the ongoing efforts at Micron to for Hynix, a 5% increase in blended ASP would change our 2Q13 OP convert its Singapore fab from DRAM to NAND (40K wpm). Globally, estimate from W448 bn to W577 bn (+29%). For Samsung, it would all DRAM wafers available are now being fully utilised. Since there no change our DRAM OP outlook from W605 bn to W806 bn (+33%) and new fabs are going up in the industry this year, we do not anticipate increase the total company OP to W10.4 tn (+2%) from our current DRAM wafer growth in 2013. base estimates. Hynix has a stronger leverage to the DRAM industry with 70% of its revenues being derived from DRAMs.

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Shin Corporation ------Maintain OUTPERFORM An attractive way to gain access to AIS's strong cash flows EPS: ◄► TP: ◄► Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected] Contribution by Joel Ying ● Shin Corp (INTUCH.BK) has reported 1Q13 results. Net profit, MHz 3G ‘in-band’ service rollout. Declining depreciation and driven by dividend receipts from cellular associate AIS, rose amortisation resulted in AIS’s net profit growing by 11.2% YoY. 20.6% YoY from Bt5.1 bn in 1Q12 to Bt6.1 bn in 1Q13. Shin Corp target price maintained at Bt105 ● The 7 May 2013 launch of AIS’s new 3G packages gave us higher With the 7 May 2013 launch of AIS’s new 3G packages, we had confidence in our revenue and net profit forecasts for AIS, as did increased confidence that AIS will enjoy higher revenue growth, and the subsequent launch of DTAC’s packages, along very similar lower selling and promotional costs, than we had built into our lines (no subsidisation, monthly ARPU commitments unchanged) previous forecasts. This led us to revise up our FY13 and FY14 on 10 May. We maintain our DCF-based TP for AIS of Bt295. earnings (and therefore dividend) forecasts for AIS by 0.6% and 3.0%, ● This valuation for AIS, together with a mark-to-market valuation respectively. This, together with a reduction in WACC from 10.2% to for the Thaicom stake, and the application of a 10% holding 9.3%, drove our DCF-based target price for AIS of Bt295. company discount, flow through to drive our target price for Shin The expectation of higher dividend generation from AIS fed through to Corp of Bt105. AIS’s 100% payout policy, and Shin Corp’s policy an expectation of higher revenues and earnings for Shin Corp, which of 100% pass-through of those dividend, support this approach. has already been reflected in our Shin Corp forecasts. ● We note that the stock market currently applies a 21.3% discount to Shin Corp’s holdings in its listed parts. We believe this to be too We continue to use a sum-of-the parts (SOTP) methodology to value large, given Shin Corp’s clear dividend policies. We maintain our Shin Corp, given that its core business is the stakes it holds in AIS OUTPERFORM rating. and Thaicom (Not rated). After applying a 10% holding company discount, the AIS target price, together with a mark-to-market Bbg/RIC INTUCH TB / INTUCH.BK Price (10 May 13 , Bt) 88.50 valuation for the Thaicom stake, lead to a target price for Shin Corp of Rating (prev. rating) O (O) TP (prev. TP Bt) 105.00 (105.00) Bt105. Shares outstanding (mn) 3,206.42 Est. pot. % chg. to TP 19 Daily trad vol - 6m avg (mn) 18.5 52-wk range (Bt) 88.5 - 53.0 A cheaper way to gain access to AIS cash flows Daily trad val - 6m avg (US$ mn) 45.6 Mkt cap (Bt/US$ bn) 283.8/ 9.6 Shin Corp has historically tended to trade at an average discount to its

Free float (%) 11.9 Performance 1M 3M 12M listed parts of around 20%. In some respects this makes sense since Major shareholders Cedar (46.4%) Absolute (%) 11.3 31.1 59.5 shareholders are one step removed from AIS’s cash flows. Relative (%) 6.0 23.0 24.3

Year 12/11A 12/12A 12/13E 12/14E 12/15E On the other hand, Shin Corp’s policy of passing through AIS’s Revenue (Bt mn) 17,823 12,343 15,141 18,944 22,599 dividends to its own shareholders effectively means that AIS’s cash EBITDA (Bt mn) 17,546 12,029 14,824 18,626 22,281 Net profit (Bt mn) 17,530 12,010 14,809 18,611 22,266 flows are being returned (albeit indirectly) to Shin Corp shareholders. EPS (Bt) 5.47 3.75 4.62 5.80 6.94 Indeed, the fact that a discount exists results in Shin Corp delivering a - Change from prev. EPS (%) n.a. n.a. 0 0 0 higher dividend yield than associate AIS. - Consensus EPS (Bt) n.a. n.a. 4.89 5.49 6.36 EPS growth (%) (19.1) (31.5) 23.3 25.7 19.6 The clarity of dividend pass-through policy and structurally improved P/E (x) 16.2 23.6 19.2 15.2 12.7 liquidity in Shin Corp should, in our view, lead the holding company Dividend yield (%) 6.3 4.3 5.3 6.6 7.8 discount to narrow to the 10% assumed in our target price. Currently, EV/EBITDA (x) 15.6 23.4 18.9 15.0 12.4 P/B (x) 19.8 19.9 18.4 16.5 14.9 the market is applying a discount which is close to the historical ROE (%) 122.2 84.0 99.8 114.1 123.0 average, at 21.3%. We believe this represents an attractive entry point Net debt (cash)/equity (%) (68.4) (15.3) (21.8) (29.8) (36.6) for investors and we maintain our OUTPERFORM rating. Note 1: ORD/ADR=4.00. Note 2: Intouch Limited, formerly known as Shin Corporation Public Company Limited is a Thailand-based company engaged in information and telecommunications Figure 1: Shin premium/(discount) to its listed parts businesses.

20.0% Click here for detailed financials Shin Corp earnings driven by AIS dividends 10.0% Shin Corp (INTUCH.BK) has reported 1Q13 results. Dividend income, 0.0% which Shin Corp receives courtesy of its 40.45% holding in AIS, rose -10.0% 20.9% YoY to Bt6,194 mn. As a result Shin Corp’s net profit rose by -20.0% 20.6% YoY from Bt5,081 mn in 1Q12 to Bt6,126 mn in 1Q13. -30.0% Confidence in AIS revenue and cash flows rising -40.0% Given AIS’s 100% payout ratio, Shin Corp’s dividend receipts and net -50.0%

income are directly driven by AIS’s earnings trajectory. In 1Q13, AIS -60.0%

Jan-06 Jan-04 Jan-05 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 produced a reasonably strong revenue result, delivering 0.9% QoQ Jan-03 and 7.0% YoY growth in net service revenue excluding interconnect. Source: Company data, Credit Suisse estimates. The YoY revenue growth was driven by a 7.8% YoY increase in the average subscriber base, and relatively stable ARPU. EBITDA grew by 5.6% QoQ and 3.8% YoY despite the costs of AIS’s interim 900

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Japan Equity Strategy ------New 'ABE' index to gauge asset bubble Tomohiro Okawa / Research Analyst / 81 3 4550 9695 / [email protected] Koshiro Tsukiyama / Research Analyst / 81 3 4550 9892 / [email protected] ● Following our 9 April report on the rules of Japanese stock market 3. Sales of companies selling jewellery, gems and precious metals rallies, we analyse the rally in equities in the second half of the 1980s, a period often characterized as an asset bubble. Full report. Figure 2: Transition of ABE (Asset Bubble Evaluator) 3 3000 TOPIX(RHS) ● The current rally has been likened to the asset bubble of the late 2 ABE(LHS) 2500 1980s. We have created an index called Asset Bubble Evaluator 1 2000 (ABE) to track the formation of “asset bubble” conditions. 0 1500 ● Based on the ABE index, we see no evidence that an asset -1 1000 bubble has begun to inflate. Significant differences in temporal -2 500

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Mar-1996 May-1985 Jun-1986 Jul-1987 Aug-1988 Sep-1989 Oct-1990 Nov-1991 Dec-1992 Jan-1994 Feb-1995 Apr-1997 May-1998 Jun-1999 Jul-2000 Aug-2001 Sep-2002 Oct-2003 Nov-2004 Dec-2005 Jan-2007 Feb-2008 Mar-2009 Apr-2010 May-2011 Jun-2012 extent and economic conditions make it impossible to make any Apr-1984 simple comparison between the rally of the second half of the 1980s and the current 2013 rally. Source: Credit Suisse ● While many deny that an asset bubble is forming in Japan, we Comparison with late 1980s rally in equities believe that prices of, and demand for, assets could increase with Yet we believe it would be premature to conclude that there is no any recovery. We recommend stocks from asset-rich sectors that relationship between the current rally and the run-up in shares in the are also highly correlated with our ABE index, such as NTT Urban late 1980s. One thing to note is that the latter was a very protracted Development, Seven & i Holdings, USS, Nomura Real Estate rally of roughly four years that consisted of two phases. The first Holdings and East Japan Railway. phase lasted around 18 months, and included a midphase correction Figure 1: Transition of ABE (Asset Bubble Evaluator) lasting almost six months. The second phase of the rally lasted about 3 3000 two years. The two rallies then and now thus remain significantly TOPIX(RHS) Asset Bubble 2 ABE(LHS) 2500 different in terms of their temporal extent. 1 2000 Outlook and recommended stocks 0 1500 We touch on the outlook for asset demand and prices. ABE is an -1 1000 indicator for gauging the state of underlying asset prices rather than being a predictive tool. Since detailed sector forecasts are outside the -2 500 scope of our macro quantitative analytical approach, we have

-3 0

Oct-1986 Jul-1985 Jan-1988 Apr-1989 Jul-1990 Oct-1991 Jan-1993 Apr-1994 Jul-1995 Oct-1996 Jan-1998 Apr-1999 Jul-2000 Oct-2001 Jan-2003 Apr-2004 Jul-2005 Oct-2006 Jan-2008 Apr-2009 Jul-2010 Oct-2011 Jan-2013 Apr-1984 consulted with several colleagues for the outlook in relevant sectors. Based on these forecasts, while near-term demand is likely to depend significantly on the timing of the consumption tax hike, we believe Source: Credit Suisse. asset prices and demand as gauged by ABE are likely to continue Creating ‘ABE’ index based on late 1980s’ analysis increasing as the Japanese economy recovers, provided there are no Some market commentators have criticised the economic and major policy changes, notably on the monetary policy front. On this financial policies of the Abe government aimed at achieving consumer basis, we have identified mid-cap and large-cap stocks with a market price inflation of 2%, and have introduced the term ‘Asset Bubble cap of at least ¥300 bn that display a high level of correlation with Economy’ policies as they appear to be inflating an asset bubble. changes in the ABE index. Deeply cyclical stocks in finance and There have also been a number of investors likening the current rally electronics appear high on this list, since the index fundamentally in Japanese equities to the return of the asset bubble seen in the moves in line with market momentum as well as asset prices and second half of the 1980s. related demand. If we focus on those sectors where asset values Continuing our analysis of stock market rallies, we propose account for a high proportion of value such as real estate, land investment ideas based on an analysis of how prices and demand for transport, warehousing/logistics and retail, our recommended list of high-value physical assets varied in the latter half of the 1980s. To stocks with a high degree of ABE correlation includes NTT Urban gauge these changes, we create our Asset Bubble Evaluator (ABE) Development, Seven & i Holdings, Nomura Real Estate Holdings, which, rather than being an indicator to forecast prices and demand USS and East Japan Railway. for high-value physical assets that would tend to be inflated by Abe (This is an extract from Tomohiro Okawa’s report, New 'ABE' index to gauge government policies, is designed as a quantitative index based on asset bubble, published on 13 May 2013. For details, please see the CS data with a high degree of immediacy to measure whether prices of, Research & Analytics website.) and demand for, such items are rising or falling. We define ABE based on the three variables described below to create a composite index that captures changes in demand for, and prices of, certain physical assets that we would expect consumers to value highly. 1. Average condominium prices in Tokyo/Osaka regions 2. Number of new foreign luxury cars registered in Japan

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Asian Daily

Regional Asia Pacific Strategy ------Credit Suisse GEM valuation snapshot Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected]

Figure 1: Historical valuations Figure 2 (continued): Forecast valuations (IBES estimates) 10 May 13 12M P/E (x) Trailing P/B (x) Trailing DY (%) EPS growth (%) 3M chg. in est. (%) P/E (x) Current 5-yr avg. Current 5-yr avg. Current 5-yr avg. 2012 2013 2014 2013 2014 2012 2013 2014 Brazil 10.6 9.9 1.5 1.8 4.2 3.5 Taiwan 0.7 36.3 11.7 2.1 0.5 20.8 15.4 13.8 Chile 16.9 15.5 2.1 2.3 2.1 2.0 Thailand 18.1 19.1 12.5 -1.1 -0.3 16.1 13.5 12.0 China 9.4 10.8 1.6 2.1 3.0 2.7 Turkey 18.9 8.7 9.8 0.2 -0.4 13.2 12.1 11.0 Colombia 14.0 15.0 1.7 1.9 3.1 3.0 Cons. Discretionary 7.8 40.3 15.0 0.3 2.0 15.3 11.0 9.5 Czech Republic 9.7 10.3 1.3 2.0 8.6 6.6 Consumer Staples 6.7 16.6 15.9 -2.4 -2.1 27.0 23.2 20.0 Egypt 7.1 8.8 1.4 1.8 2.8 4.3 Energy -14.5 4.3 3.9 -2.6 -2.3 7.3 7.0 6.7 Hungary 8.1 8.4 0.9 1.2 3.4 2.5 Financials 7.3 9.4 12.1 1.3 1.4 11.0 10.0 8.9 India 13.9 14.2 2.7 2.9 1.3 1.2 Health Care 11.3 21.5 21.0 -1.8 -2.0 27.7 22.8 18.8 Indonesia 15.2 12.6 4.1 3.8 2.2 2.8 Industrials 8.0 8.7 21.1 -4.6 -2.9 15.2 14.2 11.9 Korea 7.9 9.5 1.1 1.3 1.1 1.4 Info.Technology 38.9 40.3 12.8 6.8 6.4 15.4 10.9 9.6 Malaysia 15.2 14.0 2.2 2.1 2.9 2.9 Materials -33.6 15.7 13.5 -11.2 -9.8 13.3 11.6 10.2 Mexico 17.5 13.9 3.0 2.7 1.5 1.9 Telecoms 1.2 8.7 5.0 -3.8 -7.2 14.0 12.8 12.2 Morocco 12.7 13.9 2.5 4.6 4.7 4.3 Utilities 1.5 30.1 13.5 -0.7 2.1 15.8 12.1 10.7 Pakistan 7.3 6.8 2.1 1.9 6.7 7.2 Peru 12.0 11.8 2.7 3.9 4.3 2.6 EMF -1.3 15.6 11.3 -0.9 -0.6 12.6 10.9 9.8 Philippines 21.3 14.5 3.6 2.6 1.5 2.7 EM Asia 6.7 20.8 12.8 1.0 1.2 13.5 11.2 9.9 Poland 11.6 10.8 1.3 1.4 5.9 4.4 EM Europe -8.7 -2.7 4.4 -1.4 -1.4 6.5 6.6 6.4 Russia 4.8 5.9 0.8 1.0 3.5 2.4 EM Latin America -17.7 19.1 11.0 -4.5 -4.0 15.3 12.8 11.5 South Africa 12.5 10.7 2.4 2.3 3.2 3.2 Figure 3: Index – absolute performance in US$ (%) Taiwan 14.7 15.2 1.9 1.8 3.1 4.2 10 May 13 1W 1M 3M YTD 12M Thailand 12.8 10.5 2.6 2.0 2.7 3.5 Argentina -2.4 -2.0 -10.5 3.4 -4.0 Turkey 11.6 9.0 2.0 1.7 2.0 2.9 Brazil 0.3 -1.9 -3.0 -1.4 -3.0 Chile -2.3 -3.0 -7.7 -0.4 -5.6 Con Discretionary 10.3 11.0 2.1 2.2 1.6 1.6 China 3.3 5.5 -2.1 -0.5 10.0 Con Staples 21.7 17.2 4.1 3.4 1.7 2.1 Colombia -3.3 -6.5 -15.5 -15.2 -10.1 Energy 6.9 7.8 1.0 1.4 3.7 2.8 Czech Republic -4.2 -3.1 -14.0 -17.9 -16.8 Financials 9.5 10.2 1.5 1.7 2.8 2.7 Egypt 2.0 2.8 -9.0 -9.7 -7.0 Health Care 20.8 16.5 3.8 3.3 1.1 1.0 Hungary 0.0 2.1 -5.5 2.5 7.7 Industrials 13.2 11.9 1.5 1.7 1.9 2.1 India 0.8 7.7 0.2 2.6 19.2 Info Technology 10.3 14.2 2.1 2.1 1.9 2.5 Jordan 1.3 -3.7 -7.0 -3.1 -7.2 Materials 11.0 10.0 1.3 1.8 3.7 3.3 Indonesia 3.4 3.9 10.5 15.3 16.6 Telecoms 12.6 11.3 2.3 2.3 4.2 3.9 Israel -0.3 -1.9 0.3 2.9 -7.3 Utilities 11.5 11.7 1.1 1.1 3.8 3.3 Korea -2.1 1.1 -3.3 -8.1 0.0

EMF 10.4 10.6 1.6 1.8 2.7 2.7 Malaysia 7.2 6.3 14.4 9.0 13.7 EM Asia 10.7 11.5 1.7 1.9 2.3 2.5 Mexico -1.9 -5.7 -2.2 2.7 18.8 EM Europe 6.5 6.9 1.0 1.2 3.7 2.9 Morocco -1.1 -2.7 0.4 -0.7 -12.9 EM Latin America 12.2 11.0 1.7 2.0 3.3 3.0 Pakistan 5.3 7.8 10.4 12.7 14.8 Peru 0.3 -8.8 -11.8 -15.4 -9.2 Figure 2: Forecast valuations (IBES estimates) Philippines 0.1 6.3 11.2 24.2 45.5 Poland 0.7 -2.8 -8.3 -10.9 9.6 10 May 13 EPS growth (%) 3M chg. in est. (%) P/E (x) Russia 0.5 -0.3 -7.4 -3.5 -1.3 2012 2013 2014 2013 2014 2012 2013 2014 South Africa -0.8 0.0 -5.3 -8.5 -0.5 Brazil -27.7 25.3 10.8 -3.2 -2.3 13.9 11.1 10.0 Taiwan 1.8 9.0 5.5 6.3 11.3 Chile -19.1 20.2 18.2 -6.0 -2.7 21.8 18.2 15.4 Thailand 3.2 6.6 6.5 13.0 26.6 China 0.3 11.9 10.6 1.3 0.3 10.9 9.8 8.8 Turkey -0.2 8.4 12.3 13.1 53.6 Colombia 8.5 4.5 1.3 -13.5 -7.6 15.3 14.1 13.9 Consumer Discretionary 0.0 2.5 -2.0 -1.9 3.9 Czech Republic -3.2 -3.3 -4.2 -2.4 -5.0 9.2 9.5 9.9 Consumer Staples 0.1 2.4 3.2 4.9 18.0 Egypt 2.2 32.4 17.0 -8.8 -6.4 10.0 7.6 6.5 Energy 1.8 1.6 -4.2 -5.8 -4.6 Hungary -18.0 4.5 12.4 -2.3 -12.3 8.9 8.6 7.6 Financials 1.8 3.8 1.5 4.4 18.6 India 10.4 12.3 15.9 -1.9 -1.2 16.1 14.3 12.4 Health Care -0.6 2.4 7.0 6.4 25.5 Indonesia 2.9 15.5 16.6 -1.2 -0.4 18.8 16.2 13.9 Industrials 2.1 2.9 -1.2 -0.9 5.0 Korea 15.0 34.5 14.9 2.0 4.1 11.2 8.4 7.3 Information Technology -0.3 4.5 3.3 3.1 12.0 Malaysia 15.5 1.0 9.6 -2.0 -1.9 16.2 16.0 14.6 Materials 0.1 -2.4 -11.9 -13.4 -8.6 Mexico 36.9 4.4 10.8 -6.7 -10.1 19.1 18.3 16.5 Telecommunication Services 0.5 4.1 -1.2 -1.3 1.7 Morocco -5.4 6.6 7.0 -0.5 -2.2 14.0 13.1 12.3 Utilities -1.2 -0.1 0.0 2.2 -1.0 Pakistan 2.8 10.7 16.2 1.1 3.2 9.0 8.2 7.0

Peru -8.1 0.9 8.4 -12.6 -10.4 23.3 23.1 21.3 EMF 0.8 2.6 -1.0 -0.4 7.1 Philippines 16.1 9.7 11.7 0.1 0.8 23.5 21.4 20.0 EM Asia 1.6 5.4 1.3 1.3 10.3 Poland -5.9 -18.6 5.1 -4.1 -3.9 9.7 11.9 11.3 EM Europe 0.2 1.1 -3.9 -1.7 8.6 Russia -12.3 -2.3 3.3 -1.3 -0.8 4.8 4.9 4.8 EM Latin America -0.7 -3.4 -4.2 -1.5 0.8 South Africa 7.4 10.1 13.8 -6.8 -6.3 14.9 13.5 11.9 Source for all figures: MSCI, IBES Aggregates. Note: Sectors are EMF sectors.

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Asian Daily

Asia Pacific Strategy ------Credit Suisse valuation snapshot Kin Nang Chik / Research Analyst / 852 2101 7482 / [email protected]

Figure 1: Country – DDM-based valuations Figure 4: Forecast valuations (IBES estimates) 10 May 13 Implied discount rate (IDR) (%) Equity risk premium (ERP) (%) 10 May 13 3-mth chg. in Current 5Y avg. Std Dev. Current 5Y avg. Std Dev. EPS growth (%) EPS est. (%) P/E (x) Australia 10.7 11.7 0.9 7.6 7.7 0.4 2012 2013 2014 2013 2014 2012 2013 2014 China 14.1 13.5 1.0 10.6 9.9 1.0 Australia -2.3 -2.5 8.9 -0.7 -1.7 15.5 15.9 14.6 Hong Kong 9.6 9.9 0.7 8.7 8.0 1.1 China 0.3 11.9 10.6 1.3 0.3 10.9 9.8 8.8 India 12.7 13.1 0.8 5.1 5.2 1.3 Hong Kong -11.7 11.1 10.8 1.5 1.7 18.1 16.3 14.7 Indonesia 12.8 14.4 1.5 7.3 5.8 1.8 India 10.4 12.3 15.9 -1.9 -1.2 16.1 14.3 12.4 Korea 13.1 12.1 0.6 10.2 7.7 1.2 Indonesia 2.9 15.5 16.6 -1.2 -0.4 18.8 16.2 13.9 Malaysia 10.7 11.1 0.5 7.5 7.3 0.5 Japan -27.0 11.5 57.6 5.5 5.6 28.3 25.4 16.1 Philippines 9.1 10.6 0.8 5.7 3.9 1.0 Korea 15.0 34.5 14.9 2.0 4.1 11.2 8.4 7.3 Singapore 10.1 10.8 0.6 8.7 8.7 0.8 Malaysia 15.5 1.0 9.6 -2.0 -1.9 16.2 16.0 14.6 Taiwan 10.7 11.1 0.7 9.5 9.7 0.6 Philippines 16.1 9.7 11.7 0.1 0.8 23.5 21.4 20.0 Thailand 12.4 13.4 1.4 9.1 9.7 1.4 Singapore 7.0 1.0 8.8 -0.8 -0.9 15.3 15.2 13.9 Asia ex Japan 11.6 11.5 0.6 9.8 8.7 1.1 Taiwan 0.7 36.3 11.7 2.1 0.5 20.8 15.4 13.8 Thailand 18.1 19.1 12.5 -1.1 -0.3 16.1 13.5 12.0

Figure 2: Sector – DDM-based valuations Cons. Discretionary 6.8 35.4 14.7 0.8 2.8 14.5 10.8 9.4 10 May 13 Market implied growth rate (MIGR) (%) Consumer Staples -1.7 12.8 12.2 -1.8 -1.7 23.0 20.3 18.1 Current 5-year average Std Dev. Energy -11.1 8.4 8.3 -2.9 -3.8 11.7 10.8 10.0 Cons. Discretionary -0.1 1.9 4.0 Financials 5.0 7.7 9.4 1.4 1.5 12.9 12.0 11.0 Consumer Staples 0.0 2.6 3.2 Health Care 9.1 17.2 16.7 -0.6 -0.3 27.1 23.1 19.8 Energy -6.5 -2.2 4.5 Industrials -7.3 7.3 18.6 -3.6 -2.2 15.3 14.5 12.3 Financials -1.1 1.9 4.0 Information Tech 39.1 40.7 13.0 6.7 6.5 15.4 10.9 9.6 Health Care 1.5 4.2 3.6 Materials -24.1 -1.9 20.7 -8.3 -6.7 13.2 13.7 11.3 Industrials 0.1 2.8 3.5 Telecom Services 0.6 8.2 5.4 -0.6 -3.0 16.0 14.8 14.1 Information Tech 3.2 8.3 3.4 Utilities 33.8 35.8 12.4 2.4 1.7 20.9 15.4 13.7 Materials -0.7 1.4 4.3 Telecom Services 2.5 3.7 2.6 Asia Pacific 4.5 26.0 12.4 2.1 2.3 17.1 13.6 12.1 Utilities -2.4 1.6 4.0 Asia F X Japan 4.6 18.5 12.4 0.9 1.1 14.0 11.9 10.6 Asia Pac F X Japan 2.0 14.0 12.0 0.3 0.5 14.4 12.6 11.3 Note: PE and EPS growth numbers for Australia and Japan corresponds to Jun 12-14 and Mar 12- 14; and EPS change numbers correspond to Jun 13-14 and Mar 13-14, respectively. Figure 3: Historical valuations Figure 5: Index – absolute performance in US$ (%) 10 May 13 12M forward Trailing Trailing dividend P/E (x) P/B (x) yield (%) (10 May 13) US$ – price index 1W 1M 3M YTD 12M Current 5-yr avg. Current 5-yr avg. Current 5-yr avg. MSCI Australia -1.8 -0.5 1.8 8.5 21.1 Australia 14.7 12.3 2.1 1.9 3.9 4.7 MSCI China 3.3 5.5 -2.1 -0.5 10.0 China 9.4 10.8 1.6 2.1 3.0 2.7 MSCI Hong Kong 2.4 6.0 3.2 8.1 23.1 Hong Kong 15.5 14.8 1.4 1.4 2.4 3.0 MSCI India 0.8 7.7 0.2 2.6 19.2 India 13.9 14.2 2.7 2.9 1.3 1.2 MSCI Indonesia 3.4 3.9 10.5 15.3 16.6 Indonesia 15.2 12.6 4.1 3.8 2.2 2.8 MSCI Japan 2.2 5.2 15.0 19.7 25.2 Japan 15.8 15.6 1.5 1.1 1.4 2.1 MSCI Korea -2.1 1.1 -3.3 -8.1 0.0 Korea 7.9 9.5 1.1 1.3 1.1 1.4 MSCI Malaysia 7.2 6.3 14.4 9.0 13.7 Malaysia 15.2 14.0 2.2 2.1 2.8 2.9 MSCI Philippines 0.1 6.3 11.2 24.2 45.5 Philippines 21.3 14.5 3.6 2.6 1.5 2.7 MSCI Singapore 1.6 3.7 5.1 6.8 17.6 Singapore 14.6 13.2 1.6 1.6 2.9 3.5 MSCI Taiwan 1.8 9.0 5.5 6.3 11.3 Taiwan 14.7 15.2 1.9 1.8 3.1 4.2 MSCI Thailand 3.2 6.6 6.5 13.0 26.6 Thailand 12.8 10.5 2.6 2.0 2.7 3.5 Cons. Discretionary 0.5 3.2 -0.3 0.6 3.4 Cons. Discretionary 10.1 11.4 2.0 2.0 2.0 2.2 Consumer Staples -1.2 3.5 5.3 7.1 16.6 Consumer Staples 19.1 15.8 3.0 2.7 3.2 3.1 Energy 3.2 1.0 -4.4 -4.8 -0.2 Energy 10.4 11.1 1.5 2.1 3.1 2.8 Financials 0.3 4.8 4.7 9.8 26.5 Financials 11.5 11.5 1.5 1.5 4.5 4.0 Health Care -1.0 2.2 5.0 8.0 39.7 Health Care 21.0 18.0 4.5 4.0 2.2 1.9 Industrials 2.2 2.6 -1.2 -0.2 6.8 Industrials 13.5 12.6 1.4 1.5 2.9 2.6 Information Tech -0.3 4.5 3.0 2.9 12.0 Information Tech 10.3 14.3 2.1 2.1 2.7 2.5 Materials 3.6 0.1 -9.5 -8.4 -3.5 Materials 12.0 11.2 1.6 2.1 3.0 2.9 Telecom Services 1.6 7.3 7.1 5.9 13.9 Telecom Services 14.5 12.2 2.4 2.2 4.7 4.4 Utilities 0.2 3.1 8.1 10.5 26.3 Utilities 14.6 14.7 1.7 1.5 2.8 2.8 MSCI AC Asia Pacific 1.3 4.3 6.6 9.7 18.5 Asia Pacific 13.0 13.2 1.6 1.4 2.3 2.7 MSCI AC Asia ex JP 1.7 5.3 1.8 2.5 12.3 Asia ex Japan 11.3 11.9 1.6 1.8 2.4 2.6 MSCI AC Asia Pacific ex JP 0.8 3.7 1.8 4.0 14.5 Asia Pac ex Japan 12.0 12.0 1.7 1.8 2.8 3.2 Source for all figures: MSCI, Factset, Thomson Financial Datastream, Credit Suisse. Note: All sectoral data refers to Asia Pacific ex Japan.

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Asian Daily

Australia Mirvac Group ------Maintain OUTPERFORM Analysing the deal, reiterate OUTPERFORM EPS: ▲ TP: ◄► John A.J Richmond / Research Analyst / +61 2 8205 4580 / [email protected] Stephen Rich / Research Analyst / 61 2 8205 4617 / [email protected] ● MGR has acquired the $584 mn GE office portfolio for $584 mn Analysing the deal (+$41.4 mn transaction costs), to be funded with a $400 mn Allendale Square ($231 mn) was acquired for $8,224/m2, and placement plus a ~$45 mn SPP at $1.69, and ~$180 mn debt. compares well with similar transactions. The face value of 90 Collins ● Allendale Square ($231 mn) was acquired for $8,224/m2, and St ($170 mn or $7,999/m2), however, appears expensive given its compares well with similar transactions. The face value of 90 Collins vacancy rate of 55%. However, after incorporating $19 mn for the St ($170 mn or $7,999/m2), however, appears expensive given its value of capex, incentives and rental guarantees, the acquisition vacancy rate of 55%. However, after incorporating $19mn for the compares more favourably ($7,105/m2). And lastly, the price paid for value of capex, incentives and rental guarantees, the acquisition the five APDG sites appears reasonable ($183 mn), given the 7.8% compares more favourably ($7,105/m2). initial yield plus redevelopment potential. The 3 Pitt St sites alone ($100 mn) have a potential NLA of 30,000m2 under the Design ● While MGR had the capacity to fund the deal via the 50% sell- Excellence Guidelines which could support a ~$480 mn end value down of 275 Kent St for ~$415 mn, the equity raising was done at development. We see upside through site amalgamation. a marginal 3.2% discount, and now enables MGR to fund a greater share of its expanding development pipeline and/or A$1.91 target price, reiterate OUTPERFORM In an increasingly fully priced sector (trading on a 5.0% yield and a 6.3% pursue new opportunities. premium to NAV), MGR offers relative value, and remains our preferred ● Our NAV is $1.91 in which we value investments on a 7.0% cap residential play. The stock trades at a 9.7% discount to NAV, and on a rate (vs. book at 7.4%) and development on 11x EBIT multiple. 5.5% FY14 dividend yield (based on the last close price of $1.75). Bbg/RIC MGR AU / MGR.AX Price (09 May 13 , A$) 1.75 Figure 1: MGR has among the highest dividend yield plus dividend Rating (prev. rating) O (O) TP (prev. TP A$) 1.91 (1.91) growth in the sector Shares outstanding (mn) 3,426.03 Est. pot. % chg. to TP 10

Daily trad vol - 6m avg (mn) 9.9 52-wk range (A$) 1.77 - 1.22 16% PRODUCERS Daily trad val - 6m avg (US$ mn) 15.7 Mkt cap (A$/US$ mn) 5,978.4/ 6,016.7 VALUE ACQUIRERS 14% Free float (%) — Performance 1M 3M 12M Major shareholders 12% Absolute (%) 7.1 9.4 34.2 Relative (%) 2.3 4.7 13.0 10%

Year 06/11A 06/12A 06/13E 06/14E 06/15E 8% EBITDA (A$ mn) 436.4 465.4 457.4 613.7 621.0 Net profit (A$ mn) 358.5 366.3 375.0 442.3 453.3 6% EPS (A$) 0.11 0.11 0.11 0.12 0.12 4% - Change from prev. EPS (%) n.a. n.a. 0 1.1 1.3 2% - Consensus EPS (A$) n.a. n.a. 0.11 0.12 0.12 EPS growth (%) 13.7 1.7 0.2 11.6 2.5 0% P/E (x) 16.6 16.3 16.2 14.6 14.2 LLC MGR GMG WDC ALZ SGP CFX WRT DXS CPA FDC CQR IOF GPT Avg. Dividend yield (%) 4.8 4.8 4.9 5.5 5.6 Div yield Jun 2013 2 Yr DPS CAGR Jun 13-15 2 Yr EPS CAGR Jun 13-15 EV/EBITDA (x) 18.4 16.9 17.7 13.5 13.7 Source: Company data, Credit Suisse estimates. ROE (%) 5.8 5.8 5.7 6.5 6.7 Net debt(cash)/equity (%) 36.9 32.6 33.6 35.5 36.5 Earnings: We forecast a three-year CAGR of 6.8% NAV per share (A$) — — — — — MGR has among the highest 3Y EPS growth rate in the sector at 6.8%, Disc./(prem.) to NAV (%) — — — — — driven by higher residential margins, higher residential turnover, the Note 1: Mirvac Group (MGR) is an internally managed, diversified property group. Mirvac has two core divisions: Property Investment (across retail, commercial and industrial assets) and completion of its $2 bn commercial development pipeline, 3% NOI growth Development (residential and commercial development).

from its $5.6 bn investment portfolio, accretion from the GE portfolio Click here for detailed financials acquisition (+1%) and a 120 bp lower debt cost given recent swap MGR has acquired the $584 mn GE office portfolio for $584 mn (+$41.4 terminations and a lower floating rate. mn transaction costs), to be funded with a $400mn placement plus a We forecast a lift in development ROIC from 4.4% to 9.3% in FY14 ~$45 mn SPP at $1.69, and ~$180 mn debt. The portfolio has an initial (slightly below management’s 10% target), of which 64% is covered yield of 7.8%, which rises to 8.4% on a fully let basis and falls to 7.1% by presales. While improving development ROIC will be tempered by excluding rent guarantees. Our EPS forecasts lift 1% from FY14, seeing higher interest expense given the settlement of major projects (higher the stock trade on an EPS/DPS yeild of 7.1%/5.7% at the $1.69 interest in COGS) and the impact of the $273 mn impairments taken issuance price vs. the sector on 6.5%/5.0%. Our NAV remains in February (less interest capitalised), development NPAT/EBIT unchanged at $1.91, with a higher development pipeline value offset by margins should improve nonetheless. In combination, this sees EPS 1¢ transaction costs. The key risk is the lease-up of 90 Collins St (45% grow 11.6% in FY14. Growth into FY15 and FY16 moderates to 4.4% vacant) before rent guarantee expires in two years, which would make p.a. given a lack of major residential project completions. the deal EPS neutral only (unlikely in our view). With capital flexibility and an expanded pipeline, MGR’s earnings visibility has improved. (This is an extract from the MGR report published on 10 May 2013. Please see R&A for details.)

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Asian Daily

Primary Health Care ------Maintain NEUTRAL Pathology strength drives modest upgrade EPS: ◄► TP: ◄► Saul Hadassin / Research Analyst / 61 2 8205 4679 / [email protected] William Dunlop / Research Analyst / 61 2 8205 4405 / [email protected] ● PRY has announced that it now expects FY13 EBITDA to be in PRY’s divisions to manage (GP exits, acquisitions, site development the range of A$380–390 mn compared to previous guidance of and back-filling of centres) and most exposed to external economic A$370–380 mn (2.7% upgrade). Full report. factors (in particular its allied services contribution). PRY clearly has ● FY13 EPS growth guidance is now 24–29% up from 20–25%. low-volatility demand for its Medicare services supported by an ageing Rationale for the upgraded guidance was not provided to the population and ongoing emphasis of high-quality health care by market, however company management has noted that the Australians. Its scalable medical centre and pathology businesses performance of the pathology division continues to be strong. support margin expansion as volumes grow. However we are conscious of the company largely being a price-taker from the ● Catalyst: The 2013/2014 Federal Budget announcement Australian Government and hence look to next week’s Budget (Tuesday, 14 May, 2013). announcement for more clarity over PRY’s medium-term outlook. ● We make no change to our NEUTRAL rating and A$4.70 target price or earnings. Our current forecasts are within PRY’s new Catalyst: The 2013/2014 Federal Budget announcement (Tuesday, guidance ranges at A$382 mn and 25% EPS growth. PRY trades 14 May, 2013) on 16.1x 12-month forward CS EPS. Valuation: PRY trades on 16.1x 12-month forward CS EPS. Bbg/RIC PRY AU / PRY.AX Price (10 May 13 , A$) 4.99 Rating (prev. rating) N (N) TP (prev. TP A$) 4.70 (4.70) Shares outstanding (mn) 503.92 Est. pot. % chg. to TP (6) Daily trad vol - 6m avg (mn) 2.2 52-wk range (A$) 5.34 - 2.69 This is an extract from Saul Hadassin’s Primary Health Care report, Daily trad val - 6m avg (US$ mn) 9.9 Mkt cap (A$/US$ mn) 2,514.6/ 2,530.7 Pathology strength drives modest upgrade published on 10 May 2013.

Free float (%) — Performance 1M 3M 12M For details, please see the CS Research and Analytics website. Major shareholders Absolute (%) 1.4 6.9 81.5 Relative (%) (3.4) 2.1 60.3

Year 06/11A 06/12A 06/13E 06/14E 06/15E Revenue (A$ mn) 1,310 1,391 1,458 1,527 1,601 EBITDA (A$ mn) 326.5 349.9 382.4 403.1 425.0 Net profit (A$ mn) 102.6 122.1 146.8 165.0 183.0 EPS (A$) 0.21 0.24 0.29 0.33 0.36 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (A$) n.a. n.a. 0.30 0.34 0.37 EPS growth (%) (25.3) 17.9 19.6 11.8 10.2 P/E (x) 24.1 20.4 17.1 15.3 13.9 Dividend yield (%) 1.6 2.2 2.8 3.1 3.5 EV/EBITDA (x) 11.0 10.2 9.3 8.7 8.1 P/B (x) 1.0 1.0 0.9 0.9 0.9 ROE (%) 4.1 4.8 5.6 6.1 6.5 Net debt(cash)/equity (%) 42.9 41.4 38.4 35.5 32.0

Note 1: Primary Health Care Limited is an Australia-based company. Its activities, along with its subsidiaries, acts as a medical centre operator; a provider of diagnostic imaging services; a provider of pathology, and a provider of health technology.

Click here for detailed financials Minor FY13F upgrade: PRY has announced that it now expects FY13 EBITDA to be in the range of A$380–390 mn compared to previous guidance of A$370–380 mn (2.7% upgrade). FY13 EPS growth guidance is now 24–29% up from 20–25%. Rationale for the upgraded guidance was not provided to the market, however company management has noted that the performance of the pathology division continues to be strong. Investment case: We make no change to our NEUTRAL rating, and A$4.70 target price or earnings. Our current forecasts are within PRY’s new guidance ranges at A$382 mn and 25% EPS growth. An upgrade due to medical centre performance would have been more encouraging given that, in our view, it remains the most complex of Valuation metrics Company Ticker Rating Price TP Up/dn Year EPS Chg(%) EPS EPS grth (%) P/E (x) Div. yld ROE P/B (prev. Chg to TP (%) (%) (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 PRIMARY HEALTH PRY.AX N (N) 4.99 4.70 0 (6) 06/12 0 0 0.29 0.33 20 12 17.1 15.3 2.8 5.6 0.9 CARE ORD Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

- 10 of 53 - Tuesday, 14 May 2013

Asian Daily

China China Economics ------Weak growth momentum continued in April Dong Tao / Research Analyst / 852 2101 7469 / [email protected] Weishen Deng / Research Analyst / 852 2101 7162 / [email protected] ● China’s industrial production grew by 9.3% YoY, a touch below In line with our expectation, FAI did not show signs of a the Bloomberg consensus of 9.4%. FAI rose 20.6% for Jan-Apr as rebound a whole, weaker than the 20.9% growth for Jan-Mar. Retail sales Overall, this set of data is broadly in line with our expectation, though were up 12.8% YoY in April, in line with expectation. fixed asset investment did not show any rebound during the traditional high season for infrastructure investment and after the power ● On a seasonally adjusted sequential basis, April IP was 0.87% succession. The economy continues its weak momentum started in MoM, higher than 0.67% previously. FAI grew by 1.63% MoM in 1Q13. On YoY basis, the GDP growth currently is running about 7- April, slower than 1.91% previously. Retail sales growth was at 7.5%, though we reckon seasonally adjusted QoQ number would 1.23% MoM in April, weaker than the 1.29% seen in March. point to about 6% pace (1Q13 growth on saar basis was at 6.6%). ● Overall, this set of data is broadly in line with our expectation. We think that this pace of growth is modest but still acceptable to Still acceptable to Beijing, we think some easing in policy Beijing. We do not expect a major stimulus in the near future, as restrictions is likely to happen during the summer time the leadership has put the focus on anti-corruption campaign. Nevertheless, we think that this pace of growth is modest but still acceptable to Beijing. We do not expect major stimulus in the near ● We think that some form of monetary easing is likely to happen future, as the leadership has put the focus on anti-corruption during the summer time. At some stage in this summer, the campaign. This anti-corruption campaign has weakened high end growth slowdown and the tension from the labour market is consumption, as well as local government investment. expected to force Beijing to respond. We look for some easing in policy restrictions against the shadow banking, local government We think that some form of monetary easing is likely to happen during investment and housing. the summer time. The pattern of economic development this year looks strikingly similar to that of last year. At this moment, most Figure 1: Summary of April macro data bleeding takes place in the upstream, with labour market less affected. (% YoY, unless otherwise stated) Apr Mar Feb Jan Dec Nov So the decision makers in Beijing can tolerate the growth moderation. Fixed asset investments 20.1 20.7 21.2 20.0 20.7 % MoM, sa 1.63 1.91 0.79 1.86 1.60 1.38 However, the stress in the upstream is likely to spill over to the mid Industrial production 9.3 8.9 9.9 10.3 10.1 and down-stream and more layoffs are likely to happen. At some % MoM, sa 0.87 0.67 0.79 0.59 0.82 0.8 stage this summer, the growth slowdown and the tension from the Retail sales 12.8 12.6 12.3 15.2 14.9 labour market is expected to force Beijing to respond. We look for % MoM, sa 1.23 1.29 0.99 0.19 1.28 1.18 some easing in policy restrictions against the shadow banking, local Source: NBS, Credit Suisse government investment and housing. Growth momentum continued to be weak China’s Industrial production grew by 9.3% YoY, a touch below the Bloomberg consensus of 9.4% but higher than the 8.9% YoY growth seen in March. On a seasonally adjusted sequential basis, IP growth was at 0.87% MoM, higher than 0.67% previously. For the first four months of the year, IP grew by 9.4% compared to the same period last year. Fixed asset investment rose 20.6% for Jan-Apr as a whole, weaker than the 21.0% expected by the market and the 20.9% growth for Jan- Mar. We estimate that the FAI for April alone rose 20.1% YoY, slower than the 20.7% YoY growth seen in March. Sequential growth has weakened as well, on seasonally adjusted basis, FAI grew by 1.63% MoM in April, slower than the 1.91% MoM in March. Retail sales were up 12.8% YoY in April, in line with expectations and higher than the 12.6% YoY previously. Despite this small improvement in headline YoY growth, the sequential momentum has moderated slightly. Sequentially, retail sales growth was at 1.23% MoM (sa) in April, weaker than the 1.29% MoM (sa) seen in the previous month. For the first four months of the year, retail sales grew by 12.5%; this is still 2.4% lower than the 14.9% YoY growth seen in the last quarter of 2012.

- 11 of 53 - Tuesday, 14 May 2013

Asian Daily

China Small and Medium Banks ------Maintain OVERWEIGHT Divergence in operating results enlarged Vincent Chan / Research Analyst / 852 2101 6568 / [email protected] Significant Contributor Yingying Yang

● Divergence among results performance of small and medium Figure 4: Net interest margin performance comparison banks has widened in the past few quarters. CIB delivered the 2010 2011 2012 1Q12 2Q12 3Q12 4Q12 QoQ YoY 1Q13 QoQ YoY strongest revenue and profit growth in FY12 and 1Q13, while CIB 2.32 2.48 2.64 2.64 2.79 2.58 2.56 -2 bp -19 bp 2.44 -12 bp -20 bp BOB 2.36 2.36 2.33 2.35 2.56 2.56 2.56 0 bp 13 bp 2.46 -10 bp 11 bp NJCB saw YoY revenue growth slip to 5-11% in 4Q12/1Q13 (from NBCB 2.54 2.80 3.28 3.24 3.63 3.29 3.04 -25 bp -23 bp 2.85 -19 bp -39 bp 34% in 1Q12) with less-than-sufficient provisions, in our view. NJCB 2.65 2.66 2.49 2.52 2.58 2.30 2.39 9 bp -37 bp 2.40 1 bp -12 bp ● Small banks saw larger margin contraction than large banks in the Source: Company data, Credit Suisse research. recent rate cut cycle, partially attributed to higher premiums paid for (3) Fee income grew 79.8%/80.1% YoY in 4Q/1Q, much stronger than deposits. Fluctuations in interbank/securities assets, as well as higher large banks, though NJCB lagged with only 7.4%/16% YoY growth. MSE lending helped margins hold up better than expected. (4) Credit costs were still kept up as NPL trend has not reversed. ● The late-March WMP regulation led to a surge in deposits in 1Q and should have a larger impact on profitability of small banks in Figure 5: NPL ratio, LLR/loans ratio and credit cost trend comparison NPL ratio (%) LLR/loans ratio (%) Credit cost (bp) the near term. Credit to LGFVs remains under strict control, while CIB BOB NBCB NJCB CIB BOB NBCB NJCB CIB BOB NBCB NJCB the FX business has emerged as a new growth engine for small 2010 0.42 0.69 0.69 0.97 1.38 2.13 1.36 2.27 25 32 33 55 banks (contributing 38% of incremental loans of CIB in 2012). 2011 0.38 0.53 0.68 0.78 1.46 2.35 1.63 2.53 32 66 57 79 2012 0.43 0.59 0.76 0.83 2.00 2.67 2.10 2.64 112 87 80 69 ● We upgrade our loan growth, margin and fee growth assumptions 1Q12 0.40 0.53 0.68 0.73 1.55 2.36 1.68 2.52 66 46 57 65 and revise up earnings by 14% for 2013E and 23% for 2014E. We 2Q12 0.40 0.55 0.72 0.75 1.82 2.46 1.71 2.61 155 106 48 104 revise up CIB’s TP on strong earnings delivery but maintain N due 3Q12 0.45 0.57 0.75 0.78 1.95 2.47 1.77 2.67 117 45 41 68 to pressure from the WMP regulation. BOB remains our top pick. 4Q12 0.43 0.59 0.76 0.83 2.00 2.67 2.10 2.64 117 146 167 38 1Q13 0.49 0.54 0.83 0.83 2.09 2.69 2.12 2.58 94 71 59 50 Figure 1: Key assumption changes of Chinese small and medium banks Source: Company data, Credit Suisse research. 2013E 2014E 2015E Increasing forecast earnings and revising target prices New Old Chg New Old Chg New Old Chg We revise up earnings and update GGM derived TPs assuming avg. Loan growth (%) 18.3 15.9 2.4 16.6 14.9 1.7 15.0 Fee growth (%) 34.1 23.7 10.4 27.2 21.7 5.5 24.9 2013-15E projection as the MT ROE and a 3% internal growth rate. NIM (%) 2.48 2.39 0.09 2.42 2.26 0.15 2.40 Credit cost (bp) 98 101 (3) 100 102 (1) 115 Figure 6: GGM derived target prices of Chinese small and medium banks Source: Credit Suisse estimates. MT COE Beta Implied Implied TP CMP Upside Old Chg Bank Rating ROEs PB (x) PE (x) (CNY) (CNY) TP 4Q12 and 1Q13 results: CIB strong, NJCB sluggish CIB N 21.7% 16.8% 1.45 1.35 6.2 21.33 18.21 17% 18.80 13% On revenue side, CIB maintained its strong momentum with 31% YoY BOB O 16.4% 14.3% 1.15 1.19 7.2 10.73 8.83 22% 11.41 -6% growth in 1Q, while NJCB growth has slipped to 5-11% YoY in 4Q/1Q. NJCB N 14.8% 14.5% 1.18 1.02 6.9 9.71 9.19 6% 9.82 -1% NBCB N 18.5% 14.7% 1.20 1.33 7.2 11.65 10.13 15% 12.44 -6% Figure 2: Revenue / PPoP / Net profit growth comparison (%) Source: Credit Suisse estimates. 70 Revenue PPoP 60 CIB BOB NBCB NJCB Net profits 60

50 46 45 39 36 36 3736 37 37 36 40 36 34 36 3435 32 30 30 31 32 30 32 30 27 29 29 28 30 26 25 24 23 25 25 23 22 22 22 21 20 22 20 15 15 15 11 8 10 5 5

- 07-12 FY12 YoY 4Q12 YoY 1Q13 YoY 07-12 FY12 YoY 4Q12 YoY 1Q13 YoY 07-12 FY12 YoY 4Q12 YoY 1Q13 YoY CAGR CAGR CAGR Source: Company data, Credit Suisse research. (1) Loan growth remained robust and slightly higher than larger banks, while deposit growth surged in 1Q13 and much exceeded sector growth, though the daily-average deposit growth could be less. Figure 3: Loan and deposit growth comparison (%) Loan growth Deposit growth LDR QoQ 1Q12 2Q12 3Q12 4Q12 1Q13 1Q12 2Q12 3Q12 4Q12 1Q13 1Q13 CIB 3.5 4.4 3.3 7.7 6.0 2.0 9.3 10.6 9.3 11.2 3.5 BOB 4.8 6.7 4.4 4.9 6.0 8.0 3.8 3.4 0.3 6.3 4.8 NBCB 6.2 4.5 2.6 4.2 6.0 7.2 8.0 3.4 (1.8) 17.7 6.2 NJCB 6.5 7.1 3.9 2.7 5.9 12.1 11.6 0.6 2.0 14.0 6.5 Source: Company data, Credit Suisse research. (2) Net interest margins saw large shrinkage on decreasing loan yield except NJCB, which reduced interbank assets and high cost deposits.

- 12 of 53 - Tuesday, 14 May 2013

Asian Daily

China Property Sector ------Weekly update: Primary market volume +17% WoW but -5% YoY, +43% YTD Duo Chen / Research Analyst / 852 2101 7350 / [email protected] Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] Contribution by Parker Ding ● Last week (6-12 May), primary market volume in the major cities we In the land market last week, 96 residential sites were sold at an track rose 17% WoW but fell 5% YoY. The YoY decline was mainly average transacted premium to opening prices of 26%. Kaisa (1638.HK) caused by Suzhou, Guangzhou and Beijing. Average primary bought one land piece in Guangzhou (Guangdong Province) with total housing transaction volume in major cities YTD rose 43% YoY. GFA of 144,379 sq m at an average cost of Rmb12,936/sq m. Vanke ● According to Vanke, the official data are not as strong as many (000002.SZ) bought one land piece in Nanchang (Jiangxi Province) with developers’ feedback on home buyers’ sentiment because weekly total GFA of 184,275 sq m at an average cost of Rmb1,370/sq m. Agile data may be heavily influenced by some exceptional cases (such (3383.HK) bought four adjacent sites in Nanjing (Jiangsu Province) with as Beijing and Suzhou); the company reconfirmed that the sell- total GFA of 512,072 sq m at an average cost of Rmb1,240/sq m, and through rate remains strong in May so far. bought one land piece in Foshan (Guangdong Province) with total GFA of 308,065 sq m at an average cost of Rmb3,960/sq m. ● In the land market last week, 96 residential sites were sold with average transacted premium to opening prices of 26%. Figure 3: Last week’s selected land sales City GFA Opening Final price Premium over Buyer ● China’s National Bureau of Statistics announced 4M13 national (sq m) price per sq m opening price real estate data today. Total real estate investment growth (Rmb mn) (Rmb/sq m) remained strong at 21% YoY in April. Residential construction Foshan 308,065 575 3,960 112% Agile commencements were +3.4% MoM and +8.7% YoY after the Chongqing 207,996 281 1,850 37% Poly A sharp YoY decline in March. The NBS data usually lag the actual Nanchang 184,275 252 1,370 0% Vanke construction contracts for a few months, so we expect a continued Nanjing 157,639 196 1,240 0% Agile Guangzhou 144,379 1,288 12,936 45% Kaisa pick-up in construction new starts in the subsequent months. Nanjing 127,564 158 1,239 0% Agile Figure 1: Last week’s primary sales units Nanjing 126,677 157 1,239 0% Agile Ningbo 123,134 904 10,054 37% SH Shimao Week ending 5/5/2013 5/12/2013 WoW chg YoY chg YTD chg Nanjing 100,192 125 1,243 0% Agile Beijing 1,192 940 -21% -36% 134% Source: Soufun, Credit Suisse estimates Shanghai 1,708 3,099 81% 29% 41% Tianjin 1,672 1,975 18% 16% 78% Today, China’s National Bureau of Statistics announced 4M13 Shenzhen 542 1,295 139% 89% 65% national real estate data (summarised in the table below). April Guangzhou 1,052 1,707 62% -27% 49% residential sales value was down 13.2% MoM but up 56.7% YoY. The Hangzhou 1,363 1,324 -3% -12% 51% MoM and YoY change trend is consistent with what we observed for Nanjing 1,438 1,824 27% 41% 49% most of the developers. After the sharp YoY decline (-19.5%) in Suzhou 858 964 12% -69% -40% March, April residential construction commencements were up 3.4% Wuhan 2,693 3,728 38% 27% 38% Chengdu 3,523 1,989 -44% -13% 67% MoM and 8.7% YoY. This is consistent with our latest construction Sum 16,041 18,845 17% -5% 43% company survey and discussions with local government officials and Source: Soufun, Credit Suisse estimates developers, which indicated strong near-term housing market Last week (6-12 May), the primary market volume in the major cities we sentiment. The NBS data usually lag the actual construction contracts track increased 17% WoW but dropped 5% YoY. The YoY decline was for a few months, so we expect a continued pick-up in construction mainly caused by Suzhou, Guangzhou and Beijing. Specifically, volume new starts in subsequent months. Total real estate investment growth was -21% WoW and -36% YoY in Beijing (may be due to some remained strong at 21% YoY in April. developers’ launch delays waiting for approvals of price increases), Figure 4: NBS real estate data summary +81% WoW and +29% YoY in Shanghai, +139% WoW and +89% YoY Apr-13 MoM YoY YTD-2013 YoY in Shenzhen, +62% WoW but -27% YoY in Guangzhou, +12% WoW but RE investment (Rmb mn) 604,700 -6.40% 23.20% 1,918,000 21.10% -69% YoY in Suzhou (mainly due to a particularly high base last year). RE investment-residential (Rmb mn) 410,800 -7.30% 21.70% 1,312,100 21.30% Area started (th sqm) 166,330 4.80% 14.50% 555,060 1.90% Figure 2: Last week’s secondary sales performance Area started - residential (th sqm) 121,480 3.40% 8.70% 413,300 1.80% Unit sold per week GFA sold (sq m) per week Area completed (th sqm) 42,860 -28.00% -2.90% 237,590 6.60% Week ending WoW % WoW % 5/5/2013 5/12/2013 5/5/2013 5/12/2013 Area completed - residential (th sqm) 32,720 -29.50% -6.10% 182,730 2.60% chg chg Area sold (th sqm) 88,690 -14.90% 40.30% 297,610 38.00% Beijing 517 1,206 133 46,342 109,248 136 Area sold - residential (th sqm) 79,318 -15.70% 41.00% 268,340 41.10% Shenzhen 444 1,487 235 34,770 123,580 255 Sales value (Rmb mn) 585,500 -11.70% 56.20% 1,984,700 59.80% Tianjin 457 1,414 209 35,877 114,527 219 Sales value - residential (Rmb mn) 494,370 -13.20% 56.70% 1,694,100 65.20% Changsha 113 336 197 13,015 34,955 169 Source of financing (Rmb mn) 864,000 7.50% 48.40% 3,560,200 33.50% Chengdu 404 901 123 34,859 78,627 126 - Domestic Loans (Rmb mn) 144,600 17.20% 60.20% 661,800 26.80% Sum 1,935 5,344 176 164,863 460,937 180 - Foreign Inv (Rmb mn) 3,600 -7.70% 136.6% 16,300 28.30% Source: Wind, Credit Suisse estimates - Self Raised (Rmb mn) 283,200 1.50% 26.80% 1,295,200 16.20% Source: NBS, Credit Suisse estimates.

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Asian Daily

China Airlines Sector ------Maintain OVERWEIGHT April's traffic impacted by multiple one-off factors Davin Wu / Research Analyst / 852 2101 6917 / [email protected] Timothy Ross / Research Analyst / 65 6212 3337 / [email protected] ● The big three Chinese airlines reported disappointing April loads fall 1.3 points and 1.1 points, respectively. As the rebound in operating numbers. Industry traffic growth decelerated sharply to business travel appears to have been further delayed, we estimate the 9% from 15% in March. Average load factor was down 1.6% YoY. airlines should have cut their airfares by about 4% YoY in April, in We estimate that average yield fell by about 4% YoY. order to stimulate the leisure demand. None of the airlines could break ● Airlines’ operational performance was negatively impacted by even at the operating level in April, in our view. multiple one-off factors, including bird flu, the Ya’an earthquake Improving traffic in May; forex is key to profitability and tension in Korea. China Eastern Airlines, which was most The one-off negative factors affecting the traffic are gradually dissipating. affected by these events, saw its passenger load drop 2.4% to We think the pent up demand, especially business travellers, could drive only 78.8%. modest traffic growth recovery in May. Domestic fuel price dropped ● The negative one-off drags are dissipating. The pent-up demand 6.5% from Rmb7,404/ton in March to Rmb6,919/ton in April. This is 13% should drive modest traffic growth in May. RMB movement in the lower than the same period last year. Forex is the key swing factor to next two months is key to profitability in 1H, as we expect forex profitability. CNY appreciation accelerated in 2Q, strengthening by 1.0% gain will likely account for the majority of the profit. against USD. If the current strength in currency is sustained, forex gain ● We reiterate our preference for Air China. A combination of falling is likely to make up the majority of the profit in 1H13. jet fuel price, forex gain and improving earnings contribution from Figure 2: USD:CNY Cathay Pacific should be the key drivers of profit growth in the first half. We see China Southern Airlines as the primary beneficiary of 6.30 a sustained strength in the Renminbi. 6.25 Valuation Metrics Company Ticker Rating Price Year P/E (x) P/B (x) 6.20 Local Target T T+1 T+2 T+1 CSA 1055.HK O 4.24 5.00 12/12 7.8 6.1 0.9 CEA 0670.HK U 3.16 2.90 12/12 10.3 8.6 1.1 6.15 Air China 0753.HK O 6.88 7.80 12/12 9.8 6.9 1.3 Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates 6.10 Jan-13 Jan-13 Feb-13 Mar-13 Mar-13 Apr-13 May-13 Multiple one-off events affected traffic growth in April The Chinese airlines reported operating data for April. Affected by bird CNY (Offshore) CNY PBOC flu, the Ya’an earthquake and tension in Korea, passenger traffic Source: Company data, Credit Suisse estimates. growth decelerated sharply to only 9% YoY, down from 15% in March. Air China is our top pick Industry passenger load factor fell 1.6% YoY. Despite the weakness in the domestic pricing environment, we are Figure 1: Big three airlines traffic growth vs load factor change confident that Air China will be able to achieve YoY earnings growth in the first half of the year, driven by falling jet fuel price, improving 25.0% 5.0% earnings contribution from Cathay Pacific and forex gain. With the 20.0% 4.0% largest exposure to international routes, Air China’s stock is likely to react positively to any news about visa relaxation policies by foreign 15.0% 3.0% governments. China Southern Airlines is most sensitive to RMB 10.0% 2.0% appreciation. We maintain our negative view on China Eastern Airlines. The profitability of routes connecting to Japan and Korea, its 5.0% 1.0% major sources of profit, will remain under pressure in a challenging 0.0% 0.0% geopolitical environment. We expect China Eastern Airlines to likely issue a profit warning this summer. -5.0% -1.0%

-10.0% -2.0%

Jul-11 Jul-12

Jan-11 Jan-13 Jan-12

Mar-11 Mar-12 Mar-13

Sep-11 Nov-11 Sep-12 Nov-12

May-12 May-11 LF chg RPK growth ASK growth

Source: Company data China Eastern Airlines, which was most affected by bird flu and falling demand for its routes to Japan/Korea, led the decline. Its load factor dropped to 78.8%, down 2.4 points YoY and down 3.2 points from March’s level. Air China and China Southern saw their passenger

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Asian Daily

AAC Technologies ------Maintain OUTPERFORM Meeting with CEO: Technology innovation is the key growth driver EPS: ◄► TP: ◄► Yan Taw Boon / Research Analyst / 852 2101 7039 / [email protected] Manish Nigam / Research Analyst / 852 2101 7067 / [email protected] ● We met with AAC’s CEO in its Shenzhen headquarters recently. Increasing content value with differentiated technologies Management believes that secular growth of the smartphone/tablet Management noted that blended ASP has increased ~20% in 2012 as market, demand for better audio experience, coupled with AAC’s its products shift from standard components to integrated modules. innovative acoustic solutions, will sustain growth momentum. The company strives for double-digit ASP growth in 2013 with total ● Management agrees with our observation that improved audio solutions and customisation services. AAC delivers value proposition amplifiers are driving passive acoustic component upgrades (to by providing integrated speaker-box with LDS antenna and better speaker-box). AAC strives for double-digit ASP growth in 2013 mechanical design, based on its strong R&D in materials and audio with technology migration and customisation services based on its simulation. The company now has over 50 acoustic simulation strong R&D (materials, simulation) and manufacturing capability. engineers and targets to double the size of the team to strengthen its capability. AAC utilises its fully automated production lines for high- ● The CEO highlighted two innovations in HD receivers (receiver- volume products for key overseas customers and leverages its flexible box, ceramic receiver) driving 2-4x ASP expansion, and expects semi-automation for low-volume high-value orders from Chinese majority high-end smartphones to adopt the technology by 2015. customers, sustaining stable margins despite rising cost pressure. ● Maintain OUTPERFORM: AAC offers good leverage to Samsung Receiver innovation and technology migration and low expectations on Apple’s new iPhone in 3Q13, in our view. Driven by requirements for better voice experience, smartphone We look for a strong 2H13 momentum driven by product cycle and OEMs are migrating from basic receivers to HD (wideband) receivers, technology migration. Catalysts: (1) tablet acoustic design wins at with ASP rising from US$0.50-0.60 to US$0.70-0.80. Management Samsung, HP, Dell, Lenovo and (2) Chinese customer ramp-up. highlighted two main innovations in receivers and expects majority Bbg/RIC 2018 HK / 2018.HK Price (13 May 13, HK$) 41.00 high-end smartphones to adopt the new technology by 2015: Rating (prev. rating) O (O) TP (prev. TP HK$) 47.50 (47.50) (1) Receiver-box: High fidelity voice and miniaturization requirements Shares outstanding (mn) 1,228.00 Est. pot. % chg. to TP 16 Daily trad vol - 6m avg (mn) 4.7 52-wk range (HK$) 41.0 - 21.3 are driving upgrades from receiver component to receiver modules, Daily trad val - 6m avg (US$ mn) 19.2 Mkt cap (HK$/US$ mn) 50,348.0/ 6,487.3 similar to integrated speaker-boxes, with ASP rising to US$1.40-1.50.

Free float (%) 56.0 Performance 1M 3M 12M (2) Ceramic receivers: Ceramic receivers transmit voice via vibration Major shareholders CEO Benjamin Pan, Absolute (%) 6.4 33.8 70.1 of the smartphone display screen, by creating sound waves in the air 40.8% Relative (%) 2.4 37.5 60.6 like a speaker and also creating vibrations that are carried by human Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (Rmb mn) 4,060 6,283 9,197 11,858 14,036 body tissue. Kyocera’s DIGNO smartphone is the first to feature the EBITDA (Rmb mn) 1,458 2,300 3,177 3,997 4,703 technology. As the vibrations cover a wide area of the screen, users Net profit (Rmb mn) 1,036 1,763 2,495 3,158 3,704 can hear clear voice regardless of where their ear is placed, even in EPS (Rmb) 0.84 1.44 2.03 2.57 3.02 noisy environments. ASP expands to US$2.00-2.40 with the upgrade. - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 1.95 2.37 2.79 Figure 1: Technology migration and ASP expansion for receivers EPS growth (%) 5.0 70.1 41.6 26.6 17.3 Component Content dollar (US$) Remarks P/E (x) 38.5 22.6 16.0 12.6 10.8 Basic receiver 0.50-0.60 Basic component Dividend yield (%) 1.3 2.2 2.8 3.6 4.2 HD receiver 0.70-0.80 Delivering clearer audio EV/EBITDA (x) 27.0 17.2 12.4 9.8 8.2 HD receiver-box 1.40-1.60 Clear audio + compactness P/B (x) 8.4 6.6 5.3 4.3 3.5 Ceramic receivers 2.00-2.40 Clear audio + design aesthetics ROE (%) 23.2 32.6 36.7 37.6 35.7 Source: Company data, Credit Suisse estimates Net debt(cash)/equity (%) (10.0) (4.6) (4.7) (9.5) (13.0)

Note 1: ORD/ADR=10.00. Note 2: AAC Technologies designs and manufactures miniturized MEMS microphone: Targeting the mass market components such as receivers, speaker modules, microphones, transducers and headsets for using in Management estimates the addressable market of MEMS microphone mobile headsets, tablets, game consoles, notebook computers and other consumer electronic products.

at 3.5-4.0 bn units by 2017 and believes that to be a meaningful Click here for detailed financials We met with AAC’s CEO in its Shenzhen headquarters recently. player, AAC needs to have 1 bn unit shipments annually by then. AAC Management believes that secular growth of smart mobile devices, is paving the way by investing in MEMStech for low-cost MEMS demand for better audio experience, coupled with AAC’s distinguished microphones to address the low-priced smartphone/tablet market. acoustic platform solution, will drive sustainable growth momentum. Stay OUTPERFORM: AAC offers good leverage to Samsung and low Mobile audio quality improvement: No turning back expectations on Apple’s new iPhone in 3Q13, in our view. We look for As smartphone/tablet screen size and resolution have increased, audio a strong 2H13 momentum, driven by product cycle and technology fidelity (not just loudness) has also improved. Once mobile users have migration. We maintain our OUTPERFORM rating and HK$47.50 experienced the enhanced image/sound quality, there is no turning back. target price, based on 16.5x average 2013-14E EPS. Catalysts: (1) AAC’s CEO agrees with our observation that the dis-integration of audio tablet acoustic design wins at Samsung, HP, Dell and Lenovo and (2) functionality from Apps Processor to standalone chipsets with improved Chinese customer ramp-up. audio amplifiers (boosted audio signal and speaker damage protection) is driving passive acoustic component upgrades (speaker to integrated- speaker-box) and increasing dollar content value.

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Asian Daily

Agile Property ------Maintain UNDERPERFORM April sales -27% MoM but +11% YoY; YTD only +16% underperforming peers EPS: ▼ TP: ▼ Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] Duo Chen / Research Analyst / 852 2101 7350 / [email protected]

● Agile’s April sales were -27% MoM and +11% YoY to Rmb2.35 Figure 1: Agile’s monthly contracted sales and ASP bn. There were no brand new projects or new phases launched in (Rmb mn) Value sold ASP (RHS) (Rmb/sqm) 8,000 20,000

April. The MoM change was similar to peers’ but YoY growth was 7,000 18,000 16,000 significantly weaker, despite a 224% YoY increase in Hainan 6,000 14,000 Clearwater Bay sales. ASP has grown only 2% YTD vs peers' 5,000 12,000 average of 15%, implying a much weaker margin recovery, if any. 4,000 10,000 3,000 8,000 ● By end-April, Hainan’s total subscription sales reached Rmb2 bn, 6,000 2,000 which is expected to be converted into contracted sales in the 4,000 1,000 next two months. YTD Hainan sales are still -15% YoY. Since 2,000 - -

2H12 was a very low base, we expect Agile’s FY13 Hainan sales

Jul-10 Jul-11 Jul-12

Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13

Jan-10 Jun-10 Jan-11 Jun-11 Jan-12 Jun-12 Jan-13

Mar-12 Mar-10 Mar-11 Mar-13

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

Dec-12 Nov-10 Dec-10 Nov-11 Dec-11 Nov-12

Aug-10 Sep-10 Aug-11 Sep-11 Aug-12 Sep-12

May-11 May-12 May-10 to record some YoY growth, but may still not be enough to secure Source: Company data its FY13 contracted sales target of Rmb42 bn (+27% YoY). Figure 2: Agile’s monthly contracted sales summary ● Of the 13 new projects planned for FY13, ten are slotted for 2H13. 2012 2013 MOM YOY This again increases uncertainties on whether Agile can achieve Value (Rmb mn) its FY sales target. Jan 2,080 2,480 -59% 19% ● We trim Agile’s 2013-15E EPS by 1-2%, respectively. TP is revised Feb 2,100 1,790 -28% -15% Mar 2,210 3,230 80% 46% down to HK$9.50 (from HK$10.40). Maintain UNDERPERFORM. Apr 2,120 2,350 -27% 11% YTD 8,510 9,850 16% Bbg/RIC 3383 HK / 3383.HK Price (13 May 13 , HK$) 10.02 Volume (sq mt) Rating (prev. rating) U (U) [V] TP (prev. TP HK$) 9.50 (10.40) Jan 113,000 230,000 -44% 104% Shares outstanding (mn) 3,447.35 Est. pot. % chg. to TP (5) Feb 190,000 150,000 -35% -21% Daily trad vol - 6m avg (mn) 11.2 52-wk range (HK$) 12.68 - 8.10 Mar 219,000 267,000 78% 22% Daily trad val - 6m avg (US$ mn) 14.7 Mkt cap (HK$/US$ mn) 34,542.4/ 4,450.8 Apr 233,000 210,000 -21% -10% Free float (%) 36.4 Performance 1M 3M 12M 755,000 857,000 14% Major shareholders Chen Zhuo Lin Absolute (%) 3.5 (0.4) 16.6 YTD (63.6%) ASP (Rmb/sq mt) Relative (%) (0.4) 3.3 7.1

Year 12/11A 12/12A 12/13E 12/14E 12/15E Jan 18,407 10,783 -26% -41% Revenue (Rmb mn) 22,945 30,074 33,995 36,340 38,281 Feb 11,053 11,933 11% 8% EBITDA (Rmb mn) 10,585 10,283 9,915 10,795 11,044 Mar 10,091 12,097 1% 20% Net profit (Rmb mn) 4,035 4,868 5,135 5,711 5,864 Apr 9,099 11,190 -7% 23% EPS (Rmb) 1.12 1.33 1.30 1.46 1.50 YTD 11,272 11,494 2% - Change from prev. EPS (%) n.a. n.a. (2) (1) (1) Source: Company data - Consensus EPS (Rmb) n.a. n.a. 1.40 1.57 1.73 EPS growth (%) 9.2 18.8 (2.0) 12.1 2.8 By the end of April, total subscription sales in Hainan reached Rmb2 P/E (x) 7.1 6.0 6.1 5.4 5.3 bn vs Rmb1 bn at the end of March, according to management, as a Dividend yield (%) 3.4 3.9 4.0 4.4 4.5 result of some large-scale customer site visits the company arranged EV/EBITDA (x) 4.0 4.4 4.9 4.7 4.8 in April. This Rmb2 bn is expected to be converted into contracted P/B (x) 1.3 1.1 1.1 0.9 0.8 ROE (%) 20.0 20.6 18.6 17.9 16.1 sales in the next two months. YTD, Hainan has sold Rmb2.96 bn, still Net debt(cash)/equity (%) 61.9 64.0 65.2 63.0 62.0 -15% YoY. Since 2H12 was a very low base, we expect Agile’s FY13E

Note 1: ORD/ADR=50.00. Note 2: Agile Property Holdings Limited is an investment holding Hainan sales to record some YoY growth, but may still not be enough company. The company, along with its subsidiaries, is engaged in property development, property management, property investment and hotels operation. to secure its FY13 contracted sales target of Rmb42 bn (+27% YoY).

Click here for detailed financials Figure 3: Agile’s Hainan monthly sales April contracted sales was Rmb2.35 bn, -27% MoM but +11% YoY. (Rmb bn) Hainan sales Volume was 0.21 mn sq mt, -21% MoM and -10% YoY. 1.6 1.500 1.4 4M13 contracted sales totalled Rmb9.85 bn, +16% YoY and achieved 1.2 1.084 0.960 1.0 0.900 0.850 23% of full-year sales target of Rmb42 bn. Volume amounted 0.856 0.780 0.8 0.570 mn sq mt, +13% YoY. YTD, the ASP has been up by only 2%, while 0.6 0.530 0.378 ASPs of other Chinese developers under our coverage have grown by 0.4 0.241 0.230 0.218 0.193 0.179 0.189 0.183 15% on average. This means Agile’s margin recovery (if any) should 0.2 be weaker than most peers’. 0.0

Source: Company data

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Asian Daily

China Medical System Holdings Ltd. ------Maintain OUTPERFORM Fundamentals intact, buy on share price weakness EPS: ◄► TP: ◄► Iris Wang / Research Analyst / 852 2101 7646 / [email protected] Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] ● CMS’s share price has been down ~12% over the past week. Price cut of Ursofalk? Management and our channel checks confirmed that the Some investors are also worried that as Ursodeoxycholic-Acid company’s fundamentals are intact. (generic name of Ursofalk) is in the Essential Drug List, its price will be ● The market discussion about prescription restriction of Deanxit and under pressure as NDRC recently said it would place more controls on the price cut of Ursofalk has not materialised—the discussed the price premium charged for the exclusive EDL drugs. potential regulatory policy is unavailable in the public domain in our Ursofalk is not listed in the EDL. Drugs listed in the EDL are specified research; Ursofalk is not listed in the Essential Drug List (EDL) and with dosages—the EDL-listed Ursodeoxycholic-Acid is a tablet while thus should not be affected by any potential EDL-related price cuts. CMS’s Ursofalk is a capsule. We also learned from management that ● Management reaffirmed that it has not seen growth slowing based the majority of Ursofalk is sold in city hospitals and reimbursed based on its internal monitoring of prescription drug volumes, despite on RDL (Reimbursement Drug List). sector growth deceleration in 1Q13. CMS is different from CMS’s growth to decelerate with the sector? Sinopharm in that it should be valued from a bottoms-up It has been census view that the sector growth will decelerate in 2013, approach—a sector call may not impact it, in our view. supported by Sinopharm’s mere 13.5% YoY top-line growth in 1Q13. ● We believe management’s guidance of 25% net profit growth in We believe CMS should be valued higher from a bottom-up approach 2013 is realistic. The current share price weakness is a good entry and a sector call may not impact it. CMS’s growth drivers remain point. Maintain OUTPERFORM rating. intact: (1) compared to Deanxit and Ursofalk, high potential drugs Bbg/RIC 867 HK / 0867.HK Price (13 May 13 , HK$) 6.93 such as XinHuoSu, Stulln Mono Eye-drops, Salofalk and Bioflor have Rating (prev. rating) O (O) TP (prev. TP HK$) 9.00 (9.00) much space to grow as their hospital coverage extends (Figure 1); (2) Shares outstanding (mn) 2,414.75 Est. pot. % chg. to TP 30 the company has accelerated product introductions to increase its Daily trad vol - 6m avg (mn) 3.5 52-wk range (HK$) 8.02 - 3.14 pipeline since 2H12; and (3) strong sale force execution will continue Daily trad val - 6m avg (US$ mn) 3.0 Mkt cap (HK$/US$ mn) 16,734.2/ 2,156.2

Free float (%) 29.7 Performance 1M 3M 12M to improve sales effectiveness (Figure 2). Major shareholders Kong LAM, 50.3% Absolute (%) (10.3) (1.8) 103.8 Figure 1: Growth drivers—new applications and more hospital coverage Relative (%) (14.3) 1.9 94.3 Brand Original promotion New applications No. of hospitals Year 12/11A 12/12A 12/13E 12/14E 12/15E focus covered by the Revenue (US$ mn) 210.4 281.9 374.1 488.1 617.3 EBITDA (US$ mn) 65.0 89.5 122.0 163.2 209.5 end of 2012 Net profit (US$ mn) 62.3 85.0 107.7 143.7 184.2 Deanxit Neurology and psychiatry Gastroenterology 8,400 EPS (US$) 0.03 0.04 0.04 0.06 0.08 Ursofalk Cholagogue Fatty liver, gastroenterology 4,800 - Change from prev. EPS (%) n.a. n.a. 0 0 0 and pediatrics - Consensus EPS (US$) n.a. n.a. 0.04 0.06 0.07 XinHuoSu Cardiology Emergency department and 1,000 EPS growth (%) 71.4 34.5 26.6 33.4 28.2 cardiac surgery P/E (x) 34.1 25.4 20.0 15.0 11.7 Stulln Mono Age-related macula Ocular asthenopia and 3,600 Dividend yield (%) 1.2 0 1.2 1.7 2.1 Eye-drops degeneration xerophthalmia EV/EBITDA (x) 32.3 23.6 17.1 12.3 9.2 Salofalk Moderate Inflammatory IBD 1,400 P/B (x) 5.5 4.8 4.1 3.4 2.8 Bowel Disease (“IBD”) ROE (%) 21.2 20.3 22.0 24.5 26.0 Net debt(cash)/equity (%) (14.8) (9.4) (12.2) (22.0) (27.9) Bioflor Pediatrics Adult gastroenterology 1,100

Note 1: China Medical System Holdings Ltd. is a leading China-based pharmaceutical services Source: Company data, Credit Suisse estimates company with the largest third-party promotion network in China in terms of hospital coverage, Figure 2: CMS has improved it sales effectiveness therapeutic focus and number of salespeople.

1,200 Click here for detailed financials CAGR 8.8% Prescription restriction of Deanxit? 1,000 There is market discussion that a new regulation will be implemented to restrict the prescription rights of Deanxit to psychiatrists only. 800

Market sources could not confirm this policy, and CMS’s management 600 has clarified that it has never heard about it. 400 In China, it was estimated that the number of depression patients amounts to over 30 mn and there is a significant shortfall of 200 psychiatrists—only one psychiatrist for 100,000 population in China vs. 0 ten psychiatrists per 100,000 population worldwide. Only less than 10% 2007 2008 2009 2010 2011 2012 depression patients are treated properly. Under such circumstances, we Revenue per sales representative in CMS direct sales network (RMB thousands) believe such a prescription restriction is unlikely in the near term. Source: Company data, Credit Suisse estimates.

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Asian Daily

China Mobile Limited ------Maintain OUTPERFORM Moving to bundled tariffs to mitigate cannibalisation (positive) EPS: ◄► TP: ◄► Colin McCallum, CA / Research Analyst / 852 2101 6514 / [email protected] Contribution by Joel Ying ● According to China Mobile Shanghai’s website, China Mobile will Given these trends, the new packages look very sensible. China no longer offer its low-end M-zone chat, M-zone SMS and M-zone Mobile has adopted a bundling approach (in our view the best music packages to new customers. Instead, China Mobile has response to the OTT threat), bringing together voice, data and SMS, launched the ‘M-zone surfing’ series of packages in Shanghai and and the total monthly price points of Rmb18, Rmb28 and Rmb38 are other cities across China. above the price points for the previous M-Zone chat packages and ● China Mobile has adopted a bundling approach, bringing together SMS packages, but below the previous music packages. voice, data and SMS. Crucially, unlimited data offerings have The data allocation is still small at 50MB to 200MB in the revised been avoided, and the ‘overage’ charge per MB still remains high packages, and, crucially, unlimited data offering have been avoided; in regional terms at Rmb0.5/MB (US$0.09/MB). the ‘overage’ charge per MB still remains high in regional terms at ● We acknowledge that China Mobile faces several problems— Rmb0.5/MB (US$0.09/MB). The implied price of a local voice call, at namely poor monetisation of Wi-Fi, loss of revenue market share, Rmb0.15/min, is slightly higher than the Rmb0.13/min charged under declining EBITDA margins and declining earnings—but we would the M-zone music series, though nationwide call charges were cut to argue that these issues are well known and fully in the price. Rmb0.29/min versus Rmb0.7/min. Again this looks a sensible ● Looking further forward, we remain positive on the implications of rebalancing in the face of technology-led cannibalisation risks. full commercial launch of TD-LTE, which we expect in 2014. A reasonable near-term ‘fix’ before the advent of LTE in 2014 OUTPERFORM rating maintained relative to the Hang Seng Index. Near term, while we acknowledge that China Mobile faces several Bbg/RIC 941 HK / 0941.HK Price (13 May 13 , HK$) 85.85 problems—namely poor monetisation of Wi-Fi, loss of revenue market Rating (prev. rating) O (O) TP (prev. TP HK$) 102.00 (102.00) share, declining EBITDA margins and declining earnings—we would Shares outstanding (mn) 20,101 Est. pot. % chg. to TP 19 argue that (1) these issues are well known (in fact our FY13 EPS Daily trad vol - 6m avg (mn) 16.4 52-wk range (HK$) 92.6 - 76.7 forecast is 1.8% above consensus) and (2) fully in the price, given the Daily trad val - 6m avg (US$ mn) 181.4 Mkt cap (HK$/US$ bn) 1,725.6/ 222.3

Free float (%) 25.7 Performance 1M 3M 12M discount at which China Mobile trades versus our DCF valuation and Major shareholders China Mobile Comm Absolute (%) 3.5 0.5 (1.2) regional multiples (particularly if we strip out net cash to look at the Corp (74.24%) Relative (%) (0.4) 4.2 (10.8) adjusted FY13E P/E of 8.6x).

Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (Rmb mn) 527,999 560,413 594,253 638,739 676,376 Looking further forward, we remain positive on the implications of full EBITDA (Rmb mn) 251,025 253,646 258,330 274,281 289,119 commercial launch of TD-LTE, which we expect in 2014. We are Net profit (Rmb mn) 125,870 129,274 128,512 129,857 132,983 prepared to assume that at that point China Mobile’s market share EPS (Rmb) 6.27 6.43 6.39 6.46 6.62 losses will slow due to improved data monetisation, and that in the - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 6.29 6.09 6.21 longer term a meaningful decline in capex will become credible, as EPS growth (%) 5.2 2.6 (0.6) 1.0 2.4 TD-LTE will be supported by a global ecosystem. We maintain our P/E (x) 10.8 10.6 10.6 10.5 10.3 OUTPERFORM rating relative to the Hang Seng Index. Dividend yield (%) 4.0 4.1 4.0 4.1 4.2 EV/EBITDA (x) 4.2 3.9 3.9 3.7 3.8 Figure 1: China Mobile’s new structure of M-zone packages P/B (x) 2.1 1.9 1.7 1.6 1.4 (Rmb) PKG fee Local SMS Data Local call National Extra ROE (%) 20.5 18.8 16.9 15.6 14.6 call call data Net debt(cash)/equity (%) (46.5) (51.4) (44.9) (40.3) (28.6) Rmb/mth min Rmb/min Rmb/ min Rmb/KB Note 1: ORD/ADR=5.00. Note 2: China Mobile Limited is the leading cellular service provider in China. No longer open to new customers

Click here for detailed financials M-zone chat 10 10 20 60 0 0.1/0.13* 0.7 0.01 M-zone chat 20 20 20 220 0 0.1/0.13* 0.7 0.01 China Mobile looks to bundling to reduce cannibalisation— M-zone SMS 10 10 0 160 0 0.1/0.13* 0.7 0.01 a good move M-zone SMS 20 20 0 360 0 0.1/0.13* 0.7 0.01 According to China Mobile Shanghai’s website, China Mobile will no M-zone music 26 26 0 160 0 0.13** 0.7 0.01 longer offer its low-end M-zone chat, M-zone SMS and M-zone music M-zone music 36 36 0 360 0 0.13** 0.7 0.01 packages to new customers. Instead, China Mobile has launched the M-zone music 46 46 0 650 0 0.13** 0.7 0.01 ‘M-zone surfing’ series of packages in Shanghai and other cities M-zone music 56 56 0 950 0 0.13** 0.7 0.01 across China. Packages to continue M-zone Net Chat 26 0 160 50M 0.1** 0.7 0.01 We believe that the restructuring of tariffs is a belated New packages acknowledgement of the shift by the youth market away from SMS M-zone surfing 18 new 18 30 100 50M 0.15** 0.29 0.0005 and towards data usage, in part due to the impact of OTT operations M-zone surfing 28 new 28 50 150 100M 0.15** 0.29 0.0005 such as WeChat, and in part due to the more rapid proliferation of low- M-zone surfing 38 new 38 80 200 200M 0.15** 0.29 0.0005 Source: Company data, Credit Suisse estimates. *9pm-9am 0.1, 9am-9pm 0.13 **Local cost TD-SCDMA 3G smartphones (witness the ramp-up of China call receiving free Mobile’s 3G net additions in 1Q13 versus 1Q12).

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Asian Daily

Glodon Software Co Ltd ------Maintain UNDERPERFORM It is indeed cyclical rather than growth EPS: ▼ TP: ▼ Vincent Chan / Research Analyst / 852 2101 6568 / [email protected] Significant Contributor Archibald Pei ● We visited Glodon and conducted a series of channel checks According to our channel checks with architecture professionals, the recently. We concluded that although the company booked strong market penetration of architecture tool software in China is now nearly revenue growth in 1Q13, it is indeed a cyclical stock rather than a 90%. Glodon’s market share in 2012 was 53%. The competition growth one. Its financial performance has been driven by landscape has been stable through the last few years, and we do not infrastructure investment and real estate policy. We believe the expect Glodon to significantly expand its share in the forseeable future. As company has passed its high-growth period; from now on, its a result, the demand for the company’s product has been driven by potential for organic growth will be limited, in our view. infrastructure investment, real estate policy and other macroeconomic ● The company’s traditional product, i.e. architecture professional factors. software, has limited growth potential after 2013, in our view. The Figure 1: Glodon revenue by segment, 2011A-2015E future of Glodon relies heavily on project management software, Revenue (Rmb mn) 2011A 2012A 2013A 2014A 2015A an immature product until now. Architecture tool software 687.95 924.90 1162.13 1368.05 1583.21 ● After a lacklustre FY12, Glodon may see strong revenue and profit Project management software 28.08 47.01 80.00 126.00 168.00 growth in FY13, but we believe it will only be a rebound. We are Service 27.19 41.74 68.87 98.49 130.00 Total 743.22 1013.65 1311.00 1592.54 1881.21 conservative on the company because of the unfavorable industry Source: Company data, Credit Suisse estimates. condition and uncertainty about new products. ● We cut our FY13-15E EPS to Rmb1.13, Rmb1.37 and Rmb1.65. Project management software unreliable, in our view. The Our target price of Rmb21.00 is based on 0.9x FY14-15E P/E/G, company expects the project management software to become its or 19x FY13E P/E. We maintain UNDERPERFORM. next growth engine. However, we think the product is still immature Bbg/RIC 002410 CH / 002410.SZ Price (10 May 13 , Rmb) 26.06 and unreliable. Unlike Glodon’s traditional products which were simple Rating (prev. rating) U (U) TP (prev. TP Rmb) 21.00 (21.50) and standardised, its project management software have large-scale Shares outstanding (mn) 413.10 Est. pot. % chg. to TP (19) complex systems that need customer-tailored implementations. Daily trad vol - 6m avg (mn) 1.8 52-wk range (Rmb) 26.4 - 14.5 Although such a product may bring in significant revenues in the Daily trad val - 6m avg (US$ mn) 6.2 Mkt cap (Rmb/US$ 10,765.4/ 1,752.9 Free float (%) 24.3 mn) future, its growth and profitability are highly volatile and unreliable,

Major shareholders Mr. Diao Zhizhong, Performance 1M 3M 12M according to our market research. 19.93% Absolute (%) 15.3 31.6 27.7 Relative (%) 9.6 33.6 16.2 Glodon has been enjoying 30-40% net margin in the last few years.

Year 12/11A 12/12A 12/13E 12/14E 12/15E But we believe the project management software can hardly reach Revenue (Rmb mn) 744 1,014 1,311 1,593 1,881 that level of margin. It is possible that Glodon’s margin will come close EBITDA (Rmb mn) 212.4 246.1 328.1 411.8 498.7 to that of Yonyou and Kingdee, which has been around 10%, if the Net profit (Rmb mn) 278.7 308.8 459.4 554.7 669.1 company relies too heavily on the new product. EPS (Rmb) 1.03 0.76 1.13 1.37 1.65 - Change from prev. EPS (%) n.a. n.a. (4) (10) (8) Too much uncertainty on macro policy. Most of Glodon’s clients - Consensus EPS (Rmb) n.a. n.a. 1.02 1.32 1.78 EPS growth (%) 12.6 (26.2) 48.8 20.8 20.6 are architecture or construction firms, whose fate depends on the P/E (x) 25.2 34.2 23.0 19.0 15.8 government’s infrastructure and real estate policies. There is still too Dividend yield (%) 2.3 1.9 2.2 2.7 3.2 much uncertainty on those policies, and it is extremely difficult to EV/EBITDA (x) 50.7 43.7 32.8 26.1 21.6 predict the end demand for Glodon’s products in the next few years. P/B (x) 3.7 5.1 4.5 4.0 3.5 ROE (%) 15.4 15.6 20.9 22.3 23.5 Further, we believe the company’s financial performance, as well as Net debt (cash)/equity (%) — — — — — stock price, is tightly correlated with those macro policies. As a result,

Note 1: Glodon is China's leading software vendor for basic construction industry. The company's IT we remain conservative at this point. solution is widely used in project design, construction, consultancy and real estate development fields, with more than 100,000 enterprise clients.

Maintain UNDERPERFORM, TP Rmb21.00. We decide to cut our Click here for detailed financials FY13-15E EPS to Rmb1.13, 1.37 and 1.65, respectively. Our target A cyclical rebound in FY13. Although the company booked 56% price of Rmb21.00 is based on 0.9x FY14-15E P/E/G, or 19x FY13E revenue growth and 72% net income growth fin 1Q13, we believe it is P/E. We maintain UNDERPERFORM. We remind investors not to a cyclical rebound after a lacklustre FY12. Infrastructure construction confuse a cyclical rebound with rapid organic growth. The stock’s in China has seen some signs of recovery; many architecture firms current valuation has already priced in the best case, in our view. have started updating their IT systems recently.

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Lonking Holdings Ltd. ------Maintain UNDERPERFORM Comment on April sales: Weak wheel loader sales, market share loss in excavator EPS: ◄► TP: ◄► Yang Y. Song / Research Analyst / 852 2101 6550 / [email protected] Contribution by Scott Chui ● Lonking reported its April sales on 13 May. The company’s wheel We believe relatively strong excavator sales were mainly driven by loader sales were 2,859 units, declining 16% YoY, deteriorating stronger demand in small and mid excavators given better investment from the 9.6% decline in March. Sequentially, unit sales were 32% sentiment in agricultural and municipal projects. We are, however, lower, weaker than normal seasonality of 20%. 4M13 sales were concerned about Lonking’s weaker-than-average sales trend in this at 9,239 units, 19% lower than in 4M12. segment. The firm’s market share in the excavator segment dropped ● Lonking’s excavator sales in April were 482 units, declining 4.9% to 2.6% for 4M13 compared with 2.9% for FY12. YoY, following a 5.2% YoY decline in March and weaker than Forklift sales were strong at 2,038 units, increasing 37% from 1,491 5.8% growth for the industry. Lonking’s excavator market share units last year. YTD sales for forklift have declined 3% from 5,791 dropped to 2.6% for 4M13 compared with 2.9%/2.9% for FY12/11. units in 4M12, but moderated from a 17% YoY decline for 1Q13. Road ● Forklift sales were strong at 2,038 units, increasing 37% YoY. roller sales were at 143 units, 61% higher than 89 units sold in April YTD sales have declined 3%, from the 17% decline for 1Q13. last year due to a low base. ● We do not expect strong sales in May/June given a weak We expect May/June sales to disappoint given the continued absence infrastructure investment recovery and low utilisation of the of an infrastructure investment recovery, and low utilisation of the installed base. As YTD wheel loader/excavator sales have installed base. We maintain UNDERPERFORM on the stock. declined 19%/22%, respectively, while consensus is expecting 213% earnings growth, we expect an earnings cut in the Figure 1: Lonking’s excavator sales in 2012/13

upcoming months. Maintain UNDERPERFORM. 600 20.0% Bbg/RIC 3339 HK / 3339.HK Price (13 May 13 , HK$) 1.65 10.0% 500 Rating (prev. rating) U (U) [V] TP (prev. TP HK$) 1.40 (1.40) 0.0%

Shares outstanding (mn) 4,280.10 Est. pot. % chg. to TP (15) 400 -10.0% Daily trad vol - 6m avg (mn) 36.8 52-wk range (HK$) 2.51 - 1.01 Daily trad val - 6m avg (US$ mn) 9.3 Mkt cap (HK$/US$ mn) 7,062.2/ 910.0 -20.0% 300

Free float (%) 39.3 Performance 1M 3M 12M -30.0% YoY ChangeYoY Major shareholders China Longgong 200 -40.0% Absolute (%) 3.8 (20.3) (30.7) (units) volumeSales (30.66%) Relative (%) (0.2) (16.6) (40.2) -50.0% 100 Year 12/11A 12/12A 12/13E 12/14E 12/15E -60.0% Revenue (Rmb mn) 12,721 7,896 9,581 12,172 12,172 0 -70.0% EBITDA (Rmb mn) 2,358 999 1,124 1,385 1,537 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Net profit (Rmb mn) 1,730 151 360 494 592 Sales volume YoY change EPS (Rmb) 0.40 0.04 0.08 0.12 0.14 - Change from prev. EPS (%) n.a. n.a. 0 0 0 Source: Company data, Credit Suisse estimates. - Consensus EPS (Rmb) n.a. n.a. 0.13 0.15 0.13 EPS growth (%) (2.0) (91.2) 137.8 37.0 19.9 Figure 2: Lonking’s wheel loader sales in 2012/13 P/E (x) 3.2 36.9 15.5 11.3 9.5 5,000 150% Dividend yield (%) 6.4 5.6 0.9 2.3 3.1 EV/EBITDA (x) 3.9 9.8 8.9 7.9 6.7 4,500 P/B (x) 0.9 0.9 0.9 0.8 0.8 4,000 100% ROE (%) 29.7 2.4 5.6 7.3 8.3 3,500 Net debt(cash)/equity (%) 57.4 67.6 66.6 76.7 63.9 3,000 50%

Note 1: ORD/ADR=50.00. Note 2: Lonking Holdings Limited is engaged in the manufacture and 2,500 distribution of wheel loaders, road rollers, excavators, fork lifts, and other infrastructure machinery 2,000 0%

and the provision of finance lease for the infrastructure machinery. (%) ChangeYoY

(units) volumeSales 1,500 Click here for detailed financials 1,000 -50% Weak wheel loaders sales 500 Lonking reported its April sales on 13 May. The company’s wheel 0 -100% loader sales were at 2,859 units, declining 16% YoY and deteriorated Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Sales volume YoY change from the 9.6% YoY decline seen last month. 4M13 sales was at 9,239 units, 19% lower than in 4M12 but improved slightly from the 20% Source: Company data, Credit Suisse estimates. YoY decline for 1Q13. Improving excavator sales, albeit weaker than the average We are seeing stronger sales from the excavator segment. Lonking’s excavator sales in April were at 482 units, declining 4.9% YoY from 507 units last year. We should, however, note that sales were still weaker than the industry average of 5.8% YoY growth for the same month. YTD sales for Lonking have been at 1,270 units, declining 22% YoY from 4M12, but moderated from the 30% decline in 1Q13.

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Hong Kong Cheung Kong Holdings ------Maintain OUTPERFORM Minimal impact from the cancellation of Apex Horizon Hotel deal EPS: ◄► TP: ◄► Cusson Leung, CFA / Research Analyst / 852 2101 6621 / [email protected] Joyce Kwock / Research Analyst / 852 2101 7496 / [email protected] ● Cheung Kong was notified by the SFC that the sale and purchase involved. Although Cheung Kong does not agree with the SFC, the of hotel room units in Apex Horizon Hotel appear to constitute a company has decided and agreed with the SFC to arrange for the Collective Investment Scheme (CIS). Cheung Kong has agreed cancellation of the sales and purchase of the hotel room units as the with the SFC to arrange for cancellation of the hotel room units as difference in legal opinion may lead to legal uncertainty in respect of a difference in legal opinion may lead to legal uncertainty. the sale and purchase of these units. ● Cheung Kong will return all deposit money and part payments for No significant change in the asset value of Cheung Kong the hotel room units to the respective buyers, together with Cheung Kong will return all deposit money and part payments for the interest thereon at the rate of 2% above the HSBC prime rate. We hotel room units to the respective buyers, together with interest estimate Apex Horizon Hotel at HK$1.5 bn (HK$0.64/shr) which is thereon at the rate of 2% above the HSBC prime rate. In addition, it about HK$4.2mn/room. Even when the transaction was cancelled, will pay the buyers’ reasonable legal and other expenses in we believe the impact to NAV will be minimal. connection with the purchase of the hotel room units—the sum of ● The persistency of the government regarding this controversy HK$10,000. surprises us but it probably means that the time for making super For the 360 hotel room units that Cheung Kong sold in February this normal returns in property will be more difficult, going forward. year, we estimate the sales proceed was >HK$1.4 bn. We have not ● We believe Cheung Kong will continue to focus on its high asset factored any profit arising from the transaction and hence this will turnover model. The success of the upcoming launches in The have no impact on our earnings forecasts. In our NAV calculation, we Rise in Tsuen Wan (402 units), Lohas Park (1,628) and Citypoint estimate Apex Horizon Hotel at HK$1.5 bn (HK$0.64/share) which is (1,720) are much more important. Cheung Kong Holdings is a CS about HK$4.2 mn/room. Even when the transaction was cancelled, we NJA Focus list stock. believe the impact to NAV will be minimal. Bbg/RIC 1 HK / 0001.HK Price (13 May 13, HK$) 116.40 The government is acting tough Rating (prev. rating) O (O) TP (prev. TP HK$) 152.02 (152.02) Shares outstanding (mn) 2,316.16 Est. pot. % chg. to TP 31 While the financial impact to Cheung Kong from the cancellation of the Daily trad vol - 6m avg (mn) 3.9 52-wk range (HK$) 131.4 - 86.3 transaction is minimal, the persistency of the government and related Daily trad val - 6m avg (US$ mn) 60.0 Mkt cap (HK$/US$ bn) 269.6/ 34.7 authorities regarding this controversial transaction surprises us. Free float (%) 5,388.0 Performance 1M 3M 12M Together with the recent introduction of new rules governing primary Major shareholders Li Ka-Shing (43.26%) Absolute (%) 1.3 (6.1) 19.8 sales, we believe the government is really sending out a message that Relative (%) (2.8) (5.2) 4.6

Year 12/11A 12/12A 12/13E 12/14E 12/15E “there is no room for fooling around”. However, we do not think this EBITDA (HK$ mn) 43,302 28,782 30,801 35,503 37,090 means property companies will not be able to make any money going Net profit (HK$ mn) 46,055 32,152 26,637 31,060 32,542 forward. It probably just means that the time for making super normal EPS (HK$) 19.9 13.9 11.5 13.4 14.0 returns in property will be more difficult, going forward. - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (HK$) n.a. n.a. 11.9 13.2 14.0 Cheung Kong will continue to be an asset churner EPS growth (%) 71.6 (30.2) (17.2) 16.6 4.8 Despite the current hiccup in the asset disposal plan, we believe P/E (x) 5.9 8.4 10.1 8.7 8.3 Dividend yield (%) 2.7 2.7 2.7 2.7 2.7 Cheung Kong will continue to focus on its high asset turnover model EV/EBITDA (x) 6.8 10.3 9.6 8.0 7.4 by focusing on project launches which are the bread and butter of the ROE (%) 15.9 9.9 7.6 8.4 8.2 company. Upcoming launches are expected to be: The Rise in Tsuen Net debt(cash)/equity (%) 8.3 7.8 6.9 3.8 1.4 Wan (402 units), Lohas Park (1,628 units) and Tseung Wan TW5 NAV per share (HK$) — — 174 — — Disc./(prem.) to NAV (%) — — 33.1 — — Citypoint (1,720 units). We believe the successful launches or not of

Note 1: ORD/ADR=1.00. Note 2: Cheung Kong (Holdings) Limited, through its subsidiaries, these projects are much more important than the cancellation of the develops and invests in real estate. The company also provides real estate agency and Apex Horizon Hotel project. management services, operates hotels and invests in securities. It also owns 49.96% of Hutchison Whampoa.

Click here for detailed financials Unwinding the Apex hotel transaction Cheung Kong has made an announcement that it was notified by the Securities and Futures Commission (SFC) that the arrangement relating to the sale and purchase of hotel room units in Apex Horizon Hotel appear to constitute a Collective Investment Scheme (CIS). The SFC is required to authorise any marketing material that is issued to the public containing an offer to participate in a CIS (subject to exceptions). It is the SFC’s policy that a CIS is required to be authorised by the SFC under section 104 of the SFO before it is marketed to the public. Authorisation of advertising and marketing documents would require all offering and marketing documents to contain sufficient details of the features of the CIS as well as the risks

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Standard Chartered Plc ------Maintain UNDERPERFORM Muddy Waters: We would not read too much into it EPS: ◄► TP: ◄► Sanjay Jain / Research Analyst / 852 2101 6088 / [email protected] Vineet Thodge / Research Analyst / 852 2101 7466 / [email protected]

● STAN’s share price fell 4.8% Monday in Hong Kong, purportedly Figure 1: STAN—past due and NPLs increased in 2012 on the back of Muddy Waters shorting its debt (source (US$ mn) HK SG KR AP IN MESA UK Total Bloomberg). The share price reaction was likely exaggerated by a Past due 2012 1,173 729 1,059 1,850 476 1,244 2,956 9,576 weak market backdrop (HSI -1.4%, HSCEI -2.1%, Chinese banks % of loans 2.2 1.3 2.9 3.5 4.0 6.2 5.8 3.3 -2.5%), combined with soft 1Q13 IMS of last week. 2011 489 525 925 1,327 414 1,098 60 4,944 % of loans 1.0 1.1 2.4 2.6 3.7 6.0 0.1 1.8 ● Muddy Waters refers to the STAN’s mining exposure and quotes YoY % 140 39 14 39 15 13 4,827 94 US$1 bn loan to Indonesia’s Mr.Samin Tan and US$30 mn loan to NPLs 2012 195 91 637 1,113 819 2,342 230 5,600 China’s Far East Energy Corp as red flags. It does not mention % of loans 0.4 0.2 1.8 2.1 6.8 11.7 0.5 1.9 India and Middle East where problem loans are US$3-4 bn each. 2011 131 70 396 1,118 332 1,767 195 4,183 % of loans 0.3 0.1 1.0 2.2 3.0 9.6 0.4 1.5 ● 1Q IMS said “asset quality within wholesale banking remains good YoY % 49 30 61 0 147 33 18 34 with very low levels of impairment as expected. However, we PD+NPL 2012 1,368 820 1,696 2,963 1,295 3,586 3,186 15,176 remain watchful, particularly in India and the Middle East.” % of loans 2.6 1.5 4.7 5.6 10.8 18.0 6.3 5.3 ● STAN’s LLR coverage is 1.1% of loans and LLR+Equity work out 2011 620 595 1,321 2,445 746 2,865 255 9,127 to 16.8% of loans. Its fully loaded common equity Tier 1 under % of loans 1.2 1.2 3.5 4.7 6.7 15.5 0.6 3.4 YoY % 121 38 28 21 74 25 1,149 66 Basel 3 is estimated at around 11.0%, one of the highest in the Source: Company data, Credit Suisse estimates. world. Our forecasts assume NPLs to remain around 1.9% of LLR coverage down slightly but LLR + Equity up post-GFC loans and credit cost to remain around 50 bp in next two years. Our forecasts assume NPL ratio and P&L provisions to remain around Bbg/RIC 2888 HK / 2888.HK Price (13 May 13 , HK$) 180.80 the levels seen in 2012. While loan loss reserves to loan ratio fell to Rating (prev. rating) U (U) TP (prev. TP HK$) 178.07 (178.07) 1.1% (from 1.2% in 2007), the LLR + Equity to loan ratio improved to Shares outstanding (mn) 2,419.00 Est. pot. % chg. to TP (2) 16.8% (from 15.4% in 2007). Daily trad vol - 6m avg (mn) 3.9 52-wk range (HK$) 214.8 - 155.0 Daily trad val - 6m avg (US$ mn) — Mkt cap (HK$/US$ bn) 456.8/ 58.9 Figure 2: STAN—asset quality snapshot

Free float (%) 81.8 Performance 1M 3M 12M (%) ‘07 ‘08 ‘09 ‘10 1H11 2H11 1H12 2H12 ‘13E ‘14E Major shareholders Absolute (%) (6.9) (10.9) 6.0 NPL ratio 1.6 1.8 2.0 1.9 1.7 1.5 1.9 1.9 1.9 1.9 Relative (%) (11.0) (10.0) (9.2) Credit cost (bp) 57 113 113 43 38 40 48 53 48 46 Year 12/11A 12/12A 12/13E 12/14E 12/15E LLR coverage 78.1 65.9 71.3 57.8 61.0 65.4 57.6 57.4 64.7 71.1 Pre-prov Op profit (US$ mn) 7,885.0 9,016.0 9,678.2 10,412.4 11,169.8 LLR to loans 1.2 1.2 1.4 1.1 1.0 1.0 1.1 1.1 1.2 1.4 Net profit (US$ mn) 4,825 5,172 5,616 6,098 6,594 LLR+Eq/loans 15.4 14.1 15.0 16.6 16.3 16.0 16.2 16.8 16.9 17.2 EPS (CS adj. US$) 2.01 2.14 2.29 2.45 2.61 Source: Company data, Credit Suisse estimates. - Change from prev. EPS (%) n.a. n.a. 0 0 0 A 4% PBT hit for every 0.5% deceleration in China - Consensus EPS (US$) n.a. n.a. 2.41 2.63 2.82 EPS growth (%) 6.5 6.1 7.1 7.0 6.4 In a recent report, we estimated a 4% PBT hit based on the revenue P/E (x) 11.6 10.9 10.2 9.5 8.9 impact of every 0.5% deceleration in China GDP growth. Dividend yield (%) 3.3 3.6 3.8 4.1 4.4 Some impact on CDS and bond prices BVPS (CS adj. US$) 17.1 18.8 20.0 21.3 22.7 P/B (x) 1.36 1.24 1.16 1.09 1.03 Figure 3: STAN 5YR EUR senior CDS spread (bp) ROE (%) 12.2 12.0 11.9 12.0 12.0 140 STAN 5YR senior CDS (EUR) ROA (%) 0.9 0.8 0.9 0.9 0.9 Tier 1 Ratio (%) 13.7 13.4 13.1 12.7 12.4 120

Note 1: Standard Chartered PLC is a holding company. Through its subsidiaries, the company is engaged in the business of retail and commercial banking, and the provision of other financial services. 100

STAN is comfortable with its loan quality 80 During last week’s 1Q13 Interim Management Statement, the bank Jan-13 Feb-13 Mar-13 Apr-13 May-13 reiterated that wholesale banking asset quality is benign although it is Figure 4: STAN—bond price and bond yield* watching India and the Middle East where it has faced stress lately. 104 3.20 The following table shows the problem loans, which include NPLs and 102 3.40 3.60 up to 90-day past-due loans, by the location of booking (we believe 100 3.80 98 most of the UK past-due loans of US$2.956 bn relate to India). They 4.00 did show a big jump in 2012 but the bank had clarified during the 2012 96 4.20 briefing that most of the past-due loans were restructured in Jan-Feb 94 4.40 in such a way that their NPV loss was zero; hence they did not Jan-13 Feb-13 Mar-13 Apr-13 May-13 Bond price Bond yield (RHS, reverse) became NPLs. Note: 3.95% maturing 01/11/23 subordinated bond Source: Bloomberg

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India India Consumer Price Inflation and Trade (Apr) ------Inflation down; 130% rise in gold imports! Robert Prior-Wandesforde / Research Analyst / 65 6212 3707 / [email protected] ● First the good news. India’s consumer price inflation fell back into The deterioration reflected both slower export growth (1.7% from 7% in single digits for the first time since November last year. March), as well as a strong pick up in import growth to 10.9% (from - Admittedly, at 9.4%, the CPI rate remains uncomfortably high but 2.9%). The latter was the highest since March 2012. the trajectory is at least firmly down. Don’t panic about exports: In our view, it is too early to become ● Meanwhile, wholesale price inflation has been trending lower for despondent about the export picture. The series is very noisy from some time now and Tuesday’s release should see this continue, one month to the next, and the fact is that this was the third with the headline rate moving below 6% for the first time since consecutive YoY gain in export values. A 3-month moving average of November 2009. the YoY rate was 4.3%, the highest for just over a year, while we ● The bad news was provided by the April trade deficit, which expect a further trend improvement ahead as the lagged effects of the jumped to US$17.8 bn from US$10.3 bn the month before. Export rupee weakness continue to feed through. growth remained positive but softened to just 1.7%, while import Extraordinary strength in gold imports: At the same time, we growth picked up to 10.9%. 98% of the rise in imports over the last estimate that of the US$4.12 bn rise in total imports in the 12 months year reflected an extraordinary surge in gold imports as demand to April 2013, US$4.03 bn (98%) was the result of higher gold imports. surged in response to the price fall. It seems hard to believe this The yellow metal apparently saw an extraordinary 130% YoY will prove to be much more than a one-month wonder, however. increase. We estimate that prices were down 10% YoY in April, ● The RBI is watching the external accounts closely, and we doubt implying an massive increase in volumes. We knew demand had the next 25 bp cut will come before the 30 July meeting. picked up, but not that much and it seems difficult to believe anything like these kind of increases can continue. Figure 1: Export growth is improving slowly No repo rate reduction in June: With this in mind, we expect the trade Exports (%y-o-y) Imports (%y-o-y) 80 deficit to start improving again from next month. At the same time, however, the central bank is probably going to need to see several 60 months of better trade data before opting to cut rates again. As such, we are sticking with our view, as expressed after the last RBI meeting, that 40 the next repo rate cut will have to await the 30 July meeting. 20

0

-20

-40 05 06 07 08 09 10 11 12 13 Source: Credit Suisse, CEIC Mixed news: India’s two economic releases today provided mixed news, with consumer price inflation slowing more than expected to 9.4% from 10.4% (and a high of 10.9% in February), while the trade deficit expanded sharply to US$17.8 bn from US$10.4 bn in March. Our own forecasts for the two series were 9.5% and US$13.9 bn, respectively. Inflation – a sigh of relief: The CPI release is likely to come as some relief to the Reserve Bank of India, although it remains well above what the central bank would like it to be, as food prices continue to rise at an uncomfortably strong rate. Meanwhile, the more important wholesale price numbers will be released tomorrow and should drop comfortably below 6%, providing further reassurance. Nevertheless, as the post RBI meeting statement on 3 May and subsequent comments from Governor Subbarao made clear, this easing of price pressures is a necessary but not sufficient condition for further rate reductions. Worrying about the external deficit: The central bank also needs to see the external balance improve and, unfortunately, exactly the opposite happened in April. Not only was the April merchandise trade shortfall a lot worse than March but it was US$3.7 bn higher than the corresponding month of last year—not exactly the best way to start the new fiscal year.

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India Market Strategy ------FII preference for large caps continues, insurance portfolio at odds with that of FIIs Neelkanth Mishra / Research Analyst / 9122 6777 3716 / [email protected] Ravi Shankar / Research Analyst / 91 22 6777 3869 / [email protected] ● FII ownership of BSE500 stocks increased to 18.6% in Mar-13, sold in the quarter (Fig 3). About 46% of the DII selling came from the highest ever (Fig 1). The ~1.2 pp increase QoQ was also the insurance funds and 32% from MFs. highest ever recorded. FIIs now hold 39% of the free float. The govt did most of the selling: their holding is now down to 18%. Figure 2: FII preference for lower-cap stocks on the rise % FII ownership for stocks segmented by market-cap ● FIIs continue to show interest in the large market cap stocks: the 19% sharpest increases in holdings were for market cap > US$2 bn 17% (Fig 2). But in the last two quarters, they have started to increase holdings of smaller stocks as well. Weak performance and cheap 15% valuations in the small/mid-cap stocks make them attractive. 13%

● It appears widely believed that the US$6.3 bn of DII selling last 11% quarter was insurance led. But our estimates using changes in ownership suggest MFs were a third of net selling and Insurance 9% MCap in US$ bn 46% (Fig 3). MF’s portfolio OW/UW is remarkably similar to FIIs 7% but Insurance portfolios could not be more dissimilar (Fig 4). Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 <0.5 0.5 - 1.0 1.0 - 2.0 2.0 - 5.0 >5.0 ● Against conventional belief that “everyone is hiding in IT” and that “PSU banks are universally hated”, all three of FIIs, DIIs and Source: CMIE, MSCI, Credit Suisse estimates. Insurance funds have UW on IT Services, and OW on PSU banks. Figure 3: Estimated split of DII net buying/selling by type of institution We remain OW IT and UW PSU banks. 300 Rs bn Figure 1: FII Ownership increased by a record amount to an all-time high 200 20% 40% 100 0 18% 35% 30% -100 16% -200 25% 14% -300 20% Sep-06 Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11 Sep-12 12% 15% MFs Insurance Banks Others 10% 10% 8% 5% Source: CMIE, Credit Suisse estimates. Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 FII & MF’s OW/UW are remarkably similar, but Insurance holdings are FII DII Govt (RHS) Pvt. Promot (RHS) not, likely as their non-ULIP mandates are usually not benchmarked.

Source: CMIE, MSCI, Credit Suisse estimates. Figure 4: Insurance portfolio OW/UW remarkably dissimilar to FIIs Record increase in FII holdings -8% -6% -4% -2% 0% 2% 4% 6% 8% FII ownership of BSE500 stocks increased to 18.6% in Mar-13, the highest ever (Fig 1). The around 1.2% increase QoQ was also the IT Services Energy highest ever recorded. FIIs now hold 39% of the free float. Much of Metals the selling came from the government (NTPC, Oil India, SAIL, Nalco Pvt bank and RCF): their holding is now down to 18%. Utilities Industrials FIIs continue to show interest in the large market cap stocks: the Staples FII vs. MSCI sharpest increases in FII holdings were for stocks with market cap Real Estate greater than US$2 bn (Fig 2), but in the last two quarters they have Telecom Insurance vs. Nifty BSE 500 as on 31-Mar-13 started to increase holdings of smaller stocks as well. Weak NBFC performance and cheap valuations in the small/mid-cap stocks make Healthcare PSU Bank them attractive. Cement Domestic Institutions: selling not limited to Insurance Others While net FII buying in the March quarter was US$10.1 bn, domestic Discretionary Autos institutional investors (DIIs) net sold US$6.3 bn. Using ownership data, we estimate the split of this selling among mutual funds (MFs), Source: CMIE, MSCI, Bloomberg, Credit Suisse estimates. Insurance funds, Banks and Other FIs (VCs, etc). Though it seems to be generally believed that insurance funds and in particular LIC were the big sellers, the data suggests both MFs and Insurance funds net

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Asian Daily

Ashok Leyland Ltd ------Maintain NEUTRAL No sign of recovery yet EPS: ▼ TP: ▼ Jatin Chawla / Research Analyst / 91 22 6777 3719 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected] ● Ashok Leyland’s 4Q results were disappointing with pre- ● Margins decline on various factors: Q4 margins declined 550 exceptional PAT at Rs157 mn vs CS expectations of ~Rs960 mn. bp YoY with 390 bp QoQ drop in gross margins. Other than ● Margins contracted 550 bp YoY to 5.3% leading to the miss. Gross increasing discounts, management attributed this to cost margins declined 390 bp QoQ on price hikes given to vendors, increases given to vendors, lower share of defence kits (on which higher discounts, lower defence sales and higher share of LCV margins are higher) and higher sales of Dost LCV vehicles (on sales (on which only manufacturing margins were captured). Staff which it just makes contract manufacturing margin). In spite of costs were also more on higher variable pay incentives. reduction in working days from six to five for two months of the quarter (and consequently lower salary pay-out), staff costs ● Management is guiding for some revival in FY14 (3–4% M&HCV industry growth). Discounts remain a big dampener for the increased 8% QoQ on higher variable pay incentives. industry. Average discounts per vehicle further increased ~1.5% ● Exports decline on Sri-Lanka issues: Exports declined over during the quarter from already high Q3 levels and have 30% in FY13. This was on account of a collapse in the Sri Lankan completely offset the price hikes taken during the year. Reduction market (after import duties were increased). The company is now in discounts would be key focus for the company going forward. looking at increasing presence in the Middle-East and Africa (forming strategic alliances with local partner in Nigeria, Kenya). ● The stock still looks cheap, trading at 9x FY15E earnings. However, as there are no signs of quick turnaround in CV cycle, along with the ● Investments and capex have peaked: AL incurred Rs7.25 bn of fact that there has been no free cash flow at the company for three capex (out of which Rs4 bn was in Pantnagar plant) and Rs8.6 bn years now (on elevated capex and investments spends), we of investments (highest in Hinduja Foundries at Rs3 bn) in FY13. maintain our NEUTRAL rating. Our TP reduces marginally to Rs24. Management is guiding for significant moderation in both capex and investments to Rs2.5 bn each in FY14. Bbg/RIC AL IN / ASOK.BO Price (13 May 13 , Rs) 22.10 Rating (prev. rating) N (N) TP (prev. TP Rs) 24.00 (25.00) ● Defence revenues contract: Vehicle Factory Jabalpur’s (VFJ) Shares outstanding (mn) 2,660.68 Est. pot. % chg. to TP 9 revenues were impacted during the quarter (Rs310 mn vs normal Daily trad vol - 6m avg (mn) 7.0 52-wk range (Rs) 28.4 - 20.6 run-rate of Rs800 mn) and now the company is guiding for a 10% Daily trad val - 6m avg (US$ mn) 3.2 Mkt cap (Rs/US$ mn) 58,801.0/ 1,070.7 decline in defence revenues in FY14. Other segments remained Free float (%) 45.0 Performance 1M 3M 12M Major shareholders Hinduja Group robust: Engines (Rs4 bn); Spares (Rs3 bn); Services (Rs1.1 bn). Absolute (%) 0.9 (5.4) (17.5) Relative (%) (7.0) (6.0) (38.4) ● Others: Net Debt at end of FY13 was at Rs43 bn. AL has been Year 03/11A 03/12A 03/13E 03/14E 03/15E making efforts to reduce working capital (already down from Dec- Revenue (Rs mn) 111,692 128,421 124,639 140,984 172,872 end highs) and both WC and net debt should come down going EBITDA (Rs mn) 12,176 12,562 8,726 10,884 15,207 Net profit (Rs mn) 6,196 5,661 4,328 3,252 6,459 forward. It produced 30,000 vehicles at Pantnagar in FY13; share EPS (Rs) 2.32 2.12 1.62 1.22 2.42 would be higher in FY14 at 40,000 vehicles. AL enjoys a tax - Change from prev. EPS (%) n.a. n.a. 14 (5) (3) benefit of Rs63,000 per vehicle produced at Pantnagar. - Consensus EPS (Rs) n.a. n.a. 1.33 2.05 2.63 EPS growth (%) 46.2 (8.6) (23.5) (24.9) 98.6 Figure 1: Ashok Leyland’s 4QFY13 results summary P/E (x) 9.5 10.4 13.6 18.2 9.1 (Rs mn) 4Q12A 3Q13A 4Q13A % YoY % QoQ Dividend yield (%) 5.2 5.2 3.1 3.1 5.2 Volumes 35,690 22,660 34,623 (3.0) 52.8 EV/EBITDA (x) 6.8 7.1 11.6 9.3 6.7 Realization 1,207,907 1,050,534 1,076,874 (10.8) 2.5 P/B (x) 1.5 1.4 1.3 1.3 1.2 Net Sales 43,110 23,805 37,285 (13.5) 56.6 ROE (%) 16.2 13.9 10.0 7.2 13.5 Raw Material 32,091 17,106 28,245 (12.0) 65.1 Net debt(cash)/equity (%) 60.3 72.8 94.5 92.3 86.7 Raw Mat/Sales (%) 74.4 71.9 75.8 132 bps 390 bps Note1:Ashok Leyland Limited is an India-based company. The Company is engaged in the manufacturing of commercial vehicles and related components. Its principal products include Employee costs 2,468 2,617 2,821 14.3 7.8 commercial vehicles, engines and spare parts.. Other Expenditure 3,851 3,059 4,235 10.0 38.5

EBIDTA 4,699 1,023 1,983 (57.8) 93.8 Click here for detailed financials Key takeaways from the conference call EBIDTA Margin 10.9 4.3 5.3 -558 bps 102 bps ● Industry to have small positive growth in FY14: After a major Depreciation 956 931 1,000 4.6 7.4 Interest 724 1,071 828 14.3 (22.7) ~25% decline in FY13, the company is guiding for M&HCV Other income 109 141 115 5.9 (18.2) industry to grow at 3-4% in FY14. This growth would be back- PBT 3,128 (838) 271 (91.4) ended and the first half of fiscal may yet see small decline. Growth Tax 557 (17) 114 (79.6) was weak across regions and segments in FY13. The company PAT pre-exceptional 2,571 (821) 157 (93.9) has gained market share in ICV’s, buses and LCV’s (Dost launch). Exceptional income 16 1,563 1,344 ● Big increase in discounts: While the company increased prices by Reported PAT 2,587 741 1,500 (42.0) 102.4 Source: Company data, Credit Suisse estimates. 4% over the course of the year, this was completely offset by the increase in discounts, and net pricing today is at the same level as one year back. Discounts per vehicle increased from ~Rs100,000 in Q3 to Rs130,000 in Q4. Reduction of discounts should be a key focus going forward as it aims to knock off at least Rs30,000.

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Asian Daily

Cummins India ------Maintain NEUTRAL 4Q13: Weak operating profitability led by sharp margin contraction EPS: ▼ TP: ▼ Amish Shah, CFA / Research Analyst / 91 22 6777 3743 / [email protected] Abhishek Bansal / Research Analyst / 91 22 6777 3968 / [email protected]

● CIL’s 4Q FY13 recurring PAT at Rs1.5 bn was 2% below estimates. Figure 1: Cummins India—4Q13 standalone results summary Operating results were weak as EBIT at Rs1.5 bn declined 5% YoY (Rs mn) 4Q FY12 4Q FY13 % YoY 4Q FY13E % diff. and was 10% below estimates led by a 234 bp YoY decline in EBITDA Sales 10,213 11,280 10 10,899 4 margin to 14.9% (vs 17.2% in 4Q FY12 and 17.8% in 3Q FY13). Total operating expenses (8,456) (9,604) 14 (9,037) 6 EBITDA 1,757 1,676 (5) 1,862 (10) ● Management indicated margins were impacted by 140 bp in 4Q FY13 EBITDA Margin 17.2% 14.9% (234) 17.1% (223) due to corporate cross charges and another ~100 bp due to renewal Depreciation (119) (124) 4 (132) (6) of export pricing agreement. Going forward, CIL expects EBITDA EBIT 1,638 1,552 (5) 1,730 (10) margins to stabilise at current levels at current commodity prices. Net interest expense 411 585 42 468 25 Total Tax (604) (595) (1) (619) (4) ● CIL expects 8-10% sales growth for FY14 with 10% domestic and 3- Tax Rate 29.5% 27.8% (163) 28.2% (36) 5% (muted) export sales growth. Both markets are likely to be driven Recurring PAT 1,446 1,542 7 1,578 (2) by low HP segment whereas high the HP segment is likely to remain Exceptional Items - 344 n.a. - n.a. flat or witness a marginal decline. CPCB-II norms are expected to be Reported PAT 1,446 1,886 30 1,578 20 implemented from 1 Jan 2014, post which pricing is expected to rise Source: Company data, Credit Suisse estimates 10-15%. While pre-buying activity could support sales growth in Exports growth guidance reduced; low HP segment to drive 9M14, volume dip in 4Q FY14 is likely to offset price hike advantage. growth ahead CIL’s domestic sales witnessed 20% YoY growth in 4Q FY13 led by ● We now build in 10%/15% revenue growth and 15.4%/15.7% EBITDA power generation and distribution segments witnessing 26% YoY and margins in FY14/15 (vs 17.4% earlier) resulting in 7-10% cuts in 19% YoY growth, respectively. However, exports sales declined 9% FY14/15E EPS. We reduce our TP to Rs481 and maintain NEUTRAL. YoY. Going forward, management expects 8-10% overall sales growth Bbg/RIC KKC IN / CUMM.BO Price (13 May 13, Rs) 511.95 for FY14 with domestic revenue growth at 10% and export growth Rating (prev. rating) N (N) TP (prev. TP Rs) 481.00 (527.00) relatively muted at 3-5% (vs earlier guidance of 5-10% growth). Both Shares outstanding (mn) 277.20 Est. pot. % chg. to TP (6) markets are likely to be driven by Low HP segment whereas High HP Daily trad vol - 6m avg (mn) 0.3 52-wk range (Rs) 537.3 - 404.9 Daily trad val - 6m avg (US$ mn) 2.3 Mkt cap (Rs/US$ bn) 141.9/ 2.6 segment is likely to remain flat or witness marginal decline.

Free float (%) 49.0 Performance 1M 3M 12M Of Rs12.7 bn of export sales in FY13, low HP segment contributed Rs3.9 Major shareholders Promoter (51%) Absolute (%) 3.7 2.2 13.8 bn. Commissioning of the Phaltan megasite (facility for <160 kVA gensets) Relative (%) (4.2) 1.5 (7.1) is likely to contribute Rs1bn sales in FY14 and Rs3-4 bn p.a. over the next Year 03/11A 03/12A 03/13E 03/14E 03/15E 3-4 years. CIL is targeting to grow its low HP segment market share to Revenue (Rs mn) 39,512 40,522 45,090 49,544 57,091 EBITDA (Rs mn) 6,720 6,323 7,545 7,637 8,972 20% globally over next 3-5 years from <5% presently. To grow the low HP Net profit (Rs mn) 5,910 5,399 6,681 6,843 7,857 segment, CIL is focussing on setting new retail sales points as well as EPS (Rs) 21.3 19.5 24.1 24.7 28.3 increasing sales points across the existing distribution network. - Change from prev. EPS (%) n.a. n.a. 1 (7) (10) - Consensus EPS (Rs) n.a. n.a. 24.8 27.7 31.4 Figure 2: CIL—segmental revenue mix and growth summary EPS growth (%) 33.2 (8.6) 23.8 2.4 14.8 Revenue (Rs mn) Revenue mix (%) YoY growth (%) P/E (x) 24.0 26.3 21.2 20.7 18.1 4Q13 FY13 4Q13 FY13 4Q13 FY13 Dividend yield (%) 2.1 2.1 2.5 2.4 2.8 Power generation 4,360 16,000 39% 35% 26% 27% EV/EBITDA (x) 20.4 21.7 17.6 17.4 14.9 Distribution 2,040 8,900 18% 20% 19% 17% P/B (x) 7.9 6.9 5.9 5.3 4.7 Industrial 1,460 5,140 13% 11% 13% -4% ROE (%) 35.1 28.1 30.2 27.1 27.7 Automotive/ others 460 2,370 4% 5% -4% -26% Net debt(cash)/equity (%) (26.0) (22.8) (38.3) (33.4) (26.4)

Note 1: Cummins India Ltd. is engaged in the manufacture of internal combustion engines and parts Overall domestic 8,320 32,410 74% 72% 20% 13% thereof used for various applications. Exports 2,960 12,690 26% 28% -9% 8%

Click here for detailed financials Source: Company data, Credit Suisse estimates 4Q FY13: Operating profitability weak led by sharp margin dip CPCB-II implementation likely by Jan 2014 Adjusting for Rs491 mn (pre-tax) of profit booked on sale of long-term Management expects CPCB-II norms to get implemented from 1 Jan investments, Cummins India’s 4Q13 recurring PAT at Rs1.5 bn 2014 onwards and expects industry pricing to go up by 10-15%. While witnessed 7% YoY growth and was 2% below estimates. Results were pre-buying activity in preceding quarters could support revenue growth in weak at the operating level as EBIT at Rs1.5bn declined 5% YoY and 9M14, volume decline in 4Q FY14 is likely to offset price hike advantage. was 10% below estimates led by a 234 bp YoY decline in EBITDA Cut FY14-15 EPS by 7-10%, TP to Rs481; maintain NEUTRAL margins to 14.9% (vs 17.2% in 4Q12 and 17.8% in 3Q13). We now build in 10%/15% revenue growth for CIL for FY14/15 (vs Management indicated that margins were impacted by 140 bp in 4Q 15%/22% earlier) and 15.4-15.7% EBITDA margin during FY14-15 (vs FY13 due to corporate cross charges (expected to recur) of Rs157 mn 17.4% earlier) resulting in 7-10% cuts in FY14/15 EPS. For 8% EPS and another ~100 bp due to realignment of forex rate to current rates CAGR over FY13-15E, we now value CIL at 16x 1-year forward upon renewal of export pricing agreement with parent w.e.f. 1 Jan earnings and ascribe 4x BV to CIL’s JVs, resulting in our TP falling to 2013. CIL expects EBITDA margins to stabilise at current levels ahead. Rs481 (from Rs527). We maintain our NEUTRAL rating on the stock.

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Asian Daily

Nestle India ------Maintain UNDERPERFORM No revival in volume growth EPS: ▼ TP: ▲ Arnab Mitra / Research Analyst / 91 22 6777 3806 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected]

● Nestle’s 1QCY13 earnings grew 9% YoY—below our estimates. Figure 1: Nestle’s 1QCY13 results ● Domestic revenue growth was very weak at 7.7% YoY, with Rs Mn 1QCY12 1QCY13 % YoY volume growth close to 0%. There are no signs of a revival in Domestic FMCG sales 19,461 20,953 7.7% volume growth even with a low base kicking in over the past few Export Sales 1,013 1,528 50.9% quarters. Revenue growth is trending down as pricing growth is Net Sales 20,475 22,481 9.8% gradually coming off for the company. Expenditure (16,031) (17,271) 7.7% EBITDA 4,444 5,210 17.2% ● EBITDA margin expanded 147 bp YoY, driven by lower raw EBITDA Margin (%) 21.7 23.2 147bps material costs and other expenses. The company continues to Interest (23) (79) 244.8% focus on margin expansion to drive earnings, rather than invest in Depreciation & Amortization (528) (821) 55.5% marketing to revive revenue growth. Other income 136 200 47.1% PBT 4,029 4,510 11.9% ● We continue to be concerned on the lack of volume growth and Tax (1,272) (1,512) 18.8% the excessive focus on margin expansion. Peers, such as GSK Tax Rate (%) 31.6 33.5 194bps Consumer, are seeing 7–8% volume growth even in the midst of a Pre-exceptional PAT 2757 2998.3 8.8% slowdown in urban consumption as they are increasing ad spends Other non-operating items 0 (207) NM and investing in new launches by ploughing back a part of the PAT 2,757 2,791 1.2% Cost Details 1QCY12 1QCY13 % YoY gross margin expansion. We maintain our UNDERPERFORM Total Raw Material Cost 9,384 10,158 8.2% rating on the stock. Our target price rises to Rs4,670 (from % of Sales 45.8 45.2 -65bps Rs4,400) as we roll forward to March 2015. Employee/Staff Cost 1,547 1,710 10.5% % of Sales 7.6 7.6 5bps Bbg/RIC NEST IN / NEST.BO Price (13 May 13 , Rs) 4,853.45 Other Expenditure 5,100 5,403 5.9% Rating (prev. rating) U (U) TP (prev. TP Rs) 4,670 (4,400) Shares outstanding (mn) 96.42 Est. pot. % chg. to TP (4) % of Sales 24.9 24.0 -88bps Daily trad vol - 6m avg (mn) 0.0 52-wk range (Rs) 4990.4 - 4328.4 Source: Company data, Credit Suisse Daily trad val - 6m avg (US$ mn) 2.9 Mkt cap (Rs/US$ bn) 467.9/ 8.5 Figure 2: Domestic revenue growth continues to be very weak Free float (%) 38.0 Performance 1M 3M 12M Major shareholders Promoter 25% Absolute (%) 7.6 5.3 6.8 Relative (%) (0.3) 4.7 (14.1) Domestic sales growth (%)

Year 12/11A 12/12A 12/13E 12/14E 12/15E 20% Revenue (Rs mn) 74,908 83,344 94,043 108,917 126,166 EBITDA (Rs mn) 15,528 18,579 21,447 24,740 28,563 15% Net profit (Rs mn) 9,616 10,678 12,012 14,541 17,197 EPS (Rs) 100 111 125 151 178 10% - Change from prev. EPS (%) n.a. n.a. 0 (1) - Consensus EPS (Rs) n.a. n.a. 130 155 178 5% EPS growth (%) 17.5 11.0 12.5 21.1 18.3 P/E (x) 48.7 43.8 39.0 32.2 27.2 0% Dividend yield (%) 1.0 1.1 1.5 2.5 2.9

EV/EBITDA (x) 30.6 25.6 21.8 18.7 16.0

1QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 P/B (x) 36.7 26.0 21.7 20.8 19.8 2QCY11 ROE (%) 90.3 69.5 60.7 66.0 74.6 Source: Company data, Credit Suisse estimates. Net debt(cash)/equity (%) 58.4 45.2 (2.2) (24.6) (47.9)

Note1:Nestle is India’s largest player in packaged foods with market leading positions in a large Figure 3: Other expenses have seen very low growth, despite increases number of categories like noodles, instant coffee and baby food..

in fuel, power and freight rates, indicating low increase in ad spends Click here for detailed financials 30% Revenue trend deteriorates in 1QCY13; slight increase in ‘other Other expenses (% YoY) expenses’ indicates no significant increase in marketing costs: 25%

Domestic revenue growth, at 7.7% YoY, was lower than in 4QCY12, 20% which had seen a marginal recovery in YoY growth rate. This is a result of no revival in volume growth, despite price growth coming off due to 15% the anniversarisation of some price hikes. The company is likely not to 10% significantly increase ad spends as other expenses were up only 5% YoY, despite an increase in fuel, power and freight rates which is 5% common across the industry. We are unlikely to see meaningful revival 0% of volume growth unless the company increases its investments in

marketing. Gross margins expanded 65 bp YoY as key raw materials

1QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY11 such as milk and milk powder have come off sequentially. Source: Company data, Credit Suisse

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Asian Daily

Reliance Power Ltd ------Maintain UNDERPERFORM 4Q13 ahead of estimates led by strong performance at Rosa project EPS: ◄► TP: ◄► Amish Shah, CFA / Research Analyst / 91 22 6777 3743 / [email protected] Abhishek Bansal / Research Analyst / 91 22 6777 3968 / [email protected] ● Reliance Power’s 4Q13 recurring PAT at Rs2.6 bn was 12% ahead of 4Q13 ahead of estimates our estimate, led by strong performance at the Rosa project and write- Adjusting for Rs120 mn of prior-period sales booked towards truing up back of taxes. Butibori continued to meet 134 MW supply commitment of fixed charges for the Rosa project, Reliance Power’s 4Q13 recurring to R-Infra by external purchase and earned a profit of c.Rs300 mn. PAT at Rs2.6 bn grew 11% YoY and was 12% ahead of our estimate, ● The Rosa project recorded an availability of 106% in 4Q13, resulting led by strong performance at the Rosa project and write-back of taxes in a RoE of 8.9% (non-annualised) for 4Q13. Rosa’s PLF was lower (due to full-year tax rate being lower than tax provisioning made during at 72% in 4Q13 partly due to shutdowns taken over UP SEB 9M13). Other income declined sharply from Rs1.2 bn in 3Q13 (and delaying payments. However, management indicated that the 4Q12) to Rs171 mn in 4Q13. During 4Q13, Butibori continued to meet receivables position is comfortable at 40-45 days of sales. its 134 MW supply commitment to Reliance Infra by external power ● Butibori Unit-1 (300 MW) has been commissioned w.e.f. Apr-13 and procurement and earned a profit of c.Rs300 mn for the quarter. the project is currently operating on e-auction coal. Reliance Power Rosa project’s strong performance continues, PAF at 106% is in the process of getting a long-term PPA approved by MERC for The Rosa project recorded an availability of 106% in 4Q13 and 92% 600 MW supply to R-Infra from 1 Apr 2014 onwards, post which for full-year FY13. Consequently, the project earned a RoE of 8.9% linkage coal supplies should materialise. During FY13, Reliance (non-annualised) for 4Q13. Rosa project’s PLF was lower at 72% in Power intends to supply power from Butibori on a short-term basis. 4Q13, partly due to shutdowns undertaken over UP SEB delaying ● Chhatrasal’s Stage-II clearance is expected by Jun-Jul 2013. On payments. However, management indicated that the receivables Krishnapatnam, the company expects a favourable CERC judgement position is comfortable at 40-45 days of sales. post favourable decisions in the case of Adani Power and Tata Power. Figure 2: Rosa project performance summary (Rs mn) 4Q FY12 1Q FY13 2Q FY13 3Q FY13 4Q FY13 Bbg/RIC RPWR IN / RPOL.BO Price (10 May 13, Rs) 79.70 Rating (prev. rating) U (U) [V] TP (prev. TP Rs) 87.00 (87.00) Capacity (MW) 600 1,200 1,200 1,200 1,200 Shares outstanding (mn) 2,805.13 Est. pot. % chg. to TP 9 Generation (mn kwh) 1,052 2,055 1,655 2,407 1,883 Daily trad vol - 6m avg (mn) 8.2 52-wk range (Rs) 110.2 - 59.2 PLF (%) 81% 78% 63% 92% 72% Daily trad val - 6m avg (US$ mn) 12.5 Mkt cap (Rs/US$ bn) 223.6/ 4.1 PAF (%) 92% 81% 78% 103% 106%

Free float (%) 19.6 Performance 1M 3M 12M Tariff realization (Rs/kWh) 5.03 5.22 5.98 5.87 6.51 Major shareholders Promoter group Absolute (%) 19.5 (6.7) (13.9) Fuel cost (Rs/kWh) 2.62 3.02 3.24 3.40 3.11 (80.4%) Relative (%) 10.4 (8.5) (36.1) Sales (Rs mn) 4,870 9,760 8,970 13,000 11,270 Year 03/11A 03/12A 03/13E 03/14E 03/15E EBITDA (Rs mn) 2,100 3,480 3,320 4,306 4,894 Revenue (Rs mn) 10,659 20,192 37,662 56,004 106,325 PAT (Rs mn) 760 1,360 1,186 2,000 2,463 EBITDA (Rs mn) 2,402 6,239 17,213 26,216 47,246 Regulated RoE @16% (Rs mn) 378 640 640 640 640 Net profit (Rs mn) 7,373 8,668 10,114 10,335 9,055 Incentives 663 720 544 1,333 1,795 EPS (Rs) 2.63 3.09 3.61 3.68 3.23 RoE (%)–non-annualised 5.4% 6.2% 5.1% 7.9% 8.9% - Change from prev. EPS (%) n.a. n.a. 0 0 0 Source: Company data, Credit Suisse estimates - Consensus EPS (Rs) n.a. n.a. 3.59 3.74 5.72 EPS growth (%) (6.6) 17.6 16.7 2.2 (12.4) Butibori Unit-1 commissioned, PPA/FSAs in progress P/E (x) 30.3 25.8 22.1 21.6 24.7 Reliance Power has commissioned Unit-1 (300MW) of Butibori project Dividend yield (%) 0 0 0 0 0 w.e.f. 4 Apr 2013 and the project is currently operated on e-auction EV/EBITDA (x) 92.0 55.5 26.4 22.0 15.6 P/B (x) 1.3 1.3 1.2 1.1 1.1 coal. The Butibori project has a short-term PPA for 134 MW (net) ROE (%) 4.7 5.0 5.6 5.4 4.5 supply to Reliance Infra, valid until March 2014. Reliance Power had Net debt(cash)/equity (%) (1.5) 69.7 124.0 180.3 249.6 approached MERC for approval of long-term PPA for 600 MW supply Note 1: Reliance Power Limited (RPower) is engaged in the development, construction and operation of power generation projects with a combined capacity of about 35,000 megawatts. to R-Infra from 1 Apr 2014. While MERC has granted in-principle

Click here for detailed financials approval for PPA for 300 MW, it has directed Reliance Power to Figure 1: Reliance Power—4Q13 consolidated results summary secure NOC (No Objection Certificate) from MIDC for the balance of (Rs mn) 4QFY12 4QFY13 % YoY 4QFY13E % diff. 300 MW, as the Butibori project was initially set up as a captive power Sales 5,326 12,358 132 11,953 3 plant (bidding conducted by MIDC) with 51% of power expected to be Total operating expenses (3,537) (7,852) 122 (8,045) (2) supplied to industrial consumers. Reliance Power expects to sign FSA EBITDA 1,788 4,506 152 3,908 15 for 300 MW in a month, and for the balance 300 MW in 2-3 months EBITDA Margin 33.6% 36.5% 288 32.7% 376 which should ensure linkage coal supply from FY15 onwards. Depreciation (313) (744) 138 (778) (4) EBIT 1,476 3,762 155 3,131 20 During FY14, Reliance Power intends to supply the balance power from Net interest expense 459 (1,528) n.a. (268) n.a. Unit-1 (~150 MW) and 300 MW from Unit-2 (post commissioning) on a Total Tax 378 330 n.a. (573) n.a. short-term basis. Alternatively, Reliance Power is also planning to Recurring PAT 2,313 2,564 11 2,290 12 approach MERC for supplying a similar quantum at cost plus basis (at Exceptional items - 96 n.a. - n.a. same tariff as 600 MW R-Infra PPA) for the rest of FY14 which could Reported PAT 2,313 2,661 15 2,290 16 make Butibori project eligible for linkage coal allocation from FY14. Source: Company data, Credit Suisse estimates

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Asian Daily

Japan Pola Orbis Holdings ------Maintain OUTPERFORM Earnings stable; valuation compelling EPS: ▲ TP: ▲ Satsuki Kawasaki / Research Analyst / 81 3 4550 9941 / [email protected] Taketo Yamate / Research Analyst / 81 3 4550 9963 / [email protected] Hiroko Yamada / Research Analyst / 81 3 4550 7478 / [email protected]

● We raise our TP for Pola Orbis from ¥3,300 to ¥4,200 (potential Figure 1: Correlation of P/B and ROE (FY2013) upside 12%), having changed some underlying assumptions, also (X) 5.0 revising our estimates to reflect 1Q FY12/13 results. (We lowered R² = 0.7821 our cost of equity assumption from 5.0% previously, to 4.0%.) 4.5 Unicharm 4.0 ● Although 1Q accounts for only a small proportion of full-year profit, Dr.Ci:Labo results indicate that FY12/13 is off to a good start, with evidence 3.5 Kao of cost controls. 3.0 2.5 ● Concerns have been raised that 2Q will present a high YoY hurdle, Mandom Shiseido as in 2Q FY12/12 the company launched the B.A Summer Series 2.0 Lion Kobayashi under the Pola brand. However, in April—the month in which this 1.5 Kose series made its biggest contribution in 2012—sales look to have 1.0 Pola Orbis Fancl increased YoY. In light of firm growth in sales and restraint in 0.5 spending, we think investors can expect higher domestic profit. 0.0 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% ● We base our ¥4,200 TP on a theoretical P/B of 1.35x (previously 1.06x) derived from FY12/13E ROE and a 4.0% cost of equity Source: Thomson Reuters, Credit Suisse research (previously 5%). Implied P/E is 25.2x. Click here for full report. As is evident from Figure 1, toiletries sector stocks show a strong Bbg/RIC 4927 JP / 4927.T Price (10 May 13, ¥) 3,740.00 correlation between P/B and ROE. Rating (prev. rating) O (O) TP (prev. TP ¥) 4,200 (3,300) Shares outstanding (mn) 55.28 Est. pot. % chg. to TP 12 We forecast FY12/13 ROE of 5.4% for Pola Orbis. While that figure Daily trad vol - 6m avg (mn) 0.2 52-wk range (¥) 3,740.0-2,093.0 will likely improve to 5.9% in FY12/14, this would still be lower than Daily trad val - 6m avg (US$ mn) 5.2 Mkt cap (¥/US$ bn) 206.7/ 2.0 the 10% average for the sector as whole. Even on the basis of Free float (%) 35 Performance 1M 3M 12M FY12/13 ROE, however, we believe valuations are compelling. Major shareholders Absolute (%) 14.7 29.6 60.6 Relative (%) 9.3 4.6 1.0 Referencing FY12/13E ROE of 5.4% and a 4.0% cost of equity, we Year 12/11A 12/12A 12/13E 12/14E 12/15E calculate a theoretical P/B of 1.35x and a TP of ¥4,200. Implied P/E is Revenue (¥ bn) 166.7 180.9 188.6 195.1 201.8 25.2x FY12/13E EPS. EBITDA (¥ bn) 18.3 20.8 23.8 25.9 28.0 Net profit (¥ bn) 8.0 6.7 9.2 10.5 11.7 P/B on FY12/13E BPS only 1.07x when adjusted for unrealised EPS (¥) 145 121 166 190 212 - Change from prev. EPS (%) n.a. n.a. 3.4 0 -0.8 gains on property - Consensus EPS (¥) n.a. n.a. 156 177 196 As Pola Orbis’ property holdings are marked to market, we estimate EPS growth (%) 5.9 (16.9) 37.7 14.1 11.4 the company has around ¥30 bn in unrealised gains (excluding factory P/E (x) 25.2 30.4 22.1 19.3 17.3 Dividend yield (%) 1.2 1.4 1.5 1.6 1.8 sites). While these properties are unlikely to be sold, ¥30 bn in EV/EBITDA (x) 7.4 7.8 6.4 5.7 5.0 unrealised gains would add around 10% to BPS (our FY12/13 forecast P/B (x) 1.3 1.2 1.2 1.1 1.1 is ¥3,158). If BPS is converted in this manner to a market value basis, ROE (%) 5.2 4.2 5.4 5.9 6.3 the P/B on FY12/13E BPS would be only around 1.07x. Net debt(cash)/equity (%) (43.1) (24.6) (29.2) (30.8) (32.5)

Note 1: Pola Orbis Holdings Inc. manufactures a wide range of cosmetic products. The company's products include medicinal products.

Click here for detailed financials (This is an extract from the Pola Orbis Holdings report, published on 13 Unrealized gains on property May 2013. For details, please see the CS Research & Analytics website.)

As Pola Orbis’ property holdings are marked to market, we estimate the company has around ¥30 bn in unrealised gains (excluding factory sites). While these properties are unlikely to be sold, ¥30 bn in unrealised gains would add around 10% to BPS (our FY12/13 forecast is ¥3,158). If BPS is converted in this manner to a market value basis, the P/B on FY12/13E BPS would be only around 1.07x. Catalysts/risks Potential catalysts include indications of continued profit growth at quarterly results announcements. Risks include: (1) substantially higher- than-expected spending at overseas business, (2) notable delays in improving profitability for developing brand lines or worsening of same, and (3) substantively weakening brand strength in Japan.

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Shiseido ------Maintain NEUTRAL Conservative guidance; fundamentals suggest too early to buy EPS: ▲ TP: ▲ Satsuki Kawasaki / Research Analyst / 81 3 4550 9941 / [email protected] Taketo Yamate / Research Analyst / 81 3 4550 9963 / [email protected] ● We revise our forecasts for Shiseido and increase our target price company will make its guidance of 0.7% sales growth in Japan. from ¥1,250 to ¥1,430. We estimate FY3/14 OP of ¥41.5 bn (+59% However, we think the cost assumptions may include a buffer. YoY; guidance: ¥38.0 bn), based on results and company contact. Look to confirm top-line growth: Cosmetics makers generate high ● We believe guidance is conservative, particularly for the overseas marginal profit ratios, so the number-one priority is ensuring top-line business. Shiseido assumes ¥14/RMB, ¥85/$, and ¥115/€. We stability. In Japan, store sales appear to be recovering, but it remains estimate every ¥1 fluctuation affects OP by ¥50 mn vs the yuan, unclear whether this is a stable business trend that will actually ¥600mn versus the dollar, and just under ¥50 mn vs the euro. generate earnings. Overseas, Shiseido projects China sales growth of ● We think sales momentum needs to be monitored in order to 6–9%. First-quarter shipments were strong, partly due to some confirm whether the company will make its guidance of 0.7% shipments slipping into the next quarter because of the Chinese New sales growth in Japan. However, we believe the cost assumptions Year, but it is too early to tell whether this is a real trend (we estimate may include a buffer. 6% sales growth). In contrast, in Europe, the fragrance business has ● We derive our TP from theoretical P/B, assuming FY3/14E ROE slowed since 1Q and Shiseido expects a decline in sales (on a local of 6.1% and 5.0% equity cost (previously 5.8%). We arrive at a currency basis). The Bare Escentuals business booked a write down theoretical value of ¥1,430 by applying a 20% premium to in FY3/13 and Shiseido expects both sales and profits to fall in FY3/14. theoretical P/B of 1.55x (previously 1.32x). Implied P/E is 24.7x. Risks: Risks include clear delineation of the domestic brand strategy Click here for Full Report. and a review of sales channels, Chinese business growth that is Bbg/RIC 4911 JP / 4911.T Price (13 May 13 , ¥) 1,406.00 greater or less than expectations, and the announcement of radical Rating (prev. rating) N (N) TP (prev. TP ¥) 1,430 (1,250) cost-cutting programs. Shares outstanding (mn) 398.04 Est. pot. % chg. to TP 2 Daily trad vol - 6m avg (mn) 3.1 52-wk range (¥) 1580.0 - 945.0 Valuation: We derive our target price from theoretical P/B, assuming Daily trad val - 6m avg (US$ mn) 39.2 Mkt cap (¥/US$ bn) 559.6/ 5.5 FY3/14E ROE of 6.1% and 5.0% equity cost (previously 5.8%). We Free float (%) — Performance 1M 3M 12M Major shareholders arrive at a theoretical value of ¥1,430 by applying a 20% premium to Absolute (%) (7.3) 19.2 6.5 Relative (%) (14.5) (8.1) (56.0) theoretical P/B of 1.55x (previously 1.32x). Implied P/E is 24.7x.

Year 03/12A 03/13A 03/14E 03/15E 03/16E Revenue (¥ bn) 682.4 677.7 744.9 761.8 780.0 EBITDA (¥ bn) 75.3 63.6 79.0 83.0 87.9 This is an extract from Satsuki Kawasaki’s Shiseido report, Net profit (¥ bn) 14.5 (14.7) 23.0 26.1 29.3 EPS (¥) 36.5 (36.9) 58.1 65.9 74.0 Conservative guidance; fundamentals suggest too early to buy - Change from prev. EPS (%) n.a. n.a. 5.5 0.1 0 published on 13 May, 2013. For details, please see the Credit Suisse - Consensus EPS (¥) n.a. n.a. 53.6 64.5 73.0 Research & Analytics website. EPS growth (%) 13.5 n.m. n.m. 13.5 12.3 P/E (x) 38.5 n.m. 24.2 21.3 19.0 Dividend yield (%) 3.6 3.6 1.4 1.9 2.1 EV/EBITDA (x) 8.6 10.2 7.8 7.2 6.6 P/B (x) 1.9 1.9 1.8 1.7 1.7 ROE (%) 4.8 (5.1) 7.8 8.4 8.9 Net debt(cash)/equity (%) 28.6 29.4 17.3 11.2 5.2

Note 1: ORD/ADR=1.00. Note 2: Shiseido manufactures cosmetic and toiletry products. The company offers an array of makeup and skin-care products, toiletries, beauty salon products, pharmaceuticals, foodstuffs, fine chemicals and fashion products.

Click here for detailed financials

Conservative company guidance: We revise our forecasts for Shiseido and increase our target price from ¥1,250 to ¥1,430. We estimate FY3/14 OP of ¥41.5 bn (+59% YoY; guidance: ¥38.0 bn), based on results and company contact. We believe the guidance is conservative, particularly for the overseas business. Shiseido assumes ¥14/RMB, ¥85/$, and ¥115/€. We estimate every ¥1 fluctuation affects OP by ¥50 mn versus the yuan, ¥600 mn versus the dollar, and just under ¥50 mn versus the euro. We think sales momentum needs to be monitored in order to confirm whether the Valuation Metrics Company Ticker Rating Price TP Up/dn Year EPS Chg(%) EPS EPS grth (%) P/E (x) Div. yld ROE P/B (prev. Chg to TP (%) (%) (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 SHISEIDO ORD 4911.T N (N) 1,406 1,430 0 2 03/13 0 0 58.1 65.9 n.m. 13 24.2 21.3 1.4 7.8 1.8 Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

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Malaysia Gamuda ------Maintain OUTPERFORM Poised for sharp construction orderbook growth and possible dividend upside EPS: ▲ TP: ▲ Danny Goh / Research Analyst / 603 2723 2083 / [email protected] ● We attended an an analyst briefing on Mon, 13 May, and could end up with RM4 bn (out of total RM6-8 bn cost) of the conducted by Group MD Dato’ Lin. Management seems works if successful in clinching this project. Management confident of construction orderbook expansion prospects. We highlighted that the Southern Double Track alignment can also be believe the group can potentially clinch RM10 bn new jobs in used for the KL-Singapore High Speed Rail (HSR). However, we the coming 15 months. The group plans to bid for KL- believe that there is some urgency to implement the Southern Singapore High Speed Rail. Double Track project. Therefore, the government could be ● Gamuda is also apparently close to concluding talks to sell its toll pressured to proceed with the Southern Double Track in the near- road assets and management plans to distribute bulk of proceeds medium term if both Singapore and Malaysian authorities are not to shareholders. Management has turned bullish on domestic ready to make a firm decision on the HSR anytime soon. property sector and plans to spend RM3 bn to expand land bank. ● Langat 2 water treatment plants: According to management, the ● We reduce our FY14 net profit estimate by 7% to factor in lower tender for Langat 2 has closed. We believe Gamuda is among the Vietnam sales and postpone profit recognition from prospective leading contenders as its financial bid is among the lowest. new jobs this year to FY15. Hence, we raise our FY15 net profit ● Klang Valley MRT tunnel works and PDP (project delivery estimate by 4%. We roll forward our target price (average of sum- partner): We understand that the government is likely to approve of-parts and P/E-to-growth) to RM5.82 (from RM4.50). the implementation of KV MRT Phase 2 by 3Q13 and could soon ● Maintain OUTPERFORM call: Potential near- to medium-term after be appointing the PDP. We believe that the government is so catalysts: (1) confirmation of PDP role for KV MRT Phase 2, (2) far pleased with Gamuda-led JV’s work as PDP and is likely to re- sale of concessions and (3) Southern Double Track award. appoint it as PDP for Phase 2 (project value estimate RM15 bn). Management expects the tunnel works for Phase 2 (worth RM9 Bbg/RIC GAM MK / GAMU.KL Price (13 May 13, RM) 4.73 Rating (prev. rating) O (O) TP (prev. TP RM) 5.82 (4.50) bn, i.e., Gamuda’s portion = RM4.5 bn) to be awarded by mid- Shares outstanding (mn) 2,166.56 Est. pot. % chg. to TP 23 2014 and is confident of securing the job. Daily trad vol - 6m avg (mn) 6.5 52-wk range (RM) 4.75 - 3.33 Bidding for KL-Singapore High Speed Rail: Gamuda is keen to Daily trad val - 6m avg (US$ mn) 8.6 Mkt cap (RM/US$ mn) 10,247.8/ 3,417.7

Free float (%) 74.0 Performance 1M 3M 12M participate in the construction of KL-Singapore HSR (cost RM40 bn) Major shareholders Generasi Setia 6.9%; Absolute (%) 14.5 27.8 31.8 and expects to put together a consortium soon to participate in the EPF 6.0% Relative (%) 9.3 18.2 18.2 bid. We expect the group to be a front runner given its extensive Year 07/11A 07/12A 07/13E 07/14E 07/15E experience in rail work, tunnelling expertise and project financing Revenue (RM mn) 2,673 3,087 3,996 5,285 8,480 capability. Management intends to assemble a strong consortium to EBITDA (RM mn) 402 610 616 820 1,241 Net profit (RM mn) 425 546 565 774 1,067 strengthen its competitive position. EPS (RM) 0.20 0.25 0.26 0.35 0.48 Likely to distribute most of proceeds from sale of concessions— - Change from prev. EPS (%) n.a. n.a. 1 (7) 4 toll road concessions (excluding SMART tunnel) to PLUS: - Consensus EPS (RM) n.a. n.a. 0.28 0.33 0.38 Management is in advanced stages of talks to sell its domestic toll EPS growth (%) 41.0 26.5 3.3 35.1 36.4 P/E (x) 23.6 18.7 18.1 13.4 9.8 roads (ex. SMART tunnel) to PLUS. We estimate these roads will be Dividend yield (%) 2.4 2.4 2.4 2.4 2.4 worth RM1.5 bn (70sen/sh). Apparently management has agreed on EV/EBITDA (x) 26.9 17.7 17.2 12.7 8.4 pricing terms and is just awaiting regulatory clearance. Management P/B (x) 2.6 2.4 2.2 2.0 1.7 intends to distribute bulk of proceeds as dividends to shareholders. ROE (%) 11.9 14.1 13.4 16.6 20.0 Net debt(cash)/equity (%) 14.5 13.3 7.0 3.7 3.6 Aggressively expand domestic property portfolio: Management is

Note 1: Gamuda Berhad is an investment holding and civil engineering construction company. bullish on the property sector and intends to spend RM1 bn p.a. for Through its subsidiaries, the company provides earthwork construction, manufactures and supplies the next three years to expand its domestic land bank. Management is road-surfacing materials, and operates quarry and road-laying projects.

interested in expanding presence in Iskandar and Klang Valley as well Click here for detailed financials Please find below key highlights from an analyst briefing conducted by as venture into Penang and East Malaysia property market. MD Dato’ Lin on Monday, 13 May. Raise price target and changing earnings estimates: We reduce Potential inflow of RM10 bn new construction jobs over the next our FY14 net profit estimates by 7% to factor in lower Vietnam sales 15 months: With the ruling party retaining control of the country to and postpone profit recognition from prospective new jobs this year to provide greater assurance over continued fiscal spending support and FY15. Hence, we raise our FY15 net profit estimate by 4%. We roll the Economic Transformation Programme, management expects the forward our target price (average of sum-of-parts and P/E-to-growth) government to soon proceed with the roll-out of some key to RM5.82/sh (implied calendar 2014 P/E of 14x) from RM4.50 infrastructure projects. Management believes the group could (previously on implied 2013 P/E of 15x). We reiterate our potentially secure RM10 bn of new jobs over the next 15 months to OUTPERFORM call on Gamuda. Potential near-to-medium term add to its existing construction orderbook of RM4.2 bn. Potential catalysts include (1) confirmation of role as PDP for KV MRT Phase 2, source of new jobs are : (2) sale of concessions and (3) award of Southern Double Track. ● Southern Double Track Railway: Management seems confident of its chances of securing the Southern Double Track project. We understand that Gamuda is teaming up with a Chinese contractor

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Singapore Biosensors International Group Ltd. ------Maintain OUTPERFORM Biosensors to acquire Spectrum Dynamics - it is just a start EPS: ◄► TP: ◄► Iris Wang / Research Analyst / 852 2101 7646 / [email protected] Jinsong Du / Research Analyst / 852 2101 6589 / [email protected] ● Biosensors on Monday announced that it will acquire substantially relating to the business up to a limit of US$2.35 mn, net of the all the assets of Spectrum Dynamics. This is in line with our accounts receivable of Spectrum Dynamics and its subsidiaries. expectation (Early redemption of bonds: A signal of imminent (2) In the event that certain performance benchmarks of the business acquisition?—published on 14 December 2012). are met within 12 months of completion of the Acquisition, US$4 mn ● According to the agreement, a cash payment of US$51.13 mn will will be paid in cash to Spectrum Dynamics in 2014. be made upon the closure of the deal, and an additional US$19.0 mn will be paid in 2014 and later if certain performance (3) In the event that certain performance benchmarks of the business benchmarks are achieved. Biosensors expects the transaction to for the financial years ending 31 March 2015 and 31 March 2016 are have minimal impact on FY14 financials with potential to be met, an amount of up to US$15 mn is payable in cash to Spectrum moderately accretive to its earnings in the following fiscal years. Dynamics in 2016. ● Given the ~US$300 mn cash on its balance sheet and S$300 mn Biosensors will hold an analyst call on 14 May morning and we will raised from medium-term notes in January 2013, we expect update investors more about the target and deal implications after that. Biosensors to have more acquisitions in the near to medium term. ● We believe this deal is a symbolic move of Biosensors for executing its diversification strategy. We maintain our OUTPERFORM rating and S$1.96 target price.

Bbg/RIC BIG SP / BIOS.SI Price (07 Feb 13 , S$) 1.37 Rating (prev. rating) O (O) TP (prev. TP S$) 1.96 (1.96) Shares outstanding (mn) 1,742.29 Est. pot. % chg. to TP 43 Daily trad vol - 6m avg (mn) 4.6 52-wk range (S$) 1.40 - 1.07 Daily trad val - 6m avg (US$ mn) 4.7 Mkt cap (S$/US$ mn) 2,386.9/ 1,925.6

Free float (%) 45.0 Performance 1M 3M 12M Major shareholders Weigao 21.6%, Hony Absolute (%) 10.9 24.5 (16.7) Capital 15.7% Relative (%) 9.2 16.2 (26.1)

Year 03/11A 03/12A 03/13E 03/14E 03/15E Revenue (US$ mn) 156.6 292.1 365.9 405.5 458.9 EBITDA (US$ mn) 47.5 119.8 152.7 163.5 178.7 Net profit (US$ mn) 52.8 109.3 130.4 136.5 150.4 EPS (US$) 0.05 0.07 0.08 0.08 0.09 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (US$) n.a. n.a. 0.07 0.08 0.09 EPS growth (%) 60.2 49.6 6.5 4.7 10.1 P/E (x) 23.3 15.6 14.6 14.0 12.7 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) 35.8 13.8 10.2 8.7 7.3 P/B (x) 3.2 1.5 1.5 1.4 1.2 ROE (%) 20.2 14.6 11.1 10.5 10.4 Net debt(cash)/equity (%) (59.5) (24.7) (29.9) (36.2) (41.3)

Note 1: ORD/ADR=20.00. Note 2: Biosensors International Group, Ltd. is an investment holding company engaged in licensing of medical technology. It operates in three segments: interventional cardiology, critical care and licensing revenue.

Click here for detailed financials Spectrum Dynamics is a privately held medical imaging and clinical applications company engaged in designing, developing, manufacturing and distributing medical imaging systems and technology in a number of fields and applications; the company has developed a proprietary technology providing high-speed, high- resolution 3D images to help physicians determine the most appropriate treatment for their patients. The purchase consideration for the acquisition payable to Spectrum Dynamics is as follows: (1) Upon the closure of the deal, according to the agreement, US$51.13 mn will be paid in cash; in addition, Biosensors has agreed to assume Spectrum Dynamics’ and its subsidiaries’ trade accounts payable incurred on or prior to the closing date for goods or services

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City Developments ------Maintain OUTPERFORM 1Q13 missed; however, strong sales momentum to underpin future earnings growth EPS: ◄► TP: ◄► Yvonne Voon / Research Analyst / 65 6212 3026 / [email protected] Sing Ping Chok / Research Analyst / 65 6212 3011 / [email protected] ● 1Q13 core PATMI (ex-divestment gains) of S$108.6 mn missed though offset by Buckey Classique, The Palette, 268 Thomson and H2O expectations on weaker property development profits due to: (1) Residences; and (2) weaker hotel performance (see 2 May M&C report). the absence of revenue from Tagore Ave warehouse (disposed in Figure 2: Revenue and PBT breakdown 1Q12) coupled with lower contributions from various projects and Revenue Profit before tax (2) weaker hotel performance. 1Q13 % 1Q12 % YoY 1Q13 % 1Q12 % YoY ● We estimate that CDL sold 1,324 residential units in 1Q13 and Total 763 100 847 100 -10 186 100 216 100 -14 highlight that the 1Q13 total sales was more than half of FY12. Prop development 315 41 394 47 -20 91 49 88 41 4 Meanwhile, CDL’s 1Q13 office occupancy remained healthy at Hotel 341 45 354 42 -4 26 14 40 19 -35 94%. South Beach is on track to complete in 2015. Rental props 78 10 76 9 3 59 32 36 17 66 Others 29 4 22 3 31 10 5 51 24 -81 ● Earnings momentum is expected to improve in the coming Source: Company data. quarters, as profits from its sales at HAUS@Serangoon Garden Sales momentum has been strong, which should underpin future (100% sold), UP@Robertson Quay (76% sold), Echelon (93%), earnings growth. We estimate that CDL sold 1,324 residential units in Bartley Ridge (83%) and D’Nest (87%) as well as two fully sold 1Q13 (4Q12: c.650, 1Q12: 979) mainly from D’Nest (699 units) and ECs have not been recognised. CDL plans to launch three Bartley Ridge (367 units) and Echelon (117 units). We highlight that projects in the next few months depending on market conditions. the 1Q13 total sales was more than half of FY12. ● We continue to like CDL for its strong execution. The stock trades at Hotel PBT dropped 35% YoY due to weaker performances in Asia 1.41x P/B vs historical avg of 2x. CDL is now trading at 23% discount and Europe (collectively 2/3rd of M&C’s portfolio). Despite M&C’s to RNAV (historical average of 4%). Maintain OUTPERFORM. 1Q13 REVPAR improving 1.6% YoY to £60.14, the removal of Bbg/RIC CIT SP / CTDM.SI Price (13 May 13 , S$) 11.60 >100,000 room nights due to refurbishments also resulted in a loss of Rating (prev. rating) O (O) TP (prev. TP S$) 13.60 (13.60) revenue and PATMI subsequently decreased 28.6% YoY to £13.0mn. Shares outstanding (mn) 909.30 Est. pot. % chg. to TP 17 Daily trad vol - 6m avg (mn) 1.1 52-wk range (S$) 13.2 - 9.6 Rental properties’ PBT rose 66% YoY due to the divestment gains Daily trad val - 6m avg (US$ mn) 10.6 Mkt cap (S$/US$ mn) 10,547.9/ 8,509.1 from sale of strata units at Elite Industrial Building 1&2 and Citimac

Free float (%) 51.4 Performance 1M 3M 12M Industrial Complex. Meanwhile, CDL’s 1Q13 office occupancy Major shareholders Hong Leong Group Absolute (%) 2.7 1.2 13.7 remained healthy at 94%. South Beach on track to complete in 2015. 48% Relative (%) (1.3) (3.6) (5.2)

Year 12/11A 12/12A 12/13E 12/14E 12/15E Figure 3: 1Q13 alone amounted to more than half of FY12’s sales EBITDA (S$ mn) 1,334 1,178 1,309 1,444 1,520 Units S$ mn Net profit (S$ mn) 509.7 536.1 598.2 678.4 730.4 2,500 4,000 EPS (S$) 0.56 0.59 0.66 0.75 0.80 2,000 3,000 1,500 - Change from prev. EPS (%) n.a. n.a. 0 0 0 2,000 - Consensus EPS (S$) n.a. n.a. 0.72 0.81 0.90 1,000 500 1,000 EPS growth (%) (20.8) 5.2 11.6 13.4 7.7 - - P/E (x) 20.7 19.7 17.6 15.5 14.4 2005 2006 2007 2008 2009 2010 2011 2012 1Q13 Dividend yield (%) 1.6 1.1 1.1 1.1 1.1 Sales volume - LHS Sales value (S$ mn) - RHS EV/EBITDA (x) 9.3 10.9 9.5 8.2 6.9 ROE (%) 7.8 7.6 7.7 8.0 8.0 Source: Company data, Credit Suisse estimates. Net debt(cash)/equity (%) 20.7 25.0 17.7 11.0 0 Earnings momentum expected to improve in the coming quarters, NAV per share (S$) — — 15.1 — — as profits from its sales at HAUS@Serangoon Garden (100% sold), Disc./(prem.) to NAV (%) — — 23.2 — —

Note 1: ORD/ADR=1.00. Note 2: City Developments Limited (CDL) is a Singapore-based company UP@Robertson Quay (76% sold), Echelon (93%), Bartley Ridge engaged in property development, ownership and investment holding. CDL operates in four (83%) and D’Nest (87%) as well as the two fully sold ECs—Blossom business segments: property development, hotel operations, rental properties and others.

Residences and The Rainforest—have not been recognised.

Click here for detailed financials CDL is planning to launch the 616-unit Jewel@Buangkok, 380-unit EC Figure 1: Summary of results at Fernvale Link and a mixed 266 residential/ 28 retail units S$ mn 1Q13 1Q12 YoY% 4Q12 QoQ% CS FY13E % CS % cons Revenue 763.5 846.7 -10 886.4 -14 3,472.9 22 development near Potong Pasir MRT station in the next few months if EBIT 178.9 210.0 -15 321.2 -44 1,144.7 16 market conditions remain favourable. Meanwhile, in China, Interest exp. -17.0 -20.2 -16 -17.2 -1 -75.3 23 construction is set to commence this year for its two residential Int. & Inv. Inc. 10.1 11.3 -11 7.5 34 33.4 30 (Chongqing) and one mixed-use project (Suzhou). Pre-tax profit 186.5 215.6 -14 325.5 -43 1,095.3 17 Maintain OUTPERFORM: We continue to like CDL for its strong Core PATMI 108.6 114.7 -5 191.9 -43 598.2 18 17 Source: Company, I/B/E/S, Credit Suisse estimates execution. Stock trades at 1.41x P/B vs historical average of 2x. CDL is now trading at 23% discount to RNAV (historical average of 4%). CDL’s 1Q13 core PATMI (ex-divestment gains) of S$108.6 mn (-5% YoY) missed expectations due to: (1) weaker property development profits due to absence of revenue from Tagore Ave warehouse (disposed in 1Q12) and lower contributions from The Glyndebourne, Volari, NV Residences, Tree House and Hundred Trees,

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South Korea Hanwha Chemical ------Maintain UNDERPERFORM 1Q13 disappoints EPS: ▼ TP: ◄► A-Hyung Cho / Research Analyst / 822 3707 3735 / [email protected] Jihong Choi / Research Analyst / 82 2 3707 3796 / [email protected] ● 1Q13 earnings were below expectation on disappointing chemical Increasing exposure in solar and solar businesses. Chemical business was hurt by the weak Turnaround of the downstream solar business is coming through as the caustic soda business due to capacity additions by LG Chem. utilisation rate improves with the restructuring of the downstream solar ● Turnaround of the downstream solar business is coming through as segment such as Suntech Power which declared bankruptcy. the utilisation rate continues to improve with the restructuring of the Start-up of the polysilicon plant is scheduled in March next year, while the downstream solar segment, but there still is risk that the turnaround mechanical completion is expected this month. We believe as a late may get delayed by the trade disputes between China and Europe. entrant in the poly business, the company will take a meaningful time to make profit. ● We believe that as a late entrant in the poly business, the company will take meaningful time to make profit, and the planned As we have highlighted earlier, we remain concerned that the return of start-up of the polysilicon plant in March 2014 could deteriorate the company should remain low as the loss from the newer businesses should offset the others. Hence, we maintain our the solar business return. UNDERPERFORM rating with W15K target price. Our target price of ● We revise down both our FY13/14E EPS by 56% to reflect the W15K is based on 0.45x P/B which is a 2012 trough level (vs 0.4x we continued loss from the solar business and maintain previously applied, as 4Q12 to have been the trough). UNDERPERFORM with W15K. Despite the expected sequential Figure 1: Hanwha Chemical – 1Q13 earnings results improvement in its core businesses, we continue to believe that 1Q13 Previous results 2013E the addition of the solar business should weigh on its ROE. (W bn) Act. Cons. 4Q12 1Q12 QoQ YoY CS. Cons. Bbg/RIC 009830 KS / 009830.KS Price (13 May 13 , W) 17,200 Revenue 1,779.7 1,829.0 1,784.3 1,694.6 -0.3% 5.0% 7,584.5 7,515.0 Rating (prev. rating) U (U) TP (prev. TP W) 15,000 (15,000) Chemical 906.5 955.5 985.1 -5.1% -8.0% 4,003.4 Shares outstanding (mn) 140.28 Est. pot. % chg. to TP (13) Processing 363.4 391.3 340.7 -7.1% 6.7% 1,365.7 Daily trad vol - 6m avg (mn) 0.7 52-wk range (W) 22750.0 - 16050.0 Distribution 118.1 141.8 122.2 -16.7% -3.4% 633.1 Daily trad val - 6m avg (US$ mn) 11.4 Mkt cap (W/US$ bn) 2,412.9/ 2.2 Solar 376.0 221.1 141.6 70.1% 165.5% 1,024.4 Free float (%) 54.6 Performance 1M 3M 12M Others 288.1 327.3 331.2 -12.0% -13.0% 557.9 Major shareholders Hanwha Corp Absolute (%) (3.6) (7.3) (20.7) Operating profit (8.5) 27.6 (112.3) 32.1 n.m. n.m. 195.0 224.0 (40.29%) Relative (%) (4.9) (7.4) (22.4) Chemical 2.4 (20.8) 44.6 -112% -94.6% 99.5 Year 12/10A 12/11A 12/12E 12/13E 12/14E Processing 16.3 6.4 13.7 155% 19.0% 50.0 Revenue (W bn) 3,628 7,943 6,962 7,584 8,416 Distribution 11.7 26.6 15.3 -56.0% -23.5% 110.1 EBITDA (W bn) 606.3 608.3 342.7 576.6 736.7 Solar (27.6) (149.1) (41.0) n.m. n.m. (33.0) Net profit (W bn) 398.8 166.3 (112.5) 99.1 138.8 Others 10.4 19.7 (0.1) -47.2% n.m. (31.7) EPS (W) 2,843 1,185 (802) 706 989 OP margin -0.5% 1.5% -6.3% 1.9% 2.6% 3.0% - Change from prev. EPS (%) n.a. n.a. n.m (56) (56) - Consensus EPS (W) n.a. n.a. 209 1,087 1,787 Chemical 0.3% -2.2% 4.5% 2.5% EPS growth (%) n.a. (58.3) n.m. n.m. 40.1 Processing 4.5% 1.6% 4.0% 3.7% P/E (x) 6.1 14.5 n.m. 24.4 17.4 Distribution 9.9% 18.8% 12.5% 17.4% Dividend yield (%) 2.6 2.6 1.5 0.6 0.6 Solar -7.3% -67.4% -29.0% -3.2% EV/EBITDA (x) 6.6 9.6 19.9 11.9 9.9 Others 3.6% 6.0% 0.0% -5.7% P/B (x) 0.8 0.5 0.5 0.5 0.5 Pre-tax profit 8.8 13.9 (84.0) 21.2 n.m. -58.5% 98.3 138.5 ROE (%) 13.3 4.3 (2.4) 2.2 3.0 Net profit 4.5 27.6 (92.7) 4.0 n.m. 12.5% 99.1 165.2 Net debt (cash)/equity (%) 52.0 71.2 96.3 96.4 101.9 Source: Company data, Bloomberg, Credit Suisse estimates. Note 1: Hanwha Chemical Corporation is a Korea-based company engaged in the manufacture of chemical products. The Company operates its business under two segments: petrochemical and Figure 2: Hanwha Chem P/B to ROE trend chemical fiber segments. (W)

60,000 25% Click here for detailed financials 1.6x 50,000 Both chemical and solar disappointed 1.3x 20% 40,000 1.0x 15% Chemical business was hurt by the weak caustic soda business due 30,000 0.5x 10% to the capacity addition by LG Chem. PE margin was squeezed due to 20,000 the delayed demand recovery and the one-month lag in reflecting 10,000 0.3x 5% 0 0% ethylene cost. The sequentially improving regional PVC dynamics was 2005 2006 2007 2008 2009 2010 2011 2012 2013 not enough to offset the weaker chlor-alkali and PE businesses. share price ROE Source: Company data, Credit Suisse estimates. Although the solar business narrowed down its loss QoQ and YoY, it Date Old rating New rating Old TP (W) New TP (W) remained the key drag on consolidated earnings. According to the 23-Nov-2013 Underperform Underperform 15,000 15,000 company, the utilisation rate has improved from 68% in 4Q12 to mid- Credit Suisse has decided not to enter into business relationships with 70s in 1Q13, and it expects above a 90% rate in 2Q13 and probably companies that Credit Suisse has determined to be involved in the full operations in 2H13 on the back of healthy demand and continued development, manufacture or acquisition of anti-personnel mines and cluster restructuring at the downstream solar companies. munitions. For Credit Suisse's position on the issue, please see https://www.credit-suisse.com/responsibility/doc/policy_summaries_en.pdf.

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Taiwan Taiwan Market Strategy ------Cash-for-clunkers program could be the first of many upcoming stimulus plans Jeremy Chen / Research Analyst / 886 2 2715 6368 / [email protected] ● According to Commercial Times, the Taiwan government may According to the press, the government may finalise the subsidy implement a cash-for-clunkers scheme by providing cash scheme by Wednesday, 15 May. Since the cash-for-clunkers plan has subsidies of NT$30–40k to vehicle owners who trade in their old been reported in the major press today, we think any delays in an cars (over 15 years old) for new ones. official announcement could hurt auto sales in the coming months. ● We view this as the first of probably more upcoming stimulus This is because prospective car buyers may stay on the sidelines until plans by the government to boost flagging GDP growth, which the government finally acts. was a disappointing 1.5% YoY in 1Q13. While the government This is not the first time that Taiwan government has implemented a has maintained its 2013 GDP forecast at “above 3%”, Credit cash-for-clunkers scheme. In 2009, a NT$30,000 auto purchase Suisse has recently revised down the forecast to 2.7% from 3.4%. subsidy was partially credited for lifting auto sales volume from 2008’s ● YTD domestic auto sales have been weak. In 4M13, sales volume trough of 229,000 units to 290,000 units in 2009, representing a dropped 4.2% YoY to 119,131 units. Besides a lacklustre growth of 61,000 units. Of note, a NT$30,000 subsidy represents domestic consumption, we believe many consumers are delaying approximately 5–7% of the average retail price for a domestic-made their purchases in anticipation for automakers to cut prices on the passenger car. back of the yen depreciation. Modest incremental demand boost ● According to the press, the subsidies may be available only over a Out of the 6 mn registered vehicles in Taiwan, it is estimated that two-month period. As such, we estimate an incremental demand 23.3% (1.4 mn units) are over 15 years old. According to the press, of ~20–30k units, representing ~6–8% upside to the FY13 auto the subsidies may be available only over a two-month period, as sales volume forecast of around 360,000 units. opposed to the 2009 scheme which ran for a full year. As such, we Figure 1: Government plans to boost auto sales to stimulate the flagging estimate this scheme could only potentially boost an incremental domestic economy demand of 20–30k units, representing ~6–8% upside to the estimated units 2013 sales volume forecast of 360,000 units. 600,000 40% 30% 500,000 Positive sentiments for local automakers 20% 400,000 10% Nevertheless, we believe the stimulus plan could lift near-term 300,000 0% sentiments for local automakers, including Yulon (2201.TW), China -10% 200,000 Motor (2204.TW), Hotai Motor (2207.TW), and Sanyang (2206.TW). -20% 100,000 -30% With a leading market share of 34.1%, Hotai (Toyota) stands to be the - -40% biggest beneficiary. We note that the government originally planned to introduce this subsidy scheme to encourage taxi drivers to replace Auto sales volume YoY sales growth (%; RHS) their old taxis. In Taiwan, Toyota Altis and Wish have been among the Source: U-Car most popular models for taxi drivers. Cash for clunkers According to Commercial Times, the Taiwan government may implement a cash-for-clunkers scheme by providing cash subsidies of NT$30–40k to vehicle owners who trade in their old cars (over 15 years old) for new ones. The scheme may also include NT$4,000 subsidies for scooters. We see this as the first of probably more upcoming domestic stimulus plans by the government to boost flagging GDP growth, which was a disappointing 1.5% YoY in 1Q13. While the government has maintained its 2013 GDP forecast at “above 3%”, Credit Suisse has recently revised down the forecast to 2.7% from 3.4% citing concerns over weakening external demand. Why auto? YTD domestic auto sales have been weak. In 4M13, sales volume dropped 4.2% YoY to 119,131 units. Besides lacklustre domestic consumption, we believe many consumers are delaying their purchases in anticipation of automakers cutting prices on the back of yen depreciation. However, besides Taiwan Mazda, which has already announced lower prices to pass on the benefit of weaker yen to consumers, most other automakers have been slow to follow suit.

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Asia Semiconductor Sector ------Taiwan April sales wrap: Strong month puts upstream on track to guidance Randy Abrams, CFA / Research Analyst / 886 2 2715 6366 / [email protected] ● Taiwan sales wrap: We publish our Taiwan April sales summary IC design had a strong April, led by Mediatek and summarise takeaways for the upstream. Sales tracked better Mediatek led IC design with 33% MoM growth and could have 15-20% for upstream due to improving low-cost mobile/tablet ramp-ups, QoQ declines in May and June to still reach the top end of guidance. although were mixed for downstream tech on weak Apple/PCs. Only 2010 saw a May/June pullback that sharp when feature phone ● 2Q13 well on track for the upstream: April saw growth across the pricing and share collapsed with Spreadtrum’s re-emergence. Realtek board, with all companies in line to better for sales. Mediatek and sales also grew 9% MoM in April, putting it on track to low-teen QoQ SPIL are leading sales momentum into the smartphone ramp up. growth in 2Q as it retains very large market share in Wi-Fi into tablets. WPG saw mild 5% MoM growth from smartphones and tablets, as ● Mobile builds healthy: We have been forecasting high growth, with tablets now have crossed over with notebooks in its PC mix. whitebox tablets growing from 50-60 mn to 100-120 mn units YoY and Chinese-build smartphones from 250 mn to 450 mn YoY. Figure 2: April sees good growth across our Taiwan semis coverage Apr Apr MoM MoM Vs. CS April vs. Companies are optimistic on build sustainability into 3Q13 as new Actual Latest Mar-13A (Actual) (Latest) Latest Apr-12A YoY Expected dual-core solutions are launched by both Mediatek and Spreadtrum. TSMC 50,071 47,665 44,134 13.5% 8.0% 5.0% 40,008 25.2% Above UMC 10,281 9,839 9,599 7.1% 2.5% 4.5% 9,125 12.7% Above ● Maintain upstream exposure: We maintain our exposure through Vanguard 1,724 1,740 1,684 2.4% 3.3% -0.9% 1,379 25.0% In-line Foundries 62,076 59,272 55,417 12.0% 7.0% 4.7% 50,512 22.9% Above foundries (TSMC, SMIC), back-end (ASE, SPIL) and IC design with ASE (ATM) 11,677 11,434 11,321 3.1% 1.0% 2.1% 10,638 9.8% Above ASE (Cons.) 16,716 16,635 17,149 -2.5% -3.0% 0.5% 14,867 12.4% In-line Spreadtrum and RDA, with restriction continuing on Mediatek. SPIL 5,621 5,190 4,967 13.2% 4.5% 8.3% 5,432 3.5% Above Powertech 3,112 3,195 3,117 -0.2% 2.5% -2.6% 3,741 -16.8% In-line Figure 1: Monthly sales by sector (NT$000) Back-end 25,449 25,020 25,233 0.9% -0.8% 1.7% 24,040 5.9% Above Mediatek 12,572 10,467 9,430 33.3% 11.0% 20.1% 7,942 58.3% Above Seasonal Comparison Y/Y % % of Sector Apr-'13 Mar-'13 M/M % Chg Apr-'12Realtek 2,587 2,600 2,364 9.4% 10.0% -0.5% 2,272 13.9% In-line Apr + / - Normal WPG Chg34,580Revs 34,011 33,020 4.7% 3.0% 1.7% 30,522 13.3% In-line EMS 305,373,798 273,433,644 11.7% -5.9% 17.6% $265,074,540IC Design 15.2%49,739 27.3% 47,078 44,814 11.0% 5.1% 5.7% 40,736 22.1% Above Handset 55,366,652 49,872,197 11.0% 0.6% 10.4% 62,549,385Total -11.5%137,264 5.0% 131,369 125,463 9.4% 4.7% 4.5% 115,288 19.1% Above IC Design 64,755,095 59,802,949 8.3% -0.9% 9.2% 55,083,724Source: TEJ, 17.6% Company 5.8% data, Credit Suisse estimates LED 5,239,886 4,772,373 9.8% 6.6% 3.2% 3,859,5522Q13 looks 35.8% on 0.5% track for the group—builds healthy Networking 18,387,499 18,299,512 0.5% -2.5% 3.0% 17,357,431 5.9% 1.6% Components & Peripherals 92,161,862 93,136,206 -1.0% -3.0% 1.9% 90,298,994Following 2.1% April 8.2%sales, none of the companies in our coverage looks to Packaging & Testing 27,890,524 27,518,456 1.4% 0.0% 1.3% 25,851,132be falling 7.9% short 2.5%of guidance. The smartphone and tablet build is very PCs 336,538,178 389,006,818 -13.5% -11.7% -1.8% 299,190,099strong now. 12.5% We 30.1% have been forecasting high growth, with whitebox Solar 4,967,852 4,856,051 2.3% 4.2% -1.9% 5,134,560 -3.2% 0.4% Foundry 62,075,869 55,416,536 12.0% 14.9% -2.9% 51,000,228tablets growing 21.7% 5.6%from 50-60 mn to 100-120 mn units YoY and Chinese- TFT LCD 132,506,696 138,620,753 -4.4% -1.0% -3.4% 114,727,415build smartphones 15.5% 11.9% from 250 mn to 450 mn YoY. Companies are Memory 12,888,899 13,577,852 -5.1% 4.3% -9.4% 13,723,426optimistic -6.1% on build 1.2% sustainability into 3Q13 as new dual-core solutions Total 1,118,152,810 1,128,313,347 -0.9% -5.5% 4.6% $1,003,850,486 11.4% 100.0% Source: Company data, Credit Suisse Estimates, TEJ are launched by both Mediatek and Spreadtrum, although we would Taiwan sales summary for 110 companies note normally a small slowdown in monthly momentum in May/June In conjunction with our US semiconductor team, we publish a before resuming momentum in late July into the peak season. summary of 110 Taiwan companies’ monthly sales and analysis on Figure 3: 2Q13 on track following April for the Taiwan chip1Q-13 suppliers our upstream coverage group. Taiwan upstream posted solid April 2Q-13 2Q-13 % of 2Q-13 1Q-13 1Q 1Q-13 Guide Qtr vs. sales, with all companies in line to better and on track to 2Q guidance. QTD CS 2Q13 CS CS Actual QoQ CS QoQ QoQ Guide TSMC 50,071 155,285 32.2% 155,285 132,755 17.0% 17.0% +16-17% On track UMC 10,281 31,167 33.0% 31,167 27,781 12.2% 12.2% +8-10% On track Foundries on track to robust 2Q guidance Vanguard 1,724 5,373 32.1% 5,373 4,786 12.3% 12.3% 9-11% On track Foundries 62,076 191,825 32.4% 191,825 165,323 16.0% 16.0% +13-15% On track The foundries reported April sales growth of 12% MoM, led by TSMC ASE (ATM) 11,677 35,075 33.3% 35,075 31,316 12.0% 12.0% +11-14% On track (up 14% MoM), UMC (up 7% MoM) and Vanguard (up a more modest ASE (Cons.) 16,716 50,147 33.3% 50,147 48,190 4.1% 4.1% +4% On track SPIL 5,621 16,790 33.5% 16,790 13,819 21.5% 21.5% +20-25% On track 2% MoM after its 1Q13 upside). TSMC’s ramp-up is coming from mobile Powertech 3,112 9,853 31.6% 9,853 9,208 7.0% 7.0% +0-10% On track Back-end 25,449 76,790 33.1% 76,790 71,218 7.8% 7.8% +14-17% On track builds into Samsung and low-cost smartphones, where Mediatek and Mediatek 12,572 30,905 40.7% 30,905 23,975 28.9% 28.9% +25-32% Ahead Realtek 2,587 7,555 34.2% 7,555 6,744 12.0% 12.0% +10-15% On track Spreadtrum have also guided strength. UMC is also seeing a mobile WPG 34,580 99,142 34.9% 99,142 86,572 14.5% 14.5% +11-16% On track device rebound and pick-up on driver ICs, WLAN into tablets and touch IC Design 49,739 137,601 36.1% 137,601 117,291 17.3% 17.3% +14-17% Ahead Total 137,264 406,216 33.8% 406,216 353,831 14.8% 14.8% +14-16% On track controller ICs. Vanguard also benefits from small panel migration to Source: Company data, Credit Suisse estimates RAM-less driver ICs and prebuilds for smartphone power ICs. Maintain high exposure on upstream Back-end led by SPIL in 2Q13 We continue to have exposure through foundries with TSMC and SMIC, SPIL leads in 2Q13 sales momentum with 20-25% QoQ sales test and packaging with ASE and SPIL and IC design with Spreadtrum guidance vs ASE’s 11-14% and Powertech’s 0-10%. SPIL’s April and RDA, with restriction continuing on Mediatek. We believe we are in sales grew 13% MoM, allowing it to reach guidance with flat May and the second year of a four-year penetration cycle in emerging market June. Growth is coming from game consoles, China and Taiwan smartphones, with potential for LTE extending the cycle. A key risk will smartphone and tablet IC makers and a new overseas flip-chip project. be short-term overbuilds, which are always possible following the very ASE saw 3% MoM growth in its ATM back-end business to put it on strong sales momentum coming through now. track to a 11-14% QoQ guidance. Powertech sales remained flat in April as commodity DRAM offset growth in Mobile DRAM and NAND.

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Cheng Shin Rubber ------Maintain OUTPERFORM 1Q13 results in line with forecasts as margin expansion offset weak top line EPS: ◄► TP: ◄► Jeremy Chen / Research Analyst / 886 2 2715 6368 / [email protected]

● Cheng Shin Rubber (CSR) posted 1Q13 net income of NT$4.2 bn Figure 1: CSR—1Q13 financial summary or EPS of NT$1.51, in line with our expectation. Although 1Q13 (NT$ mn) 1Q13 4Q12 QoQ (%) 1Q12 YoY (%) top line fell 2% YoY, operating profit jumped 14% YoY, thanks to Total sales 30,096 31,411 -4% 30,788 -2% strong GPM improvement from 20.5% to 24.3%. Gross profit 7,318 8,138 -10% 6,317 16% Operating profit 4,405 4,923 -11% 3,856 14% ● The key concern about CSR remains its lacklustre 1Q13 top line Pre-tax profit 5,266 5,742 -8% 4,099 28% (down 2% YoY and 4% QoQ). However, we note that its peer Net profit 4,245 4,963 -14% 3,319 28% Hankook Tire also reported poor 1Q13 sales. We believe the tire EPS 1.51 1.76 -14% 1.18 28% industry has been battering a slowdown in macro condition since Margin 4Q12. Downstream customers have also lacked confidence to Gross margin 24.3% 25.9% 20.5% restock in view of falling raw material prices. These have Operating margin 14.6% 15.7% 12.5% Net margin 14.1% 15.8% 10.8% combined to lead to subpar sales performance for the industry. Source: Company data, Credit Suisse estimates. ● Nevertheless, May to September has historically been CSR’s Slow sales an industry wide issue strongest sales months of the year. We remain hopeful of a China The key debate on CSR remains its uninspiring 1Q13 revenue growth recovery to underpin an encouraging pick-up into the high season. (down 2% YoY and 4% QoQ). Many investors are worried if the weak ● We retain OUTPERFORM and our target price at NT$105 (15x sales momentum is a sign of CSR losing market share amid 2013E P/E). We also keep our FY13 forecast intact. CSR has intensifying competition. A look at CSR’s closest peer, Hankook Tire’s announced NT$1.5 cash and 15% stock dividend. 1Q13 revenue (down 13% QoQ and 2% YoY), suggested to us that other major tire-makers are also facing the same issue. Our checks Bbg/RIC 2105 TT / 2105.TW Price (13 May 13 , NT$) 100.00 Rating (prev. rating) O (O) TP (prev. TP NT$) 105.00 (105.00) with industry contacts indicate that the tire industry has been battering Shares outstanding (mn) 2,818.62 Est. pot. % chg. to TP 5 a slowdown in macro conditions since 4Q12. Downstream customers Daily trad vol - 6m avg (mn) 6.2 52-wk range (NT$) 100.5 - 60.9 have also lacked confidence to restock in view of falling raw material Daily trad val - 6m avg (US$ mn) 17.3 Mkt cap (NT$/US$ bn) 281.9/ 9.5 prices. These have combined to lead to subpar sales performance for Free float (%) 45.4 Performance 1M 3M 12M Major shareholders Mgmt 49.12% the industry. Absolute (%) 2.5 27.9 58.3 Relative (%) (3.0) 23.6 46.9 The situation only improved modestly in April as CSR reported a Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (NT$ mn) 119,961 130,269 152,599 175,078 191,453 consolidated revenue of NT$11.7 bn, down 3% MoM but up 3% YoY, EBITDA (NT$ mn) 18,203 26,732 33,783 39,165 43,311 weaker than our/street expectation of ~10% YoY growth. Nevertheless, Net profit (NT$ mn) 8,536 15,894 19,571 23,022 25,411 May to September has historically been CSR’s strongest sales EPS (NT$) 3.0 5.6 6.9 8.2 9.0 months of the year. We remain hopeful of a China recovery to - Change from prev. EPS (%) n.a. n.a. 0 0 - Consensus EPS (NT$) n.a. n.a. 6.55 7.40 8.99 underpin an encouraging pick-up into the high season. EPS growth (%) (17.2) 86.2 23.1 17.6 10.4 Retaining an OUTPERFORM rating P/E (x) 33.0 17.7 14.4 12.2 11.1 Dividend yield (%) 2.0 1.4 1.5 3.5 4.1 Despite the slower-than-expected top-line growth, we believe EV/EBITDA (x) 18.8 12.8 10.1 8.8 8.0 favourable raw material costs should continue to support margin P/B (x) 5.7 4.5 3.6 3.1 2.7 improvement, and hence profit growth for CSR. We retain an ROE (%) 18.0 28.5 28.1 27.4 26.1 OUTPERFORM rating and FY13 forecast intact. We also keep our Net debt(cash)/equity (%) 116.0 93.1 76.8 69.7 61.2

Note 1: Cheng Shin Rubber manufactures tires. The company produces bicycle, radial, bias, target price at NT$105 (15x 2013E P/E). CSR’s board has proposed motorcycle, agricultural, and industrial tires. Cheng Shin markets its tires and tubes in Taiwan as NT$1.5 cash and 15% stock dividend. We note that the cash portion is well as exports to North America and Europe. lower than our expectation of NT$2/share, but this does not impair our Click here for detailed financials investment thesis on CSR as the stock has rarely been viewed as a Margin recovery story still intact high dividend play. CSR posted 1Q13 net income of NT$4.2 bn or EPS of NT$1.51 (up 28% YoY but down 14% QoQ), in line with our expectation. Although Key downside risks to our view include a sudden slowdown in the 1Q13 top line fell 2% YoY, operating profit jumped 14% YoY, thanks Chinese auto market, a sharp spike in raw material costs, and severe to strong GPM improvement from 20.5% to 24.3%. We attribute this to pricing erosion due to irrational competition. falling raw material costs (natural and synthetic rubber) which have dropped 23-35% YoY YTD. Valuation metrics Company Ticker Rating Price TP Up/dn Year EPS change EPS EPS growth P/E (x) Div. yld. ROE P/B (prev. chg to TP (%) (%) (%) (%) (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 Cheng Shin Rubber 2105.TW O (O) 100.00 105.00 0 5 12/12 0 0 6.94 8.17 23 18 14.4 12.2 1.5 28.1 3.6 Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

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Asian Daily

Chinatrust Financial Holding ------Maintain OUTPERFORM New report: Strong 1Q13 results EPS: ◄► TP: ◄► Chung Hsu, CFA / Research Analyst / 8862 2715 6362 / [email protected] Michelle Chou, CFA / Research Analyst / 886 2 2715 6363 / [email protected]

● Chinatrust FHC reported strong preliminary 1Q13 net profit of Figure 1: Chinatrust FHC—quarterly P&L NT$6.4 bn (+23.1% YoY), at 31% and 36% of CS and consensus (NT$ mn) 1Q12 2Q12 3Q12 4Q12 1Q13 QoQ YoY full year estimates, respectively. Click here full report. Chinatrust Bank ● Management expects full-year loan growth to reach 10%+ but NIM PPOP 6,268 5,397 5,365 5,215 6,236 19.6% -0.5% Provision (recoveries) 158 (630) 766 202 (275) -236.1% -274.1% to stay depressed with weak USD loan demand and flattish TWD Net profit 5,186 5,271 3,987 4,118 5,532 34.3% 6.7% yield. Credit cost benefited from better recovery in 1Q but Chinatrust Ins. brokers 442 427 532 522 507 -2.9% 14.7% management expects a normalising trend for the rest of the year Chinatrust Life (529) (15) 108 612 483 -21.1% n.m (ex one-offs). Potential gains from sale of its Sinyi Headquarter Chinatrust FHC 5,233 5,678 4,693 5,694 6,444 13.2% 23.1% could come before year-end to offset the 1% GP requirement. Source: Company data, Credit Suisse Research, IFRS Pro Forma. ● With a DLR of just 90% at the FHC and Bank tier 1 ratio of 11.2%, Better loan growth with subdued NIM trend we estimate Chinatrust can re-deploy NT$20-25 bn from the FHC The bank’s loan growth was stronger than most peers (+4.6% YTD and and NT$10-15 bn from the bank subsidiary. There are a number 11.5% YoY), though NIM edged lower by 1 bp QoQ due to a 16 bp of proposals and while the market has only so far focused on the decline in FX loan spread. Management expects full-year loan growth to Tokyo Star deal, we believe Chinatrust’s move to acquire a full reach 10%+ but NIM to stay depressed with a weak USD loan demand bank license in China should be perceived positively. and a flattish TWD yield. Credit cost benefited from better recovery in 1Q but management expects a normalising (higher) trend for rest of the ● We estimate Chinatrust is trading at 1.2x FY13E P/B against an year (ex one-offs). Potential gains from the sale of its Sinyi Headquarter 11.7% ROE (vs sector average of 8.9%), before considering the could come before year-end to offset the 1% GP requirement. re-deployment of the excess capital at the FHC. Eyeing excess capital re-deployment Bbg/RIC 2891 TT / 2891.TW Price (13 May 13 , NT$) 18.25 Rating (prev. rating) O (O) TP (prev. TP NT$) 21.50 (21.50) With a double leverage ratio of just 90% at the FHC and a bank Tier 1 Shares outstanding (mn) 13,750 Est. pot. % chg. to TP 18 ratio of 11.2%, we estimate Chinatrust can re-deploy NT$20-25 bn Daily trad vol - 6m avg (mn) 44.3 52-wk range (NT$) 18.4 - 14.0 from the FHC and NT$10-15 bn from the bank subsidiary. There are a Daily trad val - 6m avg (US$ mn) 25.6 Mkt cap (NT$/US$ bn) 250.9/ 8.4 number of proposals and while the market has only thus far focused Free float (%) 65.0 Performance 1M 3M 12M Major shareholders Koo family- 20% on the Tokyo Star deal, we believe Chinatrust’s move to acquire a full Absolute (%) 0.6 2.8 9.4 Relative (%) (4.9) (1.5) (2.0) bank license in China should be perceived positively.

Year 12/11A 12/12A 12/13E 12/14E 12/15E Valuation Pre-prov Op profit (NT$ mn) 22,133.8 25,120.5 32,611.2 30,385.7 34,211.6 Net profit (NT$ mn) 17,240 20,132 21,826 23,726 25,770 We estimate Chinatrust is trading at 1.2x FY13E P/B against an EPS (CS adj. NT$) 1.61 1.76 1.67 1.73 1.87 11.7% ROE (vs 8.9% average of the sector), before considering the - Change from prev. EPS (%) n.a. n.a. 0 0 0 re-deployment of the excess capital at the FHC. We maintain our - Consensus EPS (NT$) n.a. n.a. 1.46 1.71 1.83 OUTPERFORM rating. EPS growth (%) 22.1 8.8 (5.0) 3.4 8.6 P/E (x) 11.3 10.4 10.9 10.6 9.7 Figure 2: Chinatrust is trading at 1.2x FY13E P/B against an 11.7% ROE Dividend yield (%) 5.0 3.8 3.8 3.9 4.1 (vs sector average of 8.9%), before considering the re-deployment of the BVPS (CS adj. NT$) 12.5 13.7 14.7 15.8 16.9 P/B (x) 1.46 1.33 1.24 1.16 1.08 excess capital at the FHC ROE (%) 12.7 12.9 11.7 11.3 11.5 (x) Chinatrust FHC ROA (%) 0.9 1.0 1.0 1.1 1.1 2.0 Tier 1 Ratio (%) 11.6 11.4 11.0 10.9 10.8 +2 std dev Note 1: Chinatrust Financial Holding Co Ltd. is a Taiwan-based financial holding company. The Company operates its businesses through commercial banking; security business; insurance 1.6 +1 std dev business; trust investment; as well as trust asset management.

Average

Click here for detailed financials 1.2 Reported 1Q13 EPS of NT$0.52 -1 std dev Chinatrust FHC reported a strong 1Q13 net profit of NT$6.4 bn -2 std dev (+23.1% YoY, announced in early-April), reaching 31% and 36% of 0.8 CS and consensus full year estimates, respectively. The strength is largely driven by: (1) strong FX/derivative gains and TMU income, (2) 0.4 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 better wealth management fees and (3) well contained credit cost. The small life subsidiary, Chinatrust Life, posted net profit of NT$483 Source: Company data, Credit Suisse estimates. mn in the quarter compared to loss of NT$529 mn a year ago.

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Asian Daily

Nan Ya Printed Circuit Board ------Maintain NEUTRAL Eyes on a 2H recovery EPS: ▼ TP: ▼ Pauline Chen / Research Analyst / 886 2 2715 6323 / [email protected] ● NYPCB’s 1Q LPS of NT$0.59 was smaller than CS/street estimates 1Q loss smaller than expected, from on non-operating gains of NT$0.74-0.81, largely due to non-operating gains. Its operating NYPCB reported LPS of NT$0.59, smaller than CS/street estimates loss was bigger than our estimate, albeit in-line revenue. for LPS of NT$0.74-0.81. It had smaller gross loss (%) at 4.1% in ● 2Q revenue is on track for a seasonal rebound (up 10-15% QoQ), 1Q13, versus 5.1% in 4Q12 (excluding the impact from NT$957 mn led by Communication (~25% of revenue). A recovering revenue inventory write-off for its major PC customer), although operating loss scale and a better mix could lead to gross-level breakeven, versus (%) was similar at 11.1%, off a smaller revenue (down 10% QoQ). our previous expectation for an operating-level breakeven in 2Q. Figure 1: NYPCB 1Q13 consolidated results review Its profit recovery continues to lag its sales recovery. (NT$ mn) Actual CS YoY % QoQ % Street ● We lower our FY13-14 EPS estimates from NT$1.69/NT$2.84 to Revenue 6,542 6,560 -13 -10 6,542 NT$1.06/NT$2.08, factoring in the updated 1Q13 results and its Gross profit -261 -191 -165 -80 updated outlook. We fine-tune our target price to NT$39 (from Operating income -724 -598 n.m. n.m. Total non-operating 275 71 NT$40), still putting the stock at 0.8x P/B. Pre-tax income -449 -526 n.m. n.m. ● The market might be excited about its 2H recovery, given its PC Net income -384 -526 n.m. n.m. -481 customers’ aggressive order forecasts ahead of new models and EPS (NT$) -0.59 -0.81 n.m. n.m. -0.74 NYPCB’s operating leverage. However, we still think that it could be Gross margin -4.0 -2.9 too early to bottom-fish, given much uncertainty around a profit Operating margin -11.1 -9.1 Net margin -5.9 -8.0 -7.4 recovery. Hence, we keep our NEUTRAL rating unchanged. Source: Company data, Credit Suisse estimates, Bloomberg I/B/E/S estimates Bbg/RIC 8046 TT / 8046.TW Price (13 May 13, NT$) 34.30 2Q13 likely to see a smaller loss Rating (prev. rating) N (N) TP (prev. TP NT$) 39.00 (40.00) 2Q is on track for a seasonal rebound (up 10-15% QoQ), which implies Shares outstanding (mn) 646.17 Est. pot. % chg. to TP 14 Daily trad vol - 6m avg (mn) 1.6 52-wk range (NT$) 55.0 - 30.7 relatively flattish monthly sales in May/June. Communication is likely to Daily trad val - 6m avg (US$ mn) 1.9 Mkt cap (NT$/US$ 22,163.5/ 743.5 outperform PC in 2Q, in line with the supply chain. A recovering revenue Free float (%) 33.2 mn) scale and a better mix could lead to gross-level breakeven, versus Major shareholders Nanya Plastics Performance 1M 3M 12M previous expectations for an operating-level breakeven in 2Q. Its profits (66.85%) Absolute (%) 5.5 (2.7) (34.9) Relative (%) 0.1 (7.0) (46.4) recovery continues to lag it revenue recovery.

Year 12/11A 12/12A 12/13E 12/14E 12/15E Figure 2: NYPCB’s earnings estimate revisions Revenue (NT$ mn) 38,785 29,723 34,570 38,457 40,325 2013E 2014E EBITDA (NT$ mn) 6,104 543 3,358 4,678 5,389 Net profit (NT$ mn) 3,165 (2064) 686 1,345 1,806 (NT$ mn) CS (new) CS (old) CS (new) CS (old) EPS (NT$) 4.90 (3.19) 1.06 2.08 2.79 Revenue 34,570 34,465 38,457 38,757 - Change from prev. EPS (%) n.a. n.a. (37) (27) Gross profit 1,974 2,820 3,286 3,852 - Consensus EPS (NT$) n.a. n.a. 0.14 2.27 2.76 Operating income -22 965 1,164 1,751 EPS growth (%) 53.0 n.m. n.m. 96.0 34.3 Net income 686 1,092 1,345 1,835 P/E (x) 7.0 n.m. 32.3 16.5 12.3 EPS (NT$) 1.06 1.69 2.08 2.84 Dividend yield (%) 5.8 0 1.2 2.4 3.3 Source: Company data, Credit Suisse estimates EV/EBITDA (x) 2.2 28.2 4.9 2.9 2.3 P/B (x) 0.6 0.7 0.7 0.7 0.7 Figure 3: NYPCB rolling P/B band ROE (%) 9.4 (6.3) 2.2 4.2 5.4 NYPCB PB (x) Net debt(cash)/equity (%) (25.1) (22.2) (17.5) (26.2) (28.7) 3.5 +2 Std dev = 3.31

Note 1: Nan Ya Printed Circuit Board Corporation is principally manufactures & diostributes 3.0 printed circuit boards . They distribute its ordinary PCBs, as well as substrates for integrated +1 Std dev = 2.5 circuit packaging primarily in Asia, the Americas & Europe. 2.5

Average = 1.96 Click here for detailed financials 2.0

Lower estimates (again) on a delayed turnaround 1.5 We lower our FY13-14 EPS estimates from NT$1.69/NT$2.84 to -1 Std dev = 0.9 1.0 NT$1.06/NT$2.08, factoring in the updated 1Q13 results and its updated -2 Std dev = 0.1 outlook. The stock looks undemanding at 0.7x P/B, but not so attractive 0.5 on a P/E basis (at ~20x P/E), even assuming a steeper recovery in both 0.0

revenue and margins in 2H. As there is still much uncertainty around a

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 profit recovery as well as its execution (poor track record), we still think Jan-08 that it could be too early to bottom-fish. Hence, we keep our NEUTRAL Source: Company data, Credit Suisse estimates rating unchanged. The key upside/downside risks to our call include: (1) PC demand—OEM customers have apparently given the supply chain fairly aggressive forecasts for 3Q, ahead of new model launches; (2) its progress in turning around and (3) raw material price trends.

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Asian Daily

Silitech Technology Corp ------Downgrade to NEUTRAL Revenue recovery on track, but margin pressure underestimated EPS: ▼ TP: ▼ Pauline Chen / Research Analyst / 886 2 2715 6323 / [email protected]

● We downgrade Silitech to NEUTRAL from Outperform, with a new Figure 1: We think Silitech’s monthly sales (YoY) has trough in Dec 12

TP of NT$58 (from $63). Our previous positive view on the stock Silitech monthly revenue was based on increasing dollar content from RIMM and its 1,500,000 Monthly sales YoY growth 40%

exposure to Samsung’s flagship smartphones. Its revenue 20% recovery is on track, evidenced by its monthly sales (Figure 1). 1,000,000 0% ● However, we underestimated the margin pressure from -20% 500,000

Samsung’s aggressive price cuts and negative operating leverage YoY change at its metal housing business. As a result, we lowered our 2013 -40% GM assumption by 200 bp, which leads to 11% earnings cuts. Monthly revenue (NT$mn) 0 -60%

● We expect the stock to range trade, post weak results and street

2012/03 2012/05 2012/07 2012/09 2012/11 2013/01 2013/03 2013/05 2013/07 2013/09 2013/11 2012/01 estimates cuts. However, the stock remains inexpensive at 9x ex- Source: Company data, Credit Suisse estimates. cash P/E with 6.5% cash dividend yield. We would suggest Other highlights investors use the strong May sales to unload some position. We expect 2Q revenue to grow 15% QoQ, suggesting ~10% MoM ● As of 1Q13, Silitech has a net cash position of NT$3.9 bn, or 40% growth in May. GM is expected to improve slightly (CS estimated up of its market cap. It sees low probability as a buy-out target in the 20 bps), a mixed result of improving scale in metal housing (revenue near term (similar comments from LOT, its largest shareholder), estimated up 30% QoQ) but continued pricing pressure from though LOT does not rule out the possibility in the future. Samsung and increasing contribution from lower-margin full-module Bbg/RIC 3311 TT / 3311.TW Price (13 May 13 , NT$) 52.40 keypad business. Silitech still expects its metal housing revenue to Rating (prev. rating) N (O) TP (prev. TP NT$) 58.00 (63.00) double YoY in 2013, suggesting >180% HoH growth in H2, driven by Shares outstanding (mn) 184.56 Est. pot. % chg. to TP 11 several new customers. As of 1Q13, Silitech has a net cash position Daily trad vol - 6m avg (mn) 1.4 52-wk range (NT$) 68.9 - 43.0 of NT$3.9 bn, or 40% of its market cap, mainly for capex (raising to Daily trad val - 6m avg (US$ mn) 2.6 Mkt cap (NT$/US$ 9,671.2/ 324.4 Free float (%) 49.0 mn) NT$650 mn-plus in 2013E) and cash dividend (cash dividend payout

Major shareholders Lite On Tech 51% Performance 1M 3M 12M ratio slightly up to 73%). It sees a low probability as a buy-out target in Absolute (%) (0.4) (5.1) (22.7) the near term (similar comments from LOT, its largest shareholder), Relative (%) (5.8) (9.4) (34.2) though LOT does not rule out the possibility in the future. Year 12/11A 12/12A 12/13E 12/14E 12/15E Revenue (NT$ mn) 13,630 9,053 9,229 10,061 10,949 Figure 2: Silitech quarterly estimates EBITDA (NT$ mn) 2,169 1,498 1,361 1,563 1,680 (NT$mn) 1Q13A 2Q13E 3Q13E 4Q13E Net profit (NT$ mn) 1,334 857 771 872 953 Net sales 1,835 2,112 2,530 2,752 EPS (NT$) 7.30 4.64 4.18 4.73 5.16 - Change from prev. EPS (%) n.a. n.a. (11) (11) Gross profits 388 453 566 676 - Consensus EPS (NT$) n.a. n.a. 4.76 5.22 4.79 Operating profit 110 147 250 360 EPS growth (%) (9.1) (36.4) (10.0) 13.1 9.2 Net income 104 130 223 313 P/E (x) 7.2 11.3 12.5 11.1 10.2 EPS (NT$) 0.57 0.71 1.21 1.70 Dividend yield (%) 9.7 6.5 5.8 6.6 7.2 Source: Company data, Credit Suisse estimates. EV/EBITDA (x) 3.1 4.1 4.9 4.5 4.5 Figure 3: Silitech still trading at trough P/B P/B (x) 1.5 1.5 1.3 1.3 1.2 Silitech PB (x) ROE (%) 21.4 13.2 11.4 11.9 12.4 10 Net debt (cash)/equity (%) (44.2) (55.7) (41.7) (34.5) (26.0) 9 Note 1: Silitech Technology Corp. is engaged in the manufacture, design, development & 8 +2 Std dev = 7.18 distribution of keypads & other products for mobile phones, computer, communication & 7 consumer electronic products.

6 +1 Std dev = 5.4 Click here for detailed financials 5 Downgrade to NEUTRAL 4 Average = 3.54 3 We downgrade Silitech to NEUTRAL from OUTPERFORM, with a 2 -1 Std dev = 1.7 new TP of NT$58 (from $63), after 10% EPS estimates cuts. Our TP 1 still puts the stock at 10x ex-cash PE. Our previous positive view on 0 -2 Std dev = -0.1

the stock was based on increasing dollar content from RIMM and its (1)

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 exposure to Samsung’s flagship smartphone model. Both are tracking in line with our expectations, evidenced by its decelerating YoY Source: Company data, Credit Suisse estimates. decline in monthly sales (Figure 1). However, we underestimated the margin pressure from Samsung’s aggressive price cuts and the negative operating leverage at its metal housing business. As a result, we have lowered our 2013 GM assumption by 200 bps, which leads to 11% earnings cuts on the stock. We did not downgrade the stock to underperform, as valuation remains inexpensive at 9x ex-cash P/E with a 6.5% cash dividend yield. We would suggest investors use the strong May sales to unload some position.

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Asian Daily

Wistron ------Maintain NEUTRAL Diversification setting a balance in 2Q EPS: ▼ TP: ▼ Thompson Wu / Research Analyst / 886 2 2715 6386 / [email protected] ● Wistron reported a roughly in line 1Q13. OPM of 1.1% was just turnover in A/R, which we believe was due to the timing of Blackberry shy of expectations of 1.2% due to higher freighting and R&D. handheld shipments and also as non-notebook products have slower However, GM of 5.1% was better due to product mix. With the A/R turnover than notebooks. It also paid down an NT$2.8 bn debt. help of a NT$405 mn FX gain, EPS rose 8% above consensus. CCC days extended to 34.5 days from 17.5 days in 4Q12, and 14.0 ● We believe higher freighting costs, R&D, and better GM were the days in 1Q12 due to 15 days and 11 days increase in DSO on a QoQ result of BB10’s launch in the quarter. Wistron shipped 6.3 mn and YoY basis, respectively. Wistron proposed an NT$1.50 cash handhelds, of which we believe >50% were from BB10. Wistron dividend, or a 49% pay-out ratio from 2012 net income. guided 2Q13 handheld shipment to be flat QoQ. Overall, we would Figure 1: Wistron’s consolidated 1Q13 results review expect BB10 (>70%) to provide GM support in 2Q13, and would (in NT$ mn) Actual CS E +/- (%) Cons. +/- (%) watch the sell-through data points as a check on order momentum. Revenues 158,196 158,248 0.0 155,557 1.7 ● The key catalyst for Wistron remains the elusive direct-server win YoY% -10.6% -10.6% -12.1% QoQ% -6.2% -6.2% -7.8% for a data centre build-out by the world’s largest social networking Operating profit 1,740 1,889 -7.9 1,806 -3.7 company. We believe Wistron will be awarded this win in 2Q13. Non-op income/exp 365 258 41.4 222 64.3 We forecast servers/storage to be 6.2%/6.6% of 2013/14 sales. Pre-tax profit 2,104 2,147 -2.0 2,028 3.7 Net income 1,614 1,610 0.2 1,484 8.7 ● We see Wistron shares evenly balanced. We are looking for GAAP EPS (NT$) $0.74 $0.74 0.2 $0.69 7.8 positive signs in notebooks and servers before we become more GM% 5.1% 4.8% 4.9% positive on the name. It trades at 0.9x 2013E BVPS, 8.0x NTM Opex/Sales% 4.0% 3.6% 3.7% EPS, and offers 5% dividend yield (NT$1.50 cash per share). We OPM% 1.1% 1.2% 1.2% Source: Company data, Bloomberg, Credit Suisse estimates. lower our EPS forecasts and cut our TP from NT$35 to NT$33. Figure 2: Wistron’s shipment forecasts by product category Bbg/RIC 3231 TT / 3231.TW Price (13 May 13 , NT$) 29.30 000’s 1Q12 2Q12 3Q12 4Q12 1Q13A 2Q13E 3Q13E 4Q13E Rating (prev. rating) N (N) TP (prev. TP NT$) 33.00 (35.00) Notebook 8,450 7,800 7,450 7,750 6,500 6,400 7,300 7,800 Shares outstanding (mn) 2,197.97 Est. pot. % chg. to TP 13 Tablet 320 500 750 930 800 1,250 1,650 2,300 Daily trad vol - 6m avg (mn) 9.7 52-wk range (NT$) 40.6 - 26.7 Desktop 3,200 3,200 3,200 3,400 3,200 3,600 4,050 4,150 Daily trad val - 6m avg (US$ mn) 10.4 Mkt cap (NT$/US$ mn) 64,400.5/ 2,160.5 LCD TVs 1,200 1,050 850 1,100 750 750 1,100 1,400 Free float (%) 89.0 Performance 1M 3M 12M LCD Monitors 2,100 2,200 2,150 2,250 2,250 2,250 2,200 2,200 Major shareholders Acer Absolute (%) (3.9) (12.4) (27.8) Handheld 3,800 2,700 2,500 4,500 6,300 6,000 3,850 3,850 Relative (%) (9.4) (16.7) (39.6) Server and storage 350 430 400 450 390 450 435 425 Year 12/11A 12/12A 12/13E 12/14E 12/15E Source: Company data, Credit Suisse estimates. Revenue (NT$ mn) 658,367 657,845 685,079 706,104 722,077 Reducing 2013/14 EPS by 7%/7%, respectively EBITDA (NT$ mn) 16,756 15,064 17,599 19,155 20,698 Net profit (NT$ mn) 9,065 6,666 7,845 9,182 10,125 We trim our 2013 notebook units by 3% to 28 mn (-11% YoY) and EPS (NT$) 4.36 3.06 3.60 4.21 4.64 lower TV units by 11% to 4 mn; these are offset by 20% forecast - Change from prev. EPS (%) n.a. n.a. (7) (7) (3) increase for tablet volumes to 6 mn and 8% increase in handheld units - Consensus EPS (NT$) n.a. n.a. 3.50 3.84 4.16 to 20 mn. Net-net, our forecast for Wistron’s 2013 total sales remains EPS growth (%) (29.1) (29.9) 17.7 17.0 10.3 P/E (x) 6.7 9.6 8.1 7.0 6.3 largely unchanged. We keep our OPM forecast at 1.5%, which Dividend yield (%) 7.5 5.1 6.0 7.0 7.8 improves sequentially from 1.2% in 2012. Our non-op income EV/EBITDA (x) 4.5 5.3 4.5 3.9 3.4 reduction is primarily from higher interest expenses after adopting P/B (x) 1.0 1.0 0.9 0.9 0.8 IFRS. Overall, we reduce our 2013E EPS by 7% to NT$3.60, and cut ROE (%) 15.3 10.8 12.1 13.0 13.3 Net debt(cash)/equity (%) 17.8 25.9 21.3 13.6 8.1 our TP from NT$35 to NT$33.

Note 1: Wistron Corporation, an original design manufacturer, provides a range of design, manufacturing, and after-sales service support functions for information and communication Figure 3: Wistron’s consolidated 2013/14 estimate changes technology products. The company also provides fiber channel storage arrays.

(In NT$ mn) 2013E 2014E

Click here for detailed financials New Old +/- (%) New Old +/- (%) 1Q13 results review Revenue 685,079 686,493 -0.2 706,104 713,942 -1.1 Wistron’s consolidated 1Q13 sales of NT$158.2 bn (-6.2% QoQ/ Operating profit 9,945 10,280 -3.3 11,541 12,026 -4.0 -10.6% YoY) were in line with its monthly sales. Its GM of 5.1% was Non-op income/exp 515 944 -45.5 702 1,175 -40.3 better than expected driven by product mix changes; its non-notebook Pre-tax profit 10,460 11,224 -6.8 12,243 13,201 -7.3 businesses have higher GM than notebooks. In 1Q13, Wistron Net income 7,845 8,418 -6.8 9,182 9,901 -7.3 shipped 6.5 mn notebooks, 3.2 mn desktops, 800,000 tablets, 6.3 mn GAAP EPS (NT$) $3.60 $3.86 -6.8 $4.21 $4.54 -7.3 GM% 5.0% 5.0% 5.0% 5.0% handhelds, 750,000 TVs, 2.3 mn monitors, and 390,000 OEM servers. Opex/Sales% 3.6% 3.5% 3.4% 3.4% Opex was higher than expected in the quarter due to higher freight OPM% 1.5% 1.5% 1.6% 1.7% and R&D costs; both of which we believe were attributable to the ramp Source: Company data, Credit Suisse estimates. of Blackberry orders. Overall, its OPM of 1.1% was slightly below CS and consensus estimates of 1.2% each. Non-op income helped lift earnings in the quarter. Wistron recorded NT$405 million FX gain. Net interest expenses were far higher in the quarter due to IFRS changes. Cash and cash equivalents declined by NT$23.8 bn due to slower

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Asian Daily

Young Fast Optoelectronics ------Maintain NEUTRAL 1Q better on lower opex; revenue to see more momentum in 2H on new projects EPS: ▲ TP: ◄► Jerry Su / Research Analyst / 886 2 2715 6361 / [email protected]

● YFO reported 1Q13 results after market close on Monday. 1Q13 Figure 1: YFO 1Q13 earnings better than CS and Street EPS of NT$1.17 was better than CS and ahead of the street’s (NT$mn) 1Q13A QoQ % YoY % CS 1Q old Diff.% Street Diff.% estimates, helped by stable GM (down ~110 bp on smaller revenue) Sales 2,848 (34) 25 2,927 (3) 2,813 1 and lower opex (down 16% QoQ), on lower revenue and cost cuts. Gross profit 380 (39) NM 302 26 234 63 Operating profit 118 (62) NM 14 731 (39) NM ● 2Q sales are guided to decline QoQ (vs our prior flattish estimate) Net income 177 3 NM 59 202 (45) NM as its main mid-sized customer is experiencing product transition in EPS (NT$) 1.17 3 NM 0.39 202 (0.30) NM 2Q13. We estimate its GM will face pressure in 2Q, given the lower Gross margin % 13.3 10.3 8.3 revenue base, despite being potentially offset by a higher mix of Op margin % 4.1 0.5 (1.4) metal film. Opex is guided to be similar to 1Q13. Nevertheless, we Net margin % 6.2 2.0 (1.6) think the lower sales and higher costs could drive 2Q into a loss. Source: Company data, Bloomberg, Credit Suisse estimates 2Q13 sales should decline QoQ and could turn YFO loss making ● YFO sees better revenue momentum in 2H13 on multiple new YFO released April sale of NT$712 mn (down 31% MoM) last week design-wins for tablets and NBs, despite it currently having no visibility and management expects 2Q13 sales to decline sequentially (vs our on volumes. We raise our FY13-14 earnings estimates by 5% on prior flattish estimate) as its main mid-sized touch customer (i.e., better GM but lower our sales forecast on lower tablet ASP as its MSFT) is experiencing product transition in 2Q13. We estimate its main customer targets to launch a smaller-sized tablet in 2H13. gross margins will face pressure in 2Q13 given the lower revenue ● We maintain NEUTRAL and TP of NT$65, based on 0.95x FY13E base, despite it being potentially offset by a higher mix of metal film as P/B. Execution remains the key and we would look for more it plans to double the capacity since metal film was at full utilisation in concrete data to play the 2H sales momentum and profit recovery. 1Q13. We model 2Q13 sales to decline 14% QoQ and GM to decline to ~10% level as the smartphone order pick up (mostly shipping in Bbg/RIC 3622 TT / 3622.TW Price (13 May 13, NT$) 53.10 Rating (prev. rating) N (N) [V] TP (prev. TP NT$) 65.00 (65.00) module format) is unable to offset tablet weakness and GM should Shares outstanding (mn) 151.21 Est. pot. % chg. to TP 22 further decline on mix change. We forecast 2Q13 opex will be similar Daily trad vol - 6m avg (mn) 1.7 52-wk range (NT$) 75.4 - 46.1 to 1Q13, as guided. Nevertheless, this could drive 2Q13 into a loss. Daily trad val - 6m avg (US$ mn) 3.3 Mkt cap (NT$/US$ mn) 8,029.3/ 269.4

Free float (%) 73.0 Performance 1M 3M 12M Figure 2: GM recovered from trough on better yield and product mix Major shareholders Sung I Enterprise Absolute (%) (0.9) 0.6 (13.5) (13.2%) NT$ mn Sales GM Relative (%) (6.4) (3.8) (25.0)

Year 12/11A 12/12A 12/13E 12/14E 12/15E 6,000 40% Revenue (NT$ mn) 16,517 13,101 13,293 14,302 — 30% 4,000 EBITDA (NT$ mn) 997 675 1,764 1,936 — 20% Net profit (NT$ mn) 420.0 (354.5) 387.9 404.2 — 10% EPS (NT$) 2.80 (2.34) 2.56 2.67 2,000 - Change from prev. EPS (%) n.a. n.a. 5 5 0% - Consensus EPS (NT$) n.a. n.a. 2.13 2.49 3.04 - -10% EPS growth (%) (85.1) n.m. n.m. 4.2 n.a. 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 P/E (x) 19.0 n.m. 20.7 19.9 — Source: Company data Dividend yield (%) 0.9 0 2.0 2.1 Maintain NEUTRAL, execution remains the key EV/EBITDA (x) 4.2 7.4 3.4 3.2 — P/B (x) 0.8 0.8 0.8 0.8 — YFO sees better revenue momentum in 2H13 on multiple new design- ROE (%) 3.9 (3.4) 3.8 3.9 — wins for tablets and NBs, despite it currently having no visibility on Net debt(cash)/equity (%) (36.8) (30.0) (19.8) (16.4) — volumes. We raise our FY13-14 earnings estimates by 5% on better GM Note 1: Young Fast is engaged in manufacturing of power cable related accessories & touch panels.

assumption, but lower our revenue forecast on lower tablet ASP as its Click here for detailed financials main customer targets to launch a smaller size tablet in 2H13. We 1Q13 EPS better than CS and street forecasts maintain our NEUTRAL rating and target price TP of NT$65, based on YFO reported 1Q13 results after market close on Monday. 1Q13 EPS 0.95x FY13 P/B. Execution remains the key and we would look for more of NT$1.17 (net profit NT$177 mn) was better than CS and ahead of concrete data to play the 2H revenue momentum and profit recovery. street estimates. Gross margin of 13.3% was slightly below 4Q12’s 14.4% on lower revenue base. 1Q13 opex of NT$262 mn was down Figure 3: YFO: 2H12-2013 quarterly P/L 16% QoQ on lower promotion expenses (less shipping and bad debt NT$ mn 3Q12 4Q12 1Q13 2Q13E 3Q13E 4Q13E 2012 2013E provisions), lower amortisation, and administration cost reduction at its Revenue 3,953 4,323 2,848 2,454 3,719 4,271 13,101 13,293 Pinghu facilities. YFO also booked NT$110 FX gains in 1Q13. Gross profit 378 622 380 238 413 508 1,080 1,539 Operating profit 73 310 118 (21) 118 174 (236) 390 1Q13 revenue mix of ~40% mid-size/tablets, 50%+ small-sized Net profit 32 173 177 (30) 100 141 (355) 388 capacitive touch, and ~10% for resistive and mechatronics. Mid-sized EPS (NT$) 0.21 1.14 1.17 (0.20) 0.66 0.93 (2.34) 2.56 capacity increased to 1.5 mn units/month in 1Q13, up from 1.0 mn Gross margin (%) 9.6 14.4 13.3 9.7 11.1 11.9 8.2 11.6 units/month in 4Q12. We estimate module accounted for ~30% of total Op. margin (%) 1.9 7.2 4.1 (0.8) 3.2 4.1 (1.8) 2.9 sales or ~65% of small-sized capacitive touch in 1Q13. Net margin (%) 0.8 4.0 6.2 (1.2) 2.7 3.3 (2.7) 2.9 Source: Company data, Credit Suisse estimates

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Thailand BEC World ------Maintain UNDERPERFORM Inline quarter as margins reach near record-highs EPS: ◄► TP: ◄► Karim P. Salamatian, CFA / Research Analyst / 852 2101 7996 / [email protected] Rebecca Kwee / Research Analyst / 852 2101 7951 / [email protected]

● BEC reported 1Q13 results that were in line with our expectations. Figure 1: EBITDA margin continues upward trend Revenue and net income moderated to 14% YoY and 25% YoY, EBITDA margin (%) respectively, after a year of abnormally high EPS growth in 2012 70.0% (34% YoY). 65.0% ● BEC’s Channel 3 maintained positive viewership momentum once again as advertising revenue grew 12%, well ahead of slowing TV 60.0% and industry ADEX growth of 4% and -0.2%, respectively. This highlights BEC’s strong franchise and popular programmes. 55.0%

● EBITDA margin of 67.1% is at a five-year high as operating 50.0% leverage set in, and EPS growth was also driven by the reduction in tax rate from 23% to 20% at the beginning of the quarter. 45.0% ● We believe BEC”s positive viewership momentum and EBITDA 40.0% margin expansion are more than priced-in, and do not see further tangible positive catalysts in the next 12 months. Moderating top-

line and earnings combined with a narrowing relative dividend Source: Company data, Credit Suisse estimates. yield will put pressure on current valuations (26x 2014 P/E and We expect TV ADEX in Thailand to moderate to 8.5% in 2013, but 14.6x 2014 EV/EBITDA). Maintain UNDERPERFORM. believe BEC can maintain its above-industry growth rates for the rest of the year. Bbg/RIC BEC TB / BEC.BK Price (10 May 13, Bt) 72.50 Rating (prev. rating) U (U) TP (prev. TP Bt) 59.00 (59.00) The corporate tax reduction from 23% to 20% this quarter led to EPS Shares outstanding (mn) 2,000.00 Est. pot. % chg. to TP (19) Daily trad vol - 6m avg (mn) 2.4 52-wk range (Bt) 79.5 - 47.5 growth of 25%, but the decelerating earnings trend will continue as we Daily trad val - 6m avg (US$ mn) 5.4 Mkt cap (Bt/US$ bn) 145.0/ 4.9 do not expect further tax assistance from 2014 and beyond.

Free float (%) 55.0 Performance 1M 3M 12M Major shareholders Maleenont Family Absolute (%) 15.1 — 45.0 Figure 2: BEC 1Q13 earnings summary 45% 1Q13 as % Relative (%) 8.8 (9.0) 8.8

Year 12/11A 12/12A 12/13E 12/14E 12/15E Bt mn except share data 1Q13 1Q12 YoY 2013E of 2013E Revenue (Bt mn) 12,804 14,866 16,170 17,143 18,161 Revenue 3,829 3,389 13.0% 16,170 23.7% EBITDA (Bt mn) 7,019 8,299 9,036 9,685 10,374 BEC advertising rev. 3,547 3,169 11.9% 14,582 24.3% Net profit (Bt mn) 3,530 4,778 5,553 5,599 5,845 Industry ADEX 26,199 26,254 -0.2% n.a. n.a. EPS (Bt) 1.77 2.39 2.78 2.80 2.92 TV ADEX 16,526 15,888 4.0% n.a. n.a. - Change from prev. EPS (%) n.a. n.a. 0 0 EBITDA 2,569 2,000 28.5% 9,036 28.4% - Consensus EPS (Bt) n.a. n.a. 2.87 3.22 3.54 EBITDA margin 67.1% 59.0% 807bps 55.9% n.a. EPS growth (%) 6.9 35.3 16.2 0.8 4.4 Net Income 1,381 1,104 25.1% 5,553 24.9% P/E (x) 41.1 30.3 26.1 25.9 24.8 EPS 0.69 0.55 25.1% 2.78 24.9% Dividend yield (%) 2.4 3.2 3.8 3.9 4.0 Source: Company data, Credit Suisse estimates EV/EBITDA (x) 20.0 16.8 15.5 14.6 13.6 Valuation risk as moderation sets in P/B (x) 19.9 18.0 18.0 18.0 18.0 We remain confident of BEC’s ability to grow ahead of the industry ROE (%) 47.4 62.2 68.8 69.4 72.4 Net debt (cash)/equity (%) (64.2) (63.3) (53.1) (44.9) (42.7) and benefit from a converging media market, but do not see new

Note 1: BEC World is engaged in the media and entertainment businesses in Thailand. The revenue catalysts over the next 12 months as events such as Digital company provides free-to-air TV broadcasting under Thai Television Channel 3, radio broadcasting TV, monetisation of its valuable content library and expansion into on FM 105.5, TV programming production and live show/event production.

Click here for detailed financials Myanmar are all scheduled for 2014/15 at the earliest. Our top-line estimates for 2013 and 2014 are 1% and 4% below consensus, 1Q13 EBITDA margin at 5-year highs respectively, and we believe the market is prematurely pricing in new While BEC’s advertising revenue moderated to 12% in 1Q13, this still revenue growth catalysts well before any concrete evidence. exceeded TV and industry ADEX growth of 4% and -0.2% YoY, BEC’s current 26x 2013 P/E is unjustifiable given EPS growth proving BEC’s positive viewership momentum due to its popular moderating to low single digits in the next two years and relative entertainment programmes. Concert revenues and copyright income dividend yields (vs 10yr Thai government bonds) narrowing to the were also strong at 20% and 40% respectively, and, combined with lowest level since 2008. We prefer Indian broadcasters as they increased operating leverage, led to EBITDA margins expanding 807 provide a much more compelling risk/reward ratio with FY14E P/E of bp, reaching five-year highs. 23x and EPS growth of 109% YoY.

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Minor International ------Maintain OUTPERFORM 1Q13 slightly below expectations ... long-term outlook remains solid EPS: ▼ TP: ◄► Thaniya Kevalee / Research Analyst / 662 614 6219 / [email protected] Siriporn Sothikul, CFA / Research Analyst / 662 614 6217 / [email protected] ● MINT reported slightly weaker-than-expected 1Q13 core profit (previous) estimate of 13%, due to the impact from accounting (versus our previous forecast) due to a strong baht, deferred treatment of its deferred income tax under IFRS 12. As a result, MINT income tax under IFRS and higher-than-expected non-cash corrected its guidance for the full-year effective tax rate to 16% versus depreciation and amortisation expenses. We slightly lower our 13-14% previously. profit forecasts by 2-4% Small earnings cut of 2-4% over 2013-15E ● The stronger baht dragged OAKs’s RevPar down 7% YoY, To reflect the above factors, we lower our earnings estimates by 2-4% offsetting the strong growth in MINT’s self-owned hotel RevPar for 2013-15. Based on our new numbers, we still expect MINT to (+19%). Hence, we lower our revenue growth target for OAKS. generate core profit growth of 22% p.a. over 2013-14. Our profit Both the higher-than-expected depreciation impact from deferred forecasts are now in line with consensus estimates. Since there is no taxes are non-cash and thus only produce impact on profit and impact on cash flow from a higher effective tax rate and depreciation and amortisation forecasts, we maintain our DCF-based target price of losses without affecting DCF value. Bt29, implying 20% potential upside. ● Despite our earnings estimate cut, we still expect MINT to deliver net Potential upside surprise for 2014-15 profit growth of 22% p.a. over 2013-14. The planned launch of high- MINT plans to soon launch a high end residential project in Phuket, end residential projects could provide upside to our 2014-15E profit. which would be developed on a piece of land adjacent to a hotel it ● We maintain our OUTPERFORM rating on MINT, which should acquired last year. MINT has not yet provided project details and thus remain one of the key beneficiaries of strong tourism trend in we have not yet included any contribution from this project. Thailand. MINT offers 20% potential upside. Management, however, guided that it should start contributing Bbg/RIC MINT TB / MINT.BK Price (13 May 13, Bt) 24.10 revenue from 1Q14. Thus, we see potential upside surprise from this Rating (prev. rating) O (O) TP (prev. TP Bt) 29.00 (29.00) project to our profit forecast during 2014-15. Shares outstanding (mn) 3,975.96 Est. pot. % chg. to TP 20 Maintain OUTPERFORM rating Daily trad vol - 6m avg (mn) 8.8 52-wk range (Bt) 26.0 - 12.6 While 1Q13 results appear slightly disappointing, we believe long-term Daily trad val - 6m avg (US$ mn) 431.5 Mkt cap (Bt/US$ mn) 95,820.6/ 3,229.5

Free float (%) 45.2 Performance 1M 3M 12M outlook for MINT remains very solid. With decelerating supply growth Major shareholders Minor Holding Absolute (%) 6.2 0.8 68.5 and accelerating demand, hotel RevPar should continue registering (16.8%) Relative (%) 0.3 (7.7) 32.8 impressive growth. Along with AOT and CENTEL, MINT is one of the

Year 12/11A 12/12A 12/13E 12/14E 12/15E key beneficiaries. Revenue (Bt mn) 26,137 31,310 35,281 39,241 42,414 EBITDA (Bt mn) 4,473 5,436 6,699 7,660 8,218 Figure 1: MINT’s 1Q13 quarterly result summary Net profit (Bt mn) 2,047 3,237 3,954 4,823 5,465 (Bt mn) 1Q12 4Q12 1Q13 % YoY % QoQ EPS (Bt) 0.63 0.88 1.03 1.24 1.40 Revenues 8,352 8,237 8,926 6.9 8.4 - Change from prev. EPS (%) n.a. n.a. (4) (3) (2) COGS -3,519 -3,607 -3,635 3.3 0.8 - Consensus EPS (Bt) n.a. n.a. 1.03 1.20 1.42 Selling and admin -2,991 -3,235 -3,291 10.0 1.7 EPS growth (%) 64.8 40.4 17.0 21.0 12.8 EBITDA 1,842 1,396 2,001 8.6 43.3 P/E (x) 38.5 27.4 23.4 19.4 17.2 Depreciation and amortisation -545 -549 -635 16.4 15.7 Dividend yield (%) 0.6 1.2 2.0 2.4 2.8 EBIT 1,297 847 1,366 5.3 61.3 EV/EBITDA (x) 25.6 21.4 17.0 14.4 12.8 Other income 134 498 209 56.1 -58.0 P/B (x) 5.5 4.9 4.2 3.7 3.2 Interest income 20 4 48 143.5 1055.9 ROE (%) 15.0 19.9 20.2 21.4 21.2 Dividend income 0 0 0 nm nm Net debt(cash)/equity (%) 125.1 105.8 79.9 57.2 34.2 Affiliate profit 139 121 137 -1.4 13.5

Note 1: Minor International Public Co Ltd is a Thailand-based company engaged in the investment Forex 0 0 0 nm nm activities in hotels, restaurant operations, shopping space and real estate development, retail Inerest expenses -271 -261 -276 2.1 5.6 distribution and product manufacturing, and entertainment business.

Extraordinary & others 123 -1 216 76.2 nm Click here for detailed financials EBT 1,442 1,208 1,700 17.9 40.8 Tax -189 12 -276 46.1 nm 1Q13 net profit slightly below expectation Minority interest -8 -5 -15 81.8 178.6 MINT reported core profit, excluding non-recurring gains and Reported profit 1,245 1,214 1,409 13.2 16.0 expenses, of Bt1,232 mn, up 7.1% YoY and accounting for 30% of our Normalised profit 1,150 1,215 1,232 7.1 1.4 (previous) full-year estimate. Revenues from property development EPS (Bt) 0.34 0.33 0.38 13.2 16.0 (time share and high-end residential condominium sales combined) Normalised EPS (Bt) 0.31 0.33 0.33 7.1 1.4 Margins analysis (%) fell 34% YoY as contribution from St Regis declined nearly 90% YoY. Gross margins 57.9 56.2 59.3 Excluding this lumpy item (which we believe will pick up later this year), EBITDA margins 22.1 16.9 22.4 MINT still performed a bit below our expectation. EBIT margins 15.5 10.3 15.3 But the reasons were not worrisome Normalised profit margins 13.8 14.7 13.8 There are three main reasons. First, OAKS’s RevPar in baht terms Source: Company data, Credit Suisse estimates dropped 7% YoY, mainly due to the strengthening of baht versus the AUD. This pretty much offset the strong rise in MINT’s self-owned hotel RevPar of 19% YoY. Second, depreciation and amortisation expenses were about 4-5% above our (previous) forecast. Finally, MINT’s effective tax rate was about 17%, compared with our

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Recently Published Research Date Title Author(s) Tel. E-mail Mon 13 May Asia-Pacific Transport Sector - Monthly movements: Key Timothy Ross 65 6212 3337 [email protected] transportation trends in Asia-Pacific Davin Wu 852 2101 6917 [email protected] Mon 13 May Chinatrust Financial Holding - Strong 1Q13 results Chung Hsu 886 2 2715 6362 [email protected] Michelle Chou 886 2 2715 6363 [email protected] Mon 13 May India Financial Sector - PSU banks no longer proxy to Ashish Gupta 91 22 6777 3895 [email protected] bond yields Prashant Kumar 91 22 6777 3942 [email protected] Mon 13 May Pakistan Market Strategy - Election 2013: Market to rally Farhan Rizvi, CFA 65 6212 3036 [email protected] on a comprehensive Nawaz victory Farrukh Khan, CFA 65 6212 3035 [email protected] Fri 10 May India Midcap Sector - Great Eastern Shipping visit note: Anantha Narayan 91 22 67773730 [email protected] Getting back on the radar? Vikash Patwari 91 22 6777 3747 [email protected] Thu 9 May AAC Technologies Holdings Inc - Product migration Yan Taw Boon 852 2101 7039 [email protected] sustaining acceleration Manish Nigam 852 2101 7067 [email protected] Thu 9 May Asia Tech Distribution Sector - Initiate coverage: Eyes on Thompson Wu 886 2 2715 6386 [email protected] China's enterprise Thu 9 May Champion Real Estate Investment Trust - Four reasons Joyce Kwock 852 2101 7496 [email protected] for discount to narrow Cusson Leung, CFA 852 2101 6621 [email protected] Thu 9 May Link REIT - Expecting a deceleration in DPU growth Joyce Kwock 852 2101 7496 [email protected] Cusson Leung, CFA 852 2101 6621 [email protected] Thu 9 May Spreadtrum Communication - Finding a sweet spot in the Randy Abrams 886 2 2715 6366 [email protected] entry tier Yan Taw Boon 852 2101 7039 [email protected] Thu 9 May Teco - Motors drive more upside Jerry Su 886 2 2715 6361 [email protected]

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Companies mentioned AAC Technologies Holdings Inc (2018.HK, HK$41.0, OUTPERFORM, TP HK$47.5) Advanced Info Service PCL (ADVA.BK, Bt287.0, OUTPERFORM, TP Bt295.0) Advanced Semicon. Engr. (2311.TW, NT$25.5) Agile Property (3383.HK, HK$10.24, UNDERPERFORM[V], TP HK$10.4) Air China (0753.HK, HK$6.88, OUTPERFORM, TP HK$7.8) Airports of Thailand (AOT.BK, Bt148.0) Apple Inc (AAPL.OQ, $452.97) Ashok Leyland Ltd (ASOK.BO, Rs22.1, NEUTRAL, TP Rs24.0) BEC World (BEC.BK, Bt72.5, UNDERPERFORM, TP Bt59.0) Biosensors International Group Ltd. (BIOS.SI, S$1.22, OUTPERFORM, TP S$1.96) Central Plaza Hotel PCL (CENT.BK, Bt39.25) Cheng Shin Rubber (2105.TW, NT$100.0, OUTPERFORM, TP NT$105.0) Cheung Kong Holdings (0001.HK, HK$116.4, OUTPERFORM, TP HK$152.02) China Eastern Airlines (0670.HK, HK$3.22, UNDERPERFORM, TP HK$2.9) China Medical System Holdings Ltd. (0867.HK, HK$6.93, OUTPERFORM, TP HK$9.0) China Mobile Limited (0941.HK, HK$85.85, OUTPERFORM, TP HK$102.0) China Motor Corp (2204.TW, NT$28.1) China Southern Airlines (1055.HK, HK$4.35, OUTPERFORM, TP HK$5.0) China Telecom (0728.HK, HK$4.04, OUTPERFORM, TP HK$4.8) China Unicom Hong Kong Ltd (0762.HK, HK$11.3, OUTPERFORM, TP HK$18.2) China Vanke Co Ltd-A (000002.SZ, Rmb11.62) Chinatrust Financial Holding (2891.TW, NT$18.25, OUTPERFORM, TP NT$21.5) City Developments (CTDM.SI, S$11.6, OUTPERFORM, TP S$13.6) Cummins India (CUMM.BO, Rs511.95, NEUTRAL, TP Rs481.0) Dr.Ci:Labo (4924.T, ¥309,000) East Japan Railway Company (9020.T, ¥8,390) Fancl Corporation (4921.T, ¥1,052) Gamuda (GAMU.KL, RM4.73) General Electric (GE.N, $22.78) Hankook Tire (161390.KS, W48,350) Hanwha Chemical (009830.KS, W17,200, UNDERPERFORM, TP W15,000) Hotai Motor (2207.TW, NT$292.5) Kaisa Group (1638.HK, HK$2.34) Kao (4452.T, ¥3,465) Kobayashi Pharmaceutical (4967.T, ¥5,480) Kose (4922.T, ¥2,571) Kyocera (6971.T, ¥10,220) LG Chem Ltd. (051910.KS, W266,500, OUTPERFORM, TP W365,000) Lion (4912.T, ¥598) Lite-On Technology (2301.TW, NT$51.6) Lonking Holdings Ltd. (3339.HK, HK$1.65) Mandom Corporation (4917.T, ¥3,725) MediaTek Inc. (2454.TW, NT$369.0) MediaTek Inc. (2454.TW, NT$369.0) Micron Technology Inc. (MU.OQ, $10.82) Microsoft Corporation (MSFT.OQ, $32.69) Millennium & Copthorne (MLC.L, 559.5p) Minor International PCL (MINT.BK, Bt24.2, OUTPERFORM, TP Bt29.0) Mirvac Group (MGR.AX, A$1.74, OUTPERFORM, TP A$1.91) Nan Ya Printed Circuit Board (8046.TW, NT$34.3) National Aluminium Co. (NALU.BO, Rs36.75) Nestle India (NEST.BO, Rs4853.45, UNDERPERFORM, TP Rs4670.0) Nomura Real Estate Holdings (3231.T, ¥2,735, UNDERPERFORM, TP ¥2,300) NTPC Ltd (NTPC.BO, Rs155.15) NTT Urban Deve (8933.T, ¥168,800) Oil India Ltd. (OILI.BO, Rs558.5) Pola Orbis Holdings (4927.T, ¥3,740, OUTPERFORM, TP ¥4,200) Poly Real Estate Group (600048.SS, Rmb11.95) Powertech Technology (6239.TW, NT$54.3) Primary Health Care (PRY.AX, A$4.99, NEUTRAL, TP A$4.7) RCF (RSTC.BO, Rs41.05) Realtek Semiconductor (2379.TW, NT$88.1) Reliance Infrast (RLIN.BO, Rs406.3) Reliance Power Ltd (RPOL.BO, Rs79.7, UNDERPERFORM[V], TP Rs87.0) Research In Motion Limited (BBRY.OQ, $15.54) Samsung Electronics (005930.KS, W1,476,000, OUTPERFORM, TP W1,900,000) Sanyang Industry (2206.TW, NT$26.45) Seven & i Holdings (3382.T, ¥3,870, OUTPERFORM, TP ¥4,300) Shanghai Shimao Co Ltd (600823.SS, Rmb9.91) Shin Corporation (INTUCH.BK, Bt88.5, OUTPERFORM, TP Bt105.0) Shiseido (4911.T, ¥1,406, NEUTRAL, TP ¥1,430) Silitech Technology Corp (3311.TW, NT$52.4, NEUTRAL, TP NT$58.0) Sinopharm Group Co (1099.HK, HK$23.5) SK Hynix Inc. (000660.KS, W29,100, OUTPERFORM, TP W41,000) Spreadtrum Communication (SPRD.OQ, $20.01) Standard Chartered Plc (2888.HK, HK$189.9) Steel Authority of India Ltd (SAIL.BO, Rs63.0) Taiwan Semiconductor Manufacturing (2330.TW, NT$114.5) Thaicom PCL (THCOM.BK, Bt34.5) Total Access Communication PCL (DTAC.BK, Bt126.0, OUTPERFORM, TP Bt134.0) Toyota Motor (7203.T, ¥6,280) True Corp PCL (TRUE.BK, Bt9.3, UNDERPERFORM, TP Bt2.86) Unicharm (8113.T, ¥6,200) United Microelectronics (2303.TW, NT$13.05) USS (4732.T, ¥13,010)

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Vanguard International Semiconductor (5347.TWO, NT$32.3) Wistron (3231.TW, NT$29.3, NEUTRAL, TP NT$33.0) WPG Holdings Ltd (3702.TW, NT$35.35) Young Fast Optoelectronics (3622.TW, NT$53.7) Yulon Motor (2201.TW, NT$52.2)

Disclosure Appendix

Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relat ive attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 43% (53% banking clients) Neutral/Hold* 39% (47% banking clients) Underperform/Sell* 15% (39% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other indivi dual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

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Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS- -Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Please find the full reports, including disclosure information, on Credit Suisse's Research and Analytics Website (http://www.researchandanalytics.com) Important MSCI Disclosures The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create and financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse. Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-part data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit- suisse.com/researchdisclosures or call +1 (877) 291-2683.

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Companies Mentioned (Price as of 10-May-2013) Glodon Software Co Ltd (002410.SZ, Rmb26.06, UNDERPERFORM, TP Rmb21.0) Kingdee Intl (0268.HK, HK$1.47) Yonyou Software (600588.SS, Rmb9.69) Bank of Beijing (601169.SS, Rmb8.97, OUTPERFORM, TP Rmb10.73) Bank of Nanjing (601009.SS, Rmb9.39, NEUTRAL, TP Rmb9.71) Bank of Ningbo (002142.SZ, Rmb10.41, NEUTRAL, TP Rmb11.65) Industrial Bank (601166.SS, Rmb18.26, NEUTRAL, TP Rmb21.33)

Disclosure Appendix

Important Global Disclosures The persons primarily responsible for this research report certify that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject companies and securities and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Price and Rating History for Glodon Software Co Ltd (002410.SZ)

002410.SZ Closing Price Target Price Date (Rmb) (Rmb) Rating 20-Jun-11 20.51 28.67 O * 24-Aug-11 26.17 30.00 28-Feb-12 20.67 24.67 13-Jun-12 24.30 21.50 U * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM UNDERPERFORM

Price and Rating History for Bank of Beijing (601169.SS)

601169.SS Closing Price Target Price Date (Rmb) (Rmb) Rating 11-May-12 8.49 11.33 O * 13-Jun-12 7.86 10.60 28-Nov-12 7.21 9.36 14-Jan-13 9.35 11.41 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM

Price and Rating History for Bank of Nanjing (601009.SS)

601009.SS Closing Price Target Price Date (Rmb) (Rmb) Rating 11-May-12 9.36 10.37 N * 13-Jun-12 8.59 9.85 28-Nov-12 7.61 8.19 14-Jan-13 9.24 9.82 * Asterisk signifies initiation or assumption of coverage.

NEUTRAL

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Price and Rating History for Bank of Ningbo (002142.SZ)

002142.SZ Closing Price Target Price Date (Rmb) (Rmb) Rating 11-May-12 10.28 12.82 O * 13-Jun-12 9.43 12.25 29-Nov-12 8.78 10.19 N 14-Jan-13 10.55 12.44 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM NEUTRAL

Price and Rating History for Industrial Bank (601166.SS)

601166.SS Closing Price Target Price Date (Rmb) (Rmb) Rating 15-Oct-12 12.18 11.53 U * 28-Nov-12 12.58 12.15 14-Jan-13 17.27 18.80 N * Asterisk signifies initiation or assumption of coverage.

UNDERPERFORM NEUTRAL

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relat ive attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

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*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 43% (53% banking clients) Neutral/Hold* 39% (47% banking clients) Underperform/Sell* 15% (39% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Glodon Software Co Ltd (002410.SZ) Method: Our target price of Rmb21.00 is calculated by applying 0.9x FY14-15E PEG, or 19x FY13E P/E, on our FY13E EPS of Rmb1.13. Risk: Risks to our target price include: architecture industry demand risk; industry policy risk (both upside and downside); M&A integration risk (both upside and downside) and management execution risk.

Price Target: (12 months) for Bank of Ningbo (002142.SZ) Method: We adopted the Gordon Growth Model to derive the fair value of Bank of Ningbo. Our 12-month target price of Rmb11.65 for NBCB was derived from 1.33x forward price-to-book or 7.2x forward price-to-earnings. We used a mid-term ROE of 18.5% and cost of equity of 14.7% (beta of 1.2) and a long-term growth of 35%. Risk: The major risks to our target price of Rmb11.65 for NBCB include general economic slowdown, margin compression and interest rate liberalisation that influence its credit cost and net interest margin (NIM) assumptions. At the company level, MSE lending model performance, outlets addition, Ningbo banking competition and Zhejiang regional economic performance is crucial. Price Target: (12 months) for Bank of Nanjing (601009.SS) Method: We adopted the Gordon Growth Model to derive the fair value of Bank of Nanjing. Our 12-month target price of Rmb9.71 for NJCB was derived from 1.02x forward price-to-book or 6.9x forward price-to-earnings. We used a mid-term ROE of 14.8% and cost of equity of 14.5% (beta of 1.18) and a long-term growth of 3%. Risk: We adopted the Gordon Growth Model to derive the fair value of Bank of Nanjing. Our 12-month target price of Rmb9.71 for NJCB was derived from 1.02x forward price-to-book or 6.9x forward price-to-earnings. We used a mid-term ROE of 14.8% and cost of equity of 14.5% (beta of 1.18) and a long-term growth of 3%. Price Target: (12 months) for Industrial Bank (601166.SS)

Method: We adopted the Gordon Growth Model to derive the fair value of China Industrial Bank. Our 12-month target price of Rmb21.33 for CIB was derived from 1.35x forward price-to-book or 6.2x forward price-to-earnings. We used a mid-term ROE of 21.7% and cost of equity of 16.8% (beta of 1.42) and a long-term growth of 3%. Risk: Our target price of Rmb21.33 for CIB is very sensitive to credit cost and net interest margin (NIM) assumptions. Changes in China’s banking policies and regulations could lead to higher credit risk and market risk. At the company level, good execution of business line restructuring and interbank business operation is crucial. Price Target: (12 months) for Bank of Beijing (601169.SS)

Method: We adopted the Gordon Growth Model to derive the fair value of Bank of Beijing. Our 12-month target price of Rmb10.73 for BOB was derived from 1.19x forward price-to-book or 7.2x forward price-to-earnings. We used a mid-term ROE of 16.4% and cost of equity of 14.3% (beta of 1.15 and a long-term growth of 3%).

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Risk: The major risks to our target price of Rmb10.73 for BOB include general economic slowdown, margin compression and interest rate liberalisation that influence its credit cost and net interest margin (NIM) assumptions. At the company level, branch expansion/operation and Beijing regional economic performance is crucial.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (002142.SZ, 601009.SS, 601166.SS, 601169.SS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (601166.SS, 601169.SS) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (002142.SZ, 601009.SS, 601166.SS) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (601166.SS) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (601166.SS, 601169.SS) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (601166.SS, 601169.SS) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (002142.SZ, 601009.SS, 601166.SS) within the past 12 months Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (002410.SZ, 002142.SZ, 601009.SS, 601166.SS, 601169.SS) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS- -Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. The non-U.S. persons, Vincent Chan, Archibald Pei, Yingying Yang are not registered/qualified as research analysts with FINRA. They are not associated persons of CSSU and therefore are not subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Founder Securities Limited is a joint venture established in the People's Republic of China between Credit Suisse AG and Founder Securities Co, Ltd.

See the Companies Mentioned section for full company names Credit Suisse Founder Securities expects to receive or intends to seek investment banking related compensation from the subject company (601166.SS, 601169.SS) within the next 3 months. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit- suisse.com/researchdisclosures or call +1 (877) 291-2683.

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