China / Hong Kong Company Guide
Towngas China Co Ltd
Version 1 | Bloomberg: 1083 HK Equity | Reuters: 1083.HK Refer to important disclosures at the end of this report
DBS Group Research . Equity 21 May 2018
BUY (Initiate coverage) Storing up for growth Last Traded Price ( 18 May 2018):HK$7.90 (HSI : 31,048) First mover advantage in large scale storage facilities Price Target 12-mth: HK$9.00 (14% upside) Dollar margin to remain stable despite winter gas A nalyst shortage Tony WU CFA +852 2971 1708 Sales volume to reach CAGR of 14% in FY17-20 [email protected] Patricia YEUNG +852 28638908 [email protected] Initiate with BUY rating, TP is set at HK$9.00
Price Relative More re-rating to go. Towngas China differs from other gas distributors in its determination to invest in midstream assets. By leveraging on the vast experience and resources of the parent company such as underground storage facility and LNG receiving terminal, it will allow the company to mitigate the dollar margin pressure and we believe the dollar margin will remain stable in FY18. Also, its gas sales volume growth is expected to reach a CAGR of 14% in FY17-20, which will help to drive up the adjusted earnings growth to 14% in FY17-20. This is expected to help the stock re-rate Forecasts and Valuation back to the 15-23x PE range before the oil price collapsed in FY Dec (HK$ m) 2017A 2018F 2019F 2020F 2014 and when volume growth was at double digit. Turnover 8,760 10,120 11,223 12,260 EBITDA 2,619 3,034 3,361 3,663 Where w e differ. The market underestimated the benefit of Pre-tax Profit 1,918 2,172 2,447 2,697 the gas storage facilities and LNG receiving terminal on the Net Profit 1,365 1,524 1,720 1,898 dollar margin. Our earnings estimate is 8% above the Net Pft (Pre Ex) (core profit) 1,284 1,524 1,720 1,898 EPS (HK$) 0.51 0.56 0.62 0.69 consensus. The market remain cautious on the downside in Core EPS (HK$) 0.48 0.56 0.62 0.69 margin and has not priced in the stable dollar margin EPS Gth (%) 38.3 9.5 11.6 10.4 outlook. Core EPS Gth (%) 22.4 16.5 11.6 10.4 Diluted EPS (HK$) 0.25 0.28 0.31 0.34 Potential catalyst. Better than expected dollar margin DPS (HK$) 0.15 0.18 0.20 0.22 supported by access to underground storage facility and a BV Per Share (HK$) 5.90 6.17 6.52 6.99 PE (X) 15.5 14.2 12.7 11.5 less severe winter gas shortage. Potential privatisation by Core PE (X) 16.5 14.2 12.7 11.5 HKCG may drive up the valuation closer to its parent as P/Cash Flow (X) 14.0 14.8 11.8 10.9 Towngas China is trading at >50% discount to HKCG. EV/EBITDA (X) 11.4 10.2 9.3 8.6 Net Div Yield (%) 2.0 2.3 2.5 2.8 Valuation: P/Book Value (X) 1.3 1.3 1.2 1.1 We initiate coverage on Towngas China with a BUY rating. Net Debt/Equity (X) 0.4 0.4 0.4 0.4 ROAE (%) 9.3 9.3 9.8 10.2 TP is set at HK$9.00 based on DCF valuation method. We assumed a beta of 1.0 with WACC of 7.4% and 1% Consensus EPS (HK$) 0.51 0.57 0.64 terminal growth. Other Broker Recs: B:5 S:1 H:3 Key Risks to Our View: ICB Industry: Utilities Low er-than-expected dollar margin. A more severe winter ICB Sector: Gas, Water & Multiutilities Principal Business: Investment, construction and operation of city gas shortage and dollar margin compression from gas pipeline projects government regulation will be negative to earnings growth.
Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX At A Glance Issued Capital (m shrs) 2,769 Mkt Cap (HK$m/US$m) 21,873 / 2,787 Major Shareholders (%) Hong Kong and China Gas Co Ltd 67 Common Wealth Bank of Australia 8 Free Float (%) 25 3m Avg. Daily Val. (US$m) 2.5
ed-TH / sa– CS / AH
China /Hong Kong Company Guide Towngas China Co Ltd
Table of Contents
SWOT Analysis 3 Valuation 4 Deeply rooted to the ground 5 Storing up for growth 6 Financial Analysis 9 Key Risks 10 Appendix 11 A lucrative industry with bright prospects 12
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China/Hong Kong Company Guide Towngas China Co Ltd
SWOT Analysis
Strengths Weak nesses
Solid management team Weaker new project acquisition ability Strong support by parent company, HKCG, which is Hong Lack of SOE background Kong’s first public utility company founded in 1862
Opportunities T hreats
Coal-to-gas conversion initiative to drive up gas sales volume Winter gas shortage may squeeze dollar margin in the short term Broadening of gas supply by construction of gas storage and LNG receiving terminal Downturn of industrial activities in China Development of integrated energy projects Government policy on gas distribution business Privatisation by parent company
Source: DBS Vickers
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China /Hong Kong Company Guide Towngas China Co Ltd
Valuation
We initiate coverage on Towngas China with a BUY rating, target price is set at HK$9.00 based on DCF valuation method, PE vs earnings growth which implies 16x FY18PE. We assumed a beta of 1.0 with WACC of 7.4% and 1% terminal growth. PE 20 China Gas The stock is currently trading at 13x twelve month rolling PE, 18 which is at a 15% discount to its major peers. The gas sales ENN 16 volume growth is expected to maintain a CAGR of 14% in CR Gas 14 FY17-20, and together with stable dollar margin, we believe the Towngas stock will re-rate back at least to the low end range of 15x-23x 12 PE before the oil price collapsed in 2014. 10 Kunlun
The drop in dollar margin for gas distributors has been one of 8 Tian Lun Gas the major overhangs for investors. We believe a stable dollar 6 BEH margin in FY18 would be positive to the share price. We reckon 4 Towngas China would be able to leverage on HKCG’s gas 2 storage and LNG receiving terminals to alleviate the margin pressure. The Jintan underground gas storage is the first large 0 scale underground storage of its kind built by city gas operators 0% 5% 10% 15% 20% 25% in China, and this puts it in a better position than operators FY18-20 earnings growth such as CR Gas, which lacks such facilities currently. Source: Bloomberg, DBS Vickers Similar to ENN, Towngas China has shifted its focus to develop distributed energy projects and we believe it is on the right track in tapping into a market with strong growth potential. While the related gas consumption remains small at c.300m m³ in FY17, it targets to reach 3.5bn m³ by 2022, which accounts for 42% of the total gas sales volume in FY17.
Peers valuation
Mk t PE PE Yield Yield P/Bk P/Bk EV/EBITDA ROE ROE Price Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F Company Name Code Local$ US$m Yr x x % % x x x x % % China Gas Holdings*# 384 HK 30.05 19,101 Mar 18.5 16.2 1.6 1.8 4.9 4.0 13.0 11.4 29.0 27.1 Enn Energy Holdings*^ 2688 HK 77.6 10,768 Dec 15.5 13.9 2.0 2.2 3.5 3.0 9.0 8.0 20.7 21.5 China Resources Gas Group* 1193 HK 29.15 8,294 Dec 15.8 15.2 2.3 2.6 2.6 2.4 8.0 7.6 17.3 16.5 Towngas China* 1083 HK 7.9 2,798 Dec 14.1 12.6 2.3 2.5 1.3 1.2 10.1 9.3 9.4 9.9 Beijing Enterprises Holdings 392 HK 43.25 6,983 Dec 7.6 6.9 2.5 2.7 0.8 0.7 11.0 10.6 10.3 10.4 Kunlun Energy 135 HK 7.19 7,425 Dec 9.9 8.7 3.5 3.9 1.1 1.0 5.1 4.6 11.5 12.2 China Tian Lun Gas Hdg.* 1600 HK 5.41 685 Dec 8.4 7.1 3.2 4.2 1.4 1.2 7.6 6.5 17.5 18.1
# FY18: FY19; FY19: FY20 ^ Core EPS Source: Thomson Reuters, *DBS Vickers
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China/Hong Kong Company Guide Towngas China Co Ltd
Deeply rooted to the ground
Early mover in gas distribution. Towngas China is one of the piped gas in China, including the provision of piped gas, major gas distributors in China and has accumulated rich construction of gas pipelines, operation of city gas experiences through its long operation history in China since networks/gas refilling stations and the sales of household gas 1994. It is mainly engaged in the sales and distribution of appliances.
Business overview
Source: Company, DBS Vickers
Its parent company, The Hong Kong and China Gas Company Company structure (HKCG, 3 HK), is the first public utility in Hong Kong founded in 1862. Panvas Gas was Towngas China's predecessor before The Hong Kong and China Gas it was acquired in 2007. Over the past decade, Towngas China Company Limited (3 HK) has enjoyed robust growth from China’s increasing use of natural gas. The project portfolio has grown from only 25 gas projects following the acquisition in 2007 to 108 projects 67.1% 7.8% 25.1% currently through new acquisitions and project injection from HKCG. Its total gas sales volume increased from 2.1bn m³ in 2007 to 8.4bn m³ in 2017, implying a CAGR of 15.1%. T owngas China Common Company Wealth Bank of Limited Public Australia (1083 HK)
*As of end 2017 Source: Company
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China /Hong Kong Company Guide Towngas China Co Ltd
Solid management team. Towngas China is recognised for its Storing up for growth good corporate governance and solid management team based in Hong Kong. Each of the senior management T he power of storage. We believe the dollar margin pressure members has extensive experience of more than 25 years in from winter gas shortage will gradually alleviate in the next their respective fields. The management team has received few years as the infrastructure becomes more mature in China. numerous prestigious rewards in recognition of their top We expect the dollar margin for Towngas China to be stable as management standard and quality. For example, Mr. Chan the group gains access to gas storage and supply sources. We Wing Kin was named one of the 100 Best-Performing CEOs in forecast the dollar margin to be flat at Rmb0.63/m3 in FY18. the world in 2015 by Harvard Business Review, the first-ever leader of a public utility corporation to join this rank. Towngas China will be able to leverage on HKCG's facilities, such as LNG receiving terminals and storage facilities, to A potential privatisation target. We believe it is possible for alleviate tight supply situations during winter. Since the severe HKCG to privatise Towngas China, though the timing would winter gas shortage in 2017, the government has issued the be hard to predict. It is evident that HKCG is gradually policy requiring upstream and downstream gas players to increasing its stake in Towngas China each year in the past construct 10% and 5% of storage capacities by the end of four years, upping its stake from 62.4% in FY14 to 67.1% by 2020. HKCG had planned ahead by starting the construction the end of FY17. HKCG has been a strong backup for Towngas of underground gas storage project at Jintan City, Jiangsu China with integrated natural gas businesses from upstream to province in 2015. The storage facility is expected to have a downstream distribution in HK/China. The parent company still capacity of 440m m³ and it is the first of its kind built by city - has 34 city gas projects in China. Also, Towngas China is gas enterprises in China. Construction of Phase 1 of the trading at a significant discount of >50% to HKCG. Therefore, storage was completed in January 2018 with a capacity of it makes sense to privatise Towngas China, which will be 140m m³, while phase 2 commenced construction in March beneficial to shareholders. and will have a storage capacity of 300m m³. As c.100m m³ of gas supply suffered from the hike in LNG price during last Increasing stake in HKCG winter, we believe this could effectively help to offset some of the pressure during the winter gas shortage. Position (mn) 1,900 70% Dollar margin
1,800 RMB/m3 65% 0.75 1,700 0.70 60% 1,600 0.65 1,500 55%
0.60
Jun-14
Jun-15
Jun-17
Sep-13
Sep-15
Sep-16
Sep-17
Dec-14
Dec-16
Mar-14
Mar-16 Mar-18 Position (LHS) % stake (RHS) 0.55
Source: Bloomberg, DBS Vickers 0.50 FY15 FY16 FY17 FY18 FY19 FY20
Source: Company, DBS Vickers
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China/Hong Kong Company Guide Towngas China Co Ltd
In addition, HKCG invested in a LNG receiving terminal project Combined cooling heating power system in Cangzhou city of Hebei in early 2018. The terminal has a designed receiving capacity of 2.6m tons per year, and half of Steam or Hot Cooling/ it is expected to be operational by 2021. This would imply a Water Heating total of c.1.8bn m³ of additional gas supply for winter usage in the Hebei-Tianjin-Beijing area by 2021. We believe the improvement of storage infrastructure and access to LNG Heat Water Recovery terminal will help Towngas to ease winter gas shortage and Unit dollar margin pressure. Hot
Exhaust Electricity Gases Building or Jiangsu Jintan underground storage Facility Engine Fuel or Generator Turbine Grid
Source: DBS Vickers
Distributed Energy System in Snow Brewery (Sichuan)
Source: Company
A mbitious target for distributive energy. In view of the government’s push to boost natural gas consumption and the promotion of distributed gas energy projects, Towngas China has set up integrated energy investment platforms, namely Towngas China Energy investment Shenzhen Limited (TCEI) Source: Company and SCEI Distributed Energy systems in 2016 and it is actively expanding into the market. The government targets to increase installed capacity for gas-fired power plants to 110GW by 2020 from 66GW in 2015. In terms of investment returns, Towngas China has an IRR requirement of 10-12% for its distributed energy projects. In The distributed energy projects will mostly consist of combined 2017, Towngas China put several distributed energy projects cooling, heating and power systems, which is an energy- into operation, such as Snow Brewery in Chengdu City, efficient approach to produce energy. The energy efficiency of Sichuan Province, and the Luoshanhu Resort in Guilin City with these projects can reach >70%, compared to the 40-50% of total gas consumption reaching c.100m m³. We believe the traditional gas power projects. The distributed gas energy company is on the right track to tackle the distributed energy project is suitable in a variety of different markets ranging from space, which has strong growth potential. The company hospitals, commercial buildings, hotels, and industrial parks. targets to boost related gas consumption to 3.5bn m³ by 2022, We believe these projects will provide incentives for customers which is 42% of the company's total gas sales volume in FY17. to adapt as they can help save 10-15% of energy costs. HKCG also targets to increase new energy business to 15-20% of earnings by 2019/2020, demonstrating its determination to aggressively develop in the clean energy market. Towngas China can leverage on the network and resources from HKCG
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China /Hong Kong Company Guide Towngas China Co Ltd
to develop distributive energy business. While the target looks Natural gas consumption growth ambitious, the market has yet to price in the potential growth from this business and any positive development will be 20% positive to the share price. 18% Gas sales volume 16% 14% 20,000 12% 18,000 10% 16,000 8% 14,000 6% 12,000 4% 10,000 2% 8,000 0% FY13 FY14 FY15 FY16 FY17 1Q18 6,000 4,000 Towngas China Industry
2,000 Source: CEIC, DBS Vickers 0 FY14 FY15 FY16 FY17 FY22
Total Distributive energy related
Although the company’s sales volume growth is lower than Source: Company, DBS Vickers major peers', the growth is largely in line with the industry. In fact, its sales volume outperformed the industry average at
18% during FY17 and our channel check shows that the trend Sales volume to maintain double-digit growth. Amid the continued with volume growth of c.17% y-o-y during 1QFY18 government’s push and initiatives to increase natural gas while the natural gas consumption growth reached c.12% in usage, we believe Towngas China will be one of the major China. We expect the volume growth to achieve a CAGR of th 15% in FY17-20. beneficiaries. According to the 13 FYP for natural gas, the government targets to increase the proportion of natural gas consumption from the current 6.4% in 2016 to 10% in 2020. We expect the total gas consumption by China to reach above 340bn m³ in 2020, implying a CAGR of 15%.
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China/Hong Kong Company Guide Towngas China Co Ltd
Financial Analysis New residential connection (consolidated)
We forecast the adjusted earnings CAGR for Towngas China to reach 14% in FY17-FY20, mainly attributed to the increase in 440,000 gas sales volume growth, partially offset by a mild decline in 430,000 dollar margin. 420,000
The revenue consists of sales of natural gas and connection fee 410,000 income. We expect revenue from gas sales to increase 18% and 13% respectively in FY18 and FY19. The increase in gas 400,000 sales is mainly driven by the volume growth of 17% and 15%. 390,000 According to our channel check, its gas volume growth reached 17% in 1Q18, outperforming the industry growth of 380,000 12%. We assume the volume growth to continue to beat the 370,000 industry average slightly. The city gate price was adjusted 360,000 down by Rmb0.1/m³ in September 2017, but this will be offset FY15 FY16 FY17 FY18 FY19 FY20 by the c.3% appreciation in Renminbi since mid-2017. We expect the ASP to remain at a similar level in FY18 and FY19. Source: Company, DBS Vickers For gas connection fees, we expect revenue to increase 7% and 3% in FY18 and FY19 respectively. We factor in 412,000/424,000 new household connections for FY18/FY19. We have assumed a flat average household connection fee. The operating margin is expected to improve from 14.7% in FY17 to 15.5% in FY18 and FY19 on good cost control. The dollar margin is expected to remain stable at Rmb0.63/m³ in FY18, and slightly decline to Rmb0.62/m³ and Rmb0.61/m³ in Business revenue FY19 and FY20 respectively. Although supply could remain tight during the winter a potential downward revision of 14,000 distribution margin in high-dollar-margin regions, the access to 12,000 HKCG’s gas storage and LNG receiving terminal will help to alleviate the pressure. 10,000 EBIT margin 8,000
6,000 16%
4,000 16% 15% 2,000 15% 0 14% FY15 FY16 FY17 FY18 FY19 FY20 Gas sales New connection 14% 13% Source: Company, DBS Vickers 13%
12% 12% FY15 FY16 FY17 FY18 FY19 FY20 Source: Company, DBS Vickers
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China /Hong Kong Company Guide Towngas China Co Ltd
Dollar margin Key Risks
RMB/m3 Dollar margin declines more than expected. Severe winter gas 0.75 shortage, competition from direct LNG supply, and government policy changes may negatively affect the dollar 0.70 margin of downstream distributors.
Disappointment in gas sales volume growth. A downturn in 0.65 economic activities in China will dampen the demand for natural gas and affect the sales volume growth. 0.60 Sharp decline in oil price. As oil is an alternative fuel to natural 0.55 gas, a drop in oil price will reduce the attractiveness of natural gas and negatively affect the demand.
0.50 FY15 FY16 FY17 FY18 FY19 FY20
Source: Company, DBS Vickers
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China/Hong Kong Company Guide Towngas China Co Ltd
Appendix
Management profile
Name A ge Position Experience Mr. Chan Wing Kin, 67 Chairman & ED Mr. Chan took up his current roles since 2007 and is the MD of HK-listed company HKCG Alfred (0003.hk) and vice chairman of Shanghai-listed company Shenzhen Gas Corporation Ltd., (601139:Shanghai). He is an Honorary President of The Hong Kong Management Association and Vice Chairman of China Gas Association. He was named consecutively as one of "The 100 Best-Performing CEOs in the World" by Harvard Business Review from 2015 to 2017. Mr. Wong Wai Yee, 66 ED & CEO Mr. Wong joined Towngas China in 2007 and has >41 years of experience in corporate Peter finance and management. He is also the ED and COO – utilities business of HKCG (0003.hk) and holds directorships in various subsidiaries of HKCG. Mr. Wong was named consecutively as one of "The Best CEO of Chinese Listed Companies" by Forbes in 2012 and 2013. Mr. Ho Hon Ming, 61 ED & Company Mr. Ho took up his current positions in 2007 and has >39 years in accounting, corporate John Secretary finance and investment. He is also the CFO and the company secretary of HKCG (0003.hk) and director roles in various subsidiaries of HKCG. Mr. Ho graduated from the University of Manchester in the U.K with an honorable Bachelor of Arts degree in Economics and Social Studies (Accounting and Finance). Mr. Kee Wai Ngai, 51 ED Mr. Kee has been ED since 2015 and was appointed as COO in July 2017. Mr. Kee joined Martin HKCG since 1990 and took up various roles including but not limited to general manager of Changzhou HK and China Gas Company Ltd and SVP of Nanjing HK and China Gas Company Ltd. He graduated from the Department of Engineering, The University of Hong Kong and holds a master degree in Business Administration. Source: Company, DBS Vickers
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China /Hong Kong Company Guide Towngas China Co Ltd
A lucrative industry with bright prospects
Natural gas is greatly supported by the Chinese government as China natural gas consumption mix a type of fossil fuel that burns cleaner than oil or coal. The government is currently reducing coal consumption and Construction Wholesale, 0% Transport, Retail and increasing clean energy consumption in an attempt to improve Storage & Catering Na the environment. China targets to increase the energy Telecom 3% 12% consumption proportion for natural gas from 5.9% in 2015 to 10% in 2020 and 15% in 2030. By the end of 2017, natural gas consumption had increased by 15% to 237.3bn m3, Residential 19% accounting for 6.2% of total energy consumption in China. In order to reach the government’s target, we expect natural gas 3 consumption to exceed 340bn m by 2020, representing a Other CAGR of 14% from 2016-2020. Industrial Consumption 64% 2%
China natural gas consumption Source: CEIC
m m3 300,000 30% Average operating heat rate 250,000 25%
200,000 20% Btu/ kwh 12,000 150,000 15% 11,000 100,000 10% 10,000 50,000 5% 9,000 0 0%
8,000
2007
2008
2009
2010
2011
2012
2013
2014
2015 2016 2017 7,000 Natural gas consumption (LHS) Growth (RHS) 6,000
2005
2006
2007
2008
2009
2010
2011
2012
2013 2014 Source: CEIC 2015 Coal Petroleum Natural Gas
Source: EIA Natural gas consumption volume is highly dependent on industrial users, which in turn is correlated to underlying economic growth and the implementation of coal-to-gas Natural gas enjoys higher efficiency and lower carbon dioxide conversion. Approximately 64% and 19% of the natural gas (CO2)/nitrogen oxide (NO)/sulphur dioxide (SO2) emission was consumed by industrial and residential users respectively. compared to some of the traditional fossil fuels. Natural gas For residential gas usage, it is mainly driven by the increasing emits 50%/80%/99% less CO2/NO/SO2 than coal, and penetration into existing residential buildings and construction of new residential buildings. 30%/80%/99% less than oil. Natural gas power plants operate at c.25% lower heat rate (more efficient) than coal and Thanks to the improved economic growth and accelerated coal petroleum power plants. to gas conversion in China, natural gas consumption growth rebounded in FY17, rising 15% y-o-y. We expect gas sales growth to continue as the government tightens natural gas policy enforcement in order to reach its natural gas consumption target.
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China/Hong Kong Company Guide Towngas China Co Ltd
Current city-gate pricing mechanism. The pricing mechanism price flexibility. At the current stage, the “market netback” for natural gas has seen several changes over the past years pricing method is adopted, where a maximum city -gate price is and it is heading towards the direction of market-oriented set by the NDRC, and the price is pegged to the alternative pricing. Prior to 1993, the ex-factory gas price was set by the energy price.
government. Since then, natural gas price has gradually adopted government-guided pricing, which implies greater
Natural gas price-setting policies
Date Policy Policy details Before Cost plus pricing method (Natural gas price set by 2011 government and facilitated by market. Price is determined at reasonable margin on top of production cost. ) Dec-11 Market net back pricing method. Link city gate market Trial in Guangdong and Guangxi price with alternative fuels Jul-13 Market net back pricing method. Separate existing gas Seeks to adjust price of incremental gas to a fair level volume and incremental gas volume. Link incremental gas comparable to alternative energy’s price. For non-residential price with alternative fuels. use, price will increase RMB 0.4/m³. Price for gas used to produce fertilizers will merge and increase by RMB 0.25/m³. Price for residential users will remain unchanged. Sep-14 Market net back pricing method. Narrow price down Price for incremental gas remains unchanged. Non-residential differences between existing and incremental gas. users' existing gas price increase RMB 0.4/ m³. Price for gas used to produce fertilizers and residential users remain unchanged. Apr-15 Market net back pricing method. Merge existing and Non-residential users incremental gas decrease by RMB 0.44/ incremental gas. m³. Existing gas increase RMB 0.04/ m³. Price for gas used to produce fertilizers increase by less than RMB 0.2/ m³ to a suitable level. Price for residential users will remain unchanged. Nov-15 Market net back pricing method. Price for non-residential users decrease RMB 0.7/ m³. No price floor is set while the ceiling price can increase by 20% starting from 20 Nov 2016 Aug-17 Market net back pricing method. Price for non-residential users decrease RMB 0.1/ m³ Source: NDRC, DBS Vickers
The fluctuation in alternative fuel price has an impact on gas Alternative fuel price and natural gas price demand growth. We noticed that the price discount of natural (Rmb/mmbtu) gas price compared to alternative fuel price has widened, which 100 is expected to lead to an acceleration in gas demand growth. 80 The price discounts of Shanghai city-gate price is 43%, 28% to fuel oil and crude oil in November 2017, compared to 30% and 60 13% in January 2017 respectively. 40 20
0
Jul-17
Jan-17
Jan-18
Jun-17
Oct-17
Feb-17
Feb-18
Apr-17
Sep-17
Dec-17
Nov-17
Mar-17
Mar-18
Aug-17 May-17 LPG Fuel Oil Crude Coal Shanghai city-gate price
Source: DBS Vickers
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China /Hong Kong Company Guide Towngas China Co Ltd
Generate share price performance vs HSI
Jan 1, 2010 = 1.0 3.5 New project acquisition and increasing gas 3.0 consumption
2.5 Accelerated sales volume growth from coal-to-gas conversion 2.0
1.5
1.0 Decline in dollar margin and slowdown in sales 0.5 volume growth
0.0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Source: Company, DBS Vickers
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China/Hong Kong Company Guide Towngas China Co Ltd
CRITICAL FACTORS TO WATCH Blended dollar margin (Rmb / m3)
Critical Factors Gas supply facilities to support dollar margin. We expect its dollar margin to remain relatively stable as it can utilise HKCG’s gas storage and LNG receiving terminal as early as FY18. We forecast the dollar margin to be flat at Rmb0.63/m3 in FY18.
HKCG is constructing a storage facility in Jiangsu with a capacity of 440m m³. Construction of phase 1 of the storage facility, with a capacity of 140m m³, was completed in January 2018. In addition, HKCG invested in a LNG receiving terminal in Gas sales volume (m m3) Cangzhou city of Hebei in early 2018. The terminal has a designed receiving capacity of 2.6m tons per year, and half of it is expected to be operational by 2021. This would imply a total of c.1.8bn m³ of additional gas supply for winter usage in the Hebei-Tianjin-Beijing area. We believe the improvement of storage infrastructure and access to LNG terminal will help Towngas to ease winter gas shortage and dollar margin pressure in the medium term.
Increasing demand for natural gas. Amid the government’s push and initiatives to increase natural gas usage, we believe Consolidated new connection # Towngas China will be one of the major beneficiaries. According to the 13th FYP for natural gas, the government targets to increase the proportion of natural gas consumption from 6.4% in 2016 to 10% in 2020. We expect the total gas consumption to exceed 340bn m³ in 2020, implying a CAGR of 14%. Towngas China’s sales volume outperformed the industry average at 18% during FY17 and our channel check shows that the company continued to achieve decent volume growth of c.17% y-o-y during 1QFY18 while the natural gas consumption growth reached c.12% in China. We expect the company to achieve 17% growth in FY18. Source: Company, DBS Vickers
Priv atisation by parent company. We believe it is possible for HKCG to privatise Towngas China. HKCG has been a strong backup for Towngas China with integrated natural gas business in HK/China, and the parent company still has 34 city gas projects in China. Also, Towngas China has been trading at a significant discount of >50% to HKCG.
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China /Hong Kong Company Guide Towngas China Co Ltd
Leverage & Asset Turnover (x) Balance Sheet: Solid balance sheet. The net gearing level will gradually decline as FCF increases on higher gas sales volume. This will support the increase in dividend payout in the future. The capital expenditure is expected to reach HK$2bn in FY18, of which c.HK$1.5bn will be utilised for maintenance while the rest will be used to acquire new projects. We expect the net gearing ratio to drop from 45% in FY17 to 40% in FY20.
Share Price Drivers: Capital Expenditure Narrow ing of dollar margin decline. The operation of Jintan underground storage and the construction of LNG receiving terminal will allow Towngas China to have additional low cost gas supply during peak season in the winter, supporting the dollar margin pressure going forward.
Sales volume increase from coal-to-gas conversion. Towngas China will be one of the beneficiaries of China’s increasing demand for natural gas. The strong momentum in coal-to-gas conversion and strong growth potential from integrated energy ROE business will help to drive up the gas sales volume.
Key Risks: Low er-than-expected gas sales volume. A downturn in economic activities, sharp drop in oil price, and sluggish coal-to-gas conversion could negatively affect demand for natural gas.
Company Background: Forward PE Band Towngas China is one of the major gas distributors in China. It is mainly engaged in the sales and distribution of piped gas in China, including the provision of piped gas, construction of pipelines, operation of city gas networks and gas refilling stations as well as the sales of household gas appliances. By the end of FY17, it had a total of 105 gas projects while its total gas sales volume had reached 8.4bn m³.
PB Band
Source: Company, DBS Vickers
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China/Hong Kong Company Guide Towngas China Co Ltd
Key Assumptions FY Dec 2015A 2016A 2017A 2018F 2019F 2020F
Blended dollar margin 0.70 0.69 0.63 0.63 0.62 0.61 (Rmb / m3) Gas sales volume (m m3) 6,562.0 7,120.0 8,417.0 9,747.7 11,099.5 12,440.4 Consolidated new 389,000.0 400,000.0 400,000.0 412,000.0 424,360.0 432,847.2 connection # Source: Company, DBS Vickers
Segmental Breakdown (HK$ m)
FY Dec 2015A 2016A 2017A 2018F 2019F 2020F R e venues (HK$ m) Gas sales 6,010 5,518 6,996 8,243 9,290 10,288 Connection fee 1,708 1,663 1,764 1,877 1,933 1,972 T otal 7, 718 7, 181 8, 760 10, 120 11, 223 12, 260 E BIT margin (HK$ m) Gas sales 303 301 482 704 854 1,007 Connection fee 715 722 807 858 884 902 T otal 1, 017 1, 023 1, 289 1, 563 1, 739 1, 909 E BIT margin Margins (%) Gas sales 5.0 5.5 6.9 8.5 9.2 9.8 Connection fee 41.8 43.4 45.7 45.7 45.7 45.7 T otal 13. 2 14. 2 14. 7 15. 4 15. 5 15. 6 Source: Company, DBS Vickers
Income Statement (HK$ m) FY Dec 2015A 2016A 2017A 2018F 2019F 2020F Revenue 7,718 7,181 8,760 10,120 11,223 12,260 Other Opng (Exp)/Inc (6,412) (6,098) (7,552) (8,557) (9,485) (10,351 O pe rating Profit 1, 306 1, 084 1, 208 1, 563 1, 739 1, 909) Other Non Opg (Exp)/Inc (162) 65 257 209 232 253 Associates & JV Inc 593 618 633 698 774 834 Net Interest (Exp)/Inc (181) (251) (262) (299) (299) (299) Dividend Income 0 0 0 0 0 0 Exceptional Gain/(Loss) (288) (60) 82 0 0 0 Pre -tax Profit 1, 268 1, 455 1, 918 2, 172 2, 447 2, 697 Tax (344) (362) (405) (478) (538) (593) Minority Interest (117) (119) (147) (170) (188) (206) Preference Dividend 0 0 0 0 0 0 Ne t Profit 807 974 1, 365 1, 524 1, 720 1, 898 Net Profit before Except. 1,095 1,034 1,284 1,524 1,720 1,898 EBITDA 2,186 2,246 2,619 3,034 3,361 3,663 Growth Revenue Gth (%) (2.1) (7.0) 22.0 15.5 10.9 9.2 EBITDA Gth (%) (1.9) 2.8 16.6 15.8 10.8 9.0 Opg Profit Gth (%) 10.0 (17.0) 11.4 29.4 11.2 9.8 Net Profit Gth (%) (23.4) 20.7 40.2 11.6 12.8 10.4 M a rgins & Ratio Gross Margins (%) 100.0 100.0 100.0 100.0 100.0 100.0 Opg Profit Margin (%) 16.9 15.1 13.8 15.4 15.5 15.6 Net Profit Margin (%) 10.5 13.6 15.6 15.1 15.3 15.5 ROAE (%) 6.0 7.2 9.3 9.3 9.8 10.2 ROA (%) 2.9 3.4 4.5 4.5 4.9 5.1 ROCE (%) 4.1 3.5 3.9 4.5 4.8 5.0 Net Interest Cover (x) 7.2 4.3 4.6 5.2 5.8 6.4 Source: Company, DBS Vickers
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Balance Sheet (HK$ m) FY Dec 2015A 2016A 2017A 2018F 2019F 2020F
Net Fixed Assets 12,055 12,692 15,060 16,515 17,918 19,270 Invts in Associates & JVs 5,012 5,056 6,342 6,761 7,226 7,726 Other LT Assets 7,147 6,738 7,210 7,290 7,351 7,408 Cash & ST Invts 2,138 1,439 1,605 1,093 944 924 Inventory 558 493 637 652 724 790 Debtors 1,507 1,190 1,393 1,492 1,655 1,808 Other Current Assets 454 420 528 609 676 738 T otal Assets 28, 871 28, 027 32, 775 34, 414 36, 493 38, 664
ST Debt 3,183 2,653 3,708 3,708 3,708 3,708 Creditors 4,160 4,333 5,173 5,444 6,034 6,586 Other Current Liab 805 785 1,041 1,203 1,334 1,457 LT Debt 4,591 5,184 5,072 5,072 5,072 5,072 Other LT Liabilities 1,431 409 583 583 583 583 Shareholder’s Equity 13,478 13,499 15,845 16,882 18,052 19,343 Minority Interests 1,222 1,165 1,353 1,522 1,711 1,916 T otal Cap. & Liab. 28, 871 28, 027 32, 775 34, 414 36, 493 38, 664
Non-Cash Wkg. Capital (2,446) (3,014) (3,657) (3,893) (4,314) (4,706) Net Cash/(Debt) (5,636) (6,398) (7,174) (7,686) (7,836) (7,856) Debtors Turn (avg days) 77.9 68.5 53.8 52.0 51.2 51.6 Creditors Turn (avg days) (3,372.6) (3,229.0) (3,332.8) (3,438.3) (3,400.1) (3,454.1) Inventory Turn (avg days) (457.1) (399.7) (396.0) (417.4) (407.6) (414.4) Asset Turnover (x) 0.3 0.3 0.3 0.3 0.3 0.3 Current Ratio (x) 0.6 0.5 0.4 0.4 0.4 0.4 Quick Ratio (x) 0.4 0.3 0.3 0.2 0.2 0.2 Net Debt/Equity (X) 0.4 0.4 0.4 0.4 0.4 0.4 Net Debt/Equity ex MI (X) 0.4 0.5 0.5 0.5 0.4 0.4 Capex to Debt (%) 25.0 24.2 20.8 22.8 22.8 22.8 Z-Score (X) NA NA NA NA NA NA
Source: Company, DBS Vickers
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China/Hong Kong Company Guide Towngas China Co Ltd
Cash Flow Statement (HK$ m) FY Dec 2015A 2016A 2017A 2018F 2019F 2020F
Pre-Tax Profit 1,268 1,455 1,918 2,172 2,447 2,697 Dep. & Amort. 449 480 521 564 616 667 Tax Paid (242) (294) (319) (478) (538) (593) Assoc. & JV Inc/(loss) (593) (618) (633) (698) (774) (834) (Pft)/ Loss on disposal of FAs 0 0 0 0 0 0 Chg in Wkg.Cap. 327 656 229 156 356 332 Other Operating CF 207 (13) (200) (252) (255) (268) Ne t Operating CF 1, 417 1, 667 1, 515 1, 464 1, 852 2, 001 Capital Exp.(net) (1,943) (1,900) (1,824) (2,000) (2,000) (2,000) Other Invts.(net) (212) (139) (65) 0 0 0 Invts in Assoc. & JV (128) (156) (345) 0 0 0 Div from Assoc & JV 310 419 247 279 310 333 Other Investing CF 203 179 106 (99) (80) (75) Ne t Investing CF ( 1,770) ( 1,596) ( 1,880) ( 1,820) ( 1,770) ( 1,742) Div Paid (97) (63) (49) (488) (550) (607) Chg in Gross Debt 1,261 (608) 562 0 0 0 Capital Issues 41 0 0 0 0 0 Other Financing CF (43) (89) 7 331 319 329 Ne t Financing CF 1, 161 ( 759) 520 ( 156) ( 231) ( 278) Currency Adjustments (121) (99) 100 0 0 0 Chg in Cash 687 (787) 254 (512) (150) (20) Opg CFPS (HK$) 0.42 0.38 0.48 0.48 0.54 0.60 Free CFPS (HK$) (0.20) (0.09) (0.12) (0.20) (0.05) 0.00
Source: Company, DBS Vickers
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China /Hong Kong Company Guide Towngas China Co Ltd
DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows: S TRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) B U Y (>15% total return over the next 12 months for small caps, >10% for large caps) H O LD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FU LLY VALUED (negative total return i.e. > -10% over the next 12 months) S ELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 21 May 2018 16:24:06 (HKT) Dissemination Date: 21 May 2018 17:34:33 (HKT)
Sources for all charts and tables are DBS Vickers unless otherwise specified.
GEN ERAL DISCLOSURE/DISCLAIMER
Th is report is prepared by DBS Vickers (Hong Kong) Limited (“DBSV HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Bank (Hong Kong) Limited (DBS HK), DBSV HK, and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSV HK.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in pr eparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication give n in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any s ecurities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mention ed in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is un der no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary s ignificantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
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A N ALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or i n whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise i n connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment ba nking function of the DBS Group.
C O MPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates have proprietary positions in China Gas Ho ldings Limited (384 HK), Enn Energy Holdings Limited (2688 HK), Beijing Enterprises Holdings Limited (392 HK) and Kunlun Energy Company Limited (135 HK) recommended in this report as of 16 May 2018.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. C o mpensation for investment banking services: DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, withi n the past 12 months for investment banking services from Commonwealth Bank Of Australia (CBA AU) and Beijing Enterprises Holdings Limited (392 HK) as of 30 Apr 2018.
DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will r eceive or intend to seek compensation for investment banking services from Commonwealth Bank Of Australia (CBA AU) as of 30 Apr 2018.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
4. D isclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step -child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or i nvestments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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R ESTRICTIONS ON DISTRIBUTION Ge neral This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. A ustralia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946. DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSVHK is regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws.
Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
H o ng Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. I ndonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR S ingapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute repo rts produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Th ailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. U nited This report is produced by DBSVHK which is regulated by the Hong Kong Securities and Futures Commission
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In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. D u bai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3 rd Floor, I n ternational Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Fi nancial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for C entre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
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U nited Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Em irates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. U nited States This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restricti ons on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. O ther In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, j urisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. D BS Vickers (Hong Kong) Limited 18th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) 2820-4888, Fax: (852) 2868-1523 Company Regn. No. 31758
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H O NG KONG MA LAYSIA S INGAPORE D BS Vickers (Hong Kong) Ltd A llianceDBS Research Sdn Bhd D BS Bank Ltd C o ntact: Carol Wu C o ntact: Wong Ming Tek (128540 U) C o ntact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 2820 4888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2863 1523 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong Ltd e-mail: [email protected] Company Regn. No. 196800306E
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