Another Chapter of E-Mobility

Building on principles One-Asia Research | May 15, 2020 Another Chapter of E-Mobility

Asia Batteries and Materials

Change is afoot on the crowded streets of Jakarta, with electric motorcycles starting to pop up among the throngs of gas-guzzling scooters. Meanwhile, in air-conditioned conference rooms, government oﬃcials are drawing up initiatives to support the establishment of a comprehensive e-mobility ecosystem. As electriﬁcation picks up in Indonesia, we expect to see a plethora of positives, including a boost to local manufacturing, a decrease in petroleum imports, new business opportunities for companies across the value chain, and lower energy costs for consumers.

Significantly, the march toward electric motorcycle-centered e-mobility is not just an Indonesian phenomenon; indeed, we are seeing it take shape across South and Southeast Asia. For India, Indonesia, and Vietnam-which are at the forefront of the wave-we expect the value of the total addressable market to reach around US$100bn by 2030. As such, we believe that ride-sharing platform operators such as Grab are set to take a quantum leap, and that venture capital firms are likely to find new investment opportunities.

But overall, we think the biggest beneﬁciaries of the rise of electric motorcycles (coupled with EV market expansion) will be battery players. With this in mind, we advise investors to focus on battery suppliers such as China-based CATL and Korea-based LG Chem. Indonesia’s Aneka Tambang also deserves attention, given its expected entry into the battery materials market on the back of its abundant nickel ore reserves.

Youngbae Kwon, CFA Joe Liew Andy Wibowo Gunawan Ly Le +822-3774-6012 +852-2514-1336 +62-21-5088-7000 (ext. 163) +84-28-3910-2222 [email protected] [email protected] [email protected] [email protected]

Yeon-ju Park Yongdai Park Hyunwoo Jin Jay (Jaeil) Lee +822-3774-1755 +822-3774-1782 +822-3774-1394 +822-3774-1388 [email protected] [email protected] [email protected] [email protected]

This publication was prepared by Mirae Asset Daewoo Co., Ltd. and/or its non-U.S. affiliates (“Mirae Asset Daewoo”). Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation, or warranty, express or implied, as to the fairness, accuracy, or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed, or published in whole or in part for any purpose. Please see important disclosures & disclaimers in Appendix 1 at the end of this report. Another Chapter of E-Mobility May 15, 2020

CONTENTS

I. Executive summary 3

II. Investment points 5 1. E-mobility in Asia: Huge market potential centered on electric motorcycles 5 2. Potential business models: Ride-sharing and subscriptions 8 3. Battery/material suppliers warrant attention 9

III. Electric motorcycles, a new growth driver 13 1. India and Southeast Asia: Motorcycles to reign for the time being 13 2. Electric motorcycles to gain traction 17

IV. India and Indonesia: The largest market and the manufacturing hub 23 1. Largest motorcycle market: India 23 2. Indonesia to emerge as ASEAN’s manufacturing hub 28 3. VinFast leads the Vietnamese market 34

V. Global EV market outlook 36 1. Global EV market outlook 36 2. European market: Current hardships will not hold back the future 37 3. US market outlook: Tesla-oriented growth likely 40 4. Chinese market outlook: Now is the beginning 42

Company analysis CATL (300750 CH) 46 Tianqi Lithium (002466 CH) 60 Aneka Tambang (ANTM IJ) 75 LG Chem (051910 KS) 81

2 Mirae Asset Daewoo Research Another Chapter of E-Mobility May 15, 2020

I. Executive summary

We expect the e-mobility market in Asia—particularly in India, Indonesia, Vietnam, and the Philippines—to enter a full-fledged growth phase, with the value of the relevant addressable markets likely to exceed US$100bn by 2030. Notably, electric motorcycles should replace gasoline-powered motorcycles as the main mode of transportation in key countries, causing related industries to rapidly expand.

In India, Indonesia, Vietnam, and the Philippines, we estimate that the electrification of motorcycles will, by 2030, generate value of US$89bn for e-mobility firms, US$37bn for consumers/employees, and US$25bn for governments, while causing petroleum exporters and gasoline-powered motorcycle manufacturers to incur drags of US$38bn and US$54bn, respectively.

E-mobility market growth is presenting new business opportunities to ride-sharing platform players operating in Southeast Asia, such as Grab and Gojek. Indeed, these companies are now offering monthly subscription plans that grant users unlimited rides and access to battery charging stations. Some ride-sharing platforms have already placed hundreds of electric motorcycle orders with Indonesian manufacturers. Such orders should grow markedly once stable operations and profits are confirmed.

The takeoff of the e-mobility market should also present new opportunities to investors. In the electric motorcycle manufacturing and subscription services segments, which are in the early stages, we expect risk capital (e.g., venture capital) to play an increasingly important role going forward. We also anticipate a growing number of joint ventures involving relevant firms (e.g., battery manufacturers). In particular, ride-sharing platform firms are likely to enjoy strong top- and bottom-line growth.

We believe potential growth of the electric motorcycle market, coupled with rapid EV market expansion, will provide a further boost to global battery demand. Thus, we advise investors to focus on battery suppliers such as China-based CATL (300750 CH/Buy/TP: RMB200) and Korea-based LG Chem (051910 KS/Buy/TP: W500,000). We also think investment opportunities will abound in countries in which the domestic EV industry is receiving strong government support (e.g., Indonesia). Notably, Aneka Tambang (ANTM IJ/Buy/TP: IDR750), an Indonesian mining company specializing in nickel products, has strong potential in the battery materials segment on the back of its abundant nickel ore reserves.

Companies along the lithium value chain also deserve attention. While lithium prices have tumbled due to oversupply over the past two to three years, we expect oversupply concerns to ease in 2020-22, aided by battery demand growth. In our view, the recent cancellations/postponements of new mining projects should enable large global players to strengthen their oligopoly in the lithium market. We expect Tianqi Lithium (002466 CH/Hold) to stage a turnaround going forward.

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Top-down view

The COVID-19 pandemic and associated headlines continue Over the coming weeks, we expect to see a similar opening to be the central focus of investors across the region. up in Europe, the US, and elsewhere. Hence, we expect Encouragingly, following a period of sweeping lockdown global economic activity to trough within 2Q20 and begin to measures, the conversation has now moved on to the issue recover in 3Q20. The recovery of EV sales should soon of relaxing such restrictions. The outbreak appears to have follow. In line with the resumption of economic activity, hit a peak in several countries in the region, with case stock markets should also experience a rebound. Already, numbers stabilizing. Governments around the world are market indices in China (SHCOMP) and Korea (KOSPI) are seeking to learn lessons from countries that are further just 8% and 14% off their pre-pandemic highs. along on the pandemic curve—i.e., those that have been For markets that are more oriented toward electric able to let up on lockdowns and social distancing rules. In motorcycles, including India and Indonesia, we expect a Asia, attention is inevitably turning to China, Korea, Taiwan, recovery in demand to take slightly longer. Particularly in and Hong Kong. India, the lockdown has had a significant impact on the In China, the government has strived to resume as many purchasing power of lower-income people; it could take economic activities as possible. Employees have gone back India some time to recover from this. Indonesia, meanwhile, to work, restaurants have reopened, traffic jams have is more fortunate in that its lockdown has remained only returned, and many schools have reopened. Flights are partial; as a result, the business environment for SMEs in resuming, with domestic airline capacity gradually being Indonesia has not deteriorated to the same extent as in reinstated. Meanwhile, consumer sentiment is also on the economies with full lockdowns. mend. According to the China Passenger Car Association, When considering EVs, it is important to remember that they China’s retail auto sales declined just 5.5% YoY in April, are closely linked to ESG investing, a theme that has been sharply improving from March (-40% YoY) and February gaining traction around the world. We expect the demand (-79% YoY), when lockdowns were at their peak. This should for socially responsible investment options to continue, with also have positive knock-on effects for EV sales. investors increasingly turning to ESG-compliant companies. Figure 1. China PMI Over time, we expect this trend to be manifested in valuations through a clear gap between companies that are 60 pro-ESG and those that are not. While EVs undoubtedly reduce emissions, the issue of whether companies in the EV 55 supply chain meet relevant ESG standards should begin to attract more scrutiny. For example, the production of 50 batteries, and the mining of commodities for their production, will need to be assessed carefully. The recycling 45 of used batteries is another issue that bears watching.

40 The Chinese government has also made the environment a bigger priority in recent years. President Xi Jinping has said 35 he wants China to fundamentally improve its environmental conditions by 2035. China’s focus on EVs is thus little 30 surprise, as EVs represent an important move toward 1/18 7/18 1/19 7/19 1/20 Source: Bloomberg, Mirae Asset Daewoo Research lowering harmful emissions. We expect the government to continue to support the sector through subsidies. While we acknowledge that low fuel prices could lead to a continued Figure 2. China YoY auto sales growth preference for conventional cars in the short run, one should 10/19 11/19 12/19 1/20 2/20 3/20 4/20 not expect fuel prices to stay low indefinitely. 20 All in all, we expect EV theme-related stocks to benefit from 0 a global demand recovery once lockdown measures start to ease, making now a good time to invest. -20

-40

-60

-80

-100 (%) Source: China Passenger Car Association, Mirae Asset Daewoo Research

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II. Investment points

1. E-mobility in Asia: Huge market potential centered on electric motorcycles

The e-mobility market in Asia (particularly in India, Indonesia, Vietnam, and the Philippines) has huge growth potential stemming largely from electric motorcycles and related industries. We project the electric motorcycle market (encompassing motorcycle production/distribution as well as segments related to charging infrastructure/services and subscription services) in these four countries to reach US$100bn by 2030 and exceed US$200bn by 2035 (48% CAGR).

Within the next decade, we expect electric motorcycles to emerge as the main mode of transportation in countries like India and Indonesia, causing related industries and addressable markets to rapidly expand.

Figure 3. Total addressable market: India, Indonesia, Vietnam, and the Philippines

(US$bn) 250 Electric motorcycle manufacturing Batteries/parts/materials

200 Subscription services Charging/infrastructure

150

100

0 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F 2032F 2033F 2034F 2035F

Source: Mirae Asset Daewoo Research

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Table 1. Total addressable market models: India, Indonesia, Vietnam, and the Philippines (US$mn) 2020F 2021F 2022F 2023F 2024F 2025F 2030F 2035F India Electric motorcycle sales (mn units) 0.23 0.46 1.38 2.52 4.09 5.92 19.82 37.59 Manufacturing localization (%) 20 25 30 40 50 60 80 80 Annual energy costs (US$) 32 33 34 35 36 37 43 50 Charging station penetration (%) 20 25 30 35 40 50 65 65 Subscription services penetration (%) 2 10 20 30 35 40 70 80 Market size Electric motorcycle manufacturing 230 474 1,464 2,752 4,607 6,867 26,634 58,571 Batteries/parts/materials 46 118 439 1,101 2,304 4,120 21,307 46,857 Charging infrastructure 1 4 14 31 59 110 554 1,218 Subscription services 5 48 296 835 1,633 2,791 19,031 47,831 Total addressable market 282 644 2,213 4,719 8,603 13,887 67,526 154,477 Indonesia Electric motorcycle sales (mn units) 0.07 0.13 0.40 0.62 0.96 1.48 4.67 7.19 Manufacturing localization (%) 20 25 35 40 50 60 80 80 Annual energy costs (US$) 50 52 53 55 56 58 67 78 Charging station penetration (%) 20 25 30 35 40 50 80 80 Subscription services penetration (%) 2 10 25 35 50 60 80 80 Market size Electric motorcycle manufacturing 74 152 470 748 1,189 1,891 6,911 12,321 Batteries/parts/materials 15 38 165 299 594 1,134 5,529 9,857 Charging infrastructure 1 2 6 12 22 43 251 448 Subscription services 1 15 119 266 605 1,160 5,730 10,215 Total addressable market 91 207 760 1,324 2,410 4,228 18,421 32,841 Vietnam Electric motorcycle sales (mn units) 0.18 0.27 0.34 0.46 0.62 0.84 2.85 4.72 Manufacturing localization (%) 20 25 30 35 40 45 67 70 Annual energy costs (US$) 40 41 42 44 45 46 54 62 Charging station penetration (%) 20 25 30 35 40 50 70 70 Subscription services penetration (%) 2 10 25 35 50 60 80 80 Market size Electric motorcycle manufacturing 186 287 384 532 737 1,022 4,020 7,719 Batteries/parts/materials 37 72 115 186 295 460 2,694 5,403 Charging infrastructure 1 3 4 7 11 19 107 206 Subscription services 4 29 97 189 374 625 3,302 6,340 Total addressable market 228 390 600 914 1,418 2,126 10,123 19,667 Philippines Electric motorcycle sales (mn units) 0.01 0.03 0.08 0.13 0.21 0.34 1.48 2.81 Manufacturing localization (%) 10 15 20 30 35 40 65 70 Annual energy costs (US$) 32 33 34 35 36 37 43 50 Charging station penetration (%) 20 25 30 35 40 50 65 65 Subscription services penetration (%) 2 5 7 10 15 20 50 70 Market size Electric motorcycle manufacturing 9 27 85 142 236 394 1,990 4,377 Batteries/parts/materials 1 4 17 42 83 158 1,294 3,064 Charging infrastructure 0 0 1 2 3 6 41 91 Subscription services 0 1 6 14 36 80 1,016 3,127 Total addressable market 10 33 109 200 358 638 4,341 10,658 Source: Mirae Asset Daewoo Research

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We think electric motorcycles will rapidly replace gasoline-powered motorcycles on the back of favorable economics and strong government support. Of note, as electric motorcycles’ ranges increase, so will their economic appeal, given that electricity costs much less than gasoline. We also believe electric motorcycles will enjoy synergies with ride-sharing services (e.g., Grab) that are already widely used in Southeast Asia.

We believe governments in South/Southeast Asia are incentivized to nurture the switch to electric motorcycles, as doing so will allow them to 1) foster new, local manufacturing industries and 2) reduce petroleum imports. From a big-picture perspective, such a switch would mean the reallocation of capital spent on imported oil products (gasoline) to ride- sharing platforms, riders, and consumers. In this sense, the expansion of the electric motorcycle-focused e-mobility ecosystem will benefit all stakeholders—governments, companies, consumers, and employees.

Figure 4. Winners and losers

Gas motorcycle manufacturers

Oil exporters

Governments

Consumers/workers

E-mobility companies (US$bn)

(80) (60) (40) (20) 0 20406080100

Source: Mirae Asset Daewoo Research

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2. Potential business models: Ride-sharing and subscriptions

We believe Asia’s e-mobility industry players are highly likely to adopt ride-sharing and subscription-based models. The subscription model appears particularly promising, as it provides users with the following benefits: 1) a low initial cost burden; 2) minimal maintenance costs (due to a relatively short battery replacement cycle); and 3) reliable access to charging infrastructure.

The ongoing electrification of motorcycles is presenting new business opportunities to ride- sharing platform companies operating in Southeast Asia, such as Grab and Gojek. Indeed, such companies are now offering monthly subscription plans that grant subscribers unlimited rides and access to battery charging stations.

We expect such services to reduce costs for riders and provide additional revenue sources for ride-sharing companies. Of note, Grab, Gojek, and other ride-sharing platforms have already placed hundreds of electric motorcycle orders with Indonesian manufacturers. Such orders should grow markedly once: 1) stable operation and profits are confirmed; and 2) sufficient charging infrastructure becomes available.

Furthermore, in the fast-growing food delivery services market, we expect riders to widely adopt (via subscription) electric motorcycles in order to cut fuel costs and increase income.

Figure 5. GrabFood delivery service (by motorcycle)

Source: SBR, Mirae Asset Daewoo Research

We recently visited Blue Bird, an Indonesia-based taxi services firm that is increasingly introducing EVs (e.g., Hyundai Ioniq and Tesla Model X). The company said that a complete switch to EVs could more than double OP margin on the back of: 1) reduced energy/maintenance costs (which account for around 50% of total expenses); 2) increased utilization through the use of EV-dedicated riding zones in crowded areas; and 3) improvements to customer satisfaction and brand image.

Similarly, we anticipate the adoption of electric motorcycles to benefit ride-sharing platforms like Grab and Gojek, as well as riders, through significant cost savings. Backed by the growth of ride-sharing platforms and the entry of new players, the electric motorcycle subscription market will likely grow to US$29bn by 2030, becoming a major pillar of the e- mobility industry.

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3. Battery/material suppliers warrant attention

In the Asian e-mobility market, we expect risk capital (e.g., venture capital) to play an increasingly important role. And considering governments’ strong commitment to attracting overseas battery/parts/material suppliers, we expect to see a growing number of joint ventures involving battery manufacturers, mining companies, and other relevant firms.

Of note, gaining an early lead should prove very important in the electric motorcycle manufacturing, charging infrastructure, and subscription services segments. But unfortunately, such businesses are not easily accessible to general investors, due to: 1) the limited number of listed players (even Grab and Gojek are unlisted); and 2) the low liquidity of related stocks. Intense competition among a number of new players (particularly in the Indian electric motorcycle manufacturing industry) makes stock selection all the more difficult.

Therefore, we advise investors to focus on battery/material suppliers that are well- positioned to benefit from the rapid growth of both the EV and electric motorcycle markets. Given the key role of batteries in the electric motorcycle value chain, we expect battery suppliers to enjoy higher bargaining power than motorcycle manufacturers. We also note that electric motorcycle batteries have higher margins than EV batteries (though their sales volume is smaller).

We believe that CATL (300750 CH/Buy/TP: RMB200), the world’s largest battery supplier (pure play), will grow rapidly, aided by its dominant market position in China (the world’s largest EV market). The use of CATL’s LFP cells in Tesla’s Model 3 is likely to bring the company’s battery quality, technology, and brand awareness up to global levels. Furthermore, we are also encouraged by the company’s accelerating global expansion (thanks to its supply for Tesla models) and government EV subsidies.

LG Chem (051910 KS/Buy/TP: W500,000) established a battery manufacturing joint venture with VinFast in 2019 and is considering advancing into other parts of the Southeast Asian market. In particular, the Indonesian government has shown a strong commitment to attracting the company by offering incentives. We believe that LG Chem will enjoy a high market share in the region, as well as in developed markets such as Europe, in light of the oligopolistic nature of the battery market and the company’s superior technology.

Aneka Tambang (ANTM IJ/Buy/TP: IDR750), an Indonesian nickel producer, will likely play a key role in government-led efforts to transform Indonesia into an EV battery hub. The Ministry of State Owned Enterprises has requested that four SOEs—Inalum, Telkom, Pertamina, and PLN—pursue the establishment of EV battery plants going forward. Some SOEs have already started construction on facilities to produce battery materials, including nickel and cobalt. And we believe that ANTM is well-positioned to supply nickel ore to these facilities, which are located close to the company’s mines. In the long term, ANTM is likely to expand into the battery-grade nickel business via a joint venture.

Lithium-related companies also warrant attention. We believe lithium oversupply, which drove down prices sharply over the past two to three years, will dissipate in 2020-22, aided by growing demand from battery suppliers. Furthermore, with lithium producers scaling back production and cancelling new projects, the global market will likely become even more concentrated going forward. We expect Tianqi Lithium (002466 CH/Hold) to turn around.

*LFP batteries are lithium-ion batteries that use lithium iron phosphate (LiFePO4) as the cathode material. LFP batteries are characterized by a longer life and lower manufacturing costs relative to competing NCM batteries, but generally have lower energy density.

*NCM batteries are lithium-ion batteries that use nickel, cobalt, and manganese as cathode materials.

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[Reference] Impact of falling oil prices

Recently, prices of petroleum products, including gasoline and diesel, have fallen amid plummeting crude prices, while electricity prices have remained flat, dampening the economic advantages of EVs and electric motorcycles.

However, while developed markets tend to display a strong correlation between international oil prices and petroleum prices, the same cannot be said for many emerging markets. For example, in China and India, government policy measures are keeping retail gasoline prices from fully reflecting the decline in international oil prices.

In China, even if oil prices (Brent crude) fall below US$40/bbl, retail petroleum prices hover within a range set by the government (between US$40/bbl and the cap) to guarantee certain earnings levels for petroleum companies (which play a key role in ensuring national energy security). Indeed, although Brent crude has dropped by nearly 50% YTD, China’s retail price cap for gasoline has been lowered by only around 10%.

Figure 6. Brent crude vs. retail gasoline prices in China, India, and Indonesia

(1/1/18=100) European Crude Dated Brent spot 200 China Gasoline N95 V guided retail price India Gasoline retail price 160 Indonesia Gasoline 92 (Pertamax) retail price

120

0 1/18 7/18 1/19 7/19 1/20

Source: CEIC, Mirae Asset Daewoo Research

In India and Indonesia, consumer petroleum purchasing costs are unlikely to decrease significantly, as the two countries are seizing on the oil slump as an opportunity to cut petroleum subsidies. Against this backdrop, we expect the economics of EVs and electric motorcycles to remain intact. Moreover, if massive subsidy cuts materialize, India and Indonesia will enjoy greater fiscal room for investments in other energy sectors.

All in all, for China, India, and Indonesia, we believe that the current low oil price environment offers an opportunity to pursue energy mix restructuring for the long term. Specifically we expect these countries to strive to lower their reliance on fossil fuel while expanding support for EV-related industries that can promote local manufacturing.

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[Reference] Key battery metals: Nickel and lithium

Amid the ongoing expansion of the EV and electric motorcycle markets, demand for batteries and battery metals (e.g., lithium, cobalt, nickel) are set to see marked growth. Among the key metals used in battery production, we think nickel and lithium deserve particular attention.

Nickel, which is widely used in stainless steel alloys and battery cathodes, has been garnering renewed attention. In 2018, EV battery-use nickel represented roughly 3% of global nickel demand; however, we expect the share to exceed 16% by 2025. And if demand for high-nickel cathode materials expands, the pace of nickel demand growth should accelerate going forward.

Figure 7. Nickel demand breakdown

Source: Nornickel, Mirae Asset Daewoo Research

Global battery suppliers plan to expand their adoption of NCM 811 cathode materials starting in 2020. While the share of nickel in NCM 811 is nearly double that of NCM 523 or NCM 622, the share of cobalt is much lower. This indicates that the ongoing battery technology shift is favorable for nickel demand but negative for cobalt demand. (Notably, cobalt is not even used in CATL’s LFP batteries.)

Over the long term, lithium demand is highly likely to increase in tandem with battery demand growth. Although the battery cathode material mix is undergoing changes, we expect lithium’s share to remain steady at 7-8%. (For a detailed analysis of the nickel market, please refer to our August 14, 2019 report titled “Nickel: past, present, and future.”)

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Figure 8. Cathode material adoption outlook by battery maker

Source: McKinsey & Company, Mirae Asset Daewoo Research

Figure 9. Metal content breakdown by cathode material

Source: Nornickel, Mirae Asset Daewoo Research

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III. Electric motorcycles, a new growth driver

In low-income countries, electric motorcycles have the potential to be an affordable alternative to EVs. We see particularly strong upside potential in countries such as India and Indonesia, given their 1) favorable demographics and per-capita income levels; and 2) poor road infrastructure. We also think governments and consumers in these regions are incentivized to make the switch to electric motorcycles.

We project annual battery demand from electric motorcycles to grow to 129GWh by 2030 (equivalent to 7% of projected EV battery demand). Even faster demand growth is possible, depending on the pace of electric motorcycle penetration and charging infrastructure installations. We believe that electric motorcycles will become one of the major drivers of battery demand growth.

1. India and Southeast Asia: Motorcycles to reign for the time being

Within the next decade or so, we expect electric motorcycles to replace gas-powered motorcycles as the main mode of transportation in countries like India, Indonesia, Vietnam, and the Philippines. Meanwhile, four-wheel passenger vehicles are unlikely to gain much ground in these countries for the time being.

1) Motorcycles tend to predominate until per-capita GDP reaches US$8,000

In Korea, car ownership rates started to surpass motorcycle ownership rates once per- capita GDP exceeded US$8,000 (adjusted for inflation and F/X as of 2019; US$4,700 in 1988). Since then, cars have remained the main mode of transportation.

In India, Indonesia, Vietnam, and the Philippines, where per-capita GDP remains below US$2,000-4,200, car ownership is increasing at a slow pace, while motorcycle ownership is rising quickly.

Figure 10. Changes in per-capita GDP and motorcycle/car ownership rates

(%) Korea 12 Motorcycle ownership rate Car ownership rate 10 → US$8,000+ 8 ← Car ownership rate > Motorcycle ownership rate India: US$2,045 Vietnam: US$2,715 6 Philippines: US$3,319 Indonesia: US$4,193 4 Over 10 years 2 GDP per capita (US$, reflecting 2019 CPI and F/X ) 0 3,6203,000 5,4465,000 7,2727,000 9,000 9,09911,000 10,925 12,75113,000

Source: Statistics Korea, CEIC, Mirae Asset Daewoo Research

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Figure 11. Motorcycle/car ownership trends in India, Indonesia, Vietnam, and the Philippines Per-capita GDP and motorcycle/car ownership rates

(%) India Philippines Vietnam Indonesia 20 Car ownership rate 8 60 50 Motorcycle ownership rate 50 40 15 6 40 30 10 4 30 20 20 5 2 10 10

GDP per capita 0 0 0 0 500 1,000 1,500 2,000 500 1,500 2,500 3,500 1,500 2,000 2,500 500 1,500 2,500 3,500

Source: CEIC, UN, Mirae Asset Daewoo Research

2) Motorcycles tend to predominate until annual car sales reach 2% of population

We estimate that cars become the transportation mode of choice when annual car sales volume as a percentage of the population reaches 2%. Indeed, we can observe a significant gap in car ownership rates between countries that have passed the 2% mark and those that have not. Malaysia, Thailand, China, and Korea have all passed the 2% mark.

In India, Indonesia, Vietnam, and the Philippines, annual car sales volume as a percentage of the population stands at around 0.3-0.5%. In these countries, we expect motorcycles to remain the transportation mode of choice for at least a decade, given that in Malaysia, Thailand, and China, it took 10-14 years for the figure to rise from 0.3-0.5% to 2%.

Figure 12. Annual car sales as % of the population

(%)

4.0

3.5 India 3.0 Indonesia Vietnam 2.5 Philippines 2.0 Malaysia 1.5 Thailand China 1.0 Korea 0.5

0.0 1991 1995 1999 2003 2007 2011 2015 2019

Source: ASEAN Automotive Federation, UN, CEIC, Mirae Asset Daewoo Research

Table 2. No. of years taken for cars to become primary mode of transportation Annual car sales/ Annual car sales/ Per-capita Per-capita Year Year [B] – [A] population (%) population (%) GDP (US$) GDP (US$) [A] [B] (years) [A] [B] [A] [B] China 0.3% 2.5% 2003 2017 14 1,289 8,759 Thailand 0.2% 2.1% 1998 2012 14 1,846 5,861 Malaysia 0.3% 1.9% 1987 1997 10 1,948 4,638 Source: ASEAN Automotive Federation, UN, CEIC, Mirae Asset Daewoo Research

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Figure 13. Car ownership per 1,000 people

(Units)

1,000

837 800

609 600

433 417 400

227 200 173 40 23 22 12 0 US Japan Malaysia Korea Thailand China Indonesia Vietnam India Philippines

Source: CEIC, press reports, Mirae Asset Daewoo Research

3) Poor road infrastructure and insufficient public transportation

Big cities such as Jakarta and Ho Chi Minh City are notorious for their endless traffic jams. During rush hours, routes that usually take 20 minutes by car can take up to two hours. Jakarta residents are said to depart for important dinner meetings in the center of the city as early as 4:00 pm.

Due to severe traffic congestion, even middle-income people often choose to commute to work by motorcycle (instead of driving their own cars). For long-distance travel, people often use public transportation (bus or subway) for the first leg and then switch to motorcycles/car-sharing services for the final few kilometers. Thus, motorcycles are the transportation mode of choice for many people living in highly congested areas.

Figure 14. Traffic congestion in Jakarta Figure 15. Traffic congestion in Ho Chi Minh City

Source: Press materials, Mirae Asset Daewoo Research Source: Press materials, Mirae Asset Daewoo Research

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Moreover, in India, Indonesia, and the Philippines, people who live outside metropolitan areas have minimal access to public transportation like bus/subway systems. (Subway systems, in particular, are unavailable to 90% of the population.) In Vietnam, Hanoi and Ho Chi Minh City are still building metro lines. Paved road conditions are also poor in these countries. Generally speaking, massive infrastructure investments in emerging economies are spurred by major political events, such as regime changes. In light of the typical five- year presidency, we estimate that it will take at least 10 years for these countries to finish building the necessary road infrastructure to support high levels of car ownership. Until such infrastructure is built, motorcycles should remain the optimal mode of transportation.

Table 3. Metro systems in major emerging market cities India Indonesia Vietnam Philippines - 12 metropolitan cities - Jakarta MRT started - First metro line (Line 1) - Two metro lines in Manila (Delhi, Chennai, Kolkata, operations in March 2019 scheduled to open in Ho (33km) Mumbai) (16km) Chi Minh City in 4Q21 - 31 stations (20km) - Delhi: 11 metro lines - All stages of construction - Construction started in (356km), 266 stations (stages 1-3; 111km) - 15 subway stations 2019 to connect the - Mumbai: Line 1 opened in scheduled to be completed (planned) international airport to the 2014; total of 10 lines in 2025-26 northeast region of Manila scheduled to open by 2021 (36km); services scheduled to commence progressively in 2022-25 % of population living in subway-accessible zones - 7.1% - 4.0% - Under construction - 12.8% Source: Press reports, Mirae Asset Daewoo Research

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2. Electric motorcycles to gain traction

We expect electric motorcycles to rapidly gain traction in India and Southeast Asia, where they are likely to enjoy favorable economics and strong government support. Electric motorcycles are 40-60% more economical than their gasoline-powered counterparts, incurring one-tenth the fuel costs and almost no maintenance costs (aside from battery replacement). We also believe governments in these regions are incentivized to promote the electric motorcycle industry in order to lower their reliance on petroleum imports, cut spending on gasoline subsidies, and foster relevant industrial complexes.

1) Electric motorcycle market outlook

In 2019, a total of 270,000 electric motorcycles were sold in India, Indonesia, Vietnam, and the Philippines (combined), representing a negligible share (below 1%) of their motorcycle markets.

Going forward, however, we expect these countries to witness a steep rise in electric motorcycle penetration, thanks to favorable vehicle economics and government support. We forecast their combined electric motorcycle sales volume to reach 8.6mn units (penetration rate of 20%) by 2025 and 52mn units (90%) by 2035. From 2025 through 2035, sales volume should expand at 20% CAGR.

Figure 17. Electric motorcycle penetration estimates by Figure 16. Electric motorcycle sales estimates by country country

(mn units) 40 India Indonesia 37.6 100% India Indonesia Vietnam Philippines Vietnam Philippines 80% 30

60% 20 40%

10 7.2 20% 4.7 2.8 0 0% 2017 2020F 2023F 2026F 2029F 2032F 2035F 2017 2020F 2023F 2026F 2029F 2032F 2035F

Source CEIC, Mirae Asset Daewoo Research estimates Source Mirae Asset Daewoo Research estimates

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Table 4. Electric motorcycle sales volume and penetration by country (mn units, %, US$) 2014-19 2018 Per-capita 2017 2018 2019 2020F 2025F 2030F 2035F CAGR ownership rate GDP in 2019 Motorcycle (gasoline + electric) sales India 20.2 21.2 22.1 23.2 29.6 36.0 41.8 6.7 12.0 2,045 YoY/CAGR 14.8 4.9 4.5 5.05.04.03.0 Indonesia 5.9 6.4 6.5 6.7 7.4 7.8 8.0 -3.8 51.1 4,193 YoY/CAGR -0.8 8.4 1.6 3.52.01.00.5 Vietnam 3.3 3.5 3.4 3.5 4.2 4.7 5.2 4.6 60.4 2,715 YoY/CAGR 5.2 4.1 -1.9 4.03.52.52.0 Philippines 1.3 1.6 1.7 1.8 2.3 2.7 3.1 16.0 18.6 3,319 YoY/CAGR 15.7 20.6 4.4 7.05.03.53.0 Electric motorcycle penetration India 0.1% 0.3% 0.6% 1.0% 20.0% 55.0% 90.0% Indonesia 0.03% 1.0% 20.0% 60.0% 90.0% Vietnam 1.7% 2.2% 4.2% 5.0% 20.0% 60.0% 90.0% Philippines 0.5% 15.0% 55.0% 90.0% Electric motorcycle sales 2025-35F CAGR India 0.02 0.05 0.13 0.2 5.9 19.8 37.6 20.3 Indonesia 0.002 0.1 1.5 4.7 7.2 17.1 Vietnam 0.06 0.08 0.14 0.2 0.8 2.8 4.7 18.8 Philippines 0.0 0.3 1.5 2.8 23.5 Total electric motorcycle sales 0.1 0.1 0.3 0.5 8.6 28.8 52.3 19.8 Source CEIC, Mirae Asset Sekuritas Indonesia, Mirae Asset Securities Vietnam, Mirae Asset Daewoo Research estimates

Table 5. Electric motorcycle battery shipment estimates 2019 2020F 2025F 2030F 2035F Electric motorcycle battery demand (new + replacement; units) India 0.1 0.3 7.3 29.465.4 Indonesia 0.0 0.1 1.9 7.013.5 Vietnam 0.2 0.2 1.2 4.28.7 Philippines 0.0 0.0 0.4 2.14.9 Total 0.3 0.6 10.8 42.892.6

Battery capacity CAGR (next five years) 7.0% 6.0% 5.0% Battery capacity per unit (kWh) 1.5 1.6 2.3 3.0 3.8 Range (km) 80 86 120 161 205 Total battery shipments (MWh) 476 895 24,295 128,792 355,952 Global EV battery shipments (MWh) 156,631 1,001,956 1,982,118 Electric motorcycle battery shipments/EV 0.6% 2.4% 6.5% battery shipments (%) Note: We assumed a three-year battery replacement cycle and six-year life expectancy (110,000km traveled). Source CEIC, Mirae Asset Sekuritas Indonesia, Mirae Asset Securities Vietnam, Mirae Asset Daewoo Research estimates

In India, Indonesia, Vietnam, and the Philippines, we expect motorcycle battery demand to be equivalent to roughly 6.5% of global EV battery demand by 2030. While per-unit capacity for electric motorcycle batteries is, on average, just 1/26 that of EV batteries, we note that the electric motorcycle battery market is expanding rapidly, especially in Asia.

In addition, per-unit battery capacity is steadily improving, which should lead to the development of longer-range electric motorcycles going forward. We expect the range of a typical electric motorcycle to more than double within the next 10 years, fueling market growth.

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2) Switch to electric reduces costs by 40-60%

A gasoline motorcycle owner can reduce overall costs substantially by switching to a comparable electric model. Indeed, we estimate the switch to electric reduces costs by 40- 60% for every 110,000km travelled, thanks to: 1) lower fuel costs; 2) purchase tax exemptions (roughly 10%; actual tax rates vary by country); and 3) minimal maintenance costs (aside from battery replacement).

Charging-related inconvenience is still a primary deterrent to electric motorcycle ownership. However, we believe sizable fuel cost savings could offset worries about convenience in the eyes of consumers. And convenience is likely to improve, especially once battery swapping stations—which enable riders to immediately swap their discharged batteries for fully charged ones—are installed in key regions. Motorcycle batteries can also be charged easily and cheaply at one’s home or workplace (per-vehicle charging cost: W3-4,000 per month).

We analyzed 10 electric motorcycle models with an average driving range of 80km and maximum speed of 75km/h. We found that their specs are more than sufficient to handle the average daily commute and various road conditions (traffic congestion in urban areas, unpaved roads in suburbs, etc.) faced by residents of India and Southeast Asia.

Figure 18. Cost comparison: Gasoline vs. electric motorcycles

(US$) 5,000 Total costs (six years, 110,000km, L) Electric motorcycle cost savings % (R) 80%

4,000 60% 60% 55% 51% 3,000 42% 40% 40% 2,000

20% 1,000

0 0% Electricity Gasoline Electricity Gasoline Electricity Gasoline Electricity Gasoline Electricity Gasoline India Vietnam Philippines Indonesia Thailand

Source: Mirae Asset Sekuritas Indonesia, Mirae Asset Securities Vietnam, Mirae Asset Daewoo Research

Figure 19. Gogoro’s battery swapping station in Taipei Figure 20. Battery swapping

Source: Gogoro, Mirae Asset Daewoo Research Source: Gogoro, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 19 Another Chapter of E-Mobility May 15, 2020

Table 6. Economics of gasoline and electric motorcycles by country (INR, VND, PHP, IDR, THB)

India Vietnam Philippines Indonesia Thailand

Fuel type Electric Gasoline Electric Gasoline Electric Gasoline Electric Gasoline Electric Gasoline Okinawa- Okinawa I Honda Hero Yadea Vinfast Honda Yamaha Gogo Gogo Honda Yamaha HondaYamaha Honda Honda Model Viar Gesits Swag X Udamotor Praise Lite Activa 5G Pleasure G5 Klara Wave Sirius Zion Stride Beat Fino t Bea Fino PCX 125i Wave 110i Price (local currency) 115,000 59,990 57,557 49,600 39,990,000 18,500,000 17,790,000 21,340,000 37,999 31,999 66,900 75,800 16,500,000 25,000,000 16,500,000 18,500,000 65,900 35,900 62,000 43,600 Taxes and insurance costs 6,907 5,952 2,955,000 3,006,000 1,520 1,280 2,676 3,032 1,650,000 1,850,000 5,580 3,924

Total purchasing costs 115,000 59,990 64,464 55,552 39,990,000 18,500,000 20,746,000 24,346,000 39,519 33,279 69,576 78,832 16,500,000 25,000,000 18,150,000 20,350,000 65,900 35,900 67,580 47,524

Fuel capacity (L or kWh) 3.3 1.3 4.0 4.0 2.1 1.5 3.7 3.8 1.4 1.2 4 4 1.2 1.2 4 4 1.6 1.2 4.2 3.7

Gasoline cost (per L) 73 73 19,380 19,380 53 53 7,650 7,650 34 34

Electricity cost (per kWh) 6 6 1,678 1,678 10 10 1,650 1,650 4 4 Fuel cost (capacity x 20 8 292 292 3,490 2,517 71,706 73,644 15 12 211 211 1,980 1,980 30,600 30,600 6 5 141 124 gasoline/electricity cost) Range (km) 160 60 240 220 80 80 250 247 90 70 194 193 60 85 194 193 70 40 197 250

Fuel cost per km 0.1 0.1 1.2 1.3 43.6 31.5 286.8 298.2 0.2 0.2 1.1 1.1 33 23.3 157.7 158.5 0.1 0.1 0.7 0.5

One-year period

Mileage (km) 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000

Fuel cost 2,215 2,237 21,921 23,914 785,000 566,000 5,163,000 5,367,000 2,966 3,178 19,540 19,641 594,000 419,000 2,839,000 2,853,000 1,601 2,155 12,894 8,951 Maintenance cost 2,878 2,480 800,000 800,000 2,929 2,929 774,000 774,000 1,500 1,500

Three-year cycle

Single battery replacement cost 23,000 12,000 8,000,000 3,700,000 15,200 15,200 2,860,000 4,860,000 13,180 7,180

Total costs over three years 121,645 66,702 138,860 134,733 42,346,000 20,199,000 38,634,000 42,846,000 48,418 42,814 136,983 146,542 18,282,000 26,258,000 28,990,000 31,234,000 70,702 42,364 105,183 74,953 (no battery replacement)

Total costs over six years (110,000km; one battery 151,289 85,412 213,257 213,915 52,670,000 25,600,000 56,522,000 61,347,000 72,517 67,549 204,389 214,253 22,924,000 32,375,000 39,829,000 42,117,000 88,683 56,008 148,365 106,306 replacement)

Total cost savings over six years 60% 55% 51% 42% 40%

Source: Company data, Mirae Asset Sekuritas Indonesia, Mirae Asset Securities Vietnam, Mirae Asset Daewoo Research

20 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

3) Incentives for shift: Fiscal improvement and manufacturing sector growth

We believe governments in India and Southeast Asia are incentivized to promote the electric motorcycle industry, as the proliferation of electric motorcycles will enable them to lower their reliance on petroleum imports and cut spending on gasoline subsidies. In addition, India and Southeast Asia can boost their GDP growth by nurturing industrial complexes for electric motorcycles. As such, they are committed to shifting to electric motorcycles.

3-1) Reduction in petroleum trade deficit India and Southeast Asia are heavily reliant on petroleum (crude and refined oil) imports, which has led to massive trade deficits. To improve their trade balances, the governments of these countries need to take steps to reduce their dependence. One way to achieve this is the electrification of motorcycles. This is particularly true in India, where motor gasoline consumption (by motorcycles and cars) as a percentage of total petroleum consumption has been rising steadily (now at 12%).

Figure 21. India: Motor gasoline consumption as % of total petroleum consumption has been rising steadily

(mn tonnes) (%) 250 Total petroleum consumption (L) 12 Motor gasoline consumption (L) Contribution of motor gasoline (R) 200 10

150 8 100

6 50

0 4 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Source: Ministry of Statistics and Program Implementation, Mirae Asset Daewoo Research

Figure 22. India: Petroleum trade Figure 23. Indonesia: Petroleum trade Figure 24. Vietnam: Petroleum trade balance balance balance

Trade balance Crude/refined oil trade balance (US$bn) Trade balance (US$bn) 2009 2014 2019 30 Crude/refined oil trade balance 15 Trade balance 0 Crude/refined oil trade balance 20 10

-40 10 5 0 -80 0 -10 -120 -5 -20

-10 -160 -30

-40 -15 -200 (US$bn) 2009 2014 2019 2009 2014 2019

Source: Reserve Bank of India, Mirae Asset Daewoo Source: Statistics Indonesia, Mirae Asset Daewoo Source: General Statistics Office of Vietnam, Mirae Asset Research Research Daewoo Research

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3-2) Reduction in gasoline subsidy spending The spread of electric motorcycles should enable governments to cut their spending on gasoline subsidies and moderately improve their fiscal balances. Even factoring in the increase in spending on electricity subsidies, total spending on energy subsidies should decrease, as electric motorcycle fuel costs are less than one-tenth those of gasoline motorcycles.

For 2020, the Indonesian government has set aside IDR20.8tr in gasoline subsidies, equivalent to around 13% of the country’s total gasoline expenditures in 2019. If the expansion of electric motorcycles allows the government to reduce spending on gasoline subsidies by 50% in 2025, we estimate savings at IDR5.9tr (or W440bn).

Table 7. Indonesia’s gasoline subsidies Monthly gasoline Annual Gasoline Subsidies/ expenditure Population gasoline subsidies for the Expenditure per capita (‘000) expenditure following year (%) (IDR) (IDRbn) (IDRbn) 2019 51,170 269,536 165,506 20,800 12.6% 2025F 68,573 287,822 236,841 14,883 6.3% 2019-25F CAGR 5.0% 1.1% Most recent five-year CAGR 8.4% 1.1% Most recent 10-year CAGR 14.5% 1.1% Savings from 50% gasoline

subsidy reduction 5,917 % chg. -28% Source: Kementerian Keuangan, Mirae Asset Sekuritas Indonesia, Mirae Asset Daewoo Research estimates

3-3) GDP growth via manufacturing sector growth Notably, the governments of India and Southeast Asia are aiming to achieve solid GDP growth through manufacturing sector growth. We think fostering the electric motorcycle industry—which is characterized by relatively simple manufacturing processes/technology and steady demand growth—would be the most sensible place to start. Furthermore, once technological advances and increasing foreign direct investments cause the industry to take off, the manufacturing ecosystem should expand to include EVs and batteries.

Figure 25. Indonesia: Karawang New Industry City (KNIC) plan

Source: KNIC, Mirae Asset Daewoo Research

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IV. India and Indonesia: The largest market and the manufacturing hub

1. Largest motorcycle market: India

India is a huge market for motorcycles, with demand rising steadily alongside income levels. Going forward, we expect electric motorcycles to quickly take hold in the country, supported by strong government policies.

By 2025, the government plans to replace all motorcycles under 150cc with electric motorcycles. To accelerate the e-mobility transition, the government is offering a wide array of benefits and incentives, including subsidies, tax benefits, and support for facility investments. In the initial stage of market growth, there will likely be fierce competition among manufacturers. But as competitive players grow more dominant, profits should expand, and infrastructure development should gain traction. In our view, India is undoubtedly the most attractive market for electric motorcycles.

1) A huge market

India is likely to drive the expansion of the global electric motorcycle market. We forecast electric motorcycle sales in the country to grow at a 20% CAGR in the 2025-35 period, rising from 5.9mn units (20% penetration) to 38mn units (90% penetration).

In the coming decade, we expect income levels in India to increase enough to support steady growth in motorcycle demand. In 2019, India’s GDP per capita was roughly US$2,000, and the motorcycle ownership rate was only 12% (120 people out of 1,000). In China, Korea, and Indonesia, we note that motorcycle registrations grew at 13-18% CAGRs when GDP per capita was US$2-3,000—the level at which the personal motorcycle penetration rate tends to pick up.

Currently, India is responsible for a third of global motorcycle sales. Excluding China, we project that India will account for 70% of electric motorcycle sales in Asia in 2025 and beyond (vs. an estimated 40% in 2019).

Figure 26. India: Annual motorcycle sales estimates Figure 27. Motorcycle sales by country (2018)

(mn units) (%) (mn units) 50 Contribution of electric motorcycles 100 25 Total motorcycles Global M/S: 35% 40 Electric motorcycles 80 20 Gas motorcycles 15 30 60

10 20 40 5

10 20 0

0 0 2010 2015 2020F 2025F 2030F 2035F

Source: CEIC, Mirae Asset Daewoo Research estimates Source: Nikkei Asian Review, Mirae Asset Daewoo Research

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2) Government initiative to support leading manufacturers

In 2019, the Indian government announced a plan to replace all sub-150cc gasoline- powered two-wheelers with electric motorcycles by 2025. Currently, electric motorcycles have a less than 1% market share in the country. India’s sweeping initiative comes as the country seeks to: 1) address its air pollution problem; and 2) reduce its reliance on imported oil amid growing demand for gasoline.

Figure 28. India’s air pollution levels are among the world’s Figure 29. Gasoline demand is rising quickly worst

(mn tonnes) (%) 30 Gasoline consumption - autos/motorcycles (L) 16

YoY (R) 14 25 12 20 10

15 8

6 10 4 5 2

0 0 2000 2006 2012 2018

Source: CNN Health, Mirae Asset Daewoo Research Source: Central Statistics Office (India), Mirae Asset Daewoo Research

In April 2019, the government unveiled the second phase of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME II) program, an extension of the FAME I scheme adopted in 2015. Under the scheme, electric motorcycles must meet stringent criteria to become eligible for subsidies (US$130 per kWh of battery capacity), including: 1) a minimum range of 80km per charge; 2) lithium-ion battery capacity of 2kWh or greater; 3) high energy efficiency; and 4) more than 50% localization in manufacturing.

With few models able to satisfy such criteria, electric motorcycle sales contracted 34% YoY last year. But going forward, we expect the tighter criteria to encourage manufacturers to further improve motorcycle performance, helping to accelerate adoption by consumers.

Meanwhile, aided by government support for facility investments, the number of electric motorcycle manufacturers has increased to 28 (from 12 in 2015), including both existing (local and Japanese) manufacturers and start-ups seeking to secure early-mover advantages.

In the initial stage of market growth, there will likely be fierce competition among manufacturers. Eventually, however, a handful of players that can stand alone without government aid should come to dominate the market. These competitive players will likely help establish a sustainable ecosystem and infrastructure (e.g., battery swapping stations and public charging stations), in turn driving a rapid increase in electric motorcycle penetration.

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Among the beneficiaries of the Indian government’s e-mobility push is Okinawa Autotech, a local start-up incorporated in 2015. Last year, the company reported sales of roughly 80,000 units, with a 40-45% market share. Going forward, it plans to invest INR2bn (approximately US$26mn) to expand its annual production capacity from 180,000 units to 1mn units.

Conventional two-wheeler manufacturers Hero MotoCorp and Bajaj Auto have also embraced the government’s push to go electric. Hero MotoCorp, India’s leading motorcycle producer, plans to ramp up its annual electric motorcycle production capacity from 100,000 units currently to 500,000 units in the next three to four years. And Bajaj Auto is taking orders for its Chetak electric scooter, with deliveries scheduled for 1Q-2Q20. The firm’s 17 dealer shops in Pune and Bengaluru offer benefits such as subsidies, free insurance, road tax exemptions, and free home chargers.

Meanwhile, Japanese motorcycle manufacturers are still conducting feasibility studies for potential investments in the Indian market. Yamaha Motor, which launched the EC-05 in Taiwan in partnership with local leading brand Gogoro (August 2019), has yet to unveil a specific sales plan for the Indian market. Honda and Suzuki are also conducting feasibility studies, taking factors such as product development, infrastructure, and battery technology into account. We forecast their operations in India to commence full swing in 2022-23.

Figure 31. Indian gasoline motorcycle market breakdown Figure 30. Okinawa I-Praise electric scooter (2019)

Hero MotoCorp 4 3 4 Honda (HMSI) 12 36 TVS Motor

Bajaj Auto

15 Royal Enfield

Yamaha

26 Suzuki

Source: Okinawa, Mirae Asset Daewoo Research Source: ET Auto, Mirae Asset Daewoo Research

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Company overview Okinawa Autotech

We expect Okinawa Autotech to maintain its dominance in the Indian electric motorcycle market, given its competitive product lineup, large production capacity, and rapid dealership expansion. We estimate that the company held roughly 40% of the market in 2019, with a diverse lineup of models that satisfy the stringent FAME II subsidy criteria (up to INR26,000 in subsidies). Moreover, its new models, scheduled for release in 2020-21, are expected to boast markedly improved performance.

1) Overview

Okinawa Autotech is an Indian start-up selling electric motorcycles. Founded by Jeetender and Rupali Sharma in 2015, the company is headquartered in Gurgaon and employs around 100 people. Its production facilities are located in Rajasthan. Major shareholders are Sharma family members and acquaintances (no outside investors yet). Founder Jeetender Sharma worked at Honda and Scooters India for a total of 18 years, holding positions in product development and supply quality management.

2) Flagship products and competitive edges

Okinawa’s flagship products are the Praise series (premium segment; priced at INR80- 100,000) and the Ridge series (INR50-70,000). According to management, the company sold over 100,000 motorcycles in 2018-19 (40% market share).

In 1H20, the firm will roll out the Oki 100, which boasts a battery capacity of 4.5kWh (greater than that of any rival product) and a maximum speed of 100km/h. At a price of INR100,000, the new model is at least 25% cheaper than rival models with comparable performance. In 4Q20, the company hopes to expand its market share further with the rollout of the Okinawa Cruiser, which will boast an eye-catching design.

Okinawa Autotech has, from the beginning, focused on building a diverse product portfolio and securing price/technology competitiveness. As a result, the company has a competitive edge stemming from its strong product development capabilities, superior technology, and effective market positioning. We believe the firm will be able to cement its position as India’s leading electric motorcycle manufacturer on the back of: 1) its more than 300 dealerships; 2) market-leading products and effective marketing; and 3) government subsidies.

Table 8. Comparison of electric motorcycles Manufacturer Okinawa Revolt Ather Bajaj Okinawa Tork Okinawa Hero Model I-Praise RV 400 Ather 450X Chetak Oki 100 (2Q20) T6X (3Q20) Cruiser (4Q20) AE-47 (1Q21)

Price (INR) 108,728 104,000 159,000 107,000 100,000 130,000 100,000-110,000 125,000-150,000 Max. speed (km/h) 70 85 80 78 100 100 100 85 Range (km) 160 150 85 95 150 100 120 160 Battery capacity (kWh) 3.3 3.2 2.6 3.0 4.5 3.5 4.0 3.5 Battery charging time (h) 4 5 4 5 2 2 2-3 4 Note: Range data are provided by manufacturers and based on low-speed riding. Source: Press materials, company website, Mirae Asset Daewoo Research

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3) Production targets and M/S

In 2019, Okinawa Autotech unveiled a plan to invest INR2bn (US$26mn) by 2023 to increase its utilization rate to close to 100% and expand its annual production capacity from 180,000 units to 1mn units. If the company reaches its targets, it could, in theory, maintain a 40% market share based on our electric motorcycle sales forecast of 2.5mn units in India in 2023.

However, we believe that intensifying competition from existing and start-up manufacturers will erode the company’s market share. Indeed, 28 manufacturers have already joined the fray in anticipation of sharp market growth.

With competition heating up, we see Okinawa’s market share declining to roughly 30%. Nevertheless, we expect it to remain the market leader in view of its superior product quality and production capacity (which can rival the Revolt and Hero). The company’s dealership expansion is also positive. Over the long term, we expect the firm’s sales volume to increase in line with overall market growth.

Table 9. Production capacity and dealership comparison Okinawa Revolt Hero Ather Current capacity 180,000 (two shifts) 120,000 80,000 40,000 Planned capacity 1mn 1mn (est.) > 500,000 500,000 (in 3-4 years) Planned capex INR2bn INR3bn INR2.5-3bn N/A 0 No. of dealerships 300 11 615 (experience center only) Target no. of dealerships 500 N/A 1,000 10-11 in large cities Electric motorcycle Electric motorcycle Leading gasoline Notes 30% owned by Hero start-up start-up motorcycle player Source: Press materials, company website, Mirae Asset Daewoo Research

Figure 32. Okinawa Autotech: Capacity, sales, utilization, and M/S projections

(mn units) 10 Capacity (L) Sales volume (L) Utilization (R) M/S (R) 100%

8 80%

6 60%

4 40%

2 20%

0 0% 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Source: Company data, Mirae Asset Daewoo Research

Figure 33. Okinawa Autotech: Competitive production processes and dealerships

Source: ETAuto, Mirae Asset Daewoo Research

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2. Indonesia to emerge as ASEAN’s manufacturing hub

We think Indonesia is on track to become the hub for EVs/electric motorcycles in the ASEAN region, as it offers significant benefits to consumers in addition to manufacturers. Notably, we believe that the country’s value chain positioning makes it the most attractive market for foreign direct investment.

1) Comparisons with Thailand and Vietnam

Indonesia, Thailand, and Vietnam offer similar benefits to manufacturers of electric motorcycles. For consumers, however, Indonesia provides the greatest benefits, including a tax break (exemption from 10% purchase/luxury goods tax), electricity subsidies, reduced public parking fees, public charging station subsidies, and exemption from the odd-even license plate traffic policy.

Indonesia’s efforts to boost e-mobility are part of the country’s broader efforts to increase the proportion of electricity in its energy mix. For 2020, the government cut fossil fuel subsidies and raised electricity subsidies. Moreover, since 2018, it has put a price cap on coal used in domestic power generation in order to help stabilize electricity tariffs.

Table 10. Government benefits for electric motorcycles/vehicles by country Country Manufacturer benefits Consumer benefits

Indonesia  No purchase tax

 No luxury goods tax

 Electricity subsidy  Corporate tax reduction/exemption based on investment amount (up to 20 years)  Discount on public parking fees  Reduced duties on component imports  Exemption from the odd-even rule in Jakarta  Reduced taxes on PP&E/raw materials  Reduced sales tax Thailand  Additional benefits expected for exporters (compared to gasoline motorcycles)

 Electricity subsidies

Vietnam  Registration tax exemption Source: Mirae Asset Sekuritas Indonesia, Mirae Asset Daewoo Research

Figure 34. Electricity subsidies in Indonesia Figure 35. Harga Batu Bara Acuan (HBA) trend

(IDRtr) (US$/tonne) 70 110

60 90

50 70 Domestic market: 40 Coal price cap of US$70/tonne (from April 2018) 50 30

20 30 2015 2016 2017 2018 2019F 2020F 4/13 10/14 4/16 10/17 4/19

Source: Statistics Indonesia, Mirae Asset Sekuritas Indonesia, Mirae Asset Daewoo Note: HBA is Indonesia’s coal price index. Research Source: Bloomberg, Mirae Asset Sekuritas Indonesia, Mirae Asset Daewoo Research

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2) Investments from global manufacturers

In the 2018 Making Indonesia 4.0 road map, the government highlighted the automotive industry as one of Indonesia’s key strategic sectors. Specifically, the government is aiming to: 1) launch full-scale electric motorcycle production (and establish a domestic supply chain) by 2025; and 2) make Indonesia the hub for EV production in Southeast Asia by 2030. The government is actively working to attract investments from global manufacturers of parts, batteries, and finished cars.

Table 11. Indonesia Automotive 4.0 overview By 2025 By 2030 Target Electric motorcycle production/exports EV production/exports

 Exemption from special consumption tax (normally Details  Benefits/infrastructure expansion 15-40%)

 Reduction of gasoline motorcycle share  Reduction of conventional car share

 Localization of electric motorcycle supply chain  Localization of EV supply chain

 Continued support for companies manufacturing components/batteries/prototypes and operating R&D

centers Source: Ministry of Industry (Indonesia), AT Kearney, Mirae Asset Daewoo Research

Table 12. Indonesia Automotive 4.0: Production/sales targets (Units) Annual 2020 2025 2030 2035 Electric motorcycles Production 8,000,000 10,000,000 12,500,000 15,000,000 Sales 6,750,000 7,700,000 8,400,000 9,000,000 Exports 750,000 1,100,000 1,400,000 1,750,000 EVs Production 1,500,000 2,000,000 3,000,000 4,000,000 Sales 1,250,000 1,690,000 2,100,000 2,500,000 Exports 250,000 310,000 900,000 1,500,000 Source: Ministry of Industry (Indonesia), Mirae Asset Daewoo Research

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The Ministry of Industry has been actively courting investments from LG Chem for battery production and the construction of swap/charging stations, leveraging Indonesia’s massive nickel reserves (no. 1 in the world), easy access to raw materials (cobalt and manganese), tax incentives, and large domestic market as selling points. Notably, in its detailed plans on electric motorcycle infrastructure, the government calls for initial reliance on the charging facilities of the Agency for the Assessment and Application of Technology (BPPT) followed by gradual installations of new swap/charging stations.

The ministry is also discussing potential investments by China’s CATL and GEM for battery production. We expect Indonesia’s nickel production to more than double by 2025 from the 2019 level (based on major producers’ plans). While it is uncertain how much of the nickel will be used for battery manufacturing, Indonesian authorities are actively discussing plans to build industrial complexes with major producers (which collectively meet the lion’s share of global EV battery demand).

Figure 36. Nickel reserves by country Figure 37. Refined nickel production in Indonesia (estimates)

(bn tonnes) ('000 tonnes) 30 140

25 120

20 100 15 80 10 60 5

40 0

20 2019 2020F 2021F 2022F 2023F 2024F 2025F

Source: Statista, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Sekuritas Indonesia, Mirae Asset Daewoo Research

In 2019, Toyota announced a US$2bn investment for the construction of EV production facilities in Indonesia by 2023. We believe that key factors behind the investment decision were the Indonesia Automotive 4.0 road map, the huge potential of the Indonesian/regional market, and the easy access to raw materials in the country. Significantly, Toyota had separately announced that it would endeavor to generate half of its sales from EVs by 2025, with Indonesia serving as a strategic base.

Figure 39. Indonesian auto market breakdown by company Figure 38. Toyota Indonesia: Engine production facility (2018)

Source: Press materials, Mirae Asset Daewoo Research Source: GAIKINDO, Mirae Asset Daewoo Research

30 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

Ride-sharing services such as Gojek (Indonesian unicorn) and Grab (Singaporean unicorn) have launched pilot programs involving electric motorcycles, operating charging stations in Bali and Java. And Blue Bird, Indonesia’s largest taxi operator with a fleet of 30,000 vehicles, introduced airport EV taxi services (Tesla, BYD, etc.) in 2H19.

Figure 40. Gojek: Electric motorcycle ride-sharing service Figure 41. Blue Bird: EV taxis

Source: Gojek, Mirae Asset Daewoo Research Source: Blue Bird, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 31 May 15, 2020 Another Chapter of E-Mobility

Company overview SLIS IJ

1) Company overview

Established in 1996, PT Gaya Abadi Sempurna (SLIS) manufactures electronic components/ products (including fans and lighting components) and electric bikes/motorcycles. In 2011, the company started production of electric bikes/motorcycles under the SELIS brand by establishing a subsidiary called PT Juara Bike. In October 2019, the company listed 25% of its shares on the Indonesia Stock Exchange (IDX). Its market cap currently stands at around IDR9.4tr (US$610mn).

The electric bike/motorcycle business unit accounts for 35% of the company’s revenue and 21% of its net profit. Although the revenue contribution of electric bikes is still far higher than that of electric motorcycles, 80% of capacity has recently been concentrated on electric motorcycles. Going forward, we believe electric motorcycles and battery swap subscription fees will become the company’s major revenue sources. Of note, the electric bike/motorcycle business unit saw its EBIT margin climb from 7% in 2017 to 16% in 2019.

PT Selis Investama (71.25%) is SLIS’s largest shareholder, followed by Tjoa King Hoa, the company’s president (3.75%). The remaining 500mn shares (25%) were listed in October 2019. The proceeds from the company’s IPO were IDR57.5bn, 65% of which will likely be invested in the electric bike/motorcycle business. (The remainder will probably be used for raw material purchases for the manufacture of other products.)

Figure 42. SLIS: Ownership breakdown

(%)

PT Selis Investama Tjoa King Hoa (president) 3.75 Other

71.25

Source: SLIS, Mirae Asset Daewoo Research

Figure 43. SLIS: Electronic component/product business Figure 44. SLIS: Electric bike/motorcycle business

(IDRbn) Revenue EBIT (%) (IDRbn) Revenue EBIT (%) Net profit EBIT margin 350 18 350 Net profit EBIT margin 18 Net margin Net margin

300 15 300 15

250 250 12 12 200 200 Revenue contribution: 35% 9 Net profitcontribution: 21% 9 150 150 6 6 100 Revenue contribution: 65% 100 Net profit contribution: 79% 50 3 50 3

0 0 0 0 2017 2018 2019 2017 2018 2019

Source: SLIS, Mirae Asset Daewoo Research Source: SLIS, Mirae Asset Daewoo Research

32 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

2) Key products

The flagship model of SELIS is the Agats, which competes against the Gestis and Viar Q1. The Agats is priced higher than the Viar Q1 but lower than the Gesits. While these three models share similar features, we note that the Agats requires a longer charging time.

SELIS’s competitive advantages are its robust product lineup and ability to develop new products quickly. The brand’s portfolio features a broad range of vehicles, including electric motorcycles, electric bikes, three-wheelers, and golf carts. In the electric motorcycle category alone, the firm offers eight models, while rivals Gesits and Viar have just one model each. In our view, SELIS’s ability to offer products that suit a wide variety of consumer needs should position the brand to lead the Indonesian electric motorcycle market going forward.

Table 13. Comparison of electric motorcycles Brand SELIS Gesits Viar SELIS SELIS SELIS SELIS Model Agats Gesits Q1 Eagle X-tra R3 Jalak Pro E-Max Neo Scootic

Price (IDRmn) 19.9 25.0 16.5 20.8 18.0 15.5 14.1 Max. speed (km/h) 60 70 60 45 50 50 40 Range (km)* 50 50 60 40 40 40 35 Battery capacity (kWh) 1.4 N/A 2.0 1.2 1.2 1.2 1.0 Battery charging time (h) 7 3-4 4-5 6 7 7 7 Note: Range data are based on low-speed riding. Source: Press materials, Company websites, Mirae Asset Daewoo Research

3) Production plans and market share

We estimate that SELIS’s annual production capacity for electric motorcycles reached 100,000 units in 2019 (vs. 50,000 units for Gesits). While the firm produced roughly 40,000 electric motorcycles in 2019, management has set a goal of producing 50,000-60,000 units in 2020.

According to management, SELIS is the largest electric motorcycle brand in Indonesia, with a market share of 50%. The brand could further expand its market share if it gains the upper hand in distribution and infrastructure. Given the current low utilization rates (30% level), ramping up output should be relatively easy.

SELIS currently operates 400 dealerships across the nation. The firm plans to use some of the proceeds from its IPO (IDR57.5bn, or roughly W5bn) and operating cash flows to further expand its distribution network and infrastructure going forward. We forecast 2020 capex to be on par with the 2019 level (IDR52bn).

Figure 45. SELIS is the domestic leader in M/S (50%) and store count (400)

Source: SLIS, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 33 May 15, 2020 Another Chapter of E-Mobility

3. VinFast leads the Vietnamese market

Vietnam is a major market

In terms of total motorcycle ownership, Vietnam sits in second place globally. As of end- 2019, the number of motorcycle registrations in the country stands at around 50mn, suggesting that most adults own motorcycles. Indeed, due to Vietnam’s poor public transportation, narrow/crowded roads, and affordable purchase/maintenance costs, many locals use motorcycles as their primary mode of transportation.

In 2019, Vietnam saw motorcycle sales volume of 3.4mn units. Although the country has a smaller population than India and Indonesia, its sales volume as a percentage of the population was higher at 4% (vs. 2% for both India and Indonesia).

Figure 46. Vietnam: Motorcycle sales volume as % of population (2019)

Population (a) (a)/(b) Annual electric motorcycle sales (b) 1.35bn people

270mn people 2%

4% 96mn people

22mn units 6.5mn units 3.4mn units

India Indonesia Vietnam

Source: CEIC, Mirae Asset Sekuritas Indonesia, Mirae Asset Securities Vietnam, Mirae Asset Daewoo Research

With large Vietnamese cities like Hanoi and Ho Chi Minh City suffering from significant air/noise pollution, electric motorcycles are coming into greater focus. In 2019, Vietnam’s electric motorcycle sales and penetration climbed to 140,000 units and 4.2%, respectively, higher than the levels seen in India and Indonesia.

Figure 47. Vietnam: Electric motorcycle sales volume and penetration

(mn units) (%) 6 Electric motorcycle sales volume (L) 100 Electric motorcycle penetration (R) 5 80

4 60 3 40 2

20 1

0 0 2017 2018 2019 2020F 2025F 2030F 2035F

Source: CEIC, Mirae Asset Securities Vietnam, Mirae Asset Daewoo Research estimates

34 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

VinFast already boasts a dominant position

Until 2018, the Vietnamese electric motorcycle market remained relatively undeveloped: electric motorcycles were still unfamiliar to most consumers, and battery safety concerns lingered. However, the entry of Vingroup, Vietnam’s largest private company, into the market began to spur dramatic changes.

In January 2018, VinFast, an unlisted subsidiary of Vingroup, launched its first electric motorcycle model, the Klara. The Klara garnered a positive response from consumers, especially for its waterproof features. (In Vietnam, the streets are often flooded during and after heavy rainfall.) VinFast has been steadily expanding its presence in the domestic market, launching three additional electric motorcycle models (Impes, Ludo, Klara S). As of end-2019, the firm has taken 50,000 orders for electric motorcycles.

VinFast’s aggressive push has prompted other manufacturers to enter the market. However, new entrants are unlikely to catch up with VinFast, which has already built a dominant market share (estimated at 36%).

Meanwhile, VinFast looks unlikely to meet its 2020 sales target of 250,000 units due to the COVID-19 pandemic. Nevertheless, we expect the firm to maintain its market leadership on the back of its extensive sales network (63 authorized dealers, 17 showrooms, nearly 1,000 battery swapping stations) and product diversification.

Figure 48. Demonstration of the Klara’s waterproofing Figure 49. Streets of Vietnam are prone to flooding

Source: Press materials, Mirae Asset Daewoo Research Source: Press materials, Mirae Asset Daewoo Research

Table 14. VinFast electric motorcycle models Klara Impes Ludo Klara S Acid-lead Lithium

Phot

Price VND30mn VND50mn VND14.9mn VND12.9mn VND39.9mn Max. speed 45km/h 50km/h 49km/h 35km/h 48km/h Battery capacity 0.8kWh 1.2kWh 1.2kWh 0.5kWh 1.2kWh Batter charging time 8-12h 4-7h 5h 5h 3-4h Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 35 May 15, 2020 Another Chapter of E-Mobility

V. Global EV market outlook

This chapter is a 1. Global EV market outlook summary of Mirae Asset Daewoo’s EV report Structural EV demand growth to persist titled “The beginning of Although global economic uncertainties have mounted amid the COVID-19 outbreak, we market competition” expect structural EV demand growth to remain intact. In the short term, demand for EVs will (published on April 8, likely grow more rapidly than demand for conventional vehicles. Furthermore, major 2020). automakers, including Volkswagen, are unlikely to change their EV strategies.

In 2020, we believe global EV demand will primarily come from Europe, where new EV model launches should expand despite uncertainties over the easing of environmental regulations. In the US, growth is likely to be driven by Tesla.

China should also exhibit robust demand, supported by the extension of subsidies. In particular, as Tesla gains a bigger foothold in the country, global and local automakers will likely take more aggressive action. Through this process, we believe China will transition from a subsidy-driven to a private demand-driven EV market.

In the short term, we think the gap in EV competitiveness among automakers will widen amid the economic slowdown. EV competitiveness comes mainly from the adoption of a dedicated platform, economies of scale, and improved management in batteries. As such, we believe capital power and investments will likely grow in importance.

Table 15. Global EV market outlook (PHEVs + BEVs; passenger cars) (‘000 units, %) 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F Passenger car US 17,305 17,576 15,985 16,784 17,288 17,634 17,634 17,634 sales volume Europe 16,217 16,359 14,991 15,591 16,059 16,380 16,400 16,500 China 28,081 25,769 25,000 26,000 26,500 27,000 27,500 28,000 Other 36,282 35,082 35,082 35,783 36,499 37,229 37,973 38,733 Total 97,885 94,785 91,058 94,159 96,346 98,243 99,507 100,867 EV penetration rate US 2.0% 1.9% 3.4% 5.0% 8.5% 10.7% 13.0% 15.6% Europe 2.4% 3.6% 10.0% 16.0% 20.0% 22.0% 25.0% 27.0% China 3.9% 4.1% 5.2% 6.7% 8.1% 10.7% 13.8% 17.3% Other 0.6% 0.4% 1.0% 2.0% 5.0% 8.0% 10.0% 12.0% Total 2.1% 2.2% 4.1% 6.2% 9.0% 11.6% 14.1% 16.6% EV sales volume US 350 332 545 840 1,465 1,886 2,287 2,754 (BEV + PHEV) Europe 386 587 1,499 2,495 3,212 3,604 4,100 4,455 China 1,107 1,061 1,312 1,741 2,156 2,885 3,798 4,843 Other 206 135 351 716 1,825 2,978 3,797 4,648 Total 2,049 2,115 3,707 5,791 8,657 11,353 13,983 16,699 Source: Mirae Asset Daewoo Research

36 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

2. European market: Current hardships will not hold back the future

1) 2019 review: Better-than-anticipated performance from Tesla

In 2019, EV sales in Europe expanded 51% YoY to 590,000 units, led by the Tesla Model 3. Since February 2019, the Model 3 has sold a total of 96,000 units, representing half of EV sales growth in Europe.

Tesla’s robust performance is particularly meaningful in that the Model 3 has started to grab share from conventional vehicles (of the same size) in a region where local brands have long been preferred. Indeed, in 2019, sales of the BMW 3 Series and Mercedes-Benz C- Class stagnated, and Audi A4 and A5 sales declined 14%.

Figure 50. Europe sales comparison: Model 3 vs. comparable Figure 51. Europe sales comparison: Model 3 vs. other major conventional vehicles EV models ('000 units) ('000 units) 200 2018 100 2018 2019 2019 160 80

60 120

40 80

20 40

0 0 Renault Zoe Nissan Leaf BMW i3 Audi e-tron Hyundai Model 3 BMW 3/4 Mercedes-Benz C/CLA Audi A4/A5 Model 3 Kona Source: MarkLines, Mirae Asset Daewoo Research Source: MarkLines, industry data, Mirae Asset Daewoo Research

2) 2020-21 outlook: COVID-19, environmental regulations, and above all market competition’

Even if the new CO2 standards were delayed, we do not think it would prompt major European automakers to shift or delay their EV strategies. Volkswagen, for instance, has spent several hundred million dollars on EV platform development and production facilities, and has already begun taking preorders for the ID.3 and Porsche Taycan.

But more importantly, we believe automakers cannot afford to hit the brakes on EV development due to the market’s competitive dynamics. Tesla’s Model 3 grabbed market share from Europe’s premium automakers in the US and on their home turf in 2019, and the company is looking to expand its presence in China in 2020.

Figure 53. Model 3 and conventional car sales volume trends Figure 52. Model 3 and conventional car sales trends in the US in Europe

('000 units) ('000 units) 300 BMW Mercedes-Benz 1,000 BMW Mercedes-Benz Audi Tesla Audi Tesla

250 800

200 600 150 400 100

200 50

0 0 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

Source: MarkLines, Tesla, Mirae Asset Daewoo Research Source: MarkLines, Tesla, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 37 May 15, 2020 Another Chapter of E-Mobility

The COVID-19 pandemic should serve as an opportunity for some automakers to widen their lead over rivals. Already, the gap between those that have made significant investments in EVs (such as Volkswagen) and those that have not is increasing. EV competitiveness mostly stems from productivity growth (through the application of EV platforms), economies of scale, and battery sourcing capabilities. Those that lag in terms of scale and preparedness will lack competitiveness. And due to COVID-19, latecomers will likely further reduce their EV investments, making it virtually impossible for them to catch up with early movers.

We expect the economics and commercial appeal of EVs to rapidly improve amid increasing market competition. As such, EV demand will likely remain solid (relative to demand for conventional vehicles) despite the recent economic downturn and low oil prices.

Table 16. EV sales volume outlook (Units) 2019 2020F 2021F Total 615,302 1,567,000 2,693,000 BEV 374,529 792,000 1,533,000 PHEV 240,773 775,000 1,160,000 Tesla BEV total 96,000 130,000 250,000 Tesla Model S 8,000 5,000 5,000 Tesla Model X 7,000 5,000 5,000 Tesla Model 3 81,000 110,000 90,000 Tesla Model Y 10,000 150,000 Volkswagen Group BEV total 58,000 200,000 500,000 Audi e-tron SUV 20,000 30,000 40,000 Audi e-tron Sportback 15,000 20,000 Audi Q4 e-Tron 5,000 40,000 Audi e-tron GT 5,000 5,000 Volkswagen e-Golf 28,000 20,000 10,000 Volkswagen ID.3 80,000 140,000 Volkswagen ID.4 5,000 150,000 Volkswagen e-UP 10,000 5,000 5,000 Skoda e-Citigo 10,000 5,000 Skoda new model 30,000 Seat el-Born 5,000 5,000 Seat new model 20,000 Porsche Taycan 20,000 30,000 PHEV 20,000 200,000 300,000 BMW BEV total 34,000 30,000 100,000 BEV i3 34,000 25,000 25,000 e-mini 5,000 20,000 iX3 5,000 20,000 i4 30,000 iNext 5,000 PHEV 60,000 150,000 200,000 Daimler BEV total 13,000 50,000 115,000 Mercedes-Benz EQC 1,000 30,000 40,000 Mercedes-Benz EQA 20,000 Mercedes-Benz EQB 30,000 Mercedes-Benz EQS 5,000 Smart electric 12,000 20,000 20,000 PHEV 17,273 150,000 250,000 FCA BEV total 15,000 25,000 PHEV 20,000 40,000 HMG BEV total 65,529 137,000 153,000 PHEV 22,500 35,000 50,000 JLR BEV total 12,000 15,000 15,000 Renault BEV total 45,000 90,000 120,000 Nissan BEV total 33,000 40,000 40,000 PSA BEV total 45,000 80,000 PHEV 80,000 120,000 Volvo BEV total 20,000 100,000 PHEV 36,000 40,000 50,000 Other BEV 18,000 20,000 35,000 PHEV 85,000 100,000 150,000 Source: Industry data, Mirae Asset Daewoo Research

38 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

3) Medium-term outlook: EV price parity to arrive earlier than anticipated

In 2022-23, we expect battery prices to decline. For its Chinese models, Tesla plans to adopt cell-to-pack battery technology with lithium iron phosphate (LFP) cathodes. LFP batteries have lower energy density than nickel manganese cobalt (NCM) batteries, but are also 20% cheaper. Meanwhile, LG Chem plans to adopt nickel, cobalt, manganese, and aluminum (NCMA) cathodes (more than 80% nickel content) from 2022-23 and apply long cell technology to increase battery energy density by at least 20%. Samsung SDI is working on improving energy density more than 20% by applying lithium nickel cobalt aluminum oxide (NCA) cathodes to its prismatic batteries. Thanks to these efforts, battery cell costs are anticipated to fall from US$130/kWh currently to around US$100/kWh in 2022-23.

In addition to lower battery costs, overall EV production costs are also likely to fall sharply, aided by fixed cost savings from scale effects. Volkswagen is believed to have invested heavily in developing its EV platform, the modular electric drive matrix (MEB), but the development cost per unit is projected to decline significantly as production volume ramps up. Assuming platform development costs at W2tr, the cost per unit should fall sharply as Volkswagen’s EV sales volume grows (from an estimated 400,000-500,000 units globally in 2020 to 1.5mn units in 2023 and 3mn units in 2025). Assembly line productivity is also likely to improve 30% through the EV platform, leading to significant fixed cost savings per unit. Thus, by 2023, we believe EVs could approach price parity with gas-powered vehicles, even without fuel cost savings effects.

Figure 54. Volkswagen’s production costs (EV vs. Figure 55. Battery prices and battery pack cost estimates conventional) (assumption: 60kWh)

(US$) (US$/kWh) 10,000 150 Battery pack cost (L) Battery price (R) 8,000 120

6,000 90

4,000 60

2,000 30

0 0 2020F 2023F 2025F

Source: Company data, Mirae Asset Daewoo Research Source: Industry data, Mirae Asset Daewoo Research

Figure 57. EV production cost estimates (based on Figure 56. Per-unit development cost estimates Volkswagen data)

(US$) (US$kWh) (US$) 6,000 4,000 50,000 Development cost per unit (L) Other powertrain costs Global EV sales (R) Other fixed costs 40,000 Other direct costs 3,000 Battery pack cost 4,000 Development cost 30,000 2,000 20,000 2,000 1,000 10,000

0 0 0 2020F 2023F 2025F 2020F 2023F 2025F

Source: Industry data, Mirae Asset Daewoo Research Source: Industry data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 39 May 15, 2020 Another Chapter of E-Mobility

3. US market outlook: Tesla-oriented growth likely

1) 2019 review

US BEV sales volume, which soared 128% YoY in 2018, was flat YoY due to Tesla’s sluggish sales growth in 2019. In 2018, BEV sales increased by 140,000 units thanks to the launch of the Model 3. In 2019, however, although Tesla’s total sales volume grew by around 120,000 units YoY, the increased volume came from non-US regions, while the company’s US sales remained flat YoY at around 190,000 units. Annual US sales of non-Tesla eco-friendly vehicles have hovered at around 50,000 units for the past five years.

Figure 58. Eco-friendly vehicle sales in the US

('000 units) PHEV (L) BEV (L) HEV (L) BEV growth (R) (%) 500 150

400 120

300 90

200 60

100 30

0 0 2014 2015 2016 2017 2018 2019

Source: SNE Research, Mirae Asset Daewoo Research

2) 2020-21 outlook: Impact of the COVID-19 pandemic and low oil prices

We expect US EV (BEV + PHEV) sales volume to reach 550,000 units (+64% YoY) in 2020 and 840,000 units (+54% YoY) in 2021. As global automakers’ EV supply is likely to be focused on Europe (in light of the region’s tightening environmental regulations), we believe Tesla will continue to dominate growth in the US.

In the US, conventional auto sales typically show strong seasonality during the summer driving season (2Q). As the impact of the pandemic will likely be more prominent in 2Q20 than in 1Q20, concerns over demand for conventional vehicles are mounting. For EVs, however, 4Q is the strong season, suggesting demand contraction arising from the pandemic will be relatively modest.

Of note, oil prices have recently plunged, triggering short-term concerns over EV demand. However, we do not see any major correlation between oil prices and EV demand, as evidenced in 2016, when the US EV market grew 35% YoY despite oil prices in the US$20/bbl range. Going forward, low oil prices are unlikely to weigh on EV demand.

The greatest economic/financial factor affecting EV purchase decisions is subsidies, not oil prices. Indeed, falling oil prices are only modestly reflected in fuel prices, and it is difficult to accurately factor crude movements into total cost of ownership (TCO) calculations. As such, consumers are unlikely to back away from EVs just because of falling oil prices.

3) Medium-term outlook: 2022-23 roadmap for major automakers

US automakers now view Tesla as a daunting rival. Indeed, Tesla now accounts for 78% of the US BEV market, although the firm’s share of the overall new car market remains negligible.

For 2020-21, global automakers are expected to focus on the European market to meet the EU’s stricter emissions standards. From 2022-23 onward, however, they are likely to expand EV sales in the US, contributing to full-fledged growth of the US BEV market.

40 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

Figure 59. US auto M/S breakdown Figure 60. US BEV M/S breakdown

BMW GM VW 2% HMG Other 1% 19% 16% RNA4% 5% GM Other 7% 3% HMG Ford 7% 14% RNA 8%

Honda Toyota Tesla 9% 14% FCA 78% 13%

Source: MarkLines, Mirae Asset Daewoo Research Source: SNE Research, Mirae Asset Daewoo Research

During its March “EV Day” event, GM unveiled an aggressive EV road map for the coming years; the automaker is targeting 1mn EV sales annually by 2025. The firm also announced plans to: 1) improve production efficiency through its dedicated EV platform (BEV 3; to be used for 2021 models) and new Ultium battery architecture; 2) enhance price competitiveness via lower battery costs; and 3) boost margins through internal sourcing of core non-battery parts.

In the EV market, which is in the early stages of development, first movers are expected to benefit the most. Thus we expect to see deepening differentiation between automakers that gain an early lead in the market and those left behind. Meanwhile, two of the three largest US automakers, Ford, and Fiat Chrysler Automobiles, have not yet announced their respective EV road maps.

Meanwhile, Tesla has continued to strengthen its presence in the EV market through the releases of competitive models (e.g., mass-market sedan and SUV), ramp-ups at existing facilities, and completion of new plants. In the near term, we expect share price momentum to emerge around Tesla’s upcoming “Battery Day” event.

Table 17. US EV sales projections (Units, %) 2019 2020F 2021F 2022F 2023F 2024F 2025F Total new car sales 17,576,172 16,625,000 17,000,000 17,300,000 17,500,000 17,500,000 17,500,000 YoY -5.4 2.3 1.8 1.2 0.0 0.0 PHEV + BEV sales 332,352 545,249 840,133 1,464,619 1,885,677 2,286,908 2,753,583 YoY 64.1 54.1 74.3 28.7 21.3 20.4 % of total 1.9 3.3 4.9 8.5 10.8 13.1 15.7 Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 41 May 15, 2020 Another Chapter of E-Mobility

4. Chinese market outlook: Now is the beginning

1) 2019 review: Signs of a shift in EV demand

In 2019, the Chinese EV market faced challenges on both the policy and demand fronts. The government cut its EV subsidies by up to 70% to encourage local automakers to compete on their own merits, denting demand from the car-sharing segment. And growth in real non- subsidy-driven demand was only modest, leading to overall EV market contraction. Total auto sales volume fell 8.0% YoY, with EV sales volume shrinking 4.0% YoY.

However, we note that highly marketable EV models, including the GAC Aion S and the Tesla Model 3 (which have 400km+ driving ranges), fared well. Given that purchases by car- sharing services are generally concentrated in the low-end segment (A0), the fact that A- and C-segment models were among the best-selling EVs in 2019 suggests that real private demand is starting to account for a greater share of EV demand.

Figure 61. GAC Aion S: Sales volume and M/S Figure 62. Tesla Model 3: Sales volume and M/S

(Units) (%) (Units) (%) 10,000 Sales volume (L) 18 10,000 Sales volume (L) 50 M/S (R) M/S (R) 15 8,000 8,000 40

12 6,000 6,000 30 9 4,000 4,000 20 6

2,000 2,000 10 3

0 0 0 0 5/19 7/19 9/19 11/19 1/20 1/19 3/19 5/19 7/19 9/19 11/19 1/20

Source: Autohome, Mirae Asset Daewoo Research Source: SNE Research, Mirae Asset Daewoo Research

42 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

2) 2020-21 outlook: Policy support sparked by COVID-19 + supply expansion triggered by Tesla

We forecast EV sales in China to grow 23.8% YoY to 1.31mn units in 2020 and 32.7% YoY to 1.74mn units in 2021. Sales plunged in 1Q20 due to the COVID-19 outbreak, but the Chinese government has been stepping up its support for auto sales to cushion the economic impact of the pandemic. Following Tesla, major European automakers are also entering China’s EV market this year. Improved economics (due to policy support) and a wider range of options should ignite strong private demand, leading to a recovery of the EV market from 2Q20.

Figure 63. Price comparison: Tesla vs. conventional cars Figure 64. New release schedule of foreign companies

(RMB'000) (RMB'000)

1,000 600 Audi e-tron Cadillac Mercedes-Benz EQC 800 (preorders) 500 BMW iX3 600 Mercedes-Benz EQA

400 400 Tesla Model Y Tesla 200 Model 3 Volkswagen ID series 300 GM Velite 6 0 GM Menlo Tesla Mercedes-Benz BMW Audi Model 3 C300 330 A4L 2H19 2020 2021

Note: Subsidies reflected in Tesla Model 3 price; purchase taxes reflected in Mercedes- Source: Company data, Mirae Asset Daewoo Research Benz, BMW, and Audi prices Source: Autohome, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 43 May 15, 2020 Another Chapter of E-Mobility

3) Medium-term outlook: EVs to become price-competitive without subsidies in 2022-23

We believe further declines in manufacturing costs will help EVs reach purchase price parity with conventional cars, even without subsidies. We expect price parity to come in 2024 at the latest, driven by cost savings from scale effects, the adoption of LFP batteries, and the use of EV-dedicated platforms from 2022.

BYD plans to apply its Blade battery, an LFP battery that is based on the company’s own CTP technology, to its Han EV series coming out in June. According to BYD, the company’s Blade battery can reduce production costs by more than 30% compared to existing NCM batteries. Given that the Blade battery addresses some of the key issues of traditional LFP batteries, such as heavy weight and limited range, the company is likely to rapidly extend its use to other EV models. We think the company will initially apply the battery to its low-end models, such as the Yuan series.

As competition heats up, we believe cost savings will lead to lower pricing. With the application of the Blade battery, BYD’s Yuan series (currently priced less than RMB100,000) reaches price parity with conventional cars, even without any EV policy incentives. For SUVs in the RMB100,000-200,000 price range (which have the highest demand), BYD’s Song Pro EV is expected to achieve full parity in 2024, when taking into account the adoption of the Blade battery, scale effects, and the use of a dedicated platform.

Meanwhile, the Chinese government is likely to maintain its license plate restrictions and purchase taxes on conventional cars. Such costs imposed by the government on conventional cars could allow EVs to reach price parity before 2024. Overall, we expect EVs to gain rapid ground in 2022-25.

Table 18. China EV sales forecasts (‘000 units, %) 19 20F 21F 22F 23F 24F 25F Notes Assumed a sales/production ratio of 0.95 for local and foreign Total 1,060 1,312 1,741 2,156 2,885 3,798 4,843 automakers in 2022 YoY 23.8 32.7 23.8 33.8 31.7 27.5 Foreign 113 418 793 1,136 1,825 2,668 3,470 YoY 271.8 89.5 43.3 60.6 46.2 30.1 Local 72.8 868 990 1,133 1,312 1,531 1,928 YoY 19.2 14.1 14.5 15.8 16.6 26.0 Source: Mirae Asset Daewoo Research estimates

44 Mirae Asset Daewoo Research

CATL (300750 CH) Going global

China Materials Going global alongside Tesla Initiation Report We believe 2020 will mark an important inflection point for CATL’s global operations. May 15, 2020 The use of CATL’s lithium iron phosphate (LFP) cells in Tesla’s Model 3 is likely to prompt a revaluation of the company’s battery quality and technology. Along with the Model 3 and Model Y, CATL is likely to move beyond China to other Asian markets and Europe. This should help the company land battery supply contracts from other global OEMs. (Initiate) Buy While CATL’s LFP batteries have lower energy density than NCM batteries, the company Target Price (12M, RMB) 200.00 has partly addressed this issue by applying cell-to-pack (CTP) technology. Because LFP batteries do not contain cobalt, they are 20% cheaper to produce. Other advantages Share Price (05/13/20, RMB) 138.26 include greater stability and longevity. As the performance and economics of CATL’s LFP batteries become evident through the Model 3, we expect the adoption of the Expected Return 44.7% batteries to expand to Tesla’s other EVs, such as the Model Y.

CATL is currently building a battery plant in Germany, with operation targeted for 2022. The company plans to expand the plant’s capacity to 60GWh by 2026. We think the EPS Growth (20F, %) 12.2 Model 3 and Model Y units to be produced in Europe are also highly likely to adopt P/E (20F, x) 59.2 CATL’s batteries. In the long term, we forecast CATL’s annual battery shipments to Market P/E (20F, x) 31.6 Tesla to reach 20GWh. Dividend Yield (%) 0.16 Well-established position in China Market Cap (RMBbn) 305.3 Shares Outstanding (mn) 872.3 In China, CATL has steadily expanded its market share to 49%. The company supplies 52-Week Low 64.00 batteries to most local OEMs and has established close relationships with them 52-Week High 169.89 (through, for example, the establishment of joint ventures). Unlike competitors that rely on just a handful of EV models, CATL is in a position to fully benefit from the (%) 1M 6M 12M growth of China’s EV market. Absolute 20.6 87.0 93.1 Relative 8.3 46.9 35.6 The Chinese government’s EV subsidy policy is also positive to CATL. Recently, China restricted vehicles eligible for EV subsidies to those priced at RMB300,000 or below. In 800 CATL CSI 300 other words, China’s subsidy policy is more favorable to Chinese OEMs producing

600 affordable EVs—and, by extension, battery makers that supply to them (such as CATL). We believe CATL is well-positioned to maintain its dominant position in the Chinese 400 market, backed by policy support and partnerships with OEMs.

200 Initiate coverage with Buy rating and TP of RMB200

0 18.6 18.12 19.6 19.12 We initiate our coverage on CATL with a Buy rating and target price of RMB200. We believe 1) earnings growth driven by battery shipments to Tesla and 2) additional Mirae Asset Daewoo Co., Ltd. supply deals with other global OEMs will serve as upside catalysts to share prices.

[One-Asia Research] Risks

Youngbae Kwon Key risks to our investment thesis include: 1) changes in China’s subsidy policy; 2) +822-3774-6012 sudden advances in battery technology; and 3) macroeconomic uncertainties. [email protected]

FY (Dec.) 12/17 12/18 12/19 12/20F 12/21F 12/22F

Revenue (RMBmn) 19,997 29,611 45,788 53,404 66,067 79,794

OP (RMBmn) 3,608 3,831 4,974 6,445 7,690 8,386 OP Margin (%) 18.0 12.9 10.9 12.1 11.6 10.5 NP (RMBmn) 3,878 3,387 4,560 5,116 6,037 6,573 EPS (RMB) 2.01 1.64 2.08 2.34 2.76 3.00 ROE (%) 17.5 11.4 12.5 12.6 13.2 12.7 P/E (x) NA 45.0 50.8 59.2 50.2 46.1 P/B (x) NA 4.9 6.1 7.1 6.2 5.5 Note: NP refers to net profit attributable to controlling interests Source: CATL, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

May 15, 2020 CATL

I. Investment thesis

1. Going global alongside Tesla

With the rise of e-mobility (including EVs and electric motorcycles), we forecast global battery shipments to grow at a CAGR of 48% through 2025. Despite the rapid market expansion, we think the pool of battery makers will remain limited. The challenges for potential new entrants include technology barriers, the high standards for product safety and reliability met by top-tier suppliers, and the strong partnerships between existing battery makers and automotive companies. Accordingly, we forecast major suppliers such as CATL and LG Chem to continue to dominate the global battery market.

In particular, CATL should be able to expand beyond the Chinese market with its supply for Tesla’s Model 3 and Model Y.

Table 1. Global passenger EV battery market outlook 19 20F 21F 22F 23F 24F 25F EV sales volume US ‘000 units 332 545 840 1,465 1,886 2,287 2,754 Europe ‘000 units 587 1,499 2,495 3,212 3,604 4,100 4,455 China ‘000 units 1,061 1,312 1,741 2,156 2,885 3,798 4,843 Other ‘000 units 135 351 716 1,825 2,978 3,797 4,648 Total ‘000 units 2,115 3,707 5,791 8,657 11,353 13,983 16,699 Battery capacity kWh/unit 42.0 42.0 45.0 50.0 55.0 60.0 60.0 EV battery US MWh 13,959 22,900 37,806 73,231 103,712 137,214 165,215 sales volume Europe MWh 24,654 62,964 112,256 160,589 198,199 246,000 267,300 China MWh 44,562 55,099 78,345 107,799 158,678 227,904 290,565 Other MWh 5,655 14,734 32,205 91,247 163,807 227,840 278,876 Total MWh 88,830 155,698 260,612 432,866 624,395 838,959 1,001,956 Battery price US$/kWh 165.0 145.0 135.0 120.0 110.0 105.0 105.0 Source: Mirae Asset Daewoo Research

Tesla’s adoption of LFP batteries

Tesla has decided to adopt CATL’s LFP batteries in its low-end Model 3 manufactured at Gigafactory Shanghai. CATL’s cobalt-free LFP batteries are known to be 20% cheaper (per kWh) to produce than NCM batteries, while offering longer life and higher stability. To boost the energy density of its LFP batteries, CATL has applied CTP technology, which removes conventional module parts. Given the volatile prices and unstable supply of conventional battery materials, we think LFP batteries can appeal strongly to customers.

Mirae Asset Daewoo Research 47 May 15, 2020 CATL

Figure 1. CATL’s CTP battery

Source: Company materials, Mirae Asset Daewoo Research

Assuming that CATL successfully supplies batteries to Tesla’s Model 3, we expect to see: 1) sharp top-line expansion (5GWh annually); 2) improved brand awareness and global recognition of its product quality/technology; 3) additional orders from global OEMs; and 4) enhanced cost competitiveness through scale effects. In 2022-23, when Tesla’s Shanghai factory begins to manufacture the Model Y, CATL’s battery demand from Tesla is projected to reach 10GWh annually, much higher than the 2019 level from BAIC (5.6GWh), its current largest customer.

Figure 2. CATL’s battery sales volume to Tesla

(GWh) 80 Other Tesla 70

0 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

Making inroads into Europe with German gigafactory

In October 2019, CATL broke ground on its German battery gigafactory. With an initial investment of US$270mn and planned capacity of 14GWh, the factory is scheduled to be completed in 2021. We believe CATL will have no difficulty finding customers (e.g., BMW and Daimler) for its batteries produced in Germany, given that: 1) it has already signed deals with BMW; and 2) its supply to Tesla’s Gigafactory Shanghai, if successful, should increase the likelihood of additional supply to Gigafactory Berlin-Brandenburg (roughly 5-10GWh).

Meanwhile, CATL plans to ramp up the German factory’s capacity to 24GWh by 2026. We think this is the right move from a long-term perspective, given: 1) the projected rise in demand from Tesla (around 15GWh annually) for its Model 3 and Model Y cars (around 300,000 units) to be manufactured at Gigafactory Berlin-Brandenburg; and 2) the EV strategies of German automakers such as BMW, Volkswagen, and Daimler.

48 Mirae Asset Daewoo Research May 15, 2020 CATL

2. Unrivaled battery supplier in China

China market share to increase from 49% to 53% in 2022

According to market researcher SNE Research, CATL currently holds a 49.0% market share in China (based on 2019 shipments), far surpassing the shares of competitors BYD (16.3%) and Panasonic (5.4%). Around half of CATL’s shipments go to its top five customers, which include BAIC, Yutong, and Geely (all of whom count CATL as their largest battery supplier).

Over the past five years, while competitors were either weakened (BYD and Panasonic) or driven out of the market, CATL has strengthened its market share, backed by: 1) competitive pricing (enabled by efficient production processes); and 2) stable demand secured through deals with multiple automakers (which means the company does not rely heavily on a small number of car models).

We forecast CATL’s dominance to increase going forward, with its Chinese market share likely to reach 53% in 2022 on the back of its battery supply to Tesla’s Gigafactory Shanghai (around 10GWh).

In the local market, we believe that CATL will continue to enjoy a key advantage over international competitors: better pricing due to preferential treatment on subsidies. This edge, along with superior operational efficiency, has helped CATL achieve industry-leading profitability.

Figure 3. China EV battery M/S trends

(%) 80 CATL BYD Panasonic Other

0 2014 2015 2016 2017 2018 2019

Source: SNE Research, Mirae Asset Daewoo Research

Figure 4. CATL’s China M/S forecasts

(%) 60

0 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: SNE Research, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 49 May 15, 2020 CATL

Joint venture partnerships

CATL’s joint venture partnerships with automakers have proved mutually beneficial, as evidenced by steadily increasing minority interest income on its income statement

. Unlike Panasonic, which has recorded years-long deficits from its battery factory jointly operated with Tesla, CATL and its joint venture partners (automakers) have enjoyed stable battery supply and shared profits. Accordingly, CATL should have opportunities to form additional joint venture partnerships with OEMs, in our view.

A joint venture agreement offers the following benefits for CATL: 1) a stable customer base; 2) reduced financial burden from heavy capex; and 3) risk diversification. In addition, establishing separate joint ventures for battery cells and modules can help prevent potential disputes with OEMs. We think CATL’s focus on joint ventures sets the firm apart from BYD, which is focusing on building its own vehicle lineup. Going forward, we expect CATL to continue to cement its standing as China’s leading battery supplier through joint ventures.

Figure 5. CATL’s minority interest trend

(RMBmn) 1,000 900 800 700 600 500 400 300 200 100 0 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

Figure 6. CATL’s customer base: Joint ventures in place or planned with most clients

17%

12% 53%

4% 6%

BAIC Yutong Geely Emgrand NIO GAC Trumpchi Other

Source: Company data, Mirae Asset Daewoo Research

50 Mirae Asset Daewoo Research May 15, 2020 CATL

3. Economies of scale: Bulk buying and mass production

Robust cost competitiveness

CATL has achieved robust cost competitiveness through bulk buying and mass production. Indeed, the company has delivered unrivaled OP margins on the back of economies of scale, stable ASP, and highly efficient production processes (translating to stable capacity utilization).

We estimate CATL’s battery ASP at US$157/kWh (RMB1,098), reflecting the government’s EV subsidies. Looking ahead, we project the firm’s ASP to decline modestly (government subsidies have been extended by one to two years). And we expect its brand power to increase over the long run with the adoption of its batteries by Tesla (Model 3 and Model Y).

Figure 7. CATL’s ASP forecasts

(US$/kWh) 500 450 400 350 300 250 200 150 100 50 0 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

CATL’s ability to maintain high capacity utilization has played a crucial role in reducing fixed costs and overall production costs. Moreover, we believe the company has secured highly competitive production technology, which should help to lower its capex requirements over the long run. We estimate the firm’s capex per 1GWh at below RMB400mn, which is just 50- 70% of the level at competitors. CATL’s ability to achieve high production efficiency with limited capital input is at the core of its cost competitiveness.

Figure 8. CATL’s capacity forecasts

(GWh) 120

100

0 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 51 May 15, 2020 CATL

II. Financial forecasts

In 1Q20, CATL’s revenue and net profit plunged 9.5% and 29.1% YoY, respectively, due to the impact of China’s lockdowns to contain the spread of COVID-19. We think the outlook going forward is brighter, as supply to Tesla’s Model 3 (set to pick up full swing in 2H20) and normalizing economic activity in China should drive a turnaround in the battery maker’s performance. And with the Chinese government deciding to extend EV subsidies to boost the economy, we anticipate EV and EV battery demand to recover steadily.

We forecast CATL’s net profit to jump 12.2% in 2020 and 18.0% in 2021. For our estimation, we made the following assumptions for 2020 and 2021: 1) China EV market growth of 24% and 33%, respectively; 2) ASP declines of 8.6% and 6.5%, respectively; 3) average utilization of 81% and 93%, respectively; and 4) battery gross margins of 30.0% and 28.0%, respectively.

We believe the company has sufficient funds (operating cash flow and borrowings) to meet its capex needs for capacity expansion. We also note that CATL announced a rights offering of approximately RMB20bn (6.2% of market cap) in March. Accordingly, we see low balance sheet risks in the short term. We plan to update our financial balance estimates after the rights offering is completed.

Figure 9. CATL’s net profit trend and forecasts

(RMBbn) 7

0 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

52 Mirae Asset Daewoo Research May 15, 2020 CATL

Table 2. Annual earnings forecasts and major assumptions (RMBmn, RMB) 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F Global EV sales ('000 units) China 349 563 561 1,107 1,061 1,312 1,741 2,156 2,885 3,798 4,843 (%, YoY) 398.6% 61.3% -0.4% 97.3% -4.2% 23.6% 32.7% 23.8% 33.8% 31.7% 27.5% US 116 157 195 350 332 545 840 1,465 1,886 2,287 2,754 (%, YoY) -3.1% 35.3% 24.2% 79.5% -5.0% 64.1% 54.1% 74.3% 28.7% 21.3% 20.4% Europe 145 220 297 386 587 1,499 2,495 3,212 3,604 4,100 4,455 (%, YoY) 61.1% 51.7% 35.0% 30.1% 52.0% 155.4% 66.4% 28.8% 12.2% 13.8% 8.7% Other 66 45 123 206 135 351 716 1,825 2,978 3,797 4,648 (%, YoY) 1912.3% -32.2% 173.3% 67.2% -34.5% 160.5% 104.0% 155.0% 63.2% 27.5% 22.4% Total 676 762 1,176 2,049 2,115 3,707 5,791 8,657 11,353 13,983 16,699 (%, YoY) 139.0% 12.7% 54.3% 74.2% 3.2% 75.3% 56.2% 49.5% 31.1% 23.2% 19.4%

Battery sales (MWh) 1,728 6,188 10,808 23,393 32,517 41,344 55,173 72,169 100,015 136,296 175,757 (%, YoY) 557.7% 258.2% 74.7% 116.5% 39.0% 27.1% 33.4% 30.8% 38.6% 36.3% 29.0%

Revenue 5,703 14,879 19,997 29,611 45,788 53,404 66,067 79,794 104,206 134,213 164,633 (%, YoY) 0.0% 160.9% 34.4% 48.1% 54.6% 16.6% 23.7% 20.8% 30.6% 28.8% 22.7% Power batteries 4,981 13,976 16,657 24,515 38,584 44,858 56,001 68,200 91,014 119,259 147,635 (%, YoY) 0.0 180.6% 19.2% 47.2% 57.4% 16.3% 24.8% 21.8% 33.5% 31.0% 23.8% ASP (RMB/kWh) 2,883 2,258 1,541 1,048 1,187 1,085 1,015 945 910 875 840 (US$/kWh) 458 332 237 154 170 155 145 135 130 125 120 Storage systems 89 39 16 189 610 976 1,415 1,840 2,300 2,760 3,312 (%, YoY) 0.0 -55.9% -58.1% 1052.0% 221.9% 60.0% 45.0% 30.0% 25.0% 20.0% 20.0% Lithium materials 591 611 2,471 3,861 4,305 5,166 6,199 7,253 8,341 9,593 11,031 (%, YoY) 0.0 3.4% 304.2% 56.3% 11.5% 20.0% 20.0% 17.0% 15.0% 15.0% 15.0% Other (non-core) 42 253 853 1,046 2,289 2,404 2,452 2,501 2,551 2,602 2,654 (%, YoY) 0.0 502.2% 237.3% 22.6% 118.9% 5.0% 2.0% 2.0% 2.0% 2.0% 2.0% COGS 3,539 8,377 12,740 19,902 32,483 38,512 48,649 60,736 78,220 100,534 123,169 Raw materials/other 3,350 7,597 11,386 17,681 28,820 34,080 43,099 53,953 69,363 89,125 109,175 Depreciation & amortization 189 779 1,355 2,221 3,663 4,433 5,550 6,782 8,857 11,408 13,994 Gross profit 2,164 6,502 7,257 9,709 13,305 14,892 17,418 19,058 25,985 33,680 41,464 (%, YoY) 0.0% 200.5% 11.6% 33.8% 37.0% 11.9% 17.0% 9.4% 36.3% 29.6% 23.1% (Gross margin, %) 37.9% 43.7% 36.3% 32.8% 29.1% 27.9% 26.4% 23.9% 24.9% 25.1% 25.2% Power batteries 2,062 6,266 5,872 8,360 10,977 13,457 15,680 17,050 23,664 31,007 38,385 (Gross margin, %) 41.4% 44.8% 35.3% 34.1% 28.5% 30.0% 28.0% 25.0% 26.0% 26.0% 26.0% SG&A 647 1,584 1,952 2,970 3,989 4,539 5,285 5,985 7,294 8,724 9,878 R&D 281 1,134 1,632 1,991 2,992 2,467 2,800 3,069 3,641 4,770 5,905 Operating profit 1,154 3,375 3,608 3,831 4,974 6,445 7,690 8,386 13,267 18,112 23,264 (%, YoY) 0.0% 192.5% 6.9% 6.2% 29.8% 29.6% 19.3% 9.1% 58.2% 36.5% 28.4% (OP margin, %) 20.2% 22.7% 18.0% 12.9% 10.9% 12.1% 11.6% 10.5% 12.7% 13.5% 14.1% EBITDA (adj.) 1,343 4,154 4,963 6,052 8,637 10,877 13,240 15,169 22,124 29,520 37,257 (EBITDA margin, %) 23.5% 27.9% 24.8% 20.4% 18.9% 20.4% 20.0% 19.0% 21.2% 22.0% 22.6% Pretax profit 1,100 3,400 4,848 4,205 5,761 6,645 7,840 8,536 13,397 18,212 23,364 Tax 149 482 654 469 748 831 980 1,067 1,675 2,276 2,920 Net profit (GAAP) 951 2,918 4,194 3,736 5,013 5,814 6,860 7,469 11,722 15,935 20,443 Minority interest 20 67 316 349 452 698 823 896 1,407 1,912 2,453 Net profit (controlling) 931 2,852 3,878 3,387 4,560 5,116 6,037 6,573 10,315 14,023 17,990 (%, YoY) 0.0% 206.4% 36.0% -12.7% 34.6% 12.2% 18.0% 8.9% 56.9% 35.9% 28.3% Fully diluted EPS 0.78 1.87 2.01 1.64 2.08 2.34 2.76 3.00 4.71 6.40 8.21 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 53 May 15, 2020 CATL

Table 3. Quarterly earnings forecasts and major assumptions (RMBmn) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20F 3Q20F 4Q20F 1Q21F 2Q21F 3Q21F 4Q21F Battery sales (MWh) 2,023 4,160 5,670 11,539 5,563 8,343 7,754 10,857 3,553 9,061 11,259 17,471 8,891 11,063 13,905 21,315 (%, YoY) 446.9% 334.0% 77.7% 83.5% 174.9% 100.5% 36.7% -5.9% -36.1% 8.6% 45.2% 60.9% 150.2% 22.1% 23.5% 22.0% (%, QoQ) -67.8% 105.6% 36.3% 103.5% -51.8% 50.0% -7.1% 40.0% -67.3% 155.0% 24.3% 55.2% -49.1% 24.4% 25.7% 53.3% Revenue 3,712 5,648 9,776 10,475 9,982 10,282 12,592 12,932 9,031 10,590 16,306 17,477 10,656 12,920 20,383 22,108 (%, YoY) 72.2% 30.5% 168.9% 82.0% 28.8% 23.5% -9.5% 3.0% 29.5% 35.1% 18.0% 22.0% 25.0% 26.5% (%, QoQ) 73.1% 7.1% -4.7% 3.0% 22.5% 2.7% -30.2% 17.3% 54.0% 7.2% -39.0% 21.2% 57.8% 8.5% COGS 2,496 3,936 6,719 6,752 7,116 7,111 9,075 9,181 6,765 7,537 11,434 12,776 7,983 9,271 14,407 16,989 Gross profit 1,216 1,712 3,057 3,724 2,866 3,171 3,517 3,751 2,266 3,053 4,872 4,701 2,674 3,650 5,976 5,119 (Gross margin, %) 32.8% 30.3% 31.3% 35.5% 28.7% 30.8% 27.9% 29.0% 25.1% 28.8% 29.9% 26.9% 25.1% 28.2% 29.3% 23.2% (%, YoY) 59.8% 24.8% 135.7% 85.2% 15.0% 0.7% -20.9% -3.7% 38.5% 25.3% 18.0% 19.5% 22.7% 8.9% (%, QoQ) 78.6% 21.8% -23.0% 10.7% 10.9% 6.6% -39.6% 34.7% 59.6% -3.5% -43.1% 36.5% 63.7% -14.3% Operating profit 515 621 1,743 1,231 1,194 1,134 1,442 1,952 1,028 1,242 2,094 2,081 1,207 1,504 2,580 2,399 (OP margin, %) 13.9% 11.0% 17.8% 11.8% 12.0% 11.0% 11.5% 15.1% 11.4% 11.7% 12.8% 11.9% 11.3% 11.6% 12.7% 10.8% (%, YoY) 88.7% -23.0% 131.9% 82.7% -17.3% 58.6% -13.9% 9.5% 45.2% 6.6% 17.5% 21.1% 23.2% 15.3% (%, QoQ) 180.9% -29.4% -3.1% -5.0% 27.2% 35.4% -47.4% 20.9% 68.6% -0.6% -42.0% 24.6% 71.5% -7.0% Pretax profit 541 680 1,863 1,121 1,322 1,483 1,653 1,303 1,097 1,671 2,190 1,687 1,311 1,928 2,652 1,949 Taxation 72 79 290 28 206 253 239 51 192 209 274 156 164 241 331 244 (Effective tax rate, %) 13.3% 11.6% 15.6% 2.5% 15.5% 17.1% 14.5% 3.9% 17.5% 12.5% 12.5% 9.2% 12.5% 12.5% 12.5% 12.5% Net profit (GAAP) 469 601 1,572 1,094 1,117 1,230 1,414 1,252 905 1,462 1,916 1,531 1,147 1,687 2,320 1,706 Minority interest 56 103 105 85 70 174 52 156 163 161 211 163 138 202 278 205

Net profit attributable to shareholders 413 498 1,468 1,009 1,047 1,055 1,362 1,096 742 1,301 1,705 1,368 1,009 1,485 2,042 1,501 (%, YoY) 93.3% -22.9% 153.4% 112.1% -7.2% 8.7% -29.1% 23.3% 25.2% 24.8% 36.0% 14.1% 19.7% 9.7% (%, QoQ) 194.9% -31.3% 3.8% 0.8% 29.1% -19.5% -32.3% 75.3% 31.1% -19.8% -26.2% 47.1% 37.5% -26.5% Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 54 May 15, 2020 CATL

III. Valuation

We present a Buy rating and target price of RMB200 on CATL. We applied the discounted cash flow (DCF) method to derive our target price, which implies 44.7% upside potential from the current share price. Looking ahead, we think upside catalysts to shares will include: 1) successful supply of batteries to Tesla’s Model 3 and related revenue/profit recognition; and 2) geographical diversification through the operation of the German factory.

CATL’s global peers (excluding Tesla) are trading at average 2020F and 2021F P/Es of 26.0x and 18.7x, respectively. CATL is trading at 63% premium to global rivals Panasonic, LG Chem and Samsung SDI, which we believe is justified by its: 1) robust earnings growth potential as a pure battery play; 2) dominant market position in China (the world’s largest EV market) and growth potential elsewhere; and 3) earnings stability supported by a competitive cost structure and efficient production processes. Moreover, as China’s leading battery maker, the company is well-positioned to benefit from any future government policy support.

Figure 10. CATL’s P/E band

RMB 200 80x

160 65x

120 50x

80 35x

20x 40

- 6/18 12/18 6/19 12/19

Source: Bloomberg, Mirae Asset Daewoo Research

Table 4. Peer valuation table: EV/battery/materials players

Market cap P/E (x) P/B (x) Company Ticker Market (US$mn) 2019 2020F 2021E 2019 2020F 2021F Tesla TSLA US Nasdaq 150,503 N/A 239.0 67.7 11.4 N/A 11.4 CATL 300750 CH Shenzhen 42,963 50.8 59.2 46.7 6.1 6.9 6.1 BYD 1211 HK Hong Kong 20,416 69.5 48.2 37.8 1.8 2.0 1.9 LG Chem 051910 KS KRX 19,481 77.7 35.7 20.0 1.3 1.5 1.4 Panasonic 6752 JP Tokyo 18,374 7.8 9.7 12.7 1.2 0.9 0.9 Samsung SDI 006400 KS KRX 15,978 44.3 37.0 19.7 1.3 1.5 1.4 Albemarle ALB US NYSE 6,848 12.4 18.1 14.1 2.0 1.6 1.5 SQM SQM US NYSE 5,966 25.3 20.4 16.3 3.4 2.7 2.6 Tianqi Lithium 002466 CH Shenzhen 3,550 N/A 43.8 19.0 4.9 2.3 2.1 Simplo Technology 6121 TT Taipei 1,861 14.7 15.1 11.9 2.4 2.2 2.1 GS Yuasa 6674 JP Tokyo 1,220 13.2 10.6 10.0 1.0 0.7 0.7 Note: As of May 12, 2020 Source: Bloomberg, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 55 May 15, 2020 CATL

Table 5. DCF valuation (RMBmn) 2019 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F Terminal Revenue 45,788 53,404 66,067 79,794 104,206 134,213 164,633 197,559 235,096 275,062 316,321 327,519 EBIT 4,974 6,445 7,690 8,386 13,267 18,112 23,264 25,683 31,738 38,509 45,867 51,093 Depreciation & amortization 4,252 4,433 5,550 6,782 8,857 11,408 13,994 16,200 18,808 22,005 25,306 16,376 Tax -748 -831 -980 -1,067 -1,675 -2,276 -2,920 -3,224 -3,984 -4,834 -5,758 -6,387 Net working capital 284 -5,088 -4,460 -3,457 -7,324 -9,002 -9,126 -5,000 -5,000 -5,000 -5,000 -5,000 Capex -9,627 -4,850 -5,000 -11,400 -9,750 -12,200 -13,000 -17,780 -18,808 -19,254 -22,142 -16,376 Cash flow for DCF -865 109 2,800 -756 3,376 6,041 12,211 15,878 22,754 31,425 38,272 39,706 Discount factor 0.91 0.83 0.76 0.69 0.63 0.58 0.53 0.48 0.44 0.40 PV of FCF 99 2,331 -574 2,340 3,820 7,045 8,358 10,929 13,771 15,303 Sum of PV 63,423

Terminal value FCFn+1 39,706 WACC 7.8 g 3.5 Terminal value 942,025 Discount factor 0.40 PV of terminal value 376,666

Fair value 440,089 WACC 7.8% Risk-free rate 3.0% Equity risk premium 6.0% Cost of debt 5.5% Cost of equity 9.6% Debt to total capital 45%

Value of debt (RMBmn) 2,546 Value of equity (RMBmn) 437,543 Equity value/share (RMB) 200.00 Shares outstanding (mn) 2,190.4 Source: Company data, Mirae Asset Daewoo Research estimates

Table 6. Sensitivity analysis for DCF valuation WACC/g (%) 2.8 3.0 3.3 3.5 3.8 4.0 4.3 6.3 237 253 272 295 322 355 397 6.8 211 223 237 253 272 295 322 7.3 190 200 211 223 237 253 272 7.8 174 182 190 200 211 223 237 8.3 160 167 174 182 190 200 211 8.8 149 155 160 167 174 182 190 9.3 140 144 149 155 160 167 174 Source: Mirae Asset Daewoo Research estimates

56 Mirae Asset Daewoo Research May 15, 2020 CATL

IV. Company overview

Established in 2011, CATL is a Chinese battery manufacturer and technology company headquartered in Fujian, China. The company specializes in the production of lithium-ion batteries for EVs, energy storage systems (ESS), and battery management systems (BMS). Currently, the battery maker generates most of its revenue (95%) from domestic operations.

In 2019, the firm’s battery sales reached 21.2GWh, with power battery systems contributing 84.3% of revenue and 83% of operating profit, while its energy storage system business accounted for 1.3%. CATL is also engaged in the lithium battery materials business (9.4%), recycling used batteries to recover the materials. Ningbo Meishan Ruiting Inv., the majority shareholder, owns 25.9% of the company.

Figure 11. CATL: Revenue breakdown by division (%) Figure 12. CATL: Operating profit breakdown by division (%)

0.4 (%) 0.6 (%)

4.4 3.5 9.2 13.0

82.8 86.1

Power battery system Lithium battery materials Power battery system Lithium battery materials Energy storage system Other business Energy storage system Other business

Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

Figure 13. Global EV battery market breakdown (2019) Figure 14. CATL’s ownership structure

(%) 2.8 1.8 1.2 (%) 2.8

38.6 25.9 3.5 3.6 26.6

11.0

11.8 11.9 24.6 7.5 11.9 3.3 5.1 2.1 2.7 3.0 NB Meishan Ruiting Huang Shilin NB Uni Inno CATL Panasonic BYD Lishen LGChem AESC Samsung SDI Guoxuan Li Ping CMB No. 3 CMB Power PEVE SK Innovation Others Tibet Hongshang Changzhou Qide Other

Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 57 May 15, 2020 CATL

V. Risks

China’s EV subsidy policies

Currently, 99% of CATL’s revenue comes from domestic operations. Accordingly, changes in EV subsidy policies can have a major impact on the firm’s performance. In recent years, the battery maker has gained ground much more quickly than foreign rivals, mainly thanks to government subsidies.

For now, the government has decided to extend subsidies by one to two years to mitigate the economic impact of the coronavirus outbreak. In the long run, however, subsidies are very likely to be reduced or removed. Nevertheless, we believe CATL is better positioned than its foreign rivals to gain market share, as the Chinese government’s subsidy policies are intended to nurture homegrown businesses and industries.

Advances in battery technology

As the EV market continues to grow, battery technologies are evolving. Indeed, several manufacturers are competing to improve battery performance. CATL, for instance, has improved the energy density of LFP batteries through its innovative packaging technology. NCM battery performance has also been improved with a focus on boosting energy density. Meanwhile, Tesla could expand into the battery market based on the dry electrode technology of Maxwell, a battery company that it acquired.

Nevertheless, considering the high technological barriers in the battery business, particularly when it comes to mass production, we do not think the development of new technologies will harm CATL’s competitive edge in the short term. Rather, we think the battery maker is likely to take a leading role in advancing technology through aggressive R&D investments.

Macroeconomic issues

Macroeconomic shocks such as the COVID-19 pandemic can pose a serious threat to CATL. In particular, any decline in capacity utilization arising from a negative demand shock— especially if it occurs at a time when the company is aggressively ramping up capacity— could weigh heavily on short-term earnings. In the current situation, however, we believe a demand shock-driven plunge in CATL’s stock would present a good opportunity to increase positions, given our expectation of secular battery demand growth over the long run.

58 Mirae Asset Daewoo Research May 15, 2020 CATL

CATL (300750 CH/Buy/TP: RMB200)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (RMBmn) 2019 2020F 2021F 2022F (RMBmn) 2019 2020F 2021F 2022F Revenue 45,788 53,404 66,067 79,794 Current Assets 71,695 77,309 89,965 98,793 Cost of goods sold 32,483 38,512 48,649 60,736 Cash and cash equivalents 24,590 28,460 33,718 33,735 Gross Profit 13,305 14,892 17,418 19,058 Receivables 17,988 24,032 31,052 36,705 Operating Expenses 8,332 8,447 9,728 10,672 Inventories 11,481 12,817 15,196 18,353 EBIT 4,974 6,445 7,690 8,386 Other current assets 17,636 12,000 10,000 10,000 Non-Operating Profit 791 400 450 450 Non-Current Assets 29,657 27,844 27,295 31,912 Net Financial Income 789 300 300 300 PP&E 21,427 21,844 21,295 25,912 Net Other Income 2 100 150 150 Others long-term assets 8,230 6,000 6,000 6,000 Pretax Profit 5,761 6,645 7,840 8,536 Income Tax 748 831 980 1,067 Total Assets 101,352 105,153 117,260 130,705 Minority interest 452 698 823 896 Current Liabilities 45,607 43,167 48,620 55,052 Net profit attributable to 4,560 5,116 6,037 6,573 Payables 18,536 20,828 25,766 31,120 owners Short-term debts 20,623 21,840 22,354 23,432 Other current liabilities 6,448 500 500 500 Non-Current Liabilities 13,557 14,661 15,195 15,626 Growth & margins (%) Long-term debts 6,513 7,661 8,695 9,626 Revenue growth 54.6 16.6 23.7 20.8 Other non-current liabilities 7,044 7,000 6,500 6,000 Gross profit growth 37.0 11.9 17.0 9.4 Total Liabilities 59,164 57,829 63,815 70,678 EBIT growth 29.8 29.6 19.3 9.1 Controlling Interests 38,135 42,923 48,631 54,766 Net profit growth 34.6 12.2 18.0 8.9 Paid-in capital 23,426 23,426 23,426 23,426 EPS growth 26.9 12.2 18.0 8.9 Retained earnings 14,750 19,538 25,246 31,381 Gross margin 29.1 27.9 26.4 23.9 Other capital and adj. -41 -41 -41 -41 EBIT margin 10.9 12.1 11.6 10.5 Non-controlling interests 4,053 4,402 4,813 5,261 Net profit margin 10.0 9.6 9.1 8.2 Stockholders' Equity 42,188 47,325 53,445 60,028

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (RMBmn) 2019 2020F 2021F 2022F 2019 2020F 2021F 2022F Cash Flows from Op Activities 13,210 8,049 9,587 10,855 P/E (x) 50.8 59.2 50.2 46.1 NPAT-MI 4,560 5,116 6,037 6,573 P/B (x) 6.1 7.1 6.2 5.5 Depr. & amortization 4,252 4,433 5,550 6,782 EV/EBITDA (x) 35.4 27.9 22.7 19.9 Chg in Working Capital, others 4,398 -1,500 -2,000 -2,500 EPS (RMB) 2.08 2.34 2.76 3.00 Cash Flows from Inv Activities 1,854 -5,850 -6,000 -12,400 BPS (RMB) 17.41 19.60 22.20 25.00 Capital expenditures(Net) -9,627 -4,850 -5,000 -11,400 DPS (RMB) 0.15 0.15 0.15 0.20 Others 11,481 -1,000 -1,000 -1,000 Payout ratio (%) 7.2 6.4 5.4 6.7 Cash Flows from Fin Activities 4,433 1,671 1,671 1,562 Dividend Yield (%) 0.1 0.1 0.1 0.1 Dividends -309 -329 -329 -438 Accounts receivable turnover (x) 2.5 2.2 2.1 2.2 Increase (decrease) in equity 496 0 0 0 Inventory turnover (x) 4.0 4.2 4.3 4.3 Increase (decrease) in debt 2,198 2,000 2,000 2,000 Accounts payable turnover (x) 2.5 2.6 2.6 2.6 Net increase in cash 19,511 3,870 5,258 17 ROA (%) 5.2 5.0 5.4 5.3 Beginning cash 4,241 24,590 28,460 33,718 ROE (%) 12.5 12.6 13.2 12.7 Ending cash 24,590 28,460 33,718 33,735 ROIC (%) 7.1 7.7 8.3 8.3 Liability to Equity Ratio (%) 140.2 122.2 119.4 117.7 Current Ratio (%) 157.2 179.1 185.0 179.5 Net Debt to Equity Ratio (%) 6.0 2.2 -5.0 -1.1 Source: CATL, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 59

Tianqi Lithium (002466 CH) Wait on the sidelines

China Materials Earnings to turn around on lithium price stabilization Initiation Report The persistent weakness of the lithium market has prompted supply adjustments, with May 15, 2020 suppliers scaling back production and canceling new projects. Meanwhile, battery demand is increasing robustly, fueled by the growth of the global EV and electric motorcycle markets. We expect lithium overcapacity to begin subsiding in 2H20, driving a stabilization in lithium prices. Backed by a recovery in prices, We forecast Tianqi Lithium’s operating profit to grow at a CAGR of 51% in 2021-22. (Maintain) Hold A world-class, low-cost producer Target Price (12M, RMB) - We expect the global lithium market to become even more concentrated going forward. Major producers like Tianqi Lithium, Albemarle, and SQM have the ability to Share Price (05/13/20, RMB) 18.45 generate profits even at current market prices due to their low production costs. They also have sufficient spare capacity and inventory, which enables them to swiftly Expected Return - respond to any increase in demand. Under the current conditions, lithium prices are unlikely to rise sharply (as they did in 2017). In our view, the current market downturn

provides an opportunity for large producers, such as Tianqi Lithium, to solidify their EPS Growth (20F, %) - market positions over the long term. P/E (20F, x) - Increased financial burden Market P/E (20F, x) 19.6 Dividend Yield (%) - Tianqi Lithium is reportedly looking to sell some of its assets, including part of its stake in Talison Lithium, which owns the Greenbushes lithium mine in Australia. If the Market Cap (RMBbn) 27.3 company succeeds in offloading a portion of its stake in Talison Lithium, this will likely Shares Outstanding (mn) 744.4 lead to significant cash flow. Tianqi Lithium has struggled with heavy interest expenses 52-Week Low 15.18 after it borrowed US$3.6bn to acquire a 23.8% stake in SQM in 2018. We believe asset 52-Week High 38.38 sales will help the company reduce its debt load and interest expenses, easing its (%) 1M 6M 12M financial burden. Absolute -5.1 -18.7 -22.3 Initiate coverage with Hold; Wait on the sidelines Relative -11.2 -28.0 -33.9 We initiate our coverage on Tianqi Lithium with a Hold rating. Given the potential of a 250 Tianqi CSI 300 lithium market turnaround and the company’s dominant market position in China, we 200 believe fundamentals remain sound. However, we think financial risks need to be

150 addressed in order for the stock to move higher over the long term. Rights issues or debt restructuring could offer important signals. 100

50 Risks

0 16.1 17.1 18.1 19.1 20.1 Key risks include: 1) a decline in lithium usage due to changes in battery technology; 2) macroeconomic uncertainties; and 3) balance sheet deterioration and rising interest

Mirae Asset Daewoo Co., Ltd. expenses.

[One-Asia Research]

Youngbae Kwon, CFA +822-3774-6012 [email protected]

FY (Dec.) 12/17 12/18 12/19 12/20F 12/21F 12/22F Revenue (RMBmn) 5,470 6,244 4,841 3,987 4,884 5,998 OP (RMBmn) 3,500 3,652 2,218 1,639 2,411 3,115

OP Margin (%) 64.0 58.5 45.8 41.1 49.4 51.9 NP (RMBmn) 2,145 2,200 -5,983 -792 -166 302 EPS (RMB) 1.61 1.61 -5.24 -0.69 -0.15 0.26 ROE (%) 26.1 19.5 -57.4 -9.2 -2.0 3.4 P/E (x) 27.4 14.8 NM NM NM 69.7 P/B (x) 6.7 3.3 5.0 3.4 3.5 3.4 Source: Company data, Mirae Asset Daewoo Research estimates

May 15, 2020 Tianqi Lithium

I. Investment thesis

Lithium market likely to turn around

Supply-side burden to ease on delays/cancellations of new projects

Lithium prices have dropped 57% from their 2017 highs, hurt by oversupply concerns. Prices began to decline sharply in 2H18 and remained weak thereafter, prompting lithium producers to adjust their supply plans. This has affected the supply outlook for 2020 and beyond. For instance, Albemarle, an industry leader in lithium and lithium derivatives, put new capex projects on hold indefinitely, and Chilean lithium producer SQM has pushed back a 50,000-tonne capacity expansion plan to 2H21.

Figure 1. Global lithium price index

350

300

250

200

150

100

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Bloomberg, Mirae Asset Daewoo Research

Figure 2. Asian lithium prices: Lithium carbonate and lithium hydroxide

(US$/tonne) 25,000 Lithium carbonate Lithium hydroxide

20,000

15,000

10,000

5,000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Bloomberg, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 61 May 15, 2020 Tianqi Lithium

Moreover, lithium concentrate producers such as Galaxy Resources and Pilbara Minerals have suspended or scaled back production due to margin erosion. At current lithium price levels, they are unlikely to expand supply volumes.

Figure 3. Lithium concentrate production volume: Galaxy Figure 4. Lithium concentrate production volume: Pilbara

Resources Minerals

('000 tonnes) ('000 tonnes) 250 70

60 200 50

150 40

100 30

20 50 10

0 0 17 18 19 20E 1Q18 2Q18 3Q18 4Q18 1Q18 2Q18 3Q18 4Q18

Source: Galaxy Resources, Mirae Asset Daewoo Research Source: Galaxy Resources, Mirae Asset Daewoo Research

While the COVID-19 pandemic is negatively affecting demand in the near term, we note that production is also declining. Thus, oversupply is likely to ease gradually. We see global lithium supply/demand conditions improving gradually from 2H20 on the back of: 1) demand growth driven by recovering EV momentum; 2) a lower inventory burden due to production cuts by marginal producers; and 3) a reduced possibility of future oversupply due to capex cuts.

According to our global lithium demand/supply model, assuming that there are no capacity additions, the market will swing to undersupply in 2021 with an annual supply shortage of 20,000-50,000 tonnes. We project the supply shortage to increase to 200,000-300,000 tonnes in 2024-25, when EV demand is likely to increase sharply. Therefore, new project starts should be needed from 2022. Until the new capacity goes into production, declining inventory levels should support a gradual pickup in lithium prices.

62 Mirae Asset Daewoo Research May 15, 2020 Tianqi Lithium

Table 1. Global lithium supply/demand outlook 18 19 20F 21F 22F 23F 24F 25F EV sales volume US ‘000 units 350 332 545 840 1,465 1,886 2,287 2,754 BEV + PHEV Europe ‘000 units 386 587 1,499 2,495 3,212 3,604 4,100 4,455 China ‘000 units 1,107 1,061 1,312 1,741 2,156 2,885 3,798 4,843 Other ‘000 units 206 135 351 716 1,825 2,978 3,797 4,648 Total ‘000 units 2,049 2,115 3,707 5,791 8,657 11,353 13,983 16,699 Battery content kWh/unit 40.0 42.0 42.0 45.0 50.0 55.0 60.0 60.0 EV battery shipments US MWh 14,000 13,959 22,900 37,806 73,231 103,712 137,214 165,215 Europe MWh 15,452 24,654 62,964 112,256 160,589 198,199 246,000 267,300 China MWh 44,280 44,562 55,099 78,345 107,799 158,678 227,904 290,565 Others MWh 8,228 5,655 14,734 32,205 91,247 163,807 227,840 278,876 Total MWh 81,960 88,830 155,698 260,612 432,866 624,395 838,959 1,001,956 Lithium supply Australia ‘000 tonnes LCE 230 224 185 215 314 374 418 438 Greenbushes 000 tonnes LCE 88 83 85 85 109 109 133 133 Mt. Marion 000 tonnes LCE 55 54 50 55 55 55 55 55 Mt. Cattlin ‘000 tonnes LCE 20 24 10 20 25 25 25 25 Pilgangoora (PLS) ‘000 tonnes LCE 7 19 10 20 30 40 60 80 Pilgangoora (AJM) ‘000 tonnes LCE 4 21 20 20 30 30 30 30 Wodgina ‘000 tonnes LCE 44 50 100 100 100 Bald Hill ‘000 tonnes LCE 6 18 5 10 10 10 10 10 Other ‘000 tonnes LCE 5 5 5 5 5 5 5 5 Chile ‘000 tonnes LCE 90 96 95 95 120 170 170 170 Atacama (SQM) ‘000 tonnes LCE 45 45 45 45 60 80 80 80 Atacama (ALB) ‘000 tonnes LCE 45 51 50 50 60 90 90 90 China ‘000 tonnes LCE 38 40 40 40 40 40 40 40 Argentina ‘000 tonnes LCE 34 34 35 35 60 80 80 80 Hombre Muerto (Livent) ‘000 tonnes LCE 21 21 20 20 30 40 40 40 Olaroz ‘000 tonnes LCE 12 13 15 15 30 40 40 40 Other ‘000 tonnes LCE 20 17 15 15 15 15 15 15 Total ‘000 tonnes LCE 412 410 370 400 549 679 723 743 Lithium demand EV batteries ‘000 tonnes LCE 70 76 132 222 368 531 713 852 Non-EV batteries ‘000 tonnes LCE 69 71 74 76 78 80 83 85 Others ‘000 tonnes LCE 115 116 117 118 119 121 122 123 Total ‘000 tonnes LCE 254 263 323 416 565 732 918 1,060 Supply-demand ‘000 tonnes LCE 158 147 47 (16) (16) (53) (195) (317) Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 63 May 15, 2020 Tianqi Lithium

Dominant producers to tighten their grip on the market

We expect dominant lithium producers (e.g., Tianqi Lithium, Albemarle, and SQM) to tighten their grip on the global market. Major producers are able to generate profits even at current lithium price levels, supported by their production cost competitiveness. On the other hand, new entrants would be unable to secure sufficient profitability at expected price levels (We project a price range of US$8,000-10,000/tonne), making new investment decisions difficult.

In addition, major producers have sufficient spare capacity and inventory (e.g., lithium concentrate and chemical compounds) to respond swiftly to any increase in demand and prices. And given that prices are unlikely to increase as sharply as they did in 2017, we believe that only major producers with existing production infrastructure will be in a position to add (albeit limited) capacity. In our view, the current market slump will serve as an opportunity for major producers like Tianqi Lithium to solidify their market positions over the long term.

Figure 5. Global lithium cost curve

(US$/tonne) 12,000

10,000 Greenbushes 8,000 (Tianqi/Albemarle)

6,000 Atacama (SQM/Albemarle)

4,000

2,000 ('000 tonnes LCE) 0 0 50 100 150 200

Source: Albermarle, Mirae Asset Daewoo Research

Our earnings estimates are based on the assumption that lithium (lithium carbonate) prices will gradually recover to US$8,500/tonne in 2020, US$9,500/tonne in 2021, and US$10,000/tonne in 2022, which are the levels at which we believe global top-tier producers (e.g., Tianqi Lithium and Albemarle) can generate steady earnings. Meanwhile, we expect marginal producers to face increasing margin pressures and scale back production through 2021.

64 Mirae Asset Daewoo Research May 15, 2020 Tianqi Lithium

Need to ease debt burden

Increased interest expenses

In 2017, Tianqi Lithium acquired a 23.8% stake in SQM for US$4.1bn, the majority of which was financed via borrowings/bond issuance. However, the market value of the SQM stake has tumbled to US$1.4bn, far below the initial acquisition price. Moreover, the recent dip in SQM earnings has made it difficult for the firm to count on dividend income.

Figure 6. SQM share performance

(US$)

80 Acquisition of SQM stake by Tianqi Lithium 70

0 2015 2016 2017 2018 2019 2020

Source: Bloomberg, Mirae Asset Daewoo Research

Unfortunately, the drag from the SQM acquisition is being accompanied by the erosion of cash flows from Tianqi Lithium’s core business. As a result, interest expenses are higher than operating profit. In addition, impairment losses of RMB5.3bn booked in 2019 sharply drove down equity levels, pushing up Tianqi’s net debt ratio to 350%.

On a positive note, however, Tianqi Lithium’s debt structure appears stable. In order to fund the SQM stake purchase, the firm took out US$3.6bn in loans from state-owned banks, which appear unlikely to call for full repayment at maturity. In our view, because the SQM acquisition was likely part of the Chinese government’s initiative to secure strategic overseas assets, the firm will be asked to repay only a portion of its outstanding loan balance, with the remainder likely to be either rolled over or refinanced. Considering the recent slide in market interest rates, we see the potential for refinancing at lower rates.

Figure 7. Tianqi Lithium’s interest expense trend

(RMBmn) 2,500

2,000

1,500

1,000

500

0 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 65 May 15, 2020 Tianqi Lithium

Figure 8. Tianqi Lithium’s net debt trend

(RMBmn) 35,000

30,000

25,000

20,000

15,000

10,000

5,000

(5,000) 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

Talison stake sale underway

According to media reports, Tianqi Lithium is endeavoring to sell a portion of its 51% stake in Talison Lithium, which owns the Greenbushes mine in Western Australia, the World’s largest lithium mine. For reference, US lithium producer Albemarle owns the other 49%.

If Tianqi Lithium succeeds in offloading some of its Talison Lithium holdings, the firm’s debt repayment burden would be significantly eased. Given the sizable profits generated from the mine (annual net profit of US$150mn), the firm should have no difficulty finding a buyer. Once the stake sale is completed, we plan to reflect the event in our earnings projections.

Figure 9. Tianqi Lithium’s minority interest trend

(RMBmn) 700

600

500

400

300

200

100

-100

-200 2013 2014 2015 2016 2017 2018 2019

Source: Company data, Mirae Asset Daewoo Research

66 Mirae Asset Daewoo Research May 15, 2020 Tianqi Lithium

II. Earnings forecasts

For 2020, we expect Tianqi Lithium to post an operating profit of RMB1.64bn (-10.3% YoY) and a net loss of RMB792mn, with the latter figure negatively affected by the company’s heavy interest burden. In addition, we note that massive impairment losses could be incurred if the value of the company’s stake in SQM declines further (not reflected in our earnings forecasts).

A meaningful earnings recovery is unlikely to occur this year. However, backed by a recovery in lithium prices and production growth, we expect revenue to grow by 22.5% and 22.8%, respectively, in 2021 and 2022, with operating profit surging 49.4% and 51.9%. In 2022-23, operating profit will likely recover to the levels seen during the lithium market boom (2017).

Mirae Asset Daewoo Research 67 May 15, 2020 Tianqi Lithium

Table 2. Annual earnings forecasts (RMBmn) 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F Lithium carbonate (US$/tonne) 6,358 12,196 18,083 17,063 11,675 8,500 9,500 10,000 12,000 14,000 15,000 (%, YoY) 15.5% 91.8% 48.3% -5.6% -31.6% -27.2% 11.8% 5.3% 20.0% 16.7% 7.1% Lithium hydroxide (US$/tonne) 8,031 14,554 19,063 19,521 14,035 10,500 11,500 12,500 15,000 17,000 17,000 (%, YoY) 5.2% 81.2% 31.0% 2.4% -28.1% -25.2% 9.5% 8.7% 20.0% 13.3% 0.0% Lithium index 105.4 189.6 254.7 275.7 185.4 136.8 151.4 161.9 194.3 223.5 231.5 (%, YoY) 11.1% 79.9% 34.3% 8.3% -32.8% -26.2% 10.6% 7.0% 20.0% 15.0% 3.6%

Volume (tonnes) Lithium concentrate 256,997 313,617 407,213 434,505 456,230 465,355 530,505 620,690 732,415 842,277 943,350 (%, YoY) -19.4% 22.0% 29.8% 6.7% 5.0% 2.0% 14.0% 17.0% 18.0% 15.0% 12.0% Lithium chemicals 13,164 24,305 32,393 37,656 38,409 39,177 44,662 52,255 61,661 70,910 79,419 (%, YoY) -40.6% 84.6% 33.3% 16.2% 2.0% 2.0% 14.0% 17.0% 18.0% 15.0% 12.0%

Revenue 1,860.0 3,904.6 5,469.8 6,244.4 4,840.6 3,986.6 4,883.8 5,997.8 8,095.8 10,341.4 11,893.6 (%, YoY) 30.9% 109.9% 40.1% 14.2% -22.5% -17.6% 22.5% 22.8% 35.0% 27.7% 15.0% Lithium concentrate 861.1 1,061.4 1,772.3 2,201.9 1,914.5 1,782.3 2,104.0 2,518.9 3,170.4 3,828.3 4,338.8 (%, YoY) 0.0 23.3% 67.0% 24.2% -13.1% -6.9% 18.0% 19.7% 25.9% 20.8% 13.3% Lithium chemicals 991.3 2,824.8 3,696.3 4,041.0 2,925.3 2,202.3 2,777.8 3,476.9 4,923.3 6,511.1 7,552.9 (%, YoY) 0.0% 184.9% 30.9% 9.3% -27.6% -24.7% 26.1% 25.2% 41.6% 32.3% 16.0% Other 14.4 18.4 1.3 1.5 2.0 2.0 2.0 2.0 2.0 2.0 2.0 COGS 990.5 1,122.6 1,633.2 2,023.4 2,102.6 1,858.1 1,945.5 2,271.9 3,006.8 3,678.4 4,238.0 Gross profit 869.5 2,781.9 3,836.6 4,221.0 2,738.0 2,128.5 2,938.3 3,725.9 5,089.0 6,663.0 7,655.6 (Gross margin, %) 46.7% 71.2% 70.1% 67.6% 56.6% 53.4% 60.2% 62.1% 62.9% 64.4% 64.4% (%, YoY) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Lithium concentrate 489.2 664.1 1,278.0 1,582.9 1,317.3 1,247.6 1,493.8 1,813.6 2,282.7 2,756.4 3,123.9 (Gross margin, %) 56.8% 62.6% 72.1% 71.9% 68.8% 70.0% 71.0% 72.0% 72.0% 72.0% 72.0% Lithium chemicals 373.0 2,101.0 2,565.7 2,636.6 1,419.9 880.9 1,444.5 1,912.3 2,806.3 3,906.7 4,531.7 (Gross margin, %) 37.6% 74.4% 69.4% 65.2% 48.5% 40.0% 52.0% 55.0% 57.0% 60.0% 60.0% Operating expenses 195.0 248.1 341.0 572.5 539.7 495.0 532.6 615.9 743.8 880.8 975.5 Selling/marketing 30.4 35.9 38.2 43.6 43.9 35.9 44.0 54.0 72.9 93.1 107.0 (% of revenue) 1.6% 0.9% 0.7% 0.7% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% General/administrative 154.9 183.2 204.2 234.2 387.0 259.1 268.6 311.9 421.0 537.8 618.5 (% of revenue) 8.3% 4.7% 3.7% 3.7% 8.0% 6.5% 5.5% 5.2% 5.2% 5.2% 5.2% R&D 5.4 6.4 24.0 49.0 48.4 50.0 50.0 50.0 50.0 50.0 50.0 Other 4.4 22.6 74.5 245.6 60.4 150.0 170.0 200.0 200.0 200.0 200.0

Operating profit 674.4 2,533.8 3,500.1 3,652.0 2,218.0 1,638.5 2,410.7 3,115.0 4,350.2 5,787.2 6,685.1 (OP margin, %) 36.3% 64.9% 64.0% 58.5% 45.8% 41.1% 49.4% 51.9% 53.7% 56.0% 56.2% (%, YoY) 59.8% 79.0% -1.4% -8.6% -21.7% -10.3% 20.1% 5.2% 3.5% 4.1% 0.4% EBITDA (adj.) 829.7 2,725.3 3,718.0 3,890.3 2,515.4 1,941.9 2,756.6 3,519.7 4,827.6 6,336.3 7,300.1 Net interest expenses 91.8 67.7 98.5 348.9 2,033.0 2,191.0 2,141.0 2,091.0 2,091.0 2,091.0 2,091.0 Pretax profit 513.1 2,158.7 3,451.6 3,633.7 -4,480.2 -352.5 569.7 1,324.0 2,559.2 3,996.2 4,894.1 Taxation 87.2 372.1 840.0 829.4 1,002.1 -77.5 125.3 291.3 563.0 879.2 1,076.7 Net profit 425.8 1,786.6 2,611.6 2,804.3 -5,482.3 -274.9 444.4 1,032.8 1,996.2 3,117.0 3,817.4 Minority interest 178.0 274.5 466.6 604.2 501.0 516.9 610.1 730.5 919.4 1,110.2 1,258.2 Net profit attributable to controlling 247.9 1,512.1 2,145.0 2,200.1 -5,983.4 -791.8 -165.8 302.3 1,076.7 2,006.8 2,559.2 shareholders (%, YoY) 89.9% 510.0% 41.9% 2.6% -372.0% -86.8% -79.1% -282.4% 256.2% 86.4% 27.5% Fully diluted EPS (W) 0.19 1.14 1.61 1.61 -5.24 -0.69 -0.15 0.26 0.94 1.76 2.24 Source: Company data, Mirae Asset Daewoo Research

68 Mirae Asset Daewoo Research May 15, 2020 Tianqi Lithium

Table 3. Quarterly earnings forecasts (RMBmn) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20F 3Q20F 4Q20F 1Q21F 2Q21F 3Q21F 4Q21F Lithium carbonate (US$/tonne) 20,417 18,417 15,583 13,833 13,250 12,583 11,000 9,867 8,833 8,200 8,320 8,647 9,100 9,400 9,800 9,700 (%, YoY) 29.6 13.3 -19.0 -34.4 -35.1 -31.7 -29.4 -28.7 -33.3 -34.8 -24.4 -12.4 3.0 14.6 17.8 12.2 (%, QoQ) -3.2 -9.8 -15.4 -11.2 -4.2 -5.0 -12.6 -10.3 -10.5 -7.2 1.5 3.9 5.2 3.3 4.3 -1.0 Lithium hydroxide (US$/tonne) 20,583 20,417 19,667 17,417 15,750 14,292 13,600 12,500 11,042 10,200 10,320 10,647 11,100 11,400 11,800 11,700 (%, YoY) 18.2 11.4 -2.9 -14.0 -23.5 -30.0 -30.8 -28.2 -29.9 -28.6 -24.1 -14.8 0.5 11.8 14.3 9.9 (%, QoQ) 1.6 -0.8 -3.7 -11.4 -9.6 -9.3 -4.8 -8.1 -11.7 -7.6 1.2 3.2 4.3 2.7 3.5 -0.8 Revenue 1,669.0 1,620.4 1,469.4 1,485.6 1,337.0 1,252.5 1,207.6 1,043.5 968.4 959.4 1,053.0 1,005.7 1,245.4 1,134.0 1,300.5 1,203.9 (%, YoY) 56.9 19.9 -4.9 -1.6 -19.9 -22.7 -17.8 -29.8 -27.6 -23.4 -12.8 -3.6 28.6 18.2 23.5 19.7 (%, QoQ) 10.5 -2.9 -9.3 1.1 -10.0 -6.3 -3.6 -13.6 -7.2 -0.9 9.8 -4.5 23.8 -8.9 14.7 -7.4 COGS 439.5 463.8 518.5 601.6 520.6 487.6 565.4 529.1 453.5 477.5 493.0 434.0 551.8 451.2 500.8 441.7 Gross profit 1,229.5 1,156.6 950.8 884.0 816.5 765.0 642.2 514.3 514.9 481.9 560.0 571.7 693.6 682.9 799.7 762.2 (Gross margin, %) 73.7 71.4 64.7 59.5 61.1 61.1 53.2 49.3 53.2 50.2 53.2 56.8 55.7 60.2 61.5 63.3 (%, YoY) 68.1 24.9 -14.0 -17.7 -33.6 -33.9 -32.5 -41.8 -36.9 -37.0 -12.8 11.2 34.7 41.7 42.8 33.3 (%, QoQ) 14.5 -5.9 -17.8 -7.0 -7.6 -6.3 -16.0 -19.9 0.1 -6.4 16.2 2.1 21.3 -1.5 17.1 -4.7 Operating profit 1,146.3 1,049.4 821.3 634.9 721.8 673.3 542.1 280.9 410.8 387.2 409.3 431.3 610.9 552.1 636.0 611.7 (OP margin, %) 68.7 64.8 55.9 42.7 54.0 53.8 44.9 26.9 42.4 40.4 38.9 42.9 49.1 48.7 48.9 50.8 (%, YoY) 9.1 3.0 -14.5 -33.6 -21.4 -17.0 -19.7 -37.0 -21.4 -42.5 -24.5 53.6 48.7 42.6 55.4 41.8 (%, QoQ) 18.0 -8.5 -21.7 -22.7 13.7 -6.7 -19.5 -48.2 46.3 -5.8 5.7 5.4 41.6 -9.6 15.2 -3.8 Interest expenses (net) 0.0 0.0 90.0 266.0 495.7 505.7 552.1 479.5 500.5 550.0 560.0 580.5 550.0 550.0 530.0 511.0 Other expenses (net) 84.8 14.8 -11.8 -425.6 -165.4 -144.0 -98.0 5,072.6 277.1 -100.0 -150.0 -227.1 -80.0 -80.0 -80.0 -60.0

Pretax profit 1,061.5 1,034.6 743.1 794.5 391.4 311.6 88.0 -5,271.2 -366.8 -62.8 -0.7 77.9 140.9 82.1 186.0 160.7 Taxation 266.9 268.8 199.6 94.0 103.3 67.8 0.3 830.7 11.5 -18.9 -0.2 -70.0 31.0 18.1 40.9 35.4 (Effective tax rate, %) 25.1 26.0 26.9 11.8 26.4 21.8 0.3 -15.8 -3.1 30.0 22.0 -89.9 22.0 22.0 22.0 22.0 Minority interest 134.3 116.6 163.8 189.5 176.8 161.7 141.6 20.9 122.0 129.0 132.0 133.9 141.0 151.0 158.0 160.1 Net profit 660.2 649.2 379.7 511.0 111.3 82.1 -53.9 -6,122.9 -500.3 -173.0 -132.6 14.1 -31.1 -87.0 -12.9 -34.8 (%, YoY) 62.7 25.3 -36.1 -18.4 -83.1 -87.4 -114.2 -1,298.1 -549.5 -310.7 NM NM NM NM NM NM (%, QoQ) 5.4 -1.7 -41.5 34.6 -78.2 -26.2 -165.7 NM NM NM NM NM NM NM NM NM Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 69 May 15, 2020 Tianqi Lithium

III. Valuation

We initiate coverage on Tianqi Lithium with a Hold rating. Key assumptions for our DCF valuation include a terminal growth rate of 3.0%, WACC of 7.5%, and EBIT margin of 45%. We believe shares will pick up on: 1) a turnaround in lithium prices; and 2) an easing of the company’s debt burden. However, any increase in debt repayment or interest expenses could dampen shares.

The valuation of Tianqi Lithium appears demanding relative to the levels of peers, including Albemarle and SQM, as the firm’s 2020-21F earnings have undergone major downward revisions due to the financial burden arising from the SQM stake acquisition.

Figure 10. P/E band

(RMB) 200

150

100

100x 50 80x 60x 0 40x 20x -50

-100 2015 2016 2017 2018 2019

Source: Bloomberg, Mirae Asset Daewoo Research

Figure 11. P/B band

(RMB) 80

60 8.0x

6.5x 40 5.0x

3.5x 20 2.0x

0 2015 2016 2017 2018 2019

Source: Bloomberg, Mirae Asset Daewoo Research

70 Mirae Asset Daewoo Research May 15, 2020 Tianqi Lithium

Table 4. EV/battery/materials players: Peer valuation table Market cap P/E (x) P/E (x) Company Ticker Market (US$mn) 2019 2020F 2021F 2019 2020F 2021F Tesla TSLA US Nasdaq 150,503 N/A 239.0 67.7 11.4 N/A 11.4 CATL 300750 CH Shenzhen 42,963 50.8 59.2 46.7 6.1 6.9 6.1 BYD 1211 HK Hong Kong 20,416 69.5 48.2 37.8 1.8 2.0 1.9 LG Chem 051910 KS KRX 19,481 77.7 35.7 20.0 1.3 1.5 1.4 Panasonic 6752 JP Tokyo 18,374 7.8 9.7 12.7 1.2 0.9 0.9 Samsung SDI 006400 KS KRX 15,978 44.3 37.0 19.7 1.3 1.5 1.4 Albemarle ALB US NYSE 6,848 12.4 18.1 14.1 2.0 1.6 1.5 SQM SQM US NYSE 5,966 25.3 20.4 16.3 3.4 2.7 2.6 Tianqi Lithium 002466 CH Shenzhen 3,550 N/A 43.8 19.0 4.9 2.3 2.1 Simplo Technology 6121 TT Taipei 1,861 14.7 15.1 11.9 2.4 2.2 2.1 GS Yuasa 6674 JP Tokyo 1,220 13.2 10.6 10.0 1.0 0.7 0.7 Note: As of May 12, 2020 Source: Bloomberg, Mirae Asset Daewoo Research

Table 5. DCF valuation (RMBmn) 2019 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F Terminal Revenue 4,841 3,987 4,884 5,998 8,096 10,341 11,894 13,083 14,130 14,836 15,578 16,045 EBIT 2,218 1,639 2,411 3,115 4,350 5,787 6,685 6,541 6,924 7,121 7,322 7,220 Depreciation & amortization 332 303 346 405 477 549 615 589 636 668 701 802 Taxes -1,002 78 -125 -291 -563 -879 -1,077 -1,054 -1,115 -1,147 -1,179 -1,227 Net working capital 138 -80 -122 -180 -486 -1,034 -1,665 -1,500 -1,500 -1,500 -1,500 -1,500 Capex -3,735 -800 -500 -600 -800 -1,000 -1,000 -706 -749 -771 -794 -802 Cash flow (DCF) -2,049 1,140 2,009 2,448 2,979 3,423 3,558 3,870 4,195 4,371 4,549 4,493 Discount factor 0.90 0.81 0.74 0.66 0.60 0.54 0.49 0.44 0.40 0.36 PV of FCF 1,029 1,637 1,800 1,976 2,050 1,923 1,888 1,847 1,736 1,631 Sum of PV 17,517

Terminal value FCFn+1 4,493 WACC 7.5 g 3.0 Terminal value 100,176 Discount factor 0.36 PV of terminal value 35,922

Fair value 53,439 WACC 7.5% Risk-free rate 3.0% Equity risk premium 6.0% Cost of debt 5.7% Cost of equity 10.8% Debt to total capital 65%

Value of debt (RMBmn) 31,159 Value of equity (RMBmn) 22,280 Equity value/share (RMB) 19.50 No. of shares outstanding (mn) 1,142.1 Source: Company data, Mirae Asset Daewoo Research

Table 6. DCF sensitivity analysis WACC/g (%) 2.3 2.5 2.8 3.0 3.3 3.5 3.8 6.0 25.8 28.5 31.7 35.3 39.6 44.8 51.2 6.5 21.4 23.5 25.8 28.5 31.7 35.3 39.6 7.0 17.8 19.5 21.4 23.5 25.8 28.5 31.7 7.5 15.0 16.4 17.8 19.5 21.4 23.5 25.8 8.0 12.7 13.8 15.0 16.4 17.8 19.5 21.4 8.5 10.7 11.6 12.7 13.8 15.0 16.4 17.8 9.0 9.0 9.8 10.7 11.6 12.7 13.8 15.0 Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 71 May 15, 2020 Tianqi Lithium

IV. Company overview

Tianqi Lithium is one of the world's top three lithium miners along with Albemarle (US) and SQM (Chile). The firm engages in a wide array of business activities along the lithium value chain, including exploration, resource development, and compound production. Tianqi Lithium produces a variety of high-grade lithium products, including lithium hydroxide, lithium carbonate, lithium chloride, lithium metal, and mineral concentrates. In 2018, the company was responsible for approximately 50% of lithium supply within China, with the domestic market accounting for more than 75% of its revenue. Tianqi Lithium holds a 24% stake in SQM and a 51% stake in Greenbushes (Australia). Major shareholders include Chengdu Tianqi Industry Group (36%) and Chairman Jiang Weiping’s wife, Zhang Jing (5.2%).

Until 2015, the revenue contribution of industrial-use lithium carbonate was greater than that of all battery-grade lithium products combined (lithium hydroxide, high-purity lithium carbonate, lithium chloride). However, we note that but the share of battery-grade products has risen significantly since then.

Figure 12. Revenue by product Figure 13. Revenue by region

(RMBmn) (RMBmn) 5,000 Other derivative carbornates 7,500 China Industrial lithium carbonate Exports

4,000 6,000

3,000 4,500

2,000 3,000

1,000 1,500

0 0 2009 2011 2013 2015 2017 2019 2007200920112013201520172019

Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

Figure 14. Global M/S in 2018 (%) Figure 15. Ownership breakdown (%)

(%) (%)

26 36.0 37 52.4

5.2 16 4 6 2.3 11 1.9 2.1

Chengdu Tianqi Industry Group Zhang Jing Hong Kong Securities Clearing Central Huijin Asset Mgmt Albermarle SQM Tianqi FMC Orocobre Other China Securities Finance Corp. Other

Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

72 Mirae Asset Daewoo Research May 15, 2020 Tianqi Lithium

V. Risks

Evolution of battery technologies

Technological advancements are leading to higher battery energy density, which is unfavorable to the demand outlook for key battery materials (e.g., lithium) over the long term. In addition, improvements in EV efficiency may result in a slowdown in battery-related demand.

However, we note that lithium is less sensitive to technological evolution than other battery materials such as nickel and cobalt, as it is a core material in lithium-ion batteries. Moreover, bringing a truly disruptive technology to market is a time-consuming process that is unlikely to play out within an ordinary investment horizon.

Macroeconomic headwinds

External shocks such as the COVID-19 pandemic pose a significant risk to Tianqi Lithium. Indeed, a negative systemic event is likely to dampen demand for consumer discretionary goods such as EVs and give rise to high volatility in commodity prices, which could spill over to minerals. According to our analysis, a 10% decline in the average lithium price would lead to a 8% fall in Tianqi Lithium’s 2021 operating profit.

Debt risks

As of end-2019, net debt-to-equity ratio stands at 350%. Due to the leveraged acquisition of its SQM stake, Tianqi Lithium’s debt level has surged, bringing annual servicing costs to RMB2.0bn. We expect the firm to gradually improve its balance sheet going forward. However, if refinancing headwinds emerge due to a deterioration in borrowing conditions, or balance sheet improvement efforts (e.g., asset disposals) prove unsuccessful, debt risks may increase, putting downward pressure on shares.

Mirae Asset Daewoo Research 73 May 15, 2020 Tianqi Lithium

Tianqi Lithium (002466 CH/Hold)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (RMBmn) 2019 2020F 2021F 2022F (RMBmn) 2019 2020F 2021F 2022F Revenue 4,841 3,987 4,884 5,998 Current Assets 6,443 5,050 5,508 6,323 Cost of Sales 2,103 1,858 1,946 2,272 Cash and cash equivalents 3,372 3,184 3,464 4,014 Gross Profit 2,738 2,129 2,938 3,726 Receivables 797 757 879 1,080 Operating Expenses 540 495 533 616 Inventories 917 359 415 480 EBIT 2,218 1,639 2,411 3,115 Other current assets 1,357 750 750 750 Non-Operating Profit -6,698 -1,991 -1,841 -1,791 Non-Current Assets 40,154 40,214 40,368 40,563 Net Financial Income -2,033 -2,191 -2,141 -2,091 Net fixed assets 13,564 14,061 14,215 14,410 Net Other Income -4,665 200 300 300 Investments 25,153 25,153 25,153 25,153 Pretax Profit -4,480 -352 570 1,324 Other long-term assets 1,437 1,000 1,000 1,000 Income Tax 1,002 -78 125 291 Total Assets 46,597 45,264 45,876 46,886 Minority interest 501 517 610 730 Current Liabilities 22,337 21,023 21,096 21,096 Net profit (controlling) -5,983 -792 -166 302 Payables 1,852 1,037 1,172 1,379 Short-term debts 20,167 19,887 19,824 19,616 Other current liabilities 318 100 100 100 Non-Current Liabilities 15,351 15,864 16,264 16,664 Growth & margins (%) Long-term debts 14,364 15,164 15,564 15,964 Revenue growth -22.5 -17.6 22.5 22.8 Other non-current liabilities 986 700 700 700 Gross profit growth -35.1 -22.3 38.0 26.8 Total Liabilities 37,687 36,888 37,360 37,760 EBIT growth -39.3 NM 47.1 29.2 Controlling Interests 6,963 6,171 6,005 6,251 Net profit growth -372.0 NM NM -282.4 Paid-in capital 8,183 8,183 8,183 8,183 EPS growth -425.3 NM NM -282.4 Retained earnings -496 -1,288 -1,453 -1,208 Gross margin 56.6 53.4 60.2 62.1 Other capital and adj. -725 -725 -725 -725 EBIT margin 45.8 41.1 49.4 51.9 Non-controlling interests 1,946 2,205 2,510 2,875 Net profit margin -123.6 -19.9 -3.4 5.0 Stockholders' Equity 8,909 8,376 8,515 9,126

Cash Flow Statement (Summarized) Forecasts/Valuations (Summarized) (RMBmn) 2019 2020F 2021F 2022F 2019 2020F 2021F 2022F Cash Flows from Op Activities 1,670 -388 280 707 P/E (x) NM NM NM 69.7 NPAT-MI -5,983 -792 -166 302 P/B (x) 5.0 3.4 3.5 3.4 Depr. & amortization 332 303 346 405 EV/EBITDA (x) 27.3 19.2 15.0 10.8 Chg in Working Capital, others 7,321 100 100 0 EPS (RMB) -5.24 -0.69 -0.15 0.26 Cash Flows from Inv Activities -3,918 -800 -500 -600 BPS (RMB) 6.10 5.40 5.26 5.47 Capital expenditures(Net) -3,735 -800 -500 -600 DPS (RMB) 0.00 0.00 0.00 0.05 Others -182 0 0 0 Payout ratio (%) 0.0 0.0 0.0 18.9 Cash Flows from Fin Activities 5,269 1,000 500 443 Dividend Yield (%) 0.0 0.0 0.0 0.3 Dividends -207 0 0 -57 Accounts receivable turnover (x) 6.1 5.3 5.6 5.6 Increase (decrease) in equity 2,908 0 0 0 Inventory turnover (x) 5.3 11.1 11.8 12.5 Increase (decrease) in debt 2,883 1,000 500 500 Accounts payable turnover (x) 2.6 3.8 4.2 4.3 Net increase in cash 3,039 -188 280 550 ROA (%) -25.7 -1.7 -0.4 0.7 Beginning cash 1,349 3,372 3,184 3,464 ROE (%) -57.4 -9.2 -2.0 3.4 Ending cash 3,372 3,184 3,464 4,014 ROIC (%) 12.5 2.9 4.3 5.5 Liability to Equity Ratio (%) 423.0 440.4 438.7 413.8 Current Ratio (%) 28.8 24.0 26.1 30.0 Net Debt to Equity Ratio (%) 349.7 380.5 374.9 345.9 Source: Tianqi Lithium, Mirae Asset Daewoo Research

74 Mirae Asset Daewoo Research

Aneka Tambang (ANTM IJ) Large nickel ore supplier

Metals & Minerals

We believe that Aneka Tambang (ANTM) will benefit from government-led efforts to Company Report transform Indonesia into an EV battery production hub, as the company holds 14% of May 15, 2020 the country’s total nickel ore reserves.

Indonesia’s EV battery hub ambitions As part of the government’s efforts to transform Indonesia into an EV battery hub (and (Maintain) Buy tackle the widening current account deficit), the Ministry of State Owned Enterprises has requested that four state-owned enterprises (SOEs)—Inalum, Telkom, Pertamina, Target Price (12M, IDR) 750 and PLN—pursue the establishment of EV battery plants going forward. And we believe that Inalum will ask ANTM to supply nickel ore for use in battery production. As of Share Price (05/13/20, IDR) 535 2018, ANTM boasted nickel ore resources of 1.3bn wet metric tonnes (wmt) and reserves of 438mn wmt. Expected Return 40.2% Two existing players We note that two players—QMB New Energy Materials and Youshan Nickel Indonesia— OP (20F, IDRbn) 299 are already building plants for the production of EV battery materials. QMB New Consensus OP (20F, IDRbn) 704.1 Energy Materials’ plant is targeting total production capacity of 250,000 tonnes. As for Youshan Nickel Indonesia, the company is building nickel sulfate capacity of 130,000 EPS Growth (20F, %) 27.4 tonnes, and also operates a port with capacity of 50,000 tonnes. Youshan Nickel Market EPS Growth (20F, %) -5.3 Indonesia is aiming to start up its new plant (located in Morowali, Central Sulawesi) in P/E (20F, x) 52.1 2020, while QMB New Energy Materials (Halmahera, Maluku) is aiming for a 2021 Market P/E (20F, x) 12.4 launch. We note that these facilities will be close to nickel ore mines operated by ANTM JCI 4,554.4 (North Konawe, Southeast Sulawesi and Halmahera, Maluku). Going forward, we believe that ANTM will likely supply its nickel ore to these two companies. Market Cap (IDRbn) 12,856.5 Shares Outstanding (mn) 24,030.8 Financial outlook Free Float (%) 35.0 We have yet to factor potential additional nickel ore sales to QMB New Energy Foreign Ownership (%) 4.5 Materials and Youshan Nickel Indonesia into our model. Still, we expect ANTM’s 2020 Beta (12M) 1.6 and 2021 revenue to grow to IDR23.8tr and IDR27.7tr, respectively. Meanwhile, we 52-Week Low (IDR) 338 believe that 2020 and 2021 net profit will expand to IDR247bn and IDR362bn, 52-Week High (IDR) 1,175 respectively. (%) 1M 6M 12M Maintain Buy and TP of IDR750 Absolute -1.0 -37.2 -29.5 Relative 0.3 -11.9 -4.2 We maintain our Buy call and target price of IDR750 on ANTM, as the current price level offers upside of more than 20%. The stock, which is trading at 1 SD below the (D-1yr=100) JCI ANTM historical average P/B, should undergo a valuation re-rating once visibility on the 180 160 planned supply of battery-grade nickel improves. 140 120 100 80 60 40 5/19 7/19 9/19 11/19 1/20 3/20 5/20 FY (Dec) 12/17 12/18 12/19 12/20F 12/21F 12/22F Revenue (IDRbn) 12,654 25,275 32,719 23,792 27,681 31,662 PT. Mirae Asset Sekuritas Op. profit (IDRbn) 601 1,556 956 299 671 808 Indonesia Net profit (IDRbn) 136 1,636 194 247 362 502 [One-Asia Research] EPS (IDR) 668810 15 21 769 768 755 699 710 725 Andy Wibowo Gunawan BPS (IDR) +62-21-5088-7000 (ext. 163) P/E (x) 94.2 7.9 66.3 52.1 35.5 25.6 [email protected] P/B (x) 0.7 0.7 0.7 0.8 0.8 0.7 EV/EBITDA (x) 12.2 5.9 7.8 10.8 10.2 10.8 ROE (%) 0.7 8.9 1.1 1.5 2.1 2.9 ROA (%) 0.5 5.1 0.6 0.8 1.2 1.5 Dividend yield (%) 0.0 0.4 2.4 0.1 0.1 0.1 Net gearing (x) 0.2 0.3 0.3 0.3 0.4 0.4 Note: NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Sekuritas Indonesia Research estimates

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

May 15, 2020 Aneka Tambang

Indonesia’s EV battery hub ambitions

Indonesian government becoming more serious about EV battery project

As part of the government’s efforts to transform Indonesia into an EV battery hub, the Ministry of State Owned Enterprises has requested that four SOEs—Inalum, Telkom, Pertamina, and PLN—pursue the establishment of EV battery plants going forward. And we believe that Inalum will ask ANTM to supply nickel ore for use in battery production, given its abundant nickel ore reserves.

Figure 1. Inalum holds majority stakes in key Indonesian miners

Source: Press materials, Mirae Asset Sekuritas Indonesia Research

ANTM boasts abundant nickel ore reserves

As EV battery material producers will likely require significant nickel ore supplies, we expect members of the EV battery value chain to seek cooperation with miners like ANTM. For reference, we note that ANTM’s nickel ore resources and reserves reached 1.3bn wmt and 438mn, respectively, in 2018, accounting for 14% of Indonesia’s total nickel ore reserves. We also believe that the government will be supportive of efforts by ANTM to become a supplier of nickel ore for EV batteries, as ANTM is an SOE.

Figure 3. ANTM: The firm holds 14% of Indonesia’s nickel ore Figure 2. ANTM: Nickel ore resources and reserves reserves

(mn tonnes) (%) 1,600

1,400

1,200 ANTM Other 1,000

800

600

400

200 Resources Reserves

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Daewoo Research 77 May 15, 2020 Aneka Tambang

Two existing players

QMB New Energy Materials and Youshan Nickel Indonesia

We note that two players—QMB New Energy Materials and Youshan Nickel Indonesia—are already building plants for the production of EV battery materials. QMB New Energy Materials’ plant is targeting total capacity of 250,000 tonnes: 50,000 tonnes for nickel hydroxide, 150,000 tonnes for nickel sulfate crystal, 20,000 tonnes for cobalt sulfate crystal, and 30,000 tonnes for manganese sulfate crystal. Meanwhile, Youshan Nickel Indonesia is building nickel sulfate capacity of 130,000 tonnes, and also operates a port with capacity of 50,000 tonnes. Youshan Nickel Indonesia is aiming to start up its new plant (located in Morowali, Central Sulawesi) in 2020, while QMB New Energy Materials (Halmahera, Maluku) is aiming for a 2021 launch.

Figure 4. QMB New Energy Materials: Production capacity Figure 5. Youshan Nickel Indonesia: Production/port capacity

('000 tonnes) ('000 tonnes) 160 140

140 120 120

100 100

80 80 60 60 40

20 40 0 Nickel hydroxide Nickel sulfate Cobalt sulfate Manganese sulfate 20 crystal crystal crystal Nickel sulfate Port

Source: CNBC, Mirae Asset Sekuritas Indonesia Research Source: IWIP, Mirae Asset Sekuritas Indonesia Research

ANTM’s nickel ore reserves located close to EV battery plants

As shown in

, ANTM’s nickel ore mines are located close to QMB New Energy Materials’ EV Morowali plant and Youshan’s Halmahera plant. In light of this, we believe that ANTM is well-positioned to supply nickel ore to these two companies going forward.

Figure 6. ANTM: Asset locations

Source: Company materials, Mirae Asset Sekuritas Indonesia Research

78 Mirae Asset Daewoo Research May 15, 2020 Aneka Tambang

Financial outlook

Revenue and net profit to expand

We have yet to factor potential additional nickel ore sales to QMB New Energy Materials and Youshan Nickel Indonesia into our model, as we expect construction on both companies’ plants to undergo delays. Still, we expect ANTM’s 2020 and 2021 revenue to grow to IDR23.8tr and IDR27.7tr, respectively. Furthermore, we believe that 2020 and 2021 net profit will expand to IDR247bn and IDR362bn, respectively.

Figure 7. ANTM: Revenue trend Figure 8. ANTM: Net profit trend

(IDRtr) (IDRbn) 35 2,000

30 1,600 25

1,200 20

15 800

10 400 5

0 0 2017 2018 2019 2020F 2021F 2017 2018 2019 2020F 2021F

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

Net margin and ROE to rise

We believe that ANTM’s 2020 and 2021 net margin will increase to 1% and 1.3%, respectively. We are also optimistic that 2020 and 2021 ROE will expand to 1.5% and 2.1%, respectively.

Figure 9. ANTM: Net margin trend Figure 10. ANTM: ROE trend

(%) (%) 7 10

6 8 5 6 4

3 4

2 2 1

0 0 2017 2018 2019 2020F 2021F 2017 2018 2019 2020F 2021F

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Daewoo Research 79 May 15, 2020 Aneka Tambang

Investment recommendation

Maintain Buy and TP of IDR750

In order to appropriately capture ANTM’s fair value, we relied on a blended valuation methodology (DCF and P/B). Notably, we assumed relatively high capital costs for ANTM to reflect significant earnings volatility. We maintain our Buy call and target price of IDR750, as the current price level offers upside of more than 20%. The stock, which is trading at 1 SD below the historical average P/B, should undergo a valuation re-rating once visibility on the planned supply of battery-grade nickel improves.

Figure 11. ANTM: Forward P/B band

(x)

1.8

1.4 +2 SD

+1 SD

1.0 Avg.

-1 SD 0.6 -2 SD

0.2 10/13 6/14 2/15 10/15 6/16 2/17 10/17 6/18 2/19 10/19

Source: Bloomberg, Mirae Asset Sekuritas Indonesia

80 Mirae Asset Daewoo Research May 15, 2020 Aneka Tambang

Aneka Tambang (ANTM IJ/Buy/TP: IDR750)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(IDRbn) 12/19 12/20F 12/21F 12/22F (IDRbn) 12/19 12/20F 12/21F 12/22F Revenue 32,719 23,792 27,681 31,662 Current Assets Cost of Sales -28,271 -22,542 -24,934 -28,827 Cash and Cash Equivalent 3,636 3,905 2,733 3,327 Gross Profit 4,447 1,251 2,747 2,835 AR & Other Receivables 1,431 1,842 2,144 2,452 SG&A Expenses -3,492 -952 -2,076 -2,026 Inventories 1,796 1,853 2,049 2,369 EBIT 956 299 671 808 Other Current Assets 802 122 164 214 EBITDA 2,282 1,697 1,888 1,821 Non-Current Assets Net Interest Income (Exp.) -113 -204 -189 -240 Investments in Associates 745 745 745 745 Forex Gain (Loss) 0 0 0 0 Property, Plant and Equipment 19,619 18,276 19,136 19,389 Others -68 523 277 317 Intangible/Other Assets 2,166 3,081 3,489 3,939 Net Gain from Inv. In Associates -88 -289 -276 -216 Total Assets 30,195 29,823 30,459 32,435 Pretax Profit 687 329 482 669 Current Liabilities Income Tax -493 -82 -121 -167 AP & Other Payables 740 1,359 1,503 1,738 Minority Interest 0 0 0 0 Short-Term Financial Liabilities 2,993 2,648 2,550 4,835 Net Profit 194 247 362 502 Other Current Liabilities 1,560 1,190 1,369 1,575 Non-Current Liabilities Margin Long-Term Financial Liabilities 5,564 6,649 6,649 5,386 12/19 12/20F 12/21F 12/22F Other Non-Current Liabilities 1,204 1,168 1,326 1,488 Gross Margin (%) 13.6 5.3 9.9 9.0 Total Liabilities 12,061 13,014 13,397 15,021 EBITDA Margin (%) 7.0 7.1 6.8 5.8 Controlling Interests Operating Margin (%) 2.9 1.3 2.4 2.6 Capital Stock 2,403 2,403 2,403 2,403 Net Margin (%) 0.6 1.0 1.3 1.6 Additional Paid in Capital 3,935 3,935 3,935 3,935 Retained Earnings 7,913 8,086 8,339 8,690 Other Equity Component 3,883 2,386 2,386 2,386 Non-Controlling Interests 0 0 0 0 Stockholders' Equity 18,133 16,809 17,062 17,414

Forecasts/Valuations (Summarized)

12/19 12/20F 12/21F 12/22F P/E (x) 66.3 52.1 35.5 25.6 P/B (x) 0.7 0.8 0.8 0.7 Cash Flows (Summarized) EV/EBITDA (x) 7.8 10.8 10.2 10.8 (IDRbn) 12/19 12/20F 12/21F 12/22F EPS (IDR) 8 10 15 21 Cash Flows from Op Activities -154 2,106 1,361 1,278 BPS (DR) 755 699 710 725 Net Profit 194 247 362 502 DPS (IDR) 13 0 0 1 Depreciation 1,326 1,398 1,217 1,013 Payout Ratio (%) 157.9 2.9 2.9 2.9 Change in Working Cap -514 151 -354 -394 Dividend Yield (%) 2.4 0.1 0.1 0.1 Others -1,160 311 136 157 Revenue Growth (%) 29.4 -27.3 16.3 14.4 Cash Flows from Inv. Activities 2,826 -2,799 -2,484 -1,716 EBITDA Growth (%) -26.8 -25.6 11.2 -3.5 Capex 1,126 -1,784 -2,076 -1,266 Operating Profit Growth (%) -38.6 -68.7 124.4 20.5 Others 1,700 -1,015 -408 -450 EPS Growth (%) -88.2 27.4 46.5 38.7 Cash Flows from Fin. Activities -3,335 961 -49 1,033 Accounts Receivable Turnover (x) 22.9 12.9 12.9 12.9 Change in Financial Liabilities -1,364 740 -98 1,021 Inventory Turnover (x) 15.7 12.2 12.2 12.2 Change in Equity -79 -1,497 0 0 Accounts Payable Turnover (x) 38.2 16.6 16.6 16.6 Dividends Paid -306 -7 -11 -15 ROA (%) 0.6 0.8 1.2 1.5 Others -1,586 1,726 60 26 ROE (%) 1.1 1.5 2.1 2.9 Increase (Decrease) in Cash -663 268 -1,172 594 Current Ratio (%) 1.4 1.5 1.3 1.0 Beginning Balance 4,299 3,636 3,905 2,733 Net Debt to Equity Ratio (x) 0.3 0.3 0.4 0.4 Ending Balance 3,636 3,905 2,733 3,327 Interest Coverage Ratio (x) 4.1 0.6 1.5 1.6 Source: Company data, Mirae Asset Sekuritas Research estimates

Mirae Asset Daewoo Research 81

LG Chem (051910 KS) Strong growth momentum likely

Chemicals/EV Batteries Maintain TP of W500,000 and reiterate as one of our top picks Company Report We maintain our target price of W500,000 for LG Chem and reiterate the stock as one May 15, 2020 of our top picks. Going forward, we expect the value of the company’s battery business to expand on margin improvements as well as the growth of downstream industries. Despite worries that the global economic slowdown and low oil prices could dampen the growth of the EV market, we believe that demand, particularly for Tesla models, will (Maintain) Buy likely remain solid. As Tesla has already begun to meaningfully take share from conventional vehicles, we believe traditional automakers will step up their transition to Target Price (12M, W) 500,000 EVs. In addition, falling battery prices and the adoption of dedicated platforms will likely make EVs economically viable for conventional automakers within two to three Share Price (05/13/20, W) 352,000 years. In the EV supply chain, batteries are probably the most concentrated segment due to Expected Return 42% the high technological barriers to entry. Given that the economic slowdown is likely to affect second-tier battery suppliers more than first-tiers, we expect LG Chem to further OP (20F, Wbn) 1,303 strengthen its position over the next several years. Consensus OP (20F, Wbn) 1,325 We believe that the electric motorcycle market, which is still small in size, will grow EPS Growth (20F, %) 110.7 meaningfully in emerging markets, including Southeast Asia. Of note, LG Chem Market EPS Growth (20F, %) 28.1 established a battery manufacturing joint venture with VinFast in 2019 and is P/E (20F, x) 41.7 reportedly advancing into other parts of the Southeast Asian market, including Market P/E (20F, x) 12.8 Indonesia. We believe the company will enjoy a high market share in the region in light KOSPI 1,940.42 of the oligopolistic nature of the battery market.

Market Cap (Wbn) 24,849 Strong growth momentum expected Shares Outstanding (mn) 78 The recent slowdown of the global economy has sparked worries about EV demand. Free Float (%) 64.3 However, we expect global EV market growth to remain robust in 2020. In China, in Foreign Ownership (%) 36.4 particular, orders for the Model 3 have been increasing rapidly following price cuts. For Beta (12M) 1.38 the Model Y, which boasts improved marketability vs. the Model 3, we expect demand 52-Week Low 230,000 growth to accelerate going forward. In Europe, conventional automakers are set to roll 52-Week High 419,500 out a number of EV models with strong commercial appeal and favorable economics (%) 1M 6M 12M (e.g., the Volkswagen ID.3), driving global EV market growth. Absolute 11.7 11.9 5.7 The global EV battery market is highly concentrated with the top four battery suppliers Relative 5.1 22.4 13.3 controlling around 70-80%. Over the past few years, top-tier suppliers have been increasing their dominance thanks to the market’s high barriers to entry. Going 140 LG Chem KOSPI forward, we expect top-tiers to further widen their technological lead over second-tiers 120 as the pace of development/advancement accelerates. The leading players are also

100 highly likely to gain an upper hand in terms of scale, given their preemptive capex spending 80

60 5.19 9.19 1.20 5.20

Mirae Asset Daewoo Co., Ltd.

[Chemicals/Oil Refining/EV Batteries] FY (Dec.) 12/17 12/18 12/19 12/20F 12/21F 12/22F Revenue (Wbn) 25,698 28,183 28,625 30,315 39,966 47,687 Yeon-ju Park +822-3774-1755 OP (Wbn) 2,928 2,246 896 1,303 2,114 3,248 [email protected] OP Margin (%) 11.4 8.0 3.1 4.3 5.3 6.8 NP (Wbn) 1,945 1,473 313 660 1,351 2,248 EPS (W) 24,854 18,812 4,003 8,433 17,259 28,723 ROE (%) 12.9 8.9 1.8 3.8 7.5 11.6 P/E (x) 16.3 18.4 79.3 41.7 20.4 12.3 P/B (x) 1.9 1.6 1.4 1.5 1.5 1.3 Dividend Yield (%) 1.5 1.7 0.6 1.1 1.7 1.7 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

May 15, 2020 LG Chem

LG Chem (051910 KS/Buy/TP: W500,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/19 12/20F 12/21F 12/22F (Wbn) 12/19 12/20F 12/21F 12/22F Revenue 28,625 30,315 39,966 47,687 Current Assets 11,870 12,777 17,072 22,499 Cost of Sales 23,779 25,061 33,902 40,489 Cash and Cash Equivalents 1,889 2,111 2,895 4,747 Gross Profit 4,846 5,254 6,064 7,198 AR & Other Receivables 3,933 4,970 6,606 8,272 SG&A Expenses 3,950 3,950 3,950 3,950 Inventories 5,034 5,696 7,570 9,479 Operating Profit (Adj) 896 1,303 2,114 3,248 Other Current Assets 1,014 0 1 1 Operating Profit 896 1,303 2,114 3,248 Non-Current Assets 22,155 25,256 27,865 30,140 Non-Operating Profit -335 -249 -313 -365 Investments in Associates 308 350 465 583 Net Financial Income -164 -241 -314 -367 Property, Plant and Equipment 18,594 21,781 24,359 26,584 Net Gain from Inv in Associates 22 -9 0 0 Intangible Assets 2,206 2,061 1,933 1,820 Pretax Profit 561 1,054 1,801 2,883 Total Assets 34,024 38,032 44,937 52,639 Income Tax 184 359 450 634 Current Liabilities 8,942 9,320 11,940 14,609 Profit from Continuing Operations 376 695 1,351 2,248 AP & Other Payables 2,380 2,758 3,665 4,590 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 1,356 1,356 1,356 1,356 Net Profit 376 695 1,351 2,248 Other Current Liabilities 5,206 5,206 6,919 8,663 Controlling Interests 313 660 1,351 2,248 Non-Current Liabilities 7,699 10,787 14,027 17,271 Non-Controlling Interests 63 35 0 0 Long-Term Financial Liabilities 7,059 10,059 13,059 16,059 Total Comprehensive Profit 449 695 1,351 2,248 Other Non-Current Liabilities 640 728 968 1,212 Controlling Interests 383 761 1,480 2,463 Total Liabilities 16,641 20,107 25,967 31,881 Non-Controlling Interests 65 -66 -129 -214 Controlling Interests 17,005 17,511 18,556 20,344 EBITDA 2,752 3,661 4,864 6,336 Capital Stock 391 391 391 391 FCF (Free Cash Flow) -3,117 -2,609 -1,749 -525 Capital Surplus 2,275 2,275 2,275 2,275 EBITDA Margin (%) 9.6 12.1 12.2 13.3 Retained Earnings 14,799 15,305 16,349 18,138 Operating Profit Margin (%) 3.1 4.3 5.3 6.8 Non-Controlling Interests 379 414 414 414 Net Profit Margin (%) 1.1 2.2 3.4 4.7 Stockholders' Equity 17,384 17,925 18,970 20,758

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/19 12/20F 12/21F 12/22F 12/19 12/20F 12/21F 12/22F Cash Flows from Op Activities 3,121 2,791 3,451 4,675 P/E (x) 79.3 41.7 20.4 12.3 Net Profit 376 695 1,351 2,248 P/CF (x) 7.0 7.6 5.7 4.4 Non-Cash Income and Expense 3,161 2,953 3,510 4,085 P/B (x) 1.4 1.5 1.5 1.3 Depreciation 1,720 2,212 2,622 2,976 EV/EBITDA (x) 11.1 10.5 8.25.0 Amortization 137 146 128112 EPS (W) 4,003 8,433 17,259 28,723 Others 1,304 595 760 997 CFPS (W) 45,188 46,609 62,099 80,902 Chg in Working Capital 115 -262 -650 -662 BPS (W) 221,764 228,234 241,574 264,420 Chg in AR & Other Receivables 595 -992 -1,557 -1,585 DPS (W) 2,000 4,000 6,000 6,000 Chg in Inventories -719 -662 -1,874 -1,909 Payout ratio (%) 36.7 39.7 30.6 18.4 Chg in AP & Other Payables 217 378 908 924 Dividend Yield (%) 0.6 1.1 1.7 1.7 Income Tax Paid -577 -359 -450 -634 Revenue Growth (%) 1.6 5.9 31.8 19.3 Cash Flows from Inv Activities -6,111 -5,373 -5,244 -5,245 EBITDA Growth (%) -26.3 33.0 32.9 30.3 Chg in PP&E -6,159 -5,400 -5,200 -5,200 Operating Profit Growth (%) -60.1 45.4 62.2 53.6 Chg in Intangible Assets -232 0 0 0 EPS Growth (%) -78.7 110.7 104.7 66.4 Chg in Financial Assets -54 27 -44 -45 Accounts Receivable Turnover (x) 7.1 7.2 7.3 6.7 Others 334 0 00 Inventory Turnover (x) 6.1 5.7 6.0 5.6 Cash Flows from Fin Activities 2,301 2,846 2,693 2,540 Accounts Payable Turnover (x) 10.5 9.8 10.6 9.8 Chg in Financial Liabilities 3,045 3,000 3,000 3,000 ROA (%) 1.2 1.9 3.3 4.6 Chg in Equity 0 0 0 0 ROE (%) 1.8 3.8 7.5 11.6 Dividends Paid -484 -154 -307 -460 ROIC (%) 2.7 3.4 5.5 7.9 Others -260 0 00 Liability to Equity Ratio (%) 95.7 112.2 136.9 153.6 Increase (Decrease) in Cash -625 222 785 1,852 Current Ratio (%) 132.7 137.1 143.0 154.0 Beginning Balance 2,514 1,889 2,111 2,895 Net Debt to Equity Ratio (%) 37.3 65.4 66.6 28.2 Ending Balance 1,889 2,111 2,895 4,747 Interest Coverage Ratio (x) 4.3 4.5 5.7 7.2 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 83 May 15, 2020 Another Chapter of E-Mobility

APPENDIX 1

Important Disclosures & Disclaimers

2-Year Rating and Target Price History

Company (Code) Date Rating Target Price (W) LG Chem LG Chem (051910) 03/16/2020 Buy 500,000 600,000 02/23/2020 Buy 550,000 500,000 02/03/2020 Buy 500,000 400,000 09/24/2019 Buy 460,000 300,000 09/18/2019 Buy 500,000 07/24/2019 Buy 530,000 200,000 05/23/2019 Buy 500,000 100,000

01/31/2019 Buy 520,000 0 May 18 May 19 May 20 01/14/2019 Buy 480,000 07/17/2018 Buy 460,000 06/03/2018 Buy 500,000 10/26/2017 Buy 530,000

Company (Code) Date Rating Target Price (RMB) CATL CATL (300750 CH) 05/15/20 Buy 200.00 200

160

120

0 18.6 19.6

Company (Code) Date Rating Target Price Tianqi Lithium (002466 CH) 05/15/20 Hold - (RMB) Tianqi Lithium 60

50 40

10 0 18.5 19.5 20.5

84 Mirae Asset Daewoo Research May 15, 2020 Another Chapter of E-Mobility

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Equity Ratings Distribution & Investment Banking Services

Korea Equity coverage universe Buy Trading Buy Hold Sell Equity Ratings Distribution 82.04% 12.57% 5.39% 0.00% Investment Banking Services 80.77% 11.54% 7.69% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2020)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of LG Chem as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo.

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Indonesia 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price ANTM IJ 4/27/2020 Buy 750 (IDR) ANTM Analyst's TP 1,700 11/22/2019 Buy 1,365 10/26/2018 Buy 1,115 6/25/2018 Buy 1,400 1,200 3/9/2018 Buy 1,225 1/19/2018 Buy 1,020 700 12/5/2017 Buy 820 10/9/2017 Trading Buy 730 200 May-18 May-19 May-20

Equity Ratings Distribution Buy Trading Buy Hold Sell Equity Ratings Distribution 57% 17% 19% 7% *Based on recommendations in the last 12-months (as of March 31, 2020)

Disclosures As of the publication date, PT Mirae Asset Sekuritas Indonesia, and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.

Analyst Certification Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of PT Mirae Asset Sekuritas Indonesia, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or PT Mirae Asset Sekuritas Indonesia except as otherwise stated herein.

Disclaimers This report is published by PT Mirae Asset Sekuritas Indonesia (“Mirae Asset”), a broker-dealer registered in the Republic of Indonesia and a member of the Indonesia Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Mirae Asset makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Bahasa Indonesia. If this report is an English translation of a report prepared in the Indonesian language, the original Indonesian language report may have been made available to investors in advance of this report. Mirae Asset, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Mirae Asset and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset. Mirae Asset, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.

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Distribution United Kingdom: This report is being distributed by Mirae Asset Securities (UK) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This report is distributed in Hong Kong by Mirae Asset Securities (HK) Limited, which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

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Mirae Asset Daewoo International Network

Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. Global Equity Sales Team Units 8501, 8507-8508, 85/F 41st Floor, Tower 42 Mirae Asset Center 1 Building International Commerce Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 1 Austin Road West London EC2N 1HQ Korea Kowloon United Kingdom Hong Kong Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000

Mirae Asset Securities (USA) Inc. Mirae Asset Wealth Management (USA) Inc. Mirae Asset Wealth Management (Brazil) CCTVM 810 Seventh Avenue, 37th Floor 555 S. Flower Street, Suite 4410, Rua Funchal, 418, 18th Floor, E-Tower Building Vila New York, NY 10019 Los Angeles, California 90071 Olimpia USA USA Sao Paulo - SP 04551-060 Brasil Tel: 1-212-407-1000 Tel: 1-213-262-3807 Tel: 55-11-2789-2100

PT. Mirae Asset Sekuritas Indonesia Mirae Asset Securities (Singapore) Pte. Ltd. Mirae Asset Securities (Vietnam) LLC Equity Tower Building Lt. 50 6 Battery Road, #11-01 7F, Saigon Royal Building Sudirman Central Business District Singapore 049909 91 Pasteur St. Jl. Jend. Sudirman, Kav. 52-53 Jakarta Selatan Republic of Singapore District 1, Ben Nghe Ward, Ho Chi Minh City 12190 Vietnam Indonesia Tel: 62-21-515-3281 Tel: 65-6671-9845 Tel: 84-8-3911-0633 (ext.110) Mirae Asset Securities Mongolia UTsK LLC Mirae Asset Investment Advisory (Beijing) Co., Ltd Beijing Representative Office #406, Blue Sky Tower, Peace Avenue 17 2401B, 24th Floor, East Tower, Twin Towers 2401A, 24th Floor, East Tower, Twin Towers 1 Khoroo, Sukhbaatar District B12 Jianguomenwai Avenue, Chaoyang District B12 Jianguomenwai Avenue, Chaoyang District Ulaanbaatar 14240 Beijing 100022 Beijing 100022 Mongolia China China

Tel: 976-7011-0806 Tel: 86-10-6567-9699 Tel: 86-10-6567-9699 (ext. 3300) Shanghai Representative Office Ho Chi Minh Representative Office 38T31, 38F, Shanghai World Financial Center 7F, Saigon Royal Building 100 Century Avenue, Pudong New Area Shanghai 91 Pasteur St. 200120 District 1, Ben Nghe Ward, Ho Chi Minh City China Vietnam

Tel: 86-21-5013-6392 Tel: 84-8-3910-7715

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