Raising Forecasts M [email protected] P

Raising Forecasts M Timothy.Lee@Clsa.Com P

Calc HK$8.42 - BUY

Snoopinaround Small-caps research C o

Timothy Lee, CFA Raising forecasts m [email protected] p

Strong financial management to boost growth a

+852 2600 8461 n

The recent positive 1H16 profit alert amidfaster finance lease realisation y

and partial CB repurchase both suggest CALC's strong financial u Tim Cheung p

+852 2600 8588 management capability to drive earnings growth on top of the steadily d a t

growing core aircraft leasing business,which is on track. Trading at e 16/17CL PE of 8.4/6.8x and PB of 1.9x/1.6x, valuations remain undemanding given 29.0% 15-18CL EPSCagr and c.26-27% ROE. We maintain BUY with a new target price of HK$10.10(from HK$10.00)amid an earnings upgrade.

7 July 2016 Positive 1H16 profit alert China CALC estimated its 1H16 profit to grow c.100% YoY, which is mainly driven by the 4 finance lease realisations (1H15: nil) plus the steady core aircraft leasing Financial services business. Given depreciation of Rmb and other currencies, USD-denominated

Reuters 1848.HK assets becomemore valuablenow, the gain per deal in 1H16 is likely higher Bloomberg 1848 HK than the HK$27m gain from each of the 2 deals done in 2H15, and the proceeds should facilitate faster fleet size addition.The 18 additions made in Priced on 6 July 2016 HS CEI@ 8,503.1 2015 (to 63 in total by end-15) also hadfully contributedin 1H16.

12M hi/lo HK$10.58/5.33 Partial CB repurchase to reduce interest costs 12M price target HK$10.10 CALC also announced it wouldrepurchase HK$581.85mout of its HK$892.17m ±% potential +20% CB outstanding. Despite a premium price of 101.5%, this helps reduce interest costs given the CB carries effective interest of 11.8%-14.1%, versus effective Shares in issue 622.8m Free float (est.) 27.9% interest of c.4.7% for other borrowings.

Market cap US$676m Core aircraft leasing business remains on track 3M average daily volume Another 7 aircraft havebeen delivered YTD out of the 18 secured deliveries HK$6.2m (US$0.8m) this year, suggesting on-track operation with high-growth visibility.One major goal for the company is globalization to capture more opportunities on leasing, Foreign s'holding 65.1% aircraft buy/sell and financingchannels, despite potentially resultingin slightly Major shareholders higher operating expenses. CE Aerospace34.9% FPAM31.7% Maintain BUY on still strong earnings momentum We adjusted our 16/17/18CL core profit forecasts by +6.7%/+2.7%/-3.9%to factor in more finance lease realisations (from 6 to 8this year) and higher gain per deal, as well as the partial CB repurchase. We also lift our TP from HK$10.00 to HK$10.10 on the same 8x 17CL PE.We maintain BUYon still Stock performance (%) solid earnings momentum with 29.0% 15-18CL EPS Cagr and c.26-27% ROE. 1M 3M 12M Absolute 9.8 5.4 (5.1) Relative 14.5 7.4 36.5 Financials Abs (US$) 9.9 5.4 (5.1) Year to 31 December 14A 15A 16CL 17CL 18CL 15.0 (HK$) (%) 250 Revenue (HK$m) 1,145 1,549 2,185 2,575 2,924

12.9 200 Rev forecast change (%) - - 6.9 2.7 (0.3) Adjusted net profit (HK$m) 316 393 635 789 961 10.8 150 NP forecast change (%) - - 6.7 2.7 (3.9) 8.7 100 Adjusted EPS (HK¢) 57.0 64.2 100.8 123.6 150.7

6.6 50 CL/consensus (6) (EPS%) - - 121 116 122 Adj EPS growth (% YoY) 54.5 12.6 57.1 22.6 21.9 4.5 0 Jul-14 Jan-15 Jul-15 Jan-16 Adjusted PE (x) 14.8 13.1 8.4 6.8 5.6 Calc (LHS) Dividend yield (%) 1.9 2.6 4.2 5.2 6.3 Rel to CEI (RHS) ROE (%) 22.4 19.3 26.1 26.7 26.9 Source: Bloomberg Net debt/equity (%) 805.3 868.2 863.5 836.6 776.6 www.clsa.com Source: CLSA

Find CLSAresearch on Bloomberg, Thomson Reuters, Factsetand CapitalIQ -and profit from our evalu@tor proprietary database at clsa.com For important disclosuresplease refer to page9. Prepared for: ThomsonReuters Raising forecasts Calc - BUY

1H16 positive profit alert 1H16 profit estimated to CALC earlier announced a profit alert, expecting its 1H16 profit to log double on finance lease approximately100% growth. From the reported 1H15 profit of HK$117m, the realization profit alert implies 1H16 profit will be at around HK$234m, or c.39% of our original full-year 16CL estimate (43.1% of Bloomberg consensus full-year forecast), compared with the previous 3 years when 1H profit only contributed c.23-30% of fullyear. This suggests that consensus islikely to upgrade itsearnings forecasts.

Management commented that the significant profit growth came from: (1) Increasing lease income from continuously expanding aircraft scale. The company has 18 secured aircraft deliveriesin 2016 (with 7 deliveriesmade YTD) from 63 aircraft by end-2015. The full-year contribution of 2015’s addition and those added this year will continue to drive steady and visible growth for the company. (2) Gain from realization of 4 financial lease receivables (1H15: nil), and we had originally assumed 6 realizations for full- year 2016 in our model. This demonstrates the company’s strong financial management capability to securitize receivables for financial gains as well as generating cash flows for faster aircraft additions.Even thoughrealizations will mean forfeiting the long-term lease income from that aircraft, the proceedsshould allow CALC to purchase more aircraft, and thus there is upside risk to our aircraft addition forecasts.

Figure 1 Solid aircraft portfolio Calc’s aircraft portfolio growth 120 Forecast Secured 100 99 100

81 81 80 63 60 44 40 25 20 16 10 5 8 1 0 2007 2008 2010 2011 2012 2013 2014 2015 2016CL2017CL Source: Company data, CLSA

CB repurchase Repurchasing CB to CALC also announcedit wouldrepurchase part of its outstanding CB, with a reduce interest costs principal amount of HK$581.85m (out of HK$892.17m in total). Out of this, HK$77.58m is repurchased from China Everbright (the largest shareholder holding c.34.8% of CALC). After the repurchase, China Everbright would continue to hold HK$310.32m of CB.

The repurchase price would be HK$590.58m, ie,101.5% of principal, plus accrued interests and arrangement fees. Despite the premium price on the repurchase, this can actually help CALC reduce interest costs, given the CB carriesaninterest rate (3%) + arrangement fee (3.5%) and effective interest rate of 11.8%-14.1%, much higher than the effective interest rate of c.4.7% for other types of borrowings. Assuming the repurchase is funded by normal

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borrowings, we estimate this can potentially boost CALC’s 16/17CL core profit by 2.3%/5.6%.

Figure 2 Figure 3 Calc’s revenue Calc’s recurring net profit*

3,500 (HK$m) (%) 120 1,200 (HK$m) (%) 120.0 Revenue YoY growth (RHS) Recurring net profit YoY growth (RHS) 3,000 100.6 100 1,000 100.0 99.0 93.5 2,500 80 800 80.0 66.7 61.4 2,000 71.2 60 600 60.0 1,500 35.3 53.4 40 400 24.3 40.0 1,000 41.0 24.3 21.9 17.8 13.6 500 20 200 20.0

0 0 0 - 2011 2012 2013 2014 2015 16CL 17CL 18CL 2011 2012 2013 2014 2015 16CL 17CL 18CL Source: Company data, CLSA Source: Company data, CLSA. *Excluding IPO expenses, share option expenses and FX.

Figure 4 Key assumptions for Calc 2011 2012 2013 2014 2015 16CL 17CL 18CL No. of aircraft Finance lease 10 14 23 40 57 73 90 106 Less: finance lease realized 0 0 (1) (5) (7) (15) (23) (31) Net no. of aircraft generating finance lease income 10 14 22 35 50 58 67 75 Operating lease 0 2 2 4 6 8 10 12 Total no. of aircraft 10 16 25 44 63 81 100 118 Total no. of aircraftgenerating lease income 10 16 24 39 56 66 77 87

Average annualized lease rate per aircraft (US$m) Finance lease 2.9 3.9 3.4 3.2 3.1 3.3 3.3 3.3 Operating lease - 11.3 11.3 7.7 6.8 6.2 5.8 5.7 Source: Company data, CLSA

Figure 5 Revenue breakdown for Calc HK$m 2011 2012 2013 2014 2015 16CL 17CL 18CL Finance lease 223 364 478 715 1,015 1,304 1,600 1,833 Operating lease - 84 145 182 224 297 354 408 Other income 0 0 64 248 310 583 621 682 Aircraft disassembly ------Total 223 448 687 1,145 1,549 2,185 2,575 2,924 As % Finance lease 99.9% 81.2% 69.6% 62.4% 65.5% 59.7% 62.1% 62.7% Operating lease 0.0% 18.7% 21.2% 15.9% 14.5% 13.6% 13.7% 14.0% Other income 0.1% 0.1% 9.3% 21.7% 20.0% 26.7% 24.1% 23.3% Aircraft disassembly 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company data, CLSA

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Figure 6 Target price increases CalcPE valuation from HK$10.00 to 17CL diluted EPS (HK$) * 126.1 HK$10.10, maintain BUY Target PE (x) 8 Target price (HK$) 10.10 Source: CLSA.*After accounting for the potential dilution impact of CB.

Figure 7 We forecast 100.5% YoY growth in core profit in 1H16CL HK$m 1H15 1H16CL YoY growth Sales 636 975 53.4% COGS (ex-dep) (336) (450) 34.0% Operating expenses (96) (146) 53.0% Opex ex D&A 15.0% 15.0% (0.3%) Core EBITDA 204 379 85.5% Depreciation (45) (60) 35.5% Amortisation 0 #DIV/0! Core EBIT 160 319 99.5% …Ebit Margin 25.1% 32.7% Other revenue (exinterest income) 0 0 #DIV/0! Interest Income Interest Expense (2) (2) 0.0% Net Interest Expense (2) (2) 0.0% Profit Before Tax 158 317 100.5% Tax Expense (41) (83) 100.8% Minority Interest 0 0 (202.4%) Net Profit After Tax, pre Exceptionals 117 235 100.5% Exceptional gain/(loss) 0 0 (100.0%) Net Profit After Tax 117 235 101.3% … NPM, pre exceptional 18.4% 24.1% Revenue breakdown Finance lease income 461 604 31.0% Operating lease income 109 152 39.2% Other income 65 219 235.1% Total 636 975 305.3% As % Finance lease income 72.5% 61.9% Operating lease income 17.2% 15.6% Other income 10.3% 22.5% Total 100.0% 100.0% Source: CLSA

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Figure 8 Valuation of aircraft leasing peers

Price Mkt Cap ADTV CLSA 12m forward valuations EPS Cagr Gearing Performance (%) Stock Ticker PEG (local) (USD,m) (USD,m) Rec Target Upside PE PB Yield EV/Ebitda ROE FY1-FY3 (%) 1m 3m 6m 12m CALC 1848 HK 8.42 676 0.8 BUY 10.10 20% 7.6 1.8 4.7 28.4 26 22 0.3 868 10 5 8 (5) International aircraft lessors BOC Aviation 2588 HK 39.95 3,578 AerCap Holdings AER US 32.52 6,424 101.1 5.1 0.6 0.0 7.5 15 11 0.5 325 (18)(13)(19) (28) Air Lease Corp AL US 25.75 2,648 28.8 6.8 0.7 0.9 7.0 14 12 0.5 250 (14)(17)(19) (24) Avolon Holdings AVOL US 9.1 10 0.9 310 Aircastle Ltd AYR US 18.95 1,493 7.7 8.5 0.8 5.4 6.5 9 16 0.5 218 (11)(11) (7) (17) Bohai Leasing 000415 CH 12.0 30 0.4 188 AAR Corp AIR US 22.62 786 3.6 10.9 0.6 5.4 29 0.4 12 (9) (3) (8) (27) AeroCentury Corp ACY US 9.20 14 0.0 7.4 254 (2) (16)(26) 12 Air Transport Services ATSG US 12.97 827 4.1 14.9 4.5 83 (2) (13) 32 22 Fly Leasing Ltd FLY US 9.79 329 2.9 4.7 0.4 0.0 6.1 10 23 0.2 323 (16)(16)(26) (37) 1st Source Corp SRCE US 31.80 822 1.6 13.9 1.1 2.4 9 42 (5) 1 5 2 Avation PLC AVAP LN 137.50 99 31.7 3.4 0.9 2.1 4.9 22 44 0.1 249 (7) 5 (7) (7) Doric Nimrod Air One DNA LN 112.50 62 2.6 122 (2) 0 (0) 5 Doric Nimrod Air Two DNA2 LN 212.50 476 40.0 174 (6) (1) (7) (11) Doric Nimrod Air Three DNA3 LN 102.88 293 21.9 215 (3) 3 (2) (3) DP Aircraft I DPA LN 1.03 215 0.2 135 (3) 0 (2) (4) Financial Products Group 7148 JP 1,072.00 1,005 13.8 10.2 3.5 3.4 40 17 0.6 170 (8) (13) 16 13 IBJ Leasing 8425 JP 1,720.00 728 2.4 5.9 0.5 4.0 9 1,073 (12) (5) (29) (39) HH Leasing & Financial 8913 TT 17.45 29 0.0 132 (5) (4) 17 6 ALAFCO Aviation Lease & Finance ALAFCO KK 212.00 669 131.0 6.2 0.7 2.4 11 143 7 1 3 (4) AviaAM Leasing AB AAL PW 2.60 28 0.0 (28) (27)(26)(41) (57) ORIX Leasing Pakistan OLPL PA 49.19 39 0.0 327 9 (4) (21) (19) Airwork Holdings AWK NZ 4.55 163 0.0 9.3 4.8 4.9 20 7 1.3 118 (5) 5 13 42 Knafaim Holdings KNFM IT 2,661.00 109 6.7 320 (2) (14)(19) 230 International aircraft lessors average 8.6 1.0 2.5 5.9 16 20 0.5 224 Domestic airlines Air China 753 HK 5.31 12,181 10.2 U-PF 5.20 (2%) 7.9 0.9 2.5 4.1 12 (4) 146 4 (9) (5) (39) China Eastern Airlines 670 HK 4.05 12,432 7.3 SELL 3.40 (16%) 8.4 1.1 1.9 5.6 14 15 0.6 275 (6) (8) 2 (30) China Southern Airlines 1055 HK 4.36 9,371 6.4 SELL 4.00 (8%) 11.1 0.9 2.1 5.5 10 3 3.7 196 (7) (17)(20) (43) Hainan Airlines 900945 CH 0.65 5,981 0.3 11.1 1.5 12 17 0.6 143 (1) 0 (7) (5) Domestic airlines average 9.6 1.1 2.2 5.1 12 8 1.6 190 Overall average 8.7 1.1 2.6 7.5 16 17 0.8 242

Source: CLSA, Bloomberg

Valuation details We value Calc using a PE valuation, as we believe this best captures the strong earnings growth profile of the company over at least the next two years.

Investment risks The key risks for Calc include it being unable to source customers (airlines), aircraft and financing, fluctuations in interest rates (if floating rate borrowing is used) if hedging is not applied properly, large fluctuations in aircraft value and default by airlines.

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Valuation details -Air China Ltd 753 HK We argue an ROE-based metric is warranted in valuing cyclical companies and provides a good guide to valuation. We value Air China on a price to book metric vs ROE/COE.

Investment risks -Air China Ltd 753 HK Air China’s share price has a 0.8x correlation with ROE momentum and any downgrades to its earnings outlook could be a negative stock-price driver. A key negative could be more renminbi depreciation than the market generally anticipates.

Valuation details -China Eastern Airlines Corp Ltd 670 HK We argue an ROE-based metric is warranted in valuing cyclical companies and provides a good guide to valuation. We value China Eastern ona price to book metric vs ROE to COE.

Investment risks -China Eastern Airlines Corp Ltd 670 HK CEA’s share price has a 0.8x correlation with ROE momentum and any upgrades to its earnings outlook could be a positive stock-price driver. A key positive could be less renminbi depreciation than we anticipate.

Valuation details -China Southern Airlines Co Ltd 1055 HK We argue an ROE-based metric is warranted in valuing cyclical companies and provides a good guide to valuation. We value CSA on a price-to-book metric vs ROE to COE. Our HK$4.00 target price is based on 0.8x one-year forward book value for a forecast 12% ROE.

Investment risks -China Southern Airlines Co Ltd 1055 HK The biggest potential upside risks to our view are a continued fall in jet fuel prices and lower renminbi depreciation than what we expect.

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Summary financials Year to 31 December 2014A 2015A 2016CL 2017CL 2018CL Summary P&L forecast (HK$m) Revenue 1,145 1,549 2,185 2,575 2,924 Op Ebitda 469 588 925 1,178 1,373 Op Ebit 397 496 804 1,028 1,194 Rapid aircraft additions to Interest income 0 0 0 0 0 drive earnings growth Interest expense (3) (3) (3) (3) (3) Other items (14) (13) 0 (18) 29 Profit before tax 381 480 801 1,007 1,220 Taxation (78) (100) (166) (218) (259) Minorities/Pref divs 0 0 0 0 0 Net profit 303 380 635 789 961

Summary cashflow forecast (HK$m) Operating profit 397 496 804 1,028 1,194 Operating adjustments - - - - - Depreciation/amortisation 71 91 121 150 179 Working capital changes (3,291) (3,879) (3,290) (3,310) (2,785) Net interest/taxes/other (3) (3) (170) (221) (263) Net operating cashflow (2,825) (3,295) (2,535) (2,353) (1,674) Huge cash outflow for Capital expenditure (1,473) (700) (735) (735) (735) purchasing of aircraft Free cashflow (4,298) (3,994) (3,270) (3,088) (2,409) funded by borrowing Acq/inv/disposals - - (690) (642) (642) Int, invt & associate div (14) (13) - (18) 29 Net investing cashflow (1,487) (713) (1,425) (1,395) (1,348) Increase in loans 4,393 4,782 3,791 4,088 3,447 Dividends (69) (119) (147) (227) (283) Net equity raised/other 162 (702) - - - Net financing cashflow 4,487 3,961 3,644 3,861 3,163 Incr/(decr) in net cash 175 (47) (316) 113 141 Exch rate movements - - - - - Opening cash 1,470 1,645 1,598 1,282 1,394 Closing cash 1,645 1,598 1,282 1,394 1,535

Summary balance sheet forecast (HK$m) Highly geared balance Cash & equivalents 1,645 1,598 1,282 1,394 1,535 sheet due to business Debtors 364 515 727 856 972 nature Inventories 0 0 0 0 0 Other current assets 110 115 115 115 115 Fixed assets 12,787 18,370 22,063 25,829 29,054 Intangible assets 0 0 0 0 0 Other term assets 3,408 3,349 4,039 4,681 5,323 Total assets 18,313 23,947 28,225 32,875 36,999 Short-term debt 4,690 3,423 4,176 5,190 5,527 Creditors 0 0 0 0 0 Other current liabs 447 470 470 470 470 Long-term debt/CBs 11,295 17,344 20,382 23,455 26,565 Provisions/other LT liabs 101 503 503 503 503 Minorities/other equity 19 19 19 19 19 Shareholder funds 1,761 2,189 2,676 3,238 3,916 Total liabs & equity 18,313 23,947 28,225 32,875 36,999

Ratio analysis Outstanding ROEs Revenue growth (% YoY) 66.7 35.3 41.0 17.8 13.6 Ebitda growth (% YoY) 67.7 25.3 57.4 27.4 16.5 Ebitda margin (%) 40.9 37.9 42.3 45.8 47.0 Net profit margin (%) 26.4 24.5 29.0 30.6 32.9 Dividend payout (%) 29.3 35.4 34.9 35.4 35.4 Effective tax rate (%) 20.5 20.8 20.8 21.7 21.3 Ebitda/net int exp (x) 150.5 188.6 296.9 378.2 440.7 Net debt/equity (%) 805.3 868.2 863.5 836.6 776.6 ROE (%) 22.4 19.3 26.1 26.7 26.9 ROIC (%) 2.3 2.1 2.7 2.9 3.0 EVA®/IC (%) (5.0) (5.3) (4.7) (4.4) (4.3) Source: CLSA

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Companies mentioned Calc (1848 HK -HK$8.42 -BUY) 1st Source Corp (N-R) AAR Corp (N-R) AerCap (N-R) AeroCentury Corp (N-R) Air China (753 HK -HK$5.31 -UNDERPERFORM) Air Lease (N-R) Air Transport Services (N-R) Aircastle (N-R) Airwork Holdings (N-R) ALAFCO Aviation Lease & Finance (N-R) Avation PLC (N-R) AviaAM Leasing AB (N-R) Avolon (N-R) BOC Aviation (N-R) Bohai Leasing (N-R) China Eastern (670 HK -HK$4.05 -SELL) China Southern (1055 HK -HK$4.36 -SELL) Doric Nimrod Air One (N-R) Doric Nimrod Air Three (N-R) Doric Nimrod Air Two (N-R) DP Aircraft I (N-R) Everbright Intl (257 HK -HK$8.35 -BUY) Everbright Ltd (N-R) Financial Products Group (N-R) Fly Leasing (N-R) Hainan Airlines (N-R) HH Leasing (N-R) IBJ Leasing (N-R) Knafaim Holdings (N-R) ORIX Leasing Pakistan (N-R)

Analyst certification The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect my/our own personal views about the securities and/or the issuers and that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendation orviews contained in this research report.

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Important disclosures Recommendation history of China Aircraft Leasing Group Holdings Ltd 1848 HK Timothy Lee, CFA BUY O-PF )

$ Other analysts U-PF SELL

K 16 No coverage N-R H ( e c i

r 14 p k c o

t 12 S

Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16

Date Rec Target Date Rec Target LATEST BUY 10.10 27 Aug 2015 BUY 10.40 23 Mar 2016 BUY 10.00 22 Jun 2015 BUY 12.80 05 Feb 2016 BUY 8.80 20 Apr 2015 BUY 15.50 04 Jan 2016 BUY 10.10 Source: CLSA

Recommendation history of Air China Ltd 753 HK Rajani Khetan BUY O-PF )

$ Other analysts U-PF SELL

K No coverage N-R H 10 ( e c i r

p 9 k c o t 8 S

Sep 13 Jan 14May 14 Sep 14 Jan 15May 15 Sep 15 Jan 16 May 16

Date Rec Target Date Rec Target 16 Mar 2016 U-PF 5.20 14 Jan 2016 SELL 4.90 Source: CLSA

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Recommendation history of China Eastern Airlines Corp Ltd 670 HK Rajani Khetan BUY O-PF )

$ Other analysts U-PF SELL

K No coverage N-R H

( 7 e c i r p

k 6 c o t S 5

Sep 13 Jan 14 May 14 Sep 14 Jan 15May 15 Sep 15 Jan 16May 16

Date Rec Target Date Rec Target 16 Mar 2016 SELL 3.40 14 Jan 2016 SELL 3.30 Source: CLSA

Recommendation history of China Southern Airlines Co Ltd 1055 HK Rajani Khetan BUY O-PF )

$ Other analysts U-PF SELL K 10 No coverage N-R H ( e c i r p

k 8 c o t S

Sep 13 Jan 14May 14 Sep 14 Jan 15May 15 Sep 15 Jan 16 May 16

Date Rec Target Date Rec Target 14 Jan 2016 SELL 4.00 Source: CLSA

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of and does not report to CLSA Corporate Finance (or confirm/s that he/she/they has/have not been placed “investment banking”) department or CLSA’s Sales and under any undue influence, intervention or pressure by Trading business. Accordingly, neither the Corporate any person/s in compiling this research report. In Finance nor the Sales and Trading department supervises addition, the analysts included herein attest that they or controls the activities of CLSA’s research analysts. were not in possession of any material, nonpublic CLSA’s research analysts report to the management of information regarding the subject company at the time of the Research department, who in turn report to CLSA’s publication of the report. Save from the disclosure below senior management. (if any), the analyst(s) is/are not aware of any material conflict of interest. CLSA has put in place a number of internal controls Key to CLSA/CLSA Americas/CA Taiwan investment designed to manage conflicts of interest that may arise as rankings: BUY: Total stock return (including dividends) a result of CLSA engaging in Corporate Finance, Sales expected to exceed 20%; O-PF: Total expected return and Trading and Research activities. Some examples of below 20% but exceeding market return; U-PF: Total these controls include: the use of information barriers expected return positive but below market return; SELL: and other information controls designed to ensure that Total return expected to be negative. For relative confidential information is only shared on a “need to performance, we benchmark the 12-month total forecast know” basis and in compliance with CLSA’s Chinese Wall return (including dividends) for the stock against the 12- policies and procedures; measures designed to ensure month forecast return (including dividends) for the that interactions that may occur among CLSA’s Research market on which the stock trades. personnel, Corporate Finance and Sales and Trading personnel, CLSA’s financial product issuers and CLSA’s In the case of US stocks, the recommendation is research analysts do not compromise the integrity and relative to the expected return for the S&P500 of 10%. independence of CLSA’s research. Exceptions may be made depending upon prevailing market conditions. We define as “Double Baggers” stocks Neither analysts nor their household we expect to yield 100% or more (including dividends) members/associates/may have a financial interest in, or within three years at the time the stocks are introduced be an officer, director or advisory board member of to our “Double Bagger” list. "High Conviction" Ideas are companies covered by the analyst unless disclosed not necessarily stocks with the most upside/downside, herein. In circumstances where an analyst has a pre- but those where the Research Head/Strategist believes existing holding in any securities under coverage, those there is the highest likelihood of positive/negative holdings are grandfathered and the analyst is prohibited returns. The list for each market is monitored weekly. from trading such securities. Overall rating distribution for CLSA/CLSA Americas Unless specified otherwise, CLSA/CLSA Americas/CA only /CA Taiwan only Universe: Taiwan did not receive investment banking/non- investment banking income from, and did not Overall rating distribution : Buy / Outperform -CLSA: manage/co-manage a public offering for, the listed 59.66%; CLSA Americas only: 57.77%; CA Taiwan only: company during the past 12 months, and it does not 76.81%, Underperform / Sell -CLSA: 40.34%; CLSA expect to receive investment banking compensation from Americas only: 42.23%; CA Taiwan only: 23.19%, the listed company within the coming three months. Restricted -CLSA: 0.00%; CLSA Americas only: 0.00%; Unless mentioned otherwise, CLSA/CLSA Americas/CA CA Taiwan only: 0.00%. Data as of 30 June 2016. Taiwan does not own a material discloseable position, and does not make a market, in the securities. Investment banking clients as a % of rating category: Asanalyst(s) of this report, I/we hereby certify that Buy / Outperform -CLSA: 2.13%; CLSA Americas only: the views expressed in this research report accurately 0.00%; CA Taiwan only: 0.00%, Underperform / Sell - reflect my/our own personal views about the securities CLSA: 1.67%; CLSA Americas only: 0.00%; CA Taiwan and/or the issuers and that no part of my/our only: 0.00%, Restricted -CLSA: 0.00%; CLSA Americas compensation was, is, or will be directly or indirectly only: 0.00%; CA Taiwan only: 0.00% . Data for 12- related to the specific recommendation or views month period ending 30 June 2016. contained in this report or to any investment banking relationship with the subject company covered in this There are no numbers for Hold/Neutral as CLSA/CLSA report (for the past one year) or otherwise any other Americas/CA Taiwan do not have such investment relationship with such company which leads to receipt of rankings. fees from the company except in ordinary course of business of the company. The analyst/s also state/s and For a history of the recommendations and price

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targets for companies mentioned in this report, as well as risk of the selected model as well as other external risk company specific disclosures, please write to: (a) CLSA factors. This is not intended to provide professional, Americas, Compliance Department, 1301 Avenue of the investment or any other type of advice or Americas, 15th Floor, New York, New York 10019-6022; recommendation and does not take into account the (b) CLSA, Group Compliance, 18/F, One Pacific Place, 88 particular investment objectives, financial situation or Queensway, Hong Kong and/or; (c) CA Taiwan needs of individual recipients. 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