China / Company Guide

Bank of Version 2 | Bloomberg: 23 HK EQUITY | Reuters: 0023.HK Refer to important disclosures at the end of this report

DBS Group Research . Equity 28 Aug 2017

FULLY VALUED Stretched valuations

Last Traded Price ( 25 Aug 2017): HK$34.65 (HSI : 27,848) Gradual improvement but valuations are stretched; maintain FULLY Price Target 12-mth: HK$29.90 (-14% downside) (Prev VALUED. (BEA)’s share price seemed to have HK$27.80) priced in an improvement in 1H17 earnings especially with lower provisions, and costs. Its tax rate was lower in 1H17 compared to a Analyst year ago. Its asset quality conditions in Hong Kong (HK) and China Sue Lin LIM +65 8332 6843 [email protected] are expected to stay stable for the rest of the year. Compared to Keith TSANG CFA, +852 2971 1935 [email protected] peers, BEA’s asset quality is still a lot weaker. Sustained What’s New improvements to its asset quality coupled with a recovery in its China operations could re-rate the stock. Meanwhile, BEA has  Lower provisions and expenses in 1H17 as booked gains of HK$3bn from the sale of its stake in Tricor. expected; other items within expectations Correspondingly, interim dividends rose to HK$0.68 per share  Gain from sale of Tricor at HK$3bn, possibly led to (1H16: HK$0.28). While we believe an M&A would eventually pan

higher interim dividends out for the smaller banks in HK, we do not see this materialising for  Gradual improvement in asset quality noted; but BEA in the near term. Fundamentally, with an ROE profile of sub- prefer to wait for more sustainable trends and 10%, we view BEA’s current P/BV at 1x stretched.

recovery in its China operations Where we differ: We remain skeptics of BEA’s bullish share price  Maintain FULLY VALUED; TP raised to HK$29.90 performance which could be reflecting the excitement over its 1H17

after rolling forward valuation base to 2018 earnings. We believe its asset quality conditions, while improving, still pales in comparison with its closest listed peer, Dah Sing Banking Group. Price Relative Potential Catalyst: Sustained improvement in asset quality and its China operations. BEA continues to keep its Greater China business as a key focus despite experiencing turbulence the past two years. The stock should re-rate once its China operations rebound strongly. Sustainable improvement bringing BEA’s asset quality metrics closer to its peers would also be a re-rating catalyst. Last but not least, an eventual M&A could strongly re-rate the stock

Valuation: Maintain FULLY VALUED with TP raised to HK$29.90 as we roll Forecasts and Valuation FY Dec (HK$ m) 2016A 2017F 2018F 2019F forward our valuation base to 2018. Our TP is based on the Gordon Pre-prov. Profit 6,508 7,356 7,678 7,920 Growth Model (7% ROE, 2% growth and 8% cost of equity), Pre-prov. Profit Gth (%) (11) 13 4 3 implying 0.8x FY18 BV. Pretax Profit 4,896 7,908 6,102 7,085 Net Profit 3,723 6,155 4,749 5,514 EPS (HK$) 1.41 2.33 1.80 2.09 Key Risks to Our View: EPS Gth (%) (33) 65 (23) 16 Key risk to our bearish view on BEA would be its ability to weather PE (X) 24.6 14.9 19.3 16.6 through its asset quality woes quicker than expected and grow its DPS (HK$) 0.57 0.93 0.72 0.84 HK and China business at a faster pace, ramping up ROE back to Div Yield (%) 1.6 2.7 2.1 2.4 historical levels. An unexpected high-priced M&A bid for the bank BV Per Share (HK$) 31.60 33.00 34.07 35.33 could surprise on the valuation front. P/Book Value (x) 1.1 1.1 1.0 1.0 ROAE (%) 4.5 7.2 5.4 6.0 ROAE (ex-exceptional At A Glance 2.8 3.7 5.4 6.0 2,723 (%) Issued Capital (m shrs) ROA (%) 0.50 0.81 0.61 0.68 Mkt. Cap (HK$m/US$m) 94,367 / 12,070 Major Shareholders Earnings Rev (%) Nil Nil Nil Sumitomo Mitsui (%) (%) 19.0 Consensus EPS (HK$) 2.16 1.77 2.06 Criteria Caixa (%) (%) 17.3 Other Broker Recs: B: 0 S: 10 H: 2 Guoco Group (%) (%) 14.2

Elliott Capital (%) (%) 7.0 Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX Free Float (%) 42.5 3m Avg. Daily Val. (US$m) 5.7 ICB Industry : Financials / Banks

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Company Guide

Bank of East Asia

WHAT’S NEW 1H17 earnings within expectations; moderate outlook Better asset quality conditions in FY17. Credit cost looks to be ahead under control this year. We expect its asset quality metric to stay stable from 1H17 till the year end. Asset quality in both Highlights: HK and China should stay stable as BEA targets to preserve

quality over volume. As such, loan growth expectations 1H17 earnings within expectations, driven by lower provisions should be muted. and lower costs. Net interest margin (NIM) rose a little in

1H17 while loan growth was driven by loans from outside HK Sub-5% core ROE in FY17. BEA booked a gain of HK$3bn in operations h-o-h. Fee income was better compared to a year 1H17 from the disposal of its stake in Tricor. Excluding this ago but declined h-o-h. Expenses were well checked, one-off gain, core ROE is on a weak footing, at less than 4% declining in line with its cost cutting plans. Of its HK$700m in FY17. While a higher interest rate is marginally positive to target under its cost savings plan, it has to date achieved BEA, the impact is expected to be small, given that it has a 67%.The plan was initiated in FY16. Separately, its tax rate smaller portion of USD and HKD assets as well as low CASA was lower in 1H17 compared to a year ago. ratio. We assume that NIM will be stable in FY17.

Gradual asset quality improvements. As expected, provisions Defence mechanism in place; still no M&A for now. BEA is were lower and non-performing loans (NPLs) have been the only other family-owned bank in HK apart from Dah Sing contained. NPL ratio stayed stable and new formation Bank, which naturally attracts M&A speculation. However, appears to have stabilised. the earnings drag from its Mainland exposure and its

fragmented shareholding reduces the likelihood of M&A Higher interim dividend of HK$0.68 possibly reflecting gains occurring in the near term. The change in shareholding to from sale of Tricor. BEA booked gains of HK$3bn from the Criteria Caixa from Caixa Bank did reignite the likelihood for sale of its Tricor stake. Correspondingly, we saw its interim an M&A to happen, but it was quickly quashed. The Li family dividend rise to HK$0.68 per share (1H16: HK$0.28). looks to be here to stay to run the bank for a while more.

Higher risk weighted assets noted in 1H17. We understand Valuation and recommendation that this is partly caused by equity investment in Qinhai and a

micro unit. Maintain FULLY VALUED with TP raised in HK$29.90 as we

roll forward our valuation base to 2018. Our TP is based on Outlook: the Gordon Growth Model (7% ROE, 2% growth and 8%

cost of equity), implying 0.8x FY18 BV. Fundamentally, with Lower overall costs in FY17. Expenses are expected to be an ROE profile of sub-10%, we view BEA’s current P/BV at 1x lower y-o-y as part of its cost cutting initiatives. BEA initiated stretched. We remain skeptics of BEA’s bullish share price a 3-year cost saving plan, targeting to reap HKD700m of performance which could be reflecting the excitement of its gross savings. The programme is slated for completion in 1H17 earnings. We believe its asset quality conditions, while FY18. improving, still pales in comparison with its closest listed peer,

Dah Sing Banking Group. Steady NIM in 2H17. Although it HK operations should see a

slight uplift in NIM thanks to rate hikes, its China operations may be under pressure due to liquidity tightening. As such,

we expect NIM to at best stay flat in FY17.

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Company Guide Bank of East Asia

Margin Trends CRITICAL FACTORS TO WATCH

Critical Factors Mainland operations still in focus over the long term. Despite the pain BEA is carrying from its Mainland operations, BEA believes these operations remain key to its growth in the long term. BEA was a first mover into Mainland China, and it has the largest Mainland exposure among HK banks (c. 45%). While its Greater China footprint has always been sought after, this element has been a drag on BEA’s performance in the past year due to asset quality pressure. Nevertheless, BEA continues to keep its Mainland operations as a key focus, despite near term headwinds. Gross Loan& Growth

Forecasting loans to grow at 3-4%, while deposit growth is expected to be 3% p.a. Although there were some positive signals in its HK operations, we opine that it is still insufficient to change its earnings trajectory in the near term. We have imputed stable NIM. There could room for upside to NIM given the favourable interest rate environment and ample liquidity, which bodes well for yields and cost of funds, respectively. This would also be aided by lower liquidity tightening pressures in China.

Three-year cost saving plan on track. BEA initiated a 3-year cost Customer Deposit & Growth saving plan targeting to reap HK$700m of gross savings. The programme is slated for completion in FY18. In 1H17, 67% of the savings were achieved, which was reflected in the significant decline in expenses. This was achieved through headcount reduction and streamlining of branches. More efforts underway to improve efficiency, through restructuring of mid and back office operations, simplification of platforms and re-design of work processes as well as digitisation of the bank. Our forecast assumes a decline in expenses in FY17 and benign growth in FY18-19. This results in cost-to-income eventually dipping below 50% in FY19F.

Credit cost has been on the rise for BEA since 2014, when it Loan-to-Deposit Ratio Trend started to pay for the price of its substantial Mainland China exposure. In mid-2014, BEA had tightened loan underwriting standards, centralised loan approval processes and shifted to larger SOE companies to alleviate asset quality pressures. However, BEA expects FY17 to see lower credit cost as the bulk of the provisions was done in the previous years. To that end, we expect to see credit cost declining to 63bps (from 77bps in FY16). In our forecast, we have assumed that credit cost continues to decline, reaching 43bps and 27bps in FY18 and FY19, respectively. This remains higher than its historical average credit cost of around 10bps. We believe this remains a sore point for BEA when compared to its peers. A stronger rebound in asset quality indicators bodes well for Cost & Income Structure BEA’s ROE and hence fundamental valuations.

Source: Company, DBS Vickers

Page 3

Company Guide

Bank of East Asia

Appendix 1: A look at Company's listed history – what drives its share price?

Interest rates as a critical factor for Bank of East Asia

38 1.4 36 1.2 34 1.0 32 30 0.8

28 0.6 26 0.4 24 Correl: 0.71 0.2 22 20 0.0 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 BEA USD LIBOR 3mth

Similar to its HK bank peers, interest rates are also a critical factor to BEA but at a lower correlation compared to the likes of and Bank of China Hong Kong, by virtue of BEA’s balance sheet structure

Source: Bloomberg Finance L.P., Company announcements, DBS Bank

Events surrounding Bank of East Asia’s share price

38 Sold 10% interest of ICBC Mr. Adirian and Mr. HKMA imposed R.W. Elliott launched court Canada (interest dropped from Briand David Li were appointed floor of 15%, effective in proceedings against BEAAcqn of Equity Interest in 36 as Directors Jun 16 30% to 20%) PRASAC Microfinance Fed announced Operation Twist 34 First Fed rate hike since SMBC increased 2006 32 shares from 4.7% to 9.5% 30

28 SMBC increased shares from 9.7% 26 D-SIB requirement of HSB to 17.4% Issued AT-1 capital at 1.5% announced securities (US$ Sold 80% interest 24 500m) BEA (USA) Proposed to dispose Tung Formed auto financing JV Credit Gain, JV Taper announced Shing and BEA Wealth 22 with Finconsum and Brilliance China Management (Taiwan) Elliott suggested the Board to Proposed to dispose sell BEA 20 Tricor

BEA share price (HK$)

Source: Bloomberg Finance L.P., Company announcements, DBS Bank

Page 4

Company Guide Bank of East Asia

Asset Quality Balance Sheet: Disposal of Tricor. On 5 Oct 2016, BEA announced that it is disposing its equity stake in Tricor Holdings Limited (Tricor) and booked a gain of c. HK$3.0bn in 1H17. Typically, excluding special dividend, BEA pays out 40% of its profits. Notwithstanding the disposal, BEA’s capital ratio comfortably meets the minimum requirement.

Dealing with asset quality and Mainland exposure. We believe these two issues remain the key overhang for BEA’s valuations. While non- performing loans (NPLs) at its HK operations appear more contained (vs Mainland), there are still risks mainly due to the renminbi (RMB) volatility and slower economic activity in HK. A rebound in its Maintain Capitalisation (%) China operations could re-rate the bank.

Share Price Drivers: Eventual M&A? As the only other family-owned bank remaining in HK apart from Dah Sing Banking Group, BEA naturally attracts M&A speculation among investors. However, given that BEA is still feeling the pain of its Mainland China exposure, this angle may be dimmed by the likelihood of weaker bargaining power in pricing. Furthermore, a fragmented shareholding structure makes it difficult for a takeover to materialise. BEA’s largest shareholders are Criteria Caixa and Sumitomo ROE (%) Mitsui Banking Corporation, each with a 17.2% stake. Following these is Guoco Group with a 14% stake. The Li family is believed to hold an indirect stake of close to 8%.

Valuations should de-rate to reflect current fundamentals. With prospective ROE of below 5%, the franchise should be trading below BV. However, BEA is trading at 1x BV, which we believe more than reflects the improvement in earnings to date and even a possible M&A. The change in shareholding to Criteria Caixa from Caixa Bank did reignite the likelihood for an M&A to happen, but it was quickly quashed. The Li family looks to stay to run the bank for the time being. While we believe an M&A would eventually pan out, we see little risk PE Band of this occurring in the near term. Hence, we expect valuation to de- rate going forward, in proper reflection of its current fundamentals.

Key Risks: China-heavy loan book puts BEA’s profitability more at risk than its peers. On the flip side, quicker-than-expected resolution of its asset quality situation could pose upside risk to our numbers.

Overly competitive loan pricing may compromise NIM. Competition for mortgage loans in HK remains intense, and may not have reached a peak yet. Given that BEA is a small player in the mortgage space, in our PB Band opinion, BEA would follow suit with the low pricing offered by the bigger banks that enjoy lower cost of funds (due to stronger deposit franchise).

Company Background Incorporated in 1918, Bank of East Asia is one of the last two family- owned banks left in Hong Kong. BEA was a first mover into Mainland China, through its wholly owned subsidiary Bank of East Asia (China).

Source: Company, DBS Vickers

Page 5

Company Guide

Bank of East Asia

Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F NIM (%) 1.56 1.48 1.48 1.47 1.45 Loan growth (%) 0 3 3 4 4 Cost-to-income (%) 57 56 52 51 51 Credit cost (%) 0.4 0.7 0.6 0.4 0.2

Customer Deposits Growth (%) (1) (1) 4 4 4 Growth (%) Yld. On Earnings Assets (%) 3.08 2.71 2.73 2.74 2.75 Avg Cost Of Funds (%) 2.14 1.72 1.74 1.50 1.50 Source: Company, DBS Vickers

Income Statement (HK$ m) FY Dec 2015A 2016A 2017F 2018F 2019F Net Interest Income 11,934 11,098 11,143 11,351 11,471 Non-Interest Income 5,130 3,752 4,139 4,332 4,534 Operating Income 17,064 14,850 15,282 15,684 16,005 Operating Expenses (9,732) (8,342) (7,927) (8,005) (8,085) Provisions to gradually Pre-provision Profit 7,332 6,508 7,356 7,678 7,920 ease Provisions (2,059) (3,463) (2,900) (2,051) (1,334) Associates 558 431 453 475 499 Exceptionals 918 1,420 3,000 0 0 Pre-tax Profit 6,749 4,896 7,908 6,102 7,085 Taxation (1,111) (1,067) (1,582) (1,220) (1,417) Gain from disposal of Tricor Minority Interests (116) (106) (171) (132) (153) Preference Dividend 0 0 0 0 0 Net Profit 5,522 3,723 6,155 4,749 5,514 Net Profit bef Except 4,604 2,303 3,155 4,749 5,514

Growth (%) Net Interest Income Gth (5.85) (7.01) 0.41 1.87 1.06 Net Profit Gth (17.10) (32.58) 65.33 (22.84) 16.10

Margins, Costs & Efficiency (%) Flat NIM expectation Spread 0.94 0.99 1.00 1.23 1.25 despite higher HK rates; Net Interest Margin 1.56 1.48 1.48 1.47 1.45 China operations offset Cost-to-Income Ratio 57.0 56.2 51.9 51.0 50.5 impact

Business Mix (%) Net Int. Inc / Opg Inc. 69.9 74.7 72.9 72.4 71.7 Non-Int. Inc / Opg inc. 30.1 25.3 27.1 27.6 28.3 Fee Inc / Opg Income 24.0 17.5 18.6 19.1 19.6 Cost-to-income to Oth Non-Int Inc/Opg Inc 6.0 7.8 8.5 8.6 8.7 gradually improve with its cost cutting plans Profitability (%) ROAE Pre Ex. 6.1 2.8 3.7 5.4 6.0 ROAE 7.3 4.5 7.2 5.4 6.0 ROA Pre Ex. 0.6 0.4 0.5 0.6 0.7 ROA 0.7 0.5 0.8 0.6 0.7 Source: Company, DBS Vickers

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Company Guide Bank of East Asia

Interim Income Statement (HK$ m) FY Dec 1H2015 2H2015 1H2016 2H2016 1H2017

Net Interest Income 6,186 5,748 5,483 5,615 5,739 Non-Interest Income 2,513 2,617 1,647 2,105 1,890 Operating Income 8,699 8,365 7,130 7,720 7,629 Operating Expenses (4,620) (5,112) (4,239) (4,103) (3,903) Pre-Provision Profit 4,079 3,253 2,891 3,617 3,726 Provisions (776) (1,277) (1,241) (2,222) (823) Associates 254 304 192 239 224 Exceptionals 507 411 874 546 635 Pretax Profit 4,064 2,691 2,716 2,180 3,762 Lower provisions noted Taxation (643) (468) (727) (340) (574) Minority Interests (61) (55) (8) (98) 0 Net Profit 3,360 2,168 1,981 1,742 3,188

Growth (%) Net Interest Income Gth (1.0) (10.6) (11.4) (2.3) 4.7 Driven by lower expenses and lower Net Profit Gth (6.1) (29.6) (41.0) (19.6) 60.9 provisions

Source: Company, DBS Vickers

Page 7

Company Guide

Bank of East Asia

Balance Sheet (HK$ m) FY Dec 2015A 2016A 2017F 2018F 2019F

Cash/Bank Balance 69,122 65,720 66,866 63,746 54,242 Government Securities 0 0 0 0 0 Loan growth at low-to- Inter Bank Assets 80,828 44,052 44,933 45,832 46,748 mid single digits Total Net Loans & Advs. 439,125 450,445 462,580 477,798 498,245 Investment 115,670 133,050 135,542 135,652 136,208 Associates 5,763 6,011 6,464 6,939 7,438 Fixed Assets 13,297 11,990 11,391 10,821 10,280 Goodwill 3,883 2,639 2,639 2,639 2,639 Other Assets 53,676 51,799 62,950 75,286 87,703 Total Assets 781,364 765,706 793,365 818,712 843,503

Customer Deposits 540,743 535,789 557,221 579,509 602,690 Inter Bank Deposits 32,126 26,475 33,433 34,771 36,161 Debts/Borrowings 30,593 36,011 41,413 45,554 47,832 Others 92,261 80,795 71,140 66,003 60,790 Minorities 3,212 3,189 3,018 2,886 2,732 Shareholders' Funds 82,429 83,447 87,140 89,990 93,298 Total Liab& S/H’s Funds 781,364 765,706 793,365 818,712 843,503

Source: Company, DBS Vickers

Financial Stability Measures (%) FY Dec 2015A 2016A 2017F 2018F 2019F

Balance Sheet Structure Loan-to-Deposit Ratio 81.6 84.8 84.0 83.7 83.9 Net Loans / Total Assets 56.2 58.8 58.3 58.4 59.1 Investment / Total Assets 14.8 17.4 17.1 16.6 16.1 Cust . Dep./Int. Bear. Liab. 99.3 99.5 102.0 88.5 88.3 Interbank Dep / Int. Bear. 5.9 4.9 6.1 5.3 5.3

Gradual asset quality Asset Quality improvement NPL / Total Gross Loans 1.1 1.5 1.3 1.2 1.0 NPL / Total Assets 0.6 0.9 0.8 0.7 0.6 Loan Loss Reserve Coverage 47.9 56.1 88.7 122.8 142.1 Provision Charge-Off Rate 0.5 0.8 0.6 0.4 0.3

Capital Strength Total CAR 17.2 17.4 17.7 17.8 18.0 Tier-1 CAR 13.7 13.5 13.6 13.7 13.9 Relatively strong capital ratios Source: Company, DBS Vickers

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Company Guide Bank of East Asia

Target Price & Ratings History S.No. Date Closing 12-mth Rating HK$ Price Target 36.0 Price 2 1 35.0 1: 11-Apr-17 HK$32.15 HK$27.80 Fully Valued 2: 12-Jun-17 HK$33.80 HK$27.80 Fully Valued 34.0 33.0 32.0 31.0 30.0 29.0 28.0 Jul-17 Jan-17 Jun-17 Oct-16 Feb-17 Apr-17 Sep-16 Dec-16 Nov-16 Aug-16 Aug-17 Mar-17 May-17

Source: DBS Vickers Analyst: Sue Lin LIM

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Company Guide

Bank of East Asia

DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 28 Aug 2017 07:06:47 (HKT) Dissemination Date: 28 Aug 2017 09:31:43 (HKT)

Sources for all charts and tables are DBS Vickers unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSV HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Bank (Hong Kong) Limited (DBS HK), DBSV HK, and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSV HK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

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Company Guide Bank of East Asia

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in The Bank Of East Asia Limited (23 HK) recommended in this report as of 23 Aug 2017.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services: 3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Boc Hong Kong (Holdings) Limited (2388 HK) as of 31 Jul 2017.

DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from The Bank Of East Asia Limited (23 HK) as of 31 Jul 2017.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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Company Guide

Bank of East Asia

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946. DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSVHK is regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

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Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. United This report is produced by DBSVHK which is regulated by the Hong Kong Securities and Futures Commission

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In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it. United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

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Company Guide Bank of East Asia

United States This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should

contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers (Hong Kong) Limited 18th Floor Man Yee building, 68 Central, Central, Hong Kong Tel: (852) 2820-4888, Fax: (852) 2868-1523 Company Regn. No. 31758

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Company Guide

Bank of East Asia

DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 2820 4888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2863 1523 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong Ltd e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 657 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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