HONG KONG Weichai Power 2338 HK Underperform Growth limited by weak HDT demand Price (at 07:59, 27 May 2016 GMT) HK$9.04
Valuation HK$ 6.30 Event - Sum of Parts 12-month target HK$ 6.30 . We downgrade Weichai Power from Outperform to Underperform as it is Upside/Downside % -30.3 highly leveraged to the heavy duty truck (HDT) market, which will likely be a 12-month TSR % -27.4 victim of China’s economic transformation in coming years. We expect limited Volatility Index Medium growth in its HDTs and HDT engine sales in FY16-18E despite the short-term GICS sector Capital Goods recovery in 2016 on easy comps. We cut our target price from HK16.76 to Market cap HK$m 36,151 HK$6.30, using a sum-of-parts valuation methodology. Market cap US$m 4,655 Free float % 26 Impact 30-day avg turnover US$m 7.2 . Headwinds for HDT demand should persist in coming years. We estimate Number shares on issue m 3,999 that HDT demand will grow 10% YoY in 2016 on easy comps. Given the weak Investment fundamentals FAI growth outlook and ongoing supply-side reform, we see limited growth in Year end 31 Dec 2015A 2016E 2017E 2018E HDT demand in the coming years. We project HDT sales will decline by 5% in Revenue m 73,720 79,419 85,079 88,580 EBIT m 3,454 4,226 4,613 4,770 2017E and have zero growth in 2018-20E. As a result, we expect Weichai’s EBIT growth % -34.5 22.3 9.2 3.4 engine unit sales to witness a 3.5% CAGR in 2015-18 due to weak demand Reported profit m 1,391 1,785 2,037 2,101 EPS rep Rmb 0.35 0.45 0.51 0.53 from its downstream customers – mainly the smaller HDT producers without EPS rep growth % -72.3 28.3 14.1 3.2 engine production capabilities. We estimate Weichai’s HDT sales will see a PER rep x 22.0 17.1 15.0 14.5 Total DPS Rmb 0.20 0.22 0.25 0.26 4.9% CAGR in 2015-18E, higher than HDT industry growth of 1.5% due to Total div yield % 2.6 2.9 3.3 3.4 market consolidation. ROA % 2.9 3.6 3.7 3.6 ROE % 4.3 5.5 6.1 6.1 . KION should have stable earnings growth. KION, which was acquired by EV/EBITDA x 3.1 2.8 2.6 2.4 Net debt/equity % -7.5 -9.7 -17.0 -24.2 Weichai in 2014, is the second biggest forklift manufacturer globally. KION P/BV x 1.0 0.9 0.9 0.9 should have stable sales and earnings growth as 1) about 50% of its earnings 2338 HK rel HSI performance, & rec are from the aftersales market, which is less impacted by the economic cycle; history and 2) KION is actively expanding in the Asia-Pacific region, particularly the China market, by leveraging Weichai’s expertise. . Modest margin expansion on product mix improvement. We expect gross profit margin to expand 0.5ppt YoY to 23.5% in 2016E. On the one hand, diesel engine products will enjoy higher margins during the product upgrade cycle to meet tightening emission standards as well as the increasing proportion of larger engines (mainly 12-13L) in the product mix; on the other hand, the GPM for HDTs and gearboxes could decline on intensifying market competition amid weak market demand. KION’s GP margin should remain Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. stable at 30% in 2016E. Source: FactSet, Macquarie Research, May 2016 (all figures in Rmb unless noted, TP in HKD) Earnings and target price revision
. We refresh our earnings estimates based on new HDT demand projections. We lower our price target to HK$6.30 from HK$16.76, using a sum-of-parts valuation. Price catalyst Analyst(s) Zhixuan Lin . 12-month price target: HK$6.30 based on a Sum of Parts methodology. +86 21 2412 9006 [email protected] Janet Lewis, CFA . Catalyst: 1H16 results in August 2016; weak HDT sales. +852 3922 5417 [email protected] Allen Yuan Action and recommendation +86 21 2412 9009 [email protected] Eric Zong . We downgrade Weichai to Underperform due to its high exposure to the HDT +852 3922 4749 [email protected] market, which will be substantially impacted by the FAI growth slowdown and 1 June 2016 China’s economic transformation. We prefer truck producers with high Macquarie Capital Limited exposure to the steadily growing light duty truck market.
Please refer to page 8 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Macquarie Research Weichai Power
Analysis Changes in earnings estimates and target prices
. We cut our net earnings estimates by 63% for FY16E and 59% for FY17E, due to lower growth estimates for Weichai’s engine and HDT sales. . We lower our target price to HK$6.30 vs. our previous target price of HK$16.76. The new target price is based on a sum-of-parts valuation: 10x average EPS in FY16-17E for Weichai’s existing business (mainly HDTs and engines). 13x average EPS in FY16-17E for the earnings from KION, which has stable earnings growth from the aftersales market. . We downgrade Weichai from Outperform to Underperform.
Fig 1 Weichai’ SOTP valuation: H-share (HK$)
Weichai SOTP valuation FY16-17E EPS (Rmb) Target PER multiple Price/share
Core net profit 0.28 10 3.26 KION 0.20 13 3.07 Total (rounded) (HK$) 6.30 Source: Company data, Macquarie Research, May 2016
Fig 2 Weichai’ SOTP valuation: A-share (Rmb)
Weichai SOTP valuation FY16-17E EPS (Rmb) Target PER multiple Price/share
Core net profit 0.28 10 2.77 KION 0.20 13 2.61 Total (rounded) (Rmb) 5.40 Source: Company data, Macquarie Research, May 2016
Fig 3 Weichai PER (5-year) Fig 4 KION PER (since IPO)
40 18
35 16 30
25 14 20
15 12
10 10 5
0 8
Source: Bloomberg, Macquarie Research, May 2016 Source: Bloomberg, May 2016
1 June 2016 2 Macquarie Research Weichai Power
Fig 5 Macquarie’s earnings estimates vs. consensus
(Rmb m) Revenue EBIT PBT Net profit EPS Rep (Rmb)
2014A 79,637 6,493 6,868 5,002 1.25 2015A 73,720 2,578 3,083 1,391 0.35 2016E: Macquarie - old 91,773 6,744 7,086 4,804 1.20 2016E: Current Consensus 77,696 4,236 4,032 2,014 0.50 2016E: Macquarie - new 79,419 3,564 3,966 1,785 0.45 2017E: Macquarie - old 95,488 6,901 7,402 5,018 1.25 2017E: Current Consensus 82,115 4,875 4,792 2,398 0.60 2017E: Macquarie - new 85,079 3,942 4,334 2,037 0.51 2017E: Current Consensus 89,430 5,734 5,733 2,681 0.67 2017E: Macquarie - new 67,668 4,089 4,471 2,101 0.53 Source: Bloomberg, Macquarie Research, May 2016
Fig 6 Weichai’s business overview
(Rmb m) FY13 FY14 FY15 FY16E FY17E FY18E
Engines Sales volume (k units) - Engine for HDTs 280 271 118 130 135 138 - Engine for machinery 73 53 28 27 27 27 - Engine for other applications 21 23 20 20 19 19 Sales revenue - engines 27,328 27,872 16,943 18,087 19,499 20,142
Truck and major components Sales volume - trucks (units) - HDT 101,511 104,406 80,959 89,065 92,543 94,394 - Non-HDT 1,284 2,070 4,028 4,452 4,541 4,632 Sales volume - gearbox (k units) 566 620 407 435 457 466
Sales revenue – truck & components 32,429 34,617 22,888 24,990 27,567 28,772
Non-major components Sales revenue 3,202 3,247 2,886 3,030 3,181 3,340
Import & exports service Sales revenue 114 181 158 174 192 210
Forklift & warehouse services (KION) Sales revenue 19,975 35,488 38,207 40,069 41,770
Elimination - sales revenue 4,762 6,256 4,642 5,069 5,431 5,654 Total revenue 58,312 79,637 73,720 79,419 85,079 88,580
Gross profit 12,024 17,018 16,960 18,642 20,088 20,912 GPM 20.6% 21.4% 23.0% 23.5% 23.6% 23.6%
Operating profit 4,456 6,493 2,578 3,564 3,942 4,089 OPM 7.6% 8.2% 3.5% 4.5% 4.6% 4.6%
NPAT 3,571 5,002 1,391 1,785 2,037 2,101 NPM 6.1% 6.3% 1.9% 2.2% 2.4% 2.4% Source: Company data, Macquarie Research, May 2016
1 June 2016 3 Macquarie Research Weichai Power
Fig 7 Revenue breakdown in 2016E Fig 8 Gross profit breakdown in 2016E
Import/export services Import/Export services 0.2% Diesel engine 0.1% 19.8% Diesel engine KION 21.4% 45.2%
Trucks and truck parts 17.7% KION 60.2% Trucks and truck parts 29.6%
Non-major Non-major auto auto components components 3.6% 2.3% Source: Macquarie Research, May 2016 Source: Macquarie Research, May 2016
HDT engine sales under pressure
. We cut our FY16-17E revenues for Weichai’s diesel engine business, with moderate growth of 6.8% in 2016E, given our cautious HDT market demand outlook. We estimate that industry HDT sales will grow 10% YoY in 2016, due mainly to easy comps as well as demand growth from inter-city logistics fleet. Given the weak FAI growth outlook and the ongoing supply-side reform, we see limited growth in HDT demand in the coming years. . We believe Weichai’s market share loss from Foton’s in-house production of HDT engines was reflected in 2015, when the company’s HDT engine market share declined to 21.5% from 36.5% in 2014. Previously, Weichai supplied 70-75% of the HDT engines that Foton uses in its HDTs. . Engine ASPs should remain stable in 2016E after a 26.9% YoY hike in 2015 amid the emission standard upgrades since the beginning of 2015 and higher demand for engines with a bigger displacement (mainly 12-13L). We expect the ASPs to grow by 5.0% in 2017E and 2.0% in 2018E, due to the next round of engine product mix improvements. . We forecast sales volumes of diesel engines used for construction machinery and buses will decline by 1.8% and 2.0% YoY in 2016E, respectively, on continued weak earth work demand and the increasing percentage of E-buses in the bus fleet. Trucks and truck parts segment . We forecast 10.0% YoY revenue growth from Weichai’s HDT business, with its HDT volume growth to be in line with that of the whole industry. The ASPs of HDTs should remain stable in 2016E after a 4.9% hike in 2015 due to product upgrades to meet higher emission standards. Weichai’s HDT sales volume growth should moderate in 2017E as investment-driven demand will remain weak in the long run, though the ASPs should rise further due to product mix upgrades. . The company’s gearbox sales volume should grow in line with the overall HDT market at 10.0% YoY. And with the ASP slightly expanding 0.5ppt YoY in 2016E, we expect total sales revenue to increase 10.5% YoY. . Overall we forecast its truck and truck parts business revenue will grow 10.0% YoY in 2016E and 10.4% YoY in 2017E, before slowing down to low single-digit growth in 2018E and onwards. Steady sales and profit growth in KION . We use consensus forecasts for KION’s revenue in FY16-18E. Market consensus forecasts KION’s Euro-denominated revenue will grow 4.9% in 2016, 4.9% in 2017 and 4.2% in 2018. Weichai management believes that KION’s sales and profit should grow at 4-5% pa in 2016-18. The stabilized after-sales service business and the European market as well as its business expansion in Asia-Pacific should drive revenue and profit growth.
1 June 2016 4 Macquarie Research Weichai Power
Margin trends . We forecast the gross profit margin to expand 0.5ppt YoY to 23.5% in 2016E on the back of product mix improvements. On the one hand, diesel engine products will enjoy higher margins during the product upgrade cycle to meet tightening emission standards as well as the increasing proportion of larger engines (mainly 12-13L) in the product mix; on the other hand, the GPM for HDTs and gearboxes will continue to contract on intensifying market competition amid weak market demand. KION’s GP margin should remain stable at 30% in 2016E. . The net profit margin should bottom out from the low 1.9% in 2015 to 2.2% in 2016E on lower SG&A and financing costs.
1 June 2016 5 Macquarie Research Weichai Power
Macquarie Quant View
The quant model currently holds a neutral view on Weichai Power. The Attractive Displays where the strongest style exposure is Earnings Momentum, indicating this stock has company’s ranked based on
received earnings upgrades and is well liked by sell side analysts. The s
l the fundamental consensus a weakest style exposure is Price Momentum, indicating this stock has had t
n Price Target and weak medium to long term returns which often persist into the future. e
Macquarie’s Quantitative m
a Alpha model.
836/1397 d n
u Two rankings: Local market Global rank in F (China) and Global sector Capital Goods (Capital Goods) Quant % of BUY recommendations 62% (5/8) Local market rank Global sector rank Number of Price Target downgrades 2 Number of Price Target upgrades 1
Macquarie Alpha Model ranking Factors driving the Alpha Model A list of comparable companies and their Macquarie Alpha model score For the comparable firms this chart shows the key underlying styles and their (higher is better). contribution to the current overall Alpha score.
Zhengzhou Yutong Bus (A-S… 2.4 Zhengzhou Yutong Bus (A-S…
Qingling Motors 1.9 Qingling Motors
Dongfeng Motor Group 1.9 Dongfeng Motor Group
Jiangling Motors (A-Share… 1.2 Jiangling Motors (A-Share…
Sinotruk 0.5 Sinotruk
JAC Auto (A-Share) 0.3 JAC Auto (A-Share)
Weichai Power -0.1 Weichai Power
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 Valuations Growth Profitability Earnings Price Quality Momentum Momentum
Macquarie Earnings Sentiment Indicator Drivers of Stock Return The Macquarie Sentiment Indicator is an enhanced earnings revisions Breakdown of 1 year total return (local currency) into returns from dividends, changes signal that favours analysts who have more timely and higher conviction in forward earnings estimates and the resulting change in earnings multiple. revisions. Current score shown below.
Zhengzhou Yutong Bus (A-S… Zhengzhou Yutong Bus (A-S… 0.1 Qingling Motors Qingling Motors NaN Dongfeng Motor Group Dongfeng Motor Group 0.2 Jiangling Motors (A-Share… Jiangling Motors (A-Share… -0.7 Sinotruk Sinotruk -1.0
JAC Auto (A-Share) -0.6 JAC Auto (A-Share)
Weichai Power 0.7 Weichai Power
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 -60% -40% -20% 0% 20% 40% 60% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return
What drove this Company in the last 5 years How it looks on the Alpha model Which factor score has had the greatest correlation with the company’s A more granular view of the underlying style scores that drive the alpha (higher is returns over the last 5 years. better) and the percentile rank relative to the sector and market. ⇐ Negatives Positives ⇒ Normalized Percentile relative Percentile relative 3m Recom. Revisions 39% Score to sector(/1397) to market(/819) Alpha Model Score -0.09 Net Buybacks to Mkt Cap 35% Valuation -0.19 Price to Sales LTM 31% Growth -0.09 Price to Book FY0 27% Profitability -0.34 Earnings Momentum 0.24 Altman Z-Score -21% Price Momentum -0.69 Turnover (USD) 20 Day -25% Quality NaN Capital & Funding NaN Turnover(USD) 125 Day -27% Liquidity -0.20 Merton Score -34% Risk -0.42 Technicals & Trading -0.04 -40% -20% 0% 20% 40% 0 50 100 0 50 100 0 0 1 1
Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])
1 June 2016 6 Macquarie Research Weichai Power
Weichai Power (2338 HK, Underperform, Target Price: HK$6.30) Interim Results 2H/15A 1H/16E 2H/16E 1H/17E Profit & Loss 2015A 2016E 2017E 2018E
Revenue m 37,265 40,504 38,915 43,390 Revenue m 73,720 79,419 85,079 88,580 Gross Profit m 8,533 9,508 9,135 10,245 Gross Profit m 16,960 18,642 20,088 20,912 Cost of Goods Sold m 28,731 30,996 29,781 33,145 Cost of Goods Sold m 56,760 60,777 64,990 67,668 EBITDA m 4,409 4,874 4,683 5,380 EBITDA m 8,816 9,556 10,549 11,320 Depreciation m 2,780 2,718 2,612 3,027 Depreciation m 5,362 5,330 5,936 6,550 Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0 Other Amortisation m 0 0 0 0 Other Amortisation m 0 0 0 0 EBIT m 1,630 2,155 2,071 2,353 EBIT m 3,454 4,226 4,613 4,770 Net Interest Income m -303 -194 -186 -203 Net Interest Income m -486 -380 -399 -419 Associates m 14 61 59 61 Associates m 115 120 120 120 Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m 0 0 0 0 Other Pre-Tax Income m 0 0 0 0 Pre-Tax Profit m 1,341 2,023 1,943 2,210 Pre-Tax Profit m 3,083 3,966 4,334 4,471 Tax Expense m -485 -607 -583 -619 Tax Expense m -921 -1,190 -1,214 -1,252 Net Profit m 857 1,416 1,360 1,592 Net Profit m 2,163 2,776 3,121 3,219 Minority Interests m -435 -506 -486 -553 Minority Interests m -772 -992 -1,084 -1,118
Reported Earnings m 421 910 875 1,039 Reported Earnings m 1,391 1,785 2,037 2,101 Adjusted Earnings m 421 910 875 1,039 Adjusted Earnings m 1,391 1,785 2,037 2,101
EPS (rep) 0.11 0.23 0.22 0.26 EPS (rep) 0.35 0.45 0.51 0.53 EPS (adj) 0.11 0.23 0.22 0.26 EPS (adj) 0.35 0.45 0.51 0.53 EPS Growth yoy (adj) % -66.5 -6.1 107.5 14.1 EPS Growth (adj) % -59.4 28.3 14.1 3.2 PE (rep) x 22.0 17.1 15.0 14.5 PE (adj) x 22.0 17.1 15.0 14.5
EBITDA Margin % 11.8 12.0 12.0 12.4 Total DPS 0.20 0.22 0.25 0.26 EBIT Margin % 4.4 5.3 5.3 5.4 Total Div Yield % 2.6 2.9 3.3 3.4 Earnings Split % 30.3 51.0 49.0 51.0 Basic Shares Outstanding m 3,999 3,999 3,999 3,999 Revenue Growth % -18.1 11.1 4.4 7.1 Diluted Shares Outstanding m 3,999 3,999 3,999 3,999 EBIT Growth % -33.1 18.1 27.1 9.2
Profit and Loss Ratios 2015A 2016E 2017E 2018E Cashflow Analysis 2015A 2016E 2017E 2018E
Revenue Growth % -7.4 7.7 7.1 4.1 EBITDA m 8,816 9,556 10,549 11,320 EBITDA Growth % -3.1 8.4 10.4 7.3 Tax Paid m -486 -380 -399 -419 EBIT Growth % -34.5 22.3 9.2 3.4 Chgs in Working Cap m -338 -1,013 676 440 Gross Profit Margin % 23.0 23.5 23.6 23.6 Net Interest Paid m -1,105 -1,388 -1,426 -1,473 EBITDA Margin % 12.0 12.0 12.4 12.8 Other m -113 600 600 600 EBIT Margin % 4.7 5.3 5.4 5.4 Operating Cashflow m 6,774 7,375 9,999 10,467 Net Profit Margin % 1.9 2.2 2.4 2.4 Acquisitions m -383 0 0 0 Payout Ratio % 57.5 50.0 50.0 50.0 Capex m -4,345 -4,500 -4,500 -4,500 EV/EBITDA x 3.1 2.8 2.6 2.4 Asset Sales m 1,029 0 0 0 EV/EBIT x 7.7 6.3 5.8 5.6 Other m -415 0 0 0 Investing Cashflow m -4,115 -4,500 -4,500 -4,500 Balance Sheet Ratios Dividend (Ordinary) m -500 -800 -892 -1,019 ROE % 4.3 5.5 6.1 6.1 Equity Raised m 0 0 0 0 ROA % 2.9 3.6 3.7 3.6 Debt Movements m 962 0 0 0 ROIC % 6.4 7.7 8.4 9.0 Other m -2,638 -300 -315 -331 Net Debt/Equity % -7.5 -9.7 -17.0 -24.2 Financing Cashflow m -2,176 -1,100 -1,207 -1,349 Interest Cover x 7.1 11.1 11.6 11.4 Price/Book x 1.0 0.9 0.9 0.9 Net Chg in Cash/Debt m 414 1,775 4,292 4,618 Book Value per Share 7.9 8.2 8.5 8.7 Free Cashflow m 2,429 2,875 5,499 5,967
Balance Sheet 2015A 2016E 2017E 2018E
Cash m 24,601 26,776 31,468 36,486 Receivables m 19,012 22,952 24,588 25,600 Inventories m 11,842 12,680 13,559 14,117 Investments m 38 38 38 38 Fixed Assets m 26,255 26,434 26,591 26,728 Intangibles m 20,647 21,154 21,226 21,291 Other Assets m 12,478 11,379 11,499 11,619 Total Assets m 114,873 121,413 128,969 135,880 Payables m 28,316 31,035 33,186 34,554 Short Term Debt m 8,207 8,618 9,049 9,501 Long Term Debt m 13,269 13,933 14,629 15,361 Provisions m 0 0 0 0 Other Liabilities m 23,354 24,124 26,173 28,332 Total Liabilities m 73,147 77,710 83,038 87,748 Shareholders' Funds m 31,729 32,714 33,859 34,942 Minority Interests m 9,997 10,989 12,072 13,190 Other m 0 0 0 0 Total S/H Equity m 41,726 43,703 45,931 48,132 Total Liab & S/H Funds m 114,873 121,413 128,969 135,880
All figures in Rmb unless noted. Source: Company data, Macquarie Research, May 2016
1 June 2016 7 Macquarie Research Weichai Power Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand This is calculated from the volatility of historical All "Adjusted" data items have had the following Outperform – return >3% in excess of benchmark return price movements. adjustments made: Neutral – return within 3% of benchmark return Added back: goodwill amortisation, provision for Underperform – return >3% below benchmark return Very high–highest risk – Stock should be catastrophe reserves, IFRS derivatives & hedging, expected to move up or down 60–100% in a year IFRS impairments & IFRS interest expense Benchmark return is determined by long term nominal – investors should be aware this stock is highly Excluded: non recurring items, asset revals, property GDP growth plus 12 month forward market dividend speculative. revals, appraisal value uplift, preference dividends & yield minority interests Macquarie – Asia/Europe High – stock should be expected to move up or Outperform – expected return >+10% down at least 40–60% in a year – investors should EPS = adjusted net profit / efpowa* Neutral – expected return from -10% to +10% be aware this stock could be speculative. ROA = adjusted ebit / average total assets Underperform – expected return <-10% ROA Banks/Insurance = adjusted net profit /average Medium – stock should be expected to move up total assets Macquarie – South Africa or down at least 30–40% in a year. ROE = adjusted net profit / average shareholders funds Outperform – expected return >+10% Gross cashflow = adjusted net profit + depreciation Neutral – expected return from -10% to +10% Low–medium – stock should be expected to *equivalent fully paid ordinary weighted average Underperform – expected return <-10% move up or down at least 25–30% in a year. number of shares Macquarie - Canada Outperform – return >5% in excess of benchmark return Low – stock should be expected to move up or All Reported numbers for Australian/NZ listed stocks Neutral – return within 5% of benchmark return down at least 15–25% in a year. are modelled under IFRS (International Financial Underperform – return >5% below benchmark return * Applicable to Asia/Australian/NZ/Canada stocks Reporting Standards). only Macquarie - USA Outperform (Buy) – return >5% in excess of Russell Recommendations – 12 months 3000 index return Note: Quant recommendations may differ from Neutral (Hold) – return within 5% of Russell 3000 index Fundamental Analyst recommendations return Underperform (Sell)– return >5% below Russell 3000 index return
Recommendation proportions – For quarter ending 31 March 2016 AU/NZ Asia RSA USA CA EUR Outperform 50.34% 59.09% 46.67% 44.76% 60.66% 46.12% (for global coverage by Macquarie, 3.72% of stocks followed are investment banking clients) Neutral 34.14% 25.66% 32.00% 49.90% 30.33% 35.10% (for global coverage by Macquarie, 4.79% of stocks followed are investment banking clients) Underperform 15.52% 15.26% 21.33% 5.33% 9.02% 18.78% (for global coverage by Macquarie, 2.31% of stocks followed are investment banking clients)
2338 HK vs HSI, & rec history 000338 CH vs CSI 300, & rec history
(all figures in HKD currency unless noted) (all figures in CNY currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, May 2016 12-month target price methodology 2338 HK: HK$6.30 based on a Sum of Parts methodology 000338 CH: Rmb5.40 based on a Sum of Parts methodology
Company-specific disclosures:
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.
Date Stock Code (BBG code) Recommendation Target Price 14-Aug-2015 2338 HK Outperform HK$16.76 15-May-2015 2338 HK Outperform HK$16.88 23-Dec-2014 2338 HK Outperform HK$18.00
Target price risk disclosures: 2338 HK: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. 000338 CH: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.
Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. General disclaimers: Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Limited and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd; Macquarie Securities (NZ) Ltd; Macquarie Equities South Africa (Pty) Ltd; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities (Malaysia) Sdn Bhd; Macquarie Securities Korea Limited and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the purposes of the
1 June 2016 8 Macquarie Research Weichai Power Banking Act 1959 (Commonwealth of Australia), and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL) or MGL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any of the above mentioned entities. MGL provides a guarantee to the Monetary Authority of Singapore in respect of the obligations and liabilities of Macquarie Capital Securities (Singapore) Pte Ltd for up to SGD 35 million. This research has been prepared for the general use of the wholesale clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. 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Asia Research Head of Equity Research Software and Internet Transport & Infrastructure Peter Redhead (Global – Head) (852) 3922 4836 Wendy Huang (Asia) (852) 3922 3378 Janet Lewis (Asia) (852) 3922 5417 Matt Nacard (Asia – Head) (852) 3922 1362 David Gibson (Asia) (813) 3512 7880 Azita Nazrene (ASEAN) (603) 2059 8980 Jake Lynch (Asia – Head) (852) 3922 3583 Hillman Chan (China, Hong Kong) (852) 3922 3716 Corinne Jian (Taiwan) (8862) 2734 7522 Nitin Mohta (India) (9122) 6720 4090 Automobiles/Auto Parts Nathan Ramler (Japan) (813) 3512 7875 Utilities & Renewables Janet Lewis (China) (852) 3922 5417 Prem Jearajasingam (Malaysia) (603) 2059 8989 Alan Hon (Hong Kong) (852) 3922 3589 Zhixuan Lin (China) (8621) 2412 9006 Oil, Gas and Petrochemicals Inderjeetsingh Bhatia (India) (9122) 6720 4087 Amit Mishra (India) (9122) 6720 4084 Prem Jearajasingam (Malaysia) (603) 2059 8989 Lyall Taylor (Indonesia) (6221) 2598 8489 James Hubbard (Asia) (852) 3922 1226 Karisa Magpayo (Philippines) (632) 857 0899 Takuo Katayama (Japan) (813) 3512 7856 Aditya Suresh (Asia) (852) 3922 1265 James Hong (Korea) (822) 3705 8661 Duke Suttikulpanich (ASEAN) (65) 6601 0148 Commodities Abhishek Agarwal (India) (9122) 6720 4079 Banks and Non-Bank Financials Colin Hamilton (Global) (4420) 3037 4061 Polina Diyachkina (Japan) (813) 3512 7886 Ian Roper (65) 6601 0698 Matthew Smith (China) (8621) 2412 9022 Anna Park (Korea) (822) 3705 8669 Jim Lennon (4420) 3037 4271 Suresh Ganapathy (India) (9122) 6720 4078 Isaac Chow (Malaysia) (603) 2059 8982 Lynn Zhao (8621) 2412 9035 Lyall Taylor (Indonesia) (6221) 2598 8489 Pharmaceuticals and Healthcare Matthew Turner (4420) 3037 4340 Keisuke Moriyama (Japan) (813) 3512 7476 Rakesh Arora (9122) 6720 4093 Leo Nakada (Japan) (813) 3512 6050 Wei Li (China, Hong Kong) (852) 3922 5494 Chan Hwang (Korea) (822) 3705 8643 Abhishek Singhal (India) (9122) 6720 4086 Economics Gilbert Lopez (Philippines) (632) 857 0892 Property Peter Eadon-Clarke (Global) (813) 3512 7850 Thomas Stoegner (Singapore) (65) 6601 0854 Larry Hu (China, Hong Kong) (852) 3922 3778 Dexter Hsu (Taiwan) (8862) 2734 7530 Tuck Yin Soong (Asia, Singapore) (65) 6601 0838 Tanvee Gupta Jain (India) (9122) 6720 4355 Passakorn Linmaneechote (Thailand) (662) 694 7728 David Ng (China, Hong Kong) (852) 3922 1291 Quantitative / CPG Conglomerates Raymond Liu (China, Hong Kong) (852) 3922 3629 Wilson Ho (China) (852) 3922 3248 Gurvinder Brar (Global) (4420) 3037 4036 Gilbert Lopez (Philippines) (632) 857 0892 Abhishek Bhandari (India) (9122) 6720 4088 Woei Chan (Asia) (852) 3922 1421 William Montgomery (Japan) (813) 3512 7864 Consumer and Gaming Anthony Ng (Asia) (852) 3922 1561 Aiman Mohamad (Malaysia) (603) 2059 8986 Danny Deng (Asia) (852) 3922 4646 Linda Huang (China, Hong Kong) (852) 3922 4068 Kervin Sisayan (Philippines) (632) 857 0893 Per Gullberg (Asia) (852) 3922 1478 Zibo Chen (Hong Kong) (852) 3922 1130 Corinne Jian (Taiwan) (8862) 2734 7522 Amit Mishra (India) (9122) 6720 4084 Patti Tomaitrichitr (Thailand) (662) 694 7727 Strategy/Country Fransisca Widjaja (Singapore) (65) 6601 0847 Resources / Metals and Mining Viktor Shvets (Asia, Global) (852) 3922 3883 Hendy Soegiarto (Indonesia) (6221) 2598 8369 Chetan Seth (Asia) (852) 3922 4769 Toby Williams (Japan) (813) 3512 7392 Coria Chow (China) (852) 3922 1181 Peter Eadon-Clarke (Japan) (813) 3512 7850 HongSuk Na (Korea) (822) 3705 8678 Rakesh Arora (India) (9122) 6720 4093 David Ng (China, Hong Kong) (852) 3922 1291 Karisa Magpayo (Philippines) (632) 857 0899 Stanley Liong (Indonesia) (6221) 2598 8381 Erwin Sanft (China, Hong Kong) (852) 3922 1516 Polina Diyachkina (Japan) (813) 3512 7886 Emerging Leaders Rakesh Arora (India) (9122) 6720 4093 Anna Park (Korea) (822) 3705 8669 Lyall Taylor (Indonesia) (6221) 2598 8489 Jake Lynch (China, Asia) (852) 3922 3583 Technology Chan Hwang (Korea) (822) 3705 8643 Aditya Suresh (Asia) (852) 3922 1265 Gilbert Lopez (Philippines) (632) 857 0892 Neel Sinha (ASEAN) (65) 6601 0562 Damian Thong (Asia, Japan) (813) 3512 7877 Conrad Werner (Singapore) (65) 6601 0182 Timothy Lam (Hong Kong) (852) 3922 1086 Allen Chang (852) 3922 1136 Jeffrey Ohlweiler (Taiwan) (8862) 2734 7512 Mike Allen (Japan) (813) 3512 7859 (China, Hong Kong, Taiwan) Alastair Macdonald (Thailand) (662) 694 7753 Kwang Cho (Korea) (822) 3705 4953 Nitin Mohta (India) (9122) 6720 4090
David Gibson (Japan) (813) 3512 7880 Industrials George Chang (Japan) (813) 3512 7854 Find our research at Janet Lewis (Asia) (852) 3922 5417 Daniel Kim (Korea) (822) 3705 8641 Macquarie: www.macquarie.com.au/research Patrick Dai (China) (8621) 2412 9082 Soyun Shin (Korea) (822) 3705 8659 Thomson: www.thomson.com/financial Inderjeetsingh Bhatia (India) (9122) 6720 4087 Patrick Liao (Taiwan) (8862) 2734 7515 Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Lyall Taylor (Indonesia) (6221) 2598 8489 Louis Cheng (Taiwan) (8862) 2734 7526 Kaylin Tsai (Taiwan) (8862) 2734 7523 Factset: http://www.factset.com/home.aspx Kenjin Hotta (Japan) (813) 3512 7871 CapitalIQ www.capitaliq.com James Hong (Korea) (822) 3705 8661 Telecoms Email [email protected] for access
Insurance Nathan Ramler (Asia, Japan) (813) 3512 7875 Scott Russell (Asia, Japan) (852) 3922 3567 Danny Chu (852) 3922 4762 Thomas Stoegner (ASEAN) (65) 6601 0854 (China, Hong Kong, Taiwan) Leo Nakada (Japan) (813) 3512 6050 Abhishek Agarwal (India) (9122) 6720 4079 Chan Hwang (Korea) (822) 3705 8643 Prem Jearajasingam (Malaysia, Singapore) (603) 2059 8989 Dexter Hsu (Taiwan) (8862) 2734 7530 Kervin Sisayan (Philippines) (632) 857 0893 Passakorn Linmaneechote (Thailand) (662) 694 7728
Asia Sales Regional Heads of Sales Regional Heads of Sales cont’d Sales Trading cont’d Miki Edelman (Global) (1 212) 231 6121 Paul Colaco (San Francisco) (1 415) 762 5003 Suhaida Samsudin (Malaysia) (603) 2059 8888 Jeffrey Chung (Asia) (852) 3922 2074 Amelia Mehta (Singapore) (65) 6601 0211 Michael Santos (Philippines) (632) 857 0813 Jeff Evans (Boston) (1 617) 598 2508 Angus Kent (Thailand) (662) 694 7601 Chris Reale (New York) (1 212) 231 2555 Jeffrey Shiu (China, Hong Kong) (852) 3922 2061 Ben Musgrave (UK/Europe) (44) 20 3037 4882 Marc Rosa (New York) (1 212) 231 2555 Thomas Renz (Geneva) (41) 22 818 7712 Julien Roux (UK/Europe) (44) 20 3037 4867 Justin Morrison (Singapore) (65) 6601 0288 Isaac Huang (Taiwan) (8862) 2734 7582 Riaz Hyder (Indonesia) (6221) 2598 8486 Sales Trading Nick Cant (Japan) (65) 6601 0210 Brendan Rake (Thailand) (662) 694 7707 John Jay Lee (Korea) (822) 3705 9988 Adam Zaki (Asia) (852) 3922 2002 Mike Keen (UK/Europe) (44) 20 3037 4905 Nik Hadi (Malaysia) (603) 2059 8888 Stanley Dunda (Indonesia) (6221) 515 1555 Eric Roles (New York) (1 212) 231 2559 Gino C Rojas (Philippines) (632) 857 0861