150 +22% -25% 130 +37%

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

Client-Driven Solutions, Insights, and Access

01 December 2015

Asia Pacific

Equity Research

Investment Strategy

Asia Pacific Equity Strategy STRATEGY

2016 Outlook: A year of positive returns?

Figure 1: MSCI Asia ex-Japan performance around Fed tightening

70

90

110

130

150

170

190

-9m -6m -3m 0m +3m +6m +9m +12m

Feb-94 Jun-04 May-13 current

MXASJ

-25%

-14%

-21%

-20%

+22%

+15%

+37%

Source: MSCI. We are assuming Dec 2015 is the first Fed rate hike.

■ Three reasons why 2016 could be a year of positive returns. With MSCI

Asia ex-Japan up just 1% in 2014 and down 10% in 2015, we highlight three

reasons why 2016 could be a year of positive returns. One, Figure 1

highlights that while MSCI Asia ex-Japan has historically corrected in the

run-up to the first Fed tightening in 1994 and 2004 and during the 2013 Fed

taper, MXASJ has historically rallied in the six months after. Two, Figure 2

highlights that MXASJ P/B has dropped to 1.37x. This is the lowest P/B start

since 2008-09. Three, MXASJ ROE appears to be bottoming at 11%.

■ Key risks to our call. With the Fed tightening against a weaker macro

backdrop globally and particularly so in China and 2004 (the episode with

the 37% return for MXASJ) associated with NJA ROE rising from 10% to

15%, the key question is whether these differences are big enough to negate

history. The other risk is whether global policy divergences (Fed tightening

versus ECB and BOJ easing) mean the DXY does not fall as it did in prior

episodes. We believe a modest 10% return though is still likely.

■ Overweight Cheapest 4. While past performance is not necessarily a good

guide to the future, the Cheapest 4 outperformed the Expensive 4 by 7%

YTD in 2015. We continue to Overweight the Cheapest 4, which are Korea,

MSCI China, Taiwan and Singapore.

Research Analysts

Sakthi Siva

65 6212 3027

[email protected]

Kin Nang Chik

Analyst Team (Market Strategy) Asia Pacific

Sakthi Siva

Australia Hasan Tevfik

China / Hong Kong Vincent Chan / Li Chen

India Neelkanth Mishra / Prateek Singh

Indonesia Jahanzeb Naseer

Japan

Daisuke Takato

Malaysia

Tan Ting Min

Pakistan

Farhan Rizvi, CFA / Fahd Niaz, CFA

Philippines

Alvin Arogo

Singapore

Gerald Wong

South Korea

Gil Kim

Taiwan

Chung Hsu

Thailand Dan Fineman

Vietnam Dan Fineman / Chate Benchavitvilai

Analyst Team (Sector) Autos and Auto Components

Jatin Chawla / Bin Wang

Banks

Sanjay Jain

Basic Materials

Trina Chen

Chemicals, and Oil Refining/Marketing

Kenneth Whee

Consumer

Kevin Yin / Arnab Mitra / A-Hyung Cho

Environment

Trina Chen

Gaming

Kenneth Fong

Industrials

Edmond Huang / Tim Ross / MinSeok Sinn / Henry Kwon / Lokesh Garg / Baiding Rong /HaYoung Chung

Insurance

Arjan van Veen

Oil & Gas

Thomas Wong

Technology

Manish Nigam

Telecoms

Colin McCallum

Transportation

Tim Ross / Muzhafar Mukhtar / Christopher Siow

Utilities and Renewable Energy

Dave Dai

01 December 2015

Asia Pacific Equity Strategy 2

Focus charts

Figure 2: MSCI Asia ex-Japan price-to-book

0.5

1.0

1.5

2.0

2.5

3.0

Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

Asia ex-JP - Trailing PB

1.37x now

1.23x in Feb 091.19x in Sep 01

0.94x in Aug 98

1.47x in Jan 141.22x in

Mar 031.28x on

24 Aug

Source: MSCI

Figure 3: Asia ex-Japan ROE

10%

11%

12%

13%

14%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

Asia ex Japan ROE

High 14% Nov 2010

11.0%11.3% Dec 2014

Source: Company data, Credit Suisse estimates

Figure 4: CS country tilts Figure 5: CS sector tilts

Aust / NZ

India

Malaysia

Thailand

Philippines

Indonesia

Japan

Singapore

China

Hong Kong

Taiwan

Korea

-5% -4% -3% -2% -1% 0% 1% 2% 3% 4%

Tilt sizeUnderweight Overweight

Health Care

Industrials

Telcos

Consumer Staples

Materials

Utilities

Energy

Discretionary

Real estate

Information Technology

Financials (ex-Real Est.)

-10% -5% 0% 5% 10% 15%

Tilt sizeUnderweight Overweight

Source: MSCI Source: MSCI

MSCI Asia ex-Japan P/B of

1.37x is the lowest P/B start

since 2008-09

We believe a big driver of

NJA's underperformance

over the past five years has

been slowing ROE; we

believe it is now bottoming

at 11%

01 December 2015


Table of contents Top picks: Countries and sectors 4

Country Sections 32 Australia 33 China 36 China A-share Market Strategy 39 Hong Kong 42 India 44 Indonesia 48 Japan 51 Malaysia 54 Pakistan 58 Philippines 62 Singapore 67 South Korea 70 Taiwan 74 Thailand 77 Vietnam 80

Sector Sections 83 Autos and Components 84 Banks 86 Basic Materials 88 Chemicals and Oil Refining/Marketing 90 Consumer 92 Environment 94 Gaming 96 Industrials 98 Insurance 100 Oil & Gas 102 Technology 104 Telecoms 106 Transportation 108 Utilities and renewable energy 110

01 December 2015


Top picks: Countries and sectors Figure 6: Best Outperform ideas—by country (picked by our country strategists)

Mkt Yield P/B ROE Net debt/

Target cap P/E (x) (%) (x) (%) equity (x)

Company RIC Rating Curr. Price price (mn) FY14A FY15E FY16E FY16E FY16E FY16E FY16E

Australia

Rio Tinto Ord RIO.AX N AUD 47.1 53 61,433 6.8 11.9 20.0 6.3% 1.5 7.5% 33.7% AGL Energy Ord AGL.AX O AUD 16.8 18.4 8,197 15.9 17.4 15.8 4.6% 1.2 7.4% 28.1% Carsales.com Lim Ord CAR.AX O AUD 10.3 11.3 1,792 25.7 24.7 21.8 3.7% 9.6 44.1% 63.3% Lend Lease Group Unt LLC.AX O AUD 12.6 16.6 5,292 8.8 11.8 10.7 4.9% 1.4 13.2% 25.8%

China

China Pacific (H) 2601.HK O HKD 32.3 50 38,141 21.8 13.0 12.6 3.2% 1.7 13.4% Net cash Hikvision 002415.SZ O CNY 36.1 41.6 22,995 31.0 23.1 17.7 1.7% 5.9 33.0% Net cash Goldwind (H) 2208.HK O HKD 13.2 26.3 6,632 16.9 9.5 8.3 6.0% 1.5 18.5% 35.8% Alibaba BABA.N O USD 81.7 98 205,290 44.3 37.5 31.9 0.0% 5.9 18.5% Net cash Geely 0175.HK O HKD 4.2 5.7 4,770 21.3 10.5 7.4 1.6% 1.3 17.5% Net cash Kweichow Moutai 600519.SS O CNY 213.0 270 41,884 15.8 16.1 14.2 2.1% 3.4 24.1% Net cash

China A-share Market Strategy

Midea 000333.SZ O CNY 28.63 41 148,156 11.5 9.8 9.0 4.5% 2.1 25.9% Net cash Wanda Cinema 002739.SZ O CNY 104.81 122 142,405 65.4 95.3 52.8 0.2% 19.0 43.0% Net cash Hengrui Medicine 600276.SS O CNY 50.54 57 119,956 50.2 46.9 40.4 0.3% 8.2 22.4% Net cash GeorTek 002241.SZ O CNY 33.2 41.8 61,479 30.5 36.7 27.9 0.4% 4.5 17.5% Net cash

Hong Kong

AIA Group 1299.HK O HKD 47.7 57.5 74,075 21.5 21.6 16.8 1.5% 2.1 12.4% 5.1% Galaxy 0027.HK O HKD 23.6 37.6 12,967 9.8 21.5 14.0 2.2% 2.2 16.2% Net cash CKH 0001.HK O HKD 103.6 142 51,593 6.6 12.4 11.5 3.1% 1.0 8.5% 18.3% Samsonite 1910.HK O HKD 23.5 27.7 4,275 22.9 21.7 18.0 2.6% 2.8 15.8% Net cash

India

Tech Mahindra TEML.BO O INR 538 700 7,818 20 17 14 1.7% 3 24% -0.3 Hindustan Unilever HLL.BO O INR 811 920 26,420 41 40 34 2.2% 36 113% -1.0 Ultratech Cement ULTC.BO O INR 2,778 3,525 11,470 36 30 19 0.7% 3 18% 0.2 Tata Motors TAMO.BO O INR 401 490 17,424 9 11 8 0.6% 1 20% 0.5

Indonesia

Astra International ASII.JK O IDR 6,175 7,600 18,267 12.8 14.5 12.4 4.1% 2.3 18.6% 40.4% Gudang Garam GGRM.JK O IDR 50,400 61,500 7,086 18.1 18.1 16.1 2.1% 2.4 14.9% 34.6% XL Axiata EXCL.JK O IDR 3,770 5,150 2,351 -35.8 228.2 17.5 3.1% 2.2 12.4% 151.7% Summarecon SMRA.JK O IDR 1,580 1,960 1,666 16.5 17.8 15.0 1.6% 3.0 20.0% 42.6%

Japan

Aisin Seiki Ord 7259 O JPY 4,955 6,000 11,413 15.5 18.1 14.3 2.1% 1.1 8.0% 9.1% Kose Ord 4922 O JPY 12,830 14,500 5,965 65.7 60.7 34.4 0.6% 4.7 13.6% Net cash Ono Pharm Ord 4528 O JPY 19,525 23,000 16,871 101.7 159.5 129.4 0.9% 4.4 3.4% Net cash Sony Ord 6758 O JPY 3,245 4,200 33,354 -29.7 -30.1 21.2 0.8% 1.7 8.1% Net cash

Korea

Sam. Elec. 005930.KS O W 1,299,000 1,785,000 167,372 8.2 8.6 7.1 2.3 0.9 12.8 -6.1 Mobis 012330.KS O W 247,000 280,000 21,032 7.0 7.7 7.0 2.0 0.8 12.5 -26.0 Sam. Life 032830.KS O W 108,000 135,000 18,894 15.3 17.7 16.3 1.5 0.8 4.8 n.a. Shinhan FG 055550.KS O W 42,300 60,000 17,546 10.2 9.3 8.2 3.2 0.7 9.0 n.a. Shinsegae 004170.KS O W 251,000 330,000 2,162 15.8 6.2 12.9 0.5 0.8 6.1 44.6

Malaysia

Genting GENT MK O MYR 7.33 10.30 27,438 18.2 17.2 14.1 0.5% 0.9 6.6% (0.0) Gamuda GAM MK O MYR 4.56 6.00 10,971 14.8 15.6 13.7 2.0% 1.3 10.7% 0.3 Gent Plant GENP MK O MYR 10.24 11.50 7,983 20.6 35.9 23.2 0.8% 1.8 7.7% 0.0 Alliance FG AFG MK O MYR 3.58 3.97 5,542 10.3 10.4 10.1 5.1% 1.1 11.1% (0.8)

Pakistan

United Bank Limited UBL.KA O PRs 164 218 1,904 7.9 7.1 1.3 18.0 Pakistan Oilfields PKOL.KA O PRs 310 425 696 8.7 10.2 2.2 21.7 DG Khan Cement DGKH.KA O PRs 136 175 567 7.8 6.9 0.8 11.1 K-Electric KELE.KA O PRs 7.6 10.5 1,993 13.6 8.3 1.3 15.5 Engro Corporation EGCH.KA O PRs 283 368 1,405 8.5 7.2 1.8 24.3

Philippines

Metrobank MBT.PS O PHP 81.0 101.1 5,481 11.3 12.2 10.8 1.2% 1.2 11.0% Net cash Metro Pacific MPI.PS O PHP 5.3 6.211 3,163 16.3 14.7 13.7 1.3% 1.2 8.9% 20.6% ICTSI ICT.PS O PHP 73.1 117 3,163 20.7 24.5 22.5 1.2% 2.6 16.0% 70.1% EDC EDC.PS O PHP 6.3 9.8 2,506 13.3 12.6 10.1 3.5% 2.1 20.7% 75.0% Bloomberry BLOOM.PS O PHP 5.3 8.4 1,247 13.9 -35.8 39.0 1.0% 2.3 5.9% 82.6%

Singapore

CDL CTDM.SI O SGD 7.44 12.00 4,816 14.9 13.4 9.6 2.2 0.7 7.8 19.8 SingTel STEL.SI O SGD 3.80 4.40 43,128 16.6 16.0 15.2 4.8 2.4 16.0 34.1 DBS DBSM.SI O SGD 16.72 22.00 29,931 10.8 9.7 8.7 3.6 0.9 11.6 n.m.

01 December 2015





Taiwan

SPIL 2325.TW O TWD 45.0 52.0 4,325 12.0 12.2 11.7 6.4 1.22 16.4 3.0 Delta 2308.TW O TWD 158.5 196.0 12,592 18.7 22.5 19.4 3.6 3.60 25.2 0.5 Hon Hai 2317.TW O TWD 84.3 108.0 39,791 9.5 9.0 8.9 5.7 1.91 13.9 -35.1 E.Sun 2884.TW O TWD 19.9 23.0 4,803 11.9 11.0 9.9 2.0 0.45 12.7 n/m Uni-President 1216.TW O TWD 54.2 64.0 9,441 26.6 19.3 16.8 3.6 1.23 18.1 46.6

Thailand

AIS ADVANC.BK O THB 205.0 280 17,087 16.9 15.5 14.5 6.9% 13.0 90.1% 232.7% BTS Group Holdings BTS.BK O THB 9.4 12.2 3,144 54.7 42.3 56.7 7.1% 2.3 4.1% 36.9% Thai Union TU.BK O THB 18.5 22.5 2,475 15.5 17.1 13.7 3.6% 1.8 13.1% 63.7% STECON STEC.BK O THB 24.6 30 1,052 24.7 29.2 24.1 1.9% 3.9 16.0% Net cash C.P. ALL CPALL.BK O THB 48.5 60 12,214 44.6 31.7 25.4 2.8% 10.0 39.2% 358.8%

Vietnam

Vinamilk VNM.HM O VND 125,000 140,000 19.7 17.5 3.3 5.7 32.6

Vingroup VIC.HM O VND 43,400 52,000 23.9 12.2 - 2.2 17.8

Masan Group MSN.HM N VND 70,500 80,000 29.0 21.9 - 1.9 12.3

Note: Priced as of 25 November 2015. Source: Company data, Thomson Reuters, Credit Suisse estimates

Figure 7: Best relative Underperformers—by country (picked by our country strategists)




Australia

Brambles ord BXB.AX U AUD 10.8 8.7 12,361 21.0 21.0 20.1 2.6% 4.2 20.8% 97.1%

Medibank private ord MPL.AX U AUD 2.3 2.2 4,512 24.1 21.3 20.6 3.6% 4.2 20.3% Net cash

India

Bharti Airtel BRTI.BO U INR 341 285 20,527 26 21 21 0.9% 2 9% 1.1

SBI SBI.BO N INR 242 247 28,210 14 11 9 2.4% 1 13% n.m.

Indonesia

Bank Central Asia BBCA.JK U IDR 13,500 11,500 24,322 20.1 19.3 18.7 1.2% 3.2 17.2% Net cash

Ace ACES.JK N IDR 790 600 990 24.4 23.9 21.9 1.6% 4.3 19.7% Net cash

Korea

LG Display 034220.KS N W 24,900 25,600 7,794 9.9 7.9 10.6 2.0 0.7 6.5 3.0

Malaysia

CIMB CIMB MK U MYR 4.60 4.06 39,225 12.0 11.9 9.9 4.4% 0.9 9.3% (1.2)

Msia Airports MAHB MK U MYR 5.21 4.80 8,644 27.8 42.8 29.7 1.4% 1.2 4.0% 0.4

Philippines

Manila Water MWC.PS U PHP 24.8 19.9 1,062 9.2 9.7 9.8 3.3% 1.2 12.6% 60.6%

Singapore

StarHub STAR.SI U SGD 3.68 3.10 4,531 17.1 16.5 17.5 5.4 30.7 183.2 119.4

SUNT SUNT.SI U SGD 1.53 1.54 2,743 16.6 14.3 13.6 6.4 0.7 5.2 55.5

M1 MONE.SI U SGD 2.85 2.35 1,901 15.1 14.9 15.4 6.5 6.7 43.6 75.8

Taiwan

HTC 2498.TW U TWD 85.3 57.0 2,175 48.0 -5.0 215.6 0.1 1.94 0.5 -65.9

Thailand

True Corp TRUE.BK U THB 8.5 3.3 5,864 106.7 53.2 524.4 0.0% 2.8 0.5% 96.2%


01 December 2015


Figure 8: Best Outperform ideas—by sector (picked by our sector heads) Mkt Yield P/B ROE Net debt/



Autos and Components

Geely 0175.HK O HKD 4.2 5.7 4,770 21.3 10.5 7.4 1.6% 1.3 17.5% Net cash Tata Motors* TAMO.BO O INR 401.1 490 17,449 9.2 11.3 8.3 0.6% 1.5 18.0% 50.6% Maruti Suzuki* MRTI.BO O INR 4,640.5 5,200 21,125 37.8 24.6 17.1 1.1% 4.1 23.8% Net cash Mobis 012330.KS O KRW 247,000 280,000 21,032 7.0 7.7 7.0 2.0% 0.8 11.8% Net cash Astra International ASII.JK O IDR 6175 7,600 18,267 12.8 14.5 12.4 4.1% 2.3 18.6% 40.4%

Banks

HDFC Bank HDBK.BO O INR 1,063.9 1,360 40,414 30.1 25.2 21.5 1.0% 3.7 17.4% Net cash IndusInd Bank INBK.BO O INR 919.6 1,080 8,216 34.2 27.0 21.2 0.8% 3.2 14.1% Net cash SKS SKSM.BO O INR 427.4 520 817 66.0 28.6 20.0 0.0% 4.1 20.5% Net cash SFG 055550.KS O KRW 42,300 60,000 17,546 10.2 9.3 8.2 3.2% 0.6 7.6% Net cash

Basic Materials

Conch 0914.HK O HK$ 21.95 30.00 14,913 8.7 12.5 13.9 3.8 1.3 9.6 4.2 Lee&Man 2314.HK O HK$ 4.62 6.60 2,782 11.4 9.8 8.5 8.5 1.0 12.8 52.9 POSCO 005490.KS O W 171,000 240,000 11,922 21.8 n.a. 9.0 4.7 0.3 3.6 45.5

Chemicals and Oil Refining/Marketing

Lotte Chemical 011170.KS O W 246,500 410,000 7,364 7.2 6.3 1.0 1.0 16.2 15.0 Formosa Plastics 1301.TW O NT$ 76.5 94.0 14,998 16.4 16.3 3.1 2.0 12.9 5.8 Mitsubishi Chem Hldg 4188 O ¥ 830 1,030 9,975 20.0 16.4 1.7 1.2 7.5 71.9

Consumer

JD.com JD.OQ O USD 30 40 41,482 2.2* 1.5* 1.0* 0.0% 6.9 1.1% Net cash Hindustan Unilever HLL.BO O INR 811 920 26,459 45.4 40.7 40.2 1.9% 41.3 102.7% Net cash Amorepacific 090430.KS O KRW 408,500 440,000 20,889 63.0 39.9 30.1 0.3% 5.7 19.0% Net cash Indofood CBP ICBP.JK O IDR 12,600 15,100 5,369 28.2 22.2 18.3 2.2% 4.0 21.8% Net cash

Environment

Dongjiang 0895.HK O HK$ 13.0 23.0 2,615 36.4 28.5 19.0 1.1 3.0 16.7 73.4 BEW 0371.HK O HK$ 6.1 8.0 6,899 29.5 23.7 18.9 2.0 2.8 15.6 115.4 CEI 0257.HK O HK$ 11.8 18.5 6,838 31.1 22.0 15.2 1.9 2.5 17.8 32.8 SIIC SIIC.SI O S$ 0.78 1.50 1,229 24.6 19.3 12.6 0 1.4 11.6 32.0

Gaming

Galaxy 0027.HK O HKD 23.6 37.6 12,967 9.8 21.5 14.0 2.2% 2.2 16.2% Net cash MGM China 2282.HK O HKD 10.3 20 5,031 6.8 11.6 12.1 5.0% 4.3 35.9% 124.5% Kangwon Land 035250.KS O KRW 37,750 54,000 7,065 21.3 17.4 15.2 3.2% 2.6 16.1% Net cash Bloomberry BLOOM.PS O PHP 5.32 8.3 1,247 13.9 -35.8 39.0 1.0% 2.3 5.9% 82.6% Genting Singapore GENS.SI O SGD 0.775 1 6,669 20.6 32.5 22.7 1.3% 1.2 5.4% Net cash Genting Bhd GENT.KL O MYR 7.3 10.3 6,514 18.2 17.2 14.1 0.7% 0.9 6.6% Net cash

Industrials

Goldwind 2208.HK O HKD 13.3 26.3 6.5 17.0 9.6 8.4 5.9 1.6 19.5 35.8 Singapore Air SIAL.SI O SGD 10.47 14.00 8.9 36.3 14.6 12.0 5.0 0.9 8.0 Net cash Voltas VOLT.BO O INR 283.20 345.00 1.4 41.9 27.7 26.9 0.9 4.0 15.6 Net cash Hyundai Mipo 010620.KS O KRW 63,800 90,100 1.1 -2.0 19.1 14.7 0.0 0.7 4.6 125.6 Hyundai Dev 012630.KS O KRW 41,850 70,000 2.7 44.7 12.8 10.0 1.2 1.2 12.2 19.3

Insurance

AMP ORD AMP.AX N AUD 5.7 6.35 12,135 17.5 16.2 15.6 5.1% 2.0 11.9% 145.1% AIA Group 1299.HK O HKD 47.7 57.5 74,075 21.5 21.6 16.8 1.5% 2.1 12.4% 5.1% PICC P&C 2328.HK O HKD 17.3 21.5 33,100 13.4 9.3 10.8 2.3% 1.7 16.0% Net cash

Oil & Gas

CNOOC 0883.HK O HKD 8.75 10.70 50,505 5.4 15.6 12.0 3.3% 0.86 7.2% 21% Reliance Industries RELI.BO O INR 968 1,040 47,183 13.9 13.3 13.1 1.5% 1.32 10.1% 50% PTT PTT.BK O THB 270 321 21,596 13.8 26.3 9.0 4.4% 1.02 11.3% 28%

Technology

Alibaba BABA O USD 81.71 98.00 205,290 37.5 31.9 24.7 0.0 4.9 19.8 (50.7) Baidu Inc BIDU O USD 201.80 210.00 70,934 32.1 37.8 30.9 0.0 5.6 18.2 (73.2) Lenovo Group Ltd 0992.HK O HKD 8.64 11.00 12,384 14.5 (33.4) 10.8 1.9 3.5 32.4 (5.2) Samsung Electronics 005930.KS O KRW 1,299,000 1,785,000 167,372 8.2 8.6 7.1 2.3 0.9 12.1 (6.1) Siliconware Precision 2325.TW O TWD 45.00 52.00 4,315 12.0 12.2 11.7 6.4 1.9 16.1 3.0 Tech Mahindra Limited TEML.BO O INR 537.55 700.00 7,830 20.1 17.4 13.9 1.7 3.0 21.9 (27.8)

Telecoms

Link Net LINK.JK O IDR 3,750 8,450 834 20.4 17.5 11.8 1.7% 2.6 21.7% Net cash China Telecom 0728.HK O HKD 3.9 7.93 40,517 14.6 15.5 11.2 3.6% 0.8 7.4% 36.2% DTAC DTAC.BK O THB 49.0 93 3,253 10.8 19.1 14.9 6.7% 3.6 23.8% 169.1% XL Axiata EXCL.JK O IDR 3,770 5,150 2,351 -35.8 228.2 17.5 3.1% 2.2 12.4% 151.7%

Transportation

JAL 9201.T O JPY 4,371 6,800 12,914 4.6 9.9 8.9 2.8% 1.7 19.5% Net cash AirAsia AIRA.KL O MYR 1.4 1.9 925 7.8 5.0 5.4 3.1% 0.9 16.1% 226.3% SIA SIAL.SI O SGD 10.6 14 9,071 43.3 36.9 14.8 4.3% 1.0 6.7% Net cash

01 December 2015





Utilities and renewable energy

HNR 0958.HK O HKD 2.3 4.4 2,925 15.5 9.7 6.9 2.9% 0.9 13.7% 309.4% NTPC NTPC.BO O INR 131.2 160 16,296 11.3 12.4 11.9 4.4% 1.3 10.6% 133.4% KEPCO 015760.KS O KRW 49,100 64,000 27,572 6.5 2.6 6.3 2.0% 0.4 7.1% 73.2% EDC EDC.PS O PHP 6.28 9.8 2,506 13.3 12.6 10.1 3.5% 2.1 20.7% 75.0%


Figure 9: Best relative Underperformers—by sector (picked by our sector heads) Mkt Yield P/B ROE Net debt/



Autos and Components

Weichai Power (H) 2338.HK U HKD 8.3 6 5,929 5.5 16.3 11.2 4.5% 0.8 7.1% Net cash

Banks

SBI SBI.BO N INR 241.5 247 28,251 15.6 13.8 11.3 1.9% 1.3 10.9% Net cash Maybank MBBM.KL U MYR 8.4 6.8 19,491 11.7 12.7 13.1 5.8% 1.4 10.4% Net cash

Basic Materials

Yanzhou 1171.HK U HK$ 3.63 3.00 2,289 19.2 n.a. n.a. n.a. 0.4 -5.6 135.6 Tata TISC.BO U RS 224.35 180.00 3,320 6.1 n.a. 8.8 3.6 0.7 7.8 238.1

Chemicals and Oil Refining/Marketing

FCFC 1326.TW N NT$ 73.8 76.0 13,322 17.2 16.5 2.9 2.0 12.8 9.2 FPCC 6505.TW N NT$ 77.7 84.0 22,795 17.3 20.9 4.0 2.6 12.7 30.0

Consumer

Sa Sa 0178.HK U HKD 2.81 1.75 1,031 8.6 9.5 18.2 6.4% 3.5 19.8% Net cash Siam Global GLOBAL.BK U THB 10.8 8.8 1,055 53.6 39.6 31.8 0.2% 3.2 10.0% 22.4%

Environment

BJC 600008.SS U Rmb 11.1 8.7 4,203 40.2 38.7 34.1 1.7 3.0 8.9 127.0

Industrials

SEG 2727.HK U HKD 4.81 2.20 19.2 21.0 28.9 25.5 1.2 1.2 4.9 Net cash Evergreen 2603.TW U TWD 13.05 13.00 1.4 -30.9 -21.6 22.9 1.3 0.8 3.6 58.0 BHEL BHEL.BO U INR 173.35 155.00 6.4 29.9 21.2 16.4 1.3 1.1 7.1 Net cash

Insurance

Bangkok Life BLA.BK U THB 54.25 39.25 2,591 34.5 25.3 19.6 1.1% 2.9 15.1% n.a. MEDIBANK PRIVATE ORD MPL.AX U AUD 2.26 2.2 4,512 24.1 21.3 20.6 3.6% 4.2 20.3% Net cash

Oil & Gas

Anton Oil 3337.HK U HKD 0.98 0.80 280 -9.0 -11.2 -12.4 - 1.02 -8.2% 100% Sinopec SSC - H 1033.HK U HKD 2.30 1.90 18,531 11.9 -11.6 -51.0 - 1.22 -2.4% 45%

Technology

LG Electronics Inc 066570.KS N KRW 56,100 46,200 8,031 13.5 23.0 18.4 0.8 0.7 3.6 51.0 MediaTek Inc. 2454.TW N TWD 262.50 250.00 14,480 8.8 14.8 16.7 4.9 1.6 9.7 (63.3) Pegatron 4938.TW N TWD 84.60 93.00 6,776 13.6 9.0 9.0 6.8 1.4 15.6 (36.7) Quanta Computer 2382.TW U TWD 52.00 46.00 6,180 10.6 11.6 11.2 6.7 1.7 14.8 (10.4)

Telecoms

True Corp TRUE.BK U THB 8.5 3.3 5,864 106.7 53.2 524.4 0.0% 2.8 0.5% 96.2% Idea Cellular IDEA.BO U INR 139.9 115 7,587 23.6 15.7 17.2 0.7% 2.0 11.4% 160.1%

Transportation

EMC 2603.TW U TWD 12.6 13.0 1,363 -29.8 -20.9 22.1 1.3% 0.8 3.5% 58.0% Westports WPHB.KL U MYR 4.25 3.75 3,441 28.3 29.4 23.5 3.2% 7.1 30.3% 38.7%

Utilities and renewable energy

CLP 0002.HK U HKD 66 62 21,515 14.9 15.6 15.3 4.2% 1.7 11.4% 63.0% EA EAm.BK U THB 24.4 20 2,551 56.6 33.5 19.1 0.2% 6.9 36.4% 99.2%

Source: Company data, Thomson Reuters, Credit Suisse estimates

01 December 2015


2016 Outlook: A year of positive returns?

Three reasons why 2016 could be a year of positive returns. With MSCI Asia ex-Japan

up just 1% in 2014 and down 10% in 2015, we highlight three reasons why 2016 could be

a year of positive returns.

One, Figure 1 highlights that while MSCI Asia ex-Japan has historically corrected in the

run-up to the first Fed tightening in 1994 and 2004 and during the 2013 Fed taper, MXASJ

has historically rallied in the six months after.

Two, Figure 2 highlights that MXASJ P/B has dropped to 1.37x. This is the lowest P/B start

since 2008-09.

Three, MXASJ ROE appears to be bottoming at 11%.

Key risks to our call. With the Fed tightening against a weaker macro backdrop globally

and particularly so in China and 2004 (the episode with the 37% return for MXASJ)

associated with NJA ROE rising from 10% to 15%, the key question is whether these

differences are big enough to negate history. The other risk is whether global policy

divergences (Fed tightening versus ECB and BOJ easing) mean the DXY does not fall as

it did in prior episodes. We believe a modest 10% return though is still likely.

Overweight Cheapest 4. While past performance is not necessarily a good guide to the

future, the Cheapest 4 outperformed the Expensive 4 by 7% YTD in 2015. We continue to

Overweight the Cheapest 4 which are Korea, MSCI China, Taiwan and Singapore. We

also continue to Underweight the Expensive 4, which are the Philippines, India, Indonesia

and Malaysia.

History suggests MXASJ rallies after the first Fed

tightening

While history is not always a good guide to the future, the performance of MXASJ in the

current episode in the lead-up to the first Fed tightening (which we expect in December

2015) appears to suggest history is repeating itself. Figure 1 highlights that MXASJ has

corrected by 20% in the current episode. The 20% correction from the highs is fairly similar

to the corrections ranging from 14% at the Fed taper episode to 21% in the 2004 Fed

tightening and to 25% in the 1994 Fed tightening.

Figure 10: MSCI World performance around Fed tightening

85

90

95

100

105

110

115

120

125

130

135

-9m -6m -3m 0m +3m +6m +9m +12m


MXWD

-8.2%

-8.7%

-8.8%-8%

+17%

+9%

+18%


Three reasons why 2016

could be a year of positive

returns for MSCI Asia ex-

Japan

History suggests MXASJ

rallies after the first Fed

tightening

For MSCI World, corrections

are smaller (than MXASJ) in

the run-up to Fed tightening,

and rallies after the first Fed

tightening are also smaller

01 December 2015


Figure 1 also highlights that MXASJ bottomed one month prior to the start of Fed

tightening in the 2004 episode versus one month after the start in the 1994 and 2013

episodes. The rally in MXASJ from those lows to the six months after the first Fed

tightening ranged from 15% in the 2013 episode to 22% in the 1994 episode to 37% in the

2004 episode.

For MSCI World, Figure 6 highlights that the corrections are much smaller than for MXASJ

at around 8% to 9%. Similarly, the rally from the lows to the highs about six months later

also seems to be smaller at between 9% and 18%.

We believe history is supported by valuations, with MXASJ P/B dropping to 1.37x in the

current episode. Figure 7 highlights that the current 1.37x P/B is lower than the lows of

1.47x in the 2013 episode, 1.62x in the 2004 episode and 2.13x in the 1994 episode.

Figure 11: MSCI Asia ex-Japan price-to-book around Fed tightening

1.0

1.5

2.0

2.5

3.0

-9m -6m -3m 0m +3m +6m +9m +12m


MXASJ - Trailing PB

1.37x nowLow 1.47x

Low 1.62x

Low 2.13x


For MSCI World, Figure 8 highlights that the current P/B of 2.07x is right in the middle of

the range of previous Fed tightening episodes.

Figure 12: MSCI World price-to-book around Fed tightening

1.6

1.8

2.0

2.2

2.4

2.6

-9m -6m -3m 0m +3m +6m +9m +12m


MXWD - Trailing PB

2.07x now

Low 2.32x

Low 2.03x

Low 1.85x


We believe history is

supported by valuations with

MXASJ P/B of 1.37x below

the lows seen at the start of

previous rallies

For MSCI World, the current

P/B of 2.07x is right in the

middle of the range seen

during previous Fed

tightening episodes

01 December 2015


The current 2.07x P/ B is similar to the lows of 2.03x seen in the 1994 episode, but higher

than the 1.85x seen during the Fed taper episode of 2013.

Apart from valuations, another potentially supportive factor for a rally is the fact that the

pace of Fed tightening in 2016 is likely to be somewhat slower and smaller than that seen

in either 1994 and 2004.

Figure 9 highlights the US Fed funds rate doubling from 3% to 6% from February 1994 to

February 1995. In the 2004 episode, the Fed funds rate rose from 1% to 3.25% in a year

and to a high of 5.25% in late 2006.

By contrast, CS Economics only expects the Fed funds rate to rise from the current 0% to

1% by end-2016.

Figure 13: US Fed Funds Rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Dec-90 Dec-93 Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11 Dec-14

US: Federal Funds: Effective: Target Rate

Feb 94

Jun 04

Source: Datastream, Bloomberg, US Federal Reserve

Apart from more modest Fed tightening, we highlight that real short rates in Non-Japan

Asia are significantly higher currently than they were in 1994, 2004 or 2013.

Figure 14: NJA real short rates (%)

-4

-2

0

2

4

6

Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

%

NJA - real int rate

latest 3.1%

Previous high 4.1%

1.3%

0.5%

Source: CEIC, Datastream

Apart from valuations,

another supportive factor is

more modest Fed tightening

expected in 2016 versus

1994 and 2004

NJA real short rates of 3.1%

currently are the highest

since 2008-09

01 December 2015


So we do not expect Asian economies to follow the Fed in tightening. We think the bias

still remains for countries to ease, particularly if forex pressures eases.

Figure 10 highlights that real short rates in NJA (weighted by GDP) are currently 3.1%.

These are the highest real short rates since 2008-09. The current 3.1% compares

favourably with 1.3% in 2013 and just 0.5% in 2004. We use real short rates as a rough

proxy for the stance of monetary policy with higher real short rates suggesting more room

for central banks to cut rates. While India continues to have the highest real short rates if

rates are deflated by the WPI (Wholesale Price Index), China's RRR of 17% still provides

the PBOC with plenty of room to ease policy.

Figure 15: US Fed Funds Rate versus US real GDP growth (YoY %)

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Dec-93 Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11 Dec-14

Rea

l GD

P Y

oY%

Fed

fund

s ta

rget

rat

e (%

)

US: Federal Funds: Effective: Target Rate US Real GDP YoY%

4% in 1994

3.8% in 2004

2.2% in 2013

2.6% in 20152.8% in 2016

Source: Consensus Economics, CEIC, Datastream, Bloomberg, US Federal Reserve

While lower price-to-book coupled with significantly higher real short rates in NJA support

our case for a rally in MXASJ once the Fed tightens, there are some differences that may

be considered more negative for Asian returns.

Figure 16: US Fed funds rate versus China real GDP growth (YoY %)

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0


Rea

l GD

P Y

oY%

Fed

fund

s ta

rget

rat

e (%

)

US: Federal Funds: Effective: Target Rate China Real GDP YoY%

6.8% in 20156.5% in 2016

7.7% in 2013

10.1% in 2004

13.1% in 1994

Source: Consensus Economics, CEIC, Datastream, Bloomberg, US Federal Reserve

In the past Fed tightening

cycles, US real GDP growth

was stronger than is

expected in 2016E

China's real GDP growth in

2016E much weaker than

1994 and 2004

01 December 2015


In past cycles when the Fed was tightening, US and global growth was significantly

stronger and this provided a lot of impetus to Asian exports, growth and ROE more

generally. Figure 11 highlights that US real GDP grew by 4% in 1994 and 3.8% in 2004

when the Fed was tightening back then. This compares with a less robust 2.8% growth

expected in 2016E.

More so than US real GDP growth, Figure 12 highlights the much weaker macro backdrop

from China. Consensus Economics expects China's real GDP growth to be only 6.5% in

2016E versus 7.7% in 2013, 10.1% in 2004 and 13.1% in 1994. As a result of this global

growth divergence, CS Economics expects the ECB and the BOJ as being likely to ease

further rather than following the Fed in tightening as in previous cycles. Please see 2016

Global Outlook report of 12 November for more details. The question then is whether we

are likely to see falls in the DXY (trade-weighted US dollar) as occurred in 1994, 2004 and

2013 after the first Fed tightening, given this policy divergence.

Figure 17: DXY (trade-weighted US dollar) around Fed tightening

85

90

95

100

105

110

-9m -6m -3m 0m +3m +6m +9m +12m


DXY Index

11% fall in 1994

6% fall in 2013

12% fall in 2004

Source: Bloomberg, Datastream

Figure 13 highlights the 6% to 12% falls in the DXY following the first Fed tightening in 1994,

2004 and 2013, which were about 30% to 40% of the return from MXASJ during the rallies.

Figure 18: NJA ROE around Fed tightening

8

9

10

11

12

13

14

15

16

-9m -6m -3m 0m +3m +6m +9m +12m


Asia ex-JP - ROE (%)

11%

Source: Company data, Credit Suisse estimates. We are assuming Dec 2015 is the first Fed rate hike.

Historically, the DXY has

fallen after the Fed first

tightens; the question is

whether this time is different

NJA ROE in 2004 very

different to current episode

rising from a low of 10% to a

high of nearly 15%

But current ROE is similar to

2013 and above 1994

01 December 2015


We do emphasise though that NJA is more of a commodity importer (with only Malaysia and

Indonesia being exceptions) and that weaker commodity prices, which may follow DXY

strength (if this time is different) actually benefit NJA, compared with Latin America or EMEA.

The next question for investors is whether given the weaker Asia, and particularly China

backdrop, Asian ROEs are lower today than they were in 1994, 2004 and 2013. Figure 14

highlights that only in 2004 was there a significant difference in ROE with NJA ROE rising

from a low of 10% to a high of nearly 15%. In 2013, NJA ROE was around 12.2% when

the Fed started its taper and ROE slowed marginally to 11.8% in the 12 months after. In

the 1994 episode, NJA ROE was lower at around 9% when the Fed started to tighten.

At the country level, it appears that markets that corrected less in the run-up to Fed

tightening like Japan and Taiwan have historically had smaller rallies thereafter and vice

versa. But Figure 18 highlights some differences in the current episode versus prior

episodes such as Taiwan's ROE being significantly higher currently than it was in the prior

three Fed tightening episodes.

Figure 19: MSCI Japan around Fed tightening Figure 20: MSCI Japan P/B around Fed tightening

80

90

100

110

120

130

140

-9m -6m -3m 0m +3m +6m +9m +12m


MSCI Japan

-24.5%

-5.7%

-18.6% -12%

+36.6%

+24%

+15%

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

-9m -6m -3m 0m +3m +6m +9m +12m


MSCI Japan - Trailing PB

1.38x now

1.88x

1.65x

1.23x

Source: MSCI. We are assuming Dec 2015 is the first Fed rate hike. Source: MSCI. We are assuming Dec 2015 is the first Fed rate hike.

Figure 21: MSCI Taiwan around Fed tightening Figure 22: Taiwan ROE around Fed tightening

70

90

110

130

150

170

190

-9m -6m -3m 0m +3m +6m +9m +12m


MSCI Taiwan

-20%

-11%

-27%-21.5%

+40%

+19%

+11%

4

6

8

10

12

14

16

18

-9m -6m -3m 0m +3m +6m +9m +12m


Taiwan - ROE (%)

14.4% now

Source: MSCI. We are assuming Dec 2015 is the first Fed rate hike. Source: Company data, Credit Suisse estimates. We are assuming

Dec 2015 is the first Fed rate hike.

Conversely, markets that corrected significantly in the run-up to Fed tightening—like India

and Indonesia—appeared to be associated with stronger rallies post the first Fed

tightening. But Figures 20 and 22 highlight significant differences though between the

current episode and the three others particularly in terms of ROE. For Indonesia ROE, the

current ROE is the second lowest ROE of the four and the episode, which had lower ROE

was associated with a sharp rise in ROE. Similarly, with India, ROE currently is close to

the lowest of the four episodes.

Countries that corrected

less in the run-up to Fed

tightening appeared to have

smaller rallies post the first

Fed tightening

01 December 2015


Figure 23: MSCI Indonesia around Fed tightening Figure 24: Indonesia ROE around Fed tightening

60

80

100

120

140

160

180

200

-9m -6m -3m 0m +3m +6m +9m +12m


MSCI Indonesia

-29.5%

-24%

-35%-23%

+20.7%

+27%

+61%

8

10

12

14

16

18

20

22

24

26

28

-9m -6m -3m 0m +3m +6m +9m +12m


Indonesia - ROE (%)

18.2% now

Source: MSCI. We are assuming Dec 2015 is the first Fed rate hike. Source: Company data, Credit Suisse estimates.

Figure 25: MSCI India around Fed tightening Figure 26: India ROE around Fed tightening

70

90

110

130

150

170

190

210

230

-9m -6m -3m 0m +3m +6m +9m +12m


MSCI India

-15.6%

-27%

-29%-18%

+23.3%

+57%

+52%

8

10

12

14

16

18

20

22

24

-9m -6m -3m 0m +3m +6m +9m +12m


India - ROE (%)

14.1% now

Source: MSCI. We are assuming Dec 2015 is the first Fed rate hike. Source: Company data, Credit Suisse estimates.

MXASJ P/B of 1.37x, lowest start since 2008-09

Figure 23 highlights that MXASJ price-to-book has dropped to 1.37x. This is the lowest

start since 2008-09.

Figure 27: MSCI Asia ex-Japan price-to-book

0.5

1.0

1.5

2.0

2.5

3.0


Asia ex-JP - Trailing PB

1.37x now

1.23x in Feb 091.19x in Sep 01

0.94x in Aug 98

1.47x in Jan 141.22x in

Mar 031.28x on

24 Aug

Source: MSCI

If we look at the price-to-book on 31 December in prior years, the current 1.37x compares

favourably with 1.50x in 2014, 1.54x in 2013, 1.63x in 2012, 1.55x in 2011, 2.11x in 2010,

2.1x in 2009 and 1.31x in 2008.

MXASJ P/B of 1.37x is just

10% above GFC lows of

1.23x

01 December 2015


The current P/B of 1.37x is about 10% higher than the 1.23x seen at the lows in 2008-09.

Except for 1997-98, P/B at the last three lows was around 1.2x book with 1.19x in the

2001 global recession, 1.22x in the 2003 SARS episode and 1.23x in the 2008-09 GFC.

As we have highlighted previously, we do believe the current episode is very different to

1997-98 with much lower corporate net debt to equity, with forex reserves exceeding

short-term external debt, overall NJA running a current account surplus, lower capex-to-

sales and ROE currently of 11% versus just 1.7% at the 1997-98 lows.

NJA's ROE appears to be bottoming at 11%

As we have highlighted previously, a key driver of NJA's underperformance over the past

five years has been its slowing ROE. Figure 24 highlights that NJA ROE has slowed from

a high of 14% in late 2010 to 11% currently.

Figure 28: Asia ex-Japan ROE

10%

11%

12%

13%

14%


Asia ex Japan ROE

High 14% Nov 2010

11.0%11.3% Dec 2014


This slowing in NJA ROE has occurred during a period when Japan's ROE has risen from

a low of 3.4% in March 2012 to 8.4% currently.

Figure 29: Japan ROE

-4%

-2%

0%

2%

4%

6%

8%

10%


MSCI Japan ROE

8.4%

3.4%

Source: MSCI

NJA ROE has slowed over

the past five years from 14%

in late 2010 to 11%

currently; this, in our view,

has been a key driver of

NJA's underperformance

Particularly as NJA ROE

slowed while Japan's ROE

rose

01 December 2015


While Japan's ROE rose, US ROE remained steady at a very high 14%. While this

explains nearly five years of underperformance, the question now for investors is whether

NJA's ROE is finally bottoming.

Figure 30: US ROE

7%

8%

9%

10%

11%

12%

13%

14%

15%

16%


MSCI USA ROE

13.8%

Source: MSCI

If we look at the ROE data, ROE has been between 11% and 11.3% for NJA over much of

the past year. We believe our view that ROE is bottoming is also supported by the fact that

Korea's ROE has risen from a low of 7.9% in December 2014 to 9.5% currently. While

Korea's ROE has been rising over much of the past year, the key question is how

sustainable is the pick-up.

Figure 31: Korea ROE

4%

6%

8%

10%

12%

14%

16%

18%


Korea - ROE

9.5% now

low 7.9%in Dec 14

low 7.6% in 2009


We believe this is sustainable as six of the nine sectors in Korea are associated with rising

ROE. These six sectors are Utilities, Consumer Staples, Materials, Financials, Energy and

Telcos.

NJA's ROE slowed while US

ROE remained stable at a

high 14% plus

Key question now is

whether NJA's ROE is

bottoming supported by the

rise in Korea's ROE

Figure 27 shows Korea's

ROE rising from a low of

7.9% in Dec 2014 to 9.5%

currently

Six of nine sectors

associated with rising ROE

in Korea

01 December 2015


Figure 32: Korea utilities ROE Figure 33: Korea staples ROE

-10%

-5%

0%

5%

10%

15%

20%

Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

Korean Utilities - ROE

14.4% now

6%

8%

10%

12%

14%

16%

18%

20%


Korean Consumer, Non-cyclical - ROE

12.6% now

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 34: Korea materials ROE Figure 35: Korea energy ROE

0%

5%

10%

15%

20%

25%


Korean Materials - ROE

5.5% now

-10%

-5%

0%

5%

10%

15%

20%

25%

30%


Korean Energy - ROE

8.4% now


Figure 36: Korea financials ROE Figure 37: Korea telcos ROE

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%


Korean Financial - ROE

7.0% now

0%

5%

10%

15%

20%

25%


Korean Telcos - ROE

9.2% now


While the ROE uptrend in Telcos is likely to be challenged by the entry of a third player,

we do highlight that Tech and Autos are now starting to see close to flat

revisions/upgrades to 2015E consensus EPS.

The one sector where ROE continues to slow and where EPS revisions remain negative

though is Industrials (see Figures 32-37).

And while Korea continues to see downgrades to 2015E consensus EPS including another

1.4% cut in November, we note that EPS growth is still 14.5% for 2015. This is still the

highest EPS growth in the region, with India's 9.8% paling in comparison. Admittedly,

2016E EPS growth is a more modest 8%.

While Korea has historically not been shareholder friendly, the other key issue is whether

the recent increase in dividend payout, share buybacks including in Samsung's case the

cancellation of the Treasury shares, start a broader trend and sustain the pick-up in ROE.

Tech and Autos starting to

see upgrades to 2015E

consensus EPS

01 December 2015


Figure 38: Korea tech ROE Figure 39: Korea consumer cyclicals ROE

-5%

0%

5%

10%

15%

20%

25%

30%

35%


Korean Tech - ROE

12.4% now

0%

2%

4%

6%

8%

10%

12%

14%

16%


Korean Consumer, Cyclical - ROE

10.3% now


Figure 40: Korea tech 2015E consensus EPS Figure 41: Kia Motors 2015E consensus EPS

60

65

70

75

80

85

90

95

100

105

Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15

Korea Information Technology - EPS 15E

-0.6% in Nov-15

7000

7500

8000

8500

9000

9500

10000

10500

11000

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

Kia Motors - EPS 2015E

Source: IBES Source: IBES

Apart from the breadth of the ROE recovery, we believe Korea's nominal GDP growth of

4% to 4.5% in 2015-16 (up from a low of 3% in 2012) also supports our view that Korea's

ROE rise is sustainable.

Figure 42: Korea ROE versus Korea Nominal GDP Growth (YoY %)

2%

4%

6%

8%

10%

12%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2000 2002 2004 2006 2008 2010 2012 2014 2016E

Nom

inal

GD

P Y

oY%

RO

E (

non-

finan

cial

s)

Korea - ROE Korea - nominal GDP (YoY%)

4-4.5%

Source: Datastream, Consensus Economics, company data, Credit Suisse estimates

Apart from Korea's nominal GDP growth, we believe Consensus Economics forecast that

US nominal GDP growth will rise from 3.6% in 2015E to 4.5% in 2016E supports our view

on the sustainability of Korea's ROE pick-up.

Korea's nominal GDP

growth of 4-4.5% in 2015-16

is up from lows of 3% in

2012

01 December 2015


Figure 43: Korea ROE versus US nominal GDP growth (YoY %)

-3%

-1%

1%

3%

5%

7%

9%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2000 2002 2004 2006 2008 2010 2012 2014 2016E

Nom

inal

GD

P Y

oY%

RO

E (

non-

finan

cial

s)

Korea - ROE US nominal GDP (YoY%)

2015E: 3.6%2016E: 4.5%

Source: Datastream, CS Economics, company data, Credit Suisse estimates

While Korea's ROE bottomed in December 2014, Figure 44 highlights that Taiwan's ROE

was the first to bottom at 9% in December 2012. It has since risen from 9% to 12.4%

currently. But the key concern over Taiwan's ROE is whether it is close to peaking, given

high smartphone penetration and downgrades to 2015E consensus EPS, particularly for

Tech over the last six months.

Figure 44: Taiwan ROE

7%

8%

9%

10%

11%

12%

13%

14%

15%


Taiwan - ROE

High 14% Dec 2010

Low 9% Dec 2012

12.4% now


As with Korea, we believe drivers of Taiwan's ROE are Taiwan's nominal GDP growth and

US nominal GDP growth, and Consensus Economics is forecasting a pick-up in growth

rates for both of these in 2016E.

For Taiwan's nominal GDP growth, Consensus Economics is forecasting a pick-up from

3.4% in 2015E to 3.8% in 2016E. Figure 45 also highlights that the low in Taiwan's

nominal GDP growth was 1.4% in 2011.

Figure 46 highlights the fairly good fit between Taiwan's ROE and US nominal GDP

growth. As highlighted above, Consensus Economics is forecasting a pick-up from 3.6% in

2015E to 4.5% in 2016E.

Korea's ROE rise also

supported by Consensus

Economics suggesting US

nominal GDP growth rises

from 3.6% in 2015E to 4.5%

in 2016E

Apart from Korea, Taiwan's

ROE has also been rising;

but investors are

questioning whether it is

close to peaking

01 December 2015


Figure 45: Taiwan ROE versus Taiwan nominal GDP

growth (% YoY)

Figure 46: Taiwan ROE versus US nominal GDP growth

(% YoY)

-4%

-2%

0%

2%

4%

6%

8%

10%

5%

7%

9%

11%

13%

15%

17%

19%

2000 2002 2004 2006 2008 2010 2012 2014 2016E

Nom

inal

GD

P Y

oY%

RO

E (

non-

finan

cial

s)

Taiwan - ROE Taiwan - nominal GDP (YoY%)

1.4% in 2011

3.4% in 2015E3.8% in 2016E

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

5%

7%

9%

11%

13%

15%

17%

19%

2000 2002 2004 2006 2008 2010 2012 2014 2016E

Nom

inal

GD

P Y

oY%

RO

E (

non-

finan

cial

s)

Taiwan - ROE US nominal GDP (YoY%)

3.6% 2015E4.5% 2016E

Source: Datastream, Consensus Economics, Company data, Credit

Suisse estimates

Source: Datastream, Consensus Economics, Company data, Credit

Suisse estimates

Figure 47: Taiwan tech ROE Figure 48: Taiwan non-tech ROE

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%


Taiwan Tech - ROE

14.3% now

High 14.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%


Taiwan non-Tech - ROE

10.8% now


Figure 47 also highlights that Taiwan Tech's ROE appears to have peaked at 14.8% and

has slowed to 14.3% currently. Despite the slowdown in Taiwan Tech ROE, Taiwan's

overall ROE has continued to rise (albeit slowly) as Non-Tech ROE has continued to rise.

Within Non-Tech, five of the seven sectors are associated with rising ROE. The five are

Industrials, Financials, Energy, Materials and Real Estate. The two associated with

slowing ROE are Consumer Staples and Telcos.

Figure 49: Taiwan financials ROE Figure 50: Taiwan industrials ROE

0%

2%

4%

6%

8%

10%

12%


Taiwan Financial - ROE

11.2% now

-5%

0%

5%

10%

15%

20%

25%


Taiwan Industrial - ROE

10.6% now


We believe NJA's ROE is bottoming as ROE in two of the four big markets—namely

Taiwan and Korea—is now rising. But the key question is whether the ROE rise extends

beyond Korea and Taiwan to India and possibly even MSCI China.

5 of 7 non-Tech sectors in

Taiwan are associated with

rising ROE

01 December 2015


India's ROE has been stable at around 13.8% over the past few months. And with India

largely a domestically driven story, Figure 51 highlights the good fit between India's ROE

and its nominal GDP growth. While we are not sure whether India's nominal GDP growth

will rebound as strongly as suggested by Consensus Economics (from 11% in 2015E to

16% in 2016E), we believe a rise in India's nominal GDP growth looks likely given falling

commodity prices and rate cuts. If India's ROE does rise in 2016E, then potentially NJA's

ROE could rise for the first time since 2010.

Figure 51: India ROE versus India's nominal GDP growth (YoY %)

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

12%

14%

16%

18%

20%

22%

24%

26%

2000 2002 2004 2006 2008 2010 2012 2014 2016E

Nom

inal

GD

P Y

oY%

RO

E (

non-

finan

cial

s)

India - ROE India - nominal GDP (YoY%)

11.7%11%

16%

Source: Datastream, Consensus Economics, Company data, Credit Suisse estimates

While we do expect India's ROE to rise—from the current 13.8% towards 16%—we

estimate implied ROE though is closer to 19%. The market already appears to be pricing

in a significant ROE recovery.

With Hong Kong-listed China shares, there are few signs, if any, of ROE bottoming. Figure 53

highlights ROE has been sliding from a high of 17.6% in 2010 to just 12.8% currently.

Figure 52: India ROE Figure 53: China (HK-listed) ROE

10%

12%

14%

16%

18%

20%

22%

24%

26%

Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14

India - ROE

13.8% now

19.8% in Mar 06

16% in 2009

12%

13%

14%

15%

16%

17%

18%

19%


China (HK listed) - ROE

High 17.6% in 2010

12.8% now

16% in 2009


Figure 54 highlights the key reason for the slide in China's ROE is China's nominal GDP

growth in 2015E of just 7.1%. This is the lowest growth rate in China's nominal GDP since

our chart starts in 2000. It is significant that the 2015E growth rate is even lower than

2009's 8.6%. But there do appear to be some signs of stabilisation in nominal GDP

growth—PMI, services sector, property—and Consensus Economics is suggesting a

modest pick to 7.9% in 2016E.

India's ROE tracks India's

nominal GDP growth fairly

well

No signs yet of a bottoming

in China's ROE

01 December 2015


Figure 54: China (HK-listed) ROE versus China nominal GDP growth (YoY %)

0%

5%

10%

15%

20%

25%

5%

7%

9%

11%

13%

15%

17%

19%

21%

2000 2002 2004 2006 2008 2010 2012 2014 2016E

Nom

inal

GD

P Y

oY%

RO

E (

non-

finan

cial

s)

China (HK Listed) - ROE China - nominal GDP (YoY%)

7.9%

7.1%8.6% in 2009

Source: Datastream, Consensus Economics, company data, Credit Suisse estimates

Another factor, which supports our view that NJA ROE could be bottoming, is the fact that

EBIT margins rose in 2015E. Figure 55 highlights the rise in EBIT margins from 8.4% in

2014 (the lowest since our data starts in 2000) to 8.7% in 2015E.

Figure 55: Asia ex-Japan EBIT margins

7%

8%

9%

10%

11%

12%

13%

14%

15%

16%

2000 2002 2004 2006 2008 2010 2012 2014 2016E

Asia ex-JP - EBIT margin

High of 15.2% in 2004

11.1% in 2010

8.4% in 2014

8.7% in 2015E 9.2% in 2016E


Maybe it is wishful thinking on our part but we believe sales growth could potentially

rebound after this year's -5.6%. Figure 56 highlights that 2015E's -5.6% is the second

lowest growth rate in sales since our data starts in 1997. Only in 1998 did sales growth

fare worse at -13.7%.

At least historically, every year that sales growth has been negative has been followed by

a V-shaped rebound. So 1998's sales growth of -13.7% was followed in 1999 by a

rebound of 22.3%. 2001's sales growth of -4.4% was followed in 2002 by 14.2%. And

while 2009 sales growth was positive at 2.9%, it was followed in 2010 by 28.3%.

China's ROE tracks China's

nominal GDP growth with

2015E's growth rate of

7.1%, the weakest since our

chart starts in 2000

EBIT margins rose in 2015

01 December 2015


Figure 56: Asia ex-Japan sales growth (YoY %)

-20%

-10%

0%

10%

20%

30%

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015E

Asia ex-JP - Sales growth

-4.4% in 2001

-13.7% in 1998

2.3% in 2009

28.3% in 2010

-5.6% in 2015E

5.7% in 2016E


A key driver of this weak top line in NJA was not surprisingly China. Figure 57 highlights

that China's sales growth in 2015E of -10% is the worst since 1997.

But as with NJA, years of contraction in sales growth such as 1998 and 2009 were

followed by V-shaped recoveries in the following year.

Figure 57: China (Hong Kong-listed) sales growth (YoY %)

-20%

-10%

0%

10%

20%

30%

40%

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015E

China (HK Listed) - Sales growth

-3.9% -4%

-10%


The next question for investors is whether Japan's ROE is peaking. Certainly if you look at

Japanese ROE over the past year, it has been stuck at between 8% and 8.5%. As

highlighted previously, we still believe Korea looks more attractive than Japan with a P/B

of 0.96x, some 30% below Japan's P/B of 1.36x, yet Korea's ROE of 9.4% is not just

higher than Japan's ROE of 8.4%, but Korea's ROE is rising.

2015E sales growth of

-5.6% is the second worst

year for sales growth since

1997

China's top line growth

worst since our data starts

in 1997

We continue to Prefer Korea

over Japan

01 December 2015


Figure 58: Japan versus Korea P/B Figure 59: Japan versus Korea ROE

0.96

1.36

0.0

0.5

1.0

1.5

2.0

2.5

3.0


Korea - PB Japan - PB

9.4%

8.4%

-5%

0%

5%

10%

15%

20%


Korea - ROE Japan - ROE

Source: MSCI, company data, Credit Suisse estimates Source: MSCI, company data, Credit Suisse estimates

While Japan has progressed further in terms of share buybacks and increasing dividend

payouts, we highlight that Korea's dividend yield of 1.41% is not that far below Japan's

dividend yield of 1.87%.

The other key issue is how much of the improvement in Japan's EBIT margin came from

the sharp fall in the Yen as the Yen has now stopped falling. Figure 60 suggests that forex

has definitely played a role in the doubling of Japan's EBIT margins from a low of 4% in

2009 to 8% in 2016E.

The key risk with Overweighting Korea and being Neutral Japan in an Asia-Pacific context

is a further sharp fall in the Yen, particularly if the BOJ embarks on another round of QE.

Perhaps this risk is not that high with Japanese core CPI rising by over 1% recently, and

the BOJ's balance sheet as a share of its GDP is significantly higher than the Fed's (during

QE) and the ECB's.

Figure 60: Japan EBIT margin versus Won/Yen forex rate

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,6004%

5%

5%

6%

6%

7%

7%

8%

8%

9%

2003 2005 2007 2009 2011 2013 2015

KR

W v

s JP

Y (

x100

)

EB

IT m

argi

n

Japan - EBIT margin KRW vs JPY (x100)

Source: Bloomberg, Datastream, company data, Credit Suisse estimates

Cheapest 4 outperformed Expensive 4 by 7% in 2015

While past performance is not necessarily a good guide to future performance, Figure 61

highlights that the Cheapest 4 basket (equally weighted) has outperformed MSCI Asia ex-

Japan (MXASJ) 87% of the time after 12 months.

Forex appears to have

played a role in Japan's

EBIT margins doubling

01 December 2015


Figure 61: Cheapest 4- backtest results from 2000

Overweighting cheapest 4 countries 3 months 6 months 12 months

Number of episodes with outperformance 49 46 53

Number of episodes with underperformance 14 16 8

% of episodes with outperformance 78% 74% 87%

Average outperformance 2.2% 3.6% 6.1%

Source: MSCI, Company data, Credit Suisse estimates. We can provide detailed backtest results from

2000 on request.

We do emphasise that it is the basket of the Cheapest 4 that has historically outperformed

and not necessarily all four of the individual countries. We also highlight that undervalued

markets may stay undervalued for longer than we expect but eventually mean-revert and

our highest success rate is after 12 months.

2015 continues this trend of outperformance with Figure 62 highlighting that the Cheapest

4 basket (equally weighted) has so far in 2015 outperformed MXASJ by 4.3%. Three of the

four countries in the Cheapest 4 have outperformed with MSCI Hong Kong outperforming

by 10% while MSCI China and Korea have outperformed by 5% to 8%. Only Australia

within the Cheapest 4 basket has underperformed.

Figure 62: Cheapest 4—backtest results for calendar 2015

Absolute performance Relative performance

Dec-14 3 mths 6 mths since Dec-14 3 mths 6 mths since Dec-14

China -32.9% 8.1% 12.6% -6.0% 4.0% 10.6% 5.0%

Korea -28.6% 4.0% 0.1% -3.4% 0.1% -1.7% 7.9%

Hong Kong 5.7% 5.3% 10.1% -1.4% 1.3% 8.0% 10.1%

Australia 6.0% 1.8% -5.4% -15.7% -2.1% -7.1% -5.9%

Average 4.8% 4.4% -6.6% 0.8% 2.4% 4.3%

Mar-15 3 mths 6 mths since Mar-15 3 mths 6 mths since Mar-15

China -32.0% 4.2% -20.0% -13.0% 6.3% -1.1% 0.9%

Korea -13.4% -3.7% -15.2% -7.1% -1.8% 4.8% 7.8%

Hong Kong 0.4% 4.5% -13.1% -6.4% 6.6% 7.4% 8.6%

Singapore 4.7% -1.5% -21.9% -17.8% 0.5% -3.5% -4.6%

Average 0.8% -17.5% -11.1% 2.9% 1.9% 3.2%

Jun-15 3 mths since Jun-15 3 mths since Jun-15

China -24.2% -23.2% -16.5% -7.0% -5.0%

Korea -19.2% -11.9% -3.5% 6.8% 9.8%

Singapore 3.4% -20.7% -16.5% -4.0% -5.1%

Taiwan 4.5% -18.8% -16.0% -1.6% -4.5%

Average -18.6% -13.1% -1.4% -1.2%

Sep-15 QTD QTD

China -29.5% 8.7% 2.1%

Korea -18.0% 9.5% 2.8%

Hong Kong 0.8% 7.7% 1.1%

Singapore 1.6% 5.2% -1.2%

Average 7.8% 1.2%

Source: MSCI, company data, Credit Suisse estimates

While past performance is

not necessarily a good

guide to the future,

Cheapest 4 has

outperformed MXASJ 87%

of the time after 12 months

Cheapest 4 has

outperformed MXASJ by

4.3% so far in 2015

01 December 2015


While the Cheapest 4 has outperformed MXASJ by 4.3% so far in 2015, Figure 63

highlights that the Expensive 4 has underperformed YTD by 2.7%. So the Cheapest 4 has

outperformed the Expensive 4 by 7%.

With the Expensive 4, the bulk of the underperformance YTD has come from one market

Indonesia, though Taiwan has also underperformed YTD.

But in the current quarter, we highlight the 6% to 9% underperformance of the Philippines

and India.

Figure 63: Expensive 4—Backtest results for 2015 YTD

Absolute performance Relative performance

Dec-14 3 mths 6 mths since Dec-14 3 mths 6 mths since Dec-14

Philippines 59.5% 9.2% 3.6% -7.7% 5.1% 1.6% 3.0%

India 48.0% 5.2% 0.9% -9.8% 1.2% -1.0% 0.7%

Indonesia 44.4% 2.0% -13.4% -21.4% -1.9% -15.0% -12.3%

Taiwan 27.3% 3.9% 4.2% -12.5% 0.0% 2.2% -2.3%

Average 5.1% -1.2% -12.9% 1.1% -3.0% -2.7%

Mar-15 3 mths 6 mths since Mar-15 3 mths 6 mths since Mar-15

Philippines 54.7% -5.2% -15.4% -15.5% -3.3% 4.6% -2.0%

Indonesia 45.0% -15.1% -35.8% -23.0% -13.4% -20.6% -10.6%

India 42.8% -4.1% -10.9% -14.2% -2.1% 10.0% -0.4%

Malaysia 21.6% -8.7% -25.8% -20.6% -6.8% -8.3% -7.8%

Average -8.3% -22.0% -18.3% -6.4% -3.6% -5.2%

Jun-15 3 mths since Jun-15 3 mths since Jun-15

Philippines 51.4% -10.7% -10.9% 8.1% 1.3%

India 45.0% -7.2% -10.6% 12.4% 1.7%

Indonesia 20.2% -24.3% -9.2% -8.4% 3.2%

Thailand 13.5% -18.4% -15.5% -1.2% -3.8%

Average -15.2% -11.5% 2.8% 0.6%

Sep-15 QTD QTD

Philippines 55.4% -0.2% -6.3%

India 49.8% -3.6% -9.5%

Malaysia 29.0% 7.1% 0.5%

Australia 16.9% 6.8% 0.3%

Average 2.5% -3.7%

Source: MSCI, company data, Credit Suisse estimates

So our country tilts continue to be largely driven by which markets are in the Cheapest 4

versus the Expensive 4. We continue to Overweight the Cheapest 4 which currently are

Korea, MSCI China, Taiwan and Singapore.

Expensive 4 has

underperformed MXASJ by

2.7% YTD

So Cheapest 4 has

outperformed Expensive 4

by 7% YTD

Cheapest 4 currently are

Korea, MSCI China, Taiwan

and Singapore

01 December 2015


Figure 64: Countries ranked on our P/B vs ROE valuation model

-20%

0%

20%

40%

60%K

orea

Chi

na

Sin

gapo

re

Tai

wan

Hon

g K

ong

Tha

iland

Aus

tral

ia

Japa

n

Mal

aysi

a

Indi

a

Indo

nesi

a

Phi

lippi

nes

PB less ROE rel to Asia Pac ex-JP


We also continue to Underweight the Expensive 4, which are the Philippines, India,

Indonesia and Malaysia.

Sector strategy: Will cyclicals follow history in

outperforming defensives post Fed tightening?

While our country strategy is largely following valuations, our sector strategy assumes to

some degree that history repeats itself.

While we do not have MSCI data on the performance of cyclicals versus defensives during

the 1994 and 2004 Fed tightening, Figure 65 highlights that during the Fed taper in 2013,

cyclicals outperformed defensives by 19% from one month after the Fed started to tighten.

Interestingly, the underperformance of cyclicals versus defensives was 12% in the run-up

to the Fed taper in 2013 and is also 12% in the current episode.

Figure 65: MSCI Asia ex-Japan Cyclicals versus Defensives relative price performance

85

90

95

100

105

110

-9m -6m -3m 0m +3m +6m +9m +12m

May-13 current

Asia ex-JP Cyclicals vs Defensives

-12%

+18.6%

-12%+8%

Source: MSCI. We are assuming Dec 2015 is the first rate hike.

After 12%

underperformance in the

run-up to Fed tightening, will

history repeat itself with

cyclicals outperformance

once the Fed moves?

01 December 2015


While data at the aggregate cyclicals to defensives level is only available for the 2013

episode, we do have data at the individual cyclicals level for the 2004 Fed tightening

episode. For cyclicals, we use the MSCI definition, which includes Tech, Consumer

Cyclicals, Energy, Materials and Industrials. For defensives, the MSCI definition includes

Consumer Staples, Utilities and Telcos.

Figures 66-69 highlight strong gains in both the 2004 Fed tightening and 2013 Fed taper

episode for cyclical sectors once the Fed starts to tighten. We do emphasise that we

believe 2013 maybe the more relevant comparison as 2004 was associated with strong

and rising Chinese real GDP growth, which we do not currently have.

Figure 66: MSCI Asia ex-Japan tech around Fed

tightening

Figure 67: MSCI Asia ex-Japan consumer cyclicals

around Fed tightening

70

80

90

100

110

120

130

140

150

-9m -6m -3m 0m +3m +6m +9m +12m

Jun-04 May-13 current

MXASJ Info Tech

-31%

-13%

-16.4%

+23%

+35%

70

80

90

100

110

120

130

140

150

-9m -6m -3m 0m +3m +6m +9m +12m


MXASJ Consumer Discretionary

-23%

-11%

-18.4% now

+46%

+26%


Figure 68: Materials around Fed tightening Figure 69: Energy around Fed tightening

70

80

90

100

110

120

130

140

150

160

170

-9m -6m -3m 0m +3m +6m +9m +12m


MXASJ Materials

-28.5%

-25%

-23.7% now

+71%

+22%

70

90

110

130

150

170

190

-9m -6m -3m 0m +3m +6m +9m +12m


MXASJ Energy

-28%

-26%

-29.6%

+59%

+17%


We believe history is supported by valuations with the P/B gap between cyclicals and

defensives still close to 2008 levels.

Figure 70 highlights that the P/B gap between cyclicals and defensives has narrowed from

a low of -0.82x in August 2015 to -0.66x currently. But the current gap of -0.66x is still 90%

of the gap of -0.74x seen at the 2008 lows.

While in 2008, ROE of the cyclicals was 8 pp below defensives, Figure 67 highlights that

the current ROE gap is zero.

We continue to Overweight Tech and Consumer Cyclicals (particularly Korean autos). We

have also reduced our Underweights in Materials and Energy.

Our least favoured defensive sector remains Consumer Staples, which are not only the

most overvalued sector on our P/B vs ROE valuation model but also associated with big

downgrades to 2015E consensus EPS.

We believe 2013 may be the

more relevant episode as

2004 was associated with

strongly rising Chinese real

GDP growth

Cyclicals to defensives P/ B

gap has narrowed from

-0.82x to -0.66x, but this is

still close to the gap seen at

2008 lows

01 December 2015


Figure 70: Cyclicals P/B less defensives P/B Figure 71: Cyclicals ROE less defensives ROE

-0.8

-0.6

-0.4

-0.2

0.0

0.2


Asia ex-JP Trailing PB - Cyclicals less Defensives

-0.74 Dec 2008

-0.66x now

-0.82x

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%


Asia ex-JP ROE - Cyclicals less Defensives

0.0% now

-8.4%


The key risks to our constructive stance on equities are China hard landing/systemic risk.

The other key risks are that history does not repeat itself and even after the Fed tightens,

markets continue to correct. Another risk is that ROE does not bottom as we expect.

While we are Overweight cyclicals, we continue to be cautious on "New" Economy defined

as Macau Gaming and Internet. While Macau Gaming's P/B has derated from a high of

9.3x in February 2014 to just 3.1x, we highlight that even in the month of November 2015E

consensus EPS was downgraded by a further 4.5%.

Figure 72: Macau Gaming P/B Figure 73: Macau Gaming 2015E consensus EPS

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0


Macau gaming - PB

now 3.1x

average: 5.5x

high 9.3x

20

30

40

50

60

70

80

90

100

110


Macau gaming - EPS15E

-67.5% since Apr 14

-4.5% in Nov

Source: Company data, Credit Suisse estimates Source: IBES

While the downgrades are smaller for Internet, Figure 75 highlights a further 1.3% cut to

2015E consensus EPS for China Internet in the month of November. We wonder therefore

how much of the recent rally in Internet stocks has to do with just flows from MSCI

inclusion rather than improving fundamentals.

Figure 74: NJA Internet 2015E consensus EPS Figure 75: China Internet 2015E consensus EPS

70

75

80

85

90

95

100


NJA Internet - EPS15E

-0.1% in Nov

-27%

86

90

94

98

102

106

Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

China Internet - EPS15E

-1.3% in Nov

-19%

Source: IBES Source: IBES

Macau Gaming P/B has de-

rated from a high of 9.3x in

February 2014 to just 3.1x

currently

01 December 2015


Figure 76 highlights that ChiNext P/B has now risen from a recent low of 7x back to 9.67x.

This is not that far from the high of 13.4x seen at the height of the bubble in May/June

2015.

Figure 76: Chinext current P/ B versus prior bubbles

0

2

4

6

8

10

12

14

0 6 12 18 24 30 36

Tra

iling

PB

Japan TSE since Jun 88 Nasdaq Comp since Aug 98 China A since Apr 06China H since Apr 2006 China A current China H currentShenzhen SME current Chinext current US listed CN Int current

month

NASDAQ 8x at 2000 highShenzhen SME 5.46xChina A 6.9x 2006-07 high

China H 5.2x at 2007 high

China H 1.01x

China A 2.33x

high 7.03x

high 2.98x

high 1.43x

Chinext 9.67x

high 13.4x

US listed CN Internet 5.30x

high 5.47x

Source: Bloomberg, Datastream, MSCI, company data, Credit Suisse estimates

ChiNext P/B has risen to

9.67x, not far from the

height of the bubble at 13.4x

01 D

ec

em

ber 2

015

Asia

Pacific

Eq

uity

Stra

teg

y

31

CS regional model portfolio

China Hong Kong Korea Taiwan India Aust / NZ Asean Japan Total Rel.

Consumer Great Wall Motor 2.0% Hyundai Motors 2.5%

Fuji Heavy Inds 4.0% 15.0% 1.6%

Discretionary Hyundai Mobis 0.5%

Toyota 4.0%

Aisin Seiki 2.0%

Consumer

LG Household 1.0%

Kose 2.0% 4.0% -2.7%

Staples

KT&G 1.0%

Energy SK Innovation 1.0% FPCC 1.0%

2.0% -0.8%

Financials Bank of China 2.0% BOC Hong Kong 1.9% Shinhan 0.3% Cathay 0.5%

CBA 3.5% DBS 2.5% Sumitomo Mitsui 8.0% 32.2% 8.4%

(ex-Real Est.) Ping An 2.0% Dongbu Insurance 0.5% CTBC 0.5%

ANZ 2.0% Bank BRI 1.0% Dai-ichi Life 7.0%

Fubon 0.5%

Healthcare

0.0% -5.4%

Industrials Goldwind 1.5% CKH Holdings 2.0%

JAL 2.5% 9.0% -4.0%

Sumitomo Elec 3.0%

Information Alibaba 2.0% SEC 3.0% TSMC 4.0% HCL Tech 1.0%

Softbank 4.0% 19.3% 5.2%

Technology Hon Hai 2.3%

Sony 3.0%

Materials

1.0% Hindalco 0.5% Rio 2.0%

3.5% -2.5%

Real estate COLI 2.5% CK Property 4.0%

Mitsui Fudosan 4.0% 10.5% 4.5%

Telcos China Mobile 2.5%

2.5% -3.0%

Utilities Kepco 1.0% AGL Energy 1.0% 2.0% -1.2%

Total 14.5% 7.9% 11.8% 8.8% 1.5%

8.5% 3.5% 43.5% 100.0%

Rel. to MSCI AC APAC 2.0%

2.2%

3.6%

2.4%

-2.7%

-3.8%

-3.6%

-0.1% 0.0%

Source: MSCI, Credit Suisse estimates

01 December 2015


Country Sections

01 December 2015


Australia Alpha and the lost decade

The Australian economy seems to have already started its lost decade and the future

direction of stock indices should largely depend on how companies respond to the current

sustained period of weak growth. We anticipate that Australia Inc. will continue to cut costs,

conserve capital and consider M&A to generate returns for their shareholders.

Notwithstanding the sluggish macro backdrop, we believe the combination of lower

interest rates, a weaker AUD, rising free cash-flows and lower starting valuations should

support double digit local currency gains for the ASX 200 by the end of 2016. Investors

measured in US dollars will again have to contend with weaker returns.

Figure 77: Top stock ideas for 2016 Mkt Yield P/B ROE Net debt/



Top outperformers

Rio Tinto Ord RIO.AX N AUD 47.1 53 61,433 6.8 11.9 20.0 6.3% 1.5 7.5% 33.7%

AGL Energy Ord AGL.AX O AUD 16.8 18.4 8,197 15.9 17.4 15.8 4.6% 1.2 7.4% 28.1%

Carsales.com Lim Ord CAR.AX O AUD 10.3 11.3 1,792 25.7 24.7 21.8 3.7% 9.6 44.1% 63.3%

Lend Lease Group Unt LLC.AX O AUD 12.6 16.6 5,292 8.8 11.8 10.7 4.9% 1.4 13.2% 25.8%

Top relative underperformers

Brambles ord BXB.AX U AUD 10.8 8.7 12,361 21.0 21.0 20.1 2.6% 4.2 20.8% 97.1%

Medibank private ord MPL.AX U AUD 2.3 2.2 4,512 24.1 21.3 20.6 3.6% 4.2 20.3% Net cash

Note: Priced as of 25 November 2015. Source: Company data, IRESS, Credit Suisse estimates

Earnings outlook

Current bottom-up expectations are for the second consecutive 12-month EPS contraction

for the Australian financial year ending June 2016. There remain a number of headwinds

to corporate profits including a sluggish economic backdrop and depressed commodity

prices. Economic activity has averaged 2.5% for the current decade since 2010; however,

real GDP grew by 3% p.a. or more during each of the previous five decades. We expect

the macro back drop to remain sluggish as the economy endures the combination of less

favourable demographics (slowing population growth and falling participation rate), de-

leveraging (household debt to GDP is at 100%) and corporate focus on distributions at the

expense of investment (mining capex is collapsing; non-mining capex/GDP is at 60-year

lows).

Meanwhile, our forecast is for the major commodity prices for Australia Inc.—iron ore and

LNG—will remain depressed in the short term. Iron ore remains in oversupply, especially

as Chinese steel intensity is expected to decline, as the economy transitions away from

investment led growth to being more consumption/services focussed. Meanwhile, LNG

contracted prices for Aussie suppliers remain some 50-60% above current spot prices.

The obvious risk here is that contracts are renegotiated. Commodity companies now make

up less than 20% of Aussie market cap.

While there remains considerable headwinds to revenues, Australia Inc. is well progressed

in managing the downside. Costs are being cut and half the companies under Credit

Suisse coverage have a cost-out programme in place. Also, we expect free cash flows to

grow, despite the obvious profits headwind, as companies restrain capex. A leaner cost

base has positioned Australia Inc. in a stronger position for when top-line begins to

recover.

Hasan Tevfik hasan.tevfik@credit-

suisse.com

+612 8205 4284

01 December 2015


Figure 78: ASX 200 EPS growth—forecasts are from Credit Suisse analysts and IBES

-20

-15

-10

-5

0

5

10

15

20

CY 14 CY 15 CY 16 CY 17

ASX 200

Industrials 4 Banks

Commodities-28%-33%

Source: IBES, company data, Credit Suisse estimates

Valuation

Australian equities currently trade on a trailing P/E ratio of 15.5x. This is in line with the

long-term average. Meanwhile, a higher than normal payout ratio means that dividend

yields at 4.8% (before the benefit of dividend imputation for local investors) are 60 basis

points higher than the long-term average. The current payout ratio (DPS/EPS) is 75% and

the long-term average is 60%. It is clear Australia Inc. is attempting to not disappoint their

income focussed investors. Dividends have increased each year since 2009 despite profits

contracting at times. We believe the focus on cost cuts and capital conservation will

ensure further DPS increases in 2016 notwithstanding the likely contraction in EPS. We

applaud the increase in distributions. Australia Inc’s chequered history of capex and

acquisitions suggests returning money back to shareholders may be the prudent capital

allocation.

Of course Australian equity valuations look more attractive relative to fixed income assets.

The Australian earnings yield is 350 basis points higher than the ten-year government

bond yield. This is close to the highest level in the last 45 years. Meanwhile, the June

2016 free cash flow yield (operating cash-flows less total capex) is expected to be 5.1%

and 140 basis points higher than the cost of debt. Australian equities continue to appear

attractive to investors looking for an alternative to government bonds and debt financed

buyers.

01 December 2015


Figure 79: ASX 200 12M trailing P/E ratio Figure 80: ASX 200 ex-financials FCF yield vs cost of debt

5

10

15

20

25

70 74 78 82 86 90 94 98 02 06 10 14

Average = 15.3x

0

1

2

3

4

5

6

7

8

9

10

Jun 08 Jun 10 Jun 12 Jun 14 Jun 16

Australian A-rated 3-5 Year Corp Bond Yield

ASX 200 FCF Yield

Source: Company data, Credit Suisse estimates Source: Company data, Bloomberg, Credit Suisse estimates

What could surprise in 2016?

(1) The AUD appreciates. Expectations of a falling iron ore price, weaker Chinese demand

and lower RBA rates should mean a weaker currency in 2016. We forecast 0.66 cents

against the USD by year-end. A surprise will be if the currency appreciates instead. This

may be because the US recovery falters, the global search for yield intensifies, commodity

prices rise or the RBA does not cut rates. The first RBA meeting in 2016 is on 2 February.

(2) EPS does not fall. Current expectations are for a contraction in EPS driven by a

combination of sluggish GDP growth and weak commodity prices. A rise, instead of

fall, in EPS should be consistent with higher commodity prices and potentially a

weaker AUD. More than half of Australian company earnings are sourced from

overseas. The 1H reporting season is in February.

(3) Change in corporate tax rate. The new political leadership promises to accelerate

the reform agenda and tax is one of the issues likely to be addressed. Australia

currently has one of the highest corporate tax rates in the world at 30%. We imagine a

cut in the corporate tax rate will be at least partly offset with tightening which may

involve a potential increase in consumption tax. Such a move should still be positive

for stock prices. The Federal Budget is announced in May.

Top ideas in 2016?

Idea 1. Long AGL Energy. Australia’s biggest Utility is expected to enjoy double digit EPS

growth supported by rising electricity prices. New management promises to deploy capital

conservatively, and our analysts believe excess free cash flow and little debt on the

balance sheet should ensure a larger-than-expected capital returns.

Idea 2. Long Lend Lease. Current valuations imply a rise in defaults for the Australian

development business much in advance of what has been experienced before. The

company enjoys a solid development pipeline and continues to redeploy capital

internationally where the returns are stronger. The stock is on the verge of trading on a

single-digit P/E multiple but provides double-digit EPS growth.

Idea 3. Short Brambles. The company has long operated on thin free cash flow margins

and we expect they could fall further. Capital intensity is set to rise as the company aims to

rectify previous pallet repair lapses. The stock trades on 21x 2016 EPS and is expected to

grow profits by just 5% for the next two years.

01 December 2015


China Winter is coming

The macro outlook of China is very challenging. The huge problem of excess capacity

in the manufacturing/mining sector has limited room for industrial investment. Property

investment growth will likely turn negative in 2016 with the depressing tier 2/3 city

property market. A weak global economy also will dampen any export recovery.

Rising NPLs of the manufacturing sector are a major risk in 2016. For the old

economy sectors, the only positive factor is the continued relaxation of monetary

policy. For the new economy sectors, structural growth continues but valuation is a

major concern.

Figure 81: Top stock ideas for 2016




Top outperformers

China Pacific (H) 2601.HK O HKD 32.3 50 38,141 21.8 13.0 12.6 3.2% 1.7 13.4% Net cash

Hikvision 002415.SZ O CNY 36.1 41.6 22,995 31.0 23.1 17.7 1.7% 5.9 33.0% Net cash

Goldwind (H) 2208.HK O HKD 13.2 26.3 6,632 16.9 9.5 8.3 6.0% 1.5 18.5% 35.8%

Alibaba BABA.N O USD 81.7 98 205,290 44.3 37.5 31.9 0.0% 5.9 18.5% Net cash

Geely 0175.HK O HKD 4.2 5.7 4,770 21.3 10.5 7.4 1.6% 1.3 17.5% Net cash

Kweichow Moutai 600519.SS O CNY 213.0 270 41,884 15.8 16.1 14.2 2.1% 3.4 24.1% Net cash


Earnings outlook

Earnings downgrade for the China market for 2016 will likely continue. 8.2% earnings

growth for MSCI China in 2016 seems unachievable, 5% or lower is more realistic.

The financial positions of sectors such as coal, steel and aluminium are deteriorating

rapidly, with the interest coverage of more than half of the listed A-shares in these

sectors less than one in first nine months of 2015. NPLs of these sectors are set to

rise in 2016, and this could affect the earnings of the financial sector. The new

economy sectors, such as e-commerce, should still enjoy structural earnings growth,

but recent results indicate that expectations of their earnings might already be too

high and could be subject to disappointment.

Figure 82: MSCI China—2015 and 2016 IBES EPS estimate (CNY)

6

6.5

7

7.5

8

8.5

9

Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15

2015 2016 Source:Thomson Reuters IBES, MSCI

Vincent Chan

vincent.chan@credit-

suisse.com

+852 21016568

The macro outlook of China

is very challenging

Earnings downgrade for the

China market for 2016 will

likely continue

01 December 2015


Valuations

The P/B of the China market is definitely at the low end of the spectrum; this should

limit the downside of the market. On the other hand, with the earnings outlook

deteriorating, the forward P/E does not look very cheap. Hence, the Chinese market

in 2016 would likely be range-trading with a small upside.

Figure 83: MSCI China 12M forward P/E chart Figure 84: MSCI China trailing P/B chart

6

7

8

9

10

11

12

13

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

MSCI CHINA - 12MTH FWD P/E RTIO

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6


MSCI CHINA - PRICE/BOOK RATIO

Source: Thomson Reuters IBES, MSCI Source: Thomson Reuters, MSCI


NPLs of commercial banks. There is a consensus view that NPL ratios in China will

rise in 2016, although investors only expect these to rise gradually. However, with

Special Mention Loans (SMLs) rising sharply from 2.55% of total loans in mid-2014 to

3.77% in Sep-2015, there is a big risk that a meaningful amount of these SMLs could

become NPLs in 2016 with the industrial economy remaining weak. The market will

not be very happy if the NPL ratio goes up from the current 1.59% to 2.5%+ some

time in 2016.

Renminbi. It seems that the currency reform experiment was not very successful, and

the Rmb exchange rate has gone back to being very rigid, similar to the pre-reform

stage. If economic growth continues to remain weak (lower than the government

target of 6.5%) and the operating environment of corporations continues to deteriorate

in 1H15, we will see a more aggressive one-off devaluation in 2H16.

Non-bank lending. Internet finance, like P2P lending, is developing very rapidly in

the past few years. Similarly, subsidiaries of asset management companies also

create financial products which have effectively lent a significant amount of money to

companies in the past two years. Both these lending practices are under very loose

banking regulatory supervision and the companies doing them do not have a lot of

experience handling credit evaluations. There could be meaningful increase in default

risks of such loans if the economy continues to weaken further.

Chinese market in 2016

may range-trade with a

small upside

We believe rising concerns

on the NPL ratio, Rmb

depreciation and non-

banking lending could be

the three main surprises in

2016

01 December 2015


Top ideas in 2016?

China Pacific Insurance. The premium growth of insurance companies is very

strong. In the last few months, insurance companies were not doing well due to

concerns over the A-share market. But now, with the A-share market stabilising, this

should be a lesser concern ahead.

HikVision. The rising threat of terrorism is expected to trigger more spending on

surveillance in China and other countries. With its leading position in surveillance

cameras, HikVision should be a major beneficiary of this trend.

Goldwind. The stock has corrected sharply in recent months due to the concern over

windpower tariff. However, our analysts believe that as the government needs to

continue the development of renewable energy, the drop in windpower tariff should

not be as drastic as the market expects. The current concern actually provides a very

good entry point for the stock.

Our top picks for China

2016 are China Pacific

Insurance, HikVision,

Goldwind, Alibaba, Geely

and Kweichow Moutai

01 December 2015


China A-share Market Strategy Structural opportunities in a see-saw market

We believe the A-share market will remain range-bound in 2016, while the CSI-300 index

should fluctuate between 3,400 and 4,300.

■ Earnings growth should continue to decrease when GDP growth slows down.

Deflation could spill over from commodity to more sectors, and hurt revenue

growth/gross margins of the corporates. Therefore, ROE of industrial enterprises could

fall below 8%. Furthermore, profit growth of banks would decrease as the NPL ratio

increases—this will likely impede the earnings growth of all A-shares, since banks

usually contribute 60-70% to total profit.

■ The liquidity is still positive to the market. Institutional investors like insurers and banks

would like to increase their equity positions when bond yields decline. Retail investors

are coming to the stock market to chase the rally or to get the return on subscribing to

new shares. However, the regulator can control liquidity flushing through: (1)

controlling the expanding size of margin finance, and (2) the stock supply in IPOs and

public placements.

■ The structural opportunities are both in 'value' and 'growth'. The funds moved from the

fixed income market by insurers/WMP funds will likely favour value stocks that offer

low P/E, high dividends, and invisible growth. And such stocks could also be chased

by offshore investors if they rebuild confidence in the local equity market. At the same

time, many local investors should continue to chase the 'new economy' companies,

such as media, education, sports, internet+, travel, healthcare, new energy, because

these sectors will likely see a boom in the future, supported by policies and

demographic changes.





Top outperformers

Midea 000333.SZ O CNY 28.63 41 148,156 11.5 9.8 9.0 4.5% 2.1 25.9% Net cash

Wanda Cinema 002739.SZ O CNY 104.81 122 142,405 65.4 95.3 52.8 0.2% 19.0 43.0% Net cash

Hengrui Medicine 600276.SS O CNY 50.54 57 119,956 50.2 46.9 40.4 0.3% 8.2 22.4% Net cash

GeorTek 002241.SZ O CNY 33.2 41.8 61,479 30.5 36.7 27.9 0.4% 4.5 17.5% Net cash


Earnings outlook

We expect 2%/0% growth for A-share companies in 2015/16, versus market consensus of

4%/0%. (1) We believe economic growth will continue to slow, and nominal GDP growth

will decelerate more due to deflation. Therefore, the revenue growth of listed companies

turned negative (-3%) in 3Q16 and fell to its 2018 level, the worst point in the past 15

years. The decrease of the asset turnover ratio is the biggest issue to the worsened ROE

(from 12% to 10%). (2) The NPL ratio of banks could increase next year, putting significant

pressure on banks’ earnings, which account for over half of all listed companies.

Li Chen

[email protected]

852 2101 6645

01 December 2015


Figure 86: Shanghai A-share(China)—2015 and 2016 IBES EPS estimates

Source: IBES, Credit Suisse estimates

Valuations

We believe stock market valuations will increase slightly due to the presence of abundant

liquidity. As deflation continues, we think the ten-year treasury bond yield could go below

3%; therefore, the valuation of the big caps (e.g., the CSI-300 index, 2016 P/E) could

increase from 15x to 18x, well above the average level in the past six years. However, the

valuation of the small caps (e.g., the ChiNext board) could contract due to the increasing

stock supply possible after the IPO reform (from approval-based to registration-based).

Figure 87: China CSI-300 12M forward P/E band Figure 88: China CSI-300 trailing P/B band

Source: Bloomberg Source: Bloomberg


■ RMB depreciation: Substantial funds could flow out if the RMB sees a meaningful

depreciation (>10%) in 2016 (Rmb1.4 tn had flown out during this August's RMB

depreciation). That will have a big negative impact on overall liquidity, and the equity

valuation as well.

■ Sizeable fiscal stimulus: If the government provides a sizeable stimulus to

infrastructure in early 2016, or if property sales rebound in tier 2/3 cities and that

01 December 2015


results in an improvement in property investment, GDP growth would bottom up.

There could be upside risk to corporate earnings growth.

■ Lots of stock supply: The IPO reform will take place in 2016. If the government does

not control the time and price of IPOs, lots of new shares will come to the main

board/ChiNext board/new 3rd

board, and the upcoming strategic emerging board. New

funds to the equity market could be absorbed, and that will put pressure on the stock

market valuation.

Top ideas for 2016?

Idea 1: Midea—A value stock. It is one of the biggest home appliance producers, with 9x

2016E P/E and 4.6% dividend yield. The company will deliver 'smart' products in the future,

which could raise its ROE (26% in 2015).

Idea 2: Wanda Cinema—Growth stock. It is the biggest movie distributor which has a

15% market share in a booming industry. Profit growth will likely be above 50% in the next

three years through fast expansion, and maintain a 40% ROE.

Idea 3: Goer-Tek—Growth stock. It is one of the best medicine companies which has the

best R&D ability. The company will have a few new “heavy bomb” drugs delivered in

2016/17, which could bring significant upside to its earnings growth.

01 December 2015


Hong Kong Structural adjustment continues

Summary view: The US will likely raise interest rates finally some time during 2016,

and this will be a key test for the HK property market after years of extremely low

funding cost which helped to drive property prices sky high. The slowing Chinese

economy plus fewer number of Chinese tourists coming to HK will also hurt. From a

HK market perspective, whether Macau gaming stocks would enjoy an earnings

rebound in 2016 is to be seen, as it will be a major driver of MSCI HK earnings

growth.





Top outperformers

AIA Group 1299.HK O HKD 47.7 57.5 74,075 21.5 21.6 16.8 1.5% 2.1 12.4% 5.1%

Galaxy 0027.HK O HKD 23.6 37.6 12,967 9.8 21.5 14.0 2.2% 2.2 16.2% Net cash

CKH 0001.HK O HKD 103.6 142 51,593 6.6 12.4 11.5 3.1% 1.0 8.5% 18.3%

Samsonite 1910.HK O HKD 23.5 27.7 4,275 22.9 21.7 18.0 2.6% 2.8 15.8% Net cash


Earnings outlook

Property price and retail rent are the two most important local factors affecting Hong

Kong's earnings outlook in 2016. Declining property prices and weakening Chinese

economy might also hurt the asset quality of banks in HK, but given the low leverage

of the HK economy overall, the risk is not particularly high at this stage. Finally, from a

HK market perspective, the key swing factor for MSCI HK earnings might not be the

local HK economy, but whether the earnings of the Macau gaming sector rebound as

expected.

Figure 90: MSCI Hong Kong—2015 and 2016 IBES EPS estimate (HK$)

Source:Thomson Reuters IBES, MSCI

Valuations

HK's P/B is at a rather low level, similar to its P/E, which provides a case for some

stock market rebound in 2016. Given the large amount of non-HK earnings for MSCI

HK stocks, the weakening of the HK economy might not have too much of an impact

on market earnings.

Vincent Chan

vincent.chan@credit-

suisse.com

+852 21016568

US interest rate raise,

Chinese economy and

Macau gaming will affect HK

market to various extents

Property price, weakening

Chinese economy and

earnings of Macau gaming

are important factors

affecting the HK outlook in

2016

HK's PB is low

01 December 2015


Figure 91: MSCI Hong Kong 12M fwd P/E chart Figure 92: MSCI Hong Kong trailing P/B chart

10

11

12

13

14

15

16

17

18


MSCI HONG KONG - 12MTH FWD P/E RTIO

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9


MSCI HONG KONG - PRICE/BOOK RATIO

Source: Thomson Reuters IBES, MSCI Source: Thomson Reuters, MSCI


US interest rate. Given the HKD peg with the US dollar and the importance of the

property market to SAR, the rise in interest rates in the US will definitely be a big

issue for the economy. Current expectation is that the US will have a mild interest rate

hike and HK's property sector will face some mild downward pressure. However, if the

US rate hike is faster and more aggressive than expectation, or if the HK property

market either reacts or does not react drastically to the rate hike, this could have a

meaningful impact on the share price of HK's property stocks one way or the other.

China slowdown. In the last few years, there has been significant USD borrowing by

Chinese companies in HK. If the economic slowdown is combined with the RMB

depreciation, this could create some disturbances for HK banks.

Top ideas in 2016?

Galaxy. We believe that the worst is over for the Macau gaming sector with business

starting to stabilise. Among the Macau gaming stocks, our top pick is Galaxy.

AIA. The is the premium insurance sector play in the region, with a very diversified

portfolio. Given the uncertain macro environment, the proven management track record

and diversified business geographical location of this company are a plus.

CKH. In our view, CKH not only has a steady earnings and cash flow base from its

infrastructure and retail business but also a visible earnings upgrade path in the coming

few years from: (1) continued strength from core businesses; (2) improvement in

European mobile market; (3) synergies impact from the acquisition of O2 UK and WIND

Italia; and (4) upside option from potential asset monetisation. At a 34% discount to NAV

(vs historical average of 27%), we believe CKH’s valuation looks attractive. It is our top

pick in the HK/China conglomerate space.

US interest rate and China

slowdown are the surprise

factors of the HK market in

2016

Top picks of HK market in

2016 are Galaxy, AIA and

CKH.

01 December 2015


India Domestic pick-up visible; global stability needed for

broader market returns

Summary view: In 2016, we expect earnings cuts to continue, but the pace of earnings

downgrades to abate: (1) the quantum of decline in global commodity prices can only be

lower than in 2015; (2) "global" sectors' relative importance in indices has fallen; and (3)

the broad-based recovery visible in the domestic economy should continue into the new

year. Earnings growth could end the year at 13-15%. With MSCI India's P/E premium to

MSCI World (+6%) at Sep-13 levels, this is supportive of a 13-15% pick-up in the broader

indices. On sector preferences, we believe the market is underestimating the pace at

which credit quality deterioration will become visible, and also the impact of the Pay

Commission on consumption.





Top outperformers

Tech Mahindra TEML.BO O INR 538 700 7,818 20 17 14 1.7% 3 24% -0.3

Hindustan Unilever HLL.BO O INR 811 920 26,420 41 40 34 2.2% 36 113% -1.0

Ultratech Cement ULTC.BO O INR 2,778 3,525 11,470 36 30 19 0.7% 3 18% 0.2

Tata Motors TAMO.BO O INR 401 490 17,424 9 11 8 0.6% 1 20% 0.5


Bharti Airtel BRTI.BO U INR 341 285 20,527 26 21 21 0.9% 2 9% 1.1

SBI SBI.BO N INR 242 247 28,210 14 11 9 2.4% 1 13% n.m.


Earnings outlook: "global" impact should diminish

Figure 94: MSCI India—consensus 2015 and 2016 IBES EPS estimates

50

60

70

80

90

100

110

Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15

2014 EPS 2015 EPS 2016 EPS 2017 EPS

Source: IBES, MSCI, Credit Suisse estimates

We expect earnings downgrades to continue in 2016, though at a slower pace than in

2015. For the market what matters is the pace of cuts rather than cuts themselves: given

the 10-12% CAGR trend growth for index EPS (for most broad-based indices), the "roll-

forward" earnings growth every three months is 2.5-3%. If the pace of cuts over three

Neelkanth Mishra

neelkanth.Mishra@credit-

suisse.com

+91 22 6777 3716

Prateek Singh

prateek.Singh@credit-

suisse.com

+91 22 6777 3894

01 December 2015


months is faster than this rate, market P/E starts to rise without any absolute increase in

prices, and this worries investors. However, a pace of 1-1.5% cuts over three months is

likely to drive upside for the broader indices.

Throughout 2015, the three-monthly pace of cuts sustained at 3.5-5%. This was largely

because of cuts to "global" earnings: nearly half of Nifty revenues are not in INR: not just

known exporters like IT Services or Pharmaceutical companies but also refiners and metal

companies whose prices are global, and also large index constituents like Tata Motors for

whom the primary earnings drivers lie outside India. As global commodity prices continued

to fall through the year, these earnings have plummeted (Figure 95).

Figure 95: Earnings cuts have come from global sectors Figure 96: Going forward, risks from Materials/PSU Banks

482 0.2 0.2 0.50.7 0.9 1.5 2.4

5.2

8.4

11.2

450

440

445

450

455

460

465

470

475

480

485

FY

16 E

PS

Ene

rgy

Tel

ecom IT

Util

ities

Sta

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Indu

stria

ls

Pha

rma

Fin

anci

als

Aut

os

Mat

eria

ls

FY

16 E

PS

Now

1-Ju

l-15

Largely Tata Motors

Global Linked cuts

Change in FY16 Nifty EPS since July-2015

405

13

8

6

6

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4

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2

2

2

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-3450

400 410 420 430 440 450 460

FY15 Nifty EPS

Private Bank

Cons. Disc.

Energy

IT

PSU Bank

Health Care

Utilities

Staples

NBFC

Industrials

Real Estate

Telecom

Materials

FY16 Nifty EPS

can benefit from INR depreciation


Going forward, the pace of cuts in global sectors should reduce as the pace of commodity

price decline abates (e.g. oil prices declined ~$60/bbl last year; they cannot fall as much

now). Further, with index weights of these sectors lower, impact on the broader market

should be smaller too. However, cuts are likely in Materials and in PSU banks (Figure 96).

Valuations: Still cheap on a relative basis

Figure 97: 12M fwd PE chart—unchanged over 12 months Figure 98: MSCI India premium to MSCI world still low

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

MSCI India P/E +1 sigma -1 sigma

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%


India's PE premium over MSCI World


01 December 2015


The negative market returns over the past 12 months were primarily driven by steep

earnings cuts: P/E multiples have not changed (Figure 97), even if they are now 8% below

the peak. While compared to India's own history they appear high, on a relative basis, they

have rarely been lower in the past decade (Figure 98): MSCI India P/E premium to MSCI

World is now just 6%: where it was in Sep-2013. We believe MSCI World is a better

benchmark to measure global investor preference for equities, and not MSCI EM or MSCI

AxJ. Given the large growth differential, we expect this premium to expand.


Broad-based recovery to continue

While market attention is focused on corporate earnings and on big-bang reforms and

remains pessimistic, the changes are happening on different fronts: both the RBI and the

government are working towards financial inclusion (new banking licences, PMJDY,

MUDRA), and state governments competing to attract investments is leading to a

significant improvement in ease of doing business even if not in every state. Further,

productivity increase from continuing improvements in rural roads, electrification and in

mobile telephony (particularly the launch and rapid pick-up of 4G services) can be

meaningful. This is already showing up in a recovery in broad-based indicators such as oil,

power and auto demand (link).

Credit quality (negatively) and Credit growth (positively)

By now, it is well known that there is a substantial quantum of unrecognised bad corporate

loans in the system. In sectors such as metals, these are only likely to get worse. However,

what is not known is when these would get recognised or cleaned up: that would drive

earnings and stock prices. We believe as banks see that a government-owned bad bank is

less likely to come, they may start preparing to book losses on these loans. As some banks

go down this path (e.g., after creating capital buffers through asset sales), others will be

forced to as well. Negative reported surprises on asset quality are therefore likely in 2016.

At the same time, as WPI starts to move out of the deep negative territory (if the index

stays unchanged, it would be at +0.5% YoY by Feb-16 from about -4% currently), credit

growth is likely to pick up from the 9-10.5% YoY range it has been in over the past 12

months. While there is much attention paid to the poor bank balance sheets, the bigger

trouble, in our view, has been loan demand rather than supply.

Impact of Pay Commission

The recently submitted Pay Commission report is likely to get implemented by the middle

of CY16 by the central government. That is then likely to trigger similar revisions in state

governments, as well as Public Sector Units. The once-in-ten-years revision in

compensation thus affects nearly 40% of India's formal sector employment, and is a

massive transfer from one hand to another. While the numbers (Rs1.02 tn at the central

level) have been well discussed, the implications for demand of consumer products and

even tier-3/4 housing is not well appreciated.

Top ideas in 2016

Long: Hindustan Unilever. This is the best play on premiumisation in the Indian market as

the company commands a much higher share in premium segments compared to mass

segments. The company is equally well placed to capitalise on the penetration opportunity in

India, given its distribution reach and innovative rural marketing initiatives. The 7th Pay

Commission implementation, which should significantly boost consumption expenditure,

should be an additional boost. Parent Unilever’s focus globally is on personal care, which is

also the focus for HUL. The India management is empowered to take decisions and localise

go-to-market strategy to deal with regional competitors. HUL can face a gross margin

tailwind of 150-250 bp were GST to be implemented at an RNR of 20%. GST is also a

negative for unorganised players as they come under the tax net, which is positive for HUL.

https://plus.credit-suisse.com/u/gN9WTD

01 December 2015


Long: Tech Mahindra. Tech Mahindra is attractive from a risk-reward perspective. The

telecom business seems to have bottomed out; though the environment remains challenged,

2H will be seasonally stronger for telecom. On enterprise, management remains optimistic of

manufacturing and financial services. Margins expanded in 2Q and could improve further from

the current depressed levels. Market expectations from the stock have come down

significantly and at 14x 12-month forward P/E, valuations are accommodative.

Short: Bharti Airtel. Our negative stance on Bharti Airtel stems from two structural

concerns: (1) Repeated auctions in a spectrum-starved market could continue to drain

cash flows—especially for serious players like Bharti who cannot avoid auctions for

competitive reasons and (2) the upcoming launch of 4G services by RJio with a large-

scale nationwide network. We see both these themes (which could play out significantly in

2016) driving down returns in an industry that has failed to show any signs of agreeing on

a discipline on pricing. Our EBITDA estimates are 8-10% below consensus for FY17/FY18.

At 6.2x FY17 EV/EBITDA, we see downside to Bharti Airtel's stock and reiterate our

UNDERPERFORM rating

01 December 2015


Indonesia Turn of the cycle

Summary view: 2016 is likely to be a year of earnings turnaround. This, we believe, could

be the first year in six where earnings see a potential upgrade cycle. These upgrades will

be driven by larger government spending and potential rate cuts. Not every sector will

benefit and stock picking will be much more important. We maintain our JCI target of 5,300

based largely on earnings growth and mild rerating, an 18% upside.





Top outperformers

Astra International ASII.JK O IDR 6,175 7,600 18,267 12.8 14.5 12.4 4.1% 2.3 18.6% 40.4%

Gudang Garam GGRM.JK O IDR 50,400 61,500 7,086 18.1 18.1 16.1 2.1% 2.4 14.9% 34.6%

XL Axiata EXCL.JK O IDR 3,770 5,150 2,351 -35.8 228.2 17.5 3.1% 2.2 12.4% 151.7%

Summarecon SMRA.JK O IDR 1,580 1,960 1,666 16.5 17.8 15.0 1.6% 3.0 20.0% 42.6%


Bank Central Asia BBCA.JK U IDR 13,500 11,500 24,322 20.1 19.3 18.7 1.2% 3.2 17.2% Net cash

Ace ACES.JK N IDR 790 600 990 24.4 23.9 21.9 1.6% 4.3 19.7% Net cash


Earnings outlook: bottomed!

With 12 quarters of falling economic growth now, earnings expectations have also

gone through a major transformation from rampant optimism to resigned pessimism.

We believe that 2016 could be the first year in four where earnings growth will be

faster than the previous one. We also believe that consensus numbers now are

perhaps understating the potential growth.

At the beginning of 2015, the 2016 earnings were expected to show nearly 14%

growth. This has now slipped to just barely above 10%. Interestingly, at even this

depressed level of growth it is one of the fastest earnings growth in the region.

However, we believe that there is now room for upward surprise in this number. Our

analysis of previous economic cycles shows that earnings could potentially grow 20%.

Figure 100: Consensus now expecting a 11% growth for 2016

290

340

390

440

490

540

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

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Jun-

15

Sep

-15

FY11E FY12E FY13E

FY14E FY15E FY16E

-0.4% 7.8%

8.7%

-7%

11.1%


Jahanzeb Naseer

jahanzeb.naseer@credit-

suisse.com

+62 21 2553 7977

01 December 2015


What does the earnings experience in previous

cycles suggest?

In the figure below we show the relationship of earnings with the economic cycle over

the past 15 years. Once the economy bottoms, as we expect it would in 3/4Q 2015,

earnings tend to grow much faster than the nominal GDP growth over the next two

years. In fact, in the past three cycles they grew exactly twice as fast. We expect GDP

to grow about 5% and inflation to be about 5% in 2015. If the previous relationship

was to hold, against the backdrop of 10% nominal GDP growth earnings could grow

20%. This is not our base case but is not beyond reasonable.

Figure 101: In two-years following GDP bottom, earnings grow at 2x rate of nominal GDP

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Mar-02 to Jun-05 Jul-06 to Feb-08 Apr-09 to Apr-10 2015E-2016E

Avg Annual Nom GDP Avg Annual EPS growth

Source: Bloomberg, Credit Suisse estimates

Valuations

Ostensibly, Indonesia does not look cheap. Firstly, it has never been a cheap "value"

market. Secondly, if we believe we are close to an earnings trough then P/Es are

likely to look somewhat rich. In the figure below, we have shown what the P/E would

look like if the scenario that we painted above, i.e., a 10% nominal GDP growth and

20% earnings growth were to transpire. In that case the market is actually trading at

11x 2016 earnings.

Figure 102: Indonesia's 12M forward P/E falls sharply if

we take normalised 2016 earnings

Figure 103: Looks cheap on P/B relative to history

0

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05

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-12

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13

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-14

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Sep-

15

May

-16

12M Fwd EPS YoY (LHS) 12M Fwd PE (RHS)

Based on top down earningsgrowth assumption

1.4

2.4

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Ma

y-0

5

No

v-0

5

Ma

y-0

6

No

v-0

6

Ma

y-0

7

No

v-0

7

Ma

y-0

8

No

v-0

8

Ma

y-0

9

No

v-0

9

Ma

y-1

0

No

v-1

0

Ma

y-1

1

No

v-1

1

Ma

y-1

2

No

v-1

2

Ma

y-1

3

No

v-1

3

Ma

y-1

4

No

v-1

4

Ma

y-1

5

No

v-1

5

P/B 10-yr avg +1 sd +2 sd -1 sd -2 sd

Source: Bloomberg, Credit Suisse estimates Source: Bloomberg

01 December 2015



There are three areas where we think we can see surprises. Two of these are positive and

one is negative.

Positive response to tax amnesty scheme. The government is in the process of

proposing a very generous scheme that allows undeclared wealth to be brought into the

system with a penalty of 3-6%. This could be a significant boost to tax revenues, and by

implication, to government spending as well as for asset values.

Rate cuts. Indonesia real rates are now running at 3% and need to be cut. BI has been

waiting to see the market response to the US rate rise before cutting rates. If the market

response is orderly, we expect BI to cut rates by about 75 bp in 2016.

Political uncertainty. After a somewhat unsteady start, President Jokowi has been able

to consolidate power and reorganise his cabinet. The next step is to try and build a

coalition in the parliaments that gives him a majority. This will also be a test for his

opponents as they will try to oppose such a move. We believe 1Q16 will be the key period

for this and could result in potential political noise.

Top ideas in 2016

Astra (OUTPERFORM): We believe that we are at a point where the industry has

bottomed and headwinds start to ease. Launches of new models are well received by the

market, alleviating industry sales and reducing discounts. 2016 could be the first year after

three years that industry volumes start to normalise; we are expecting 10-12% volume

growth. In the long term, the rising spending on infrastructure would lead to more roads

and in turn more cars. Indonesia is still one of the most underpenetrated 4W market with

penetration at 5%.

XL- Axiata (OUTPERFORM). Data consumption has proven to be more resilient than any

staple in a downturn .Fundamentally, we like this sector as for the first time in nearly five

years we are starting to see blended ASP increases as data discounts are going away.

Coupled with industry consolidation over the past few years, margins can finally improve.

In addition, 3G capex is now down, resulting in a sharp improvement in FCF. Coming from

a lower earnings base EXCL should benefit from these trends more than others. We

expect 30% earnings growth next year.

BCA (UNDERPERFORM). Credit costs in the sector have not increased despite a

weakness in the economy and increase in corporate leverage over the past few years. We

believe this is partly due to the relaxation in OJK regulations that allow more leeway for

banks. We believe that credit costs are likely to rise next year and will put pressure on

NIMs. Further loan growth is likely to be below street expectations as economic recovery

is narrow and driven by infrastructure where most listed banks don’t have exposure.

Trading at 3.6x book at 3% earnings growth, we find BCA expensive.

01 December 2015


Japan Weathering the slowdown

Summary view: Japan has enjoyed four straight years of market rallies driven by two

engines – an unprecedented loose monetary programme and political promises for

private and public sector reform. The focus will certainly be on whether the BOJ will

(or can?) provide further stimulus, and whether Prime Minister Shinzo Abe can deliver

meaningful reform to help spur growth. The economy faces many macro and micro

headwinds going into 2016, with no real catalyst, and the risk is to the downside. Amid

this backdrop, we recommend the following bottom-up stories which we believe can

weather a slowdown.





Top outperformers

Aisin Seiki Ord 7259 O JPY 4,955 6,000 11,413 15.5 18.1 14.3 2.1% 1.1 8.0% 9.1%

Kose Ord 4922 O JPY 12,830 14,500 5,965 65.7 60.7 34.4 0.6% 4.7 13.6% Net cash

Ono Pharm Ord 4528 O JPY 19,525 23,000 16,871 101.7 159.5 129.4 0.9% 4.4 3.4% Net cash

Sony Ord 6758 O JPY 3,245 4,200 33,354 -29.7 -30.1 21.2 0.8% 1.7 8.1% Net cash


Earnings outlook

Abenomics is entering its fourth year at a time when the macro environment looks

wobbly. Earnings growth has slowed (Figure 105) and consensus EPS forecasts point

to 7.2% YoY growth in March 2017 a slowdown from the 15% forecast for this current

fiscal year. Japan faces several macro challenges next year. After launching a series

of monetary bazookas since 2012, the Bank of Japan has toned down its rhetoric on

further quantitative easing and its commitment to a 2% inflation target. Japan entered

a technical recession (albeit only slightly with a −0.8% and −0.7% real GDP QoQ

SAAR decline) led mainly by a decline in private spending/capex.

The Tankan business confidence index echoed the negativity, with sentiment across

all industries little changed at 8 in the September survey, but also pointing to a 3 pp

decline to 5 for the December survey (scheduled for release Dec-2014). One bright

spot from the Tankan was that companies raised their fixed investment plans for

FY2015, upgrading to +6.4% YoY from +3.4% YoY in the June survey. At a micro

level, a resumption in capex and production will need to occur for meaningful earnings

growth.

One tailwind that may dissipate in 2016 is the yen. The yen trended sideways for most

of 2015 at an average USD/JPY rate of 121, and the year-over-year change in the

currency is now close to zero. With no real sign of a BOJ move (or a Fed tapering

move for that matter), earnings momentum may be biased to the downside.

Daisuke Takato

daisuke.takato@credit-

suisse.com

+81-3-4550-9671

01 December 2015


Figure 105: MSCI Japan—2015 and 2016 IBES EPS estimate (JPY)

50

55

60

65

70

75

100

105

110

115

120

125


EP

S

JPY

/US

D

JPYUSD

2015 EPS

2017 EPS

+14.9%

+7.2%

2016 EPS


Valuations

Valuations in Japan have recovered from the 2012 trough, and have trended around

the average 14x over the past five years, driven by higher earnings and an improved

stance on capital management. The P/B stands at 1.4x, which is slightly above the

1.2x average post-global financial crisis, but well below ten-year historical levels.

Figure 106: Japan fwd P/E: trending flat Figure 107: Trailing P/B chart

8

10

12

14

16

18

20

22

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pre-GFC avg 16.7 x Post-GFC avg 13.7x

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pre-GFC avg 1.8 x Post-GFC avg 1.2x

[Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

01 December 2015



The BOJ is done: Will it, or won’t it? Throughout the year, there was expectation that the

BOJ would provide another monetary boost, and that the Federal Reserve would begin its

tapering. The question is whether the BOJ is done, and whether it has abandoned its 2%

inflation target. Depending on this, this will impact…

...the JPY—weaker or stronger?: With no clarity on when the central banks will move,

the JPY may see periods of volatility. Our 12-month house forecast is for the yen to

weaken to 130 yen, given the rising interest rate environment (e.g. US treasuries vs JGBs).

The weaker yen should provide a boost to exporters, as it has historically done, and also

help import inflation.

The end of Abenomics: Abe’s popularity has waned, and his steam-rolling of a national

security bill was met with vehement opposition and rare civilian demonstrations in front of

the Diet. While Abe secured his premiership after being re-elected the LDP leader, further

strong-arm tactics could erode his efficacy. Key events to watch out for is the Upper

House election in July and the debate surrounding the consumption tax hike in April 2017.

Top ideas in 2016

Aisin Seiki (7259): We expect Japan’s second-largest auto parts maker to benefit from

global growth in automatic transmission demand, where it commands high market share.

We expect Aisin Seiki to be a central player in Toyota Motor’s push to consolidate its

suppliers through its TNGA (Toyota New Global Architecture) programme, which should

help boost margins and profitability. (2 Oct report)

Kose (4922): With strong brand-recognition in cosmetics, Kose has seen profits rising

driven by inbound tourist demand, but catalysts are still plentiful with the next year likely to

boost earnings from expansion of duty-free stores, cross-border e-commerce in Asia, and

improved shareholder returns. (19 Nov report)

Ono Pharmaceutical (4528): We expect the PD1 inhibitor cancer treatment Opdivo to

generate high domestic sales and overseas royalties, and believe investors have yet to

fully price in profit growth from Opdivo’s emergence as a blockbuster product. We also

believe that risks of potential reimbursement price cuts for Opdivo will likely be postponed

and have reflected that in our recent forecasts. (20 Nov report)

Sony (6758): The shift to higher-resolution cameras in smartphones will help drive

earnings, with OP growing 40% sequentially over the next two years. Increased use in

automobiles safety systems and automatic braking/parking should also be a long-term

demand catalyst, as is the PlayStation 4. (3 Sep initiation report)

https://plus.credit-suisse.com/u/PDwY77

https://plus.credit-suisse.com/u/lXgRE3

https://plus.credit-suisse.com/r/aA9KjC

https://plus.credit-suisse.com/u/1zoneE

01 December 2015


Malaysia Another difficult year

Summary view: 2016 will be another challenging year for Malaysia, after a bad 2015

(MYR has weakened 17% YTD and KLCI is down 4%, underperforming MSCI NJA by

13% in USD). In 2016, we expect a squeeze in corporate margins for the following

reasons: (1) rising costs due to the weak MYR, an increase in minimum wage and a sharp

hike in highway toll rates; (2) weak consumer sentiment which will prevent a full pass-

through of costs to the end consumers. Meanwhile, political noise, the fear of a breakdown

in Malaysia's governance, China's weakening economy and capital flight will result in the

Ringgit remaining weak. We also believe that market earnings forecasts are too positive,

and will need to be revised downwards. Negative earnings momentum doesn't bode well

for the stock market. We forecast Malaysia will underperform the MSCI NJA again in 2016.

Figure 108: Top stock ideas for 2016 (pls rank by market cap)




Top outperformers

Genting Bhd GENT MK O MYR 7.33 10.30 27,438 18.2 17.2 14.1 0.5% 0.9 6.6% (0.0)

Gamuda GAM MK O MYR 4.56 6.00 10,971 14.8 15.6 13.7 2.0% 1.3 10.7% 0.3

Genting Plantations GENP MK O MYR 10.24 11.50 7,983 20.6 35.9 23.2 0.8% 1.8 7.7% 0.0

Alliance FG AFG MK O MYR 3.58 3.97 5,542 10.3 10.4 10.1 5.1% 1.1 11.1% (0.8)


CIMB CIMB MK U MYR 4.60 4.06 39,225 12.0 11.9 9.9 4.4% 0.9 9.3% (1.2)

Malaysia Airports MAHB MK U MYR 5.21 4.80 8,644 27.8 42.8 29.7 1.4% 1.2 4.0% 0.4


Market is overly optimistic on 2016 earnings

Figure 109: Market consensus EBITDA margins

17.8% 17.5%

20.7%

19.3%

20.1%

17%

18%

18%

19%

19%

20%

20%

21%

21%

22%

22%

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015E

Source: Bloomberg, Credit Suisse estimates

Based on consensus earnings, the market expects EBITDA margins to expand in Malaysia

to 20.1% in 2016 from 19.3% in 2015. We believe the market is too optimistic, and has

overlooked the following issues which will squeeze margins in 2016:

■ We believe that costs have increased significantly primarily due to the weak Ringgit

which has depreciated 17% YTD. We believe that Ringgit-related inflation will flow

through, especially after June 2016 when the Anti-Profiteering Act is no longer in

place. Manufacturers and retailers are under "moral suasion" not to increase selling

prices after the implementation of GST.

Tan Ting Min

tingmin.tan@credit-

suisse.com

+603 2723 2080

01 December 2015


■ Transportation costs have also increased from the trough following a 35 sen per litre

hike in oil price (oil subsidies have been completely removed) and a 17-100% rise in

toll rates in the Klang Valley.

■ Consumer sentiment is at record low, even weaker than the previous GFC and AFC

crises, hence higher costs cannot be fully passed on to the end consumers.

■ During the 2016 Budget, PM Najib announced an increase of minimum wage effective

from 1 July 2016. The current minimum wage of RM900 in Peninsular Malaysia will be

increased to RM1,000 per month. In 2013, when the minimum wage was first imposed,

2013 EBITDA margins fell 0.3 pp to 17.8%—the plantation, consumer cyclicals,

utilities and tech sectors saw the largest fall in margins. The new minimum wage

should have a smaller impact on margins as the proposed hike of 11% is not as high

as the estimated 5-30% hike in 2013.

Although 2016 EPS has been revised down by 12% YTD, market consensus figures are

still expecting an 8% YoY increase in profits, which we believe is just too optimistic.

Therefore, we expect Malaysia's earnings momentum to deteriorate further, which does

not bode well for the stock market.

Figure 110: MSCI Malaysia 2016 EPS growth expectations of 8.0% is too optimistic, in

our opinion

EPS growth (%) 2014 2015 2016

Dec-14 -1.7 9.2

Mar-15 -5.1 6.8 8.8

Jun-15 -5.3 2.3 10.0

Sep-15 -5.3 -2.5 10.0

Nov-15 -5.3 -2.7 8.0

Source: MSCI, Credit Suisse estimates

Figure 111: MSCI Malaysia—2015 and 2016 IBES EPS estimate (US$) has been revised

down 13% and 12% YTD, but 2016 forecasts are still too optimistic

75

80

85

90

95

100

105

1/14 3/14 5/14 7/14 9/14 11/14 1/15 3/15 5/15 7/15 9/15

EPS 15E EPS 16E


01 December 2015


Are we there yet? No

Malaysia’s P/B shows that we are close to GFC low, evident from the following charts:

■ MSCI Malaysia trailing P/B of 1.71x is only 16% above GFC’s low of 1.47x in October

2008. This is the lowest that MSCI Malaysia has hit since the GFC.

■ MSCI Malaysia forward P/B chart shows that the current 1.61x is only 16% above the

GFC low of 1.40x, and is already below one standard deviation. This is the lowest P/B

valuation since the GFC.

Although the MSCI Malaysia P/B charts look relatively attractive, they do not capture our

concerns on the Ringgit. The high foreign bond ownership of 46% puts the Ringgit in a

vulnerable position, in our view.

Figure 112: MSCI Malaysia forward P/E chart Figure 113: MSCI Malaysia trailing P/B chart

Mean, 15.4

+1 Std, 17.3

-1 Std, 13.4

10.0

12.0

14.0

16.0

18.0

20.0

22.0

Dec-04 Mar-06 Jun-07 Sep-08 Dec-09 Mar-11 Jun-12 Sep-13 Dec-14

1.4

1.7

2.0

2.3

2.6

Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15

+1SD: 2.3

-1SD: 1.8

Avg: 2.1

Source: Bloomberg, Company data, Credit Suisse estimates Source: Bloomberg, Company data, Credit Suisse estimates

The sale of the 1MDB power unit is the first step to resolving 1MDB's RM42 bn debt. The

sale of a 60% stake in Bandar Malaysia will likely be concluded by end-2015. Once all of

1MDB's assets are finally disposed of, we believe 1MDB can be wound down. This event

will inject a short-term boost to the Malaysian market, but the long-term issues that

Malaysia faces have not blown away.

Light at the end of a very long tunnel

■ The TPPA is positive for Malaysia because (1) Malaysia is very dependent on trade,

(2) TPPA will open up four new markets' access to Malaysia—the US, Canada,

Mexico and Peru; (3) first mover advantage; and (4) increased FDIs from MNCs.

Unfortunately, it will take some two years for the TPPA to be ratified. Hence,

Malaysia's entry into TPPA will only occur early 2018, in our view. Who will benefit?

Export industries such as plantations, e.g., palm oil and rubber, plywood, electronics,

textile, automotive parts and components.

■ China's "One road, one belt" aims to promote infrastructure development in Asia,

the Middle East, parts of Europe, South Asia and Southeast Asia to enable deeper

economic co-operation (via ports, railway lines and power grids). Together, this belt

and road plan covers 65 countries and 4.4 bn people. Malaysia is one of the countries

which should benefit under this plan. We are already seeing early signs of China funds

investing into Malaysia—for example, the IJM-Guangxi Beibu Gulf Port JV in Kuantan

Port, China Nuclear Power Corp buying 100% of 1MDB's power assets and a China-

based consortium in a tie-up with tycoon Tan Sri Lim Kang Hoo bidding for a 60%

stake in 1MDB's Bandar Malaysia.

01 December 2015



■ Oil? We will reverse our bearish call on Malaysia if oil price bounces back

convincingly. This is because the Malaysian government derives a significant chunk of

its revenue from oil-related activities (2014 = 30%). However, CS continues to forecast

low oil prices (Brent ~US$50 per barrel) through 1Q 2016 and a shallow recovery to

just above $60 per barrel in the second half of 2015.

■ China has a huge impact on Malaysia, as China is Malaysia's largest trading partner,

accounting for some 14% of Malaysia's trade in 2014.

■ Inflows? The Malaysian government is keen to support the Ringgit, and has put in

measures to do so; for example the government has called for government-linked

agencies to repatriate funds back to Malaysia and Valuecap has been revived with

seed capital of RM20 bn. In addition, the Chinese government has announced plans to

buy Malaysia's bonds to "stabilise the financial markets."

Top ideas in 2016

Gamuda (GAM MK, Outperform, TP RM6.00)

A Gamuda-led consortium was officially awarded the PDP role for the RM32 bn Penang

Transport Masterplan (PTM) in August. Gamuda’s construction order book backlog

currently stands at RM1 bn (excluding PDP contracts) and outstanding PDP contracts

stand close to RM11 bn. Management plans to step up efforts in expanding its order book

and is keen to participate in major construction projects such as the Southern Double

Track (up to RM10 bn), Pan Borneo Highway (RM27 bn) and works on LRT 3 (RM9 bn).

We expect progress on Gamuda's water asset sale. Management believes it will be able to

sell SPLASH at closer to RM2.5 bn book value (vs state's earlier offer of RM250 mn).

Gamuda currently trades at 16x 2016E P/E vs >20x P/E in run-up to major project wins in

the past. We expect positive news flow on project awards and water asset sale to boost

sentiment and rerate the stock. Foreign ownership is currently at a 15-year low of 22%.

GENP (GENP MK, O/P, TP RM11.50)

Genting Plantation, the purest upstream Malaysian plantation company among the bigger

caps, currently trades at EV/mature hectare of US$18.7k, only 12% above its US$16.7k

GFC low and 37% below its five-year average. Being the youngest plantation company

under our coverage, it has the strongest organic growth potential. A rising tide lifts all ships.

We take the view that palm oil prices will rally in 2016, when yields fall as a result of the

current El-Nino induced drought, which would result in an upward rerating of the plantation

sector. A more leveraged way (4.5x gearing) to play the stock would be through its

warrants, which currently trades at an attractive 1% discount despite its expiry being four

years away (June 2019).

CIMB (CIMB MK, Underperform, TP RM4.06)

CIMB has the weakest capital ratio among local peers, with a fully-loaded CET 1 ratio of

9.0-9.1% as of end-3Q15. Any decline in AFS reserves, further RM weakness and asset

quality deterioration could lead to further capital ratio erosion. Though management is so

far delivering on cost-cutting initiatives (IB restructuring and MSS), earnings outlook

remains challenging as escalating funding cost amid pressures on domestic liquidity and

rising credit cost could lead to further downgrades in street’s earnings expectations.

Impaired loan ratio has been on the rise, primarily due to the deteriorating asset quality in

Indonesia, which could be further exacerbated by worsening economic conditions, weak

commodity prices and continued currency weakness. Take note that its CET 1 ratio of 9.0-

9.1% is well below Bank Negara's indicative 11% minimum requirement. We believe there

is a risk of a cash call. While CIMB is trading at its GFC P/B low of 1x, we expect ROE in

FY2015-17 to be well below GFC levels (of 11.8-14.8%) at 8.4-10.8%.

01 December 2015


Pakistan On the cusp of an investment boom

An uptick in public/private investment, higher domestic consumption in the midst of a low

inflationary environment and better energy availability are likely to be the key drivers of

accelerating GDP growth in 2016 (4.5-5.0%). Our recently concluded Pakistan tours have

made us more optimistic about macro tailwinds—as well as triggers at the market level—

which reinforces our expectations of healthy returns for equities in 2016. We found a high

level of positivity in corporate sentiment with sighs of relief emanating from security

improvements and political stability. Companies are actively pursuing capacity expansions

in sectors, such as autos, consumers, cement and hospitals.

China-Pakistan Economic Corridor, with a price tag of US$46 bn spread across

energy/infrastructure projects, is becoming more of a reality compared to a few months

ago. Net foreign direct investment (FDI) from China in 4M FY16 was up 53% YoY and its

share of total FDI stands at 78% (up from 39% last year). Private sector groups are

moving fast towards their financial close and tariff petitions for alternative energy projects

are being fast tracked. The construction of motorways with the aid of Chinese financing

has commenced and our discussions with Chinese representatives suggest that security

concerns are addressed to quite an extent. Meetings between the military leaderships of

both countries are also supportive.

Figure 114: List of the major early harvest CPEC projects

Project Name Sponsor Project size Amount (US$ bn) Timeline Status

Power projects

Karot Hydro Power China Three Gorges South Asia 720 MW 1.65 2020 Started 2Q15

Thar Coal Power Sindh Engro Coal Mining 660 MW 1.00 2018 Financial close 1Q16

Thar Coal Power II Shanghai Electric & Sino-Sindh 1,320 MW 2.60 2018 n.a.

Port Qasim Power Sino Hydro & Al Mirqab 1,320 MW 1.80 2017 Started 2Q15

Quaid-e-Azam Solar Park Zo Energy Co 900 MW 1.33 2016 Started 1Q15

China Power Hub Coal IPP Hubco/China Power 1,320 MW 1.80 2018 Financial close 1Q16

Mining

Thar Coal I Sino-Sindh Resources 6.5mn tpa 1.30 1H 2018 Started Mar-16

Thar Coal II Sindh Engro Coal Mining 3.8mn tpa 0.90 1H 2018 Started Mar-15

Infrastructure

KHI-LHR Motorway Gov't of Pakistan 377 km 2.60 4Q 2017 Started 3Q15

Gwadar Airport & Expressway CAA/Gwadar Port Authority n.a. 0.37 4Q 2017 Started 3Q15

Karakoram Highway II Gov't of Pakistan 120 km 0.92 2018 Started Jun-15

Source: Planning Commission of Pakistan, NEPRA, company data, Credit Suisse estimates

Potential upgrade to emerging markets a key catalyst

Pakistan's likely re-entry into the Emerging Markets (EM) category is a key catalyst for 2016.

The missing box pertaining to higher regulatory powers by the Securities and Exchange

Commission of Pakistan (SECP) is likely to be checked ahead of the MSCI review in May

2016. Given Pakistan's negligible weightage (0.15-0.20%) in the case of a possible EM

upgrade, the risk of getting lost in the mainstream has been a valid concern for investors.

Moreover, having the fourth-largest weight (9%) in the Frontier Market world, particularly as

larger peers (Nigeria and Kuwait) are struggling with low oil prices, has kept Pakistan in a

sweet spot. We view a transition to EM as a big positive, as brighter growth prospects along

with a low correlation with EMs can make Pakistan a good diversification avenue.

Companies that are expected to make the first cut include: HBL, MCB, OGDC, ENGRO,

LUCK, FFC and UBL. If we draw parallels with recent EM entrants (UAE and Qatar), we

observe the rapid expansion of earnings multiples of 40-50% in the ensuing quarters after

Farhan Rizvi, CFA

farhan.rizvi@credit-

suisse.com

+65-6212-3036

Fahd Niaz, CFA

fahd.niaz@credit-

suisse.com

+65-6212-3035

01 December 2015


the upgrade announcement. And while this may be attributed to a host of factors, the

strong one-sided trend is encouraging.

Figure 115: CS Pakistan—top stock ideas for 2016

Reuters Company Price (PRs)

TP (PRs)

Rat. Mkt. Cap

(US$ mn)

6M ADTO

(US$ mn)

P/E

(x)

P/B

(x)

EV/EBITDA

(x)

D/Y (%)

ROE (%)

15A/E 16E 15A/E 16E 15A/E 16E 15A/E 16E 16E

Key outperformers

UBL.KA United Bank Limited 164 218 O 1,904 1.8 7.9 7.1 1.3 1.3 n.a. n.a. 7.9 8.2 18.0

PKOL.KA Pakistan Oilfields 310 425 O 696 1.1 8.7 10.2 2.3 2.2 4.0 4.5 12.9 8.7 21.7

DGKH.KA DG Khan Cement 136 175 O 567 4.7 7.8 6.9 0.8 0.8 5.8 5.1 3.7 4.0 11.1

KELE.KA K-Electric 7.6 10.5 O 1,993 1.7 13.6 8.3 1.6 1.3 8.1 6.7 0.0 1.7 15.5

EGCH.KA Engro Corporation 283 368 O 1,405 8.8 8.5 7.2 2.1 1.8 5.0 4.6 3.5 4.2 24.3

Note: Priced as of 25 November 2015. Source: Thomson Reuters, Credit Suisse estimates

11% earnings growth that is prone to upside risks

Using the CS Pakistan Universe as a proxy, we forecast earnings growth of 11% for

2016E, which rises to 16% if we exclude oil & gas. Within individual ideas, KE is expected

to see the fastest momentum (+63%) led by improving operating efficiencies and the

effects of de-leveraging. Earnings growth of 17% for Engro Corp is driven by continued

positive momentum in the foods business after market share gains in 2015 and the

improved performance of other subsidiaries. Risks to our universe earnings are more

skewed to upside led by possible pricing conversions for index-heavy E&Ps. Second,

within the banking sector, we outline three possible sources of earnings upgrades: (1) the

faster commencement of project financing; (2) the steeper recognition of capital gains on

the bond portfolio and (3) a higher-than-expected rise in interest rates in 2H16.

Figure 116: MSCI Pakistan earnings downgrades led by oil & gas

55

59

63

67

71

75

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Source: IBES, MSCI

Cheap valuations both absolutely and regionally

With Pakistan heading into a stronger phase of macros, we deem it relevant to look at

multiples during the previous bull cycle of 2004-08 for comparison. Currently, P/Es at 7.9x

stand at a steep 23% discount to those levels. Besides this, an appraisal with MSCI EM

Asia has also become relevant given Pakistan's likely inclusion in the EM index. While the

discount to EM Asia has narrowed from 40% three years ago to 22% currently, we believe

this gap can reduce further due to Pakistan's superior earnings growth profile (11% vs.

8%) and higher ROEs (21% vs. 12%). Additional liquidity flows ahead of a possible EM

upgrade can drive the next leg of rerating, in our view. From a value perspective, a

dividend yield of 6-7% is fairly sustainable given rather consistent payout policies.

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x668064&serialid=B%2f3zvx41AnQzJ8If%2baITC6UM9hrfhTh3k4vSHDcRibw%3d

01 December 2015


Figure 117: Sustained momentum in macro indicators

should allow multiples to move closer to bull cycle levels

Figure 118: Discount to MSCI EM Asia at 22% despite

Pakistan earnings growth of 11% (16% ex-oil)

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Nov

-05

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

Nov

-11

May

-12

Nov

-12

May

-13

Nov

-13

May

-14

Nov

-14

May

-15

Nov

-15

MSCI Pakistan P/E (x)

P/E's are still 23% lower than bull-cycle levels of 10.6x

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Nov

-05

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

Nov

-11

May

-12

Nov

-12

May

-13

Nov

-13

May

-14

Nov

-14

May

-15

Nov

-15

MSCI Pakistan discount to MSCI EM Asia - P/E (x)

Source: MSCI, Credit Suisse estimates Source: MSCI, Credit Suisse estimates


Inflation—lower for longer: A prolonged slump in oil prices and smooth supplies of food

items could prompt the State Bank of Pakistan (SBP) to revise down its average CPI

target of 4.5-5.5% in FY16E. Market expectations are also pegged to a rate hike in 2H16.

Unfavourable result in MSCI EM upgrade decision in May 2016. This is a clear

negative and could trigger a correction. However, the decision may be deferred to the

November 2016 review, giving policy makers more time to fulfil the remaining criteria.

Iran Pakistan (IP) gas pipeline. More active engagement with Iran post the removal of

sanctions could deliver big positives, with the restart of the IP pipeline being the main one.

The project has been on the backburner for several years, even though construction on

the Iran side has been completed. It is meant to transport 750mmcfd of gas (17% of the

existing supply), with a total capex outlay for Pakistan estimated at US$1.0-1.5 bn and can

be brought online in 12-18 months. We think it can be possible to obtain financial support

from international financial institutions for this project while Iran's proposal to finance the

project may also be explored.

Another IMF programme for the continuation of structural reforms. With the existing

facility set to expire in September 2016 and funding needs adequately covered, there is a

possibility of the government entering another programme to ensure discipline on

implementing energy/tax reforms in the medium term. The importance of International

Monetary Fund (IMF) blessings was also evident in our recent interactions with the Asian

Development Bank (ADB) and the comfort that multilateral institutions derive out of clean

chits from the IMF. Recent approvals for the disbursement of US$1.0 bn from the World

Bank and US$1.4 bn from the ADB attest to this, in our view.

01 December 2015


Top ideas in 2016

UBL: UBL remains a top banking franchise in Pakistan and appears well positioned to

benefit from the likely uptick in the credit cycle. The bank has already demonstrated a

strong intent to focus on long-term projects, being the lead arranger for the US$250 mn

Karachi-Hyderabad motorway, consortium partner for US$500 mn Engro Thar Coal

financing and lead arranger for US$600 mn in financing for Lucky Cement's coal project.

The higher allocation to long-tenure PIB bonds (61% of total investments) and

international diversification (25% of total assets) have provided some cushion against

margin compression due to falling rates. Valuations at 1.3x 2016E P/B on an 18% ROE

remain compelling, with the bank offering the highest earnings growth of 13% within our

banking coverage in 2016.

DGKC: A prime beneficiary of an acceleration in domestic demand from aggressive

infrastructure spending and China-Pakistan Economic Corridor (CPEC) projects. Domestic

offtake has remained robust (14% growth) in 4M (Jul-Oct) FY16 with the expectation of 10-

12% growth momentum over the next 2-3 years. The 2.7 mn tonnes (60% of existing

capacity) South expansion plan remains on track and should improve efficiencies over the

long term. We see a very limited risk of breakdown in price arrangement, with capacity

utilisation expected to rise to 98% by FY18 based on current growth trends, enabling 15%

of anticipated supply additions over the next three years to be easily absorbed. Valuations

at 5,1x 2016E EV/EBITDA based on a 40% regional discount remain compelling given one

of the highest EBITDA margins regionally of 38%.

K-Electric: KE has a monopoly position catering to the energy needs of the largest city

(11% of the population) which is already a supply-deficient market (35-40%). On top of this,

demand growth of 4-5% provides an opportunity which KE is positioned to exploit.

Operating cash flows are growing stronger (a 19% CAGR) driven by higher recoveries and

a reliance on short-term borrowing easing (-21% QoQ). And while the risk of sponsor exit

could prolong the share price overhang, we downplay broader risks to the business

outlook as a sustainable, profitable model is now in place in contrast to a period of

uncertainty a few years ago. A US$400 mn investment for uplifting the transmission

network is commencing and any possible sponsorship change should not derail this.

Moreover, cheap valuations (8.3x 2016E P/E) could rerate from the possible start of a

dividend policy which would make KE a "utility company" for investors in the true sense.

The structural change in Pakistan's security landscape and law and order can also be

played via this stock, in our view.

01 December 2015


Philippines Unstoppable force paradox

Summary: What happens when an unstoppable force meets an immovable object?

Despite the headwinds (some weak quarters raising concerns on GDP, 2013-15E EPS-to-

nominal GDP ratio of less than 1x, Election 2016, and net foreign selling), we believe the

Philippines market will remain expensive. This is because of a profound change in fund

flow dynamics—it is no longer heavily dictated by foreign liquidity but by domestic money.





Top outperformers

Metrobank MBT.PS O PHP 81.0 101.1 5,481 11.3 12.2 10.8 1.2% 1.2 11.0% Net cash

Metro Pacific MPI.PS O PHP 5.3 6.2 3,163 16.3 14.7 13.7 1.3% 1.2 8.9% 20.6%

ICTSI ICT.PS O PHP 73.1 117 3,163 20.7 24.5 22.5 1.2% 2.6 16.0% 70.1%

EDC EDC.PS O PHP 6.3 9.8 2,506 13.3 12.6 10.1 3.5% 2.1 20.7% 75.0%

Bloomberry BLOOM.PS O PHP 5.3 8.4 1,247 13.9 -35.8 39.0 1.0% 2.3 5.9% 82.6%


Manila Water MWC.PS U PHP 24.8 19.9 1,062 9.2 9.7 9.8 3.3% 1.2 12.6% 60.6%

Note: Price as of 25 November 2015. Source: Company data, Thomson Reuters, Credit Suisse estimates

Earnings outlook

Revisions to the 2015 market EPS could have reached a bottom as 9M15 was broadly in

line at 74% of 2015E Bloomberg consensus. The consensus estimate now implies 4.1%

YoY growth, which is a slower pace than the 13.2% YoY expectation at the start of the

year. We observed that, over a 24-month period, consensus has overestimated the market

EPS forecasts by approximately 9% for 2013-14. For 2015E, the Bloomberg consensus

estimate has already been revised downwards by 11.7% over a 22-month period (Figure

120). For 2016E, consensus market EPS has been revised down by 7.7% over a ten-

month period. The current Bloomberg consensus estimate shows that market EPS is

expected to grow by 13.4% YoY in 2016E. In aggregate, our bottom-up net income

forecasts point to a market EPS growth of 16.0% YoY; higher mainly due to our above

consensus forecasts for banks, property and Petron.

Alvin Arogo

alvinjoseph.arogo@credit-

suisse.com

63 2 858 7716

For 2016E, consensus

market EPS has been

revised down by 7.7% over

a ten-month period. Same

period last year, one year

forward EPS was only

revised down by 2.2%

01 December 2015


Figure 120: Consensus PSEi EPS revisions over a 24-month period for 2014 to 2016

-9.8%

-11.7%

-7.7%

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

T-2

3

T-2

2

T-2

1

T-2

0

T-1

9

T-1

8

T-1

7

T-1

6

T-1

5

T-1

4

T-1

3

T-1

2

T-1

1

T-1

0

T-9

T-8

T-7

T-6

T-5

T-4

T-3

T-2

T-1 T

2014 2015E 2016E

Source: the BLOOMBERG PROFESSIONAL™ service, , Credit Suisse estimates

Valuations

In our Philippines outlook report for 2015 (Outlook 2015: Tale of two P/Es, 2

December), we introduced our decomposed-P/E framework as an alternative process

to analyse the Philippines market. For 2016, we have a base case target for steady-

state or "structural" P/E of 12.0x (Figure 121). This is mainly based on our estimate of

an 8.33% market cost of equity. For the 1Q13 to 3Q15 period, we estimate that

market cost of equity ranged from 7.7% to 8.7%. We have a value creation or

"sentiment" target P/E range of 6.0x to 9.0x (Figure 122). For 1Q13 to 3Q15, the range

was from 4.8x to 10.0x.

Figure 121: PSEi 12M trailing steady-state P/E from 4Q98-3Q15 (x) and CS target

Figure 122: PSEi 12M trailing value creation P/E from 4Q98-3Q15 (x) and CS targets

0

2

4

6

8

10

12

14

4Q98

4Q99

4Q00

4Q01

4Q02

4Q03

4Q04

4Q05

4Q06

4Q07

4Q08

4Q09

4Q10

4Q11

4Q12

4Q13

4Q14

4Q15

Steady-state P/E (Actual)

Steady-state P/E (Base case)

"taper tantrum"

0

2

4

6

8

10

12

14

16

18

20

4Q98

4Q99

4Q00

4Q01

4Q02

4Q03

4Q04

4Q05

4Q06

4Q07

4Q08

4Q09

4Q10

4Q11

4Q12

4Q13

4Q14

4Q15

Value creation P/E (Actual)

Value creation P/E (High)

Value creation P/E (Low)

"tapertantrum"

Source: Credit Suisse estimates Source: Credit Suisse estimates


Market earnings growth. For 2016E, the current Bloomberg consensus estimate shows

that market EPS is expected to grow 13.4% YoY. This will be an improvement over the

2014A and 2015E EPS growth of 3.7% YoY and 4.1% YoY, respectively. Market EPS

grew at a 10.1% five-year CAGR ending December 2014. Our 2016E nominal GDP growth

forecast is 8.8% YoY. This implies that consensus is expecting the market EPS growth to

beat nominal GDP growth for the first time since 2012 (Figure 123). However, as we

pointed out above, consensus tends to overestimate and thus there remains a risk of

further revisions in the next few months.

We see a potential for a

"sentiment" valuation

rerating .

Consensus expectation is

for market EPS growth to

beat nominal GDP growth

for the first time since 2012.

https://plus.credit-suisse.com/r/lCiEdA

01 December 2015


Figure 123: PSEi EPS growth vs nominal GDP growth for 2005-16E (%)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Nominal GDP (%YoY) Market EPS (%YoY)

Source: the BLOOMBERG PROFESSIONAL™ service, CEIC, Credit Suisse estimates

Election 2016. We believe that investors are now generally sensitive to possible potholes

that could emerge during a period of change in national leadership. Political events related

to the elections have picked up sharply in the second half of 2015 and will likely continue

until the May 2016 presidential elections. We believe that most of the foundations for

macroeconomic policy are not easily reversible; however, good governance perception is

susceptible to changes and would largely depend on who will be the new President and

members of the new administration. What is certain is the low margin for error as market

P/E at election day could be highest for May 2016 (Figure 124).

Figure 124: Market P/E at election day (x)

13.7

16.0

17.2

11.0

19.1

5

7

9

11

13

15

17

19

21

23

May 1998 (Estradaelected)

Jan 2001 (Arroyo EDSA2)

May 2004 (Arroyoelected)

May 2010 (Aquinoelected)

Current

Source: BSP, the BLOOMBERG PROFESSIONAL™ service

Fund flow dynamics—the Malaysian experience could be unfolding in the

Philippines. In retrospect, it is now well known that the Malaysian market has proven

hazardous to asset allocators, as its fund flow profile is very different from that of other

markets, due to the presence of large and growing ‘captive’ domestic funds. Likewise, we

believe that the Philippines market is no longer heavily dictated by foreign liquidity but by

domestic money. From P2,255 bn or US$50 bn in December 2009, we estimate that

Philippines total AUM witnessed a CAGR of 13% to P4,097 bn or US$91 bn in December

2014. We also note during the market recovery post GFC, foreign ownership has broadly

remained stable, yet the Philippines market has been moving upwards, presumably due to

domestic buying (Figure 125). This could more than offset foreign selling, in our view.

Political events related to

the elections have picked up

sharply in the second half of

2015 and will likely continue

until May 2016

We believe that the

Philippines market is no

longer heavily dictated by

foreign liquidity but by

domestic money

01 December 2015


Figure 125: PSEi versus foreign ownership (2001 to present)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

20%

25%

30%

35%

40%

45%

50%

Dec-0

1

Dec-0

2

Dec-0

3

Dec-0

4

Dec-0

5

Dec-0

6

Dec-0

7

Dec-0

8

Dec-0

9

Dec-1

0

Dec-1

1

Dec-1

2

Dec-1

3

Dec-1

4

Foreign ownership level

PSEi (RHS)

Source: PSE, Credit Suisse estimates

Top ideas in 2016

Metrobank (MBT)—gradual recovery in profitability to shore up valuations. We

believe MBT's risk-reward is favourable. The short-term dilution impact on valuations

should be offset by the fact that: (1) it now has the strongest CET-1, (2) has a very

liquid/under-levered balance sheet, and (3) healthy asset quality profile. Improvement in its

ROE is critical, which should be anchored upon its steady core lending business (i.e.,

sustained loan growth and NIM recovery) and normalising credit cost.

Energy Development (EDC)—ripe for bottom fishing. Concerns on forex losses in 2015

have resulted in transient share price weakness. However, we believe that there is enough

potential upside to more than offset risks, and this is further supported by the current

undemanding valuations. 2016E P/E of 10.1x is within the stock's average minus 2

standard deviation level of 9.7x (Figure 128).

ICTSI (ICT)—long-term growth potential remains intact. Slower global trade and

currency depreciation put pressure on near-term earnings. However, we note the

defensive nature of its gateway ports: (1) able to charge for ancillary services such as

storage, packing and unpacking, and weighing, (2) relatively stable demand as they are

located close to points of consumption or production, and (3) secure pricing power as

shipping lines cannot easily transfer their business to other ports.

Among our top

OUTPERFORM-rated

stocks, we highlight MBT,

EDC, and ICT

01 December 2015


Figure 126: PSEi—Forward P/E from Jan 2010 to current (x)

Figure 127: MBT—Forward P/E from Jan 2010 to current (x)

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Fwd PER Ave-2SD Ave-1SD

Average Ave+1SD Ave+2SD

5.0

7.5

10.0

12.5

15.0


Fwd PER Ave-2SD Ave-1SDAverage Ave+1SD Ave+2SD

Source: Thomson Reuters Datastream, the BLOOMBERG

PROFESSIONAL™ service, Credit Suisse estimates

Source: Thomson Reuters Datastream, Credit Suisse estimates

Figure 128: EDC—Forward P/E from Jan 2010 to current (x)

Figure 129: ICT—Forward P/E from Jan 2010 to current (x)

7.5

10.0

12.5

15.0

17.5

20.0

22.5

25.0



0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0



Source: Thomson Reuters Datastream, Credit Suisse estimates Source: Thomson Reuters Datastream, Credit Suisse estimates

01 December 2015


Singapore Domestic policy in focus

We expect Singapore GDP growth to remain lacklustre in 2016, reflecting a weaker growth

outlook for China and ASEAN, as well as a slower population increase. Given an uncertain

external environment, we expect the focus to be on domestic restructuring, with

government measures in the telco, property, land transport sectors closely watched. We

believe there could be downside risks to market EPS growth expectations of 5% in 2016,

vs a 2% decline in 2015. While MSCI Singapore P/B of 1.16x is close to its FY08/09 low of

1.06x, we do not see scope for a broad rerating as ROE is likely to remain depressed at

close to 9.5% (2008-09 low of 10%). We are OVERWEIGHT the real estate and

transportation sectors, and UNDERWEIGHT in the telco sector. Our top picks are DBS,

Singtel and Citydev.



Company RIC Rating Curr. Price Price (mn) FY14A FY15E FY16E FY16E FY16E FY16E FY16E

Top outperformers

CDL CTDM.SI O SGD 7.44 12.00 4,816 14.9 13.4 9.6 2.2 0.7 7.8 19.8

SingTel STEL.SI O SGD 3.80 4.40 43,128 16.6 16.0 15.2 4.8 2.4 16.0 34.1

DBS DBSM.SI O SGD 16.72 22.00 29,931 10.8 9.7 8.7 3.6 0.9 11.6 n.m.


StarHub STAR.SI U SGD 3.68 3.10 4,531 17.1 16.5 17.5 5.4 30.7 183.2 119.4

SUNT SUNT.SI U SGD 1.53 1.54 2,743 16.6 14.3 13.6 6.4 0.7 5.2 55.5

M1 MONE.SI U SGD 2.85 2.35 1,901 15.1 14.9 15.4 6.5 6.7 43.6 75.8


Expect more earnings cuts

Consensus 2015 and 2016 EPS were cut by 7.6% and 11.4% since January 2015,

respectively. As a result, the market now expects MSCI Singapore to see EPS growth of

5.2% in 2016, following a decline of 2.3% in 2015. The largest cuts were in consumer

discretionary, consumer staples and industrials sectors. Consumer discretionary stocks

have been impacted by weak retail sales and falling gaming revenues. Consumer staples

have been hit by a decline in commodity price, while industrial stocks have been impacted

by lower newbuild rig orders. Real estate, financials and telcos have seen relatively

resilient earnings.

Figure 131: 2015E and 2016E Singapore consensus Figure 132: MSCI Singapore EPS growth (%)

86.0

88.0

90.0

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94.0

96.0

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102.0

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-13

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-14

May

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May

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Aug

-15

Nov

-15

Singapore - EPS15 Singapore - EPS16

-2.3

5.2 7.0

-50.0

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-10.0

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2017

MSCI SG EPS growth (%)

Source: IBES Source: MSCI

Gerald Wong

gerald.wong@credit-

suisse.com

+65 6212 3037

01 December 2015


Attractive valuation but ROE may remain depressed

MSCI Singapore P/B of 1.16x is close to its FY08-09 low of 1.06x. The market is already

trading at a discount to P/B of 1.23x in 2001 (global recession) and 1.21x in 2003 (SARS

episode). Only during the Asian Financial Crisis of 1997-98 did P/B see much lower levels

of 0.77x. However, we do not see scope for a broad rerating as ROE is likely to remain

depressed at close to 9.5% (FY08/09 low of 10%).

Figure 133: ROE likely to decline further in 2016E Figure 134: MSCI Singapore—P/B

2%

4%

6%

8%

10%

12%

14%

16%

18%


MSCI Singapore - ROE

9.5% now

9.2% 2016

0.4

0.8

1.2

1.6

2.0

2.4

2.8

Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13

Singapore - Trailing PB

1.16x now

1.36x in Aug 13

1.06x in Feb 09

1.21x in Jan 03

1.23x in Sep 01

0.77x in Aug 98

1.37x in May 12

Source: MSCI, IBES Source: MSCI


We expect government measures in telco, property and land transport sectors to be

closely watched.

■ Potential for a new entrant in the cellular market: We see a high probability of a

fourth cellular operator emerging from the spectrum auction in 1H16. In 2H16, we

expect cellular pricing in Singapore to come under pressure as incumbent operators

pre-empt the potential launch of services by the new player in 2017.

■ Pre-emptive recalibration of property measures: In our view, the time is ripe for an

easing of some of the measures, given that specific policy intent of these measures has

been achieved: (1) speculative activities have fallen, (2) foreign demand has been

curbed, and (3) income growth has now outpaced home prices.

■ Bus and rail restructuring in focus: With the bus government contracting model on

track to start in 3Q16, we expect continued emphasis in improving rail reliability, with a

potential transition to a similar asset light model for rail. This will be like the rail

financing framework for the Downtown Line operated by ComfortDelgro, where the

operating assets are owned directly by LTA.

Figure 135: Fourth cellular operator likely to target higher-tier data plans

25

45

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Jun-12 Sep-15

1Gbps pricing trend

200Mbps/300Mbps pricing trend

Expected pricing trend in 10GB/12GB cellular data plans

New players in fixed BB market offeredhigh speed plans at competitive rates. It had a ripple effect reducing BB prices across the sector

We expect fourth cellular operator to follow similar strategy and offer higher-tier data packs at competitive rates, reducing sector pricing.

Past - Broadband pricing Future - Cellular data pricing

Note: Broadband (BB) and cellular data prices are on different scales; the figure is for illustrative purposes

only; Source: Company data, Credit Suisse estimates

01 December 2015


Top ideas in 2016

CityDev (OUTPERFORM, S$7.44, TP 12.00)

■ We believe that multiple catalysts lie ahead for CDL, with further upside likely to be

driven by: (1) asset divestments to unlock portfolio value, (2) positive sales momentum

from past overseas investments, (3) a pick-up in Singapore residential sentiment in

2016, with the potential tweaking of residential policy measures, and (4) a potential re-

inclusion into the FTSE EPRA/NAREIT index.

■ We believe CDL has an underappreciated portfolio of investment properties, the value

of which could be potentially unlocked near term through an asset divestment, while

retaining long-term ownership. As at Sep-2015, CDL's investment properties are held

at S$3.1 bn vs our estimated value of S$7.6 bn.

■ With market transaction volumes at a trough, CDL will be best positioned for a

potential turnaround in sentiment in 2016, given its status as a Singapore residential

proxy.

■ We believe current valuations are attractive, at a 41% discount to RNAV (-1.4 SD from

average) and 0.79x P/B.

SingTel (OUTPERFORM, S$3.80, TP S$4.40)

■ SingTel is our top pick among the Singapore telecom stocks as the company offers a

unique combination of dividends and growth (primarily coming from associates).

Additionally, the company has the least exposure (in terms of contribution to

consolidated financials) to the Singapore cellular sector among the three Singapore

telcos.

■ We expect SingTel’s net profit to show a three-year CAGR of c4% by FY18E largely

driven by associate countries. Even though its Singapore business is likely to be under

stress from the cellular segment, the impact on consolidated earnings will not be

significant as Singapore contributes c30% (as of FY15) to consolidated net profit.

■ We believe currency movements can be a key variable in SingTel's earnings given

c70% of its earnings come from outside of Singapore which are exposed to currency

fluctuations. Based on our estimates, a 5% depreciation in the SGD vs. all group

operating currencies can lead to c3.5% decline in our FY16-17 earnings estimates.

■ We believe SingTel is trading at attractive valuations (2016E/2017E EV/EBITDA of c7x

vs c9x for M1 and StarHub) and has factored in the potential downside from the entry

of a fourth cellular operator, in our view

DBS (OUTPERFORM, S$16.72, TP S$22.00)

■ DBS benefits the most from a stronger USD and rise in short term rates. It is also the

least exposed to ASEAN asset quality risks.

■ DBS' management probably appears the most confident about the growth and asset

quality outlook for FY16E, the key difference being the lack of any meaningful onshore

exposure in ASEAN.

■ DBS has also provided more colour on key areas of concern (China/commodities

exposure) to boost confidence.

■ Key upside risks from better-than-expected NIM improvement. Key downside risks are

Singapore and China asset quality.

01 December 2015


South Korea Five optimisms in 2016, despite headwinds

Summary: The recovery of global growth is expected to be only modest in 2016, with

persistent slowdown of China growth. A broad-based recovery still faces headwinds. At

the same time, we are constructive on the KOSPI based on the following themes. First, the

private sector re-leverage has been better contained and free cash flow is expected to

improve. We have evidenced increasing buybacks and dividends offering upside potential.

Second, downward earnings revision is slowing down. Third, the KRW is unlikely to

massively outperform its competitors. Fourth, selective Korean consumer

sectors/companies remain competitive amidst steady global and domestic goods demand.

Lastly, we expect further material progress of Chaebol restructuring (i.e., Samsung group),

which would clear the overhang and improve transparency. We set our target KOSPI of

2,200 for end-2016, based on 12M forward P/E of 10.8x (EPS growth of 8%), which is one

standard deviation higher than the ten-year average. Key risk for Korea in 2016 is the

contraction of Chinese investment, which could potentially cause a global GDP recession,

according to CS' economic research team. However, the probability is low, although the

impact could be considerable.





Top outperformers

Samsung Electronics 005930.KS O W 1,299,000 1,785,000 167,372 8.2 8.6 7.1 2.3 0.9 12.8 -6.1

Hyundai Mobis 012330.KS O W 247,000 280,000 21,032 7.0 7.7 7.0 2.0 0.8 12.5 -26.0

Samsung Life 032830.KS O W 108,000 135,000 18,894 15.3 17.7 16.3 1.5 0.8 4.8 n.a.

Shinhan FG 055550.KS O W 42,300 60,000 17,546 10.2 9.3 8.2 3.2 0.7 9.0 n.a.

Shinsegae 004170.KS O W 251,000 330,000 2,162 15.8 6.2 12.9 0.5 0.8 6.1 44.6


LG Display 034220.KS N W 24,900 25,600 7,794 9.9 7.9 10.6 2.0 0.7 6.5 3.0


Earnings outlook

EPS growth for Korea by consensus (IBES) is 8% YoY in FY16, in line with our

forecast. Downward earnings revisions have been the slowest in the past three years.

Global IP is likely to muddle through with steady goods demand, and domestic

consumption is expected to continue its modest recovery. This, in turn, would benefit

consumer discretionary (including autos and auto parts) and staples. In addition,

subdued deflation pressure and US rate hike prompt steepening yields curve,

supportive of the financial sector. Industrials, including shipbuilders, and E&Cs still

face uncertainty of further pressure from write-down of legacy projects, while

consensus appears to be looking for earnings normalisation.

Gil Kim

[email protected]

822 3707 3763

01 December 2015


Figure 137: MSCI Korea—earnings estimate trend Figure 138: MSCI Korea—2016 earnings estimate trend

70

75

80

85

90

95

100

105

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2014 2015

60

70

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90

100

110

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130

140

Korea

Energy

Materials

Industrials

Cons. D

isc.

Cons. S

taples

Financials

IT Telecom

Utilities

2016 Earnings Estimate Trend

J

N

M

J

O

A

S

Source: Thomson Reuters Datastream, Credit Suisse research Note: M = May, J = Jun, J = Jul, A = Aug, S = Sep, O = Oct, N = Nov

Source: Thomson Reuters Datastream, Credit Suisse research

Valuations

MSCI Korea is currently trading at 9.8x 12M forward EPS, near the ten-year average

of 9.8%. We expect to see further upside on multiples given that (1) earnings

revisions are expected to stabilise, (2) expectation on higher dividend yields or share

buy-backs, and (3) the monetary policy would remain accommodative with excessive

money supply supportive of equity market valuations. On a P/B basis, MSCI Korea is

currently trading at one standard deviation below the ten-year average since the

global financial crisis.

Figure 139: MSCI Korea 12M fwd P/E Figure 140: MSCI Korea 12M fwd P/B

6

7

8

9

10

11

12

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14

2006

2007

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2010

2011

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12M fwd P/E (x) Avg +1 STD -1 STD

0.6

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1.0

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1.4

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1.8

2.0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

12M fwd P/B (x) Avg +1 STD -1 STD

Source: Thomson Reuters Datastream, Credit Suisse research Source: Thomson Reuters Datastream, Credit Suisse research


Recovery of commodity prices bodes well for Korea market: Although Korea is a net

importer of commodities, we believe a recovery of commodity prices would be positive for

KOSPI considering that (1) it would be a tailwind for cyclical sectors directly (Refinery and

Materials) and indirectly (Shipbuilders and E&Cs), and (2) the emerging market economy

would improve, boding well for Korean exporters in general. CS' commodity research team

expects a trough in 1Q16 and mild recovery is expected for iron ore. However, uncertainties

01 December 2015


still loom with fears of global economic slowdown. In case the visibility on commodities' price

improves, whether driven by supply consolidation or more preferably demand improvement,

S-Oil and Hyundai Heavy would be the key beneficiaries, in our view.

Dividend boom while excess liquidity is supportive: Driven by anticipation of modest

improvement of dividends and accommodative monetary policy, dividend yields are

expected to fall below time deposit yields for the first time in the history of Korea. In case

dividend yields rise much higher than expected, it could potentially result in more

aggressive fund inflows into the equity market by retail investors, in our view. This could

prompt a rerating of the KOSPI. In 2005, while the growth of the global economy was

lukewarm, the KOSPI has rerated from 895.9 to 1,379.4. This was largely driven by strong

domestic fund inflows on the back of the "equity instalment fund" boom. Aside from the

obvious beneficiaries of brokerage firms, high dividend yield stocks with rising EPS at

trough valuation would benefit. Based on our screening, POSCO stands out.

Currency re-denomination: In September 2015, the government of BoK said "There is

discussion about the need for re-denomination, which is aligned with my view," at the

National Assembly hearing. The statement was officially withdrawn by BoK. The finance

minister, Mr. Choi, also said "Re-denomination is not being considered for the time being."

However, we believe the current low inflation is an opportunity for re-denomination. The

benefits of re-denomination could potentially be legitimisation of underground economy if

effectively executed. This in turn would lead to greater support on fiscal policy and

recovery of domestic consumption through greater money supply. Coincidentally, the last

re-denomination was pursued by President Park, the father of the current president in

1962. The key beneficiary would be financial institutions and domestic players, both

consumers and E&Cs, in our view.

Top ideas in 2016?

Samsung Elec. (005930.KS, Outperform, Last price: W1,299,000, TP: W1,785,000)

We believe in 2016, the core investment case for Samsung Electronics will revolve around

three factors: (1) steadily rising dividend yields; (2) further upgrade in core earnings; (3) split-

up of the company into HoldCo and OpCo. Targeted annual shareholder return going

forward will be in the 30% to 50% range of previous year’s FCF generated from 2015 to end-

2017. Increasing the dividend yield will be the primary use of cash and we currently estimate

2016 and 2017 DPS will rise to W25,000 then to W30,000, implying 1.9% and 2.3% yield vs.

1.4% in 2015. We also call for core operating profit to rise 17% YoY compared to about 2%

for consensus. Key difference in view appears to be that we see low risk of DRAM profit

deterioration as investments are already being pushed out, smartphone margins remain at

10% and we have a much more optimistic outlook for OLED and System LSI recovery.

Earnings contribution has also been rebalanced between handsets and components. Finally,

with some of the major restructuring already completed at higher levels of Samsung Group,

we believe our core thesis of Samsung Electronics finally splitting up to turn into a more

efficient operating company can be realised in 2016. With core operations forecasted to

improve into 2016 and more visible capital returns now, we believe that the stock remains

severely undervalued at 0.1x forward 2016 P/B. Our TP remains at W1,785,000, which still

implies a very undemanding 1.3x 2016 P/B on increased ROE of 13%.

Hyundai Mobis (012330.KS, Outperform, Last price: W247,000, TP: W280,000)

(1) Expanding core parts (including ADAS) sales within Hyundai Motor Group. Due

to its inseparable business relationship with Hyundai Motor and Kia Motors, Mobis has

begun expanding the reach of its ADAS parts to the group’s newly launched vehicles,

including ‘Sonata’, ‘Tucson’, ‘Sportage’, and ‘K5’, as an option. Although ADAS currently

accounts for under 1% of its core parts sales, we believe the growing usage of ADAS will

boost sales of other core parts, such as braking and steering systems, and that should drive

the overall sales growth for the company. We estimate Mobis's sales/OP CAGR of 6%/6%

over 2015-18 (vs Hyundai Motor's 2% sales and 3% OP CAGR).

01 December 2015


(2) Beneficiary of China's auto demand recovery. The recent China auto stimulus policy

should improve Mobis's overall earnings as 26% of Mobis's OP came from China in 2014.

(3) Improved shareholder returns. Mobis recently announced a 1% share buyback in

September and also guided to increase its dividend payout ratio steadily. We estimate that

the company will pay W4,000 DPS with a 12% (vs 5% in 2014) payout ratio in 2015E.

Shinsegae (004170.KS, Outperform, Last price: W251,000, TP: W330,000)

Shinsegae should benefit from the structural growth of inbound tourism and the bottoming

out of domestic consumption. Shinsegae's recent grant of the licence to operate a DFS in

downtown Seoul, upgrades Shinsegae's channel mix, given DFS is a higher growth and

higher margin business than department store channel. Also, given the new DFS will be

located at its main department store branch (1) the company is likely to be profitable with

no burden of rent expense and (2) the operational efficiency of the department store

should improve thanks to the traffic from DFS. We believe domestic consumption will

improve from a low base, and thanks to the government's focused measures to boost

domestic consumption. Shinsegae will be able to enjoy any cyclical recovery of

consumption thanks to a timely store expansion plan, increasing store space by 50% until

end-2016. The stock is trading at 13x FY16 P/E at below historical average. Stripping out

the value of the Samsung Life stake, valuation becomes even more compelling, relative to

its peers.

01 December 2015


Taiwan Enough global health to sustain growth?

Summary view: Improving global health and US-led growth should continue to keep

Taiwan's earnings growth supported, although we estimate overall growth pace for the

market will moderate to below 5% in 2016. We do expect exporters with large USD

revenue mix to see relatively better growth and select financials to benefit from US rate

hikes while domestic and China focused business will likely stay weak. Therefore, we

maintain our slight tech overweight within Taiwan context to account for (1) better growth

(+11.8% in 2016 vs non-tech's 4.3%); (2) slightly cheaper valuation on much better ROEs;

and (3) more upside potential from further stregnth in USD.

We set our year-end 2016 TAIEX target at 9,000 (implies 7.3% potential upside) using the

same 1.5x P/B for our year-end 2015 TAIEX target that reflects moderate earnings growth.





Top outperformers

SPIL 2325.TW O TWD 45.0 52.0 4,325 12.0 12.2 11.7 6.4 1.22 16.4 3.0

Delta 2308.TW O TWD 158.5 196.0 12,592 18.7 22.5 19.4 3.6 3.60 25.2 0.5

Hon Hai 2317.TW O TWD 84.3 108.0 39,791 9.5 9.0 8.9 5.7 1.91 13.9 -35.1

E.Sun 2884.TW O TWD 19.9 23.0 4,803 11.9 11.0 9.9 2.0 0.45 12.7 n/m

Uni-President 1216.TW O TWD 54.2 64.0 9,441 26.6 19.3 16.8 3.6 1.23 18.1 46.6


HTC 2498.TW U TWD 85.3 57.0 2,175 48.0 -5.0 215.6 0.1 1.94 0.5 -65.9


Earnings outlook

We expect the market's earnings growth to slow to 4% in 2016 from 6% in 2015 and 23-

37% in 2013-14. The growth slowdown will be driven by (1) high earnings base with

consensus forward EPS estimates at one std dev above its long-term growth trend; (2)

more normalised (lower) capital market and FX earnings contribution; (3) weak consumer

tech demand with continuing inventory adjustment; and (4) negative impact from weak

China growth. These factors were felt more severely in 2H15 and the inventory

adjustments should run their course by 1Q16, setting up for easier compares moving

through 2016. On a YoY basis, we estimate that profits for the market will see 10-12%

decline in 1H16 before staging 16-18% YoY growth in 2H16.

Chung Hsu

chung.hsu@credit-suisse

886 2 2715 6362

01 December 2015


Figure 142: MSCI AxJ Taiwan—2015 and 2016 IBES EPS estimates (US$)

22

23

24

25

26

27

28

29

30


2015 EPS 2016 EPS


Valuations

The current 1.4x forward P/B valuation for Taiwan market is at one std dev below its long-

term cycle average, which is usually when it discounts some risk of earnings decline.

Meanwhile, the market's 12% ROE remains above mid-cycle average of 11.5%.

Figure 143: P/E of Taiwan market is almost one std dev

below LT average

Figure 144: Taiwan market's P/B is 1stdev below LT

average

5.0

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Forward PE Average +1std -1std +2std -2std

(X) CS Taiwan coverage P/E

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Forward PB Average +1std -1std +2std -2std

(X) CS Taiwan coverage P/B



Taiwan is likely to face a major political change in 2016 with the opposition DPP

(Democratic Progressive Party) likely to win the Presidential election and possibly with a

control of the Legislature, according to the latest polls. This could mark the first time that

the opposition DPP controls both the Executive and Legislative Branch of the Taiwan

government, and hence, should enable the new government to implement more changes.

We believe based on DPP's agenda, the most likely and visible changes under it would be

on tax and pension to raise funding to build a stronger social safety net (i.e., long-term

senior care and social housing). This means potentially higher inheritance, corporate and

capital gains tax for Taiwan in the medium term with the government also shifting resource

into SMEs from larger corporates.

01 December 2015


We believe over the past six months, Taiwan's market has prepared for DPP to win the

Presidential election but not necessarily for DPP to also win the Legislative election, which

could imply much faster and greater policy changes for Taiwan.

Top ideas in 2016?

■ SPIL (2325.TW, OUTPERFORM, target price NT$52). We view the company as

having good support from 4Q15 potential upside and its traditional 1H high season,

which may be supplemented by the end to this year's inventory correction. In addition,

the company may also offer upside if Hon Hai or ASE exercises a bid for more control

or China shows interest in a stake for partnership to build out SPIL's advanced

packaging in Suzhou. SPIL is reasonable at 11.7x 2016 P/E and 6.4%% cash yield.

■ Delta (2308.TW, OUTPERFORM, target price NT$196). We are convinced by Delta's

strategy to improve Eltek's OPM, with cost savings from centralised procurement and

manufacturing, lower financing costs, streamlining of its sales offices, and cross-

selling opportunities. We believe Eltek's global footprint should help Delta diversify

regional mix for the branding business. We also see growing opportunities for Delta in

modularised sub-systems, given its strength in power electronics, packaging and

miniaturisation know-how. We believe its first power module product might be close to

commercialisation. Hence, we expect that further upside could come from growing

demand for modularisation, margin improvement in Eltek and stabilising IA demand.

■ E. Sun (2884.TW, OUTPERFORM, target price NT$23). We expect E Sun's strong

fee income momentum to be sustained at 2–3x of industry average on robust wealth

management fee income growth and declining opex growth rate. We believe that with

the bank's WM fee income to deposit ratio only at 0.4% versus 0.6% of other leading

banks, there is still a significant upside to E Sun's fee business in the next few years.

Also, we estimate that with overall opex growth decelerating from mid-to high-teen to

low teens in the next two to three years, the bank's PPoP growth can be maintained at

16-18% after achieving 25% growth in 2015. With the bank's tier-1 ratio above 9% and

group leverage ratio amongst the lowest, we believe that E Sun's capital position can

support growth for the next two to three years.

01 December 2015


Thailand Another tough year

Thailand faces another tough year. While GDP growth should rise from 2015, the

improvement will likely prove weak and disappoint the market. High household debt,

sluggish exports and low capacity utilisation rates will weigh on output from a cyclical

perspective, while structural problems of bad demography and poor worker skills will

remain a drag for years. Although we forecast decent 10% EPS growth for domestic

stocks, the market P/E should derate further. The P/E still is near its ten-year average,

whereas we believe that slower growth and an ongoing shift of domestic money to

overseas equities warrant a discount. We set an end-2016 SET index target of 1,448,

implying 4.8% upside from the time of writing.





Top outperformers

AIS ADVANC.BK O THB 205 280 17,087 16.9 15.5 14.5 6.9% 13.0 90.1% 232.7%

BTS Group Holdings BTS.BK O THB 9.4 12.2 3,144 54.7 42.3 56.7 7.1% 2.3 4.1% 36.9%

Thai Union TU.BK O THB 18.5 22.5 2,475 15.5 17.1 13.7 3.6% 1.8 13.1% 63.7%

STECON STEC.BK O THB 24.6 30.0 1,052 24.7 29.2 24.1 1.9% 3.9 16.0% Net cash

C.P. ALL CPALL.BK O THB 48.5 60.0 12,214 44.6 31.7 25.4 2.8% 10.0 39.2% 358.8%




Earnings outlook

As is almost always the case in Thailand, EPS should outperform nominal GDP, but

downside risk remains. We forecast 15% growth for all stocks under our coverage and

10% for just domestic names (excluding outliers with big one-offs). As one-off stock losses

artificially depressed energy earnings in 2015, we consider the figure for domestic names

the better barometer. Our forecasts appear achievable, but the tendency of the economy

to disappoint even our low expectations leaves risk of additional cuts. In any case, the

street expects EPS 5% above our forecasts for domestic stocks, pointing to another round

of consensus downgrades (Figure 146). Weak consumption and business investment are

the main top-down factors limiting growth. Negative bottom-up factors include high bank

provisions and a weak property market. Positive bottom-up factors giving various sectors

and the market as a whole double-digit growth include lower telco regulatory costs and

competition, structural growth in modern format retailing and healthcare, strong tourist

arrivals and technical rebounds from low 2015 bases for media firms.

Dan Fineman

dan.fineman@credit-

suisse.com

+662-614-6218

01 December 2015


Figure 146: Thailand 2015 and 2016 consensus EPS estimates

70

75

80

85

90

95

100

105

Dec

-13

Jan-

14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

2015E 2016E


Valuations

We expect the market to derate further. The forward P/E is near the ten-year average,

whereas we believe a discount is appropriate. Thailand's growth is downshifting to a lower

level permanently, and a shift in savings patterns is diverting large amounts of funds to

overseas equities, whereas previously local savings were locked in-country. Our index

target assumes the market P/E derates to one-half standard deviation below its nine-year

average ex-GFC.

Figure 147: Thailand 12M fwd P/E near decade average,

but should de-rate further

Figure 148: MSCI Thailand trailing P/B near post-GFC

trough, but ROE has fallen

6

8

10

12

14

16

18

20

Dec

-06

Jul-0

7

Feb

-08

Sep

-08

Apr

-09

Nov

-09

Jun-

10

Jan-

11

Aug

-11

Mar

-12

Oct

-12

May

-13

Dec

-13

Jul-1

4

Feb

-15

Sep

-15

(x)

0.8

1.1

1.4

1.7

2.0

2.3

2.6

2.9

Dec

-06

May

-07

Oct

-07

Mar

-08

Aug

-08

Jan-

09

Jun-

09

Nov

-09

Apr

-10

Sep

-10

Feb

-11

Jul-1

1

Dec

-11

May

-12

Oct

-12

Mar

-13

Aug

-13

Jan-

14

Jun-

14

Nov

-14

Apr

-15

Sep

-15

(x)

Note: Based on CS coverage.


Source: Factset

01 December 2015



Competition in telcos: We expect a marked improvement in the level of competition to

appear following successful spectrum auctions in 4Q15. The creation of a more level

playing field with all three players having full 4G service and paying the same revenue

sharing should be the positive catalyst to transform competition.

Bank provisions: We expect provisions to again exceed bank guidance and for

consensus EPS cuts to follow.

A rate cut: Many in the market expect Thai rates to rise in line with US rates, but we

expect another cut. A cut would not help the broader market appreciably but would provide

a positive environment for yield stocks in telcos and utilities.

Top ideas in 2016?

Telcos

We remain heavily overweight telcos. Our telcos analyst, Colin McCallum, believes that

the market has exaggerated the damage from high prices bid in the 1800 MHz auction and

fails to appreciate the transformation in competition that will ensue. For the past two years,

True has enjoyed a temporary competitive advantage over AIS and DTAC. Its tie-up with

CAT has enabled it to offer full 4G service before its rivals, and it has had to pay no

revenue sharing to state agencies. During this window of opportunity, it has been rational

for True to market aggressively and attract as many subscribers as possible. After the

auction, however, True will lose its advantages. AIS and DTAC will also be able to offer full

4G service, and all three operators will pay the same 5.25% in revenue sharing. With its

window of opportunity closed, True will no longer have incentives to steal market share

with heavy handset subsidies and giveaways. We like AIS, INTUCH, DTAC, Jasmine and

DIFu.

Thai Union (OUTPERFORM, TP Bt22.5)

A tuna canner and seafood exporter, TU is the top beneficiary of a weak baht and also

could gain from cheap oil. The market has exaggerated the potential hit from legal

problems in the US. Our analysis indicates that the market has already more than

discounted the possible worst-case outcome as far as regulatory fines or class-action

lawsuits are concerned. What is left is one of Thailand's best-run companies, with a

globally competitive business.

BTS Group Holdings (OUTPERFORM, TP Bt12.2)

BTS is now our top infrastructure stock. BTS has lagged contractors this year, but it should

gain as much or more than most contractors. The key projects that will see progress in the

next 12 months are in Bangkok mass transit, and we expect BTS to win two and possibly

all of the bids for the Pink Line, the Yellow Line and the Light Rail Transit line. BTS trades

at a 23% discount to our DCF and sum of the parts-based TP.

01 December 2015


Vietnam On the rising tide

We expect Vietnam to continue to deliver strong growth in FY16E. While the absolute level

of foreign direct investment (FDI) could moderate YoY, as bigger contributors in FY14-15

(e.g. Samsung) complete the initial part of their investments, we expect the "chain

reactions" from earlier FDIs—e.g., related investments, employment, efficiency gains and

the second-round effect on consumption—to continue to drive growth. Based on the Asian

Development Bank's (ADB) recent report, it expects Vietnam to achieve 6.6% YoY GDP

growth in FY16E, from 6.5% in FY15E.

We acknowledge that market access remains challenging given limited options (the lack of

large and/or liquid stocks, the lack of access to key sectors particularly related to main

growth engines e.g. FDIs/manufacturing), but within our current coverage we continue to

like Vinamilk (growing demand for dairy products, superior distribution channels) and

Vingroup (benefits from continued economic growth and a recovery in property market).

We only maintain our NEUTRAL rating on Masan given the underperformance of its core

consumer business, while investment into feed business raises uncertainties.

Investors can also gain exposure to Vietnam through companies with a significant

manufacturing base in Vietnam e.g. Shenzhou International which, in our view, is set to

benefit from FTAs Vietnam has entered as well as TPP into medium-longer.


Current Target Upside Rating P/E (x) EV/EBITDA (x) Div. yield (%) P/B (x) ROE (%)

Price

(VND)

Price

(VND)

(%) FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E

Top outperformers

Vinamilk 125,000 140,000 12.0 O 19.7 17.5 14.8 12.7 3.2 3.3 6.7 5.7 33.8 32.6

Vingroup 43,400 52,000 19.8 O 23.9 12.2 15.7 8.6 - - 2.0 2.2 8.5 17.8

Masan Group 70,500 80,000 13.5 N 29.0 21.9 13.8 10.5 - - 2.1 1.9 10.9 12.3

CS coverage average* 22.63 16.8 14.9 11.1 1.7 1.8 4.5 4.0 22.4 24.6

* Blended 3 companies. Note: Priced as of 25 November 2015.

Source: Company data, Thomson Reuters, Credit Suisse estimates,

Earnings outlook

Based on IBES estimates for the top-40 stocks by market capitalisation, consensus is

expecting the Vietnam market to deliver 14.7% YoY EPS growth in FY16E and 19.2% YoY

EPS growth in FY17E, a sharp improvement from the 9.2% YoY decline in FY15E

(affected largely by the decline in oil prices) driven by broad-based growth across sectors

and less drag from oil-related earnings. Given their respective weightings in the market,

the key earnings drivers for the Vietnam market are banks (36% of Vietnam's top-40

market cap), Vinamilk (16% of top-40 market cap) and Vingroup (8% of top-40 market

cap).

Our recent meetings with banks in Vietnam indicate confidence that credit growth would

remain robust (mid-to-high teen YoY growth) in FY16E, driven by a greater focus on the

retail/consumer and SME segments. While they all still highlighted non-performing loans

(NPL) as a key risk for the sector (and that the Vietnam Asset Management Company

structure itself does not solve the problem), they also noted that: (1) directionally, NPLs

are coming down (the State Bank of Vietnam's official number was 3.7% as at Jun-15,

from 4.9% at Sep-12); (2) it is not preventing them from growing/giving new loans

currently; and (3) the quality of new loans has been better given more loans to the private

sector (relative to SOEs), better screening and strong demand that means they can be

selective. These banks agreed, however, that they need additional capital, but the current

foreign limit on the sector (30%) remains the key hurdle.

Dan Fineman

dan.fineman@credit-

suisse.com

+662-614-6218

Chate Benchavitvilai

chate.benchavitvilai@credit-

suisse.com

+65--6212-3241

01 December 2015


Figure 150: Top 40 VN stocks by market cap—2015 and 2016 IBES EPS estimate (US$)

0.05

0.07

0.09

0.11

0.13

0.15

0.17

0.19

Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15

2015 Vietnam IBES EPS (US$/shr) 2016 Vietnam IBES EPS (US$/shr)


For Vinamilk (VNM), FY15 has been a particularly strong year with robust earnings (+36% in 9M15) driven by 16% revenue growth (rising volumes and market share gains) and an 8.2% rise in margins. We expect margins to remain upbeat in FY16E given VNM’s dominant franchise position, with management indicating price pass-through once contract negotiations on next year’s powder milk procurement are complete.

We also expect Vingroup to deliver strong earnings growth into FY16E given robust primary residential sales (~US$800 mn in FY15 YTD) and expansion in the retail and hospitality footprint across the country. We are expecting strong earnings momentum with a 40% EPS CAGR over FY16-18E.

Valuations

While Vietnam market's 13.6x 12-month forward P/E (based on consensus for top-40 stocks by market cap) is above its historical average, we argue that its accelerating earnings growth (14.7-19.2% EPS growth into FY16-17E ) supports multiple expansion. As we also discussed in our strategy report, Private Sector Taking Over, dated 28 October 2015, we believe that: (1) the big fall in cost of capital given the significant decline in the risk-free rate, (2) the dong's relative stability and (3) the lower systemic risk (so investors should assign a lower equity risk premium) mean that Vietnam's market multiple deserves a premium relative to its historical level, in our view.

Figure 151: P/E might be above historical average…. Figure 152: … but faster EPS growth justifies the premium

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Nov

-08

Apr

-09

Sep

-09

Feb

-10

Jul-1

0

Dec

-10

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-11

Oct

-11

Mar

-12

Aug

-12

Jan-

13

Jun-

13

Nov

-13

Apr

-14

Sep

-14

Feb

-15

Jul-1

5

+2 STDEV

Average

-2 STDEV

15.2%

21.1%

-0.6%

-10.1%

15.7%

2.6%

-9.2%

14.7%

19.2%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2009 2010 2011 2012 2013 2014 2015E 2016E 2017E


01 December 2015



Party Congress to affirm political stability. Vietnam's Communist Party will hold its 12th

party congress in 2016 which involves the selection of new leaderships including the general

secretary of the Party. While it is already widely anticipated that Prime Minister Dung should

be able to consolidation his power (potentially becoming the general secretary), the market,

in our view, would welcome any strengthening of position / control over other key leadership

positions. Some also argue that the government has avoided executing more

sensitive/aggressive reforms ahead of the congress, and hence the completion of congress

could also lead to an acceleration of reforms over the next few years.

Follow-through for new FOL and SCIC's stake sales. The new Foreign Ownership Limit

(FOL) rule and the State Capital Investment Corporation's (SCIC) potential disposal of its

stakes in some companies, we believe, could be positive for market access/foreign

participation. These, however, require "follow-through" both from the government

(formalisation of the list for sensitive/non-sensitive sectors, the approval of SCIC's disposal

plan) and listed companies (proposal and shareholders' approval for the new limit) into 2016.

Recapitalisation of banks? While our recent meetings with Vietnamese banks indicate

their confidence in the overall economy and robust demand for credit, all of them agree

that the sector needs recapitalisation. Given the government's relatively tight fiscal

situation, we believe that another key decision the Vietnamese government would have to

make in 2016 is to reconsider the FOL for the banking sector (30%) and increase foreign

participation in the sector.

VND devaluation—the key is the RMB. The dong has effectively depreciated by 5%

(against the USD) in 2015, compared to a 1% depreciation in FY14 and the government's

2% initial target for FY15. This was largely in response to the RMB's depreciation during

FY15 and we expect a similar response from the government into FY16E if the RMB

continues to depreciate against the USD. Most Vietnamese corporates we met agree that

2-5% depreciation/year remains acceptable, but depreciation of 5-10% could cause

problems (confidence in the dong, inflation). Credit Suisse expects the RMB to depreciate

by ~6% in FY16E (to Rmb6.2/USD).

Top ideas in 2016?

Vinamilk (OUTPERFORM, TP VND140,000): Vinamilk is a leading dairy player in

Vietnam, enjoying ~50% overall market share across key products: (1) liquid milk (a 53%

share); (2) condensed milk (78% share); (3) yogurt (84% share); and (4) powder milk (25%

share)—nearly twice the size of its key competitor, FCV Dutch Lady. It also boasts the

largest distribution network with 215,000 retailers and 266 distributors (35-40% higher than

the second-largest player) and a robust supply chain, with continued investment in farming

and strong links with farmers. At an FY16E P/E of 19.5x, we note that Vinamilk is still

trading at a 15% discount to regional peers, but offers a superior growth profile. We

believe the progress on an increase in the foreign ownership limit in the company's

constitution via AGM/EOGM (likely 1Q16) could be an additional positive catalyst.

Vingroup: Vingroup is the only investible real estate developer in Vietnam with a

dominant presence in the high-end residential, retail and hospitality segments. The

company enjoys very strong brand equity domestically given its excellent track record on

the delivery of mega projects even during times of stress, such as the mixed-used

development projects of Times City and Royal City in Hanoi. Vingroup remains well

positioned to benefit from the continued recovery in the broader economy and growth in

the middle class as well as rising FDI in retail. Valuations are not overly demanding, with

Vingroup trading at a 2016E P/E of 12.2x and P/B of 2.2x.

01 December 2015


Sector Sections

01 December 2015


Autos and Components Growth returns

We are expecting all the three large markets in NJA—China, India, and Indonesia—to

witness a strong 2016 (for different reasons); signs of recovery visible in 4Q CY15 are

likely to become stronger in CY16. In China, the reduction in purchase tax by half, from

10% to 5%, for vehicles with engine size ≤ 1.6L is likely to drive ~15% growth in PV sales.

We prefer Chinese local brands such as Geely, Great Wall, Chang'an, and BYD. A China

recovery should also help Tata Motors (JLR) and Korean component names such as

Mobis and Mando. In India, a rebound driven by reduction in ownership costs and a

gradually recovering economy will likely receive a big boost from the implementation of the

7th Pay Commission recommendations that impacts ~20 mn government employees; we

expect 20% growth (accumulate Maruti). Indonesia market (Astra) volumes have

recovered on new launches, and this is likely to continue into CY16. US market growth is

likely to slow significantly in CY16; we believe incentives in the market will also start rising,

and hence among the Korean names, we prefer component players to the OEMs.





Top outperformers

Geely 0175.HK O HKD 4.2 5.7 4,770 21.3 10.5 7.4 1.6% 1.3 17.5% Net cash

Tata Motors* TAMO.BO O INR 401.1 490 17,449 9.2 11.3 8.3 0.6% 1.5 18.0% 50.6%

Maruti Suzuki* MRTI.BO O INR 4,640.5 5200 21,125 37.8 24.6 17.1 1.1% 4.1 23.8% Net cash

Hyundai Mobis 012330.KS O KRW 247,000 280,000 21,032 7.0 7.7 7.0 2.0% 0.8 11.8% Net cash

Astra International ASII.JK O IDR 6,175 7,600 18,267 12.8 14.5 12.4 4.1% 2.3 18.6% 40.4%


Weichai Power (H) 2338.HK U HKD 8.3 6 5,929 5.5 16.3 11.2 4.5% 0.8 7.1% Net cash

* For the Indian cos; FY15E=FY16E and FY16E=FY17E; Note: Priced as of 25 November 2015.


What should investors care about in 2016?

Chinese local brands to benefit from purchase tax cut

China's State Council slashed small passenger vehicles' (engine size ≤ 1.6L) purchase tax by half, from 10% to 5%, for 4Q15 and 2016 to encourage auto sales to boost consumption and help the economy. As small passenger vehicles accounted for 68% of YTD 2015 total PV sales, this tax reduction should boost around 3.0 mn units of incremental PV demand annually (or 15% the total), in our view—similar to the impact generated during the previous round's 5% auto purchase tax cut amid the 2009 Global Financial Crisis. In our China autos coverage universe, the exposure to small passenger vehicles' (engine size ≤ 1.6L) pecking order is: Geely (82%) > Great Wall (80%) > Chang'an (70%) > BYD (69%) > SAIC (69%) > BAIC (56%) > Dongfeng (54%) > GAC (42%) > Brilliance (22%).

Indian car market to enter a multi-year growth cycle

The Indian car industry after five years of muted growth (2011 to 2015) is entering a phase of very strong growth. Our thesis of a strong multi-year growth in cars is based on (1) reduction in the cost of owning a vehicle, as the benefits of lower fuel prices and interest rates flow through, (2) the Pay Commission boost in 2016, which will positively impact ~20 mn government employees, (3) GST implementation in 2017 could lead to a 10-20% reduction in car prices, which should lead to a major demand boost. We like both Maruti and Mahindra as plays on this theme. Additionally, we like Tata Motors for the strong product cycle at JLR, which combined with a recovery in China should drive strong double-digit volume growth.

Jatin Chawla

jatin.chawla@credit-

suisse.com

91 22 6777 3719

Bin Wang

bin.wang@credit-

suisse.com

852 2101 6702

01 December 2015


Korea: Prefer components to OEMs as US auto demand likely to peak

Over the past 40 years, the US SAAR (seasonally adjusted annual rate) and the US

unemployment rate have shown high correlation. As both the indicators have reached their

historical peak levels, we expect US auto demand to post -1.2% YoY growth in 2016E; this

will likely increase incentive spending for global automakers to sustain their market shares

in the US. While solid demand outlook for China and India is clearly positive for Korean

autos, given the weak other emerging market (Eastern Europe, South America, and

Middle East) demand, HMC and Kia will likely export less to these emerging markets, but

more to the US, which could also increase incentive spending to adjust the inventory level

in the US. We prefer auto parts to OEMs in the Korean market, and within that Hyundai

Mobis and Mando are our top picks. With higher sales for Hyundai, we expect core parts

sales to increase, leading to better mix, and with 25% of Mobis' OP and 50% of Mando's

OP coming from China, a China recovery should help both these companies.

Indonesia: New models to drive both volumes and pricing

After a sharp 20% decline in CY15, volumes have started recovering on new model

launches and an improving economy. For Astra, the Toyota Avanza and the Daihatsu

Xenia have done well, and with the new Toyota Innova and the Toyota Fortuner also

expected to come in the next few months, the new model pipeline looks exciting. This,

combined with easy financing and an economic recovery, should drive 10% growth in

volumes in CY16. In our view, these new launches will not only aid volumes but also help

improve pricing and margins for Astra; hence, margins, which have shown some recovery

from 0.4% in 1Q CY15 to 1.4% in 3Q CY15, should continue to improve.

Valuations

A sector-wide rerating in the China auto sector is likely to happen as auto sales growth will

accelerate on the 5% purchase tax cut. Historically, lower sales growth caused investor

concerns about its earnings momentum, thus a lower valuation (12-month forward P/E),

whereas accelerating sales growth YoY has been accompanied by a rise in valuation. We

believe a similar trend will play out for all auto companies with a large exposure to China,

and hence Tata Motors, Mobis, and Mando should also witness a rerating. Although

Korean OEMs' absolute valuations still look undemanding, the overall valuation gap

relative to global peers has narrowed, and we do not expect any further expansion in

multiples unless better shareholder return policies are provided.

Figure 154: China passenger vehicle sales growth outlook vs Dongfeng (sector proxy)

P/E

25%

7%

47%

34%

8%

12%

19%

13%7%

15%

1%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

unit mn

China Passenger vehicle sales YoY Dongfeng PE Source: Company data, Credit Suisse estimates

01 December 2015


Banks Another year of underperformance; asset quality the

key risk for 2016

2015 was characterised by decelerating economic growth, especially in nominal terms,

disinflation, and elevated real interest rates. At the micro level, corporate sector borrowers’

revenues were declining and ROICs below cost of capital. Not only compressing loan

demand, this backdrop led to asset quality rearing its ugly head after being benign for

most of the last decade. No wonder, banks in Asia underperformed the broader markets

YTD and delivered positive absolute returns in only two markets (Hong Kong and Japan,

see LHS chart below). Still, valuations are ahead of the GFC lows (except in China),

particularly in Southeast Asia (please refer to the RHS chart below).

Figure 155: APAC banks and markets—price perf YTD

(US$)

Figure 156: APAC banks—MSCI trailing P/B: now vs GFC

low

-29-27

-21-18

-17-15

-13 -13 -12-10 -9

-8

4

17

-16

-24

-18

-15

-21

-9-7

-5

-8-10

-2

-10

0

10

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

TH MY SG AU ID NJA KR CN PH IN APAC TW HK JP

MSCI banks YTD MSCI market YTD(%)

0.5

0.8 0.8

1.0 1.0 1.0 1.1

1.31.4

1.5

1.8

2.0

2.52.6

0.5

0.7

1.2

1.0

0.6

0.9

0.7 0.7

1.3

1.11.2 1.1

1.8

1.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

KR JP CN NJA TW APAC SG TH MY HK AU PH ID IN

Current P/B GFC (08-09) low(x)

Source: Factset, Credit Suisse estimates Source: Thomson Reuters, Credit Suisse research

India (private sector) and Pakistan banks our preferred plays; Korean banks a place

to hide; Southeast Asia growth may rebound in 1H16 but asset quality risk remains.

India, Indonesia, and Pakistan had raised interest rates previously and could ease

monetary policy in 2016. Korean banks have spent the past 5-6 years cleaning up loan

books and haven’t lent much, hence could prove to be defensive on asset quality.

Southeast Asia is facing a proper cyclical downturn and have let credit costs fall to

unusually low levels, hence need to go through a cleansing which may last through 2016.





Top outperformers

HDFC Bank HDBK.BO O INR 1,063.9 1,360 40,414 30.1 25.2 21.5 1.0% 3.7 17.4% Net cash

IndusInd Bank INBK.BO O INR 919.6 1080 8,216 34.2 27.0 21.2 0.8% 3.2 14.1% Net cash

SKS SKSM.BO O INR 427.4 520 817 66.0 28.6 20.0 0.0% 4.1 20.5% Net cash

SFG 055550.KS O KRW 42,300 60,000 17,546 10.2 9.3 8.2 3.2% 0.6 7.6% Net cash


SBI SBI.BO N INR 241.5 247 28,251 15.6 13.8 11.3 1.9% 1.3 10.9% Net cash

Maybank MBBM.KL U MYR 8.4 6.8 19,491 11.7 12.7 13.1 5.8% 1.4 10.4% Net cash


Sanjay Jain

sanjay.jain@credit-

suisse.com

+65 6306 0668

01 December 2015


Lethargic macro backdrop to sap loan demand

Real GDP growth is settling at slower levels relative to history in most markets. But the

bigger story for banks lies in nominal GDP growth, which has softened even more than

real. With producer prices negative, corporate sales are shrinking in most markets, and

that is sapping loan demand from the banking system, exacerbated by high real rates.

Asian central banks reluctantly and belatedly cutting

rates = margin pressure for banks

Real rates calculated using GDP deflator (overall inflation in an economy) as well as

calculated using CPI are running far ahead of their historical averages (see charts below).

Monetary authorities in Asia have been behind the curve in cutting policy rates, partly due

to asset price bubbles and partly due to lofty household debt. But they eventually relented

and have been grudgingly cutting rates; banks suffer a squeeze on net interest margins.

Figure 158: Real 3M i/b rates using GDP deflator Figure 159: Real 3M i/b rates using CPI

1.5

2.7

1.6

0.2

1.20.8

1.50.7

0.0

-2.7

2.0

0.4

3.9

6.5

-1.1

-2.4

4.3

2.1

3.62.9

0.9

-3.2

2.5

-1.9

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

CN IN KR TW ID TH MY PH SG HK AU JP

5Y avg Current

1.61.0 0.8

-0.2

0.7 0.40.9

-0.2

-2.2

-3.9

1.0

-0.4

1.8

3.4

0.7 0.5

2.12.4

1.1

2.11.7

-1.6

0.60.2

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

CN IN KR TW ID TH MY PH SG HK AU JP

5Y avg Current

Source: CEIC, Credit Suisse estimates Source: CEIC, Credit Suisse research

Asset quality: Finally the year of reckoning

Asia has enjoyed good times for the past decade and managed to dodge the bullet during

the GFC. With China slowing, it appears this downturn is extended and is payback for some

of the brought-forward growth. Corporate borrowers account for roughly three-quarters of

bank lending, their ROICs are below cost of capital, while cash flows are strained = a toxic

combination. To make matters worse, banks allowed credit costs to drop significantly below

pre-GFC levels. So we are not arguing for a crisis or a sharp spike in NPLs, but for a

normalisation in credit costs. Similar to 2015, it should mean no EPS growth for Asian banks

in 2016E. The markets we are most worried about for asset quality are China and India

(corporate-oriented banks), while the relatively safe markets should be Korea and Taiwan.

Figure 160: APAC ex-Japan banks—evolution of credit costs (in bp of loans)

86

120 119122

85

142

172

10788

30

-10

29

139153

58

124

97

116

79

23

10286

3442

11

35

94

135

101

126

78

109

49

20

116 120

54

32 25 22

46 43

-50

0

50

100

150

200

CN IN-G IN-P IN KR TW ID TH MY SG HK AU PH PK

Pre-GFC ('04-'08) Post-GFC ('09-'14) 2016E

Source: Company data, Credit Suisse estimates (Aggregate for CS coverage universe)

01 December 2015


Basic Materials Competition in a weak market

We expect continued weak demand in basic materials in 2016. Demand from China would

see a further decline in steel and cement, driven by weaker infrastructure demand and flat

property construction activity. Destocking of metals (due to finished or semi-finished

product inventory) may continue to put haircut in demand in metals. The deteriorated

excess supply in China will add continued pressure to the seaborne market, especially

steel, coal and aluminium, through rising exports (or lower imports). On the other hand,

regional commodity players have also seen more aggressive cost cutting than China, due

to lower currencies and oil price to a certain extent. We expect prices to remain depressed

in 2016.





Top outperformers

Conch 0914.HK O HK$ 21.95 30.00 14,913 8.7 12.5 13.9 3.8 1.3 9.6 4.2

Lee&Man 2314.HK O HK$ 4.62 6.60 2,782 11.4 9.8 8.5 8.5 1.0 12.8 52.9

POSCO 005490.KS O W 171,000 240,000 11,922 21.8 n.a. 9.0 4.7 0.3 3.6 45.5


Yanzhou 1171.HK U HK$ 3.63 3.00 2,289 19.2 n.a. n.a. n.a. 0.4 -5.6 135.6

Tata Steel TISC.BO U RS 224.35 180.00 3,320 6.1 n.a. 8.8 3.6 0.7 7.8 238.1



Continued weak demand from China. We expect continued weak demand for most

commodities, especially those with higher exposures to infrastructure. Current order books

on the ground remain weaker than the seasonal pattern last year, suggesting continued

deterioration in underlying demand.

Unprecedented loss to lead to capacity exit in China. We estimate Chinese commodity

producers are in a deeper loss on top of an already difficult 9M15A (reported 9M15

aggregated loss was Rmb89 bn for steel sector, for example)—an unprecedented loss-

making condition, in our view. Capacity exit started to emerge, though not at a large scale

at this point. We estimate that nearly 15% of capacity in Tangshan region has either officially

exited or fully stopped production, while another 10-20% is in partial stages.

Coal—risk of Chinese exports. Despite the loss-making status of the industry, China

domestic supply response remains remote, due to the higher government protection. We

remain cautious on the sector, and continue to see the risk of Chinese exports to the rest

of the region, in an event that the sector further deteriorates in 2016E.

Figure 162: China in global and ex-China

China Global-ex CN CN in global CN trade vs ex China

mn t mn t % %

Refined Cu 10.9 11.1 49% -80%

Coal 1,962 1,901 51% -22%

Steel 708 805 47% 12%

Primary Al (trade in semi form) 27.9 28.0 50% 11%

Paper – total 100.5 301.0 25% 1%

Cement 2,363 1,700 58% 1%

* As % of seaborne market . ** In semi Al form. Source: Credit Suisse estimates

Trina Chen

trina.chen@credit-

suisse.com

852 2101 7031

01 December 2015


Indonesia coal—our Indonesia team remains cautious, with coal production volume to

remain under pressure, but domestic demand to be a bright spot: (1) we expect the

challenging environment for the Indonesia coal sector to continue in 2016. After posting its

first annual decline this year, Indonesia’s thermal coal production could decrease by

another 5-10% due to continued weakness in exports (which accounts for 70-80% of total

production volume). Nonetheless, we expect improvement in electricity consumption on

the back of modest GDP growth to boost domestic demand, and therefore tailwinds for

miners with sizeable domestic sales exposure. (2) Declining oil prices and cost efficiency

initiatives have contributed to noteworthy cost savings for large coal miners, but the

magnitude of reduction would likely be smaller in 2016.

Figure 163: We forecast Indonesia coal production will

decline by another 5-10% next year as rising domestic

demand won't be sufficient to offset declining export

volumes

Figure 164: A more substantial uptick in domestic coal

demand is expected to occur from 2018 when the bulk of

new power plants would have started operations

Source: Ministry of Energy and Mineral Resources, company data,

Credit Suisse estimates

Source: RUPTL (Electricity Supply Plan) PLN 2015-2024, company

data, Credit Suisse estimates. These estimates assume a 100%

completion rate

Valuations

Top picks. Our most preferred stocks are Conch, Lee & Man and POSCO, and least

preferred are Tata Steel and Yanzhou.

Conch and Lee & Man: Chinese cement and paper are in a relatively better S/D balance

versus others. In addition, we are picking the two companies with lower cost position and

stronger balance sheet.

Tata Steel. We expect heightened concerns about Tata Steel’s European operations

given its deteriorating profitability and challenges in finding a buyer for its long products

business. In the past 4-6 quarters, its Indian profitability has shrunk too, given its raw

material integration (could not benefit from falling ore/coking coal prices globally).

Domestic prices continue to decline, even after the government’s imposition of

protectionist measures (12.5% import duty, 20% safeguard duty). Its net debt remains high

at ~$11.2 bn (77% of EV) in spite of ~$0.7 bn of strategic asset sales so far in 2015.

Excluding future asset sales (if any), we expect Tata Steel to report a loss next year.

Posco (005490 KS). While we estimate virtually zero cash steel margin in the China spot

market currently (if not loss), we believe current poor steel margins ironically imply no

room for further squeeze. We also anticipate a meaningful progress of POSCO’s

restructuring efforts on non-steel affiliates in recent months (i.e., beginning of workout

programme for POSCO Plantec, disposal of stakes in POSCO E&C, etc) to help recovery

of the parent’s consolidated earnings in 2016. POSCO is also overly discounted (i.e., P/B

of 0.3x), particularly considering DPS of no less than W8,000 for FY15 despite a net loss

in 2015E, which implies a dividend yield of >4%.

01 December 2015


Chemicals and Oil Refining/Marketing Likely another solid year in 2016 With better stock performance YTD in refining, and the top performers of the space being

Korean names—in sharp contrast to a few Japanese non-commodity names being

laggards—we see a continuation of the strong trend, which began around 2Q 2015, for

consumer commodities (gasoline, PE, etc). This is due to incrementally better supply-

demand dynamics for both refining and bulk chemicals that should benefit the conventional

high-cost producer group (most of which are located in Northeast Asia), amid dramatic

decline in the price of crude oil, which seems sustainable in our forecast period. Low crude

oil prices have resulted in better demand and a pause in new investments, and a decline in

the cost of running a complex. CS' global oil & gas team expects steadily low price for

benchmark crude oil through 2017, which should more than offset the downside from

slowing industrial demand. We continue to prefer those with larger exposure to gasoline

within refining, and PE/PP/MEG/SM in chemicals.




Company RIC Rating Curr. Price price (mn) FY15E FY16E FY16E FY16E FY16E FY16E

Top outperformers

Lotte Chemical 011170.KS O W 246,500 410,000 7,364 7.2 6.3 1.0 1.0 16.2 15.0

Formosa Plastics 1301.TW O NT$ 76.5 94.0 14,998 16.4 16.3 3.1 2.0 12.9 5.8

Mitsubishi Chem Hldg 4188 O ¥ 830 10,300 9,975 20.0 16.4 1.7 1.2 7.5 71.9


FCFC 1326.TW N NT$ 73.8 76.0 13,322 17.2 16.5 2.9 2.0 12.8 9.2

FPCC 6505.TW N NT$ 77.7 84.0 22,795 17.3 20.9 4.0 2.6 12.7 30.0



Company specifics: While our projected industry macro models suggest another solid year

in 2016, we note that earnings have already improved substantially to above-normalised

levels in 2015, and we would be keen on company specifics that may be more important as

catalysts for the stock prices in 2016, whereas the high-beta angle may be less of an issue

with the exception of the "gasoline" theme, in line with increasing ownership of cars in China.

Korean names still interesting as alpha in 2016: Lotte Chem (post acquisition of SDI

and SFC) looks particularly interesting (for its organic/inorganic growth angle) whereas

those names in the early capex cycle (S-Oil) may need to be reviewed from shareholder

distribution standpoint aside from the scope of its long-term growth. SK Innovation remains

topical from a restructuring angle, while its valuation is one of the lowest in the space.

Oil price: Chemical/refining margins are inherently susceptible to oil price volatility for its

impact on inventory assessment and procurement behaviour. Also, it remains interesting

to see the long-term cost gap between conventional high-cost producers (naphtha

crackers) vs non-conventional low-cost producers (including on-purpose supplier)

Various supply-demand equations: Classic yet an essential approach—our updated

assessment of global supply-demand balance suggests a potentially constructive outlook for

styrene, EDC, EO, and MEG, while less upside from ethylene, MX/PX and PTA but at

different levels.

Kenneth Whee

kenneth.whee@credit-

suisse.com

852 2101 7319

01 December 2015


Figure 166: Current margin by product in relation to historical peak-to-trough range

-1,000

-500

0

500

1,000

1,500

2,000

EO

MEG

Prop

ylene

Styr

ene

Buta

dien

e

CPL PX EDC

Benz

ene

ACN

Phen

ol

PTA

ABS

SBR

PVC

VCM MX PS PP PET

BPA

LDPE

Acet

ic

HDPE

Ethy

lene

03-13 Peak 03-13 Trough Current

Source: Datastream, Credit Suisse estimates

Figure 167: CS 6-2-3-1 GRM Figure 168: CS Asia bulk chemical margins (adjusted)

6

8

10

12

14

16

18

Se

p-1

1

No

v-1

1

Jan-1

2

Mar-

12

May-

12

Jul-1

2

Se

p-1

2

No

v-1

2

Jan-1

3

Mar-

13

May-

13

Jul-1

3

Se

p-1

3

No

v-1

3

Jan-1

4

Mar-

14

May-

14

Jul-1

4

Se

p-1

4

No

v-1

4

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Se

p-1

5

No

v-1

5

6-2-3-1 margin Quarterly average

US$/bbl

200

300

400

500

600

700

800

900

02-Jan-09 02-Jan-10 02-Jan-11 02-Jan-12 02-Jan-13 02-Jan-14 02-Jan-15

US$/MT

CS Asia average chemical margins (adjusted)

Source: Datastream, Credit Suisse estimates Source: Datastream, Credit Suisse estimates

Valuations

Figure 169: Asia chemicals historical P/B band Figure 170: Asia refining historical P/B band

0.0

0.5

1.0

1.5

2.0

2.5

3.0


Asia Chemicals Chem avg.

Chem +1 STD Chem -1 STD

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Asia refining Refining avg.

Refining +1 STD Refining -1 STD

Source: Datastream, Credit Suisse estimates Source: Datastream, Credit Suisse estimates

01 December 2015


Consumer Be selective and have a bottom-up approach

Across the NJA consumer space, we expect demand to gradually pick up in 2016. China

benefits from the low comparison base of anti-corruption, India sees wage increase, Korea

recovers from the MERS outbreak, Indonesia has already bottomed out in 3Q15, and

Thailand and Taiwan markets get normalised. We think the recovery will be modest,

narrow and bumpy, given a lack of strong catalysts and structural changes.

Consensus has cut 2016 earnings estimates by 8% in the past six months. In particular,

estimates for Indonesia have been cut 10.8%, Thailand 8.7%, China/Hong Kong 7.6%,

and India 7.1%. Korea is the only exception, with 2016 consensus estimates being revised

up 0.7%. Consensus now estimates regional consumer 2016 earnings will be up 10.5%

(vs regional country 8.4%). In particular, China/Hong Kong consumer earnings would grow

12.7% (vs country 8.2-8.8%), India 17.6% (vs 19%), Korea 15.0% (vs 8%), Indonesia

11.8% (vs 11.2%), Thailand 16.9% (vs 12.4%), and Taiwan 3.7% (vs country 4.1%).

We expect the structural pressure of increased competitive activity to remain dominant in

2016, while the benefits of commodity cost deflation should become more marginal. With

this macroeconomic backdrop, we stay cautious and selective, and pick stocks with a

bottom-up approach. This is why we have a preference for strong execution stories where

valuations do not look low, but earnings visibility is high. Our top buy ideas are: JD.com

(China's fast-growing e-commerce company); Hindustan Unilever (accelerating volume

growth, benefiting from premiumisation trend); AmorePacific (strong export growth in

Asia); Indofood CBP (strong pricing power; input cost deflation). Our top sell ideas are:

SaSa (HK visitation slowdown; online competition), and Global (hurt by high householder

debt, weak farm income and prolonged drought).





Top outperformers

JD.com JD.OQ O USD 30 40 41,482 2.2* 1.5* 1.0* 0.0% 6.9 1.1% Net cash

Hindustan Unilever HLL.BO O INR 811 920 26,459 45.4 40.7 40.2 1.9% 41.3 102.7% Net cash

Amorepacific 090430.KS O KRW 408,500 440,000 20,889 63.0 39.9 30.1 0.3% 5.7 19.0% Net cash

Indofood CBP ICBP.JK O IDR 12,600 15,100 5,369 28.2 22.2 18.3 2.2% 4.0 21.8% Net cash


Sa Sa 0178.HK U HKD 2.81 1.75 1,031 8.6 9.5 18.2 6.4% 3.5 19.8% Net cash

Siam Global GLOBAL.BK U THB 10.8 8.8 1,055 53.6 39.6 31.8 0.2% 3.2 10.0% 22.4%

Note: * Price/sales; Priced as of 25 November 2015.


What should investors care about 2016?

China's growing young adults: China announced its one-child policy in 1979. The kids

are now growing up to 20- to 30-year-old young adults. They are well educated, have

sustainable earning power, and hold a strong desire for spending upgrades. In the next

five years, they will replenish China's future middle class, driving 35% of China's total

consumption in 2020 (vs 15% in 2014). We expect the winning companies to benefit from

changes in demographics and consumer behaviour; these are: (1) the ones that build

compelling 'young' images with innovative designs (Rio, Three Squirrels, UPC, and Anta);

(2) e-commerce, O2O, and services (Alibaba, JD, Ctrip, VIP, and CYTS), and (3) the

beneficiaries of the 'sharing economy' business model (Didi/Kuaidi, and CAR). On the flip

side, shopping behaviour changes and fast-growing O2O businesses are lowering the

entry barrier and creating massive business opportunities for young players to grab the

Kevin Yin

kevin.yin@credit-

suisse.com

852 2101 7655

Arnab Mitra

arnab.mitra@credit-

suisse.com

+91 22 6777 3806

A-Hyung Cho

a-hyung.cho@credit-

suisse.com

+82 2 3707 3735

01 December 2015


wallet share of the young adults. It is destroying traditional blue chips' competitive

advantage in distribution, which triggers fundamental deterioration and valuation derating

(i.e., Tingyi, Want Want, and Belle).

India consumption on the rise: The Seventh Pay Commission recommended a 23%

hike in wages for government employees. The central government is likely to start

implementing the recommendations in early 2016, while states will follow with a 6- to 12-

month lag. The total incremental wage outgo sums up to an additional ~1.5% of GDP,

which is money directly in the hands of the end-consumer. This should provide a big boost

to discretionary consumption (i.e., appliances, QSRs, jewellery and home improvement

plays), and premiumisation in staples (an accelerating trend). The government has sharply

increased spending which directly boosts local economic activity. Inflation has remained

subdued, and disposable income growth in urban India gets aided by this. Rural growth

could remain subdued for another couple of quarters as the low agri prices and the

weaker-than-normal monsoon this year have impacted agri income. Benign input costs

(i.e., crude derivatives) will keep margins strong for staples, given their high market shares

and strong pricing power. The Goods and Services Tax (GST) has been stuck in the

parliament due to political uncertainty, and hence the base case is not of the GST coming

in. However, if there is any breakthrough in this, this is a big positive for most consumer

categories (a reduction in indirect taxation rates), although apparel and service categories

may get negatively impacted.

Korea should see a pick-up in consumption: We expect the consumption turnaround to

emerge not only in domestic consumption, but also in demand from overseas markets,

including the inbound travel visitation from China. 2015 domestic consumption and

inbound tourism had dipped due to the outbreak of MERS. This serves as a low

comparison base for 2016. We expect the multi-year export growth to remain robust based

on the growing brand equity value of the Korean cosmetics and food brands. The

government’s efforts to boost overall consumer sentiment would also fuel domestic

demand growth. We expect winners to be staples names with growing brands, and

discretionary names that can differentiate in store format and experience quality.

Hong Kong slowdown is structural, not cyclical: Hong Kong retailing will continue to

be affected by the Chinese visitation slowdown and structural changes in both sales

volume and average ticket size. Recent cultural conflicts even worsen the tension and

visitation. Japan and Korea gradually replace Hong Kong to become the new outbound

travel destinations for shopping and leisure for most mainland Chinese consumers. In

addition to the overhang on top-line growth, margin contraction is another concern as

retailers may increase the promotional and marketing activities to achieve sales targets,

which may offset the benefit from rental cost savings (landlords are lowering rates, as

more global brands continue downsizing their store network). There is low visibility on how

long the cultural conflict will last and how serious it could become in the near future. We

believe among Hong Kong retailers, those who rely less on retail sales in Hong Kong but

focus more on expansion in China, may suffer less than peers.

Valuations

Figure 172: Valuation plots (P/E and ROE) Figure 173: Valuation plots (P/E and earnings growth)

IndonesiaTaiwan

Thailand

India

Korea

China/HK

10

15

20

25

30

35

40

10% 15% 20% 25% 30% 35%

2016E P/E

2016E ROE

IndonesiaTaiwan

Thailand

India

Korea

Chin/HK

10

15

20

25

30

35

40

0% 5% 10% 15% 20% 25%

2016E P/E

EPS growth 2015-17E

Source: Credit Suisse estimates Source: Credit Suisse estimates

01 December 2015


Environment Longer and better growth

We remain positive on the China environment sector, with solid fundamentals underpinned

by robust treatment demand growth, non-stop upgrade potential, and consistent policy

support. Despite the slowdown in the broader economy of China, the sector, with its rising

contribution to GDP, stands out perhaps more than before, in our opinion. We see a

potential multiple rerating in 2016E, on the back of improving earnings quality, driven by

accelerating profit from operations, combined with a more visible growth outlook for 2017-

20E. The upcoming 13th Five-Year Plan should not only serve as a positive catalyst, but

should also likely lead to the most incremental positive policy changes for the water

segment, through potential higher waste water treatment standards.





Top outperformers

Dongjiang 0895.HK O HK$ 13.0 23.0 2,615 36.4 28.5 19.0 1.1 3.0 16.7 73.4

BEW 0371.HK O HK$ 6.1 8.0 6,899 29.5 23.7 18.9 2.0 2.8 15.6 115.4

CEI 0257.HK O HK$ 11.8 18.5 6,838 31.1 22.0 15.2 1.9 2.5 17.8 32.8

SIIC SIIC.SI O S$ 0.78 1.50 1,229 24.6 19.3 12.6 0 1.4 11.6 32.0


BJC 600008.SS U Rmb 11.1 8.7 4,203 40.2 38.7 34.1 1.7 3.0 8.9 127.0



13th Five-Year Plan: water in focus. We expect the upcoming 13th Five-Year Plan for

China's environment sector to provide a consistent policy push, with a more aggressive

investment plan, and higher targets for air and water quality. Yet ultimately, the focus

would be more on water, in our view. Key things to watch: (1) total environment investment

is likely to reach Rmb10 tn over 2016E-20E, twice as much as in the 12th Five-Year Plan.

It implies that the annual investment in the sector could reach Rmb2.4 tn or 2.7% of the

GDP by 2020E (from 1.8% in 2014A). (2) New pollutants are likely to be added to the

targets, such as VOC, total N and P. (3) We expect the water sector to receive the most

incremental positive policy changes ahead, including nearly half of the total investment,

and notable changes in water quality requirement aimed at further cutting discharge of

total N and P, and NH4-H—leading to potential further standard upgrade for the waste

water treatment facilities.

Earnings: Higher for longer. The accelerated five-year investment plan, combined with

the strong project pipeline of the major operators, will improve the visibility of the sector's

growth outlook beyond 2017E. We estimate 2020E earnings of the top water operators will

be 10-22% higher than our previous estimates, under our new base case with accelerated

water plant upgrades, including 100% grade I-A conversion and 50% grade quasi-surface

water IV conversion (our revised base case). Under our 'blue-sky' scenario, a 100% grade

quasi-surface water IV conversion would lead to 27-34% earnings improvement on 2020E.

In addition, the strong project pipeline also underpins growth in operations over 2017E-

20E—as of 3Q15, we estimate projects on hand for most listed operators are on average

nearly 200% above their 2014A operating capacity, with the industrial waste segment

leading the way, followed by WTE, and water. Top operators such as Dongjiang have

project pipeline above 500% of their 2014A capacity, leading to a 24% upward revision,

and potentially 37% under our blue-sky scenario, for 2020E earnings.

Trina Chen

trina.chen@credit-

suisse.com

852 2101 7031

With rising contribution to

GDP, China's environment

sector stands out, more than

before

We expect the upcoming

13th Five-Year Plan to unveil

a more ambitious

investment road map, higher

quality targets, and bring the

most positive policy

changes for the water sector

The improved growth

visibility has led to 10-22%

upgrades in our 2020E

earnings, and potentially 27-

34% under the "blue-sky"

scenario, for top operators

01 December 2015


Improving earnings quality: We expect improving earnings quality for the sector, as

contribution from operations to total profit should rise from 58% in 2015E, to 64% in 2017E,

and potentially to 73% by 2020E, driven by accelerating growth of profit from operations

(versus from EPC and BOT accounting profit). Specifically, we estimate the average

annual growth rate of profit from operations of the sector will accelerate from a 39% CAGR

over 2013-15E to 47% over 2015-17E, due to volume growth of waste treated, coupled

with improving unit profit of select operators (through technology upgrade, plant standard

upgrade, or better projects mix). There are emerging risks such as lower quality projects,

competition, and longer execution time.

Valuations

Our top picks are Dongjiang, BEW, SIIC, and CEI. Dongjiang ranks at the top of our list as

an operator with the right strategy and execution, in our most preferred segment—

industrial HWT. We are incrementally more positive on the waste water sector, and view

BEW, SIIC, and CEI as the key beneficiaries of the 13th Five-Year Plan. We revise our

earnings by -8% to +3% for 2015E-17E (or -9 to +4% for operational profit), and raise TP

for most stocks under coverage (by 7-21%) to incorporate the potential acceleration in

water plant upgrades, newly added projects, partly offset by a slower construction pace in

general, and the mild VAT impact.

Figure 175: China environment sector—coverage summary

Company Ticker Rate TP Price Mkt

cap

P/E (x) P/B (x) ROE (%)

Price as of Nov 26 Tccy US$ bn 15E 16E 17E 15E 16E 17E 15E 16E 17E

BEW 0371.HK O 8.0 6.1 6.9 23.7 18.9 16.8 3.1 2.8 2.5 14% 16% 16%

SIIC SIIC.SI O 1.50 0.78 1.2 19.3 12.6 9.5 1.6 1.4 1.2 9% 12% 14%

SDG 0967.HK O 11.1 7.0 1.4 10.4 8.4 7.2 1.9 1.5 1.3 20% 20% 20%

GD Inv 0270.HK N 12.0 10.7 8.7 16.7 16.1 13.5 2.1 1.9 1.7 13% 12% 14%

TJC-H 1065.HK N 5.2 6.6 2.3 20.8 17.6 17.2 1.7 1.6 1.5 9% 10% 9%

TJC-A 600874.SS U 4.3 11.8 2.3 45.2 38.1 37.2 3.8 3.5 3.3 9% 10% 9%

BJC 600008.SS U 8.7 11.1 4.2 38.7 34.1 24.5 3.1 3.0 2.8 9% 9% 12%

CEI 0257.HK O 18.5 11.8 6.8 22.0 15.2 10.1 2.9 2.5 2.1 14% 18% 23%

Dgreen 1330.HK O 5.5 4.5 0.6 16.8 12.6 8.1 1.6 1.5 1.2 10% 12% 17%

Canvest 1381.HK O 5.6 3.3 0.8 22.6 13.2 9.6 2.5 2.1 1.7 12% 17% 20%

ConchV 0586.HK O 21.5 16.9 3.9 12.2 10.9 9.5 1.6 1.4 1.3 12% 11% 12%

SDE 000826.SZ N 41.0 40.5 5.4 33.4 27.4 23.0 5.6 4.7 4.0 18% 19% 19%

Djiang-H 0895.HK O 23.0 13.0 2.6 28.5 19.0 12.7 3.4 3.0 2.5 13% 17% 21%

Djiang-A 002672.SZ N 18.2 21.8 2.6 57.8 38.6 25.7 7.0 6.0 5.0 13% 17% 21%

CT Env 1363.HK O 3.1 2.6 2.1 24.8 18.3 15.3 5.2 4.2 3.4 26% 26% 25%

GD Tech 1296.HK O 0.8 0.8 0.6 n.a. 25.1 22.1 0.4 0.4 0.4 -3% 2% 2%

Yonker 300187.SZ U 11.0 45.8 1.5 115.0 96.8 105.8 7.2 7.0 6.6 7% 7% 6%


We expect earnings quality

to improve for the sector, as

contribution from operations

to total profit rises

01 December 2015


Gaming Prefer Macau and local focused operators

Summary view: Over the past year, a weaker China VIP/high-end demand caused by the

slower China macro, the on-going anti-corruption campaign and crackdown on overseas

casinos promoting in China have adversely impacted gaming markets across Asia.

Heading into 2016, the focus of the sector would be (1) a stabilisation or a potential

recovery in the VIP market, (2) ramping up of newly opened casinos (Macau and

Philippines) and (3) new supply from two scalable casino resorts due to open in Macau—

the US$4.1 bn Wynn Palace (25 June 2016) and US$3.3 bn MGM Cotai (4Q16). The

potential recovery of the junket VIP market is likely to help regional peers. Overall, we

continue to expect that local demand (Philippines and Korea) is likely to stay resilient.





Top outperformers

Galaxy 0027.HK O HKD 23.6 37.6 12,967 9.8 21.5 14.0 2.2% 2.2 16.2% Net cash

MGM China 2282.HK O HKD 10.3 20 5,031 6.8 11.6 12.1 5.0% 4.3 35.9% 124.5%

Kangwon Land 035250.KS O KRW 37,750 54,000 7,065 21.3 17.4 15.2 3.2% 2.6 16.1% Net cash

Bloomberry BLOOM.PS O PHP 5.32 8.3 1,247 13.9 -35.8 39.0 1.0% 2.3 5.9% 82.6%

Genting Singapore GENS.SI O SGD 0.775 1 6,669 20.6 32.5 22.7 1.3% 1.2 5.4% Net cash

Genting Bhd GENT.KL O MYR 7.3 10.3 6,514 18.2 17.2 14.1 0.7% 0.9 6.6% Net cash



Macau: A resumption of growth in 2016

Gaming revenue may be back on the growth track again in 2016. Given the easy comp

base in 2015 (GGR on track to drop 34% YoY), new properties opening, stabilising

fundamentals and accommodative policies, we expect industry GGR to grow again in 2016. In

particular, the monthly GGR growth may turn positive again in late 1Q and quarterly GGR in

2Q16. The turnaround in revenue is likely to serve as a rerating catalyst for the sector.

Price competition is unlikely even with new supply. Despite the new supply, we see

low risk for a price war. On the one hand, VIP’s thin margin and shrinking contribution to

the sector allow limited room for further promotion. On the other hand, simply raising the

reinvestment rate has proven to be of limited help in gaining mass-market market share.

We also believe that it is unwise for operators to sacrifice the profitability of existing

operations to compete for more share for their new properties.

Cost pressure is not as bad as the market would have feared. Factoring in excess

labour and lower opex for new casinos (fewer tables), we estimate that each new casino

would only need 1.5% incremental GGR to break even and 4% to generate 15% RoIC. Korea: Locally focused casinos should continue to outperform

Decoupling of Chinese VIP traffic and inbound tourists. The Chinese VIP slowdown

should have bottomed, but there are no signs of a bottoming-out in Korea unless there are

significant regulatory changes from Beijing. We believe Chinese VIP traffic would decouple

with that of Chinese inbound travellers. Paradise and GKL may continue to see limited

growth in 2016E, despite the low base in 2015.

Election events. The overhang of additional tax payments has weighed on Kangwon Land’s

share price despite improving operations. However, we believe any additional tax as unlikely

ahead of the Legislative Election and Presidential Election in 2016-17. The relieving concern

on additional tax is likely to allow a sequential valuation expansion given its unrivalled growth.

Kenneth Fong

kenneth.kc.fong@credit-

suisse.com

+852 2101 6395

01 December 2015


IR transitions may cause over-supply issue. Paradise's new IR (Integrated Resort) is

due to open by 2Q17E. While the development of IRs is positive for long-term growth, new

openings may escalate the concern of over-supply of foreigner-only amid weak demand.

The progress of IR's development will be closely monitored by the market. More news flow

on IR should come from early-2016 onwards.

Philippines: Mass market should stay resilient; VIP recovery is an upside option

Mass market growth is likely to sustain into 2016 given (1) the increase in mass

revenue is supported by growing player count; (2) PAGCOR, whose casino quality pales

in comparison to the integrated resorts, also noted gaming revenue growth of 46% YoY in

9M15, driven by tele-betting and increasing foot traffic; (3) the non-gaming attractions

surrounding Entertainment City should further build critical mass; and (4) infrastructure

improvement, such as NAIA Expressway (expected to be completed by May 2016), also

support further revenue growth (both mass and VIP).

New supply (Manila Bay Resorts) is expected to open by end-2016/1Q17. With 2,000

hotel rooms, Manila Bay Resorts would have an allowable gaming capacity of 500 tables

and 3,000 slot machines. This is a 51% increase from the current industry (3 IRs) gaming

capacity of 971 tables (RWM 305, BLOOM 401, CoDM 265). While the PAGCOR deadline

for completion of this project has been extended to end-2016, we believe the property will

likely open by 1Q17.

Singapore: Bottoming VIP with a resilient mass

The outlook for Singapore's VIP segment should remain sluggish in 2016, especially for

Genting Singapore, due to China's anti-graft campaign. That said, we believe that the

sharp decline in VIP volumes should narrow in 2016, after a cautious four to six quarters

(Genting Singapore is more prudent extending credit to VIP players). On the other hand,

mass volume has been very resilient with steady volume over the past six to seven

quarters. The strong mass segment is also evidenced by the higher and consistent hotel

occupancy rate for both Genting Singapore and Marina Bay Sands (>85%).

Malaysia: Project renovation may drag growth in 2016

GENM’s Resorts World Genting, is undergoing a major transformation. On a positive note,

more casino tables might be approved, given the significant investment. Yet, the

challenging macro in Malaysia and the suspended operations of the theme park would

weigh on the performance in near term. Current market expectations on 2016E/17E

earnings appeared unrealistic by assuming a new theme park (Asia's first Twentieth

Century Fox World Theme Park) and shopping mall (Sky Avenue/ Sky Plaza) to open by

mid-2016E (we note that the opening will likely be postponed to early 2017E).

Valuations

At 10x FY16 EBITDA, Macau gaming names are trading at below historical average (12x).

In our view, the sector is trading at a low growth multiple but with an upside option of the

new projects, supportive policies and room for VIP recovery. Philippines names are trading

at an undemanding EBITDA multiple of 7x, but their P/E are still elevated as depreciation

expenses of newly opened projects dragged. By P/E, Kangwon Land is trading at the

higher end of historical range on its earnings resilient and growth from better capacity

utilization. Genting Singapore's EBITDA multiple has derated to 7x for 2016 (from 12x

historical average) on slower growth concern and bad debt concerns. We believe

negatives are in the prices. Genting Malaysia's 19x 2016 P/E appears fair consider its

weaker near-term growth outlook on its property renovation.

01 December 2015


Industrials Selective among subsectors

We are selective among China industrial subsectors. We prefer wind power equipment,

and power transmission and distribution equipment makers, due to their sound long-term

demand outlook; we are cautious on conventional power equipment companies because

of the structural decline in thermal power, the high delay risk for nuclear and uncertain

overseas markets. We are neutral on railway and automation largely due to stretched

valuations.

In Korea, domestic E&C companies are expected to continue to benefit from the

recovering housing market, while legacy overseas construction projects comprise the only

risk. For shipyards, we prefer pure shipbuilders for their limited bulk and rig exposure.

We expect a gradual pick-up in capex activity in India in 2016, driven by the government

sector in the 1H and the likelihood of the private sector in the 2H in smaller segments.

In the transportation space, we prefer airlines for lower fuel prices and potentially better-

than-expected demand stimulated by lower fares. Both bulk and container shipping remain

challenged due to excess capacity and falling demand.





Top outperformers

Goldwind 2208.HK O HKD 13.3 26.3 6.5 17.0 9.6 8.4 5.9 1.6 19.5 35.8

Singapore Air SIAL.SI O SGD 10.47 14.00 8.9 36.3 14.6 12.0 5.0 0.9 8.0 Net cash

Voltas VOLT.BO O INR 283.20 345.00 1.4 41.9 27.7 26.9 0.9 4.0 15.6 Net cash

Hyundai Mipo 010620.KS O KRW 63,800 90,100 1.1 -2.0 19.1 14.7 0.0 0.7 4.6 125.6

Hyundai Dev 012630.KS O KRW 41,850 70,000 2.7 44.7 12.8 10.0 1.2 1.2 12.2 19.3


SEG 2727.HK U HKD 4.81 2.20 19.2 21.0 28.9 25.5 1.2 1.2 4.9 Net cash

Evergreen 2603.TW U TWD 13.05 13.00 1.4 -30.9 -21.6 22.9 1.3 0.8 3.6 58.0

BHEL BHEL.BO U INR 173.35 155.00 6.4 29.9 21.2 16.4 1.3 1.1 7.1 Net cash



China: Prefer wind and T&D equipment

We believe that 2016 will continue to be a good year for quality companies, such as

Goldwind, which should gain market share. We believe that a wind farm tariff cut may

have little impact on turbine demand because wind power plant IRRs can be defended

through: (1) lowered interest costs and (2) a shift in geographic focus. Moreover,

curtailment improvement through UHV line transmission, a renewable quota system, a

carbon trade scheme and an improved subsidy pool are all positive moves to support IRRs

in the long term. In addition, we expect a final decision on the tariff cut may be less than

the currently discussed rate, as this is just a consultation paper from the National

Development and Reform Commission (NDRC) seeking public opinion. This proposal has

actually been strongly objected toby wind farm operators and the final cut may be less

than originally proposed. Goldwind is our most preferred choice in China's industrial sector.

We maintain our positive stance on power distribution equipment makers due to

continuous large capex from the grids. We expect UHV capex to grow significantly in 2016

on a YoY basis, as nine UHV lines started construction in 2015, versus three in 2014.

Besides, we also expect strong power distribution equipment demand as the National

Edmond Huang

edmond.huang@credit-

suisse.com

+852 2101 6701

Tim Ross

MinSeok Sinn

Henry Kwon

Lokesh Garg

Baiding Rong

HaYoung Chung

01 December 2015


Energy Administration (NEA) announced its Rmb2 tn capex plan for 2015-20. We expect

equipment suppliers to register solid sales growth in 2016 on good order momentum and a

low base in 1H15. We like XD, XJ and Wasion among Chinese T&D equipment companies.

Korea: Domestic housing market recovery to benefit constructors despite overseas

legacy projects; pure shipbuilding better off

We believe that the ongoing recovery in the domestic property market, which began in

mid-2013 after a six-year downcycle, should continue at least until early- to mid-2017.

Indeed, historically, house prices (or confidence in the housing market) have been highly

correlated with housing affordability/the cost spread between owning and renting rather

than with new housing completions, while affordability and cost spread in the domestic

property market are at record highs and narrows, respectively. On the other hand, we are

concerned about the risk of additional cost overruns from companies’ overseas business

given the risk can be fully resolved only after the completions of problematic overseas

projects, while most of the companies still have ongoing problematic projects on their

order books. All in all, we anticipate a surge in their new housing starts since mid-2014

and a surge in overall housing starts in Korea in 2014/15 to drive stellar revenue/earnings

growth for Hyundai Dev, KCC Corp and LG Hausys over 2016-17.

As we are looking for a mild recovery in conventional shipbuilding demand in 2016, we do

not believe it will be a year for major backlog build-ups for rigs since a contraction in off-

shore backlog should be expected. Conventional vessel profitability should continue to

improve given improvements in the delivery mix, which is not currently captured in sector

valuations. Hyundai Mipo is our top buy for the sector as: (1) it is a pure shipbuilding play

which will likely exceed its order target; and (2) it should see margin expansion in 2016

from improvements in delivery mix.

India: Orders to pick up in 2016 driven by the government sector in 1H and possible

private sector in 2H

Indian private sector ordering activity remained weak in 2015 given current low utilisation

and a subdued demand growth outlook in the near term. The government has remained

focused on infrastructure development with good activity in roads, power T&D ordering

and some pick-up in railways. There was a pick-up in power equipment ordering driven by

the central power generation utility, NTPC, and some states. For 2016, we expect a

gradual pick-up in capex activity, driven by the government sector in 1H and the likelihood

of the private sector in the 2H in smaller segments. We don’t envisage large private sector

capex (oil & gas, metals and power generation) to pick up soon, which makes us cautious

on large industrial names in the sector: L&T (Neutral) and BHEL (Underperform). L&T is

also expected to be impacted due to weaker oil and gas capex in the Middle East in the

wake of the continued weakness in oil prices. In this space, we like Voltas as a play on the

under-penetrated AC market in India and improving profitability in the electro-mechanical

projects business, and Container Corp of India (Concor), which is well positioned to benefit

from long-term structural growth in export-import trade.

Transportation: Prefer airline over shipping

We go into 2016 broadly encouraged by prospects for the airline sector as we see lower fuel

prices (as high price hedges roll off and spot prices stay low) translating into lower fares and

generally stimulating demand ahead of expectations and most certainly ahead of supply.

PRC outbound travel demand remains a key driver of value that we don't see dissipating,

despite weaker economic fundamentals at home, while currency headwinds at worst ought

not to intensify with any easing in USD strength a bonus. To say that shipping—both dry and

liner—remains a challenged sector is an understatement; excess capacity remains a well

identified obstacle to performance, but falling demand is adding to the sector's woes. Aside

from the US, Western demand for finished goods remains anaemic, limiting the prospects for

liner shipping, while low steel production and a structural shift away from coal consumption

in China is impacting demand for seaborne commodities. Singapore Airlines is the most

preferred, Evergreen the least preferred picks.

01 December 2015


Insurance Continued underlying growth; low yields an issue

Underlying growth momentum remained fairly strong in most Asian markets in 2015, which

we see as continuing into 2016, especially for life insurers more focused on selling

protection-focused (rather than savings) products such as AIA and Prudential.

Key markets (and stocks) we like going into 2016 are:

■ Regional life insurance: We continue to see decent growth rates for regional life

insurers in Asia despite some slowdown in ASEAN, with AIA being our preferred

regional exposure. We see AIA benefiting from a favourable demographic profile in

many countries and low penetration rates, we expect this superior growth rate to

continue at least over the next decade. AIA's strong execution and increasing

protection mix see it much less exposed to interest rate and market movement than its

North Asian peers.

■ Australian life insurance/retirement: We believe there is an increased support for

annuities from both the industry and the government in Australia. Following

Challenger's distribution agreement with Colonial signed last year, it recently noted

that it "expects other major retail platforms to follow," and sees an uptick in discussion

for annuity products. The government is supportive of the FSI's recommendations for

annuities while the Treasurer has flagged potentially innovative changes.

■ China P&C insurance: We view the outlook for the Chinese P&C sector as good into

2016, with low-teens growth and stable margins, despite the impact of the first phase

of price de-regulation (as price reductions offset lower claims frequency). The market

remains very concentrated, and scale advantage benefits the top three insurers, which

were the only ones to generate operating profits last year.





Top outperformers

AMP ORD AMP.AX N AUD 5.7 6.35 12,135 17.5 16.2 15.6 5.1% 2.0 11.9% 145.1%

AIA Group 1299.HK O HKD 47.7 57.5 74,075 21.5 21.6 16.8 1.5% 2.1 12.4% 5.1%

PICC P&C 2328.HK O HKD 17.3 21.5 33,100 13.4 9.3 10.8 2.3% 1.7 16.0% Net cash


Bangkok Life BLA.BK U THB 54.25 39.25 2,591 34.5 25.3 19.6 1.1% 2.9 15.1% n.a.

Medibank Private Ord MPL.AX U AUD 2.26 2.2 4,512 24.1 21.3 20.6 3.6% 4.2 20.3% Net cash


We are less positive on the following markets/stocks:

■ Thailand life insurance: While we like the Thailand insurance market’s fundamentals, we

view falling bond yields and potentially slowing growth as the key issues. Bangkok Life

continues to trade on very high multiples despite having negative value of new business

growth last year, and being the most expensive life company globally (see Figure 182).

■ Australia Health insurance: There are currently five regulatory reviews under way

that affect the Australian private health insurance industry. These reviews will likely

highlight that the industry is not operating efficiently and is unsustainable under the

current regulatory settings. We believe solving these structural challenges will require

significant regulatory change. While there is minimal risk to core health insurance

earnings in the short term, we see earnings uncertainty in outer years from structural

challenges. We maintain our UNDERPERFORM ratings on MPL and NHF.

Arjan van Veen

arjan.vanveen@credit-

suisse.com

852 2101 7508

We continue to see good

insurance growth prospects

into 2016

https://plus.credit-suisse.com/r/dg3EKy

https://plus.credit-suisse.com/r/dg3EKy

https://plus.credit-suisse.com/r/nd5XLf

https://plus.credit-suisse.com/r/nd7HHD

https://plus.credit-suisse.com/r/nd7g1b

01 December 2015



Rising bond yields to provide relief for many insurers

Given large historical long-term guarantees offered to policyholders and shorter asset

durations, many life insurers in Asia are highly leveraged to changes in bond yields—with

north Asian markets being the most exposed (Taiwan, Japan, Korea, and China) as

highlighted in Figure 179.

As such, the fall in bond yields in most Asian markets in 2014 and 2015 after a rally in

2013 is quite problematic for many insurers. Within these countries, the most exposed (in

our coverage universe) are Shin Kong in Taiwan, T&D Holdings in Japan, Hanwha Life

in Korea and New China Life in China.

Figure 179: Asian insurers sensitive to bond yields… Asia insurance sensitivity to 25 bp rise in investment yield

Figure 180: …with bond yields again falling in 2015 Korean 3Y and 10Y government bond yields (%)

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

AM

P

Suncorp

AIA

Prudential A

sia

Bangkok Life

Great E

astern

China Life

Ping A

n

China P

acific

New

China Life

China T

aiping

PIC

C G

roup

Dai-ichi Life

Sony F

inancial

T&

D H

oldings

Sam

sung Life

Hanw

ha Life

Tong Y

ang Life

Dongbu

Hyundai M

&F

LIG Insurance

Meritz F

&M

Sam

sung F&

M

Cathay F

HC

China Life T

W

Fubon F

HC

Shin K

ong FH

C

EV VNB

TaiwanHK & SEAAustralia KoreaChina Japan

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Dec-0

3

Jun-0

4

Dec-0

4

Jun-0

5

Dec-0

5

Jun-0

6

Dec-0

6

Jun-0

7

Dec-0

7

Jun-0

8

Dec-0

8

Jun-0

9

Dec-0

9

Jun-1

0

Dec-1

0

Jun-1

1

Dec-1

1

Jun-1

2

Dec-1

2

Jun-1

3

Dec-1

3

Jun-1

4

Dec-1

4

Jun-1

5

Cash 3yr bond yield 10yr bond yield

10yr bond yield

3yr bond yield


Valuations

With the exception of a few companies, valuations are not overly demanding throughout

Asia and premiums to developed markets have largely eroded. However, falling yields will

hamper the large rerating potential—hence, we would focus on stocks with lower interest

rate leverage and good operational momentum.

Figure 181: Asian valuations not that challenging… Asia Insurance: Price to embedded value

Figure 182: …with only a few trading above EV Implied value of 1Y new business multiplier (x)

0.00x

0.20x

0.40x

0.60x

0.80x

1.00x

1.20x

1.40x

1.60x

1.80x

2.00xM

ax India

Bangkok Life

AIA

AM

P

China Life (A

)

China Life (H

)

China P

acific (H)

New

China Life (A

)

China P

acific (A)

Ping A

n (H)

Ping A

n (A)

Prudential plc

China Life T

W

Great E

astern

Fubon F

HC

China T

aiping

New

China Life (H

)

Sam

sung F&

M

Dongbu

Korea Life

Cathay F

HC

Sam

sung Life

Sony F

inancial

Hyundai M

&F

T&

D H

oldings

-10.0x

-5.0x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

Bangkok Life

Max India

AIA

AM

P

Prudential plc

China Life (A

)

China Life (H

)

China P

acific (H)

Challenger

China P

acific (A)

Ping A

n (H)

China Life T

W

Ping A

n (A)

Fubon FH

C

Great E

astern

New

China Life (H

)

Dongbu

China Taiping

Hyundai M

&F

Cathay F

HC

Sam

sung F&

M

Hanw

ha Life


01 December 2015


Oil & Gas Rebalance

The Credit Suisse global energy team forecasts a US$58/bbl oil price (Brent) in 2016, a

small uptick from US$53/bbl in 2015. CS is of the view that starting 1Q16, the forces that

have caused the current oversupply situation will start to ease. The primary one being US

oil production, where we forecast production to begin to decline YoY in 1Q16 and not turn

positive again until 4Q16—the culprit being prices finally choking off enough capital for

long enough to reduce activity across all shale basins. Essentially, we do not think oil will

recover to US$70/bbl or above before 2018.

Figure 183: Call on US crude based on CS demand-supply

model (in kb/d)

Figure 184: US drilling rig count—fallen by more than half

Source: Industry data, Credit Suisse global energy team Source: Baker Hughes, Credit Suisse global energy team

Figure 185: Credit Suisse crude oil price forecasts

2013 2014 1Q15 2Q15 3Q15 4Q15E 2015E 1Q16E 2Q16E 3Q16E 4Q16E 2016E 2017E 2018E 2019E LT

Brent 108.9 98.9 54.2 62.1 49.5 48.0 53.4 51.0 57.0 60.0 64.0 58.0 65.0 70.0 70.0 75.0

WTI 97.9 93.1 48.8 57.8 45.0 43.0 48.6 46.0 54.0 57.0 59.0 54.0 60.0 65.0 65.0 70.0

Dubai 105.4 96.7 52.5 61.4 50.2 47.0 52.8 50.0 56.0 58.5 62.5 56.8 62.0 67.0 67.0 72.0

Source: Bloomberg, Credit Suisse global energy team estimates

In our view, only in the 2018-19 timeframe do we foresee oil prices rising above US$70/bbl

Brent, the low end of the range in which big, multibillion dollar oil projects (e.g., core deep

water) attract Final Investment Decisions. And in the longer run, we think that still higher

prices will be required to fill the then still relentlessly widening wedge between EM-driven

demand growth and the decline in rates.

Figure 186: Top oil & gas ideas for 2016 Yield P/B ROE Net debt/

Target Mkt cap P/E (x) (%) (x) (%) equity (x)

Company RIC Rat. Ccy. Price price (US$ mn) FY14A FY15E FY16E FY16E FY16E FY16E FY16E

Top outperformers

CNOOC 0883.HK O HKD 8.75 10.70 50,505 5.4 15.6 12.0 3.3% 0.86 7.2% 21%

Reliance Industries RELI.BO O INR 968 1,040 47,183 13.9 13.3 13.1 1.5% 1.32 10.1% 50%

PTT PTT.BK O THB 270 321 21,596 13.8 26.3 9.0 4.4% 1.02 11.3% 28%


Anton Oil 3337.HK U HKD 0.98 0.80 280 -9.0 -11.2 -12.4 - 1.02 -8.2% 100%

Sinopec SSC - H 1033.HK U HKD 2.30 1.90 18,531 11.9 -11.6 -51.0 - 1.22 -2.4% 45%


Thomas Wong

thomas.wong@credit-

suisse.com

+852 2101 6738

01 December 2015



China

We prefer CNOOC to PetroChina and Sinopec among the 'Big 3 Oils' in China. In our

view, among the three, CNOOC stands out the most in terms of capital discipline and cost

control, which should help it weather the downturn better than peers. CNOOC managed to

reduce opex by 19% YoY in 1H15, and management is confident that we could see

another 10-15% room for cost cutting should oil prices stay at US$50 levels. In addition,

the company has also increased dividend payout (62% as of 1H15, up from 27% in 1H14)

to reward shareholders through the depressed oil price environment, providing 6%

dividend yield to investors. All these, we believe, should place CNOOC ahead of peers

both in the HK/China and regional perspectives.

Thailand

We prefer PTT to PTTEP in Thailand. We hope PTT would reconsider its balance sheet

management and show commitment to improving its ROCE with better capital discipline.

In the shorter term, higher dividend payment would send a positive signal to the market.

India

We like Reliance Industries in India. Its refining and petrochemical capacity expansion is

nearing completion and has been largely successful, bringing in free cash flow generation

from FY18 onwards. Nevertheless, the current share price suggests no value for its telco

business (but all of the sunk capex), which we consider overly harsh.

Valuations

The MSCI Asia ex-Japan Energy index is trading at 11x forward P/E, 0.5 standard

deviation above its long-term historical P/E range. On a P/B basis, the MSCI Asia ex-

Japan index is at 0.9x, the lowest level over its long-term historical range amid the oil price

collapse. Consensus currently forecasts 12% earnings growth in 2016 for the sector, with

an expectation for an oil price recovery in 2016.

Figure 187: MSCI Asia ex-Japan Energy—forward P/E

band

Figure 188: MSCI Asia ex-Japan Energy—trailing P/B

band

4

6

8

10

12

14

16

18

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

(x)

Avg. = 10.2x

+1 S.D. = 12.1x

-1 S.D. = 8.3x

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

(x)

Avg. = 2.1x

+1 S.D. = 2.9x

-1 S.D. = 1.3x

Source: IBES, Credit Suisse estimates Source: IBES, Credit Suisse estimates

01 December 2015


Technology Internet and software still leading the way

Summary view: Against a backdrop of slowing product cycles, aggregate earnings

growth for hardware/semis is again expected to be flattish in 2016, limiting the stock picks

to self-help stories, content gainers and those that are likely to be driven by corporate

action. On the other hand, earnings growth is likely to remain strong for IT and Internet

names, and in some cases might actually be stronger than was the case in 2015. Thus,

we maintain our mixed view on the sector—a large Overweight in Internet and IT Services

funded by a large Underweight in hardware/semis.



Company RIC Rat. Currency Price price (mn) FY14A FY15E FY16E FY16E FY16E FY16E FY16E

Top outperformers

Alibaba BABA O USD 81.71 98.00 205,290 37.5 31.9 24.7 0.0 4.9 19.8 (50.7)

Baidu BIDU O USD 201.80 210.00 70,934 32.1 37.8 30.9 0.0 5.6 18.2 (73.2)

Lenovo 0992.HK O HKD 8.64 11.00 12,384 14.5 (33.4) 10.8 1.9 3.5 32.4 (5.2)

Samsung Elec. 005930.KS O KRW 1,299,000 1,785,000 167,372 8.2 8.6 7.1 2.3 0.9 12.1 (6.1)

SPIL 2325.TW O TWD 45.00 52.00 4,315 12.0 12.2 11.7 6.4 1.9 16.1 3.0

Tech Mahindra TEML.BO O INR 537.55 700.00 7,830 20.1 17.4 13.9 1.7 3.0 21.9 (27.8)


LG Elec 066570.KS N KRW 56,100 46,200 8,031 13.5 23.0 18.4 0.8 0.7 3.6 51.0

Mediatek 2454.TW N TWD 262.50 250.00 14,480 8.8 14.8 16.7 4.9 1.6 9.7 (63.3)

Pegatron 4938.TW N TWD 84.60 93.00 6,776 13.6 9.0 9.0 6.8 1.4 15.6 (36.7)

Quanta 2382.TW U TWD 52.00 46.00 6,180 10.6 11.6 11.2 6.7 1.7 14.8 (10.4)

Note: Priced as of 25 November 2015. * For Alibaba, Lenovo and Tech Mahindra, we use FY3/16E for FY15E. Source: Company data, Credit Suisse estimates


Challenging growth backdrop for Hardware/semis. 2015 proved to be an even poorer

year for EPS growth for hardware/semis than we had feared (estimated aggregate EPS

now set to decline YoY). Current street estimates for 2016 are forecasting a flattish EPS

growth year again, given a lack of top-line drivers (normalising consumer tech growth in

the absence of major product cycles). However, within the existing major product areas,

we believe that consumer PC growth is likely to be better than feared in 2016 driven by a

modest replacement cycle. Content improvement in leading smartphones should remain a

driver, particularly in 2H16, for leading component suppliers. Growth in areas such as

industrial PCs, data centres and related cloud infrastructure should provide avenues for

growth for some select companies. We believe Virtual Reality-related devices should gain

traction in 2016, though given the likely unit volumes, this should remain a niche theme.

Figure 190: MSCI tech indices: IBES EPS growth (YoY, %) Figure 191: MSCI AxJ tech—2015 and 2016 IBES EPS

(US$)

-3

24

9

-8

1

10 10

-7-2

8

31

129

-1

46

12

26

-20

-10

0

10

20

30

40

50

AxJ t

ech

Intern

et

IT Se

rvice

s

Hardw

are

Semi

s

China

Tech

India

Tech

Korea

tech

Taiwa

n Tec

h

2015 2016

24

26

28

30

32

34

36

38

40

Feb-1

4Ma

r-14

Apr-1

4Ma

y-14

Jun-1

4Ju

l-14

Aug-1

4Se

p-14

Oct-1

4No

v-14

Dec-1

4Ja

n-15

Feb-1

5Ma

r-15

Apr-1

5Ma

y-15

Jun-1

5Ju

l-15

Aug-1

5Se

p-15

Oct-1

5No

v-15

2016 EPS 2015 EPS

Source: IBES, MSCI, Thomson Reuters Source: IBES, MSCI, Datastream

Manish Nigam

manish.nigam@credit-

suisse.com

852 2101 7067

01 December 2015


Focus on self-help and corporate action-related stories. In the absence of any major

revenue drivers for the sector in 2016, we believe that investors should look for self-help

stories (execution-driven, product mix change) or where there is the potential for some

corporate action (M&A, buy-backs, capital restructuring). We believe Lenovo offers one of

the best potential execution stories in AxJ tech over the next two years and is also a likely

beneficiary of further consolidation in the PC industry. We see strong economic reasons

for a pick-up in M&A/corporate action in Asian tech (slowing growth, high cash balances,

cheap valuations, well-funded bidders), but given the largely family-owned/influenced

nature of most of the large cap AxJ hardware and semi companies, the probability of such

events remains low and the task of forecasting such events a difficult one. While several

stocks could be at play here, we believe SPIL and Samsung Electronics offer the best

combination of bottom-up fundamentals and likely corporate action visibility.

Our big overweight remains in Internet and Indian IT. We are 600 bp Overweight

software (Internet and IT Services) against hardware/semis, a stance we maintained

throughout 2015 (but with differing levels of Overweight). Given the stronger earnings

growth on offer in 2016 for these sectors, we see little reason to change that Overweight

position. In addition, the Neutral benchmark weighting for Internet is set to increase in two

steps starting 30 November 2015, further arguing for added weighting to the sector. While

we believe that Internet still offers the best growth outlook across various tech sub-sectors,

we expect Indian IT to remain a steady grower again in 2016.

Figure 192: MSCI AxJ tech—pro-forma* sector weights

(%)

Figure 193: Internet and IT Services provide the best

earnings growers

Components5.5% (7.7%)

Hardware12.0% (13.6%)

Internet/media30.5% (19.6%)

IT Services8.9% (10.3%)

Others0.6% (0.4%)

Samsung19.8% (22.4%)

Semis22.7% (26%)

2022

28 29

12 12

23

57

28 29

41

11

15

24

0

10

20

30

40

50

60

Alibaba Baidu Tencent Vipshop TCS HCL Tech TechM

EPS growth CY16 EBIT growth CY16

Source: MSCI, Thomson Reuters Source: Company data, Credit Suisse estimates

Valuations

Valuations are modest for most parts of tech. Internet valuations are relatively more

expensive but are likely to hold in a year where growth elsewhere is likely to be elusive.

Figure 194: MSCI AxJ tech: trailing P/B (x) Figure 195: MSCI AxJ tech: 12M forward P/E (x)

1.0

1.5

2.0

2.5

3.0

3.5

4.0

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

6.0

8.0

10.0

12.0

14.0

16.0

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Source: MSCI, Thomson Reuters, Bloomberg Source: MSCI, Thomson Reuters, Bloomberg

01 December 2015


Telecoms A year for second-liners

Summary view: Going into 2016 we are OVERWEIGHT the telecoms sector overall,

despite a further year of outperformance in 2015, in preference to more expensive

consumer stables. However, rising interest rates may decrease the relative attractiveness

of yield plays, and so we continue to try to be selective. Within cellular, we have a

preference for stocks in markets which still have low smartphone penetration and

improving competitive dynamics (e.g., where unlimited data plans are avoided, and where

handsets subsidies are avoided or are reducing). We also like some fixed line operators

exposed to rising broadband penetration and enjoying high barriers to entry in selective

ASEAN markets. We use DCF to value each operator, and then select our regional top

picks on the basis of the largest upside to our DCF valuations versus current share prices.

Our top picks for 2015 include China Telecom, DTAC, XL and Link Net. Our top sells

include IDEA in India and True Corp in Thailand.





Top outperformers

Link Net LINK.JK O IDR 3,750 8,450 834 20.4 17.5 11.8 1.7% 2.6 21.7% Net cash

China Telecom 0728.HK O HKD 3.9 7.93 40,517 14.6 15.5 11.2 3.6% 0.8 7.4% 36.2%

DTAC DTAC.BK O THB 49.0 93 3,253 10.8 19.1 14.9 6.7% 3.6 23.8% 169.1%

XL Axiata EXCL.JK O IDR 3,770 5,150 2,351 -35.8 228.2 17.5 3.1% 2.2 12.4% 151.7%



Idea Cellular IDEA.BO U INR 139.9 115 7,587 23.6 15.7 17.2 0.7% 2.0 11.4% 160.1%



The introduction of a well-capitalised new entrant is, in our view, the single most damaging

structural change that can happen in a cellular market, given that it triggers higher

spectrum costs, higher capex (as a new entrant is forced to build nationwide coverage),

tariff competition and increased marketing expenditure (as the new entrant attempts to fill

its empty network and attract revenue over its fixed cost base). Thus industry capex

forecasts tend to be revised up, and margins and revenue tend to be revised down,

creating a 'triple-whammy' negative impact on EPS. This is already a 'live' issue for India

and we believe it could also become a problem for Singapore. Thailand is likely to

narrowly avoid this fate, though Jasmine did force up spectrum prices.

The other crucial factor in cellular is the presence or absence of unlimited data plans. The

requirement to pay a higher amount to consume larger volumes of data ensures that the

economics of consumer behaviour match the cost structure of the operators. We view the

avoidance of unlimited data plans, in markets such as China and Indonesia as healthy for

telecom operators—as consumers are incentivised to consume more and more data, there

is ARPU uplift and operators receive additional revenue from subscribers.

While the fundamentals of the Indonesian cellular market improved in 2015 (consolidation,

rising data price points), 'second-line' operators with USD-denominated debts significantly

underperformed operators, such as PT Telkom, with stronger balance sheets and no USD

exposure. We note that material downward revisions in 2015 earnings led to share price

declines in excess of impact on DCF valuation of higher debt balances in IDR terms. This

has created an opportunity for value-based investors, in our view.

Colin Mccallum

colin.mccallum@credit-

suisse.com

852 2101 6514

New entrants are the key

'red flag'

Data monetisation is crucial

Emerging market currencies

to be less of a handicap?

01 December 2015


Figure 197: Non-Japan Asia cellular sector key structural drivers

Country Number

of

players

New

entrant

s?

Handset

subsidies

Competition

rank

FY14

Smartphone

penetration

Data pricing Proportion

revenue

bundled

Cellular market

FY15-FY17

revenue CAGR

Growth

rank

Overall

rank*

China 3 No Some 2.5 39.1% Tiered 72.0% 7.0% 4.0 3.0

Hong Kong 4 No Extensive 3.0 84.9% Tiered after Sept

2013

74.0% 3.0% 3.0 3.0

India 6-8 Yes None 1.0 15.9% Tiered 15.0% 6.4% 4.0 2.0

Indonesia 7 1 None 2.5 30.9% Tiered 31.0% 5.8% 4.0 3.0

Korea 3 No Extensive 2.5 82.2% Unlimited 3G,

Tiered LTE

84.0% 0.9% 1.0 2.0

Malaysia 4 Yes None 3.0 62.6% Tiered 52.0% 4.3% 2.0 2.7

Philippines 2 No Some 3.0 18.3% Tiered 46.0% 4.3% 2.0 2.7

Singapore 3 Possible Extensive 3.0 84.4% Tiered 61.0% -0.7% 1.0 2.3

Taiwan 3 No Extensive 3.0 64.5% Unlimited 3G, Tiered LTE 69.0% 2.3% 1.0 2.3

Thailand 3 No Some 3.0 75.2% Tiered 40.0% 4.8% 3.0 3.0

Note: 5 being most attractive, calculated as (growth rank +competition rank x2)/3); ** pre VAT impact for comparison.


Valuation

While China Telecom underperformed incumbent China Mobile in share price terms in

2015, its cellular service revenue grew by 11.4% YoY into 3Q15, ahead of China Mobile's

5.7% growth and Unicom's 4.5% decline. This looks set to continue. Average 4G ARPU

across 9M15 was Rmb83.0/month net of tariff discounts, 49.5% higher than the average

9M15 ARPU level of Rmb55.5/month, so a rising 4G subscriber base should drive

revenue. China Telecom is in our view a major beneficiary of tower sharing/injections. At

11.2x FY16 improving fundamentals do not seem to be priced in, in our view.

Overall broadband penetration is extremely low in Indonesia, at 7.5% of households as at

June 2015 (with only 1.9% of households enjoying speeds of 3Mbp and above), and Link

Net is constructing a 'first mover' advantage by addressing pent-up demand for broadband

access and Pay TV. At 11.8x FY16 P/E Link Net looks very cheap given its growth profile.

XL underperformed PT Telkom in share price terms in 2015, partly due to a strategy of

cleaning up unprofitable starter packs, but in large part due to forex losses.

We believe that DTAC is severely oversold versus our DCF valuation, with too much

emphasis having been placed on near term (2015) loss of revenue momentum. Regulatory

fees, and marketing costs, are set to decline in 2016 following the 900MHz 4G auction.

We remain very nervous over the prospects for the Indian market looking into FY16 given

the emergence of Reliance Jio as a well-capitalised new entrant. Thus we believe that the

strong earnings growth enjoyed in Indian cellular over the past three years could grind to a

halt in 2016. Given this, IDEA looks expensive.

We also retain True Corp as a top UNDERPERFORM call. The positive catalysts of the

towers sale and recapitalisation courtesy of China Mobile are now behind it, and valuation

(13.4x FY16 EV/EBITDA and 524x FY16 P/E) has been left looking very stretched post the

1800MHz auction. Furthermore, True Corp's relative competitive position in cellular could

weaken as AIS launches 4G services in early 2016.

We like China Telecom…

.. Link Net…

XL…

….and DTAC

We rate IDEA

UNDERPERFORM…

…together with True Corp

01 December 2015


Transportation Demand is the greatest unknown

As it was in 2015, so do we believe it will be in 2016 for the transport sector, namely the

difficulty in matching variable demand with more fixed levels of supply. The travails of the

shipping sector are well documented with both dry and liner segments dogged by excess

capacity and the tanker segment likely to face similar issues in 2016 as the VLCC fleet

grows 8%. Airlines, while expanding, do have the benefit of demand elasticity that does

not accrue to freight; lower fares result in more passengers and lower jet fuel prices

provide an earnings cushion to falling yields. Moreover, average recorded fuel prices will

continue to decline for most APAC airlines in 2016 even were we to see a modest

increase in spot prices as expensive hedges roll off. Currency—in particular the direction

of the USD—remains the airline sector's greatest challenge in our view, but we retain our

positive outlook for this segment (warning to LCCs once more), while suggesting that all

but the most value-driven investors with long investment time frames avoid shipping.





Top outperformers

JAL 9201.T O JPY 4,371 6,800 12,914 4.6 9.9 8.9 2.8% 1.7 19.5% Net cash

AirAsia AIRA.KL O MYR 1.4 1.9 925 7.8 5.0 5.4 3.1% 0.9 16.1% 226.3%

SIA SIAL.SI O SGD 10.6 14 9,071 43.3 36.9 14.8 4.3% 1.0 6.7% Net cash


EMC 2603.TW U TWD 12.6 13.0 1,363 -29.8 -20.9 22.1 1.3% 0.8 3.5% 58.0%

Westports WPHB.KL U MYR 4.25 3.75 3,441 28.3 29.4 23.5 3.2% 7.1 30.3% 38.7%



Oil prices

As at mid-November 2015, the price of Brent oil has fallen 27% and this has been

reflected in the prices of jet kerosene (off 15%) and 380 centistoke (down 23%), the

primary input costs for the airline and shipping sector, respectively. Because companies in

both of these sectors tend to hold around five weeks of physical inventory and run hedge

programmes, the benefits of falling oil will continue into 2016 even with the modest rise in

Brent that Credit Suisse expects (a rise from average US$54 to US$58/bbl or 7%).

Homogenous growth in capacity; demand growth divergent

We anticipate capacity growth of 4-5% across the various transport sector sub-groups, but

the demand outcomes are likely to be substantially different. The greatest positive gap

between supply and demand is expected to be in the LCC segment as attempts to curb

capacity growth, evident since mid-2014, pay off and demand continues to rise at a rapid

clip. Full service carriers (FSCs) should also continue to enjoy upward pressure on load

factors as jet fuel price gains translate into lower fares stimulating passenger growth. Liner

players are expected to see some equilibrium, although continuous negative revision to

our global GDP growth estimate that underpins our demand expectations remains an

elevated risk. The most oversupplied (or under-demanded) segment is likely to remain dry

bulk. Declining coal volumes as China procures onshore and switches power production

preference to clean burning fuels is expected to combine with tepid steel production

limiting ore demand to generate a near 3% excess supply situation.

Timothy Ross

timothy.ross@credit-

suisse.com

+65 6212 3337

Muzhafar Mukhtar

muzhafar.mukhtar@credit-

suisse.com

+ 60 3 2723 2084

Christopher Siow

christopher.siow@credit-

suisse.com

+65 6212 3062

Lower oil price is a gift that

keeps giving

Low cost carriers should

enjoy the most positive

supply-demand spread

01 December 2015


Figure 199: APAC transport capacity vs. demand by segment (2016E, YoY % chg.)

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

LCC Liner* FSC Dry bulk*

Supply Demand

* Shipping sector estimates global vs. airline (LCC/FSC) estimates APAC regional

Source: Company data, Clarksons, Alphaliner, Diio-mi, Credit Suisse estimates

USD currency strength

Expectations that the US will hike interest rates should see USD strength persist into early

2016. This will keep pressure on airline costs (where a net ~35% are USD-denominated),

while continuing to provide macro benefits to Japanese shipping companies. We do not

expect the same delta in the USD vs. regional currencies in 2016 as occurred in 2015,

however, and any retracement would be a strong support for the region's airline earnings.

Valuations

As a group, airlines are trading around one multiple turn off their post GFC EV/EBITDAR

troughs (at ~7x) and well below their post GFC average of closer to 8x. As with other

geographies, investors seem unwilling to pay either for jet fuel price gains or the traffic

wins that accompany their surrender in the form of cheap fares. Volume growth favours

the LCCs and Japanese airlines most.

Figure 200: APAC airline sector forward EV/EBITDAR Figure 201: APAC shipping sector forward adjusted P/B

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

TR AK PG TG KE NH OZ FD GA 5J CI D7 CX BR SQ JL

EV/EBITDAR T + 1 Average

0.00

0.20

0.40

0.60

0.80

1.00

1.20

PB NYK NOL WHL K-Line EMC OOIL MOL

P/B Adj. P/B Average adj. P/B

Source: Company data, Credit Suisse estimates Source: Company data, Clarksons, Credit Suisse estimates

With earnings prospects limited, shipping companies remain asset plays. We have

swapped fleet market values for historic book values and believe that only Pacific Basin is

attractive on asset values, with NYK appealing for non-shipping activities.

… while dry bulk operators

continue to be becalmed by

tepid demand

A strong USD is bad for

airlines, but appears to have

peaked

Airlines look attractive as a

sector

…with shipping companies

no bargain on asset values

01 December 2015


Utilities and renewable energy Demand uncertainty coupled with US rate hike risks

Summary view: 2015 has been a relatively good year for Asian utilities under our

coverage, with many regions (such as South Korea, Hong Kong, Pakistan and Malaysia)

outperforming their local indices and most of the rest (such as China, India, Thailand and

the Philippines) largely in line with market. Utilities stocks have once again proven their

defensiveness amid Asian market turbulence with concerns on potential Fed rate hikes

and strengthening of the US dollar. Going into 2016, we believe demand could become

one of the key issues for Asian utilities, with slowing industrial activities in China as well as

Malaysia and Thailand, while India may see better demand in 2016 with on-going reforms

and pick-up of the economy. Besides, risks from the US rate hike would become more

imminent in 2016, which could further weigh on Asian utilities specially the high-yield ones.

For 2016, we cherry pick stocks with the best growth outlook and least affected by macro

risks. Our top picks are (1) Huaneng Renewables, (2) NTPC, (3) KEPCO and (4) EDC; top

sells are (1) CLP and (2) Energy Absolute.





Top outperformers

HNR 0958.HK O HKD 2.3 4.4 2,925 15.5 9.7 6.9 2.9% 0.9 13.7% 309.4%

NTPC NTPC.BO O INR 131.2 160 16,296 11.3 12.4 11.9 4.4% 1.3 10.6% 133.4%

KEPCO 015760.KS O KRW 49,100 64,000 27,572 6.5 2.6 6.3 2.0% 0.4 7.1% 73.2%

EDC EDC.PS O PHP 6.28 9.8 2,506 13.3 12.6 10.1 3.5% 2.1 20.7% 75.0%


CLP 0002.HK U HKD 66 62 21,515 14.9 15.6 15.3 4.2% 1.7 11.4% 63.0%

Energy Absolute EAm.BK U THB 24.4 20 2,551 56.6 33.5 19.1 0.2% 6.9 36.4% 99.2%



Beware of demand risks: With increasing capacity coupled with slow economy, power is

now oversupplied (in China and Thailand) or well balanced (in Korea, Malaysia and

Philippines) in most Asian countries except Pakistan. Going into 2016, we believe demand

could become one of the key issues for Asian utilities, with slowing industrial activities in

China as well as Malaysia and Thailand, while India may see better demand in 2016 with

on-going reforms and pick-up of economy. In China, without support from demand growth,

the aggressive capacity build-up across all fuel types would further squeeze the utilisation

of coal-fired power, and the opening-up of power generation market (competitive bidding)

could lead to lower on-grid tariffs. The Philippines, India and Pakistan are relatively less

affected by demand risks with still expanding economy.

Fed rate hike is coming: The Credit Suisse Global Economics Team expects the first

Fed rate hike of 25 bp in December 2015, followed by three more in 2016 (25 bp each),

totalling 100 bp from now till end-2016. Higher US interest rates could challenge the

investment appetite for high-yield stocks, a safe-haven option over the past few years.

While most Asian utilities have been traditionally considered as growth utilities with strong

sustainable ROE, investors should be beware of possible derating risks for high-yield

stocks including China IPPs, Hong Kong power, and Thailand power, even though some

of them (like Hong Kong power) may have outperformed in 2015 (possibly due to delays in

the US rate hike).

Dave Dai, CFA

[email protected]

+852 2101 7358

01 December 2015


Currency risk is across the board: With imminent Fed rate hike and strengthening of the

US dollar, almost all Asian utilities will have to face currency risks in 2016. Our house view

suggests dollar strength against most Asian currencies (>3% dollar appreciation for next

12 months, against IDR, KRW, SGD, THB, INR, MYR and CNY), with Indonesian rupiah

(possible domestic rate cuts) and Korean Won (sensitive to Chinese demand) leading the

weakness. A stronger US dollar may cause FX losses for companies with overseas

borrowings, such as China gas distributors, Thailand power, and Philippines power and

water, and also affect Korea power and Malaysia power's operations with their fuel imports

priced in USD. However, Pakistan IPPs could be immune to US dollar appreciation thanks

to their guaranteed USD-denominated project IRRs.

Valuations

The Non-Japan Asian utilities had a strong start in early 2015 driven by market sentiment.

However, the corrections since mid-2015 (led by Hong Kong and China markets) have

dragged current valuation to be well below the historical average in both forward P/E and

P/B matrix, attractive considering a decent FY15-17 EPS growth (13% on average, led by

China, Thailand and India). Hong Kong power, China IPPs, Thailand power and Pakistan

IPP offer the highest yield.

Figure 203: Forward P/E of regional Utilities stocks Figure 204: Forward P/B of regional Utilities stocks

10

11

12

13

14

15

16

17

18

Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15

(x)

14.3x Avg+1SD

13.2x Avg

15.4x Avg+2SD

12.1x Avg-1SD

11.1x Avg-2SD

1.2

1.4

1.6

1.8

2.0

2.2

Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15

(x)

1.9x Avg+1SD

1.8x Avg

2.1x Avg+2SD

1.6x Avg-1SD

1.5x Avg-2SD


Top Outperform ideas: Huaneng Renewables (strongest capacity growth with lowest

power curtailment); NTPC (capacity addition, reforms, attractive valuations); KEPCO

(beneficiary of lower commodities price environment and tariff cut should be milder than

market expectations); EDC (cheapest in the sector next to FGEN but EDC is more liquid,

pays higher dividends, and has a higher potential upside).

Top relative underperformers: CLP Holdings (uncertain Hong Kong and Australian

business outlook); Energy Absolute (unattractive valuation with large premium to regional

peers).

01 December 2015


Companies Mentioned (Price as of 01-Dec-2015)

Ace Hardware Indonesia (ACES.JK, Rp765) Advanced Info Service PCL (ADVANC.BK, Bt199.5) AGL Energy (AGL.AX, A$16.55) AIA Group (1299.HK, HK$46.3) AirAsia Berhad (AIRA.KL, RM1.36) Aisin Seiki (7259.T, ¥4,930) Alibaba Group Holding Limited (BABA.N, $82.21) Alliance Financial Group BHD (ALFG.KL, RM3.58) Amorepacific Corp (090430.KS, W403,500) AMP (AMP.AX, A$5.81) AMP (AMP.AX, A$5.81) Anhui Conch Cement Co. Ltd. (0914.HK, HK$21.15) Anton Oilfield Services Group (3337.HK, HK$0.92) ANZ Banking Group (ANZ.AX, A$27.15) Astra International (ASII.JK, Rp5,925) Baidu Inc (BIDU.OQ, $207.6) Bangkok Life (BLA.BK, Bt53.75) Bank of China Ltd (3988.HK, HK$3.44) Beijing Capital Co., Ltd (600008.SS, Rmb10.54) Beijing Enterprises Water Group Limited (0371.HK, HK$6.06) Bharat Heavy Electricals Ltd (BHEL.BO, Rs175.45) Bharti Airtel Ltd (BRTI.BO, Rs334.5) Bloomberry Resorts Corporation (BLOOM.PS, P5.22) BOC Hong Kong (Holdings) (2388.HK, HK$23.75) Brambles (BXB.AX, A$10.89) Brilliance China Automotive Holdings Limited (1114.HK, HK$9.86) BTS Group Holdings PCL (BTS.BK, Bt9.55) C.P. ALL PCL (CPALL.BK, Bt47.0) Canvest Environmental Protection Gp Co Ltd (1381.HK, HK$3.11) carsales.com.au (CAR.AX, A$10.27) Cathay Financial Holding (2882.TW, NT$45.65) Challenger Limited (CGF.AX, A$8.44) Cheung Kong Property Holdings Limited (1113.HK, HK$50.55) China Conch Venture Holdings Limited (0586.HK, HK$16.26) China Everbright International Ltd (0257.HK, HK$11.74) China Life (601628.SS, Rmb26.31) China Mobile Limited (0941.HK, HK$88.1) China Overseas Land & Investment (0688.HK, HK$25.7) China Pacific (2601.HK, HK$31.9) China Telecom (0728.HK, HK$3.8) China XD (601179.SS, Rmb6.53) CIMB Group Holdings Bhd (CIMB.KL, RM4.5) City Developments (CTDM.SI, S$7.34) CLP Holdings Limited (0002.HK, HK$64.8) CNOOC Ltd (0883.HK, HK$8.58) Commonwealth Bank Australia (CBA.AX, A$79.43) CT Environment (1363.HK, HK$2.55) CTBC Holding (2891.TW, NT$17.1) Dai-ichi Life Insurance (8750.T, ¥2,130) DBS Group (DBSM.SI, S$16.5) Delta Electronics (2308.TW, NT$156.5) DG Khan Cement Co Ltd (DGKH.KA, PRs127.8) Dongbu Insurance (005830.KS, W62,100) Dongjiang Environmental Company Limited (002672.SZ, Rmb20.26) Dongjiang Environmental Company Limited (0895.HK, HK$12.96) Dynagreen Environmental Protection (1330.HK, HK$4.31) E.Sun Financial Holding Co. (2884.TW, NT$19.65) Energy Absolute (EAm.BK, Bt24.8) Energy Development Corporation (EDC.PS, P6.2) Engro Corporation Ltd (EGCH.KA, PRs268.14) Evergreen Marine (2603.TW, NT$12.95) Formosa Chemical & Fibre (1326.TW, NT$70.6) Formosa Petrochemical (6505.TW, NT$77.2) Formosa Plastics (1301.TW, NT$73.7) Fubon Financial Holding (2881.TW, NT$52.0) Fuji Heavy Industries (7270.T, ¥5,088) Galaxy Entertainment Group (0027.HK, HK$22.8) Gamuda (GAMU.KL, RM4.54) Geely Automobile Holdings Ltd (0175.HK, HK$4.07) Genting Berhad (GENT.KL, RM7.2) Genting Malaysia Bhd (GENM.KL, RM4.4) Genting Plantations Bhd (GENP.KL, RM10.26) Genting Singapore (GENS.SI, S$0.76) GoerTek Inc. (002241.SZ, Rmb31.68) Great Wall Motor (2333.HK, HK$9.51) Guangdong Investment Limited (0270.HK, HK$10.58) Gudang Garam (GGRM.JK, Rp48,900) Guodian Technology & Environment Group Corporation (1296.HK, HK$0.74) Hangzhou Hikvision Digital Technology Co., Ltd. (002415.SZ, Rmb33.59) Hanwha Life Insurance (088350.KS, W7,640) HCL Technologies (HCLT.BO, Rs871.85) HDFC Bank (HDBK.BO, Rs1075.95)

01 December 2015


Hindalco Industries Ltd (HALC.BO, Rs77.05) Hindustan Unilever Ltd (HLL.BO, Rs809.45) Hon Hai Precision (2317.TW, NT$84.0) HTC Corp (2498.TW, NT$81.1) Huaneng Renewables Corporation (0958.HK, HK$2.32) Hyundai Development (012630.KS, W41,000) Hyundai Heavy Industries (009540.KS, W90,600) Hyundai Mipo Dockyard (010620.KS, W62,900) Hyundai Mobis (012330.KS, W249,500) Hyundai Motor Company (005380.KS, W147,500) Idea Cellular Ltd (IDEA.BO, Rs141.4) Indofood CBP (ICBP.JK, Rp12,625) IndusInd Bank (INBK.BO, Rs933.5) Int'l Container Terminal Inc. (ICT.PS, P73.5) Intouch Limited (INTUCH.BK, Bt66.0) Japan Airlines (9201.T, ¥4,210) Jasmine International (JAS.BK, Bt4.66) JD.com, Inc. (JD.OQ, $30.15) Jiangsu Hengrui Medicine Co. Ltd (600276.SS, Rmb49.48) Kangwon Land (035250.KS, W38,200) KCC Corp (002380.KS, W459,500) K-Electric (KELE.KA, PRs7.2) Kia Motors (000270.KS, W52,500) Korea Electric Power (015760.KS, W48,950) KOSE (4922.T, ¥12,880) KT&G Corp (033780.KS, W107,000) Kweichow Moutai Co., Ltd (600519.SS, Rmb214.31) L&T (LART.NS, Rs1374.6) Lee & Man Paper (2314.HK, HK$4.46) Lend Lease (LLC.AX, A$12.75) Lenovo Group Ltd (0992.HK, HK$8.2) LG Display Co Ltd. (034220.KS, W25,400) LG Electronics Inc (066570.KS, W54,200) LG Hausys (108670.KS, W171,000) LG Household & Healthcare (051900.KS, W1,008,000) Lotte Chemical (011170.KS, W240,500) M1 Limited (MONE.SI, S$2.81) Mahindra (MAHM.NS, Rs1365.5) Malayan Banking (MBBM.KL, RM8.32) Malaysia Airports Holdings Bhd (MAHB.KL, RM5.42) Manila Water Company (MWC.PS, P24.5) Maruti Suzuki India Ltd (MRTI.BO, Rs4576.7) MediaTek Inc. (2454.TW, NT$260.5) Medibank Private Limited (MPL.AX, A$2.32) Metro Pacific Investments (MPI.PS, P5.24) Metropolitan Bank & Trust Co (MBT.PS, P80.5) MGM China (2282.HK, HK$10.2) Midea Group (000333.SZ, Rmb26.83) Mitsubishi Chemical Holdings (4188.T, ¥807) Mitsui Fudosan (8801.T, ¥3,104) NIB Holdings Limited (NHF.AX, A$3.82) NTPC Ltd (NTPC.BO, Rs131.0) Ono Pharmaceutical (4528.T, ¥19,710) Pakistan Oilfields Ltd (PKOL.KA, PRs293.23) Pegatron (4938.TW, NT$86.1) PICC P&C (2328.HK, HK$16.82) Ping An (2318.HK, HK$42.45) POSCO (005490.KS, W169,000) Prudential (PRU.L, 1539.5p) PT Bank Central Asia Tbk (BBCA.JK, Rp12,375) PT Bank Rakyat Indonesia (Persero) Tbk (BBRI.JK, Rp10,775) Pt Link Net Tbk (LINK.JK, Rp3,550) PT Summarecon Agung Tbk (SMRA.JK, Rp1,550) PTT Public Company Limited (PTT.BK, Bt256.0) Quanta Computer (2382.TW, NT$51.0) Reliance Industries Limited (RELI.BO, Rs968.0) Rio Tinto (RIO.AX, A$45.91) Sa Sa International Holding (0178.HK, HK$2.66) Samsonite International S.A. (1910.HK, HK$23.0) Samsung Electronics (005930.KS, W1,284,000) Samsung FineChem (004000.KS, W35,550) Samsung Life Insurance (032830.KS, W103,000) Shanghai Electric Group Company Limited (2727.HK, HK$4.81) Shenzhou International (2313.HK, HK$40.7) Shinhan Financial Group (055550.KS, W41,450) Shinsegae Inc (004170.KS, W250,500) Siam Global House PCL (GLOBAL.BK, Bt10.4) SIIC Environment Holdings (SIIC.SI, S$0.76) Siliconware Precision (2325.TW, NT$43.0) Singapore Airlines (SIAL.SI, S$10.16) Singapore Telecom (STEL.SI, S$3.83) Sino Thai Engr & Const PCL (STEC.BK, Bt24.2) Sinopec Oilfield Service Corp. (1033.HK, HK$2.21) SK Innovation (096770.KS, W127,500)

01 December 2015


SKS Microfinance Ltd. (SKSM.BO, Rs452.55) SoftBank Group Corp. (9984.T, ¥6,537) S-Oil Corp (010950.KS, W74,200) Sony (6758.T, ¥3,177) Sound Global Co. Ltd (0967.HK, HK$7.0) StarHub Ltd (STAR.SI, S$3.63) State Bank Of India (SBI.BO, Rs250.45) Sumitomo Electric Industries (5802.T, ¥1,752) Sumitomo Mitsui Financial Group (8316.T, ¥4,697) Suntec REIT (SUNT.SI, S$1.54) T&D Holdings (8795.T, ¥1,725) Taiwan Semiconductor Manufacturing (2330.TW, NT$139.0) Tata Motors Ltd. (TAMO.BO, Rs423.35) Tata Steel Ltd (TISC.BO, Rs230.05) Tech Mahindra Limited (TEML.BO, Rs533.4) Telstra Corporation (TLS.AX, A$5.36) Thai Union Group (TU.BK, Bt18.5) Tianjin Capital Environmental Protection (1065.HK, HK$6.46) Tianjin Capital Environmental Protection (600874.SS, Rmb11.09) Total Access Communication PCL (DTAC.BK, Bt45.75) Toyota Motor (7203.T, ¥7,657) True Corp PCL (TRUE.BK, Bt8.45) Tus-Sound Environmental Resources Co., Ltd. (000826.SZ, Rmb37.77) Ultratech Cement Ltd (ULTC.BO, Rs2806.95) Uni-President Enterprises (1216.TW, NT$53.8) United Bank Limited (UBL.KA, PRs159.23) Vietnam Dairy Products Joint Stock Company (VNM.HM, D124000.0) Vingroup JSC (VIC.HM, D42800.0) Voltas (VOLT.BO, Rs288.5) Wanda Cinema Line Co Ltd (002739.SZ, Rmb99.3) Wasion Group (3393.HK, HK$8.84) Weichai Power Co. Ltd (2338.HK, HK$8.0) Westports Holdings Berhad (WPHB.KL, RM4.3) Xinjiang Goldwind Science & Technology Co., Ltd. (2208.HK, HK$13.14) XL Axiata Tbk (EXCL.JK, Rp3,460) Yanzhou Coal Mining Company Limited (1171.HK, HK$3.54) Yonker Environmental Protection Co., LTD. (300187.SZ, Rmb47.7)

Disclosure Appendix

Important Global Disclosures

Sakthi Siva, Neelkanth Mishra, Tan Ting Min, Farhan Rizvi, CFA, Fahd Niaz, CFA, Alvin Arogo, Gerald Wong, CFA, Gil Kim, Chung Hsu, CFA, Dan Fineman, Chate Benchavitvilai, Jatin Chawla, Bin Wang, Sanjay Jain, Sanjay Jain, Trina Chen, Kenneth Whee, Kevin Yin, Arnab Mitra, A-Hyung Cho, Trina Chen, Kenneth Fong, Edmond Huang, CFA, Timothy Ross, Minseok Sinn, Henry Kwon, Lokesh Garg, Baiding Rong, Hayoung Chung and Arjan van Veen each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Amorepacific Corp (090430.KS)

090430.KS Closing Price Target Price

Date (W) (W) Rating

07-Feb-13 101,200 100,000 N

09-Sep-13 92,500 110,000 O *

11-Mar-14 122,200 146,000

12-May-14 143,700 155,000

29-May-14 147,500 155,000 N

12-Aug-14 198,000 204,000

10-Nov-14 216,700 218,000

20-Apr-15 390,500 347,000

14-May-15 387,000 430,000

09-Sep-15 346,500 440,000 O

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L

O U T PERFO RM

01 December 2015


3-Year Price and Rating History for Dongbu Insurance (005830.KS)


Date (W) (W) Rating

04-Jan-13 43,600 44,000 N

23-Jan-14 52,800 54,000

02-Nov-15 67,600 67,000


N EU T RA L

3-Year Price and Rating History for Hyundai Development (012630.KS)


Date (W) (W) Rating

05-Feb-13 22,250 22,000 N

29-Apr-13 22,600 26,000

08-Jul-13 23,800 29,000 O

26-Jul-13 22,450 27,000

30-Sep-13 24,050 30,000

23-Apr-14 30,500 35,000

25-Jul-14 37,100 45,000

23-Sep-14 45,400 52,000

09-Apr-15 56,900 70,000

10-Jul-15 70,200 87,000

26-Oct-15 53,500 70,000


N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for Hyundai Heavy Industries (009540.KS)


Date (W) (W) Rating

07-Feb-13 209,500 216,000 N

26-Jul-13 208,000 209,000

19-Aug-13 221,000 290,000 O

01-Nov-13 250,000 319,000

07-Feb-14 209,000 248,000

30-Apr-14 193,500 146,000 U

29-Jul-14 168,500 141,000

30-Oct-14 100,000 120,000 N

29-Apr-15 145,500 201,000 O

29-Jul-15 99,800 190,430

27-Oct-15 102,500 157,100


N EU T RA L

O U T PERFO RM

U N D ERPERFO RM

01 December 2015


3-Year Price and Rating History for Hyundai Mipo Dockyard (010620.KS)


Date (W) (W) Rating

11-Feb-13 112,000 88,000 U

11-Jun-13 132,000 147,000 N

14-Aug-13 136,500 120,000

01-Nov-13 167,000 166,000

07-May-14 139,000 77,000 U

29-Jul-14 135,000 74,000

30-Oct-14 87,500 68,400

29-Apr-15 88,600 103,000 N

29-Jul-15 55,600 90,100 O


U N D ERPERFO RM

N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for Hyundai Mobis (012330.KS)


Date (W) (W) Rating

31-Jan-13 285,000 405,000 O

29-Apr-13 246,000 374,000

26-Jul-14 281,500 365,000

24-Oct-14 241,000 358,000

03-Mar-15 256,000 NR

21-Apr-15 238,000 300,000 O *

09-Jun-15 206,500 270,000

27-Jul-15 214,000 240,000

16-Oct-15 234,000 280,000


O U T PERFO RM

N O T RA T ED

3-Year Price and Rating History for Hyundai Motor Company (005380.KS)


Date (W) (W) Rating

24-Jan-13 208,000 254,500 O

05-Sep-13 244,000 303,000

24-Oct-13 253,500 299,000

23-Jan-14 232,000 294,000

24-Jul-14 229,000 287,000

23-Oct-14 171,000 252,000

03-Mar-15 166,500 NR

21-Apr-15 171,000 170,000 N *

10-Jun-15 134,500 150,000

14-Jul-15 125,500 137,000

08-Sep-15 156,500 150,000


O U T PERFO RM

N O T RA T ED

N EU T RA L

01 December 2015


3-Year Price and Rating History for KCC Corp (002380.KS)


Date (W) (W) Rating

15-May-14 561,000 720,000 O

19-May-14 582,000 *

09-Jun-14 632,000 750,000 O

04-Nov-14 598,000 700,000

07-Aug-15 472,500 530,000 N

30-Oct-15 408,500 570,000 O


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for KT&G Corp (033780.KS)


Date (W) (W) Rating

18-Jan-13 76,600 75,000 U

09-Sep-13 74,300 67,000

16-Oct-13 78,200 *

17-Oct-13 78,100 67,000 U

17-Apr-14 81,100 72,000

17-Jul-14 94,500 88,000

22-Jan-15 78,400 88,000 N

24-Apr-15 94,900 100,000

* Asterisk signifies initiation or assumption of coverage. U N D ERPERFO RM

N EU T RA L

3-Year Price and Rating History for Kangwon Land (035250.KS)


Date (W) (W) Rating

15-Feb-13 31,900 32,000 N

03-Nov-15 43,200 54,000 O *


N EU T RA L

O U T PERFO RM

01 December 2015


3-Year Price and Rating History for Kia Motors (000270.KS)


Date (W) (W) Rating

25-Jan-13 49,750 64,900 O

26-Jul-13 61,200 73,000

28-Oct-13 63,500 71,000 N

24-Jan-14 52,700 60,000

22-May-14 60,100 72,000 O

18-Sep-14 54,400 88,500

24-Oct-14 54,400 98,900

26-Jan-15 46,450 70,400

03-Mar-15 46,700 NR

21-Apr-15 47,900 42,000 U *

10-Jun-15 44,250 48,000 N

08-Sep-15 50,600 61,000 O


O U T PERFO RM

N EU T RA L

N O T RA T ED

U N D ERPERFO RM

3-Year Price and Rating History for Korea Electric Power (015760.KS)


Date (W) (W) Rating

09-Jan-13 31,650 40,000 O

13-May-14 40,800 40,000 N

08-Aug-14 44,350 46,000

18-Sep-14 46,400 48,000

11-Feb-15 43,500 55,000 O

05-Aug-15 51,600 64,000


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for LG Display Co Ltd. (034220.KS)


Date (W) (W) Rating

24-Jan-13 28,550 45,000 O

18-Jul-13 26,950 36,000

18-Oct-13 24,950 25,000 N

23-Jan-14 26,850 26,000

23-Apr-14 29,000 26,000 *

15-Oct-14 32,250 26,000 U

04-Dec-14 34,500 27,000

28-Jan-15 36,050 29,000

18-Jun-15 26,450 27,000 N

23-Jul-15 22,950 26,000

31-Aug-15 23,050 25,800

22-Oct-15 23,550 25,600


O U T PERFO RM

N EU T RA L

U N D ERPERFO RM

01 December 2015


3-Year Price and Rating History for LG Electronics Inc (066570.KS)


Date (W) (W) Rating

30-Jan-13 73,500 63,000 U

24-Apr-13 90,000 82,000 N

24-Oct-13 70,100 77,000

27-Jan-14 68,900 75,000

29-Apr-14 71,700 83,000 *

24-Jul-14 77,000 87,000

29-Oct-14 67,800 78,000

29-Jan-15 62,600 75,000

29-Apr-15 61,200 68,000

02-Jun-15 55,400 62,000

09-Jul-15 45,750 53,500

29-Jul-15 43,800 49,000

25-Aug-15 40,850 45,500

30-Oct-15 49,100 46,200


U N D ERPERFO RM

N EU T RA L

3-Year Price and Rating History for LG Hausys (108670.KS)


Date (W) (W) Rating

15-May-14 176,500 230,000 O

19-May-14 177,500 *

24-Jul-14 197,000 230,000 O

23-Apr-15 176,000 210,000


O U T PERFO RM

3-Year Price and Rating History for LG Household & Healthcare (051900.KS)


Date (W) (W) Rating

22-Jan-13 669,000 745,000 O

23-Apr-13 607,000 850,000

09-Sep-13 513,000 640,000 *

18-Nov-14 609,000 720,000

09-Mar-15 655,000 900,000

21-Apr-15 933,000 1,080,000


O U T PERFO RM

01 December 2015


3-Year Price and Rating History for Lotte Chemical (011170.KS)


Date (W) (W) Rating

04-Feb-13 243,500 290,000 O

29-Apr-13 159,500 235,000

04-Oct-13 195,500 260,000 *

28-Oct-13 202,500 280,000

11-Mar-14 191,000 210,000 N

29-Apr-14 167,000 195,000

29-May-14 162,500 175,000

27-Oct-14 135,500 180,000 O

13-Nov-14 163,000 210,000

28-Jan-15 174,000 220,000

09-Feb-15 182,000 225,000

18-Mar-15 190,500 245,000

15-Apr-15 247,500 310,000

29-Apr-15 256,500 340,000

17-Jun-15 286,000 380,000

31-Jul-15 260,500 440,000

06-Nov-15 244,500 410,000


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for POSCO (005490.KS)


Date (W) (W) Rating

30-Jan-13 358,000 400,000 O

26-Apr-13 316,000 350,000 N

29-Jan-14 298,500 330,000

25-Jul-14 326,000 350,000

12-Aug-14 325,500 400,000 O

05-Feb-15 262,000 330,000

21-Apr-15 253,000 300,000

15-Jul-15 209,000 270,000

20-Oct-15 179,500 240,000


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for S-Oil Corp (010950.KS)


Date (W) (W) Rating

31-Jan-13 97,900 124,000 O

30-Apr-13 88,500 116,000

04-Oct-13 76,300 100,000 *

27-Jan-14 68,600 90,000

11-Mar-14 65,100 80,000

24-Apr-14 60,900 76,000

24-Jul-14 55,000 77,000

20-Aug-14 47,350 60,000

06-Oct-14 41,050 57,000

27-Oct-14 42,100 54,000

27-Jan-15 58,200 66,000

02-Feb-15 60,200 70,000

23-Apr-15 78,100 98,000

23-Jul-15 59,600 100,000

14-Oct-15 66,600 93,000


O U T PERFO RM

01 December 2015


3-Year Price and Rating History for SK Innovation (096770.KS)


Date (W) (W) Rating

01-Feb-13 168,500 206,000 O

04-Oct-13 144,000 170,000 *

04-Feb-14 126,000 165,000

28-Apr-14 120,000 150,000

25-Jul-14 104,000 140,000

21-Aug-14 93,900 130,000

06-Oct-14 77,800 120,000

04-May-15 119,000 144,000

24-Jul-15 97,700 141,000

14-Oct-15 109,000 139,000

26-Oct-15 115,000 156,000


O U T PERFO RM

3-Year Price and Rating History for Samsung Electronics (005930.KS)


Date (W) (W) Rating

04-Feb-13 1,437,000 1,720,000 O

06-Feb-13 1,427,000 1,900,000

27-Jan-14 1,292,000 1,760,000

07-Jul-14 1,292,000 1,740,000

08-Jul-14 1,295,000 1,720,000

28-Aug-14 1,242,000 1,700,000

07-Oct-14 1,162,000 1,680,000

03-Sep-15 1,122,000 1,630,000

29-Oct-15 1,325,000 1,785,000


O U T PERFO RM

3-Year Price and Rating History for Samsung Life Insurance (032830.KS)


Date (W) (W) Rating

23-Jan-14 101,500 120,000 O *

22-Apr-14 98,900 R

19-Jun-14 104,500 120,000 O

17-Sep-14 109,000 130,000

12-May-15 110,000 135,000

14-May-15 116,500 R

15-May-15 116,500 135,000 O


O U T PERFO RM

REST RICT ED

01 December 2015


3-Year Price and Rating History for Shinhan Financial Group (055550.KS)


Date (W) (W) Rating

07-Feb-13 39,200 48,500 O

01-Oct-13 44,150 54,000

12-Feb-14 43,000 53,000

01-Jul-14 46,300 56,000

22-Aug-14 51,800 60,000

04-Feb-15 45,700 57,000

29-May-15 41,900 60,000


O U T PERFO RM

3-Year Price and Rating History for Shinsegae Inc (004170.KS)


Date (W) (W) Rating

15-Feb-13 215,500 240,000 N

16-Oct-13 253,500 *

04-Nov-13 254,000 270,000 N

26-Feb-15 173,000 R

09-Mar-15 175,000 270,000 N

13-May-15 230,000 270,000 O

14-May-15 251,500 R

15-May-15 251,500 270,000 O

22-Jul-15 209,000 R

26-Oct-15 228,500 270,000 O

16-Nov-15 264,500 330,000


N EU T RA L

REST RICT ED

O U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the ana lyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of asso ciated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

01 December 2015


Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 59% (32% banking clients)

Neutral/Hold* 28% (36% banking clients)

Underperform/Sell* 12% (25% banking clients)

Restricted 1%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most c losely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

See the Companies Mentioned section for full company names

The subject company (AMP.AX, 088350.KS, 005930.KS, 2330.TW, ANZ.AX, 055550.KS, TLS.AX, 2891.TW, 9984.T, 1113.HK, HCLT.BO, 005380.KS, 8750.T, CBA.AX, 3988.HK, 2881.TW, 051900.KS, 0688.HK, 2388.HK, BABA.N, 8316.T, DBSM.SI, 015760.KS, 2882.TW, 8801.T, 2317.TW, 096770.KS, 000270.KS, 2318.HK, 000333.SZ, 0027.HK, GENP.KL, 1216.TW, MAHB.KL, STEL.SI, VIC.HM, MWC.PS, 2498.TW, TAMO.BO, 002739.SZ, MPL.AX, 2313.HK, ICT.PS, ULTC.BO, ADVANC.BK, CTDM.SI, VNM.HM, PKOL.KA, KELE.KA, MBT.PS, UBL.KA, EGCH.KA, 1299.HK, HLL.BO, SUNT.SI, MPI.PS, 032830.KS, CIMB.KL, SMRA.JK, 034220.KS, BBCA.JK, 2325.TW, EXCL.JK, 0883.HK, HDBK.BO, 010620.KS, AIRA.KL, 2603.TW, LINK.JK, WPHB.KL, 4938.TW, RELI.BO, SKSM.BO, MBBM.KL, ICBP.JK, 066570.KS, SIAL.SI, 2282.HK, 1171.HK, 2454.TW, 600874.SS, 2727.HK, AMP.AX, 005490.KS, 012630.KS, 108670.KS, BLA.BK, 3393.HK, 1330.HK, 0257.HK, 600008.SS, 000826.SZ, INBK.BO, SIIC.SI, 0371.HK, 0958.HK, 2328.HK, 0992.HK, 601179.SS, 0586.HK, BIDU.OQ, GENS.SI, 009540.KS, 1114.HK, PRU.L) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (ANZ.AX, TLS.AX, 9984.T, HCLT.BO, 005380.KS, CBA.AX, 3988.HK, 2388.HK, BABA.N, 2882.TW, 2318.HK, 0027.HK, MAHB.KL, STEL.SI, VIC.HM, MWC.PS, TAMO.BO, 002739.SZ, 2313.HK, ICT.PS, ADVANC.BK, EGCH.KA, 1299.HK, HLL.BO, MPI.PS, 032830.KS, 2325.TW, 0883.HK, HDBK.BO, 010620.KS, LINK.JK, ICBP.JK, SIAL.SI, 1171.HK, 600874.SS, 2727.HK, 012630.KS, 3393.HK, 600008.SS, INBK.BO, SIIC.SI, 0371.HK, 0958.HK, 0992.HK, 601179.SS, BIDU.OQ, 1114.HK, PRU.L, 088350.KS) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (ANZ.AX, 055550.KS, 2891.TW, 005380.KS, CBA.AX, 3988.HK, 8316.T, 000270.KS, 000333.SZ, MPL.AX, ICT.PS, MBT.PS, UBL.KA) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (ANZ.AX, 9984.T, 005380.KS, 3988.HK, 2388.HK, STEL.SI, TAMO.BO, 002739.SZ, ICT.PS, EGCH.KA, 032830.KS, 0883.HK, HDBK.BO, SIAL.SI, 2727.HK, 012630.KS, 3393.HK, INBK.BO, SIIC.SI, 0958.HK, 0992.HK, PRU.L) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (ANZ.AX, TLS.AX, 9984.T, HCLT.BO, 005380.KS, CBA.AX, 3988.HK, 2388.HK, BABA.N, 2882.TW, 2318.HK, 0027.HK, MAHB.KL, STEL.SI, VIC.HM, MWC.PS, TAMO.BO, 002739.SZ, 2313.HK, ICT.PS, ADVANC.BK, EGCH.KA, 1299.HK, HLL.BO, MPI.PS, 032830.KS, 2325.TW, 0883.HK, HDBK.BO, 010620.KS, LINK.JK, ICBP.JK, SIAL.SI, 1171.HK, 600874.SS, 2727.HK, 012630.KS, 3393.HK, 600008.SS, INBK.BO, SIIC.SI, 0371.HK, 0958.HK, 0992.HK, 601179.SS, BIDU.OQ, 1114.HK, PRU.L, 088350.KS) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (005930.KS, 033780.KS, 7259.T, ANZ.AX, 2333.HK, 055550.KS, 5802.T, 005830.KS, TLS.AX, 2891.TW, 9984.T, 1113.HK, HCLT.BO, 7270.T, 005380.KS, 8750.T, CBA.AX, 3988.HK, 2881.TW, 7203.T, 6505.TW, BBRI.JK, 051900.KS, 0688.HK, 2388.HK, BABA.N, 8316.T, DBSM.SI, 015760.KS, 2882.TW, 8801.T, 2317.TW, 096770.KS, 000270.KS, 2318.HK, 000333.SZ, BRTI.BO, 0027.HK, GENP.KL, 1216.TW, MAHB.KL, STEL.SI, 2308.TW, MONE.SI, VIC.HM, MWC.PS, 0175.HK, 2498.TW, TAMO.BO, 002739.SZ, MPL.AX, ALFG.KL, 2313.HK, ICT.PS, ULTC.BO, ADVANC.BK, CTDM.SI, VNM.HM, PKOL.KA, 002415.SZ, KELE.KA, MBT.PS, EGCH.KA, 1299.HK, HLL.BO, 2884.TW, SUNT.SI, 600519.SS, MPI.PS, 032830.KS, CIMB.KL, SMRA.JK, 034220.KS, BBCA.JK, 2325.TW, 4528.T, EXCL.JK, 0883.HK, HDBK.BO, 010620.KS, 1301.TW, AIRA.KL, 2603.TW, LINK.JK, WPHB.KL, 0728.HK, 4938.TW, RELI.BO, SKSM.BO, MBBM.KL, MRTI.BO, GLOBAL.BK, ICBP.JK, 066570.KS, SIAL.SI, 0002.HK, 2282.HK, 1171.HK, 2454.TW, 600874.SS, 2727.HK, AMP.AX, 011170.KS, 005490.KS, 2338.HK, 012630.KS, 108670.KS, BLA.BK, 3393.HK, 0257.HK, JD.OQ,

01 December 2015


600008.SS, 000826.SZ, 090430.KS, 2314.HK, INBK.BO, SIIC.SI, 0371.HK, EAm.BK, 3337.HK, 0958.HK, 2328.HK, 0992.HK, 601179.SS, 0586.HK, BIDU.OQ, GENS.SI, 4922.T, 010950.KS, 009540.KS, INTUCH.BK, 1114.HK, PRU.L, AMP.AX, CGF.AX, 088350.KS) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (ANZ.AX, 055550.KS, 2891.TW, 005380.KS, CBA.AX, 3988.HK, 8316.T, 000270.KS, 000333.SZ, MPL.AX, ICT.PS, MBT.PS, UBL.KA) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (6758.T, 7203.T, 8801.T).

Credit Suisse may have interest in (BBRI.JK, GGRM.JK, SMRA.JK, ASII.JK, BBCA.JK, ACES.JK, EXCL.JK, LINK.JK, ICBP.JK)

Credit Suisse may have interest in (GENP.KL, GENT.KL, MAHB.KL, ALFG.KL, CIMB.KL, GAMU.KL, AIRA.KL, WPHB.KL, MBBM.KL, GENM.KL)

Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014

Credit Suisse may have interest in (LART.NS, MAHM.NS, HALC.BO, HCLT.BO, BRTI.BO, TAMO.BO, ULTC.BO, TEML.BO, HLL.BO, SBI.BO, HDBK.BO, IDEA.BO, RELI.BO, BHEL.BO, SKSM.BO, MRTI.BO, VOLT.BO, INBK.BO, NTPC.BO, TISC.BO)

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (2330.TW, 033780.KS, 2333.HK, 3988.HK, 2881.TW, 2317.TW, 2318.HK, 1216.TW, 2308.TW, VIC.HM, 2498.TW, 2601.HK, LLC.AX, 2325.TW, 0728.HK, 4938.TW, 2454.TW, 005490.KS, 1330.HK, 2382.TW, 0914.HK, 2328.HK, PRU.L, CGF.AX).

Credit Suisse has a material conflict of interest with the subject company (005930.KS) . Credit Suisse is acting as exclusive financial advisor to Samsung Electronics and Samsung Fine Chemicals in relation to the proposed sale of their ownership stakes in the semiconductor wafer joint ventures with SunEdison, SMP Ltd and MEMC Korea Company Ltd, to SunEdison.

Credit Suisse has a material conflict of interest with the subject company (2330.TW) . Credit Suisse is acting as the financial advisor to Motech Industries Inc in relation to the share subscription by Taiwan Semiconductor Manufacturing Co., Ltd.

Credit Suisse has a material conflict of interest with the subject company (BABA.N) . Credit Suisse acted as the exclusive financial advisor to Alibaba Group in relation to its investment in Snapdeal.com.

Credit Suisse has a material conflict of interest with the subject company (RIO.AX) . Credit Suisse is acting as advisor to Imerys on the proposed acquisition of the Luzenac Talc Group from Rio Tinto.

Credit Suisse has a material conflict of interest with the subject company (2882.TW) . Credit Suisse is acting as financial advisor to Cathay Financial Holding Co., Ltd. relating to the announced acquisition of stake in PT Bank Mayapada International, Tbk.

Credit Suisse has a material conflict of interest with the subject company (1299.HK) . Jack So (IB in HK) is an Independent Non-Exec Director of AIA (previously was a Non-Executive Director).

Credit Suisse has a material conflict of interest with the subject company (AGL.AX) . Peter Wilson has approx. A$1,000 worth of AGL shares as part of an employee share purchase plan. They won’t become unrestricted for 3 years.

Credit Suisse has a material conflict of interest with the subject company (0883.HK) . Credit Suisse is acting as financial advisor to both CNOOC Ltd. and SINOPEC on the acquisition of Marathon Oil Corporation's 20% interest in Block 32, offshore Angola.

Credit Suisse has a material conflict of interest with the subject company (0992.HK) . Credit Suisse is acting as financial advisor to Lenovo Group Limited for its proposed acquisition of Motorola Mobility Group from Google.

Arnab Mitra worked as an employee in Hindustan Unilever.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.

The following disclosed European company/ies have estimates that comply with IFRS: (RIO.AX, PRU.L).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (ANZ.AX, 9984.T, 005380.KS, CBA.AX, 3988.HK, 7203.T, 2388.HK, BABA.N, RIO.AX, 2318.HK, 1216.TW, MAHB.KL, STEL.SI, VIC.HM, TAMO.BO, 002739.SZ, 2313.HK, ICT.PS, TEML.BO, UBL.KA, EGCH.KA, 1299.HK, 032830.KS, CIMB.KL, BBCA.JK, 0883.HK, HDBK.BO, LINK.JK, WPHB.KL, 0270.HK,

01 December 2015


SKSM.BO, SIAL.SI, 1171.HK, PTT.BK, 2727.HK, 005490.KS, 012630.KS, 3393.HK, 600008.SS, INBK.BO, SIIC.SI, 0958.HK, 2328.HK, 0992.HK, 009540.KS, INTUCH.BK, PRU.L) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: C.P. ALL PCL () , True Corp PCL (Very Good) , BTS Group Holdings PCL (Excellent) , Advanced Info Service PCL (Very Good) , Thai Union Group (Good) , Sino Thai Engr & Const PCL (Good) , Total Access Communication PCL (Very Good) , Siam Global House PCL (Good) , PTT Public Company Limited (Excellent) , Bangkok Life (Very Good) , Energy Absolute (Good) , Jasmine International () , Intouch Limited (Excellent)

Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities (Japan) Limited ......................................................................................................................................... Daisuke Takato

Credit Suisse (Hong Kong) Limited Kin Nang Chik ; Vincent Chan ; Li Chen ; Bin Wang ; Trina Chen ; Kenneth Whee ; Kevin Yin ; Trina Chen ; Kenneth Fong ; Edmond Huang, CFA ; Baiding Rong ; Arjan van Veen; Thomas Wong ; Manish Nigam ; Colin McCallum, CA ; Dave Dai, CFA

Credit Suisse Securities (Europe) Limited, Seoul Branch ..................... Gil Kim ; A-Hyung Cho ; Minseok Sinn ; Henry Kwon ; Hayoung Chung

Credit Suisse Securities (Philippines) Inc. ............................................................................................................................................. Alvin Arogo

Credit Suisse AG, Singapore Branch Sakthi Siva ; Farhan Rizvi, CFA ; Fahd Niaz, CFA ; Gerald Wong, CFA ; Chate Benchavitvilai ; Sanjay Jain ; Sanjay Jain; Timothy Ross; Christopher Siow

Credit Suisse Securities (India) Private Limited ............................ Neelkanth Mishra ; Prateek Singh ; Jatin Chawla ; Arnab Mitra ; Lokesh Garg

Credit Suisse Securities (Malaysia) Sdn Bhd. ............................................................................................. Tan Ting Min; Muzhafar Mukhtar, CFA

Credit Suisse Equities (Australia) Limited .................................................................................................................................. Hasan Tevfik ,CFA

Credit Suisse Securities (Thailand) Limited ....................................................................................................................................... Dan Fineman

Credit Suisse AG, Taipei Securities Branch .................................................................................................................................. Chung Hsu, CFA

Important MSCI Disclosures

The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create and financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

01 December 2015


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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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