asian daily (global edition)

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Wednesday, 24 April 2013

Asian Daily (Global Edition)

EPS, TP and Rating changes EPS TP

(% change) T+1 T+2 Chg Up/Dn Rating

Australand 0 1 3 2 N (N) Insurance Australia Group 38 (1) 0 2 N (N) Newcrest Mining (5) (6) (1) 47 O (O) Oil Search (8) (1) 0 18 O (O) Ping An Bank (2) (4) (7) 7 N (N) PT Astra Agro Lestari Tbk (9) (7) (7) 24 O (O) ACOM Initiation 8 O (O) Japan Exchange Group Initiation (3) N (NA) Komatsu (5) 31 0 8 O (O) United Bank Limited 4 2 4 (3) N (N) Mapletree Industrial Trust LG Household & Healthcare

0 5 14 40 O (O)

Elan Microelectronics Corp 47 44 48 26 O (O) C.P. All PCL 0 0 (40) (20) U (O)

Connecting clients to corporates

Hong Kong / China

Sinopac Holdings (2890.TW) Date 29-30 April, Hong Kong

Coverage Analyst Chung Hsu

Actions Semiconductor (ACTS.O) Post results Date 09 May, Hong Kong

Coverage Analyst Yan Taw Boon

China Coal and Power Corporate Days Date 30-31 May, Mission Hills

Coverage Analyst Trina Chen

China/Hong Kong Emerging Corporate Day Date 19 June, Hong Kong

Coverage Analyst Kenny Lau

APAC Transport Corporate Day Date 26 June, Hong Kong

Coverage Analyst Timothy Ross

US

E-House China Holdings Ltd (EJ.N) Date 06-07 May, New York

Coverage Analyst Jinsong Du

Europe

ICBC (1398.HK) Date 29 April, Zurich

Coverage Analyst Sanjay Jain

E-House China Holdings Ltd (EJ.N) Date 08 May, London

Coverage Analyst Jinsong Du

Others

Daelim Industrial (000210.KS) Date 07 May, Seoul

Coverage Analyst Minseok Sinn

Contact [email protected] or Your usual sales representative.

Top of the pack ...

C.P. All PCL (CPALL.BK) – Downgrade to U Karim P. Salamatian, CFA (4) New report: Return erosion causes valuation adjustment

LG Household & Healthcare (051900.KS) – Maintain O Sonia Kim (5) New report: Strong 1Q13 results—all about execution

... and the whole pack

Regional

Asia Hardware Sector Thompson Wu (6) March NPD review: Not much divergence from expectations

Asian Airport Sector – Maintain OW Timothy Ross (7) Changi Airports International—needs to kiss a lot of frogs to find a handsome prince

Australia

Australand (ALZ.AX) – Maintain N John Richmond (8) Fully valued under various scenarios

[NEW] Insurance Australia Group (IAG.AX) – Maintain N Andrew Adams (9) New Zealand: On track for lower profits

[NEW] Newcrest Mining (NCM.AX) – Maintain O Michael Slifirski (10) MarQ - Cadia East and MOPU commissioning well

[NEW] Oil Search (OSH.AX) – Maintain O Paul McTaggart (11) Modest 1Q miss, LNG remains on track

China

China Oil Demand Monthly David Hewitt (12) New report: March 2013—Gasoline continues to hold up

Huaneng Power International Inc (0902.HK) – Maintain O Edwin Pang (13) 1Q13 results — keeping its momentum

Industrial Bank (601166.SS) – Maintain N Vincent Chan (14) 4Q12 and 1Q13 results: strong top line and loan growth, asset quality deteriorated again

Ping An Bank (000001.SZ) – Maintain N Frances Feng (15) 1Q13 result: negative surprise on NIM

Wuliangye (000858.SZ) – Maintain N Vincent Chan (16) Tier-1 prices are expected to slip to Rmb500 level

India

HDFC Bank (HDBK.BO) – Maintain O Ashish Gupta (17) Profitability improves with rising share of retail

Mcleod Russel India Ltd. (MCLE.NS) – Maintain O Anantha Narayan (18) Storm in a tea-cup?

Indonesia

PT Astra Agro Lestari Tbk (AALI.JK) – Maintain O Agus Sandianto (19) 1Q13 results: Below estimates—lower ASP and higher cost

United Tractors (UNTR.JK) – Maintain O Dian Haryokusumo (20) Strong mining contracting volume in March

Japan

ACOM (8572.T) – Initiating Coverage with O Takehito Yamanaka (21) Returning to growth track

Japan Exchange Group (8697.T) – Initiating Coverage with N Takehito Yamanaka (22) Valuation reliant on market for now, expansion of exchange offerings over the medium term


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Asian indices - performance (% change) Latest 1D 1W 3M YTD

ASX300 5051 1.5 1.7 5.4 9.2 CSEALL 5884 0.2 0.3 0.1 4.3 Hang Seng 22044 1.1 2.2 (6.6) (2.7) H-SHARE 10577 1.5 2.7 (12.6) (7.5) JCI 5001 0.5 0.1 13.2 15.9 KLSE 1704 0.2 (0.4) 4.2 0.9 KOSPI 1938 1.0 0.7 (1.3) (3.0) KSE100 18647 0.2 1.4 9.3 10.3 NIFTY 5837 0.0 4.8 (3.0) (1.2) PCOMP 7006 0.3 2.3 14.5 20.5 RED CHIP 4363 1.3 3.9 (6.7) (3.7) SET 1558 0.6 2.4 7.5 12.0 STI 3286 0.0 (0.2) 1.2 3.8 TWSE 8025 1.0 2.8 4.3 4.2 VNINDEX 474 0.2 (0.8) 4.9 14.7

Thomson Financial Datastream Asian currencies (vs US$) (% change) Latest 1D 1W 3M YTD

A$ 1.0 (0.2) (0.6) (2.0) (1.5) Bt 28.9 0.4 (0.0) 3.4 6.0 D 20935.0 - (0.2) (0.4) (0.5) NT$ 29.8 (0.0) 0.2 (2.5) (2.6) P 41.3 0.2 (0.1) (1.6) (0.7) PRs 98.4 (0.0) (0.0) (0.6) (1.2) Rp 9726.0 0.2 (0.2) 0.3 0.7 Rs 54.4 0.3 (0.4) (1.3) 1.1 S$ 1.2 0.1 (0.4) (1.0) (1.6) SLRs 126.9 0.2 (1.0) 0.2 0.7 W 1118.9 0.2 (0.0) (4.5) (4.9)

Thomson Financial Datastream

Global indices (% change) Latest 1D 1W 3M YTD

DJIA 14719.5 1.0 (0.3) 6.5 12.3 S&P 500 1578.8 1.0 0.3 5.6 10.7 NASDAQ 3269.3 1.1 0.1 4.4 8.3 SOX 430.2 2.1 (0.4) 4.9 12.0 EU-STOX 2688.2 2.3 1.4 1.3 4.3 FTSE 6406.1 2.0 1.6 2.3 8.6 DAX 7658.2 2.4 (0.3) (1.2) 0.6 CAC-40 3783.1 3.6 2.6 0.8 3.9 10 YR LB 1.7 (0.3) 0.4 (8.0) (3.2) 2 YR LB 0.2 0.5 0.4 (4.9) (8.1) US$:E 1.3 0.0 (0.2) (2.8) (1.5) US$:Y 99.4 0.1 (1.3) (9.1) (12.7) BRENT 100.1 0.0 3.5 (12.7) (10.6) GOLD 1423.9 0.8 3.4 (14.6) (15.0) VIX 13.5 (6.3) (3.4) 6.2 (25.2)

Thomson Financial Datastream

MSCI Asian indices – valuation & perf. EPS grth. P/E (x) Performance

MSCI Index 09E 10E 09E 10E 1D 1M YTD

Asia F X Japan 18 12 11.5 10.3 0.0 0.3 (2.4) Asia Pac F X J. 14 12 12.3 11.0 0.0 0.1 0.2 Australia (2) 10 15.4 14.0 1.2 -0.5 7.5 China 11 10 9.2 8.3 (1.5) -2.7 (7.3) Hong Kong 11 11 15.5 14.0 (0.4) 1.1 2.8 India 15 16 13.6 11.8 (0.3) 2.5 (1.1) Indonesia 17 16 15.9 13.7 (0.7) 6.0 13.9 Japan 34 50 23.3 15.5 (0.3) 10.2 33.2 Korea 33 13 8.4 7.4 (0.8) -2.7 (10.1) Malaysia 1 10 15.2 13.9 (0.7) 6.1 1.4 Pakistan 14 18 7.3 6.1 -0.37 1.8 4.1 Philippines 8 13 20.6 19.1 (2.8) 5.2 17.9 Singapore 2 9 14.5 13.3 (1.2) 0.8 1.3 Sri Lanka 16 11 14.3 12.9 (0.2) 0.6 12.3 Taiwan 33 12 15.0 13.4 (0.7) 2.3 0.5 Thailand 19 13 12.8 11.3 (1.1) 5.9 10.3

* IBES estimates

Komatsu (6301) – Maintain O Shinji Kuroda (23) CAT results: Komatsu’s foresight likely to bring better results than CAT�s

Malaysia

Public Bank (PUBMe.KL) – Maintain N Danny Goh (24) New report: 1Q13 results below expectations, cash call uncertainty remains

Pakistan

United Bank Limited (UBL.KA) – Maintain N Farhan Rizvi, CFA (25) 1Q13 earnings flat QoQ but in line with consensus; payout a positive surprise

Singapore

Mapletree Industrial Trust (MAPI.SI) – Maintain N Yvonne Voon (26) FY13 in line: Developments and AEIs a plus, but poor industry outlook still threatens rental outlook

South Korea

LG Household & Healthcare (051900.KS) – Maintain O Sonia Kim (5) New report: Strong 1Q13 results�all about execution

Taiwan

Taiwan Economics Christiaan Tuntono (27) Industrial production contracted in March, dragging down 1Q growth momentum

Elan Microelectronics Corp (2458.TW) – Assuming Coverage with O Jerry Su (28) Share gain and margin expansion lead to more upside

Thailand

C.P. All PCL (CPALL.BK) – Downgrade to U Karim P. Salamatian, CFA (4) New report: Return erosion causes valuation adjustment

O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight

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Sales Contact Hong Kong 852 2101 7211 Singapore 65 6212 3052 London 44 20 7888 4367 New York 1 212 325 5955 Boston 1 617 556 5634


Asian Daily

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SAVE THE DATE Connecting clients to corporates

Credit Suisse presents the following Corporate Access events:

Credit Suisse China Coal and Power Corporate Day 30-31 May 2013, Shenzhen

Fundamentals of the thermal coal sector are hotly debated among investors, from both

the cyclical and long-term structure perspectives. Our corporate day brings together a

wide range of players along the industry value chain - with aims to include more than 30

companies and industry contacts:

− Key coal producers (listed in both Shanghai and Hong Kong)

− Rail transportation operators and MOR/NDRC

− Coal traders

− Major consultant on seaborne thermal coal market outlook

− Government and Associations on China’s energy plan

− IPPs (thermal, hydro, wind, nuclear)

− Players with exposures in gas/coal substitutions

− Coal chemicals and equipment

− Coal machinery

− Environmental experts, related equipment suppliers

China/Hong Kong Emerging Corporate Day 19 June, 2013, Hong Kong

China and Hong Kong stock markets have consolidated after the rally given hopes of a

recovery. Mid and small cap companies, which are leveraged to China's end-demand

improvement and which notably outperformed in the current rally, are resuming their

attractiveness given their lowest valuation in the region. We plan to bring these unique,

emerging companies in different sectors to the Corporate Day, to help investors gain first-

hand information of how they are benefiting from the recovery.

APAC Transport Corporate Day 26 June, 2013, Hong Kong

You are invited to attend Credit Suisse’s inaugural transport sector corporate day to be

held in our Hong Kong offices on 26 June. We have gathered a group of speakers from

across the transport complex and from around Asia to give investors the most complete

picture of the key factors driving the sector in its entirety. Senior representatives from

ports, airlines and shipping companies will participate in small group and 1:1 meetings,

with the lunch time address provided by Mr. Tim Smith, Maersk Line’s CEO for North

Asia.

Contact

[email protected] or your Credit Suisse sales representative

credit-suisse.com/corporateaccess

https://www.credit-suisse.com/investment_banking/client_offering/en/corporate_access.jsp


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Top of the pack ...

C.P. All PCL -------------------------------------------------------- Downgrade to UNDERPERFORM New report: Return erosion causes valuation adjustment EPS: ▼ TP: ▼ Karim P. Salamatian, CFA / Research Analyst / 852 2101 7996 / [email protected] Rebecca Kwee / Research Analyst / 852 2101 7951 / [email protected]

● CPALL has made a tender offer for MAKRO at Bt787/share for a total acquisition price of Bt189 bn (US$6.6 bn). It will initially acquire SHV’s 64% stake pending 75% shareholder approval, and then follow with an offer for the remaining 36%. An EGM is scheduled for 12 July, 2013 (record date 7 May). Full report.

● This will create the largest retailer in Thailand with combined sales 2.5x higher than the No.2 player. CPALL’s new high water mark multiples of 47x ‘13E EPS and 32x ‘13E EBITDA, for an acquisition we believe will be 1% earnings accretive in 2014.

● The biggest cost of this acquisition is the erosion of CPALL’s top three GEM retail ROIC from 46% to 12%, which will be among the lowest globally. Justifying why the invested capital base should increase by 430% to generate the same earnings in 2014 and 10-15% accretion thereafter is a tall order, in our view, and one which challenges the shareholder value proposition of this deal.

● We believe shareholder value is being eroded in this deal as the incremental earnings cannot justify the massive expansion in capital; hence, previous multiples can no longer be justified, in our view. Downgrade to UNDERPERFORM (from Outperform) with a Bt35 TP (from Bt58).

Click here for detailed financials

Returns nosedive as capital base expands massively

By acquiring Siam Makro, CPALL accomplishes becoming the largest retailer in Thailand with sales that are potentially 2x higher than the #2 (Tesco Lotus) player; however, this size comes at a great cost. We were very keen on the CPALL story because it ranked as a top three retailer ranked by ROIC across all GEM and NJA markets. With this acquisition, 2014E ROIC declines from 46% to 12%, and CPALL becomes one of the weakest ROIC retailers in both regions. This has material implications on how the equity should be valued and how we should gauge management’s capital allocation prowess. We understand and appreciate the value potential of a multi-format retailer that can leverage vendors and consumers in greater ways; however, in terms of adding shareholder value, we have a hard time seeing how

the incremental earnings can more than offset the deterioration in returns-on-capital; thus, jeopardising the valuation multiples.

While the MAKRO asset is of high quality, the magnitude of deterioration in returns leads us to doubt whether this was the right price to pay for the asset. Goodwill will account for 51% of CPALL’s pro forma invested capital.

Figure 1: ROIC to fall dramatically post-acquisition 2014E, all figures in Bt mn

WC 51% WC 8%

PP&E 48%

PP&E 41%

Goodwill 51%

Leasehold Rights 1%

ROIC 46.1%

ROIC 11.8%

0

50,000

100,000

150,000

200,000

250,000

CPALL CPALL pro forma

Invested capital to

increase Bt189 bn or

430% to Bt233bn

Source: Company data, Credit Suisse estimates

The rationale to make this work

Paying 47x earnings for any asset will spark interrogation as to what is the rationalisation through either synergies and/or monetisation of hidden assets. Synergy potential (buying power, vendor rebates, store operations, rationalisation of head office) does exist along with the ability to grow the MAKRO store network at a faster pace both domestically and regionally. We have estimated pro forma earnings, balance sheet and ROIC for CPALL assuming the tender offer is successful. Earnings accretion of 1% in 2014E is reasonable and net debt-to-EBITDA will be 4.4x. ROE can return to historical levels in 2015, but with a much more levered balance sheets, we cannot justify historical P/B multiples either. Lastly, we estimate that MAKRO has Bt57 bn to Bt92 bn worth of real estate it owns, which could be eventually monetised through a sale & leaseback or REIT structure.

Large erosion in ROIC changes how we value the stock

We believe shareholder value will be eroded because the amount of incremental capital required to acquire MAKRO massively outweighs the incremental returns. We previously valued CPALL based on a LT ROIC of 45%, but post the acquisition of MAKRO, we use 15% until 2015 and then climbing back to 20%, which would be just in line with global and regional peer averages. Still far from the top of the tables where CPALL used to reside. What this means is that 30-35x P/E multiples and 15-17x EBITDA multiples are no longer justifiable, in our view. Long-term historical P/E multiple of 18x once again becomes much more relevant in valuing this equity. Our new TP of Bt35/share implies 18.5x 2014E pro forma EPS. This will be the lowest multiple in Thai retail, which we believe is justifiable given the rest of the group is on an upward ROIC path, has lower execution and financial risk.

Bbg/RIC CPALL TB / CPALL.BK Rating (prev. rating) U (O) Shares outstanding (mn) 8,983.10 Daily trad vol - 6m avg (mn) 24.3 Daily trad val - 6m avg (US$ mn) 37.9 Free float (%) 42.0 Major shareholders CP Group (47%), AIA

(7%)

Price (22 Apr 13 , Bt) 43.50 TP (prev. TP Bt) 35.00 (58.00) Est. pot. % chg. to TP (20) 52-wk range (Bt) 52.0 - 32.8 Mkt cap (Bt/US$ bn) 390.8/ 13.6

Performance 1M 3M 12M

Absolute (%) (3.3) (9.4) 24.7 Relative (%) (8.1) (17.0) (5.5)

Year 12/11A 12/12A 12/13E 12/14E 12/15E

Revenue (Bt mn) 155,360 188,702 220,841 258,212 299,153 EBITDA (Bt mn) 13,451 16,586 20,775 24,644 31,223 Net profit (Bt mn) 7,856 11,005 14,377 17,094 22,210 EPS (Bt) 0.87 1.23 1.60 1.90 2.47 - Change from prev. EPS (%) n.a. n.a. 0 0 - Consensus EPS (Bt) n.a. n.a. 1.51 1.81 2.33 EPS growth (%) 16.6 40.1 30.6 18.9 29.9 P/E (x) 49.8 35.5 27.2 22.9 17.6 Dividend yield (%) 1.6 1.7 2.1 2.3 2.3 EV/EBITDA (x) 27.3 21.4 16.6 13.5 10.1 P/B (x) 18.2 14.6 11.4 9.0 6.9 ROE (%) 40.0 45.6 47.0 44.0 44.4 Net debt(cash)/equity (%) (111.0) (129.9) (130.3) (132.7) (133.9)

Note1:C.P. All Pcl is a Thailand-based company operating the leading network convenience stores under the 7-Eleven trademark.The company has the sole right to operate these stores in Thailand. As at the end of Dec 2011, the company had 6,276 stores nationwide..

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014985481&serialid=CAjBeOIuEGAjhqb%2bzsTKLhvUAPh3dMRHVUlZyfaKRz8%3d

https://rave.credit-suisse.com/research/company/financials?ric=CPALL.BK


Asian Daily

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LG Household & Healthcare ---------------------------------------------- Maintain OUTPERFORM New report: Strong 1Q13 results—all about execution EPS: ▲ TP: ▲ Sonia Kim / Research Analyst / 822 3707 3764 / [email protected] Hayoung Chung / Research Analyst / 822 3707 3795 / [email protected]

● LG HH reported strong results, and we believe this should lead to consensus upgrades. Sales was a positive surprise in most areas, except the Japanese affiliates. Margins were positive too as mix improvements continued, with continuous turnaround in the beverages business. Full report.

● We raise FY14E EPS by 5% to reflect the stronger margins ahead, particularly for household goods. We also raise our target price to W850,000 (based on 25x FY14E P/E; from W745,000) as we move our earnings base to 2014.

● Catalysts: (1) earnings reports that will substantiate solid existing businesses and new business developments; (2) turnaround in the overall domestic consumption environment and (3) corporate events such as acquisitions or joint-ventures to explore new markets.

● LG HH remains our top pick in the Korean consumer staples sector. We believe it will deliver solid earnings growth of 25%+ in next few years, backed by mix improvements, product innovations and new market expansions. We advise to accumulate.


Very nice results

We believe the results were stronger than consensus, with most of its business segments surprising pleasantly. Outside of sales from its two Japanese affiliates (acquired in past year), overall trends proved to be solid. The lukewarm Japanese business nonetheless had good explanations as these two acquired entities are undergoing an integration process and the JPY depreciated by 20% YoY.

Raise FY14E EPS by 5% and TP to W 850,000

Sales and earnings trends YoY should get stronger in the coming quarters. Not only does the base get favourable, LG HH’s fundamentals also stand out in the current tough environment. We believe, with its capabilities in product mix, new product introductions will continue. Furthermore, we see its endeavours overseas, though still small, may show more upside risks.

Top pick in the consumer staples sector

LG HH trades at 20.5x forward P/E, sub-par its historical band. We believe the concerns surrounding its growth that led to its recent underperformance will dissipate as it delivers stronger earnings. We reinstate LG HH as our top pick in the consumer staples sector.

Figure 1: 1Q13 IFRS consolidated results CS FY13E % of (W bn, exc %, pp) 1Q13 4Q12 YoY gr QoQ gr (old) CSE

Sales 1,072.3 889.7 10.3% 20.5% 4,489.5 24% Gross profit 578.5 457.5 13.7% 26.4% 2,347.3 25% Operating profit 145.9 79.3 12.3% 84.0% 585.7 25% Recurring profit 139.8 76.7 10.7% 82.3% 560.7 25% Net profit aft min interest 101.5 52.5 13.0% 93.3% 394.7 26%

Margins and changes Gross margin 53.9% 51.4% 1.6pp 2.5pp 52.3% Operating margin 13.6% 8.9% 0.2pp 4.7pp 13.0% Pretax profit 13.0% 8.6% 0pp 4.4pp 12.5% Net profit aft min interest 9.5% 5.9% 0.2pp 3.6pp 8.8%


Figure 2: Business breakdown CS FY13E % of (W bn, exc %, pp) 1Q13 4Q12 YoY gr QoQ gr (old) CSE

Healthy (households) Sales 375.9 268.8 11.4% 39.8% 1,375.3 27% GP 154.9 89.6 20.5% 72.9% 507.7 31% OP 51.0 23.7 11.8% 115.2% 174.5 29% GP margin 41.2% 33.3% 3.1pp 7.9pp 36.9% OP margin 13.6% 8.8% 0.1pp 4.8pp 12.7%

Beautiful (cosmetics) Sales 432.7 368.2 10.8% 17.5% 1,862.6 23% GP 312.0 262.3 11.2% 18.9% 1,315.7 24% OP 79.0 46.0 12.5% 71.7% 297.5 27% GP margin 72.1% 71.2% 0.2pp 0.9pp 70.6% OP margin 18.3% 12.5% 0.3pp 5.8pp 16.0%

Refreshing (beverage) Sales 263.8 252.7 8.2% 4.4% 1,251.6 21% GP 111.5 105.6 12.2% 5.6% 523.8 21% OP 15.9 9.6 12.0% 65.6% 113.7 14% GP margin 42.3% 41.8% 1.5pp 0.5pp 41.9% OP margin 6.0% 3.8% 0.2pp 2.2pp 9.1%


Figure 3: 12-month forward P/E and relative P/E to KOSPI

0.0

1.0

2.0

3.0

4.0

5.0

10.0

15.0

20.0

25.0

30.0

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

12-months fwd P/E 12-months rel. fwd P/E to KOSPI (RHS)

(x) (x)

Average 12m fwd P/E since Jan 2010 : 23x

Source: Company data, Credit Suisse estimates, WiseFN Rating history Old rating New rating Old TP New TP Mar 23, 2013 OUTPERFORM OUTPERFORM W745,000 W850,000 Oct 24, 2012 OUTPERFORM OUTPERFORM W680,000 W745,000

Bbg/RIC 051900 KS / 051900.KS Rating (prev. rating) O (O) Shares outstanding (mn) 15.62 Daily trad vol - 6m avg (mn) 0.0 Daily trad val - 6m avg (US$ mn) 15.5 Free float (%) 66.0 Major shareholders LG: 34.0%

Price (23 Apr 13, W) 607,000 TP (prev. TP W) 850,000 (745,000) Est. pot. % chg. to TP 40 52-wk range (W) 685000.0 - 556000.0 Mkt cap (W/US$ bn) 9,480.2/ 8.5


Absolute (%) 3.2 (1.9) 5.4 Relative (%) 4.8 1.2 8.1

Year 12/11A 12/12A 12/13E 12/14E 12/15E

Revenue (W bn) 3,456 3,896 4,354 4,683 4,992 EBITDA (W bn) 456.8 547.4 715.1 813.6 916.7 Net profit (W bn) 264.7 303.9 396.5 485.4 551.9 EPS (W) 18,013 20,739 26,924 33,054 37,630 - Change from prev. EPS (%) n.a. n.a. 0 5 5 - Consensus EPS (W) n.a. n.a. 22,838 27,073 31,242 EPS growth (%) 14.2 15.1 29.8 22.8 13.8 P/E (x) 33.7 29.3 22.5 18.4 16.1 Dividend yield (%) 0.6 0.6 0.7 0.7 0.7 EV/EBITDA (x) 21.8 18.4 14.3 12.2 10.4 P/B (x) 10.2 8.5 6.9 5.4 4.3 ROE (%) 29.6 27.6 29.7 29.0 25.9 Net debt(cash)/equity (%) 44.4 45.6 48.6 21.3 0.5

Note1:LG Household & Health Care Ltd. is a Korea-based company engaged in the manufacturing of household goods, cosmetics and beverages. The Company operates three business segments: Household Good; Cosmetics Product; and Beverage..

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014961631&serialid=5oX1v3UMEjHM9puqmFOLKYT2i%2fGEmXGFBxLi6XA9Ou0%3d

https://rave.credit-suisse.com/research/company/financials?ric=051900.KS


Asian Daily

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Regional

Asia Hardware Sector ----------------------------------------------------------------------------------------- March NPD review: Not much divergence from expectations Thompson Wu / Research Analyst / 886 2 2715 6386 / [email protected]

● NPD released its March monthly PC sell-through data for US retail channels. PC units declined 3.5% YoY in the month, but grew 4.7% YoY in 1Q13. Two weeks ago, Gartner’s data for the overall US market had PC sell-in down 9.6% YoY in 1Q13; suggesting retail channel inventory should be lean entering 2Q13.

● Notebook ASP declines continue on a more moderated trend, declining 1.1% YoY in Mar. and 0.6% YoY in 1Q13. This supports our view that pricing competition is minimal as OEMs realise there is limited elasticity; and OEMs/retail channels are focusing on high-value notebooks that have greater differences from tablets.

● Asian PC brands continue to outperform US OEMs, due to a more competitive touch product portfolio and channel expansion, in our view. Asus’ units accelerated to 52.5% YoY growth; Lenovo’s growth slowed to 10.2%; and Acer’s decline decelerated to 4.5%. Dell’s volume decline of 27.0% YoY led the sector.

● Lenovo is our top pick in the PC sector. We believe PC share gains and scaling will offset softening demand in the near term. Asus is a good defensive name in PCs with its 6% dividend yield.

Figure 1: US PC sell-through continues to decline

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12

Feb-

12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

YoY

% c

hang

e

Total PC units Trailing 3M average PC ASP

Source: NPD Group, Credit Suisse research.

NPD Group tracks monthly US retail point-of-sales data sell-through. Since its September 2012 release, NPD has added over 35 additional retail partners including Wal-Mart and Sam’s Club. Historical data was updated through October 2009. NPD captures on average 10% of global PC sell-in and >100% of US consumer PC sell-in from Gartner.

March was slightly better than seasonal on lower Feb base

US PC sell-through volumes declined 3.5% YoY in Mar. Sequentially, PC units grew 12.4% MoM, and were slightly better than the past two year seasonality of 11.8% MoM growth; notebooks were in line with seasonality while desktops were better than seasonality. Total PC ASP increased 0.2% YoY vs. its trailing 3M average growth of 0.8%.

Asian PC brands continue to outperform US OEMs

Asian PC brands again are faring better than their US peers in the US retail market. Their units increased 12.2% YoY vs. US OEMs’ decline of 10.4%. Dell continues to drag the performance for US OEMs, with its March volumes declining 27.0% YoY. We believe Dell’s softness was due to a limited touch-product portfolio and plausible consumer backlash from the LBO deal. Incrementally, both Apple and HP’s PC volumes also declined 1.5% and 9.2% YoY, respectively.

Acer continues to underperform its Asian PC peers. Its PC volume decline decelerated to 4.5% YoY in March on easier compare. Overall, its 1Q13 unit declined 22.7% QoQ and 1.3% YoY. Acer branded PC volumes declined 25.9% YoY, suggesting turnaround steps with its marketing have yet to register, or have not been effective. US retail was 6.8% of Acer’s 2012 PC units versus 9.5% in 2011.

Asus’ PC unit growth accelerated to 52.5% YoY in March with 6.6% YoY decline in ASP. We believe the unit growth was driven by a better touch notebook line-up. Asus said last week its touch penetration reached 20% of its 1Q13 notebook shipments, in line with its target and could have been 5-10% higher if supply was available (click here). In 1Q13, its PC unit declined 24.6% QoQ and increased 43.8% YoY. US retail was 13.1% of its 2012 PC units versus 8.9% in 2011.

Despite tough compares, Lenovo’s PC units increased 10.2% YoY; ASP declined 1.1% YoY. In 1Q13, its PC units declined 9.4% QoQ and increased 19.4% YoY. We believe its PC sell-through was driven by the demand for its touch notebooks IdeaPad Yoga and Twist, together with the expanding penetration deeper into existing channels (i.e. BestBuy). Its PC ASP decline could be a result of pricing concessions to enter new channels, or expansion in entry-level PC SKUs, in our view. US retail was 3.1% of its 2012 PC units versus 2.2% in 2011.

Figure 2: Asus/Lenovo continue to outperform peers

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

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-12

Apr

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-12

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-12

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-12

Oct

-12

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-12

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-12

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13

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-13

US PC Brands Acer Asus Lenovo

Source: NPD Group, Credit Suisse.

Valuation Metrics Rating TP Up/dn Div. yld ROE P/B Company Ticker (prev. Price chg to TP Year EPS chg(%) EPS EPS grth (%) P/E (x) (%) (%) (x)

rating) Local Target (%) (%) T T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+1 T+1

Acer 2353.TW U 23.75 21.00 0 (12) 12/12 0 0 0.99 1.45 n.m. 48 24.1 16.3 2.5 3.5 0.8 Asustek 2357.TW N 334.50 380.00 0 14 12/12 0 0 32.0 35.0 7 9 10.5 9.6 5.7 18.4 1.9 Lenovo Group 0992.HK O 7.00 10.00 0 43 03/13 0 0 0.06 0.08 27 33 15.5 11.6 2.3 24.1 3.6

Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Source: Company data, Credit Suisse estimates

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Asian Daily

- 7 of 35 -

Asian Airport Sector --------------------------------------------------------- Maintain OVERWEIGHT Changi Airports International—needs to kiss a lot of frogs to find a handsome prince Timothy Ross / Research Analyst / 65 6212 3337 / [email protected] Thaniya Kevalee / Research Analyst / 662 614 6219 / [email protected] Annuar Aziz / Research Analyst / 603 2723 2084 / [email protected]

● We hosted a lunch with Changi Airports International’s (CAI) chief executive, Lim Liang Song, to get his views on the factors that drive airport investments and what his group looks for in target acquisitions; CAI is Changi’s direct investment arm that takes ownership and operational stakes in other airports.

● Of the three factors that influence returns greatest (regulatory regime, traffic growth and base airline) the impact of politics on the regulatory environment is the toughest to predict…especially at the beginning of a 30–50 year concession.

● CAI’s focus is on dual or hybrid-till airports that feature high levels of traffic growth, but often also feature evolving (read unproven) regulatory regimes, meaning required target IRRs as high as 18% to compensate for the risk. It currently holds assets in Africa, India, China, the Middle East, Brazil, Southeast Asia, Russia and Italy.

● Malaysia Airports is the listed Asian player most closely following the Changi model, with its successful operational commitment to a strong, dual-till regulated home base and an investment and operating arm that has already scored a number of wins.

Valuation metrics Company Ticker Rating Price Year P/E (x) P/B (x)

Local Target T T+1 T+2 T+1

AOT AOT.BK N 137.00 115.00 09/12 22.3 18.0 2.4 MAHB MAHB.KL O 5.80 6.80 12/12 17.8 18.9 1.5


More complex than it looks

To all intents and purposes, operating airports look risk-free and attractive businesses. However, the risk profile changes considerably depending on whether it is a green/brownfield second-tier project in an emerging market or capital airport in a capital city with a concession that has been honoured by politicians from different administrations.

Figure 1: Indicative IRR by airport investor

0%

2%

4%

6%

8%

10%

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16%

18%

20%

Specialist investor Construction company Fund manager

Source: Credit Suisse estimates.

CAI’s business is typically on the frontier and as a consequence it demands higher rates of return to compensate it for the risk that it is taking on. To mitigate that risk, it tries to engage politicians in the crafting of the concession language and focuses on dual-till facilities where it can use typically high margin returns from retailing activities to cross-subsidise lower-returning aeronautical operations.

Figure 2: CAI’s (mostly) high growth portfolio

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UAE China Phil Brazil Russia India S.Arabia Africa Italy

2012 YoY% 2007-12 CAGR%

Source: Diio Mi.

When selecting airport targets, it looks for those that have a high degrees of “sticky” traffic: origin and destination (especially where there are natural attractions or centres of learning), natural connecting traffic (typically at the end of technical range for aircraft that does not require significant deviation) and business traffic. It also favours airports of reasonable scale, that are not captive to one type of traffic (i.e., LCC), although CAI does recognise the importance of the base airline or home carrier in providing traffic annuity-style traffic flows, generally looking to this airline to cover operating costs of the aeronautical infrastructure (a la Singapore Airlines versus its home base at Changi).

One interesting thought was that airports of the future may look somewhat different from what one might currently conceive. Rather than continuing to grow in scale, emerging thoughts amongst airport planners is that there is a natural limit to airport sizes at which the pressure that they put on surrounding infrastructure (especially air traffic control, roading and public transport) means that they will be forced to emphasise connectivity rather than size. Connections to other air services or possibly high speed rail as well as management of the surrounding real estate will be the features of future airports, with multiple facilities serving the world’s major emerging hubs in much the same way as they already do in New York, London, Shanghai, Tokyo and—in the near future—Beijing.

In terms of airports under Credit Suisse coverage, Malaysia Airports Bhd is the only one that runs a similar model to Changi Airports Group (of which CAI is a major unit). It probably has less of a balance sheet at its disposal, but is nonetheless focused on the same metrics—to its advantage in our view.


Asian Daily

- 8 of 35 -

Australia

Australand ------------------------------------------------------------------------------Maintain NEUTRAL Fully valued under various scenarios EPS: ▲ TP: ▲ John Richmond / Research Analyst / 61 2 82054580 / [email protected] John Lee / Research Analyst / 61 2 8205 4413 / [email protected] Stephen Rich / Research Analyst / 61 2 8205 4617 / [email protected]

● No more bids thus far. ALZ held its AGM on Monday, 22 April, management commenting for the first time since its dataroom closed three weeks ago. The dataroom was opened after several parties expressed interest in either the whole or parts of ALZ’s business, and after CAPL stated that ALZ is a non-core holding.

● Now only marginal upside under takeover. Despite the AGM comments, it is still too early to rule out further bids in our view, especially in light of improving resi markets.

● Risk of a block trade exit. On the downside, if no new proposals arise CAPL may look to exit via a block trade, creating an overhang. Given the A$1.2 bn size of the stake, a discount may be required.

● Under a stand-alone scenario, we value ALZ at A$3.47, in which we value investments on a 7.8% cap rate (vs 8.1% book), C+I on 10x, resi on 11x and overheads on 9x multiple. Our target price of A$3.56 (up from A$3.47) is set at the midpoint of our takeover and base case NAVs. With limited upside under various scenarios, we maintain NEUTRAL.


No more bids thus far. ALZ held its AGM on Monday, 22 April, management commenting for the first time since its dataroom closed three weeks ago. The dataroom was opened after several parties (including GPT) expressed interest in either the whole or parts of ALZ’s business, and after CAPL (which owns 59.3% of ALZ) stated that ALZ is a non-core holding. At the AGM, ALZ’s chairman said that “no conclusion has been reached”, and that “there is no guarantee that any proposal will be developed for securityholders’ consideration”.

Now only marginal upside under takeover. Despite the AGM comments, it is still too early to rule out further bids in our view, especially in light of improving resi markets. Acquiring ALZ’s investment portfolio and C+I business would accelerate GPT’s strategy of up-weighting industrial+development. If a resi partner could be found, a cash bid may be made for the whole group. Under take-over, we see A$3.64 as achievable which assumes a A$140 mn premium (in line with the original GPT bid premium), book value for ALZ’s investment and C+I assets (A$2.4 bn + A$387 mn) and a 5% discount to resi book value (A$852 mn book value of which A$43 mn has been impaired). However, on this basis, we still see only 4% upside.

Risk of a block trade exit. On the downside, if no new proposals arise CAPL may look to exit via a block trade, creating an overhang. Given the A$1.2 bn size of the stake, a discount may be required. Assuming a 6.5% DPS yield, the stock would trade at $3.31, or a 5% discount to our base NAV. CAPL is under no pressure to sell, so this scenario may take time to play out.

Fully priced as a standalone. Under a stand-alone scenario, we value ALZ at A$3.47, in which we value investments on a 7.8% cap rate (vs 8.1% book), C+I on 10x, resi on 11x and overheads on 9x multiple. Our target price of A$3.56 (up from A$3.47) is set at the midpoint of our takeover and base case NAVs. With limited upside under various scenarios, we maintain NEUTRAL.



AUSTRALAND PROPERTY UN REIT

ALZ.AX N (N) 3.50 3.56 12/12 14.2 13.6 0.9


Bbg/RIC ALZ AU / ALZ.AX Rating (prev. rating) N (N) Shares outstanding (mn) 578.32 Daily trad vol - 6m avg (mn) 0.9 Daily trad val - 6m avg (US$ mn) 2.8 Free float (%) — Major shareholders

Price (22 Apr 13, A$) 3.50 TP (prev. TP A$) 3.56 (3.47) Est. pot. % chg. to TP 2 52-wk range (A$) 3.75 - 2.42 Mkt cap (A$/US$ mn) 2,024.1/ 2,080.2


Absolute (%) 2.6 3.2 33.1 Relative (%) 2.7 (0.7) 19.3

Year 12/10A 12/11A 12/12E 12/13E 12/14E

EBITDA (A$ mn) 234.7 242.4 260.7 266.1 281.8 Net profit (A$ mn) 127.7 135.4 142.0 148.0 153.0 EPS (A$) 0.22 0.23 0.25 0.26 0.27 - Change from prev. EPS (%) n.a. n.a. 0 0.9 1.6 - Consensus EPS (A$) n.a. n.a. 0.25 0.26 0.27 EPS growth (%) (18.1) 6.0 4.9 4.2 3.4 P/E (x) 15.8 14.9 14.2 13.6 13.2 Dividend yield (%) 5.9 6.1 6.1 6.1 6.1 EV/EBITDA (x) 13.4 14.1 13.0 12.7 11.5 ROE (%) 6.0 6.3 6.6 6.8 7.0 Net debt(cash)/equity (%) 48.8 61.0 59.2 61.1 53.0 NAV per share (A$) — — — — — Disc./(prem.) to NAV (%) — — — — —

Note 1: Australand is a diversified AREIT. Its operations include development of residential land,housing & apartments,development of & investment in income producing commercial & industrial properties,& property management.

https://rave.credit-suisse.com/research/company/financials?ric=ALZ.AX


Asian Daily

- 9 of 35 -

Insurance Australia Group --------------------------------------------------------Maintain NEUTRAL New Zealand: On track for lower profits EPS: ▼ TP: ◄► Andrew Adams / Research Analyst / +61 2 8205 4106 / [email protected]

● IAG hosted a strategy briefing on its New Zealand business which provided a high level summary of how the business is positioned, with a long-term insurance margin target of ~10%, below the current 11.5% being achieved. We have lowered FY14 earnings by 1.2% and retain our NEUTRAL rating and $5.75 target price.

● IAG said that they are targeting an underlying insurance margin of around 10% over the longer term, noting that they anticipate the underlying margin will be slightly higher in the short to medium term, consistent with the business’ recent performance (~11.5%).

● IAG noted that the NZ$30 mn of synergy savings from the AMI acquisition were tracking to plan, however, given the synergies could theoretically add a further 1.5% to IAG’s NZ insurance margin, a flat to declining margin guidance suggests that these synergies will be absorbed within the business.

● We have removed AMI synergies from our forecasts. This results in a 1.2% decrease to our FY14 NPAT; however, we continue to forecast a margin of ~12%, above management’s long-term target for NZ.


New Zealand strategy

IAG hosted a strategy briefing on its New Zealand business which provided a high level summary of how the business is positioned. IAG noted: in New Zealand we are targeting GWP growth at least in line with the industry and; an underlying margin of around 10% over the longer term, which represents a strong return on capital, given the short-tail nature of the business; we anticipate the underlying margin will be slightly higher in the short to medium term, consistent with the business’ recent performance; and we continue to target at least NZ$30 mn of annual synergies from the integration of the AMI business by April 2014.

Earnings changes

As a result of the strategy briefing and management’s comments that the long-term margin target is ~10% and the near-term to remain at

current levels (~11.5%), we have removed the AMI synergies from our forecasts. This results in a 1.2% decrease to our FY14 NPAT, however, we continue to forecast a margin of ~12%, above management’s long-term target for New Zealand.

GWP – growing at market not as easy as it seems

IAG is targeting GWP growth of at least in line with the industry which is probably to be expected given that they are the largest player with almost 40% market share (60% in motor and 55% in home). However, IAG is integrating the AMI business and now running a multi-brand strategy, which has risk of market share losses. In addition to this, prior to the AMI acquisition, despite being the largest player in the market, IAG was growing at less than the market.

Figure 1: NZ market consolidated – top five control 80% of market Gross written premium (NZ$ mn) and market share

37%

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6%5%

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IAG SUN AMI WES QBE TWR FMG Other

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(NZ

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)

2010 2011 2012

Top 5 control ~80% of market

Source: Company data, Credit Suisse estimates.

Reinsurance – hero to villain to hero again

IAG hosted a panel discussion in reinsurance and the general tone from Guy Carpenter and Swiss Re was that reinsurance rates are declining, both locally and globally. This appeared to be well received; however, we note that reinsurers often talk in terms of risk-adjusted price movements, as opposed to total reinsurance spend.

Insurance margin – yes, targeting a lower margin

The importance of the increase in reinsurance costs for AMI is in understanding the deterioration in the underlying insurance margin in the last half. With GWP flat on pcp and reinsurance up ~100%, it is difficult to conclude that AMI contributed its share of profit to the NZ business in 1H13.

Synergies – on track but never seen

While IAG included a slide on synergy savings noting that they are tracking to plan, with these eventual savings unlikely to be observable in the financials we have not analysed the plan any further. IAG expects to deliver NZ$30 mn of pre-tax synergy benefits within two years (by FY14) with NZ$5 mn recognised in 1H13.

(This is an extract from the IAG report, published on 23 April 2013. For details, please see the CS Research & Analytics website.)

Bbg/RIC IAG AU / IAG.AX Rating (prev. rating) N (N) Shares outstanding (mn) 2,079.03 Daily trad vol - 6m avg (mn) 5.8 Daily trad val - 6m avg (US$ mn) 28.8 Free float (%) — Major shareholders

Price (23 Apr 13 , A$) 5.63 TP (prev. TP A$) 5.75 (5.75) Est. pot. % chg. to TP 2 52-wk range (A$) 5.80 - 3.24 Mkt cap (A$/US$ bn) 11.7/ 12.0


Absolute (%) 0.5 13.5 62.2 Relative (%) (0.5) 8.7 47.0

Year 06/11A 06/12A 06/13E 06/14E 06/15E

Life GWP (A$ mn) — — — — — P&C GWP (A$ mn) 8,050 8,495 9,448 9,944 10,460 Net profit (A$ mn) 250.0 528.0 921.8 842.4 943.8 EPS (A$) 0.12 0.25 0.42 0.38 0.43 - Change from prev. EPS (%) n.a. n.a. 37.9 -1.1 -1.1 - Consensus EPS (A$) n.a. n.a. 0.47 0.42 0.46 EPS growth (%) 174.5 111.2 66.1 (8.8) 12.0 P/E (x) 46.8 22.2 13.3 14.6 13.1 NTA per share (A$) 1.23 1.20 1.27 1.46 1.67 EV per share (A$) Dividend yield (%) 2.8 3.0 4.5 4.2 4.7 EV/EBITDA (x) 15.9 15.7 9.2 9.7 8.7 P/B (x) 2.6 2.7 2.6 2.4 2.2 ROE (%) 5.6 12.1 20.9 18.1 18.7 P&C combined ratio (%) 97.8 100.9 90.7 91.7 91.5

Note 1: ORD/ADR=5.00. Note 2: Insurance Australia Group Ltd is engaged in underwriting of general insurance and related corporate services, and investing activities with operations in Australia, New Zealand, the United Kingdom and Asia.

https://rave.credit-suisse.com/research/company/financials?ric=IAG.AX

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014953421&serialid=29ZbHw%2biGiYEXWVQWm0DXQV%2f0Bv7rWZtV8%2b6ZTrap0g%3d


Asian Daily

- 10 of 35 -

Newcrest Mining -------------------------------------------------------------- Maintain OUTPERFORM MarQ - Cadia East and MOPU commissioning well EPS: ▼ TP: ▼ Michael Slifirski / Research Analyst / 61 3 9280 1845 / [email protected] Sam Webb / Research Analyst / 61 3 9280 1716 / [email protected]

● MarQ production was as expected, pre-empted by recent guidance downgrade on continuing Gosowong ground condition challenges and the late quarter Lihir autoclave issue which will impact the JunQ but is now fully resolved. Full report.

● Cadia East and Lihir MOPU projects are progressing in line with expectations. Cadia East Draw Bell development, the determiner of production, is ahead of schedule. Successful commissioning of the main crusher and conveyor suggests a steep increase in JunQ production.

● Swift reaction to commodity prices with $50mn annual cost reduction (150 jobs cut) at a cost of ~$10mn will reduce corporate G&A by ~$12mn/year, with the balance of the costs within project study capital. All capital projects are under review.

● TP is revised down slightly to $24.20 (from $24.50); earnings changes of ~5-6% reflect more conservative cost and production profiles over the forecast period. Maintain OUTPERFORM.


MarQ reveals challenges behind latest downgrade

Details of Newcrest’s MarQ operating performance that contributed to the recent guidance downgrade were demonstrated to have been largely resolved and unlikely to be repeated, although Telfer old plant reliability will remain unpredictable until the refurbishment of the old plant is completed.

Higher sequential production of 514,421 @ $799/oz up on DecQ’s 492,906 @ $727/oz driven by – Stronger Lihir from expansion commissioning ahead of the late quarter autoclave issue in the old plant, Cadia East from ramp up of higher grade underground production displacing lower grade stockpile ore, and marginally stronger Bonikro; Weaker Telfer from cyclone disruption and Gosowong from protracted high grade access challenges, and Hidden Valley, remaining unacceptable ahead of conveyor restoration.

Management change – a sign of lost patience?

Management changes announced with the recent production downgrade suggest to us that the MD is seeking to increase management focus and accountability, particularly at Lihir. A $50mn of labour cost reduction from city-based longer term project studies has been implemented to reduce cash outflow on projects that are longer dated, not priced by the market, but are able to maintain an option value (Hidden Valley expansion, Bonikro expansion, Namosi, O’Callaghans).

From investment phase to surplus cashflow

With the heavy capital reinvestment phase (Lihir expansion and refurbishment, Telfer cut back and Cadia East development) now largely complete, Newcrest moves to a phase of strong free cash flow generation with no major capital projects other than completion of: The 5Mtpa Lihir flotation expansion ($300mn); The old plant refurbishment ($200mn); Cadia East lift 2 development ($500mn).

The end of the investment phase coincides well with the market’s focus shift from demanding and paying for growth from gold companies to now discounting for growth but demanding returns and dividends. Newcrest’s near complete recapitalisation of its major production centres should see a period of reduced capital expenditure and generation of stronger free cash.

Figure 1: NCM gold quarterly production

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1Q092Q093Q094Q091Q102Q103Q104Q101Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q13

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(koz

)

Gold Produced

Cracow ( 70%) Gosowong ( 82.5%) Hidden Valley ( 50%)Telfer ( 100%) Cadia ( 100%) Ridgeway ( 100%)Lihir Island (100%) Mt Rawdon (100%) Bonikro (90%)


This is an extract from Michael Slifirski’s Newcrest Mining report published on 23 April 2013.

Bbg/RIC NCM AU / NCM.AX Rating (prev. rating) O (O) Shares outstanding (mn) 765.91 Daily trad vol - 6m avg (mn) 3.9 Daily trad val - 6m avg (US$ mn) 85.1 Free float (%) — Major shareholders

Price (23 Apr 13 , A$) 16.45 TP (prev. TP A$) 24.20 (24.50) Est. pot. % chg. to TP 47 52-wk range (A$) 30.0 - 15.9 Mkt cap (A$/US$ bn) 12.6/ 12.9


Absolute (%) (26.2) (30.1) (40.4) Relative (%) (27.2) (34.9) (55.6)

Year 06/11A 06/12A 06/13E 06/14E 06/15E

Revenue (A$ mn) 4,102 4,416 3,904 5,186 5,558 EBITDA (A$ mn) 2,045 2,151 1,529 2,360 2,581 Net profit (A$ mn) 1,058 1,084 617 1,024 1,083 EPS (A$) 1.47 1.42 0.80 1.34 1.41 - Change from prev. EPS (%) n.a. n.a. -5.1 -5.7 -6.3 - Consensus EPS (A$) n.a. n.a. 0.85 1.29 1.64 EPS growth (%) (6.6) (3.8) (43.1) 65.9 5.8 P/E (x) 11.2 11.6 20.4 12.3 11.6 Dividend yield (%) 1.8 2.1 2.4 2.4 2.6 EV/EBITDA (x) 6.5 6.9 10.2 6.7 5.9 P/B (x) 0.9 0.8 0.8 0.8 0.7 ROE (%) 11.3 7.5 4.0 6.3 6.4 Net debt(cash)/equity (%) 4.4 14.4 18.4 19.1 15.5

Note 1: ORD/ADR=1.00. Note 2: Newcrest Mining Limited (Newcrest) is engaged in the exploration, mine development, mine operations and the sale of gold and gold/copper concentrate. Newcrest operates seven gold mines in Australia, Indonesia and Papua New Guinea

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014961381&serialid=MajOlCxZASpauYslBOPCjpFYpkE8xPtZxBYMHK0nYxY%3d

https://rave.credit-suisse.com/research/company/financials?ric=NCM.AX


Asian Daily

- 11 of 35 -

Oil Search ----------------------------------------------------------------------- Maintain OUTPERFORM Modest 1Q miss, LNG remains on track EPS: ▼ TP: ◄► Paul McTaggart / Research Analyst / 61 2 8205 4698 / [email protected] James Redfern / Research Analyst / 612 8205 4779 / [email protected] Martin Kronborg / Research Analyst / 61 2 8205 4369 / [email protected]

● Production numbers of 1.56mmboe slightly below CS expectations but FY guidance maintained at 6.2–6.7mmboe. We lower our FY production target from 6.6mmboe to 6.4mmboe on the risk that there could be further shutdowns. Full report.

● PNG LNG more than 80% complete and remains on track for first LNG late 2014. PNG LNG project finance discussions for the additional US$1.5bn progressing well, with "strong interest" from prospective lenders.

● Capex for the quarter was at $406mn, including $285.9mn for PNG LNG—slightly below full-year guidance of $1.9bn–$2.1bn due to lower spend on PNG ($1.5bn–$1.6bn guidance, including capitalised interest).

● Our FY13 NPAT is down $16mn or 8%. $10mn can attributed to increased exploration expensed from MENA (specifically, the Semda 1 well in Tunisia), with the remaining due to lower oil production for the year. This is immaterial to our valuation as PNG LNG makes up more than 80% of our SoTP which is unchanged at A$8.6/sh.




OIL SEARCH ORD OSH.AX O (O) 7.30 8.60 12/12 56.2 31.5 3.0


Production numbers of 1.56mmboe slightly below CS expectations but FY guidance maintained at 6.2–6.7mmboe. Lower production at Kutubu which was impacted by two unplanned shutdown events was partially offset by gas and NGL from Hides. We lower our FY production target from 6.6mmboe to 6.4mmboe on the risk that there could be further shutdowns.

PNG LNG more than 80% complete and remains on track for first LNG late 2014. Air strip operations are expected to commence in May

and OSH will soon be able to supply commissioning gas to the LNG Plant. P’nyang studies progressed, with the use of gas for Train 3 the primary focus

PNG LNG project finance discussions for the additional US$1.5bn

progressing well, with “strong interest” from prospective lenders. If

debt can be raised, OSH cash balance of $438.6mn (down from $480mn) and undrawn facility of $500mn is sufficient for completion at current capex guidance.

Capex for the quarter was $406mn, including $285.9mn for PNG

LNG. Slightly below full-year guidance of $1.9bn–$2.1bn due to lower

spend on PNG ($1.5bn – $1.6bn guidance, including capitalised

interest). Exploration was up to $65mn (from $45mn), with MENA seeing the largest increase at $12mn – subsequent to the reporting period oil flowed from the Euphrates Formation.

Our FY13 NPAT is down $16mn or 8%. $10mn can attributed to increased exploration expensed from MENA (specifically, the Semda 1 well in Tunisia), with the remaining due to lower oil production for the year. This is immaterial to our valuation as PNG LNG makes up more than 80% of our SoTP which is unchanged at A$8.6/sh.

This is an extract from Paul McTaggart’s Oil Search report, Modest 1Q miss, LNG remains on track published on 23 April 2013. For details, please see the CS Research and Analytics website.

Bbg/RIC OSH AU / OSH.AX Rating (prev. rating) O (O) Shares outstanding (mn) 1,338.24 Daily trad vol - 6m avg (mn) 3.9 Daily trad val - 6m avg (US$ mn) 28.3 Free float (%) — Major shareholders

Price (23 Apr 13 , A$) 7.30 TP (prev. TP A$) 8.60 (8.60) Est. pot. % chg. to TP 18 52-wk range (A$) 7.88 - 6.24 Mkt cap (A$/US$ mn) 9,769.2/ 9,992.9


Absolute (%) (2.7) 2.8 (1.2) Relative (%) (3.7) (2.0) (16.5)

Year 12/11A 12/12A 12/13E 12/14E 12/15E

Revenue (US$ mn) 733 725 718 979 2,294 EBITDA (US$ mn) 526 382 438 659 1,804 Net profit (US$ mn) 235.6 154.5 179.1 323.0 810.2 EPS (US$) 0.18 0.12 0.13 0.24 0.58 - Change from prev. EPS (%) n.a. n.a. -8.0 -1.1 -0.7 - Consensus EPS (US$) n.a. n.a. 0.13 0.25 0.65 EPS growth (%) 61.9 (34.9) 14.8 78.6 145.4 P/E (x) 42.0 64.5 56.2 31.5 12.8 Dividend yield (%) 0.5 0.5 0.5 0.5 3.2 EV/EBITDA (x) 20.3 32.4 32.2 22.4 8.3 P/B (x) 3.3 3.1 3.0 2.7 2.3 ROE (%) 8.1 5.0 5.4 9.1 19.7 Net debt(cash)/equity (%) 23.2 74.1 121.2 129.2 111.2

Note 1: ORD/ADR=10.00. Note 2: Oil Search Ltd is engaged in the exploration for oil and gas fields and development & production. This is carried out as both the operator of producing and exploration joint ventures and as a non-operator participant.

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014931381&serialid=FntSJoRlk8BNmEyDDRpoPHCbGouvsgcZM483fwOsIos%3d

https://rave.credit-suisse.com/research/company/financials?ric=OSH.AX




Asian Daily

- 12 of 35 -

China

China Oil Demand Monthly ---------------------------------------------------------------------------------- New report: March 2013—Gasoline continues to hold up David Hewitt / Research Analyst / 65 6212 3064 / [email protected] Horace Tse / Research Analyst / 852 2101 7379 / [email protected]

● March total apparent oil demand grew 4.3% YoY; 1Q13 demand saw a 5.2% growth and is on track to meet CS forecast of 5.9%. Crude imports were at 5.4mbd in March, with 1Q13 imports falling 2.3% YoY. Total product imports narrowed MoM to 260kbd.

● Gasoline remains the core growth driver after a stellar 2012, recording a 19% growth in March and 16% growth in 1Q13. SUV sales saw a whopping 43% growth in 1Q13 following 24% growth in 2012; Chinese consumers continue to buy and upgrade to heavy vehicles resulting in a continued strength in gasoline.

● Diesel remains in the doldrums, growing 2% in March while declining 0.8% in 1Q13. Diesel exports widened to 95kbd and is at the highest level since 2011, a reflection of the weak domestic demand. Fuel oil rebounded strongly from a weak 2012, recording 17% growth in 1Q13. Naphtha demand saw a 6% decline in 1Q13.

● We do not think the ‘new’ price mechanism will translate into supernormal profit for the Chinese refiners. We welcome the new mechanism announced on 26 March but believe the key to refiners’ profitability is the NDRC’s timeliness in passing through crude price changes. We continue to forecast $1/bbl refining OP for Sinopec in 2013, and a $4/bbl loss for PetroChina. Full report.

Valuation Metrics Price (HK$) Year P/E (x) P/B (x)

Company Ticker Rat. Local Target T T+1 T+2 T+1

PetroChina 0857.HK N 9.41 10.70 12/12 10.6 9.9 1.2 Sinopec 0386.HK N 8.26 8.90 12/12 7.1 6.8 1.0 CNOOC 0883.HK O 13.78 20.20 12/12 6.8 6.7 1.3 COSL 2883.HK N 14.52 14.50 12/12 9.9 8.9 1.5

Note: O = OUTPERFORM, N = NEUTRAL Source: Company data, Credit Suisse estimates

March total apparent oil demand grew 4.3% YoY; 1Q13 demand saw a 5.2% growth and is on track to meet CS’s forecast of 5.9% for the year. Crude imports stood at 5.4mbd in March, while 1Q13 imports fell 2.3% YoY. Total net product imports narrowed MoM to 260kbd.

Figure 1: China—total apparent oil product demand growth (3MMA)

-0.6

-0.3

0.0

0.3

0.6

0.9

1.2

1.5

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Total Oil Products

(MBD)

Source: China OGP, CEIC, Credit Suisse estimates.

Gasoline remains the core growth driver after a stellar 2012, recording a 19% YoY growth in March and 16% growth in 1Q13. SUV sales saw a whopping 43% growth in 1Q13 following a 24% growth in 2012. Chinese consumers continue to buy and upgrade to heavy vehicles resulting in a continued strength in gasoline. Gasoline exports widened MoM to 140kbd.

Figure 2: Gasoline—apparent demand trend (MBD)

1.3

1.5

1.7

1.9

2.1

2.3

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

(MBD)

2011

20132012

5-yr avg.

Shaded area indicates historical 5-year range


Diesel remains in the doldrums, recording a 2% growth in March and a 0.8% decline in 1Q13. Diesel exports widened to 95kbd and is at the highest level since 2011, a reflection of the weak domestic demand. Fuel oil rebounded strongly from a weak 2012, registering a 17% growth in 1Q13. Naphtha demand saw a 6% YoY decline in 1Q13, an indication of weak petrochemical demand in China.

Figure 3: Diesel—apparent demand trend (MBD)

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

(MBD)

2011

2013

2012

5-yr avg.

Shaded area indicates historical 5-year range


We do not think the ‘new’ price mechanism will translate into supernormal profit for Chinese refiners. The Chinese government announced a new refined price mechanism on 26 March, where the price change window is narrowed to ten days (from 22 days) and the +/-4% band cancelled. We welcome the new mechanism but believe the key to refiners’ profitability is the NDRC’s timeliness in passing through crude price changes. We continue to forecast $1/bbl refining OP for Sinopec, and a $4/bbl loss for PetroChina in 2013.

Figure 4: Crude oil—net imports trend (MBD)

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

(MBD)

Source: Company data, Credit Suisse estimates.

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014959371&serialid=Rs8k9a6YxaCyqQ6iSOynr4oRjDtgAsa1%2fRdhRyRBsI0%3d


Asian Daily

- 13 of 35 -

Huaneng Power International Inc --------------------------------------- Maintain OUTPERFORM 1Q13 results – keeping its momentum EPS: ◄► TP: ◄► Edwin Pang / Research Analyst / 852 2101 6406 / [email protected] Contribution by Joy Zhang

● Huaneng 1Q13 net profit came in at Rmb2.55 bn, up 178% YoY. Results were slightly ahead of consensus and CS estimates.

● Excluding one-offs in 4Q12, net profit was up 3% QoQ. The lower output was offset by an estimated -1% QoQ UFC fall and lower interest cost (average interest cost was 4.5% in 1Q13 vs 5.1% in 4Q12). FCF rose to Rmb7 bn, allowing HNP to pare down some debt in 1Q13.

● HNP will host a conference call tomorrow. Key questions include: (1) progress of contract coal negotiation and UFC guidance for the full year, (2) guidance for the full year output (1Q13 only ~22% of 320 bn kwh FY guidance), (3) SG FY profit guidance given lower tariffs and potential write-down, (4) interest cost guidance.

● The results reiterate our continued preference for the IPPs within the China utilities space. Our preferred pick is CRP given its indefinable capacity growth 10%/14% (in FY13/14E) and low coal mining expectations. HNP is our second pick for its improving FCF, de-gearing and relatively high yield (4.5%).


Huaneng 1Q13 results broadly in line

Huaneng 1Q13 net profit came in at Rmb2.55 bn, up 178% YoY. Results were broadly in line with consensus and our expectation.

Net profit excluding one-offs was up 3% QoQ. The lower output was offset by an estimated ~1% QoQ UFC decline and lower interest cost (average interest rate down to 4.5% in 1Q13 from 5.1% in 4Q12 ). OCF increased by 31% QoQ due to lower fuel expense. Net gearing also improved from 282% in 4Q12 to 277% in 1Q13.

Figure 1: Huaneng 1Q13 results snapshot HNP-A, PRC GAAP 1Q13 1Q12 4Q12 YoY,% QoQ,%

YE cons cap, MW 59.60 58.22 59.07 Coal 55.75 54.47 55.28 Wind 0.89 0.84 0.85 Gas 2.87 2.87 2.87 Hydro 0.09 0.04 0.07 Net gen. (bn kwh) 70.21 71.82 74.54 -2% -6% Coal 67.72 69.59 71.90 -3% -6% Wind 0.40 0.33 0.38 22% 5% Gas 2.02 1.88 2.19 7% -8% Hydro 0.07 0.02 0.07 350% 3%

Revenues, Rmb mn 32,136 34,261 33,850 -6% -5% Operating cost 24,944 29,787 27,631 -16% -10% Tax & surcharges 252 164 196 54% 28% Selling cost 5 2 1 168% 252% Management cost 774 710 934 9% -17% Finance cost 1,934 2,302 2,145 -16% -10% Impairment loss (0) (1) 811 -41% -100% fair value changes 1 0 (5) 334% -130% Add: Investment gains 106 264 162 -60% -35% Operating profit 4,332 1,560 2,298 178% Add: other operating income 55 92 357 -41% -85% Minus: other operating cost 21 6 240 248% -91% Total profit 4,366 1,646 2,415 165% 81% Income tax (1,076) (485) (558) 122% 93% Tax Rate 25% 29% 23% Minorities (737) (242) (183) 205% 304% PATMI 2,554 919 1,674 178% 53% PATMI excl. one-off 2,554 919 2,485 178% 3% EPS 0.18 0.07 0.12 178% 53% MI% share 22% 21% 10%


Figure 2: Huaneng PE band chart

(10)

(5)

-

5

10

15

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

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9

Jan-

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Jul-1

0

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11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Share Price 4x 8x 12x 16x

(HK$/sh)


Figure 3: Summary valuation table—China IPPs

MC EV P/E (x) P/B (x) ROE (%) ND/E Yld (%)

Code R FX Px TP U$b U$b 12A 13E 14E 13E 14E 13E 14E 13E 13E 14E

HNP 0902 O H$ 8.30 9.00 15.0 40.7 16.8 11.1 10.7 1.5 1.4 13.6 13.2 220 4.5 4.7

CRP 0836 O H$ 23.7 28.0 14.5 25.2 15.0 11.6 10.5 1.8 1.6 15.8 15.5 108 2.8 3.1

CPI 2380 O H$ 2.68 3.00 2.1 9.9 10.7 9.1 8.5 0.7 0.7 9.1 9.1 236 4.4 4.7

DTP 0991 N H$ 3.33 3.56 5.7 36.9 8.7 8.1 7.5 0.8 0.7 9.8 9.9 315 3.7 4.0

HDP 1071 NR H$ 4.02 - 3.5 21.4 15.6 9.0 8.1 1.1 1.0 12.7 12.5 508 2.7 3.2

Avg 13.4 9.8 9.1 1.2 1.1 12.2 12.0 277 3.6 3.9


Bbg/RIC 902 HK / 0902.HK Rating (prev. rating) O (O) Shares outstanding (mn) 14,575 Daily trad vol - 6m avg (mn) 18.1 Daily trad val - 6m avg (US$ mn) 17.3 Free float (%) 51.9 Major shareholders HIPDC 36%, Huaneng

Grp 15.93%

Price (23 Apr 13 , HK$) 8.30 TP (prev. TP HK$) 9.00 (9.00) Est. pot. % chg. to TP 8 52-wk range (HK$) 8.54 - 4.38 Mkt cap (HK$/US$ bn) 119.6/ 15.4


Absolute (%) 2.1 15.3 89.5 Relative (%) 4.8 26.7 90.5

Year 12/11A 12/12A 12/13E 12/14E 12/15E

Revenue (Rmb mn) 132,937 133,295 139,486 148,119 153,609 EBITDA (Rmb mn) 21,318 28,612 33,697 35,037 37,046 Net profit (Rmb mn) 1,181 5,512 8,377 8,688 9,631 EPS (Rmb) 0.08 0.39 0.60 0.62 0.69 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 0.64 0.70 0.80 EPS growth (%) (64.7) 367.0 52.0 3.7 10.9 P/E (x) 78.6 16.8 11.1 10.7 9.6 Dividend yield (%) 0.8 3.2 4.5 4.7 5.2 EV/EBITDA (x) 11.9 8.8 7.5 7.2 6.5 P/B (x) 1.8 1.7 1.5 1.4 1.3 ROE (%) 2.3 10.3 14.2 13.6 14.0 Net debt(cash)/equity (%) 266.2 237.9 219.7 201.5 175.3

Note 1: ORD/ADR=40.00. Note 2: Huaneng Power Int'l Inc. is principally engaged in the investment, construction, operation and management of power plants. The Company’s electricity generation business covers Northeast China Grid, North China Grid, Northwest China Grid, East China.

https://rave.credit-suisse.com/research/company/financials?ric=0902.HK


Asian Daily

- 14 of 35 -

Industrial Bank ------------------------------------------------------------------------Maintain NEUTRAL 4Q12 and 1Q13 results: strong top line and loan growth, asset quality deteriorated again EPS: ◄► TP: ◄► Vincent Chan / Research Analyst / 852 2101 6568 / [email protected] Significant Contributor Yingying Yang

● CIB announced 1Q13 results together with its FY12 annual report. 1Q13 profit was strong at Rmb10.98 bn, up 31% QoQ and 32% YoY. Cash dividend of Rmb0.57/share (21% payout ratio) was proposed with a share dividend of 0.5/share.

● Margin shrunk by 2 bp in 4Q and slid by another 12 bp to 2.44% in 1Q, while net interest income growth remained robust at 22% YoY in both periods. Fee income fluctuated (+36%/-6% QoQ in 4Q/1Q) although YoY growth soared to 71%/80%. Costs were kept well in check at below 15% YoY and the cost-income ratio saw continuous improvement on a YoY basis.

● Strong loan and deposit growth was a highlight with QoQ loan growth of 7.7%/6.0% and deposit growth of 9.3%/11.2% in 4Q/1Q. Above average loan growth was partially derived from the FX line, with FX loans comprising 38% of incremental loans in FY12.

● NPLs increased by 20% in 1Q13 and NPL ratio went up to 0.49%. Credit cost remained elevated at 117/94 bp in 4Q/1Q, lifting the LLR/loan ratio to 2.09%. Core T1 CAR jumped to 9.29% in 4Q. However, it dropped to 8.55% in 1Q13.


Top line strong, driven by fee income and loan growth

CIB’s revenue grew by 7%/27% QoQ/YoY in 4Q12 and 5%/31% in 1Q13, mainly on account of robust net interest income growth. Fee income advanced +36%/-6% QoQ and 71%/80% YoY in 4Q/1Q due to strong financing advisory fees (72%/253% QoQ/YoY in 4Q, mainly bond issuance/WMP fees) and custodian fees (69%/235% QoQ/YoY in 4Q).

Although margin saw continuous contractions of 2bp/12 bp in 4Q/1Q to 2.44% as LDR decreased and loan pricing lost some ground, loan growth remained strong at 7.7%/6.0% QoQ and deposit growth was even higher at 9.3%/11.2% QoQ. CIB managed to grow loans so quickly by developing its FX lines and thus avoiding quota control of RMB loans to some extent.

Figure 1: Loan breakdown of CIB by currency (Rmb mn) 2011 Gross loans 2012 Gross loans 2012 Incremental loans

FX loans 9,751 1% 104,189 8% 94,438 38% RMB loans 973,503 99% 1,124,976 92% 151,473 62%

Source: Company data, Credit Suisse research

Non-standard asset WMPs 50% of balance, 6.4% of assets

CIB said by 2012 year-end, wealth management product balance arrived at Rmb442.413 bn (13% of total assets and 244% of equity), with outstanding non-standard assets as underlying guided at 50%, translating into 6.4% of total assets.

Asset quality deteriorated, credit cost still in the high range

Asset quality weakened, with NPLs increasing 3%/20% QoQ in 4Q/1Q and NPL ratio rising to 0.49% in 1Q (mainly in manufacturing sector) after a small decrease in 4Q. Total overdue loans rose by 7% HoH and arrived at 0.74% of loans (vs 0.80% in 1H12). Management indicated a rise in overdue loan ratio in 1Q13. Credit cost was 117 bp in 4Q and 94 bp in 1Q vis-à-vis 112 bp for 2012, nearly triple of 2011’s 32 bp. This helped boost its LLR/loan ratio to 2.09%.

New capital regime: A shortfall of core T1 CAR

CIB edged up its capital ratio at 2012 year end by 1.02 ppt to 9.29%. As the new capital regime came into effect since 2013, core T1 CAR dropped to 8.55% in 1Q13. Management explained under the same new capital regime, core T1 CAR only shrunk by less than 0.2%. As T1 CAR is a bit low especially when CIB is growing loans aggressively, management reiterated no financing plan before end of 2014.

Figure 2: CIB—4Q12 and 1Q13 results (Rmb mn) 4Q11 1Q12 3Q12 4Q12 q/q y/y 1Q13 q/q y/y 2012 y/y

Net int income 15,727 16,386 18,359 19,226 5 22 19,955 4 22 72,193 42

Net fees 2,938 2,623 3,698 5,031 36 71 4,731 (6) 80 14,947 69 Others 22 139 162 (459) (383) (2,186) 304 (166) 119 (65) 16

Non-int inc 2,960 2,762 3,860 4,572 18 54 5,035 10 82 14,882 69 Optg income 18,687 19,148 22,219 23,798 7 27 24,990 5 31 87,075 46 Optg costs (8,053) (6,534) (6,644) (9,225) 39 15 (7,480) (19) 14 (28,625) 24 PPOP 10,634 12,614 15,575 14,573 (6) 37 17,510 20 39 58,450 60 Impairment (1,750) (1,654) (3,220) (3,479) 8 99 (2,985) (14) 80 (12,382) 325 PBT 8,941 11,003 12,355 11,128 (10) 24 14,553 31 32 46,193 37 Attr. Profit 6,717 8,288 9,239 8,377 (9) 25 10,977 31 32 34,718 36

Source: Company data, Credit Suisse research.

Figure 3: CIB—4Q12 and 1Q13 key ratios (%) 4Q11 1Q12 2Q12 3Q12 4Q12 q/q y/y 1Q13 q/q y/y 2012

Loan growth 2.6 3.8 3.7 7.9 7.7 -0.2 5.1 6.0 -1.7 2.2 25.0 Deposit growth 6.2 2.0 9.3 10.6 9.3 -1.3 3.1 11.2 1.9 9.2 34.8 Loan-dep ratio 73.1 74.4 70.5 68.8 67.8 -1.0 -5.3 64.6 -3.2 -9.8 67.8 Net int margin 2.75 2.64 2.79 2.58 2.56 -0.02 -0.19 2.44 -0.12 -0.20 2.64 CIR 43.1 34.1 28.4 29.9 38.8 8.9 -4.3 29.9 -8.8 -4.2 32.9 NPL ratio 0.38 0.40 0.40 0.45 0.43 -0.02 0.05 0.49 0.06 0.09 0.43 Coverage ratio 385.3 393.0 456.0 430.7 465.8 35.1 80.5 429.4 -36.4 36.4 465.8 Credit cost (bp)* 72 66 155 117 117 0 45 94 -23 28 112 LLR/loans 1.46 1.55 1.82 1.95 2.00 0.06 0.55 2.09 0.09 0.54 2.00 Core T1 CAR 8.20 8.27 8.36 8.27 9.29 1.02 1.09 8.55 -0.74 0.28 9.29

*Annualized. Source: Company data, Credit Suisse research

Bbg/RIC 601166 CH / 601166.SS Rating (prev. rating) N (N) Shares outstanding (mn) 12,702 Daily trad vol - 6m avg (mn) 93.3 Daily trad val - 6m avg (US$ mn) 261.5 Free float (%) 66.2 Major shareholders Fujian Province

Finance Bureau, Hang Seng Bank Limited

Price (22 Apr 13 , Rmb) 18.57 TP (prev. TP Rmb) 18.80 (18.80) Est. pot. % chg. to TP 1 52-wk range (Rmb) 20.7 - 11.7 Mkt cap (Rmb/US$ bn) 235.9/ 38.2


Absolute (%) (8.2) 1.2 33.5 Relative (%) (7.0) 11.3 33.0

Year 12/10A 12/11A 12/12E 12/13E 12/14E

Pre-prov Op profit (Rmb mn) 26,265.5 36,828.0 57,661.0 61,272.5 64,050.6 Net profit (Rmb mn) 18,547 25,885 34,663 36,017 36,749 EPS (CS adj. Rmb) 3.10 2.40 2.73 2.84 2.89 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 3.22 3.08 3.37 EPS growth (%) 16.5 (22.5) 13.7 3.9 2.0 P/E (x) 6.0 7.7 6.8 6.5 6.4 Dividend yield (%) 2.5 2.0 2.9 3.1 3.1 BVPS (CS adj. Rmb) 15.4 10.7 13.3 15.6 17.9 P/B (x) 1.21 1.74 1.39 1.19 1.03 ROE (%) 24.5 25.0 24.4 19.6 17.2 ROA (%) 1.2 1.2 1.2 1.0 0.9 Tier 1 Ratio (%) 8.8 8.2 9.8 9.2 8.8

Note1:Industrial bank is a national joint stock bank headquartered in Fuzhou city, Fujian province. It has a nationwide distribution network of 79 branches and 662 banking outlets in Fujian, Yangtze River Delta, Pearl River Delta and Bohai Rim..

https://rave.credit-suisse.com/research/company/financials?ric=601166.SS


Asian Daily

- 15 of 35 -

Ping An Bank --------------------------------------------------------------------------Maintain NEUTRAL 1Q13 result: negative surprise on NIM EPS: ▼ TP: ▼ Frances Feng / Research Analyst / 852 2101 6693 / [email protected] Arjan van Veen / Research Analyst / 852 2101 7508 / [email protected]

● Ping An Bank reported 1Q13 net income of Rmb3.6 bn, up 4.7% YoY mainly on stable credit costs.

● Net interest margin was down significantly to just 2.01% in 1Q13, down 12 bp from 4Q12, which we believe was the key negative surprise of this result due to an increase of inter-bank business and discounted bills. Loan and deposit growth was 4.7% and 4.2% QoQ, respectively. Fee income was up 25% YoY, highlighting success in credit card and wealth management businesses.

● Credit costs remained stable at 0.58% in 1Q13, up slightly from 0.52% in 4Q12. NPLs (non-performing loans) increased slightly to 0.98% from 0.95%, with the increase mainly in east region (main exposure was Wenzhou). Special mention loans and overdue loans went up to 1.2% (from 1.0%) and 2.53% (from 2.02%). Capital adequacy was 10.17% (8.67% under new regime).

● We have revised down our 2013-2014 forecasts by 2-4% due to the lower NIM and as such lowered TP to Rmb20.5 from Rmb22. PAB is now trading at 9x P/E and 1.2x P/B. Maintain NEUTRAL.

Ping An Bank reported 1Q13 net income of Rmb3.6 bn, up 4.7% YoY.

(1) Net interest income was Rmb8.7 bn in 1Q13 with net interest margin of 2.01%, down 12 bp from 4Q12, which we believe was the key negative surprise of this result due to an increase of inter-bank business and discounted bills.

(2) Loan growth was 4.7% in the quarter, while deposit grew 4.2%.

(3) Fee income was Rmb1.8 bn, up 25% YoY, highlighting success in the credit card and wealth management businesses.

(4) Cost to income ratio in 1Q13 was 38.7%, compared to 38.2% in 1Q12, with net addition of three new outlets in 1Q13.

(5) Credit cost remained stable at 0.58% in 1Q13, compared to 0.52% in 4Q12. NPLs (non-performing loans) increased slightly to 0.98% from 0.95%, with the increase mainly in east region (main exposure was Wenzhou).

Special mention loans and overdue loans went up to 1.2% (from 1.0%) and 2.53% (from 2.02%).

(6) Capital adequacy ratio was down to 10.17% due to the maturity of Rmb26 bn sub-debt (8.67% under new regime) at the end of 1Q13, compared to 11.4% at Dec 2012 and Tier 1 ratio at 8.25% (7.3% under new regime), compared to 8.59% at Dec 2012.

Figure 1: Ping An Bank 1Q13 result snapshot Income statement 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 YoY %

Net interest income 7,609 7,955 8,202 8,404 8,475 8,707 9% Net fee 1,235 1,448 1,331 1,376 1,566 1,805 25%

Total revenues 8,967 9,724 9,902 9,906 10,217 10,802 11% Total expenses -4,719 -4,573 -4,645 -4,738 -5,120 -5,039 10%

PPOP 4,249 5,151 5,256 5,168 5,097 5,763 12% Provision costs -909 -686 -884 -644 -916 -1,046 52%

Operating profit 3,340 4,465 4,372 4,523 4,182 4,717 6% Net profit after tax 2,645 3,495 3,374 3,476 3,165 3,589 3%

Attributable profit 2,591 3,429 3,333 3,476 3,165 3,589 5% 3Q11 4Q11 1Q12 2Q12 1Q13 1Q13 1Q13 EPS (RMB) 0.51 0.67 0.65 0.68 0.62 0.70 5% ROE 14.1% 17.9% 16.7% 17.0% 14.9% 16.2% -9% Key ratios:

Loan growth 5% 4.8% 3.3% 2.2% 4.7% Deposit growth 8% 3.8% -1.5% 9.2% 4.3% Loan-to-deposit ratio 72% 70% 71% 74% 69% 70% QoQ bps Cost of funding 3.36% 3.44% 3.25% 3.06% 2.98% 3.05% 0.07 Interest income (%) 5.61% 5.71% 5.43% 5.20% 5.11% 5.06% -0.05

NIM 2.45% 2.48% 2.36% 2.31% 2.30% 2.18% -0.12 NIS 2.25% 2.28% 2.17% 2.14% 2.13% 2.01% -0.12

Cost to income ratio 43.5% 38.2% 38.1% 39.4% 41.9% 38.7% -3.13 Credit cost (% loans) 0.60% 0.44% 0.54% 0.38% 0.52% 0.58% 0.06 Non-performing loans 0.53% 0.68% 0.73% 0.80% 0.95% 0.98% 0.03

Core CAR 8.5% 8.6% 8.4% 8.5% 8.6% 7.3% -1.31 CAR 11.5% 11.6% 11.4% 11.3% 11.4% 8.8% -2.58


Figure 2: China banks—valuation comp sheet Rating Price TP Upside P/E P/B ROE Div Y

23-Apr HK$ (%) 13E 14E 13E 14E 13E 14E 13E

ICBC-H O 5.21 6.33 21 6.0 5.9 1.1 1.0 20.0 17.9 5.8 CCB-H O 6.14 7.51 22 6.1 5.9 1.1 1.0 19.8 18.2 5.7 ABC-H N 3.45 4.11 19 5.8 5.5 1.0 0.9 19.2 18.0 6.0 BOC-H N 3.44 4.05 18 5.6 5.6 0.8 0.8 15.7 14.2 6.2 BCOM-H N 5.77 6.64 15 5.6 5.4 0.8 0.7 15.4 14.5 5.4 CMB-H N 15.02 18.0 20 5.5 5.1 1.1 0.9 21.4 19.8 5.4 CITIC-H N 4.01 4.90 22 4.8 4.5 0.7 0.6 14.9 14.1 5.2 CMBC-H U 9.11 9.54 5 5.0 4.9 1.1 0.9 23.1 20.3 2.1 CRCB-H N 4.05 4.66 15 5.4 4.9 0.8 0.7 16.3 16.0 5.5

PAB-A N 19.08 20.5 7 8.7 7.2 1.2 1.1 15.3 16.1 1.4

Source: Credit Suisse estimates

Bbg/RIC 000001 CH / 000001.SZ Rating (prev. rating) N (N) Shares outstanding (mn) 5,123.35 Daily trad vol - 6m avg (mn) 49.5 Daily trad val - 6m avg (US$ mn) 154.7 Free float (%) 48.0 Major shareholders Ping An

Price (23 Apr 13, Rmb) 19.08 TP (prev. TP Rmb) 20.50 (22.00) Est. pot. % chg. to TP 7 52-wk range (Rmb) 24.3 - 12.6 Mkt cap (Rmb/US$ bn) 97.8/ 15.8


Absolute (%) (17.2) (4.8) 16.2 Relative (%) (14.4) 6.6 17.2

Year 12/11A 12/12A 12/13E 12/14E 12/15E

Pre-prov Op profit (Rmb mn) 15,281.3 20,672.3 24,081.1 28,152.7 32,457.5 Net profit (Rmb mn) 10,279 13,403 13,598 16,153 20,183 EPS (CS adj. Rmb) 2.39 2.62 2.15 2.56 3.20 - Change from prev. EPS (%) n.a. n.a. (2) (4) (3) - Consensus EPS (Rmb) n.a. n.a. 2.52 2.82 3.76 EPS growth (%) 25.2 9.5 (17.7) 18.8 24.9 P/E (x) 8.0 7.3 8.9 7.5 6.0 Dividend yield (%) 0 0.9 1.4 1.7 2.1 BVPS (CS adj. Rmb) 17.5 16.6 15.4 17.6 20.4 P/B (x) 1.09 1.15 1.24 1.08 0.94 ROE (%) 19.2 17.0 15.0 15.5 16.8 ROA (%) 1.0 0.9 0.8 0.8 0.9 Tier 1 Ratio (%) 8.46 8.59 7.54 7.64 7.97

Note1:Shenzhen Development Bank is the first public-listed commercial bank in China. SDB is headquartered in Shenzhen with more than 300 branches nationwide. It is now a subsidiary of Ping An Group..


Asian Daily

- 16 of 35 -

Wuliangye ------------------------------------------------------------------------------Maintain NEUTRAL Tier-1 prices are expected to slip to Rmb500 level EPS: ◄► TP: ◄► Vincent Chan / Research Analyst / 852 2101 6568 / [email protected] Significant Contributor: Tian Liu

● WLY announced its 1Q13 results, with revenue up 5% YoY to Rmb8.7 bn, missing consensus by 14%; while net profit was up 19% YoY to Rmb3.6 bn, meeting expectation. Cash flow from goods sales was -1% YoY, and customer advances minus notes receivable was down by 82% YoY.

● We expect real revenue growth to be around this -1% growth YoY of cash flow from goods sales. Our formula of ‘revenue – increased accounts receivable – increased notes receivable + decreased customer advances’ suggests a -9% growth YoY. Distributors are withdrawing and are under increasing cash pressure.

● We believe the current higher-than-expected margin is unsustainable under Rmb580 Tier-1 prices, a further downward trend to the Rmb500 level, and there should be more SG&A over next three quarters, which only registered 7% YoY growth in 1Q13.

● We maintain our target price of Rmb23.11, derived from a 12.3% WACC and 2% terminal growth, implying 4.0% potential upside. Maintain NEUTRAL.


Distributors are withdrawing

With disappointing revenue growth of merely 5%, cash flow from goods sales saw -1% growth YoY, which we expect to be the real revenue growth, or even lower. Our formula of ‘revenue – increased accounts receivable – increased notes receivable + decreased customer advances’ suggests a -9% growth YoY, but we cannot explain this -8% difference at the current stage yet.

Customer advances minus notes receivable was down by 82% YoY, which suggests: (1) distributors are withdrawing, as mentioned in our earlier note ‘The carrot and stick story’ published on 3 April, and (2) distributors are facing increasing capital turnover pressure.

Tier-1 prices are expected to slip to Rmb500 level

Current Tier-1 prices have dropped to the Rmb580 level, and we heard that Rmb550 is the lowest from some distributors exiting the industry who slashed their inventories. According to distributors, recently there has been almost no purchase from SOEs—worse than consensus expectations of only the military and the government cutting consumption. Distributors expect the Rmb500 level to be the bottom, and in fact, we believe that we would also consider purchasing the WLY product at that price level. However, it may take another half a year to reach that level, in our view.

Margin should not sustain over 13E

We expect it will be difficult to sustain the current higher-than-consensus margin. The company attributes this higher margin to a higher proportion of high-end products sales, but with the current Tier-1 price at 20% lower than ex-factory prices, we can hardly believe that the gross margin from the current product mix structure can be sustained. Besides, there should be more SG&A over the next three quarters, which only registered 7% YoY growth in 1Q13.

Figure 1: 1Q13 results (Rmb mn) 1Q13 4Q12 1Q12 QoQ YoY % of 13E

Revenue 8,675.8 6,074.4 8,230.7 43% 5% 28%

COGS 2,033.1 1,540.1 2,519.6 32% -19% 22%

SG&A 1,082 1,254 1,015 -14% 7% 21%

Net profit 3,626.9 2,133.0 3,050.1 70% 19% 34%

Gross margin 77% 75% 69% 3% 10% 109%

Net margin 42% 35% 37% 19% 13% 121%

SG&A/sales 12% 21% 12% -40% 1% 73%

Eff. bz tax rate 7% 7% 8% -8% -14% 92%

Customer advance 3,863.4 6,467.4 7,790.3 -40% -50% 49%

Note receivable 2,885.6 2,594.2 2,374.0 11% 22% 160%

CA - NR 977.9 3,873.2 5,416.3 -75% -82% 16%

Source: Company data

Maintain NEUTRAL

We maintain our target price at Rmb23.11, derived from a 12.3% WACC, and 2% terminal growth, implying 4.0% potential upside. Maintain NEUTRAL. Neutral in our definition is that we suggest not buying this stock, and can sell if considering the opportunity cost in half a year when the stock price upside is limited.

Bbg/RIC 000858 CH / 000858.SZ Rating (prev. rating) N (N) Shares outstanding (mn) 3,795.97 Daily trad vol - 6m avg (mn) 34.7 Daily trad val - 6m avg (US$ mn) 147.3 Free float (%) 43.9 Major shareholders Yibin State-owned

Asset Operation

Price (23 Apr 13 , Rmb) 22.18 TP (prev. TP Rmb) 23.11 (23.11) Est. pot. % chg. to TP 4 52-wk range (Rmb) 38.4 - 21.8 Mkt cap (Rmb/US$ bn) 84.2/ 13.6



Year 12/11A 12/12A 12/13E 12/14E 12/15E

Revenue (Rmb mn) 20,351 27,201 30,860 33,776 39,747 EBITDA (Rmb mn) 9,206 14,372 15,483 15,892 17,526 Net profit (Rmb mn) 6,157 9,935 10,680 10,949 12,113 EPS (Rmb) 1.62 2.62 2.81 2.88 3.19 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rmb) n.a. n.a. 2.91 3.35 3.70 EPS growth (%) 40.1 61.3 7.5 2.5 10.6 P/E (x) 13.7 8.5 7.9 7.7 7.0 Dividend yield (%) 2.3 3.6 3.9 4.0 4.4 EV/EBITDA (x) 6.8 3.9 3.0 2.6 1.9 P/B (x) 3.6 2.7 2.2 1.8 1.5 ROE (%) 29.9 36.6 30.5 25.7 23.8 Net debt (cash)/equity (%) (91.9) (88.3) (94.8) (90.0) (88.3)

Note 1: Wuliangye is the biggest white spirits company in terms of size and sales volume, and has one of the top two liquor brands in China.

https://rave.credit-suisse.com/research/company/financials?ric=000858.SZ


Asian Daily

- 17 of 35 -

India

HDFC Bank --------------------------------------------------------------------- Maintain OUTPERFORM Profitability improves with rising share of retail EPS: ◄► TP: ◄► Ashish Gupta / Research Analyst / 91 22 6777 3895 / [email protected] Prashant Kumar / Research Analyst / 91 22 6777 3942 / [email protected]

● HDFC Bank 4Q profits, up 30%YoY, were in-line. Profitability pick-up was better than expected, with NIMs expanding 20 bp QoQ aided by the share of retail loans increasing to 56% (+2 p.p. YoY).

● Loan growth was a healthy 22% in FY13 driven by the 27% growth in retail loans. This, coupled with an improvement in CASA to 47% (up 2 p.p. QoQ), led to a 20 bp QoQ (10 bp YoY) expansion in NIMs. While retail momentum is strong, incrementally pick-up in wholesale segment would help register ~25% CAGR in loan book.

● Asset quality continued to be robust, with gross NPAs down 4% QoQ as CV segment saw sequential improvement. Other retail segments have remained stable as well. The bank continues to make conservative floating provisions (~Rs4 bn in FY13). While the current ~50 bp credit costs are unsustainably low, lower floating provisions could help the bank offset the impact.

● The bank’s robust profitability (1.9% ROA, 21% ROE) could expand further as the bank leverages its 11% Tier-1. Earnings growth (26% CAGR) would outpace loan growth as cost-income ratio is likely to moderate. Our top pick among financials. OUTPERFORM.


Retail segment driving the improvement in profitability Loan growth for the bank was a healthy 22% in FY13, driven by the 27% growth in retail loans. Retail growth momentum was sustained even in 4Q, as the auto loan growth slowdown (19% YoY) was offset by stronger growth in other consumer products such as business banking, personal loans and gold loans. This, coupled with an improvement in CASA to 47% (up 2 p.p. QoQ), led to a 20 bp QoQ (10 bp YoY) expansion in NIMs to 4.3% (Core NIM of 4.5%). The bank continues to expand franchise at a rapid pace, opening 286 branches during the quarter to 3,062 branches (added 518 branches in FY13). About 40% of the new branches are micro (2-3 person) branches, which has helped the bank maintain cost income stable at ~48.6% (vs 49% in 4Q12). Non-interest income growth of 21% YoY was slightly

below, as benefits of treasury gains were offset by lower income from forex and recoveries.

Figure 1: 4Q13 results summary P&L summary 4Q13 4Q12 YoY (%) 3Q13 QoQ (%) Net interest income 42,953 35,613 21% 39,817 8% Fee income 13,826 12,373 12% 14,019 -1% Forex income 2,014 3,252 -38% 2,580 -22% Core non-int income 17,387 17,004 2% 17,927 -3% Total income 60,340 52,617 15% 57,744 4% Opex 31,362 26,637 18% 27,880 12% Pre-provision profits 28,978 25,980 12% 29,864 -3% Total provisions 3,005 4,116 -27% 4,050 -26% Operating profits 25,973 21,864 19% 25,814 1% Treasury 649 -715 -191% 1,350 -52% Pre-tax profits 26,622 21,149 26% 27,164 -2% Profit after tax 18,899 14,531 30% 18,591 2%

Key ratios (%) Deposits (Rs bn) 2,962 2,467 20% 2,841 4% Advances (Rs bn) 2,397 1,954 23% 2,415 -1% LDR (%) 80.9 79.2 170.8 85.0 -407.8 Gross NPA (%) 1.0 1.0 -5 1.0 -3 Net NPA (%) 0.2 0.2 2 0.2 -1 Credit cost (%) 0.5 0.3 19 0.5 -7 NIM (bp) 450 440 10 430 20 CASA (%) 47.4 48.4 -97 45.4 205 ROA (%) 1.9 1.7 20 2.0 -3 Tier I (%) 11.1 11.6 -50 10.9 20


Pick-up in PPoP to help sustain the earnings momentum HDFC Bank continues to be our top pick in Indian financials. It has a well-diversified loan book, stable asset quality and among the highest profitability (1.9% ROA, 21% ROE). We expect cost-income ratio to moderate further with stabilisation in branch network. This along with steady NIMs and improvement in fee income growth would help pick up PPoP growth to 26% CAGR from 18% YoY in FY13E. This in turn would help sustain earnings growth ahead of loan growth. ROE will expand further as bank leverages its 11% Tier-1. OUTPERFORM.

Figure 2: Expect PPoP growth to be higher with pick-up in fee income and moderation in cost income

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Bbg/RIC HDFCB IN / HDBK.BO Rating (prev. rating) O (O) Shares outstanding (mn) 2,377.05 Daily trad vol - 6m avg (mn) 3.0 Daily trad val - 6m avg (US$ mn) 36.1 Free float (%) 79.6 Major shareholders No major

Price (23 Apr 13, Rs) 689.40 TP (prev. TP Rs) 770.00 (770.00) Est. pot. % chg. to TP 12 52-wk range (Rs) 703.7 - 487.0 Mkt cap (Rs/US$ bn) 1,638.7/ 30.2



Year 03/11A 03/12A 03/13E 03/14E 03/15E

Pre-prov Op profit (Rs mn) 77,779.9 91,462.9 109,918.9 140,207.4 179,771.3 Net profit (Rs mn) 38,953 52,568 67,146 83,847 106,538 EPS (CS adj. Rs) 16.7 22.3 28.5 35.6 45.2 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 28.4 35.8 44.9 EPS growth (%) 29.3 33.7 27.7 24.9 27.1 P/E (x) 41.3 30.9 24.2 19.4 15.3 Dividend yield (%) 0.5 0.6 0.8 1.0 1.2 BVPS (CS adj. Rs) 109 127 149 177 213 P/B (x) 6.35 5.43 4.63 3.90 3.24 ROE (%) 16.6 19.0 20.6 21.8 23.2 ROA (%) 1.6 1.7 1.8 1.8 1.9 Tier 1 Ratio (%) 12.2 11.6 11.4 10.7 10.3

Note 1: HDFC Bank Limited is an India-based banking company. Its principal business activities consist of retail banking, wholesale banking and treasury operations. The Bank has two subsidiaries: HDFC Securities Limited (HSL) and HDB Financial Services.

https://rave.credit-suisse.com/research/company/financials?ric=HDBK.BO


Asian Daily

- 18 of 35 -

Mcleod Russel India Ltd. -------------------------------------------------- Maintain OUTPERFORM Storm in a tea-cup? EPS: ◄► TP: ◄► Anantha Narayan / Research Analyst / 91 22 67773730 / [email protected] Vikash Patwari / Research Analyst / 91 22 6777 3747 / [email protected]

● The stock has been weak of late—it has come off by about 10% in the past week. While we do not know if there were any technical reasons for this, we have come across concerns regarding the strong YoY production growth and price drop in Kenya.

● Due to adverse weather conditions last year, Kenyan production had halved in the months of February to April. Given normal weather this year, YoY production growth should be significant for these months.

● While broad trends for Kenyan and MCLR’s prices are consistent, due to differing seasonal patterns and quality, Kenya’s tea prices can be volatile and are not perfectly correlated on a month-to-month basis with McLeod’s effective price.

● We think that the fundamental trend for tea remains strong—we estimate Rs10/kg increase in average price for MCLR on the back of Rs22/kg in FY13 with minimal increase in costs. We find the valuation attractive (6.5x FY14E, ex. treasury shares). Maintain OUTPERFORM.


Concerns about high Kenyan production and price drop

The stock has been weak of late—it has come off by about 10% in the past week. While we do not know if there were any technical reasons for this, we have come across concerns regarding the strong YoY production growth and price drop in Kenya.

Feb-Apr production was depressed last year

Over the past two years, monthly production in Kenya has varied between 25 mn to 40 mn kg. Last year, due to adverse weather conditions, production fell to around 18 mn kg each month in February, March and April. This year, production is normal, and February output was 39 mn kg. So while production appears to have been doubled, it is from a depressed base—and the YoY growth should look strong until April.

Prices can be volatile from one month to the next

We estimate Kenya to contribute approximately 16% of the global black tea production. Trends in Kenya are important; however, due to differing seasonal patterns and quality, Kenya’s tea prices can be volatile and are not perfectly correlated on a month-to-month basis with McLeod’s effective price. Similarly, weekly prices in India may not be strictly comparable YoY due to differing production levels between last year and the current one.

Figure 1: YoY production growth in Kenya will look strong this Feb-Apr due to a depressed base last year

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Figure 2: Kenyan tea prices can be volatile from one month to the next

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Figure 3: While the trajectory is similar, month-to-month changes between Kenyan tea prices and MCLR’s are not well correlated

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Source: Company data, World Bank, Credit Suisse estimates

Bbg/RIC MCLR IN / MCLE.NS Rating (prev. rating) O (O) Shares outstanding (mn) 109.46 Daily trad vol - 6m avg (mn) 0.3 Daily trad val - 6m avg (US$ mn) 2.0 Free float (%) 54.3 Major shareholders Promoter (21%),

Treasury Stock (24.7%)

Price (22 Apr 13, Rs) 305.40 TP (prev. TP Rs) 400.00 (400.00) Est. pot. % chg. to TP 31 52-wk range (Rs) 383.0 - 261.6 Mkt cap (Rs/US$ mn) 33,427.8/ 616.7


Absolute (%) (10.5) (12.3) 14.4 Relative (%) (12.8) (8.0) 2.3

Year 03/11A 03/12A 03/13E 03/14E 03/15E

Revenue (Rs mn) 12,741 14,453 16,532 18,662 20,802 EBITDA (Rs mn) 3,450 3,820 4,153 5,173 5,451 Net profit (Rs mn) 2,279 3,031 3,058 3,855 4,238 EPS (Rs) 20.8 27.7 27.9 35.2 38.7 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 27.6 35.1 38.5 EPS growth (%) 0.6 33.0 0.9 26.1 9.9 P/E (x) 14.7 11.0 10.9 8.7 7.9 Dividend yield (%) 1.6 2.0 2.1 2.6 2.9 EV/EBITDA (x) 10.3 9.0 7.9 5.9 5.1 P/B (x) 2.2 1.9 1.7 1.5 1.3 ROE (%) 15.8 18.5 16.4 18.2 17.6 Net debt(cash)/equity (%) 13.5 5.2 (2.6) (13.1) (21.8)

Note 1: McLeod Russel is the world's largest tea plantation company. It is primarily into black tea production, with plantation estates primarily in India with a relatively smaller presence in Vietnam, Uganda and Rwanda.

https://rave.credit-suisse.com/research/company/financials?ric=MCLE.NS


Asian Daily

- 19 of 35 -

Indonesia

PT Astra Agro Lestari Tbk ------------------------------------------------ Maintain OUTPERFORM 1Q13 results: Below estimates—lower ASP and higher cost EPS: ▼ TP: ▼ Agus Sandianto / Research Analyst / 62 21 255 37916 / [email protected] Teddy Oetomo / Research Analyst / 62 21 2553 7911 / [email protected]

● AALI posted Rp356 bn of net income in 1Q13, which came below ours and consensus estimates. This was mainly due to lower ASP for CPO and also higher-than-expected cost during the period. AALI also experienced slightly higher-than-expected non-raw material COGS and selling expense during the period.

● AALI 1Q13 production grew by 22% YoY, which came in line with our estimates. AALI’s 1Q13 sales volume came higher than production as it was able to sell the CPO inventory from 4Q12.

● We revise down our FY13-14 earnings estimates for AALI by 7%-9% to take into account higher-than-expected cost. Thus, we also revise down our target price for AALI to Rp21,950 from Rp23,500 on the back of lower earnings assumptions. Our new target price for AALI is based on 15x P/E 2014E.

● We maintain our OUTPERFORM rating as we believe AALI will likely be the main beneficiary in case of CPO price recovery. AALI also has one of the lowest leveraged balance sheet compared to all Indonesian CPO companies under our coverage.


Soft 1Q13 results: Lower ASP—higher cost

AALI posted Rp356 bn of net income in 1Q13, which came below our and consensus estimates (CS 15% and 16% of consensus' FY13 earnings estimates).

AALI’s soft 1Q13 results were mainly due to lower average selling price (ASP) for CPO products and also higher-than-expected production cost during the period. AALI’s CPO ASP only reached Rp6,466/Kg in 1Q13 or down by 16% YoY. This average selling price came 9% below our estimates. AALI also experienced slightly higher-than-expected non-raw material COGS and selling expense during the period.

CPO production came in line with our estimates

During 1Q13 AALI’s CPO production posted 22% YoY growth, which resulted in 352,093 tonnes of CPO production. We believe AALI’s

1Q13 production came in line with our production estimates. AALI’s 1Q13 sales volume came higher than production volume as it was able to sell the CPO inventory from 4Q12.

Figure 1: AALI 1Q13 summary 1Q as % of FY

1Q13 %YoY %QoQ 2013E 2012A 2011A

CPO prod ' 000 tons 352 21.7 (20.2) 22 20 22 CPO sales ' 000 tons 383 28.0 (11.0) 24 21 23 Revenues Rp bn 2,724 5.5 (8.9) 22 22 26 COGS Rp bn 2,009 9.1 21.2 24 26 25 Raw mat. Rp bn 927 9.2 (9.8) 22 21 25 Non-raw mat. Rp bn 859 (9.8) 25.7 27 31 24 Gross profit Rp bn 714 (3.3) (46.4) 17 17 27 Op profit Rp bn 462 (13.0) (56.8) 14 15 29 Net profit Rp bn 356 (5.7) (51.7) 15 16 27


Revising down our estimates

We revise down our FY13-14 earnings estimates for AALI by 7%-9% to take into account higher-than-expected production cost and selling expense. Thus, we also revise down our target price for AALI to Rp21,950 from Rp23,500 on the back of lower earnings assumptions. Our new target price for AALI is based on 15x P/E 2014E.

Figure 2: Estimates changes New Est. Chg (%)

13E 14E 15E 13E 14E 15E

CPO Prod ' 000 tons 1,590 1,637 1,662 0 0 0 CPO Sales ' 000 tons 1,590 1,637 1,662 0 0 0 Revenues Rp bn 12,449 13,188 13,397 0 0 0 Gross Profit Rp bn 4,067 4,268 4,268 -2 -2 -4 Op Profit Rp bn 3,020 3,236 3,294 -9 -6 -6 Net Profit Rp bn 2,132 2,305 2,369 -9 -7 -7

Source: Credit Suisse estimates.

Maintain OUTPERFORM rating

We maintain our OUTPERFORM rating for AALI given it is a pure upstream player. Thus, we believe AALI will be the main beneficiary in case of a CPO price recovery. AALI also has one of the lowest leveraged balance sheet compared to all Indonesia CPO companies under our coverage. We expect AALI’s net gearing to only reach 0.05x in FY13E.

AALI expects to complete the construction process of its refinery by the end of this year. The refinery will have 600k tons/year of production capacity and is located in Mamuju, West Sulawesi.

The company announced Rp685/share of total cash dividend for 2012 fiscal year, representing 45% payout ratio.

Bbg/RIC AALI IJ / AALI.JK Rating (prev. rating) O (O) Shares outstanding (mn) 1,574.75 Daily trad vol - 6m avg (mn) 1.1 Daily trad val - 6m avg (US$ mn) 2.2 Free float (%) 20.3 Major shareholders Astra International

(79.7%)

Price (23 Apr 13 , Rp) 17,750 TP (prev. TP Rp) 21,950 (23,500) Est. pot. % chg. to TP 24 52-wk range (Rp) 23750.0 - 17750.0 Mkt cap (Rp/US$ bn) 27,951.7/ 2.9



Year 12/11A 12/12A 12/13E 12/14E 12/15E

Revenue (Rp bn) 10,773 11,564 12,449 13,188 13,397 EBITDA (Rp bn) 3,527 3,956 3,560 3,819 3,915 Net profit (Rp bn) 2,406 2,410 2,132 2,305 2,369 EPS (Rp) 1,528 1,531 1,354 1,464 1,504 - Change from prev. EPS (%) n.a. n.a. (9) (7) (7) - Consensus EPS (Rp) n.a. n.a. 1,444 1,525 1,635 EPS growth (%) 19.3 0.2 (11.5) 8.1 2.8 P/E (x) 11.6 11.6 13.1 12.1 11.8 Dividend yield (%) 5.3 5.2 4.3 3.8 4.1 EV/EBITDA (x) 7.7 7.3 8.0 7.2 6.9 P/B (x) 3.4 3.1 2.8 2.5 2.2 ROE (%) 31.3 28.1 22.4 21.6 19.9 Net debt(cash)/equity (%) (9.9) 7.9 4.9 (3.3) (7.6)

Note1:PT Astra Agro Lestari Tbk engages in the plantation of oil palm and rubber in the Republic of Indonesia. It produces fresh fruit bunches, kernel, and crude palm oil. The company’s plantations and mills are primarily located in Java, Sumatra, Kalimantan..

https://rave.credit-suisse.com/research/company/financials?ric=AALI.JK


Asian Daily

- 20 of 35 -

United Tractors --------------------------------------------------------------- Maintain OUTPERFORM Strong mining contracting volume in March EPS: ◄► TP: ◄► Dian Haryokusumo / Research Analyst / 62 21 255 37974 / [email protected] Ami Tantri / Research Analyst / 62 21 2553 7976 / [email protected]

● UT’s March overburden volume increased 20% MoM (+2% YoY) to 72.3 mn bcm, while coal getting volume was up 15% MoM (+13% YoY) to 8.6 mn tonnes. This brings 1Q13 overburden and coal getting volume up 3-13% YoY, despite being down 8-10% QoQ on the back of seasonality, in line with our expectations. We believe the performance should improve with better weather, expected in the coming quarters.

● We see recovery in heavy equipment sales. March’s equipment continue to increased to 451 units from 412 units in February, up 9% MoM (-45% YoY), with 1Q13 volume jumping 70% QoQ (-42% YoY) to 1,272 units (19% of our FY13E).

● Coal sales volume in March was down both on MoM and YoY basis, bringing 1Q13 coal sales volume up 11% QoQ (-23% YoY) to 1.2 mn tonnes (17% of our FY13E).

● We maintain our OUTPERFORM rating on the stock, and our target price of Rp26,000, implying 7.3x FY13E EV/ EBITDA. We maintain our positive stance on UT’s mining contracting business.


1Q13 contracting volume came in line with our estimates

There was a strong MoM increase in mining contracting. March 2013 overburden removal volume increased 20% MoM (+2% YoY) to 72.3 mn bcm, while coal getting volume up 15% MoM (+13% YoY) to 8.6 mn tonnes. This brought 1Q13 overburden and coal getting volume up 3-13% YoY, despite being down 8-10% QoQ on the back of seasonality. These overburden and coal getting volumes came in line with our estimate, 22-23% of our FY13E (versus 1Q12: 22-23% of FY12A, 1Q11: 21-22% of FY11A).

We believe operational numbers from the mining contracting business will improve in the second quarter as the weather improves. The mining contracting business should contribute 70% of total FY13E EBITDA.

Slow recovery in heavy equipment volume

UT’s heavy equipment volume in March rose to 451 units from 412 units in February, up 9% MoM (-45% YoY), bringing 1Q13 volume jumped 70% QoQ (-42% YoY) to 1,272 units (19% of our FY13E). MoM improvement in terms of unit sales was seen across the board, except agriculture machineries. While compared to the last quarter, volumes of all segments of machinery increased, especially mining and forestry that showed significant increase during the quarter. Mining machineries, which contributed 51% of total 1Q13 volume (vs 39% of 4Q12 volume), jumped 122% QoQ to 646 units.

UT’s coal mining business in March was down both MoM and YoY basis to 0.3 mn tonnes, bringing 1Q13 coal sales volume up 11% QoQ (-23% YoY) to 1.2 mn tonnes (17% of our FY13E). The coal mining business should only contribute 4% of total FY13E EBITDA.

Remains our top pick in the mining contracting sector

We maintain our OUTPERFORM rating on the stock, and our target price of Rp26,000, implying 7.3x FY13E EV/ EBITDA. We maintain our positive stance on UT’s mining contracting business, which we believe will benefit from the growing coal production as Indonesian coal companies move their operations to areas with lower strip ratio in order to cut costs, preserve margins and increase output.

Figure 1: United Tractors—1Q13 operational volume Mar-13 Mar-12 Feb-13 % MoM % YoY 1Q13 1Q12 4Q12 %QoQ %YoY FY13E % to 13E

Construction machinery Agro 90 201 103 (12) (55) 287 446 229 25 (36) 1,607 18% Construction 77 90 62 24 (15) 228 265 200 14 (14) 1,313 17% Forestry 45 58 29 56 (22) 111 113 26 319 (2) 393 28% Mining 239 472 218 9 (49) 646 1,383 291 122 (53) 3,307 20% Total 451 821 412 9 (45) 1,272 2,207 747 70 (42) 6,619 19% Mining contracting Coal production (m tonnes) 8.6 7.6 7.5 15 13 24 21 26 (8) 13 102 23% Overburden (mn bcm) 72.3 71.1 60.2 20 2 199 193 221 (10) 3 924 22% Strip ratio (x) 8.4 9.4 8.0 8.4 9.2 8.6 9.1 Mining Coal sales volume 0.3 0.4 0.4 (21) (20) 1.2 1.5 1.1 11 (23) 6.8 17%


Bbg/RIC UNTR IJ / UNTR.JK Rating (prev. rating) O (O) Shares outstanding (mn) 3,730.14 Daily trad vol - 6m avg (mn) 5.3 Daily trad val - 6m avg (US$ mn) 10.5 Free float (%) 44.8 Major shareholders Astra International

(55.2%)

Price (23 Apr 13 , Rp) 18,550 TP (prev. TP Rp) 26,000 (26,000) Est. pot. % chg. to TP 40 52-wk range (Rp) 30950.0 - 16850.0 Mkt cap (Rp/US$ bn) 69,194.0/ 7.1


Absolute (%) 7.2 (7.3) (40.1) Relative (%) 1.9 (19.8) (59.8)

Year 12/11A 12/12A 12/13E 12/14E 12/15E

Revenue (Rp bn) 55,053 55,954 63,394 72,720 82,391 EBITDA (Rp bn) 11,043 11,739 14,028 17,537 20,062 Net profit (Rp bn) 5,901 5,780 6,510 8,154 9,019 EPS (Rp) 1,657 1,549 1,745 2,186 2,418 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rp) n.a. n.a. 1,499 1,782 2,000 EPS growth (%) 42.3 (6.5) 12.6 25.3 10.6 P/E (x) 11.2 12.0 10.6 8.5 7.7 Dividend yield (%) 2.6 3.6 3.5 3.9 4.9 EV/EBITDA (x) 6.0 6.0 5.0 4.0 3.4 P/B (x) 2.5 2.3 2.0 1.8 1.5 ROE (%) 27.8 20.7 20.5 22.2 21.3 Net debt(cash)/equity (%) (11.0) 3.0 3.6 0.3 (3.5)

Note1:ORD/ADR=20.00.Note2:PT United Tractors Tbk is an Indonesia-based heavy equipment manufacturer and distributor. It has three business segments, namely construction machinery, mining contracting and mining. The Company is the sole distributor of Komatsu construction machinery..

https://rave.credit-suisse.com/research/company/financials?ric=UNTR.JK


Asian Daily

- 21 of 35 -

Japan

ACOM ------------------------------------------------------- Initiating Coverage with OUTPERFORM Returning to growth track EPS: ◄► TP: ◄► Takehito Yamanaka / Research Analyst / 81 3 4550 9150 / [email protected]

● Initiating coverage at OUTPERFORM with TP of ¥3,850: Acom has seen a recovery in new customer numbers since autumn 2011, and it should show an increase in loans outstanding from end-FY3/13. Full report.

● Acom’s FY3/13 profits likely fell short of guidance owing to provisions for excess interest refunds. However, we think the market has already discounted this factor.

● Reports of accelerating growth in new customer numbers and increases in loans outstanding are the key foreseeable catalysts. Progress in deregulation talks would also be positive, although profits might not rise sharply even if deregulation takes place. The main risks are a resurgence of requests for interest repayment and higher funding costs caused by rising interest rates.

● We derive our TP by assuming fair-value P/B of 1.89x against our FY3/14 BPS estimate of ¥2,037.7. Our valuation is based on ROE of 11.2% and a discount rate of 5.95%. Forecast ROE on the estimated effective tax rate for FY3/14 is 16%.


Initiating coverage at OUTPERFORM with TP of ¥3,850: Acom has seen a recovery in new customer numbers since autumn 2011, and it should show an increase in loans outstanding from end-FY3/13. New customers could recover due to not only the market rebound but also a rise in customers’ wages. We also expect growing contributions from Acom’s Thai subsidiary, EASY BUY.

Acom’s writeoff ratio is currently below the level it forecast following the introduction of the Money Lending Business Act in 2006. It therefore has room to take on more risk and expand loans outstanding. We forecast growth in loans outstanding will boost income in FY3/14-16.

Investment case: Acom’s FY3/13 profits likely fell short of guidance owing to provisions for excess interest refunds. However, we think the market has already discounted this factor. After the release of FY3/13 results, interest repayment-related risks should abate considerably, and investors will likely begin focusing on a profit rebound driven by a resurgent outstanding loan balance.

Catalysts/risks: Reports of accelerating growth in new customer numbers and increases in loans outstanding are the key foreseeable catalysts. Progress in deregulation talks would also be positive, although profits might not rise sharply even if deregulation takes place. The main risks are a resurgence of requests for interest repayment and higher funding costs caused by rising interest rates.

Valuation: We derive our TP by assuming fair-value P/B of 1.89x against our FY3/14 BPS estimate of ¥2,037.7 (assuming a normal tax rate). Our valuation is based on ROE of 11.2% and a discount rate of 5.95%. Forecast ROE on the estimated effective tax rate for FY3/14 is 16%.

(This is an extract from Takehito Yamanaka report, “Returning to growth track,” published on 23 April 2013. For details, please see the CS Research & Analytics website.)

Figure 1: Acom (8272)—Consolidated earnings forecast summary DPS P/E

¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) ¥ (x)

Consolidated

Mar-12 A 210,456 -14.4 30,886 NM 32,219 NM 21,464 NM 137.0 NM 0.0 26.0

Mar-13 CS E (new) 193,800 -7.9 17,100 -44.6 18,000 -44.1 15,900 -25.9 101.5 -25.9 0.0 35.1

CoE 186,900 -11.2 41,300 33.7 42,000 30.4 40,500 88.7 258.5 88.7 0.0 13.8

IBES E - - 40,600 31.5 - - 34,850 62.4 222.6 62.5 0.0 16.0

Mar-14 CS E (new) 190,100 -1.9 52,100 204.7 53,100 195.0 47,500 198.7 303.2 198.7 0.0 11.8

IBES E - - 46,467 14.5 - - 38,233 9.7 244.2 9.7 10.0 14.6

Mar-15 CS E (new) 201,000 5.7 57,200 9.8 58,100 9.4 50,200 5.7 320.4 5.7 10.0 11.1

Operating profit Recurring profit Net profit EPSOperating revenue

Source: Company data, I/B/E/S, Credit Suisse estimates

Bbg/RIC 8572 JP / 8572.T Rating (prev. rating) O (O) [V] Shares outstanding (mn) 156.66 Daily trad vol - 6m avg (mn) 0.7 Daily trad val - 6m avg (US$ mn) 18.1 Free float (%) 20 Major shareholders

Price (22 Apr 13, ¥) 3,565.00 TP (prev. TP ¥) 3,850 (3,850) Est. pot. % chg. to TP 8.0 52-wk range (¥) 3735.0 - 1381.0 Mkt cap (¥/US$ bn) 558.5/ 5.6



Year 03/11A 03/12A 03/13E 03/14E 03/15E

Revenue (¥ bn) 245.8 210.5 193.8 190.1 201.0 EBITDA (¥ bn) (182.6) 32.7 18.7 53.8 59.0 Net profit (¥ bn) (202.6) 21.5 15.9 47.5 50.2 EPS (¥) (1294) 137 101 303 320 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (¥) n.a. n.a. 223 244 192 EPS growth (%) n.m. n.m. (25.9) 198.7 5.7 P/E (x) n.m. 28.2 38.0 12.7 12.0 Dividend yield (%) 0 0 0 0 0.3 EV/EBITDA (x) (6.6) 35.1 59.5 21.7 20.8 P/B (x) 2.5 2.3 2.2 1.9 1.6 ROE (%) (60.3) 8.7 6.0 16.1 14.6 Net debt (cash)/equity (%) 245.4 205.1 182.5 170.5 161.8

Note 1: ORD/ADR=0.25. Note 2: ACOM CO., LTD. is a Japan-based financial company. The Company operates in five business segments. The Loan and Comprehensive Credit Purchase Mediation segment is engaged in the provision of secured and non-secured loans and credit cards.

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Asian Daily

- 22 of 35 -

Japan Exchange Group -------------------------------------- Initiating Coverage with NEUTRAL Valuation reliant on market for now, expansion of exchange offerings over the medium term EPS: ◄► TP: ◄► Takehito Yamanaka / Research Analyst / 813 4550 9150 / [email protected]

● We initiate coverage on Japan Exchange Group (JPX) with a NEUTRAL rating and ¥11,500 target price. Click here for full report.

● The market rebound of late 2012 has led to increased trading of both cash equities and derivatives, which has fuelled raised expectations of operating revenue growth that are currently driving the stock. Integration of the TSE and OSE platforms is proceeding, but we think the share price currently reflects trends in the markets.

● Valuations have not changed much since before the merger, and the stock presently trades at 18x prospective FY3/14 P/E. Equities trading value has recently topped ¥3 tn on some days but, given that we view this as historically atypical, we see further upside as limited.

● We believe the stock could be positively re-rated over the medium term if JPX can boost the proportion of high-growth offerings in its line-up by strengthening alliances with overseas exchanges or expanding the range of instruments, such as derivatives, that it offers. In addition, expanding derivatives operations as a share of overall business could help stabilise earnings during periods of elevated market volatility.


The rally in Japanese equities since November 2012 has helped

revive the performance of JPX and boost its share price. The stock

wavered momentarily after the formal listing of JPX on 4 January as

brokers that had owned stock in the TSE disposed of JPX shares (as

evidenced by several listed securities firms disclosing gains on the

disposal of securities in January). JPX stock has since risen sharply,

however, buoyed by higher equities trading volumes and market

expectations that the rally in Japanese shares is set to extend.

We forecast RP of ¥26.5 bn and NP of ¥14.2 bn for JPX in FY3/13,

based on assumptions outlined below and calculating these earnings

as simple aggregates for TSE and OSE. According to the company’s

disclosure based accounting, its RP was ¥22.8 bn and NP ¥12.2 bn.

For FY3/14, we forecast RP of ¥63.5 bn and NP of ¥37.2 bn. We

calculate our ¥11,500 target price using a theoretical P/B and ROE

annualised from quarterly data. Based on end-1Q FY3/14E BPS of

¥2,682.4, 1Q annualised ROE of 27.9% and a discount rate of 6.5%

(using a risk-free rate of 1%, a 5.5% equity risk premium and beta of

1.0), our target price implies a P/B of 4.29x and a P/E of 14x projected

1Q annualized earnings. Average daily trading value for cash equities

has recently exceeded ¥3 tn. For trading volume to rise further, not

only expectations of economic recovery but also solid evidence that

the recovery is entrenched will likely be necessary. We initiate

coverage with a NEUTRAL rating.

Share price will likely depend on trading volume in the near term

JPX shares have continued to rally because the surge in trading value

has transformed earnings prospects. Management released an outline

of its latest medium-term business plan along with 3Q FY3/13 results.

Since the LDP regained power, Japanese equities have rallied on hopes

of economic recovery and an escape from deflation. The so-called “new

dimension” in monetary easing by the BoJ has supplied a further boost.

Such short-term market dynamics are guiding the shares of highly

market-sensitive financials such as JPX and the brokerages. We see

trading value, which are the principal variable affecting operating

revenues, as the primary near-term share price driver.

Diversification offers potential route to additional underpinning of stock valuation

Exchanges that generate more earnings from derivatives trading typically

command higher valuations. From its listing until December 2012, OSE

shares traded in a P/E range of 9-40x, with an average multiple of 18.6x.

JPX shares have traded on a P/E of about 20x since the TSE merger in

January. Derivatives generated around 40% of the trading fees earned

by JPX in the December 2012 quarter. We expect the JPX valuation

multiple to settle slightly below the 18.6x average achieved by the pre-

merger OSE, although this could change if the proportion of trading-

related income accounted for by derivatives were to increase.

Valuation

Our ¥11,500 target price is based on 1Q FY3/14E annualised ROE of

27.85% and a discount rate of 6.5%, implying a P/B of 4.28x and P/E

of 14x (annualised) 1Q projected EPS of ¥205.8. We think trading

value for cash equities and derivatives are the key drivers of the stock

at present. We would expect the persistence of these conditions to

support the share price at current levels.

Risks

Brisker trading of cash equities or derivatives would be positive for

earnings and the share price, but the converse would also apply.

(This is an extract from the Japan Exchange Group report, published on 23 April 2013. For details, please see the CS Research & Analytics website.)

Bbg/RIC 8697 JP/ 8697.T Rating (prev. rating) N (NA) [V] Shares outstanding (mn) 54.91 Daily trad vol - 6m avg (mn) 1.0 Daily trad val - 6m avg (US$ mn) 75.0 Free float (%) 54.8 Major shareholders

Price (22 Apr 13, ¥) 11,850 TP (prev. TP ¥) 11,500 (NA) Est. pot. % chg. to TP (3) 52-wk range (¥) 12,190.0-3,885.0 Mkt cap (¥/US$ bn) 650.7/ 6.5


Absolute (%) 45.1 118.1 — Relative (%) 34.9 89.3 —

Year 03/11A 03/12A 03/13E 03/14E 03/15E

Pre-prov op profit (¥ bn) — 17.5 23.4 60.7 57.3 Net profit (¥ bn) — 11.8 14.2 37.2 36.4 EPS (CS adj. ¥) 215 259 678 663 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (¥) n.a. n.a. 315 335 414 EPS growth (%) n.a. n.a. 20.5 162.0 (2.2) P/E (x) — 54.9 45.5 17.4 17.8 Dividend yield (%) 0.6 0.7 1.7 1.7 BVPS (CS adj. ¥) — 2,470 2,477 3,145 3,808 P/B (x) — 4.77 4.76 3.75 3.09 ROE (%) — — 9.0 24.1 19.1 ROA (%) — — 1.6 3.7 3.7 Tier 1 ratio (%) — — — — —

Note 1: Japan Exchange Group Ltd. provides and operates a marketplace for the trading of equities, futures, and option. The company manages the trading, as well as administers listed stocks and registered members.

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Asian Daily

- 23 of 35 -

Komatsu ------------------------------------------------------------------------- Maintain OUTPERFORM CAT results: Komatsu’s foresight likely to bring better results than CAT’s EPS: ▲ TP: ◄► Shinji Kuroda / Research Analyst / 81 3 4550 9994 / [email protected] Yunchao Zhao / Research Analyst / 81 3 4550 9903 / [email protected]

● US-based Caterpillar’s 1Q FY12/13 sales and OP fell 17% and 48% YoY. While weak results would appear to be negative for Komatsu and Hitachi Construction Machinery (HCM), we believe they come mainly on factors specific to CAT and hence are positive for the Japanese contingent. Click here for full report.

● Unlike CAT, Komatsu and HCM have refrained from pursuing volume-based market share in China in favor of staying focused on profits and maintaining margins and sound inventory levels. While these companies are also part of the construction-machinery industry as CAT, we believe the disparity in management foresight will translate to a disparity in business performance in 2013.

● CAT’s construction-machinery business saw 1Q sales and OP decline YoY. For the resource segment, sales were down 23% but OP fell a sharp 59% and operating margin declined from 24% to 13%.

● CAT’s mining-machine business is USD-based, i.e., Komatsu and HCM should benefit from the weak JPY, but with mining companies’ profit margins currently falling, we will be focused on how long these companies can maintain their operating margins.


Weak results reflect company-specific factors

US-based Caterpillar, the global leader in construction equipment, reported 1Q FY12/13 results on 22 April (8:30pm Japan time). Sales fell 17% YoY to $13.2 bn and OP declined 48% to $1.2 bn, with full-year sales guidance lowered from $60–68 bn to $57–61 bn and EPS guidance from $7–9 to around $7. CAT’s share price closed the day up 2.28% to $82.71 with help from short-covering. While the weak results would appear to be negative for Komatsu and Hitachi Construction Machinery (HCM), we think they come mainly on factors specific to CAT and are therefore positive for the Japanese contingent with their rising market shares and sound profit structures.

Results reflect issues with CAT’s management foresight

CAT acquired Bucyrus in 2011, when the mining industry was booming, in an effort to strengthen its mining-machinery business. Media reports have cited Komatsu as a potential suitor for JOY Mining Machinery, but Komatsu has denied any interest owing to a lack of potential synergies. CAT also raced to expand its lagging Chinese operation, but this ended up backfiring in the form of excessive inventory and the acquisition of a local company that now appears to have fudged its books—a situation that came to light in 4Q FY12/12.

Komatsu and HCM have conversely refrained from pursuing volume-based market share in China in favor of staying focused on profits and maintaining margins and sound inventory levels. While these companies are obviously part of the same construction-machinery industry as CAT, we think the disparity in management foresight will translate to a disparity in business performance in 2013.

Key risk is decline in mining-machinery margins

CAT’s construction-machinery business had YoY declines of 17% (to $4.2 bn) in 1Q sales and 61% in OP (to $240 mn; margin 5.7%). For the resource segment (= mining machinery), sales were down 23% (50% for new coal-mining machinery) but OP fell a sharp 59% to $480 bn and the operating margin declined from 24% to 13%. CAT’s mining-machine business is dollar based, meaning that Komatsu and HCM should benefit from the weak yen, but with mining companies’ profit margins currently falling, we will be focused on how long these companies can maintain their operating margins.

(This is an extract from Komatsu report published on 23 April 2013. For details, please see the CS Research & Analytics website.)

Figure 1: Komatsu (6301)—earnings forecast summary

¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%)

Consolidated

Mar-12 A 1,981,763 7.5 256,343 15.0 249,609 13.6 167,041 10.8 172.6 10.8

Mar-13 CS E 1,851,000 -6.6 259,000 1.0 250,300 0.3 157,000 -6.0 164.9 -4.5

CoE 1,920,000 -3.1 230,000 -10.3 222,000 -11.1 138,000 -17.4 144.9 -16.0

IFIS E 1,904,151 -3.9 233,353 -9.0 224,653 -10.0 141,252 -15.4 148.2 -14.2

Mar-14 CS E 1,898,000 2.5 331,000 27.8 324,500 29.6 206,000 31.2 216.3 31.2

IFIS E 1,990,362 4.5 288,979 23.8 278,308 23.9 177,313 25.5 185.9 25.5

Mar-15 CS E 1,996,000 5.2 366,300 10.7 360,000 10.9 229,000 11.2 240.5 11.2

IFIS E 2,077,994 4.4 321,349 11.2 310,013 11.4 199,256 12.4 208.8 12.3

EPSSales Operating profit Recurring profit Net profit

Source: Company data, IFIS, Credit Suisse estimates

Bbg/RIC 6301 JP / 6301.T Rating (prev. rating) O (O) Shares outstanding (mn) 952.32 Daily trad vol - 6m avg (mn) 7.9 Daily trad val - 6m avg (US$ mn) 175.9 Free float (%) 80 Major shareholders

Price (22 Apr 13 , ¥) 2,508.00 TP (prev. TP ¥) 2,700 (2,700) Est. pot. % chg. to TP 8 52-wk range (¥) 2516.0 - 1475.0 Mkt cap (¥/US$ bn) 2,388.4/ 24.1


Absolute (%) 9.1 7.8 4.8 Relative (%) (1.2) (19.3) (36.3)

Year 03/11A 03/12A 03/13E 03/14E 03/15E

Revenue (¥ bn) 1,843 1,982 1,851 1,898 1,996 EBITDA (¥ bn) 311.4 345.4 351.0 425.0 460.3 Net profit (¥ bn) 150.8 167.0 157.0 206.0 229.0 EPS (¥) 156 173 165 216 240 - Change from prev. EPS (%) n.a. n.a. -4.5 31.2 11.2 - Consensus EPS (¥) n.a. n.a. 147 186 210 EPS growth (%) 349.3 10.8 (4.5) 31.2 11.2 P/E (x) 16.1 14.5 15.2 11.6 10.4 Dividend yield (%) 1.6 1.7 1.9 1.9 2.0 EV/EBITDA (x) 9.1 8.6 8.1 6.6 5.9 P/B (x) 2.8 2.5 2.3 2.2 2.0 ROE (%) 17.2 17.3 15.2 18.7 19.0 Net debt(cash)/equity (%) 47.3 53.4 42.7 34.4 24.8

Note1:ORD/ADR=1.00.Note2:KOMATSU LTD. manufactures and sells construction and mining machinery, including excavators, bulldozers, and wheel loaders. The Company, operating on a global scale, also produces forklift trucks and engineering equipment such as press system..

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Asian Daily

- 24 of 35 -

Malaysia

Public Bank ----------------------------------------------------------------------------Maintain NEUTRAL New report: 1Q13 results below expectations, cash call uncertainty remains EPS: ◄► TP: ◄► Danny Goh / Research Analyst / 60 3 2723 2083 / [email protected]

● Public Bank’s 1Q13 net earnings of RM968 mn (up 4% YoY after restatement of 1Q12 due to MFRS119) were a touch weaker than street and CS estimates (23% of street’s and our full-year) as revenue fell slightly short of our forecast. Net profit growth was driven by 6% YoY revenue growth (net interest income +5%, non-interest income +9%) but partly mitigated by higher LLP.

● On a QoQ basis, 1Q13 net profit was lower by 2% QoQ due mainly to higher expenses (+9% QoQ) but partly offset by lower LLP (-17%). Loans grew 11.8% (domestic up 12.5%). NIM shrank QoQ to 2.32% (2.37% in 4Q12). NII grew 9% YoY, driven by unit trust income (+15.8% YoY) and investment income (+29.1%).

● Public’s CET 1 stands at 8.2% after adjusting for Basel 3. Management believes that CET 1 requirement could be raised to 9-10% and alluded to the possibility of an equity raising (likely to be 7-8% of market capitalisation) but will only announce details of such an exercise when it get further clarity from regulators.

● Maintain NEUTRAL. While we like the management and fundamentals of the bank, uncertainty over cash call prospects could weigh on price performance. Full report.


Gross loan growth of 11.8% is in line with management’s guidance of 11-12% target (CS estimates 12%, 2012 growth 11.3%). Domestic loans grew 12.5%, ahead of banking system loan growth of 6.9%. Overseas

loans grew marginally by 1.6% annualised (HK +0.6%, Cambodia -3%). Loan growth was mainly driven by higher growth in residential property (15%), non-residential property (16.6%) and purchase of securities (+88.2%). Retail, SME and corporate loans grew 11%, 20% and 5%, respectively. Deposits grew 12.9%, outpacing loan growth marginally. Domestic deposits grew 13.3% (industry average of 8.3%) while domestic core deposits grew 14.2%. LDR remained at 86.9%. CASA grew 15.2% (vs. industry average of 15.7%). CASA ratio improved to 25.2% at end1Q 2013 (25.0% end-2012). NIM shrank 5 bp QoQ to 2.32% in 1Q13 (2.37% in 4Q12, 2.46% in 3Q12, average in 2012 was 2.43%). Overall, management expects re-pricing of the loan portfolio and continued price competition to lead to a further 10-12 bp contraction in 2013. Non-interest income grew 9% YoY in 1Q13, driven largely by unit trust income (+15.8% YoY) and investment income (+29.1%). Net funds under management rose from RM54.6 bn at end-12 to RM55.5 bn at 1Q13, but its market share slipped to 40.5% (40.8% in 2012). The gross impaired loan ratio was stable at 0.7% as at 1Q13 (vs. 0.8% at end-1Q12). Provisions rose 162% YoY as collective allowance (CA) normalised following a change in accounting policy in 1Q12 that resulted in a sharply lower CA (-71% YoY). However, LLP reported is still better than our forecast (1Q = 21% of our 2013E). Credit cost for 1Q13 of 16 bp (vs 15 bp in 2012) is below CS estimate of 18 bp. Cost inflation of 4% YoY lagged revenue growth of 6% YoY. As such, cost-to-income ratio improved to 31.9% in 1Q13 (32.5% in 1Q12). However, due to a change in accounting treatment on recognition of gains in staff defined benefit plans, cost has been adjusted upwards by 3% as actuarial gains are now recognised in reserves but not in P+L. Management aims to keep the cost-to-income ratio below 32%. Capital position: The group’s core equity capital ratio stands at 8.2% after adjusting for Basel 3. While the group is comfortably above the 7% CET 1 regulatory requirement, management expects Bank Negara to introduce buffers for ‘systemically important banks’ and counter-cyclical buffer. Management believes that CET 1 requirement could be raised to 9-10%. Management alluded to the possibility of an equity raising (likely to be 7-8% of market capitalisation) but will only announce details of such an exercise when they get further clarity from regulators. Maintain NEUTRAL. If the group undertakes a rights issue to raise CET 1 to 10%, we estimate the group’s ROE would be diluted to 19.3-20.2% for 2013E-14E (22.4-23.0% now) and our target price would drop to RM16.20. We maintain our NEUTRAL call as (1) uncertainty over a cash call could continue to weigh on investor sentiment, (2) the 2013E P/E of 13.5x is ahead of peers (12x), and (3) its high foreign ownership poses share price risk in the run-up to the General Elections.

Figure 1: Summary of results Year-end Dec 31 (RM mn) 1Q2013 1Q2012 % chg YoY % CS FY13E % of street 4Q2012 % chg QoQ

Net interest income 1,557.0 1,479.3 5.3 23.3 n.a. 1,543.3 0.9 Non-interest income 423.2 389.4 8.7 22.8 n.a. 430.1 (1.6) Revenue 1,980.2 1,868.6 6.0 23.2 23.3 1,973.4 0.3 Op expense (631.8) (607.6) 4.0 25.3 n.a. (581.5) 8.6 Op profit 1,348.5 1,261.0 6.9 22.3 24.0 1,391.9 (3.1) Provisions (80.1) (30.5) 162.2 21.4 n.a. (94.8) (17.0) PBT 1,270.0 1,231.4 3.1 22.4 22.6 1,300.2 (2.2) Net income 968.3 930.2 4.1 22.7 23.0 992.5 (2.4)

Source: Company data, Credit Suisse estimates, IBES estimates

Bbg/RIC PBKF MK / PUBMe.KL Rating (prev. rating) N (N) Shares outstanding (mn) 2,472.35 Daily trad vol - 6m avg (mn) 1.3 Daily trad val - 6m avg (US$ mn) 6.9 Free float (%) 69.0 Major shareholders Tan Sri Dr Teh Hiong

Piow (31%)

Price (23 Apr 13 , RM) 16.34 TP (prev. TP RM) 17.50 (17.50) Est. pot. % chg. to TP 7 52-wk range (RM) 16.4 - 13.6 Mkt cap (RM/US$ bn) 40.4/ 13.2


Absolute (%) 2.5 4.5 18.8 Relative (%) (2.0) 0.5 11.4

Year 12/11A 12/12A 12/13E 12/14E 12/15E

Pre-prov Op profit (RM mn) 5,199.9 5,385.8 6,037.1 6,945.4 7,865.8 Net profit (RM mn) 3,484 3,869 4,274 4,980 5,593 EPS (CS adj. RM) 0.99 1.10 1.21 1.41 1.58 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (RM) n.a. n.a. 1.20 1.32 1.46 EPS growth (%) 14.3 11.1 10.5 16.5 12.3 P/E (x) 16.6 14.9 13.5 11.6 10.3 Dividend yield (%) 2.9 3.1 3.3 3.9 4.4 BVPS (CS adj. RM) 4.45 5.08 5.75 6.52 7.39 P/B (x) 3.67 3.22 2.84 2.51 2.21 ROE (%) 24.2 23.0 22.4 23.0 22.8 ROA (%) 1.5 1.5 1.5 1.5 1.5 Tier 1 Ratio (%) 11.2 11.4 11.1 11.2 11.4

Note1:Public Bank Berhad provides a range of banking and financial services which include leasing and factoring, stock and futures broking, financing for the purchase of licensed public vehicles, and other financial services..

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014961601&serialid=mbVJyvhuRPo84tp7heiM7hKx1Rg37JNyQs4iwZzrz7c%3d

https://rave.credit-suisse.com/research/company/financials?ric=PUBMe.KL


Asian Daily

- 25 of 35 -

Pakistan

United Bank Limited ----------------------------------------------------------------Maintain NEUTRAL 1Q13 earnings flat QoQ but in line with consensus; payout a positive surprise EPS: ▲ TP: ▲ Farhan Rizvi, CFA / Research Analyst / 65 6212 3036 / [email protected]

● UBL reported 1Q earnings of PRs4.0 bn (EPS PRs3.23) down 19% YoY but flat QoQ and broadly in line with consensus. The bank also announced an above-consensus dividend of PRs2.0/share.

● The key positives were (1) 26% YoY/4% QoQ rise in fee income and (2) 56% QoQ decline in provisions due to NPL reversals and better recoveries. The key negative was an 8% YoY decline in net interest income due to lower yields amid declining policy rates.

● Opex remained flat QoQ at PRs6.3 bn as high branch expansion costs continued in 1Q driving cost income ratio to 50% (4Q12: 47%). NIMs attrition continued in 1Q with estimated 15-20 bp decline though we await detailed account to confirm this trend.

● We raise our estimates by 2-4% over 2013-14 and target price to PRs85 to account for a better interest income outlook in 2H13 due to higher rates and stronger fee income growth. Trading at 2013E P/B of 1.1x with 9.5% dividend yield, we maintain our NEUTRAL rating.The stock is likely to remain under pressure near term due to earnings weakness in 2Q with rate hikes the key catalyst in 2H13.


Earrings flat sequentially but down YoY amid falling NIMs and higher opex

UBL posted 1Q13 earnings of PRs3.95 bn down 19% YoY but flat QoQ and broadly in line with street estimates. Positive surprises in 1Q13 were (1) 26% YoY/4% QoQ rise in fee income due to higher remittance related income and income from branchless banking (OMNI), and (2) a 56% QoQ decline in provisions due to NPL reversals and better recoveries. The strong momentum in fee income reflects the success of the bank’s strategic focus on OMNI and international remittance flows. The key negatives were (1) 8% YoY decline in net interest income due to lower interest yields amid declining policy rates (down 250 bp YoY) and (2) 28% YoY rise in opex amid higher branch expansion costs and impact of rupee

depreciation on opex of international operations. Along with the results, UBL announced an above-consensus cash dividend of PRs2/share.

Figure 1: UBL 1Q13 results snapshot PRs mn 1Q13 4Q12 1Q 12 QoQ (%) YoY(%)

Net interest income 8,788 9,421 9,600 (6.7) (8.5) Fee income 2,344 2,249 1,866 4.3 25.6 Income from forex 394 329 568 19.7 (30.7) Other income 1,116 1,367 1,659 (18.4) (32.7) Non-interest income 3,855 3,945 4,094 (2.3) (5.9) Op. expenses (6,311) (6,320) (4,935) (0.1) 27.9 Pre-pro op profit 6,331 7,046 8,759 (10.1) (27.7) Provisions (477) (1,080) (765) (55.9) (37.7) Profit before tax 5,854 5,983 7,230 (2.1) (19.0) Taxation (1,900) (2,034) (2,365) (6.6) (19.6) Reported profit 3,954 3,949 4,865 0.1 (18.7) EPS (PRs) 3.23 3.23 3.97 DPS (PRs) 2.00 3.50 1.00


Provisions down 56% QoQ as NPLs decline

Provisions fell 56% QoQ and 37% YoY to PRs477 mn in 1Q13 amid decline in NPLs and possible recoveries on overdue accounts. Though details are unavailable, our discussions with management reveal a fall in overall NPLs from Dec and continued slowdown in new accretions a positive impact of deleveraging. We expect this trend to continue which should keep the overall provisions lower in 2013.

Tweak 2013-14E EPS by 2-4%; TP raised to PRs85

We have raised our estimates for 2013–14 by 2–4% and target price by 4% to PRs85 on stronger fee income and better interest income outlook from 2H13 in the backdrop of uptick in policy rates. Trading at 2013E P/B of 1.1x with 9.5% dividend yield, we maintain NEUTRAL. The stock is likely to remain under pressure near term due to earnings weakness in 2Q with rate hikes the key catalyst in 2H13.

Figure 2: Summary of estimate revisions New Old % change

All figures in mn 2013 2014 2013 2014 2013 2014

Profit and loss Net interest income 38,322 42,777 36,735 41,061 4.3 4.2 Fee income 9,159 10,295 8,950 10,013 2.3 2.8 Non interest inc. 16,625 18,466 15,914 17,642 4.5 4.7 Gross revenue 54,947 61,243 52,649 58,702 4.4 4.3 Opex 27,333 31,019 26,166 29,113 4.5 6.5 PPOP 27,615 30,224 26,483 29,590 4.3 2.1 Provisions 2,923 3,332 2,196 3,162 33.1 5.4 EPS (PRs) 13.67 14.80 13.19 14.53 3.7 1.8

Key ratios (%) NIMs 4.87 4.88 4.73 4.70 0.14 0.18 CIR 49.7 50.6 49.7 49.6 0.05 1.05 NPL ratio 13.4 12.4 14.0 13.0 (0.64) (0.54) Coverage 77.7 78.0 78.7 78.7 (0.96) (0.69) ROE 17.6 17.4 17.7 17.6 (0.12) (0.23) ROA 1.8 1.7 1.7 1.7 0.05 0.04 Target price (PRs) 85 82 4%


Bbg/RIC UBL PA / UBL.KA Rating (prev. rating) N (N) Shares outstanding (mn) 1,224.18 Daily trad vol - 6m avg (mn) 0.7 Daily trad val - 6m avg (US$ mn) 0.6 Free float (%) 19.0 Major shareholders Bestway group (51%),

Abu Dhabi group (10%), Govt. of Pakistan (20%)

Price (23 Apr 13 ) 87.69 TP (prev. TP) 85.00 (82.00) Est. pot. % chg. to TP (3) 52-wk range 94.6 - 69.3 Mkt cap (bn) 107.3/ 1.1


Absolute (%) 3.3 (0.8) 6.4 Relative (%) (0.6) (11.2) (26.1)

Year 12/11A 12/12A 12/13E 12/14E 12/15E

Pre-prov Op profit (mn) 31,264.9 31,061.1 27,029.9 29,571.4 33,788.2 Net profit (mn) 15,500 18,007 16,738 18,116 20,485 EPS (CS adj.) 12.7 14.7 13.7 14.8 16.7 - Change from prev. EPS (%) n.a. n.a. 4 2 (1) - Consensus EPS n.a. n.a. 13.9 16.1 18.6 EPS growth (%) 38.9 16.2 (7.0) 8.2 13.1 P/E (x) 6.9 6.0 6.4 5.9 5.2 Dividend yield (%) 8.6 9.7 9.5 9.5 9.5 BVPS (CS adj.) 65 74 81 89 100 P/B (x) 1.36 1.18 1.09 0.98 0.88 ROE (%) 21.0 21.1 17.6 17.4 17.7 ROA (%) 2.1 2.2 1.8 1.7 1.7 Tier 1 Ratio (%) 10.5 10.5 10.5 10.5 10.3

Note1:United Bank Limited is a Pakistan-based company. The Company is a banking company engaged in commercial banking and related services. 1,123 branches, including six Islamic banking branches, one branch in Karachi Export Processing Zone..

https://rave.credit-suisse.com/research/company/financials?ric=UBL.KA


Asian Daily

- 26 of 35 -

Singapore

Mapletree Industrial Trust ---------------------------------------------------------Maintain NEUTRAL FY13 in line: Developments and AEIs a plus, but poor industry outlook still threatens rental outlook EPS: ◄► TP: ▲ Yvonne Voon / Research Analyst / 65 6212 3026 / [email protected] Sing Ping Chok / Research Analyst / 65 6212 3011 / [email protected]

● FY13 DPU of S¢9.24 (+10% YoY) was 99% of our and 102% of street’s FYE. Growth was led by: (1) higher occupancies and better rents post expiry of JTC rental caps; and (2) contribution from the JTC’s Tranche two acquisition (completed in Aug11).

● Portfolio occupancy improved slightly to 95.4%, with rents up 4% QoQ to S$1.68 psf/month, led by strong rent reversions at stack-up/ramp-up, and flatted factories. Retention ratio fell to 61% driven by business parks (42.6% retention).

● Gearing remains comfortable at 34.8% after revaluations (target: 40-50%), providing bigger headroom for AEIs/BTS/acquisitions. MINT has started its second BTS project for Equinix – 395k sq ft at one north, 100% commitment for 20+5+5 years, while pre-commitment +10 pp to 60% at Woodlands Central Cluster AEIs.

● After adjusting for the AEIs and BTS, higher debt and lower cost of equity (in line with peers), our new target price is S$1.70 (from S$1.50). Maintain NEUTRAL.


Figure 1: Portfolio occupancy and rents

90.3 91.2 92.3 93.2 94.3 94.5 95.1 94.9 94.9 95.0 95.2 95.4

1.40 1.44 1.45 1.49 1.52 1.54 1.53 1.55 1.56 1.59 1.61 1.68

0.8

1.3

1.8

8890929496

Jun-10 Sep-10Dec-10Mar-11 Jun-11 Sep-11Dec-11Mar-12 Jun-12 Sep-12Dec-12Mar-13

Portfolio occupancy Portfolio passing rentOccupancy (%) S$psfpm


FY13 DPU of S¢9.24 was in line with expectations at 99% of ours but ahead of street’s at 102% of FYE. Growth was led by strong rent

reversions after the expiry of the JTC rental caps, better occupancies and contribution from JTC Tranche 2 acquisition (completed Aug11). Occupancies and reversions remain healthy, for now: Portfolio occupancy remained fairly resilient at 95.4%, with improved passing rent to S$1.68 psf/month in 4Q13. Rent reversions improved QoQ, at 13-36% (Figure 3). Retention rate was down to 61% due to business parks (42.6%) and stack-up/ramp-up (76%).

Figure 2: Positive rental reversions as expected, but…

3.16

1.29 1.01

3.56

1.68 1.37

3.86

1.78 1.423.99

1.57 1.09 1.270.0

2.0

4.0

Business Parks # Flatted Factories Stack-up/Ramp-up Warehouse

Before renewal After renewal New Leases Passing rentsS$psf/monthS$psf/month


Figure 3: Reversions improve in 4Q13, but outlook remains dim Jun-11 *Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13

Business parks 14% 19% -10% N/A 9% 8% 8% 13% Flatted factory 15% 30% 27% 27% 22% 23% 24% 30% Stack-up/Ramp-up 15% 36% 27% 29% 32% 21% 18% 36% Warehouse 11% 35% 32% 15% 23% 19% n.a n.a

Portfolio retention 89% 79% 82% 76% 71% 85% 86% 61%

*Reversions were stronger as it reflected the expiry of the JTC cap. Source: Company

Balance sheet remains healthy with 34.8% gearing (40-50% target; 88% of debt at fixed costs) providing bigger headroom for AEIs/ acquisitions/ Build-to-suit (BTS) opportunities. AEI updates: (1) new BTS project for Equinix at one-north, 385k sq ft GFA, 100% pre-committed for 20+5+5-year lease, completion 2H14 with expected cost of S$108-217 mn; (2) 60% of the new space at Woodlands Central Cluster has been committed; (3) Additional 150,000 sq ft GFA at Toa Payoh North 1 Cluster, completing by 4Q CY13; (4) BTS Kulicke & Soffa (330,000 sq ft GFA, 69% pre-leased to K&S for 10+10-year lease, with embedded annual rental escalation) to complete by 2H CY13. Maintain NEUTRAL: Yield compression may have some room to go, but poor sector outlook may cap upside

After adjusting our forecasts for AEIs and BTS projects, higher debt to finance the developments, and lowering our cost of equity (in line with peers), from 7.9% to 7.3%, we arrive at our new TP of S$1.70. Given the attractive 6.2% yield, we believe that downside risk would be supported. However, due to the weak sector outlook, and possible downside risk to rents and occupancies, we believe potential upside is limited.

Figure 4: Summary of DPU revision New estimates Old estimates % Change

S$ mn, FYE Mar FY14E FY15E FY16E FY14E FY15E FY14E FY15E

Net property inc 208.5 221.3 236.2 204.1 211.8 2.2 4.5 Distributable inc 158.7 165.3 177.3 158.8 165.3 -0.1 0.0 DPU (S¢) 9.73 10.12 10.85 9.74 10.12 0.0 0.0

Source: Credit Suisse estimates

Figure 5: Summary of results S$ mn, FYE Mar FY13 FY12 %YoY CS FY13E % of CS' est % of street's est 4Q13 4Q12 %YoY 3Q13 %QoQ

Gross revenue 276.4 246.4 12.2 275.4 100 102 72.1 66.3 8.8 69.2 4.2 Net property income 195.4 171.3 14.1 196.1 100 49.6 46.0 7.8 49.1 1.0 Borrowing costs -27.1 -23.6 15.1 -24.7 110 -6.6 -6.7 -1.0 -6.8 -2.8 Distributable income 150.9 131.7 14.6 152.0 99 38.9 35.8 8.7 37.6 3.4 DPU (S¢) 9.24 8.41 9.9 9.33 99 102 2.37 2.22 6.8 2.32 2.2 ource: Company data, I/B/E/S, Credit Suisse estimates

Bbg/RIC MINT SP / MAPI.SI Rating (prev. rating) N (N) Shares outstanding (mn) 1,641.48 Daily trad vol - 6m avg (mn) 3.8 Daily trad val - 6m avg (US$ mn) 4.3 Free float (%) 69.0 Major shareholders Mapletree (31%)

Price (23 Apr 13 , S$) 1.56 TP (prev. TP S$) 1.70 (1.50) Est. pot. % chg. to TP 9 52-wk range (S$) 1.57 - 1.13 Mkt cap (S$/US$ mn) 2,560.7/ 2,064.6



Year 03/12A 03/13A 03/14E 03/15E 03/16E

Net property income (S$ mn) 171.3 195.4 208.5 221.3 236.2 EBITDA (S$ mn) 149.7 172.4 183.1 194.3 208.5 Net profit (S$ mn) 126.3 145.6 155.8 162.2 174.2 Distributable income (S$ mn) 131.7 152.2 158.7 165.3 177.3 EPS (S$) 0.08 0.09 0.10 0.10 0.11 - Consensus EPS (S$) n.a. n.a. 0.09 0.09 0.08 EPS growth (%) 52.7 10.4 7.2 4.0 7.3 P/E (x) 19.3 17.5 16.3 15.7 14.6 DPU (S$) 0.08 0.09 0.10 0.10 0.11 - Change from prev. DPU (%) n.a. n.a. 0 0 DPU yield (%) 5.4 5.9 6.2 6.5 7.0 P/B (x) 1.5 1.4 1.3 1.3 1.2 ROE (%) 8.3 8.4 8.4 8.3 8.6 Debt/Asset (%) 37.8 34.8 37.4 38.7 38.1

Note1:MINT is a Singapore-focused industrial REIT, sponsored by Mapletree Investments..

https://rave.credit-suisse.com/research/company/financials?ric=MAPI.SI


Asian Daily

- 27 of 35 -

Taiwan

Taiwan Economics --------------------------------------------------------------------------------------------- Industrial production contracted in March, dragging down 1Q growth momentum Christiaan Tuntono / Research Analyst / +852 2101 7409 / [email protected]

● Industrial production contracted 3.3% YoY in March and fell 2.6% MoM (sa) on an official seasonally adjusted basis. For 1Q13 as a whole, industrial production growth took a visible step-down from 3.3% YoY in January-February to 0.9% YoY for the quarter.

● With commercial sales activities still sluggish and the trade surplus recording a mild yearly contraction, we believe Taiwan’s GDP growth in 1Q13 is likely to be weaker than our original expectation (mid-3% gain).

● Unless growth in the coming quarters rebounds, for which we do not see convincing signs yet, we believe there is rising downside risk to the government’s and our 2013 GDP growth forecast of around 3.4–3.6% as well.

● Reduced orders from global producers, inventory adjustments and sluggish consumption demand were the main drags over the disappointing March industrial activities, pulling down the up-cycle we saw since 4Q last year.

Figure 1: Industrial production disappointed in March, dragging down 1Q growth momentum

Note: Data are smoothed for the lunar new year effect Source: Ministry of Economic Affairs, Credit Suisse

Weak March IP, slow 1Q growth

Industrial production contracted 3.3% YoY in March, and undershot consensus expectations of a 1.8% YoY increase. On an official seasonally-adjusted basis, industrial production fell sharply by 2.6% MoM (sa), following a mild sequential contraction seen in the prior month.

For 1Q13 as a whole, industrial production growth took a visible step-down from 3.3% YoY in January-February to 0.9% YoY for the quarter. IP growth for 1Q13 has also dropped visibly from the 4.3% YoY gain posed in 4Q12. With commercial sales activities still sluggish and the trade surplus recording a mild yearly contraction, we believe Taiwan’s GDP growth in 1Q13 is likely to be weaker than our original expectation (mid-3% gain). Unless growth in the coming quarters rebounds, for which we do not see convincing signs yet, we believe there is rising downside risk to the government’s and our 2013 GDP growth forecast of around 3.4–3.6% as well.

Manufacturing production: Up only 0.7% YoY in 1Q13

In the details, manufacturing production fell 3.2% YoY in March and rose only by 0.7% YoY in 1Q. This is a step down from the 3.1% YoY gain seen in the first two months of the year. Within it, the production of electronic components contracted sharply by 1.5% YoY in March,

slowing 1Q13’s growth pace to 3.2% YoY (from 5.9% YoY in Jan-Feb). The production of computer, electronic and optical products also fell by 7% YoY in March, dragging down 1Q13 to a 2% YoY contraction. Machinery production was another disappointment: down 13.6% YoY in March and contracting 11.5% YoY in 1Q13.

Weak global demand a drag on March industrial activities

According to the MoEA, reduced orders from global producers, inventory adjustments and sluggish consumption demand were the main drags over the disappointing March industrial activities. In our view, global demand for high-tech export products from Taiwan remained weak, and that has pulled down the up-cycle we saw in order flows and production since 4Q last year.

Meanwhile, domestic commercial sales fell 0.7% YoY and undershot the 1% YoY gain expected by market consensus. In 1Q13, commercial sales rose only by 0.4% YoY, down from the 1% YoY gain seen in January-February. Wholesale trade growth was flat in the quarter, while retail sales and restaurant trade only managed to pose 1.1% YoY and 2.1% YoY gain, respectively. Commercial sales have slowed from 0.8% YoY in 4Q12, echoing our view that without a stronger pick-up in Taiwan’s external trade sector, domestic commercial sales are not likely to accelerate.


Asian Daily

- 28 of 35 -

Elan Microelectronics Corp ------------------------ Assuming Coverage with OUTPERFORM Share gain and margin expansion lead to more upside EPS: ▲ TP: ▲ Jerry Su / Research Analyst / 886 2 2715 6361 / [email protected] Jimmy Huang / Research Analyst / 886 2 2715 6352 / [email protected]

● Due to reassignment of analyst responsibilities, Jerry Su assumes coverage of Elan with an OUTPERFORM rating and new TP of NT$92 (previously NT$62), based on 18x forward P/E, the average of its historical 13-25x range. Elan reported 1Q13 results after market close 23 April. 1Q13 EPS came in at NT$0.94 on 47.7% GM, ahead of both our and consensus estimates. Touch-related sales accounted for 65% of total sales in 1Q13 but mix for higher-margin touch controller IC increased to 33% of total sales from 29% in 4Q12.

● Elan guided 2Q13 shipments to grow by double digits QoQ on better seasonality and sales to reach a historical high. It also guided GM to remain flattish QoQ on better mix and cost reduction. We estimate 2Q13 sales to grow 19% QoQ with 48.3% GM.

● Elan is gaining share in NB touch as it has design wins from all NB brands. We forecast Elan will capture at least 45% of the NB touch controller IC market in 2013 as it leads its peers by 3-6 months on providing single chip solution. We believe NB and smartphone touch controllers will become the new growth drivers for Elan in 2013-15.

● We raise our 2013-14E EPS by 44-47% to reflect share gain in NB touch controller ICs and better GM on product mix shift.


1Q13 above CS/street on higher gross margin

Jerry Su assumes coverage of Elan due to reassignment of coverage responsibilities. Elan reported 1Q13 EPS of NT$0.94 (net profit NT$394 mn), ahead of both our and consensus estimates on higher gross margin (47.7% vs 42-46% estimates). Touch-related sales accounted for 65% of consolidated sales in 1Q13 but mix for higher-margin touch controller IC (40-50% gross margin) increased to 33% of total sales from 29% in 4Q12, while touch pad sales mix (~30% GM) declined to 32% from 35% in 4Q12. Win 8 touch controller IC shipment was up ~50% QoQ to 2.2 mn units mainly driven by Acer, Dell, and Sony. Elan said it booked higher opex in 1Q13 on more R&D headcounts and treasury shares related expenses, offset by ~NT$30 mn non-op gain on TWD depreciation.

Figure 1: 1Q13 earnings better than street expectation (NT$ mn) 1Q13A QoQ % YoY % CS old Diff.% Street Diff.%

Sales 1,866 (2) 21 1,859 0 1,841 1 Gross profit 891 8 47 782 14 856 4 Op. profit 412 9 69 398 4 420 (2) Net income 394 20 96 328 20 370 7 EPS (NT$) 0.94 20 94 0.79 20 0.89 6

Gross margin % 47.7 42.0 46.5 Op margin % 22.1 21.4 22.8 Net margin % 21.1 17.7 20.1

Source: Company data, Credit Suisse estimates, Bloomberg

Solid outlook for NB controller IC

Elan guided 2Q13 shipments to grow by double digits QoQ for all segments on better seasonality and sales to reach historical high (i.e., higher than NT$2 bn). It also expects gross margin to remain similar to 1Q13 level on better mix and cost reductions (more advanced nodes). NB touch pad shipments should grow double-digit QoQ and touch controller IC for smartphone and Win 8 NB to see stronger growth on share gain. It mentioned it has multiple new design wins for global NB brands for various sizes (11.6”, 13.3”, 14”, and 15.6”) in 2013. It believes demand from Lenovo will become its new driver in 2Q13 besides existing customers (Acer, Dell, Sony, Asus), and also sees new model ramps from other NB brands (Toshiba, HP, Samsung, etc.) in 2H13. Elan acknowledges the competition from global peers but said that it is gaining shares on better processing window, stable performance, and is ahead on single chip solution for compact design. It also believes that touch NB penetration could exceed 20% by 4Q13 given the aggressive promotion/subsidy by MSFT and Intel, as well as more NB touch capacity coming on-line by 2H13 from various touch suppliers.

Catching up on smartphone touch controller in China

Elan’s chairman admitted that it has been lagging behind peers (i.e., MStar, Focaltech, Goodix, etc.) in China’s whitebox smartphone market in 2011-12 but has now become more aggressive to promote its solutions with competitive pricing. Elan expects shipment to ramp up in 2Q13 for Sony and Coolpad, and potentially enter ZTE supply chain by 3Q13. It is developing new platforms for China whitebox smartphones and aims to catch up with peers on shipments by 2014.

Assume coverage with OUTPERFORM and TP of NT$92

We raise our 2013-14 EPS by 44-47% to reflect share gain in NB touch controller ICs and better GM on product mix shift. We assume coverage on Elan with an OUTPERFORM rating and a new TP of NT$92 (26% upside), based on 18x forward P/E, the average of its historical 13-25x range. Stock is trading at 14x 2013E P/E with ~4% dividend yield.

Figure 2: Quarterly P&L 2H12- FY13 NT$ mn 3Q12 4Q12 1Q13 2Q13E 3Q13E 4Q13E 2012 2013E

Revenue 2,036 1,908 1,866 2,215 2,805 2,505 7,367 9,390 Gross profit 859 825 891 1,069 1,367 1,171 2,996 4,497 Operating profit 384 378 412 567 829 676 1,332 2,484 Net profit 358 328 394 489 705 577 1,173 2,165 EPS (NT$) 0.86 0.78 0.94 1.14 1.65 1.35 2.81 5.08

Gross margin (%) 42.2 43.3 47.7 48.3 48.7 46.7 40.7 47.9 Op. margin (%) 18.9 19.8 22.1 25.6 29.6 27.0 18.1 26.4 Net margin (%) 17.6 17.2 21.1 22.1 25.1 23.0 15.9 23.1


Bbg/RIC 2458 TT / 2458.TW Rating (prev. rating) O (O) [V] Shares outstanding (mn) 428.23 Daily trad vol - 6m avg (mn) 8.9 Daily trad val - 6m avg (US$ mn) 16.5 Free float (%) 75.5 Major shareholders UMC (7.16%)

Price (23 Apr 13 , NT$) 73.30 TP (prev. TP NT$) 92.00 (62.00) Est. pot. % chg. to TP 26 52-wk range (NT$) 75.8 - 35.6 Mkt cap (NT$/US$ mn) 31,389.1/ 1,052.7



Year 12/11A 12/12A 12/13E 12/14E 12/15E

Revenue (NT$ mn) 5,445 7,367 9,390 10,118 10,715 EBITDA (NT$ mn) 424 1,503 2,653 2,896 3,186 Net profit (NT$ mn) 472 1,173 2,165 2,330 2,471 EPS (NT$) 1.13 2.81 5.08 5.44 5.77 - Change from prev. EPS %) n.a. n.a. 47 44 - Consensus EPS (NT$) n.a. n.a. 4.05 4.44 EPS growth (%) (32.9) 148.3 80.6 7.1 6.0 P/E (x) 64.7 26.1 14.4 13.5 12.7 Dividend yield (%) 1.4 4.1 5.9 6.3 6.8 EV/EBITDA (x) 67.8 18.7 10.0 9.0 8.1 P/B (x) 5.0 4.4 4.0 3.8 3.7 ROE (%) 7.6 17.9 29.0 28.9 29.6 Net debt(cash)/equity (%) (46.2) (48.1) (60.4) (62.7) (64.1)

Note1:Elan Microelectronics Corp. is principally engaged in the research, development, manufacture and marketing of integrated circuits (ICs) and microcontrollers..

https://rave.credit-suisse.com/research/company/financials?ric=2458.TW


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Recently Published Research

Date Title Author(s) Tel. E-mail

Wed 24 Apr C.P. All PCL - Return erosion causes valuation adjustment

Karim P. Salamatian, CFA Rebecca Kwee

852 2101 7996 852 2101 7951

[email protected] [email protected]

Tue 23 Apr China Oil Demand Monthly - March 2013: Gasoline continues to hold up

David Hewitt Horace Tse

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Tue 23 Apr LG Household & Healthcare - Strong 1Q13 results: all about execution

Sonia Kim Hayoung Chung

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Tue 23 Apr Public Bank - 1Q13 results below expectations; cash call uncertainty remains

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Mon 22 Apr Asia Equity Strategy - Reporting season scorecard: So far an upgrade of 0.8%

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Mon 22 Apr India Market Strategy - INR: Currency crisis? Unlikely for now

Neelkanth Mishra Ravi Shankar

91 22 6777 3716 91 22 6777 3869


Companies mentioned

Acer Group (2353.TW, NT$23.75) Airports of Thailand (AOT.BK, Bt137.0, NEUTRAL, TP Bt115.0) Apple Inc (AAPL.OQ, $398.67) Asustek (2357.TW, NT$334.5, NEUTRAL, TP NT$380.0) Australand (ALZ.AX, A$3.5, NEUTRAL, TP A$3.56) BMW (BMWG.F, €65.669) Bucyrus (BUCY.OQ^G11, $92.0) C.P. All PCL (CPALL.BK, Bt43.5, UNDERPERFORM, TP Bt35.0) CapitaLand (CATL.SI, S$3.53) Caterpillar Inc. (CAT.N, $82.71, OUTPERFORM, TP $103.0) China Oilfield Services Ltd (2883.HK, HK$14.52, NEUTRAL, TP HK$14.5) China Overseas Land & Investment (0688.HK, HK$23.5, NEUTRAL, TP HK$20.5) China Petroleum & Chemical Corporation - H (0386.HK, HK$8.26, NEUTRAL, TP HK$8.9) China Power International (2380.HK, HK$2.69, OUTPERFORM, TP HK$3.0) China Resources Power Holdings (0836.HK, HK$24.45, OUTPERFORM, TP HK$28.0) China Vanke Co Ltd-A (000002.SZ, Rmb11.69, OUTPERFORM, TP Rmb14.3) China Vanke Co Ltd-B (200002.SZ, HK$16.3) Chinatrust Financial Holding (2891.TW, NT$17.7) CNOOC Ltd (0883.HK, HK$13.78, OUTPERFORM, TP HK$20.2) Daimler (DAIGn.DE, €39.525) Datang International Power Generation Co. Ltd. (0991.HK, HK$3.3, NEUTRAL, TP HK$3.56) Dell Inc. (DELL.OQ, $13.24) Elan Microelectronics Corp (2458.TW, NT$73.3, OUTPERFORM[V], TP NT$92.0) GPT Group (GPT.AX, A$4.08) Hewlett Packard (HPQ.N, $19.76) Hitachi Construction Machinery (6305.T, ¥2,167, NEUTRAL, TP ¥2,300) Huadian Power (1071.HK, HK$3.97) Huaneng Power International Inc (0902.HK, HK$8.37, OUTPERFORM, TP HK$9.0) Insurance Australia Group (IAG.AX, A$5.69, NEUTRAL, TP A$5.75) Intel Corp. (INTC.OQ, $22.88) James Hardie Industries SE (JHX.AX, A$9.68, NEUTRAL, TP A$10.0) Japan Exchange Group (8697.T, ¥11,850, NEUTRAL[V], TP ¥11,500) Komatsu (6301.T, ¥2,508, OUTPERFORM, TP ¥2,700) Lenovo Group Ltd (0992.HK, HK$7.04) Malaysia Airports (MAHB.KL, RM5.8, OUTPERFORM, TP RM6.8) Mapletree Industrial Trust (MAPI.SI, S$1.56, NEUTRAL, TP S$1.7) Mcleod Russel India Ltd. (MCLE.NS, Rs309.8, OUTPERFORM, TP Rs400.0) Mega Financial Holding Co Ltd (2886.TW, NT$23.25, NEUTRAL, TP NT$24.0) Microsoft Corporation (MSFT.OQ, $30.8) Mstar Semiconductor (3697.TW, NT$248.0) Newcrest Mining (NCM.AX, A$16.45, OUTPERFORM, TP A$24.2) Oil Search (OSH.AX, A$7.3, OUTPERFORM, TP A$8.6) PetroChina (0857.HK, HK$9.41, NEUTRAL, TP HK$10.7) Ping An Bank (000001.SZ, Rmb19.08, NEUTRAL, TP Rmb20.5) PT Astra Agro Lestari Tbk (AALI.JK, Rp17,750, OUTPERFORM, TP Rp21,950) PT Tambang Batubara Bukit Asam Tbk (PTBA.JK, Rp15,300, OUTPERFORM, TP Rp18,000) Public Bank (PUBMe.KL, RM16.34, NEUTRAL, TP RM17.5) Samsung Electronics (005930.KS, W1,483,000) Siam Makro PCL (MAKR.BK, Bt682.0) Sony (6758.T, ¥1,625) Swiss Re (SRENH.VX, SFr69.55) Tata Motors Ltd. (TAMO.BO, Rs285.3, OUTPERFORM, TP Rs365.0) Toshiba (6502.T, ¥526) United Bank Limited (UBL.KA, PRs87.69, NEUTRAL, TP PRs82.0) United Tractors (UNTR.JK, Rp18,200, OUTPERFORM, TP Rp26,000) ZTE Corporation (0763.HK, HK$12.02)


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Disclosure Appendix

Important Global Disclosures

The analysts identified in this report 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.

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 ra tings 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 attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American 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; Australia, New Zealand are, and 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, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Pr ior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

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.

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* 43% (53% banking clients)

Neutral/Hold* 39% (47% banking clients)

Underperform/Sell* 15% (40% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other indivi dual 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.


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Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

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 http://www.csfb.com/legal_terms/canada_research_policy.shtml.

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.

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.

Please find the full reports, including disclosure information, on Credit Suisse's Research and Analytics Website (http://www.researchandanalytics.com)

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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.

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-part data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.

CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.


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Companies Mentioned (Price as of 23-Apr-2013)

Industrial Bank (601166.SS, Rmb18.22, NEUTRAL, TP Rmb18.8) Wuliangye (000858.SZ, Rmb22.18, NEUTRAL, TP Rmb23.11)

Disclosure Appendix

Important Global Disclosures

The persons primarily responsible for this research report certify that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject companies and securities and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Price and Rating History for Industrial Bank (601166.SS)

601166.SS Closing Price Target Price

Date (Rmb) (Rmb) Rating

15-Oct-12 12.18 11.53 U *

28-Nov-12 12.58 12.15

14-Jan-13 17.27 18.80 N

* Asterisk signifies initiation or assumption of coverage.

U N D ERPERFO RM

N EU T RA L

Price and Rating History for Wuliangye (000858.SZ)

000858.SZ Closing Price Target Price

Date (Rmb) (Rmb) Rating

25-Sep-11 36.43 49.61 O

26-Sep-11 35.75 *

31-Oct-11 36.69 47.35 O

22-Dec-11 34.00 40.59

29-Mar-12 33.82 45.22

20-Apr-12 33.97 45.09

05-Jun-12 32.78 40.37

09-Aug-12 37.46 40.67

20-Aug-12 34.85 43.15

19-Dec-12 27.79 33.65

03-Apr-13 21.95 23.11 N

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

N EU T RA L

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 analyst within the relevant sector , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American 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; Australia, New Zealand are, and 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 relat ive attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.


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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.

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* 43% (53% banking clients)

Neutral/Hold* 39% (47% banking clients)

Underperform/Sell* 15% (40% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, 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.

Price Target: (12 months) for Industrial Bank (601166.SS)

Method: We adopted the Gordon Growth Model to derive the fair value of China Industrial Bank. Our 12-month target price of Rmb18.8 for CIB was derived from 1.27x forward price-to-book or 6.7x forward price-to-earnings. We used a mid-term ROE of 18.9% and cost of equity of 15.9% (beta of 1.40) and a long-term growth of 5%.

Risk: Risks to our target price of Rmb18.8 on China Industrial Bank include higher-than-expected loan growth through business line restructuring, delivery of stronger-than-expected margin performance from lending / interbank business, better fee growth through diversified financial services. Downside risks include slowing economic growth influencing loan growth and asset quality, and regulatory risk on lending-in-guise business.

Price Target: (12 months) for Wuliangye (000858.SZ)

Method: At a single-digit growth rate, we believe that PEG (price-to-earnings growth) understates the value of the company; hence, we use a DCF (discounted cash flow) valuation. Applying a 12.3% WACC (weighted average cost of capital) and 2% terminal growth rate, we derive our target price of Rmb23.11 for Wuliangye, implying 5% potential upside.

Risk: The primary risks to our target price of Rmb23.11 for Wuliangye include: (1) Plasticizer risk; (2) intensifying competition; (3) less than expected economy recovery; and (4) the possibility that the vintage concept may be perceived as misleading.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (601166.SS) 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 (601166.SS) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (601166.SS) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (601166.SS) within the past 12 months.


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Credit Suisse has received investment banking related compensation from the subject company (601166.SS) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (601166.SS) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (601166.SS) within the past 12 months

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 have not visited the material operations of the subject company (601166.SS, 000858.SZ) within the past 12 months

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 http://www.csfb.com/legal_terms/canada_research_policy.shtml.

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.

The non-U.S. persons, Credit Suisse Asia Eq. Res., Vincent Chan, Tian Liu, Yingying Yang are not registered/qualified as research analysts with FINRA. They are not associated persons of CSSU and therefore are not subject to 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 Founder Securities Limited is a joint venture established in the People's Republic of China between Credit Suisse AG and Founder Securities Co, Ltd.

See the Companies Mentioned section for full company names

Credit Suisse Founder Securities expects to receive or intends to seek investment banking related compensation from the subject company (601166.SS) within the next 3 months.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.


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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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