Equity Research Reports… - CIMB · Strategy Note - 2017 Budget – more winners than losers...

Equity research│October 24, 2016

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Asia Pacific Daily – 24 October 2016

Equity Research Reports…

▌IDEA OF THE DAY | Malaysia

Economic Update - Budget 2017: A tight balancing act | P2 No major surprises in Budget 2017, as the government’s commitment to a sustainable fiscal path and macro stability limited the budget deficit to 3% of GDP. First opex expansion in three years, as higher oil prices and successive rounds of subsidy rationalisation freed up fiscal room. Development expenditure for 2017 was slightly higher than the 2016 allocation. Focus areas were infrastructure spending, SMEs, civil service, addressing the cost of living for B40, affordable housing and rural development. Economic expansion in 2017 to be underpinned by domestic demand and a recovery in exports, with the government forecasting GDP growth of 4.0-5.0%. Strategy Note - 2017 Budget – more winners than losers but… | P3 The key surprise is the reduction in the corporate tax rate for companies that post higher earnings and plans to boost trading activities of small- to mid-cap stocks. We estimate that the lower tax rate could boost corporate earnings by 0.1-0.3%. Sector winners include the consumer, construction, auto and REIT sector. Key losers are the telco and healthcare sectors. Maintain end-2016 and end-2017 KLCI target of 1,730 and 1,880 pts (16x P/E). ——————————————————————————————————————————————————————————————————————————————————————— ▌Australia Healthscope (ADD, tp:A$2.90▼) - In ER…but long-term prognosis remains good | P4 OZ Minerals (HOLD, tp:A$5.95▼) - Agility in the face of adversity | P5 PWR Holdings (HOLD▼, tp:A$3.15▼) - Currency headwinds | P6 ——————————————————————————————————————————————————————————————————————————————————————— ▌India HCL Technologies (ADD, tp:Rs970.00▲) - Healthy earnings visibility during uncertain times | P7 LIC Housing Finance (ADD, tp:Rs680.00▲) - 2QFY17 results: falling rates aid profitability | P8 Reliance Industries (HOLD, tp:Rs1,100.00) - All eyes on Jio | P9 Wipro (HOLD, tp:Rs510.00▼) - Organic sales growth challenges continue | P10 ——————————————————————————————————————————————————————————————————————————————————————— ▌Indonesia Indofood Sukses Makmur (ADD, tp:Rp10,500.00) - A nod of approval from the shareholders | P11 Construction (OVERWEIGHT) - Jakarta MRT visit note | P12 ——————————————————————————————————————————————————————————————————————————————————————— ▌South Korea Cosmax Inc (ADD, tp:W185,000.00▼) - Rights offering to facilitate capacity expansion and bolster financial structure | P13 LG Electronics (ADD, tp:W65,000.00▼) - Restructuring to reduce smartphone losses | P14 ——————————————————————————————————————————————————————————————————————————————————————— ▌Malaysia CapitaMalls Malaysia Trust (HOLD, tp:RM1.65) - No catalysts in sight for now | P15 ——————————————————————————————————————————————————————————————————————————————————————— ▌Singapore Cache Logistics Trust (REDUCE, tp:S$0.80) - 3Q16: devaluation loss of S$36.1m | P16 CapitaLand Mall Trust (HOLD, tp:S$2.20) - Plodding along | P17 City Developments (ADD, tp:S$10.40▲) - Establishes residential PPS | P18 Frasers Centrepoint Trust (ADD, tp:S$2.28▲) - Continued volatility from NP AEI | P19 ——————————————————————————————————————————————————————————————————————————————————————— ▌Sri Lanka LB Finance PLC - Quarterly Earnings Review on LB Finance PLC (LFIN) | P20 ——————————————————————————————————————————————————————————————————————————————————————— ▌Taiwan Adlink (REDUCE, tp:NT$57.00▼) - 3Q16F preview: Street numbers still too high | P21 ——————————————————————————————————————————————————————————————————————————————————————— ▌Thailand Bangkok Bank (HOLD, tp:THB166.00) - 3Q16 earnings in line with poorer asset quality | P22

Sources: CIMB. COMPANY REPORTS

Showcasing CIMB Research Ideas

HKG: Q Technology (Group) Company Ltd 20/10 Dual engines to drive growth >PDF

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IND: United Tractors 19/10 A stronger turnaround in 2017 >PDF

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MAL: MRCB-Quill REIT 18/10 Expanding footprint in the ‘Sentral’ heart of KL >PDF

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KRW: Banks 18/10 A game of asset yields >PDF

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IN: Infosys 16/10 Strong showing, on the right path >PDF

Regional Equity Research Contacts

Michael GREENALL, CFP Regional Head of Research T: (60) 3 2261 9088 E: [email protected]

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CIMB Conference / Events |

CIMB 9th Annual Malaysia Corporate Day 05 January 2017 – Malaysia – Kuala Lumpur

http://www.efa.biz/

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https://brokingrfs.cimb.com/Frb9EjdvAi44btdMbWzgDX3ghMviSRXmnUvoHlfljgCuu1K-5Nt0zPE-GhakhYv4uheDR9HhuT24jAqS0.pdf

https://brokingrfs.cimb.com/yU8fTdBGRlDHPFcBywCCwZ6o2cZOKCx2SnjPbvnDrnOAzzpQn_FYpfx9itZJFLIm_H3rRowh_l806MFO0.pdf

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https://www.conference.cimb.com/calendar/

Malaysia│Economics Update│October 23, 2016

Economics Note



Economics Update Budget 2017: A tight balancing act

No major surprises in Budget 2017, as the government’s commitment to a ■sustainable fiscal path and macro stability limited the budget deficit to 3% of GDP.

First opex expansion in three years, as higher oil prices and successive rounds of ■subsidy rationalisation freed up fiscal room.

Development expenditure for 2017 was slightly higher than the 2016 allocation. ■ Focus areas were infrastructure spending, SMEs, civil service, addressing the cost ■of living for B40, affordable housing and rural development.

Economic expansion in 2017 to be underpinned by domestic demand and a ■recovery in exports, with the government forecasting GDP growth of 4.0-5.0%.

A prudent budget amid revenue constraints By setting a fiscal deficit target of -3.0% of GDP in Budget 2017 (vs. -3.1% of GDP in 2016), the government reiterated its commitment to fiscal prudence. The 2017 target marks the eighth straight year of narrowing the budget shortfall. The government’s path to achieving its eventual goal of a balanced budget by 2020 has been set back by the sharp decline in global oil prices since the latter half of 2014. The rationalisation of subsidies and other areas of spending have helped to bridge the gap and reduce reliance on oil-related revenue, but leave minimal fiscal room for the government to intervene if growth slows significantly. Nevertheless, we think investors and the credit rating agencies will view Budget 2017 favourably as a step in the right direction.

Key themes: Infrastructure, B40 and SMEs Infrastructure spending is a recurring theme that will benefit the construction sector, with the centerpiece announcement in Budget 2017 being the RM55bn East Coast Rail Line. Particular focus was also paid to addressing the concerns of lower income households, the civil service and segments of the population sidelined by economic progress in recent years, through cash transfers, assistance to vulnerable groups, affordable housing policies and rural development. An innovative tiered corporate tax reduction for 2017 and 2018, as well as a tax cut for small and medium enterprises (SMEs) in 2017 should provide minor relief to businesses. We believe the decision to maintain cooling measures for the property sector was prudent to keep speculative buying at bay.

Living within one’s means The Treasury targets modest revenue growth (+3.4% to RM219.7bn in 2017 vs. RM212.6bn in 2016), boosted by higher oil prices and a quicker pace of economic expansion. This is matched by a 3.4% uptick in total expenditure to RM260.8bn in 2017 (vs. RM252.1bn in 2016). Operating expenditure is estimated at RM214.8bn or 16.2% of GDP and development expenditure at RM46.0bn or 3.5% of GDP in 2017. Federal government debt stood at 53.2% of GDP as at Jun 2016 after hovering close to the government’s self-imposed 55% ceiling (54.5% of GDP in end-2015). This was partly due to the corporatisation of the Treasury Housing Loan Division into the Public Sector Home Financing Board (LPPSA), which shaved 1.8% pts from the debt-to-GDP ratio.

Cautiously optimistic on 2017 outlook The Treasury estimates the economy will grow at 4.0-5.0% in 2017 (4.0-4.5% in 2016), fuelled by domestic demand and a turnaround in exports. Inflationary pressures would remain under control in the range of 2.0-3.0% in 2017, marginally higher than the 2.0-2.5% in 2016. The Treasury expects the current account to remain in surplus in 2017 at RM14.8bn or 0.5-1.5% of GNI, although smaller than in 2016 (RM16.4bn or 1.0-1.5% of GNI).

X#

Figure 1: Macro snapshot

SOURCE: MOF, CIMB RESEARCH

▎Malaysia

Economist(s)

Michelle CHIA

T (60) 3 2261 9097 E [email protected]

2015 2016E 2017B

Real GDP growth (%) 5.0 4.0 - 4.5 4.0 - 5.0Headline inflation (%) 2.1 2.0 - 2.5 2.0 - 3.0Unemployment rate (%) 3.1 3.3 3.2Fiscal balance (% of GDP) -3.2 -3.1 -3.0Government debt-to-GDP ratio (%) 54.5 53.2 -Current account balance (RM bn) 34.7 16.4 14.8Current account balance (% of GNI) 3.1 1.0 - 1.5 0.5 - 1.5

◄------- Ministry of Finance --------►

2

Malaysia│Equity research│October 21, 2016

Strategy Note



Malaysia Strategy 2017 Budget – more winners than losers but…

The key surprise is the reduction in the corporate tax rate for companies that post ■higher earnings and plans to boost trading activities of small- to mid-cap stocks.

We estimate that the lower tax rate could boost corporate earnings by 0.1-0.3%. ■ Sector winners include the consumer, construction, auto and REIT sector. ■ Key losers are the telco and healthcare sectors. ■ Maintain end-2016 and end-2017 KLCI target of 1,730 and 1,880 pts (16x P/E). ■

A prudent budget with a neutral impact on market We view the 2017 Budget to be relatively neutral on the stock market. The lower tax rate on corporates that deliver higher chargeable income in 2017 and 2018, as well as proposal to boost trading activities in small- to mid-cap stocks, are offset by the announcement that fixed line broadband service providers have to offer services at a higher speed for the same price in 2017, as well as a lower budget for drugs.

Lower tax rate for high growth companies A new tax scheme will be implemented for 2017 and 2018, where companies will enjoy a reduction of 1-4% pts in the tax rate for increase in chargeable income of 5% or more. We estimate that this could potentially boost our market earnings estimates by 0.3% for 2017 and 0.1% for 2018. Sectors that are projected to deliver strong earnings growth in 2017 and 2018 are auto, commodities, conglomerates, construction, transport and services.

Boosting interest in small- to mid-cap stocks A small and mid-cap plc research scheme will be introduced to conduct research on 300 companies and government-linked investment companies will allocate a special fund of up to RM3bn to fund managers to invest in potential small and mid-cap companies. This should help to boost awareness and interest in small-to mid-cap stocks. Our top picks in this space are Prestariang, My EG and OWG.

Key winners from the Budget The consumer and REIT sectors will benefit from the increase in BR1M assistance by RM50-100 to RM450 and RM1,200 and push to boost tourism activities in the country. This could help to boost consumer spending. Construction will gain from RM99bn worth of jobs mentioned in the budget and auto will gain from grants for new taxi purchases.

Telco is the key loser from the Budget The announcement that fixed line broadband service providers need to offer services at a higher speed for the same price, effective Jan 2017, will cap upselling opportunities for Telekom Malaysia. The other proposal for the speed to double while the price to be reduced by 50% for 5Mbps packages could hit our FY19 revenue forecasts by 2.2%.

Maintain sector and stock preferences While numerically there are more winners than losers, the impact on their bottomlines are minimal. We maintain our end-2016 KLCI target of 1,730 pts and end-2017 target of 1,880 pts (based on 16x P/E). We continue to like construction, utilities, banking and small-cap sectors.

[ X ]

Figure 1: 2017 Budget impact on sectors

SOURCES: CIMB RESEARCH, COMPANY

▎Malaysia

Highlighted companies

DRB-Hicom ADD, TP RM1.69, RM1.39 close

First-car buyers in the B40 group will get to enjoy a RM4,000 rebate, on top of being able to use the BR1M payout as down payment for the purchase of the Proton Iriz. This is positive news for Proton and DRB-Hicom. Only World Group Holdings ADD, TP RM4.36, RM2.38 close

Owg is a proxy for tourism in Penang. We expect Komtar to open by mid-Dec 2016. We estimate 1m visitors a year to Komtar, which is only c.20% of annual tourists to Penang. In addition, the opening of the 20th Century Fox theme park at end-2017 will further boost visitation to Genting Highlands. Telekom Malaysia HOLD, TP RM6.70, RM6.70 close

The budget announcement that fixed line broadband service providers have to offer services at a higher speed for the same price, effective Jan 2017, and proposal for the speed to double and price to be reduce by 50% for the 5Mbps package could lower our FY19 revenue forecasts by 2%.

Analyst(s)

Ivy NG Lee Fang, CFA


Sector Impact Comments

Agribusiness Neutral No changes to windfall taxAutos Positive Grants for new taxis and rebates for Proton Iriz (B40, first buyers)

Aviation Positive Mildly positive impact from the introduction of eVisa facility to the South Asian region

Banks Neutral Minimal impact from the change in stamp duty for propertyBrewers Neutral No impact Construction Positive RM99bn worth of jobs (45% to directly benefit smaller contractors)Consumer Positive To benefit from increased BR1M and government focus on tourism Education Positive Prestariang's university should benefit from RM2bn scholarship to MARAGaming Neutral No change in gaming taxes

Healthcare Negative Lower budget for drugs will impact pharmaceutical players that rely on supplying drugs to government healthcare facilities

Media Neutral No impact

Property Neutral Higher loan eligibility for government housing loan offsets the negative impact of higher stamp duty

REIT Positive To benefit from government's focus on boosting tourism

Rubber gloves Neutral Positives from lower income tax are offset by no change in current reinvestment allowance

Semiconductor Positive Lower income tax and supply chain benefits from Osram investmentShipping Neutral No impact

Telecommunications Negative Higher broadband speeds for the same price could cap up-selling opportunities for TM

Tobacco Neutral No impact Utilities Neutral No mention of changes in electricity and gas tariffs

3

Hospitals│Australia│Equity research│October 23, 2016

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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Healthscope

In ER…but long-term prognosis remains good

Increased 1Q variability in Hospital volumes/case mix has seen HSO warn of soft ■divisional revenue growth and flat divisional growth if the trend continues through FY17.

Negative publicity around affordability and consumer confidence was cited as the ■main cause of weakness, with October looking likely to improve and no fundamental change in industry dynamics.

While noting some ambiguity, along with the need for further case-mix ■optimisation, makes the near-term outlook uncertain and will likely take time for shares to recover, we continue to view core industry drivers as intact, brownfields on track, capital structure secure and contract pricing stable.

We have adjusted our FY17-19 earnings estimates, with our DCF/SOTP target ■price declining to A$2.90. We maintain our Add rating.

1Q Hospital revenues hit by variability in volumes/case mix HSO has warned of slower than expected 1Q Hospital revenue growth, flagging increased volumes/case mix variability, with a soft July, improvement in August, but a “horrendous” September. A general slowdown in the rate of growth was seen across a number of hospitals, along with local operating issues and public hospitals chasing higher volumes from private patients. However, management contends that the main culprit for 1Q weakness was negative publicity in terms of affordability and consumer confidence, leading to a case-mix shift and fall in high-end surgical procedures (eg orthopedics, ophthalmology). Management believes volatility is short term (October appears to be tracking better), has put in strategies to better manage for lower growth (eg improved rostering) and remains confident industry fundamentals have not changed.

A ‘temporary hiccup’ or something more chronic? The admission of slower 1Q Hospital growth caught us (and the market) by surprise as FY16 performance showed strong resilience (EBITDA +8.3%; 2H +7%) despite well-flagged and ongoing media-sensationalised sector/consumer ills. Importantly, as September is historically a weak month, flagging the potential for an extended period of weakness seems a bit premature, in our view. While noting these ambiguities and lack of visibility around how 1Q softness will be recovered in subsequent quarters, we believe longer-term concerns around operations/execution may be misplaced, but would like to see further initiatives to better manage case-mix to ensure revenue and margin opportunities are maximised. Importantly, we view the core industry drivers as intact, the brownfield pipeline on track, capital structure secure and contract pricing stable.

A conservative approach to forecasts We have lowered our FY17 Hospital division per patient revenue assumptions by 250bp (to 2.5%) and taken 200bp off FY18-19 estimates. However, our brownfield assumptions remain unchanged (762 beds; 43 operating theatres by the end of FY19). These changes see our FY17-19 net profit decline by up to 12.2%.

Investment view - take time to recover…long-term prognosis good Although we expect lingering confidence concerns to weigh on shares in the near term, our medium/long-term positive stance remains unchanged.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

ADD (no change) Current price: A$2.38 Target price: A$2.90 Previous target: A$3.40 Up/downside: 21.8% Reuters: HSO.AX Bloomberg: HSO AU Market cap: US$3,141m A$4,130m Average daily turnover: US$17.75m A$23.36m Current shares o/s 1,734m Free float: 62.0%

Price performance 1M 3M 12M

Absolute (%) -22 -19.9 -9.2 Relative (%) -23.7 -18.4 -12.7 Dr Derek JELLINEK

T (61) 2 9043 7904 E [email protected] Scott POWER


Financial Summary Jun-15A Jun-16A Jun-17F Jun-18F Jun-19F

Revenue (A$m) 2,157 2,291 2,370 2,541 2,781Operating EBITDA (A$m) 380.8 407.9 408.5 463.5 531.1Net Profit (A$m) 153.7 182.8 186.6 217.4 254.7Normalised EPS (A$) 0.09 0.12 0.11 0.13 0.15Normalised EPS Growth (36.0%) 25.0% (6.5%) 16.5% 17.2%FD Normalised P/E (x) 25.84 20.67 22.12 18.99 16.20DPS (A$) 0.07 0.07 0.08 0.09 0.10Dividend Yield 2.94% 3.11% 3.15% 3.70% 4.29%EV/EBITDA (x) 13.07 13.01 13.53 12.01 10.46P/FCFE (x) NA 25.91 67.73 44.11 22.19Net Gearing 41.6% 54.1% 57.7% 57.8% 55.7%P/BV (x) 1.70 1.74 1.70 1.65 1.60ROE 11.3% 8.3% 7.8% 8.8% 10.1%% Change In Normalised EPS Estimates (12.2%) (9.7%) (8.3%)Normalised EPS/consensus EPS (x) 0.89 0.94 0.96

85.091.798.3105.0111.7118.3125.0

2.002.202.402.602.803.003.20

Price Close Relative to S&P/ASX 200 (RHS)

Source: Bloomberg

100200300400

Oct-15 Jan-16 Apr-16 Jul-16

Vol m

4

Mining│Australia│Equity research│October 21, 2016


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OZ Minerals

Agility in the face of adversity

While very well managed, effectively the SA power outage has trimmed CY16 gold ■output by ~10% and removed the potential for OZL to target the high end of its CY16 copper guidance.

Our only changes relate to the lowering of CY16 gold production guidance which ■has trimmed our CY16 EPS and our NPV slightly.

OZL has retreated 17% from its 12-month highs reached in August, but does not ■yet offer enough upside to our revised valuation to warrant any change to our recommendation. Maintain Hold.

The November update to life-of-mine plan and mining strategy at Prominent Hill ■shapes as an important milestone for us in the context of mine life and cash flow from OZL’s core asset.

Power outage impact contained OZL suffered 2 days of lost production in the 3Q and 12 days in the 4Q, representing 14% of planned 4Q availability. Production losses were limited by emergency on-site diesel generation allowing the underground to campaign and stockpile high grade copper stopes/ore. We flush the lower gold guidance through our numbers. While copper guidance was maintained, effectively the outage removes the potential for OZL to shoot for the top of CY16 copper guidance.

Agility in the face of adversity We were impressed with OZL management’s agility during a difficult quarter which included South Australia’s eighth wettest winter on record. Consistent copper output demonstrates good production flexibility (third decline access/stockpiling) and the conservatism of guidance. Efficiency improvements (processing, sumps, roadways) and the focus on procurement savings delivered a reduction in C1 costs to 71 USc despite the interruptions. Preventative mill maintenance was also brought forward. OZL’s impressive mitigation of the 14 day outage doesn’t change the fact that future risks to the stability of power supply need to managed as a priority.

Changes to forecasts Slight downward revisions to our EPS forecasts (mainly CY16) relate only to lower gold output while the negative impact to valuation is offset slightly by recent improvement in the value of OZL’s investments. Our DCF based valuation revises to $5.95ps (from $6.00).

Investment view OZL offers excellent cash flow leverage to attractive longer term copper market dynamics. We think that OZL’s strong balance is a differentiator that offers good downside protection, but we’re cautious on OZL’s enthusiasm to develop Carrapateena despite the project looking marginal (risky) at current copper prices. OZL has retreated 17% from its 12-month highs reached in August, but does not yet offer enough upside to our revised valuation to warrant any change to our recommendation. Maintain Hold.


▎Australia

HOLD (no change) Current price: A$5.89 Target price: A$5.95 Previous target: A$6.00 Up/downside: 1.0% Reuters: OZL.AX Bloomberg: OZL AU Market cap: US$1,363m A$1,780m Average daily turnover: US$10.68m A$14.06m Current shares o/s 303.5m Free float: 82.9%


Absolute (%) -3.6 -10.9 51 Relative (%) -6.2 -10 47.1 Tom SARTOR


Financial Summary Dec-15A Dec-16F Dec-17F Dec-18F Dec-19F

Revenue (A$m) 879.4 796.2 923.0 872.5 800.7Operating EBITDA (A$m) 471.9 340.2 358.6 318.6 264.0Net Profit (A$m) 130.2 68.4 103.5 91.9 92.2Normalised EPS (A$) 0.43 0.31 0.34 0.30 0.30Normalised EPS Growth 330% (28%) 10% (11%) 0%FD Normalised P/E (x) 13.73 19.03 17.27 19.44 19.38DPS (A$) 0.20 0.12 0.12 0.12 0.12Dividend Yield 3.40% 2.04% 2.04% 2.04% 2.04%EV/EBITDA (x) 2.62 3.59 3.27 3.68 4.23P/FCFE (x) 5.07 16.11 20.77 48.13 19.34Net Gearing (23.6%) (24.4%) (25.8%) (25.2%) (26.9%)P/BV (x) 0.76 0.77 0.75 0.73 0.72ROE 5.67% 4.03% 4.40% 3.81% 3.74%% Change In Normalised EPS Estimates (11.8%) (0.3%) (0.3%) (0.3%)Normalised EPS/consensus EPS (x) 1.04 1.02 1.16 1.97

85

107

129

152

174

3.00

4.00

5.00

6.00

7.00


Source: Bloomberg

2468


Vol m

5

Auto & Parts - Overall│Australia│Equity research│October 21, 2016


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PWR Holdings Limited

Currency headwinds

PWH’s AGM provided limited surprises for investors, with no specific outlook ■commentary given. However, PWH did call out headwinds from FX with the AUD strengthening 23% against the GBP on the pcp from 0.4691 to 0.5767.

On the back of updated FX assumptions our FY17 NPAT forecast falls by 35%. We ■note however that our underlying growth assumptions remain unchanged given the good organic growth momentum in the business.

We continue to believe FY18 and FY19 will be strong growth years for PWH ■supported not only by organic growth but also yet to be won OEM contracts, which would bolster our FY18/19 forecasts.

Post rolling forward our blended valuation to FY18F, our price target falls to A$3.15 ■and we downgrade our rating to Hold (from Add).

FY17 an investment year PWH remains focused on delivering organic growth in both motorsports and automotive after-market. The company also noted that despite the strengthening AUD it was able to deliver organic growth in the first quarter. PWH continues to be “resource ready” with the purchase of a new CNC machine, which will help the group cater for the growing tanking opportunities it is seeing. PWH is also investing in a second production facility in the US, which will support longer run jobs, particularly OEM contracts. This will leave the Australian facility to continue to manufacture bespoke cooling solutions, or shorter run products. We note that PWH will continue to keep all engineering, testing and design in Australia. We estimate the new facility will require an additional A$5m of capex in FY17, which we have now included in our forecasts. More OEM contracts to come PWH announced that it has secured a new 3 cooler, 4 year OEM project in the US. In our view, this is a solid contract that will have some positive impact on FY17 but will contribute more meaningfully over the coming years. The group indicated that niche OEM development is increasing and PWH is "increasingly getting a seat at the table". We believe PWH remains well placed to continue to secure additional OEM contracts with a number of manufacturers like McLaren, Red Bull/Aston Martin, Porsche and Ferrari all looking to release supercars over coming years. As such, we think PWH should be in a position to announce further OEM contracts over the coming 6 months. Investment view – downgrade to Hold (from Add) Despite the strong underlying organic growth in the business, we expect currency headwinds to result in a reduction in earnings in FY17. We are conscious of PWH's GBP exposure and the group's ability to push through enough price rises to offset the continued weakening of the currency. However, we do view FY17 as an investment year that will position the company for strong growth in future years. Given the short term headwinds and on the back of FX-related earnings downgrades, our equally-blended (DCF, PE, EV/EBITDA) target price falls to A$3.15 (from A$3.26). With a 12-month total shareholder return of -5%, we downgrade our rating to Hold (from Add).


▎Australia

HOLD (previously ADD) Current price: A$3.33 Target price: A$3.15 Previous target: A$3.47 Up/downside: -5.5% Reuters: PWH.AX Bloomberg: PWH AU Market cap: US$254.9m A$333.0m Average daily turnover: US$0.25m A$0.33m Current shares o/s 100.00m Free float: 54.5%


Absolute (%) 6.4 17.3 Relative (%) 4.7 18.8 Alexandra CLARKE

T (61) 2 9043 7905 E [email protected] Alexander LU, CFA


Financial Summary Jun-15A Jun-16A Jun-17F Jun-18F Jun-19F

Revenue (A$m) 32.63 47.35 48.15 58.36 65.65Operating EBITDA (A$m) 12.09 16.92 13.00 19.84 21.53Net Profit (A$m) 8.47 10.84 8.30 13.10 14.20Normalised EPS (A$) 0.08 0.11 0.08 0.13 0.14Normalised EPS Growth 42.4% 27.9% (23.5%) 57.8% 8.4%FD Normalised P/E (x) 39.30 30.72 40.13 25.43 23.46DPS (A$) - 0.044 0.034 0.053 0.058Dividend Yield 0.00% 1.33% 1.02% 1.59% 1.74%EV/EBITDA (x) 29.41 19.23 25.09 16.13 14.51P/FCFE (x) 39.6 NA 106.5 32.1 25.0Net Gearing 425% (21%) (17%) (30%) (41%)P/BV (x) 63.33 9.07 8.08 7.68 6.57ROE 322% 52% 21% 31% 30%% Change In Normalised EPS Estimates (29.2%) (11.4%) (15.8%)Normalised EPS/consensus EPS (x) 0.64 0.82 0.79

88

116

144

172

200

1.30

1.80

2.30

2.80

3.30

3.80


Source: Bloomberg

5

10

15

Nov-15 Feb-16 May-16 Aug-16

Vol m

6

IT Services│India│Equity research│October 22, 2016

Company Note



HCL Technologies Healthy earnings visibility during uncertain times

HCLT’s 2.8% qoq (12.8% yoy) growth in US$ sales in constant currency (CC) in ■2QFY17 was largely in line with our expectation.

EBIT margin performance was better than expected despite headwinds. ■ Maintaining FY17 sales/margin guidance (excl. Geometric, Butler America and new ■IP partnership with IBM) indicates much better earnings visibility than peers.

1HFY17 PAT was 50.3% of our FY17F forecast, above expectations on the back of ■higher-than-expected margins and other income.

We tweak up our FY17-19F EPS estimates by 0.6-1.0% and Maintain Add rating. ■Sales growth remains higher than most peers even in 2QFY17 HCLT’s 2.8% qoq growth in US$ sales in CC was higher than TCS’s 1% growth, Wipro IT Services’ 0.9% growth but lower than Infosys’s 3.9% (Infosys’s export growth lower at 3%). This again was led by strong growth in IMS at 4.4% (on base of organic growth of 10% in 1QFY17). Growth in software services (ex. engineering/R&D services) remains a bit sluggish at 1.4% while engineering/R&D services grew by 2.3%.

Margin performance again better than expected in 2QFY17 HCLT’s EBIT margin declined by 46bp to 20.1% vs. our expectation of a 83bp decline despite headwinds from a partial wage increase (60-70bp impact) and cross currency headwinds. Tailwinds included continued productivity gains as well as SG&A leverage. HCLT’s 1HFY17 EBIT margin now stands at 20.4% vs. an unchanged FY17 guidance of 19.5-20.5%, indicating its visibility is not only strong on sales but also on margins.

FY17 guidance unchanged; even 2HFY17 to be better than peers HCLT maintained its FY17 US$ sales growth guidance of 12-14% in CC terms, while peers have guided a cautious outlook for 2HFY17. Implied US$ sales growth guidance (at 30 Sep 2016 currency rates) indicates around 1.2-3.5% compounded qoq growth in 3Q-4QFY17. The guidance does not factor in the announced acquisition of Geometric and Butler America and also second IP deal with IBM. Our estimate indicates these acquisitions will add another c.0.8% sales growth in FY17F.

Poised to deliver growth beyond IMS Under the leadership of the new CEO Mr. CVK (earlier COO), we believe that HCLT is looking to drive growth across service lines with its i) increasing efforts to mine its IMS clients, ii) HCLT’s increasing scale in digital/automation services which is growing at a high double-digit pace, with its end-to-end focus, and iii) its well carved-out addressable market in the growing outsourcing of engineering/R&D services with leading scale.

Revenue potential higher in IP deals In its recent analyst meet HCLT clarified that revenue potential from the IP deal of 1QFY17 will be US$100m+ p.a besides US$15m+ p.a. potential from the second deal with IBM in 2QFY17 indicating the pricing of the deal is not too expensive assuming it is not related to end-of-life cycle IP. FY17 sales likely at US$35m-45m from these 2 deals.

Maintain Add rating; re-iterate as top pick We believe HCLT’s valuations are attractive and its revenue and earnings growth in the near-medium term will remain healthy (vs. peers guiding a cautious outlook) considering its strong order book/pipeline and improving operational control. Our higher target price is based on a largely unchanged 14.5x 1-year forward P/E, close to its mean of 1-year and 3-year averages. Any M&A-related and major adverse macro issues are key risks.

▎India

ADD (no change) Consensus ratings*: Buy 37 Hold 13 Sell 5

Current price: Rs831.8 Target price: Rs970.0 Previous target: Rs955.0

Up/downside: 16.6% CIMB / Consensus: 6.9%

Reuters: HCLT.BO Bloomberg: HCLT IN Market cap: US$17,542m Rs1,173,397m Average daily turnover: US$22.39m Rs1,497m Current shares o/s: 1,411m Free float: 39.6% *Source: Bloomberg Key changes in this note

FY17F wgt. avg. dil. EPS up by 0.6%. FY18F wgt. avg. dil. EPS up by 1.0%. FY19F wgt. avg. dil. EPS up by 0.7%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 4.9 15 -3.6 Relative (%) 6.4 13.7 -6.5

Major shareholders % held Shiv Nadar and related parties 60.4 Artisan International Value Fund 1.1 LIC of India 1.1

Analyst(s)

Sandeep SHAH


SOURCE: COMPANY DATA, CIMB FORECASTS

Financial Summary Mar-15A Mar-16A Mar-17F Mar-18F Mar-19F

Revenue (Rsm) 360,288 403,761 466,706 524,409 582,016Net Profit (Rsm) 70,343 73,799 81,215 89,415 98,391Core EPS (Rs) 50.16 52.46 57.56 63.33 69.65Core EPS Growth 21.0% 4.6% 9.7% 10.0% 10.0%FD Core P/E (x) 16.69 15.92 14.46 13.14 11.94Price To Sales (x) 3.24 2.90 2.51 2.24 2.02DPS (Rs) 14.74 20.97 24.99 26.99 29.99Dividend Yield 1.77% 2.52% 3.01% 3.25% 3.61%EV/EBITDA (x) 12.17 12.00 10.38 9.12 8.14P/FCFE (x) 23.72 28.53 21.14 19.38 17.53Net Gearing (45.8%) (38.8%) (40.3%) (42.1%) (43.1%)P/BV (x) 4.95 4.22 3.70 3.26 2.88ROE 33.3% 28.1% 27.3% 26.4% 25.6%% Change In Core EPS Estimates 0.59% 0.99% 0.74%CIMB/consensus EPS (x) 1.01 1.00 1.01

79.087.095.0103.0111.0119.0

690740790840890940

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Finance Companies│India│Equity research│October 21, 2016

Company Note



LIC Housing Finance 2QFY17 results: falling rates aid profitability

A sharp 7bp qoq spike in NIMs in 2QFY17 boosted NII growth to 21% yoy and PAT ■growth to 20% yoy.

Loan growth was moderate at 15% yoy though prepayment rates in the individual ■segment seem to be moderating (from 18% in 4QFY16 to 16.2% in 2QFY17).

Higher opex led by Rs90m in wage arrears during the quarter led to a slightly higher ■cost-to-income ratio of 14.7%. Asset quality stable with GNPLs at 57bp.

We marginally raise our earnings estimates (3% for FY17) to account for strong NIM ■traction. Maintain Add with a revised target price of Rs680 per share.

Loans grew 15% yoy - prepayments in individual loans abating In 2QFY3/17, overall loan growth was 14.9% due to +9.6% yoy growth in mortgages, +22.8% growth in loan against property (LAP) and +99% yoy growth in developer loans. Management said disbursements were slower for LAP on a qoq basis: LAP + developer loans formed 12.5% of its portfolio. We note that prepayment rates in individual loans annualised (based on previous quarters’ loan book) peaked at 18% in 4QFY16 and stood at 16.2% in 2QFY17.

NIMs rise further aided by resilient yields and falling cost of funds NII increased at a robust rate of 21% yoy with NIMs rising 7bp qoq to 2.68%. In 2QFY17, the reported yield held on well qoq at 10.67% despite some downward re-pricing of its mortgage book. The incremental cost of borrowings on NCDs was almost 200bp lower than the NCDs on balance sheet. As per management, almost 70bn/150bn NCDs will come up for re-pricing over two quarters/one year which should drive NIM traction going forward even as yields re-price downwards on floating rate book.

Disbursement growth in mortgages remains moderate at 13% While disbursement growth in the individual segment stood at 10% yoy to Rs87.5bn, growth in the mortgages segment was 13% yoy to Rs74.9bn. LAP book now comprises 9.7% of the o/s book and management seems to be consolidating this book at current levels. However, in the retail segment, management aims to capitalise on the benefits of the 7th pay commission and has introduced a new product at 9.3%; this could keep growth buoyant in an otherwise lukewarm real estate market.

Other highlights 1) Incremental spreads were almost 20bp higher than the outstanding spreads. 2) Bank borrowings are at just 9.4% of total borrowings now while NCDs are at ~80.6% of o/s borrowings. 3) As per management, the marginal rate for all floating rate loans stands at ~9.4%. 4) Fixed rate yield at 9.9% upon conversion to floating rates.

Outlook and valuations Given the falling rates regime, we expect NIMs to remain strong as cost of funds are falling faster than asset yields. We expect NIM traction to continue with the backdrop of falling yields in the market which will lead to further reduction in funding costs. 1HFY17 net profit was above estimates at 45% of our full-year forecast. We marginally raise our earnings (3% for FY17) and raise our GGM-based target price to Rs680 given a strong +20% average ROE through FY19. A spike in prepayments is a key risk.

▎India




Reuters: LICH.NS Bloomberg: LICHF IN Market cap: US$4,600m Rs307,315m Average daily turnover: US$16.54m Rs1,106m Current shares o/s: 505.0m Free float: 59.7% *Source: Bloomberg Key changes in this note

FY17F EPS estimate raised by 3%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 7.3 20.8 28.7 Relative (%) 8.7 20 25.7

Major shareholders % held LIC of India 40.3 FMR 2.8 Mawer Investment Management 2.4

Analyst(s)

Siddharth TELI




Net Interest Income (Rsm) 22,364 29,441 35,688 41,548 48,709Total Non-Interest Income (Rsm) 2,520 2,346 2,911 3,577 4,013Operating Revenue (Rsm) 24,884 31,787 38,599 45,125 52,722Total Provision Charges (Rsm) (73) (1,465) (2,093) (1,200) (1,339)Net Profit (Rsm) 13,862 16,608 20,259 24,901 29,110Core EPS (Rs) 27.45 32.89 40.12 49.31 57.65Core EPS Growth 5.2% 19.8% 22.0% 22.9% 16.9%FD Core P/E (x) 22.18 18.52 15.18 12.35 10.56DPS (Rs) 4.73 4.97 7.22 8.88 10.38Dividend Yield 0.78% 0.82% 1.19% 1.46% 1.70%BVPS (Rs) 154.8 181.1 212.8 251.7 297.2P/BV (x) 3.93 3.36 2.86 2.42 2.05ROE 18.1% 19.6% 20.4% 21.2% 21.0%% Change In Core EPS Estimates 3.01% 0.32% 0.37%CIMB/consensus EPS (x) 0.90 0.84 0.78

94.0

105.7

117.3

129.0

360

460

560

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Oil & Gas - Integrated│India│Equity research│October 21, 2016

Company Note



Reliance Industries All eyes on Jio

Results in line, estimates unchanged. ■ Project update: gasifiers delayed by around six months. ■ Ex-Jio, capex should slow down going forward. ■ Jio’s free offer could continue; its strategy seems to be to provide a service offering ■that customers would want to keep once the free period is over.

We maintain a Hold rating and an SOP-based target price of Rs1,100. ■Results in line 2QFY3/17 consolidated net profit at Rs72.1bn (down 23% yoy, adjusted for prior year restatement) was in line with our expectation. 1H formed 52% of our full-year forecast. GRM was at US$10.1/bbl, a premium of US$4.9/bbl to benchmark Singapore GRMs, despite any benefit from inventory gains. Petchem EBIT was up 22% qoq on account of higher volumes (absence of a shutdown like in 1Q), while E&P continued its slow decline (Rs4.9bn EBIT loss). We are maintaining our current earnings estimates.

New projects full impact in FY18 looking doubtful The PX expansion and ethane project should be completed by Mar 17. The cracker should be mechanically completed by Dec 16 and commercial operations from Apr 16, though full output may start from 2Q18. The gasifiers are expected to be mechanically completed by Jun 17 and fully commercial by Dec 17 (six-month delay). The rollout of all 1,400 gas stations has been pushed to Dec 16 (1,100 as at 2QFY17). The CBM project is targeted for 3Q17 and there could be an increase in the current pricing formula.

Capex in refining/petchem should slow down from here The US$18.5bn capex estimate on new projects is unchanged and only US$1.5bn is yet to be spent. Consolidated capex in 2Q was Rs172bn, of which Rs58bn was on the standalone balance sheet (around Rs34bn/US$0.5bn on new projects) and Rs100bn on Jio. Consolidated net debt at Rs1066bn was up Rs107bn qoq. This does not include vendor financing of Rs500bn and spectrum dues of Rs141bn.

All eyes on Jio Jio’s capitalisation reached Rs1450bn as at end-2QFY16 (excluding subsequent spectrum purchase of Rs137bn). Management clarified that the CEO’s recent comment on Rs2.5tr capex is a longer-term target. It hinted that the current free service offering may continue after Dec 16 and expense capitalisation would end only after the service offering is in line with management’s objective. The strategy seems to be to provide a service offering that customers would want to keep once the free period is over.

Maintain a Hold rating and Rs1,100 target price RIL’s existing assets posted an excellent performance in recent quarters. But the execution of new projects in refining/petchem faced both time and cost overruns, reducing their return expectations. Jio’s financials are hard to predict. While some clarity could emerge as customers start paying for the service (possibly in Jan 17), noise levels may increase as competitors react and a clearer idea on project economics may not be available until end-CY17. GRM and Jio revenue could be upside and downside risks.

▎India

HOLD (no change) Consensus ratings*: Buy 31 Hold 10 Sell 1

Current price: Rs1,088 Target price: Rs1,100 Previous target: Rs1,100

Up/downside: 1.1% CIMB / Consensus: -8.5%

Reuters: RELI.BO Bloomberg: RIL IN Market cap: US$52,781m Rs3,526,321m Average daily turnover: US$58.74m Rs3,926m Current shares o/s: 3,248m Free float: 49.5% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 1.2 6.3 13.7 Relative (%) 2.6 5.5 10.7

Major shareholders % held Mukesh Ambani family 41.4 Treasury shares 9.0 Life Insurance Corporation Of India 9.0

Analyst(s)

Avadhoot SABNIS




Revenue (Rsm) 3,290,760 2,331,580 2,252,769 2,616,290 2,755,314Operating EBITDA (Rsm) 316,710 401,390 428,098 518,682 554,384Net Profit (Rsm) 227,190 274,170 292,698 318,732 339,907Core EPS (Rs) 77.3 93.1 99.3 108.1 115.3Core EPS Growth 3.5% 20.5% 6.7% 8.9% 6.6%FD Core P/E (x) 14.08 11.68 10.95 10.06 9.43DPS (Rs) 10.00 10.50 11.00 11.50 12.00Dividend Yield 0.92% 0.97% 1.01% 1.06% 1.10%EV/EBITDA (x) 8.36 6.27 5.87 4.48 3.47P/FCFE (x) NA 580.0 NA 14.0 7.3Net Gearing 9.7% 14.2% 21.6% 12.6% (1.7%)P/BV (x) 1.60 1.43 1.29 1.16 1.05ROE 11.9% 13.0% 12.4% 12.1% 11.7%CIMB/consensus EPS (x) 1.13 1.10 1.19

96.0102.0108.0114.0120.0126.0

880930980

1,0301,0801,130


5101520


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9

IT Services│India│Equity research│October 23, 2016

Company Note



Wipro Organic sales growth challenges continue

Wipro IT services constant currency (CC) US$ sales growth of 0.9% qoq in 2QFY17 ■was largely in line with our expectation.

EBIT margin performance was better than expected in 2QFY17. ■ 3QFY17F IT services organic sales growth guidance fails to cheer again. ■ 1HFY17 PAT was 47.5% of our FY3/17F forecast, which was above expectations on ■the back of higher-than-expected margins.

We cut FY17-19F weighted average diluted EPS by 2-6% due to ongoing organic ■sales growth challenges. Maintain Hold; Prefer HCLT and Infosys among large caps.

IT services sales growth largely in line Wipro IT services CC US$ sales growth of 0.9% qoq was almost in line with our expectation of 0.8%, largely led by the healthcare, life sciences and services segment’s sales growth of 4.3% qoq. Energy, natural resources and utilities registered 1.3% qoq sales growth after muted performance in past several quarters. Wipro expects growth for this segment to pick up unless there are any new adverse industry-specific events.

IT services EBIT margin performance was better than expected IT services EBIT margin was almost flat qoq at 17.8% (one of the lowest historically) vs. our expectation of 78bp qoq dip. This was due to higher-than-expected realised currency rate and other tailwinds, including 140bp qoq increase in utilisation, higher offshoring and productivity gains that helped to mitigate impact from wage inflation effective Jun 2016. Given the limited headroom in most of the traditional margin levers, Wipro needs to improve gains through productivity/automation to raise its current low margin.

3QFY17F sales growth guidance for IT services fails to cheer again Wipro’s guidance on IT services CC US$ sales growth of 0.0-2.0% qoq for 3QFY17F is again disappointing, considering the implied organic sales growth guidance of -1.5% to 0.5% qoq in CC terms, based on our sales estimates for the Appirio acquisition. This implies that organic sales growth in 3QFY17F could be one of the weakest in the past several years and clearly indicates that turnaround for same is still a work in progress.

Execution needs to tighten up Considering the investment that is resulting in margin dip (we estimate IT services EBIT margin dip of 260bp in FY17F from the base of 156bp dip in FY16), sharp focus on execution (amid weakening macro conditions) is a must for Wipro to turn around sales growth, increase client mining and drive operational efficiencies. Otherwise, we believe it will have to live with low margins. In our view, this will not be an easy task and we do not expect any catalyst to provide any major margin or valuation upside in near term.

Maintain Hold on reasonable valuations Our target price is now based on 1-year forward P/E multiple of 13.0x (down from 13.5x previously, as we factor in no major respite to Wipro’s ongoing organic sales/earnings growth challenges), at 10-15% discount to the mean of its 3-year and 5-year average P/E due to slowing revenue/EPS growth. Any major macro headwinds and unfavourable visa/outsourcing regulations are key downside risks, while faster-than-expected earnings growth recovery is an upside risk.

▎India




Reuters: WIPR.BO Bloomberg: WPRO IN Market cap: US$18,141m Rs1,213,419m Average daily turnover: US$13.62m Rs910.9m Current shares o/s: 2,431m Free float: 26.8% *Source: Bloomberg Key changes in this note

FY18F IT services US$ sales decreased by 2.9%.

FY17F weighted average diluted EPS decreased by 2.3%.

FY18F weighted average diluted EPS decreased by 5.2%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 3.2 -7.9 -13.6 Relative (%) 4.7 -9.2 -16.5

Major shareholders % held Azim Premji & related parties 73.3 LIC of India 2.5 National Westminster Bank PLC 1.1

Analyst(s)

Sandeep SHAH




Revenue (Rsm) 469,545 512,440 554,017 587,153 629,599Net Profit (Rsm) 86,527 88,922 84,790 90,899 98,276Normalised EPS (Rs) 35.23 36.20 34.89 37.54 40.58Normalised EPS Growth 10.7% 2.8% (3.6%) 7.6% 8.1%FD Normalised P/E (x) 14.21 13.82 14.34 13.33 12.33Price To Sales (x) 2.61 2.39 2.19 2.06 1.92DPS (Rs) 11.93 5.97 11.84 12.70 13.71Dividend Yield 2.39% 1.19% 2.37% 2.54% 2.75%EV/EBITDA (x) 10.05 9.69 9.53 8.61 7.71P/FCFE (x) 12.4 190.5 23.7 25.0 22.9Net Gearing (43.0%) (38.7%) (37.2%) (41.6%) (44.9%)P/BV (x) 3.01 2.63 2.39 2.15 1.95ROE 23.0% 20.3% 17.4% 17.0% 16.6%% Change In Normalised EPS Estimates (2.34%) (5.17%) (6.49%)Normalised EPS/consensus EPS (x) 0.99 0.96 0.94

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Food & Beverages│Indonesia│Equity research

Company Flash Note



Indofood Sukses Makmur A nod of approval from the shareholders

Indofood Sukses Makmur’s shareholders have approved the divestment of part of ■its stake in China Minzhong to a company owned by INDF CEO Anthony Salim.

This also signifies agreement on: 1) the transaction price of S$1.2 per share, 2) ■INDF retaining 29.94% of MINZ shares, and 3) MINZ to be taken private.

The positive development and removal of the overhang from MINZ’s earnings ■volatility on INDF’s shares should provide room for a further re-rating.

Shareholders approve MINZ’s divestment and subsequent privatisation plan ● Indofood Sukses Makmur (INDF) held an Extraordinary General Meeting (EGM)

today to obtain independent shareholders’ approval for the proposed divestment of a portion of INDF’s shares in China Minzhong Food Corporation (MINZ) to Marvellous Glory BVI, a company controlled by Mr. Anthony Salim, the CEO of INDF.

● The independent shareholders of INDF overwhelmingly approved (81.4% of those voting) the proposed exercise, which enabled INDF to reach quorum in one go.

● INDF would thus be able to reduce its stake in MINZ to 29.94% from 82.88%, and receive a cash settlement of S$376.4m as CMZ BVI (China Minzhong Holdings Limited) had paid an earnest sum of S$40m to INDF back on Dec 15.

● The company is scheduled to receive the cash by approximately end-2016 or after the necessary documents detailing approvals obtained from the independent shareholders are submitted to OJK (Indonesia’s financial services authority).

China Minzhong Food Corporation following de-listing ● We believe MINZ’s future strategy will be to continue focusing on the cultivation and

processing of vegetables (essentially agricultural products) in China. ● Management has reiterated its assurance that information flow with regards to MINZ

will continue following its privatisation. ● It is highly unlikely that further capital calls for MINZ will burden INDF in the near-to-

medium term, in our view. ● We see that the future strategy for MINZ post-delisting could include: 1) streamlining

MINZ’s business towards its core focus of agricultural products; and 2) disposing of its consumer brands’ beverage business which would typically require huge advertising spending.

● We believe Mr Anthony Salim is likely to retain the services of the key management executives of MINZ such as Mr. Lin Guo Rong (CEO), Mr. Siek Wei Ting (CFO), Mr. Wang Da Zhang (COO), and Mr. Huang Bing Hui (CTO), post-acquisition.

Reiterate our Add recommendation ● Since the announcement of Mr. Salim’s intention to finalise the MINZ’s divestment,

the share price of INDF has increased by 4.2%, outperforming its typically investor- favourite counterpart, ICBP, by 3.1%. INDF’s discount to ICBP should narrow and return to the pre-MINZ acquisition level of 12%. INDF is currently trading at 16.2x forward P/E or at a 43% discount to ICBP and 27% discount to its SOP.

● We see more room for further re-rating as 1) shareholders’ approval means removal of MINZ’s overhang, 2) CPO has bottomed in 1Q16, and 3) wheat price has continued to languish at a low level indicating possible margin expansion for its flour business, Bogasari. Our SOP-based target price remains unchanged.

Figure 1: History of INDF & ICBP valuation following Minzhong acquisition

SOURCES: CIMB, COMPANY REPORTS

▎Indonesia October 21, 2016 - 8:03 PM


Current price: Rp8,725 Target price: Rp10,500 Previous target: Rp10,500


Reuters: INDF.JK Bloomberg: INDF IJ Market cap: US$5,889m Rp76,609,224m Average daily turnover: US$6.93m Rp91,060m Current shares o/s 8,780m Free float: 49.9% *Source: Bloomberg Key financial forecasts

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) 1.5 17.5 40.2 Relative (%) 0.3 13.8 22.7

Major shareholders % held CAB Holding 50.1

Analyst(s)

Linda LAUWIRA

T (62) 21 3006 1734 E [email protected] Dian OCTIANA T (62) 21 3006 1738 E [email protected]

Dec-16F Dec-17F Dec-18F

Net Profit (Rpb) 4,336 4,673 5,152Core EPS (Rp) 493.8 532.2 586.7Core EPS Growth 6.6% 7.8% 10.2%FD Core P/E (x) 17.67 16.39 14.87Recurring ROE 15.5% 15.6% 15.8%P/BV (x) 2.67 2.46 2.26DPS (Rp) 169.0 246.9 266.1Dividend Yield 1.94% 2.83% 3.05%

77.089.0101.0113.0125.0137.0

4,4005,4006,4007,4008,4009,400

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11

Construction and Materials│Indonesia│Equity research│October 21, 2016

Sector Note



Construction Jakarta MRT visit note

So-No phase I is 56% done -- on track to finish at end-2018, operate in May 2019. ■ So-No phase II study to commence in 2017, and construction by end-2017 or early-■2018. Project tender to take place in 2017.

WIKA is one of the development's local contractors, hence has the upper hand in ■future rail-related contracts, such as the So-No phase II development.

We maintain our Overweight rating for the sector. Our top pick is PTPP. ■

Jakarta MRT project profile We conducted a site visit to Jakarta MRT, owned by DKI Jakarta government via PT MRT Jakarta. Jakarta MRT is divided into two corridors with total track length of ±116km -- South-North corridor (Lebak Bulus-Ancol) ±29km and East-West corridor (Cikarang-Balaraja) ±87km. The three development plans disclosed so far were: 1) MRT South-North corridor phase I (±16km), 2) MRT South-North corridor phase II (±13km), and 3) MRT East-West phase I (±27km). MRT No-So phase I progress MRT So-No phase I is slated for completion by end-2018 and commence operations in May 2019. As at Oct 16, the development progress of phase I has reached 56%, largely on schedule. Transit oriented developments (TOD) for all Jakarta MRT projects will be owned by the DKI Jakarta government. PT MRT Jakarta has signed an MOU with Plaza Bapindo for direct tunnel access to Istora Senayan station. More MOUs are to come. Funding scheme Total estimated cost for So-No phase I development is US$1.5bn, or cost per km of US$93m-100m, funded by loans from Japan International Cooperation Agency (JICA), with equity contributed by DKI Jakarta government. JICA also gave a loan for So-No phase II feasibility study totalling US$25m. We gather that the financing scheme for So-No phase II is under review and likely to come from Japanese lenders. It is possible that the phase II project contract may not involve joint operations with Japanese contractors. Future developments The So-No phase II development plan from Bunderan HI has been lengthened by 6km from Kampung-Bandan to Ancol, the tip of Jakarta bay. MRT Jakarta's management expects development of So-No phase II to commence at end-2017 or in early-2018. It guides for development of East-West phase I to take place in 2020. We estimate the value of So-No phase II development at more than US$1.5bn as it this will be all underground. WIKA a beneficiary WIKA plans to be involved in the So-No phase II tender in 2017. The company has been delivering good quality and on-time delivery in the So-No phase I development, based on our channel checks. As such, we believe it stands a good chance of getting some of the So-No phase II development contracts. Sector remains Overweight We maintain our Overweight rating on the sector with Add calls on PTPP, WIKA, ADHI, and WSKT. Our top pick is PTPP. Downside risks to our Overweight rating are 1) slower-than-expected new contracts disbursements; 2) cancellation of major projects in the contractors' order books; 3) cancellation of government regulations related to the acceleration of infrastructure development; and 4) weaker-than-expected property market.

Figure 1: Jakarta MRT So-No phase I map and contractors

[ X ]

▎Indonesia

Overweight (no change) Highlighted companies

Adhi Karya ADD, TP Rp3,000, Rp2,310 close

ADHI is a state-owned contractor in Indonesia. Its contracting business offers civil construction and EPC services. Through its subsidiaries, it offers precast concrete and develops real estate.

Pembangunan Perumahan ADD, TP Rp5,850, Rp4,210 close

PTPP is the second-largest state-owned contractor in terms of market cap in Indonesia. Its contracting business offers civil construction and EPC services. Through its subsidiaries, it offers precast concrete and develops real estate.

Wijaya Karya ADD, TP Rp4,250, Rp2,680 close

WIKA is third-largest state-owned contractor in terms of market cap in Indonesia. Its contracting business offers civil construction and EPC services. Through its subsidiaries, it offers precast concrete and develops real estate.

Summary valuation metrics

Analyst(s)

Aurelia BARUS


P/E (x) Dec-16F Dec-17F Dec-18F

Adhi Karya 20.46 12.50 11.44 Pembangunan Perumahan 20.43 16.18 13.49 Wijaya Karya 24.93 17.83 14.83

P/BV (x) Dec-16F Dec-17F Dec-18F

Adhi Karya 1.55 1.36 1.20 Pembangunan Perumahan 3.90 3.24 2.70 Wijaya Karya 3.35 2.89 2.49

Dividend Yield Dec-16F Dec-17F Dec-18F

Adhi Karya 0.74% 0.64% 1.05%Pembangunan Perumahan 0.98% 1.24% 1.48%Wijaya Karya 0.77% 0.81% 1.13%

SITE VISIT

*SOWJ: Shimizu-Obayashi-WIKA-JKON

12

Personal Products│South Korea│Equity research│October 23, 2016

Company Note



Cosmax Inc Rights offering to facilitate capacity expansion and bolster financial structure

After market closed on 21 Oct, Cosmax disclosed plans to raise W120.7bn in a ■rights offering (equivalent to around 11.7% of shares outstanding).

The company plans to use the cash for capacity expansion in Korea, construction of ■a new distribution centre and factory in Korea, and paying down debt.

3Q preview: OP to be lower than our earlier estimates on larger-than-expected ■losses at the US subsidiary, but robust growth in Korea and China likely to continue.

Maintain Add, with a lower target price of W183k, based on 27.3 x FY17 P/E (at a ■20% premium over peer average).

Discloses rights offering plan After market closed on 21 Oct, Cosmax disclosed plans to issue new shares (equivalent to around 11.7% of shares outstanding) to raise W120.7bn in capital. Management said the company plans to use the cash to pay down debt of W27.5bn (total net debt amount was W222bn at end-Jun) and improve its financial structure. It also plans to use W30bn to expand production capacity and another W30bn for a new distribution centre in Korea.

Inevitable decision to boost growth Management emphasised that the company made the decision to expand production capacity in Korea (from 300m units at end-2016 to 390m units by end-2017) due to the faster-than-expected order growth from new overseas clients. We expect logistics costs to decline with the building of the new distribution centre, which will consolidate the logistics operations that are currently handled by 3-4 distribution depots. The construction of the centre will take six months.

3Q16F preview: earnings likely to be in line with consensus We expect Cosmax’s 3Q16 net profit to be slightly weaker than our earlier estimates but in line with market, with sales of W181bn (+36.3% yoy) and OP of W14bn (+43.6% yoy) (consensus: W14bn). We think 3Q16 OP will be weaker than expected due to larger-than-expected losses by US subsidiary. For its US subsidiary, we expect sales to jump 50% qoq, with net loss of W6bn. Despite strong orders, we now expect its US subsidiary to turn profitable in 2019 (instead of 2018) due to higher fixed cost and low productivity.

Exponential growth in Korea and China likely to continue As for its China business, we expect strong sales growth and margin improvement to continue, backed by: 1) increasing orders from new local clients, and 2) increase in automated facilities. Construction of its new makeup factory will be completed by end-2016, and we believe the company should benefit from the Chinese government’s consumption tax cut on makeup products from 30% to 15%. As for Cosmax Korea, we expect 2016 sales to rise 30% yoy driven by strong order growth from new global clients.

Maintain Add, with lower target price of W183,000 While the rights offering could raise some EPS dilution concerns, we see it as a positive move as: 1) the cash will be used for capacity expansion due to faster-than-expected demand growth, and 2) interest cost will be reduced due to lower debt. We cut our FY16-18F EPS by 3-8% to factor in the larger-than-expected losses by its US business. However, we maintain our Add call on back of its strong growth potential in China (especially in the makeup segment) and robust growth in demand from overseas clients.

▎South Korea


Current price: W145,000 Target price: W185,000 Previous target: W200,000


Reuters: 192820.KS Bloomberg: 192820 KS Market cap: US$1,150m W1,304,929m Average daily turnover: US$9.09m W10,135m Current shares o/s: 9.00m Free float: 73.9% *Source: Bloomberg Key changes in this note

FY16F EPS decreased by 5.6%. FY17F EPS decreased by 7.5%. FY18F EPS decreased by 3.3%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -3 -4.9 -22.3 Relative (%) -2.8 -5.9 -21.8

Major shareholders % held Cosmax BTI 25.6 National Pension Service 8.3

Analyst(s)

Hyunah JO



Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18F

Revenue (Wb) 334 531 742 969 1,299Operating EBITDA (Wb) 30.9 45.1 68.0 90.1 122.8Net Profit (Wb) 16.60 21.32 40.27 59.85 82.94Normalised EPS (W) 1,469 2,369 4,474 6,650 9,216Normalised EPS Growth 16.3% 61.2% 88.9% 48.6% 38.6%FD Normalised P/E (x) 98.67 61.21 32.41 21.80 15.73DPS (W) 500.0 500.0 500.0 500.0 500.0Dividend Yield 0.345% 0.345% 0.345% 0.345% 0.345%EV/EBITDA (x) 56.83 33.00 22.56 16.35 11.11P/FCFE (x) NA 117.8 44.3 20.5 13.9Net Gearing 150% 190% 190% 100% 28%P/BV (x) 16.15 13.34 10.35 7.19 5.02ROE 18.9% 23.9% 36.0% 38.9% 37.6%% Change In Normalised EPS Estimates (5.62%) (7.50%) (3.25%)Normalised EPS/consensus EPS (x) 1.09 1.08 1.11

64.076.088.0100.0112.0124.0

110,000130,000150,000170,000190,000210,000

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13

Tech Manufacturing Services│South Korea│Equity research│October 22, 2016

Company Note



LG Electronics Restructuring to reduce smartphone losses

We expect LGE’s MC division to post all-time high losses in 3Q16, but at the same ■time, ongoing restructuring to accelerate with notably reduced losses from 1Q17F.

Despite rising panel prices, TV margin decline should be cushioned by mix ■improvement and market share gain in developed regions, in our view.

We cut our FY16/17/18F earnings by 30%/32%/18%, reflecting worse-than-■expected smartphone losses and more conservative TV margin outlook.

We lower our target price valuation to 0.8x FY17 P/BV (from 1x) against 6.5% ROE. ■Earnings drag from smartphones likely worse than expected We estimate LG Electronics’ (LGE) mobile communication (MC) division to have recorded an all-time high operating loss of W0.3tr (US$0.3bn) with OP margin of -12% in 3Q16 (vs. our previous estimate of -7% and -4.6% in 2Q16). According to Counterpoint, LGE’s global smartphone market share fell significantly, from the recent peak of 4.9% in Apr to 2.6% in Aug with the disappointing market response to G5.

A windfall gain from Note 7 pullout? Although local press reported a sharp increase (80-100%) in local sales of V20 (LGE’s new premium phone) after the Note 7 pullout, we still see limited success of the new model due to the local launch of iPhone 7 today and relatively weak brand loyalty for LGE. In terms of earnings sensitivity, we estimate 4-5% upside to our FY16F OP (or 30-40% upside to 4Q16F OP), if 4Q16F V20 shipments are double our current estimate of 0.5m-0.6m.

Substantial smartphone restructuring likely inevitable We expect LGE’s steep revenue decline (-18% in FY16F) in MC division to trigger significant cost saving efforts, mainly in marketing and R&D, with more focus on its key markets including Korea and the US. While the number of local MC division employees has decreased by 13% since the recent peak in 2013, we believe another 10-15% reduction should be likely in the next few quarters, as we expect the BEP revenue level of MC division to fall 10% in FY17F to W2.8tr per quarter from W3.1tr in FY16F.

Panel price headwinds to TV business likely mitigated We have trimmed our home entertainment (HE) division OP margin estimates to 7.0% and 4.6% in FY16F and FY17F from 7.3% and 5.5%, respectively, to reflect the adverse impact from TV LCD panel price hike (up 20-40% from the recent trough levels in 2Q16 depending on different sizes). We, however, forecast much more resilient margin trend compared to the previous panel-driven margin squeeze cycles, thanks to LGE’s strong market share in developed countries (Fig 7) and its mix shift to premium TVs.

Moving on from the smartphone drag Following LGE’s earnings guidance for poor 3Q16 results on 7 Oct, we believe the smartphone concerns are already discounted at the current valuation (a 36% discount to historical mean in terms of P/BV). While reducing our TP from W80k to W65k based on 0.8x FY17 P/BV from 1.0x to account for lower ROE outlook, we see upside catalysts likely from smartphone restructuring and thus improved earnings visibility. Major risk to our Add call is slower smartphone cost saving efforts.

▎South Korea


Current price: W50,300 Target price: W65,000 Previous target: W80,000


Reuters: 066570.KS Bloomberg: 066570 KS Market cap: US$7,253m W8,231,485m Average daily turnover: US$33.58m W37,450m Current shares o/s: 180.8m Free float: 63.6% *Source: Bloomberg Key changes in this note

FY16-18F Revenue decreased by 2-5%. FY16-17F EPS decreased by 30-32%. FY18F EPS decreased by 18%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0 -4.7 -6.2 Relative (%) 0.2 -5.7 -5.7

Major shareholders % held LG 33.7

Analyst

Dohoon LEE




Revenue (Wb) 59,041 56,509 54,151 54,076 56,891Net Profit (Wb) 400 124 671 897 1,371Normalised EPS (W) 2,209 688 3,708 4,958 7,581Normalised EPS Growth 116% (69%) 439% 34% 53%FD Normalised P/E (x) 22.77 73.11 13.56 10.15 6.63Price To Sales (x) 0.15 0.16 0.17 0.17 0.16DPS (W) 400.0 400.0 600.0 900.0 1,000.0Dividend Yield 0.80% 0.80% 1.19% 1.79% 1.99%EV/EBITDA (x) 3.30 3.76 3.48 3.06 2.47P/FCFE (x) NA 17.82 36.75 17.45 NANet Gearing 52.0% 47.1% 45.9% 39.6% 32.7%P/BV (x) 0.78 0.78 0.76 0.71 0.65ROE 3.4% 1.1% 5.7% 7.2% 10.2%% Change In Normalised EPS Estimates (30.0%) (32.2%) (18.3%)Normalised EPS/consensus EPS (x) 0.87 0.94 1.21

84.094.0104.0114.0124.0134.0

45,00050,00055,00060,00065,00070,000

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REIT│Malaysia│Equity research│October 21, 2016

Company Note



CapitaMalls Malaysia Trust No catalysts in sight for now

9M16 core NP broadly in line at 72% of our FY16 estimate and 71% of consensus. ■ 2.13 sen DPU declared for 3Q16, on track to meet our full-year estimate of 8.6 sen. ■ Flat NPI growth was due to negative rental reversions from Sungei Wang Plaza. ■ We make no changes to our earnings forecasts as we expect a better 4Q given the ■additional contribution from the group’s asset enhancements on TCM and GP.

Maintain Hold with unchanged target price of RM1.65. We prefer Pavilion REIT for ■its visible asset injection pipeline in the near-term.

9M16 within expectations, boosted by TCP In 3Q16, CMMT’s topline rose 2.8% yoy to RM93.5m and bottomline increased 4.4% yoy to RM41.5m. This brought its cumulative 9M16 core net profit to RM122.6m, making up 72% of our full-year forecast and 71% of consensus. We expect a better 4Q given the additional contribution from TCM and GP following the completion of its asset enhancement initiatives (AEIs). 9M16 DPU of 6.33 sen, on track to meet DPU forecast of 8.6 sen CMMT declared distribution per unit (DPU) of 2.13 sen for 3Q16, bringing its 9M16 DPU to 6.33 sen. We believe that the group is on track to meet our full-year DPU forecast of 8.6 sen. Revenue and core profit expanded yoy thanks to TCP and ECM Vis-à-vis 9M15, CMMT’s 9M16 revenue and core net profit growth was mainly underscored by the contribution from Tropicana City Property (TCP) as well as aided by the better showing from its East Coast Mall (ECM) and Gurney Plaza (GP) malls, which registered rental reversion of 11.5% yoy and 5.7% yoy respectively. 9M16 flat NPI growth no thanks to SWP Stripping out the NPI contribution from TCP, CMMT recorded flat 9M16 net property income (NPI) growth. This was mainly due to the weakness in Sungei Wang Plaza (SWP) and marginal decline from The Mines, which saw NPI falling 26.3% and 0.8% yoy to RM21.2m and RM38.7m, respectively. 9M16 NPI growths of its ECM (+7.3% yoy) and GP (+9.5% yoy) malls was not enough to offset the NPI decline of SWP and The Mines. SWP’s negative rental reversion mitigated by other properties Excluding SWP and TCP, CMMT’s average rental reversion rate rose 5.3% yoy for 9M16 as all its other properties posted positive rental reversions. Notably, TCP recorded negative rental reversion of 6.7% yoy, largely due to the amalgamation of two units of a mini anchor. The impact of negative rental reversions of SWP (-37.9% yoy) and TCP (-6.7% yoy) in 9M16, was mitigated by its other properties, i.e. ECM, GP and The Mines (+5.1% yoy), bringing overall 9M16 rental reversion rate to a softer decline of 1% yoy. Maintain Hold with unchanged DDM-based target price of RM1.65 We keep our Hold call and DDM-based target price of RM1.65 intact, given the lack of near-term catalysts. Management is focusing its efforts on arresting the rental reversion decline for SWP and has put in place strategies to help reposition and rebrand the mall. Nonetheless, we believe that this would only bear fruit in the longer term once the MRT is completed in 2H17. Contributions from its other malls should help offset the weakness from SWP in the medium-term.

▎Malaysia


Current price: RM1.54 Target price: RM1.65 Previous target: RM1.65


Reuters: CAMA.KL Bloomberg: CMMT MK Market cap: US$748.2m RM3,128m Average daily turnover: US$0.84m RM3.43m Current shares o/s: 2,025m Free float: 42.5% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg


Absolute (%) -0.7 -3.8 9.2 Relative (%) -1.4 -3.6 11.4

Major shareholders % held CapitaMalls Asia 35.5 Employee Provident Fund 11.9 Skim Amanah Saham Bumiputra 10.1

Analyst(s)

Kristine WONG




Gross Property Revenue (RMm) 317.7 344.8 339.7 356.4 373.9Net Property Income (RMm) 211.2 226.4 232.6 241.9 251.2Net Profit (RMm) 150.9 155.1 169.4 179.2 187.9Distributable Profit (RMm) 160.8 161.3 183.6 196.8 205.9Core EPS (RM) 0.085 0.082 0.083 0.088 0.091Core EPS Growth 2.26% (3.67%) 2.30% 5.17% 4.26%FD Core P/E (x) 18.19 18.88 18.45 17.55 16.83DPS (RM) 0.09 0.09 0.09 0.10 0.10Dividend Yield 5.78% 5.56% 5.87% 6.26% 6.51%Asset Leverage 29.3% 30.8% 30.3% 30.2% 30.1%BVPS (RM) 1.29 1.32 1.31 1.31 1.30P/BV (x) 1.20 1.17 1.17 1.18 1.19Recurring ROE 7.12% 6.25% 6.33% 6.70% 7.02%CIMB/consensus DPS (x) 1.05 1.07 1.07

96.0

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REIT│Singapore│Equity research│October 21, 2016

Company Note



Cache Logistics Trust 3Q16: devaluation loss of S$36.1m

9M16 DPU of 5.875 Scts (-9% yoy) was in line with our expectations but below ■consensus, forming 78% of our full-year forecast. We expect a poorer 4Q16.

Devaluation loss of S$36.1m from 51 Aps Ave. NAV/unit decreased to S$0.83/unit ■(FY15: S$0.88/unit). Gearing increased to 41.2% (1H16: 39.8%).

We believe that CACHE would look to capital recycling in the near term to pare ■down gearing.

Minimal lease expiries in FY17 but CACHE’s wall of worry would come in FY18 ■when 26.8% of GRI is up for renewal.

Reiterate Reduce on declining DPU profile. Our DDM target price is unchanged. ■3Q16 results summary CACHE achieved DPU of 1.847 Scts (-14% yoy) for 3Q16, forming 25% of our FY16F. On a like-for-like basis, excluding the capital distribution from the divestment of Kim Heng Warehouse, 3Q16 DPU would have fallen by 5% yoy. Distributable income grew by 8% yoy due to incremental revenue from Australian acquisitions and DHL Supply Advanced Regional Centre, offset by lower income for 51 Alps Avenue. Under a holding agreement, CACHE would receive S$0.77 psf pm (prev. c.S$1.50) from Sep onwards.

Devaluation loss of S$36.1m from 51 Alps Ave NAV/unit decreased to S$0.83/unit (FY15: S$0.88/unit) on devaluation loss from 51 Alps Ave. Due to the ongoing legal dispute with Schenker (refer to our report “In an impasse” 27 Sep 2016), the Manager undertook an independent valuation of the property, resulting in a downward valuation of the property to S$80.7m (FY15: S$116.8m). We understand that the major change in the valuer’s assumptions was rental rates and growth rate. Otherwise, the property’s cap rate was unchanged at c.6.5%.

Gearing increased to 41.2% (1H16: 39.8%) Due to the devaluation loss, gearing increased to 41.2%. The S$80.7m valuation for 51 Alps assumed market rent (S$1.40-1.50 psf pm) for Schenker’s lease renewal of five years. In the worst case scenario where CACHE is bound to the pre-agreed rent of S$0.77 for five years, the market value of 51 Alps would be S$66.6m. In this case, gearing would increase to 41.3% and NAV would be 81.3 Scts/unit. In the near term, CACHE would look to capital recycling to pare down gearing.

Minimal lease expiries in 2017 As at 9M16, committed portfolio occupancy stood at 96.5%. CACHE secured 296k sf of new leases in 3Q16, and converted Hi-Speed Logistics Centre to a multi-tenanted building (MTB). However, this implies like-for-like negative rental reversion and higher property expenses. Looking ahead, 3.9% of GRI is up for renewal in 2017. CACHE’s wall of worry would come in 2018 when 26.8% of GRI is up for renewal. Of which, c.16% relates to CWT Commodity Hub, which we believe would be converted to a MTB.

Reiterate Reduce with unchanged target price There were no new updates on the legal dispute with Schenker, though we believe that the case could drag through to end-2017. This implies that CACHE would be receiving rent of S$0.77 psf pm for 51 Alps for one full year. Coupled with higher property expenses from MTBs (i.e. Hi-Speed Logistics), this explains our 5% drop in FY17F DPU. Reiterate Reduce with an unchanged DDM target price. Upside risk is the resolution of the case in CACHE’s favour. Our numbers incorporate the worst case scenario.

▎Singapore

REDUCE (no change) Consensus ratings*: Buy 4 Hold 3 Sell 2

Current price: S$0.88 Target price: S$0.80 Previous target: S$0.80

Up/downside: -8.7% CIMB / Consensus: -11.9%

Reuters: CALT.SI Bloomberg: CACHE SP Market cap: US$567.7m S$788.8m Average daily turnover: US$1.70m S$2.28m Current shares o/s: 893.5m Free float: 95.3% *Source: Bloomberg Key changes in this note

FY16-18F DPU increased by 0.4-0.5% on slightly lower effective tax rate of 1.4% (prev. 1.8%).

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -2.8 0 -14.2 Relative (%) -2.1 3.7 -7.8

Major shareholders % held BNY Mellon 4.4 CWT Ltd 4.4 Capital Group 4.3

Analyst(s)

YEO Zhi Bin

T (65) 6210 8669 E [email protected] LOCK Mun Yee T (65) 6210 8606 E [email protected]



Gross Property Revenue (S$m) 82.9 89.7 106.9 104.5 107.7Net Property Income (S$m) 78.00 76.16 86.58 83.82 83.17Net Profit (S$m) 65.84 (12.23) 21.62 54.77 54.00Distributable Profit (S$m) 66.88 67.96 67.47 64.48 61.70Core EPS (S$) 0.073 0.063 0.063 0.061 0.059Core EPS Growth (5.1%) (14.2%) 0.3% (3.5%) (2.1%)FD Core P/E (x) 12.04 14.04 13.99 14.51 14.82DPS (S$) 0.086 0.085 0.075 0.071 0.068Dividend Yield 9.74% 9.66% 8.55% 8.11% 7.71%Asset Leverage 30.7% 39.5% 41.1% 41.4% 41.6%BVPS (S$) 0.98 0.88 0.83 0.82 0.81P/BV (x) 0.90 1.00 1.06 1.07 1.08Recurring ROE 7.45% 6.76% 7.36% 7.36% 7.28%% Change In DPS Estimates 0.43% 0.47% 0.50%CIMB/consensus DPS (x) 0.93 0.90 0.86

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Company Note



CapitaLand Mall Trust Plodding along

3Q/9MFY16 DPU of 2.78/8.25 Scts within expectations, making up 25%/75% of our ■FY16F forecast.

Anemic rental uplift although tenant sales and shopper traffic increased. ■ Muted near-term earnings growth with no major AEIs completing. ■ Gearing of 35.4% provides sufficient debt headroom to fund Funan Mall ■redevelopment.

Maintain Hold with unchanged TP of S$2.20. ■Topline boosted by Bedok Mall CT reported 5% yoy higher 3QFY16 revenue of S$169.7m (US$123m) with the inclusion of contributions from Bedok Mall and better performance from IMM Building, Tampines Mall and Clarke Quay. This offset the income vacuum from Funan Mall after its closure for redevelopment in Jul 16. DPU was lower yoy at 2.78 Scts due to a lower payout ratio in 3QFY16 of 93.8% vs. 101% last year when S$8m of the retained income was released.

Weak rental uplift despite higher shopper traffic and tenant sales Operations-wise, CT’s shopper traffic rose 2.9% yoy in 9M16 while tenant sales grew 1.2%. Rental reversions were anemic at 1.3% higher than preceding levels for the 703k sq ft of space renewed, and occupancy stayed at a robust 98.6%. Most of its malls enjoyed rental uplifts with the exception of The Atrium @ Orchard, Bugis+, Westgate and JCube, which saw negative reversions of 6-12% compared to the previous period.

Muted earnings growth near term We expect earnings growth for 4QFY16 and FY17 to be relatively muted, to reflect the closure of Funan Mall for redevelopment over the next three years. The planned S$54m rejuvenation/enhancement exercise at Raffles City Shopping Centre over 3Q16-1Q18, including the upgradation of lift lobbies as well as the revamp of Central Atrium at Level 3, is unlikely to move the earnings needle significantly when completed, although it would improve shopper experience at the property, in our view.

Sufficient debt headroom to fund Funan redevelopment CT’s gearing stood at 35.4% as at end-3QFY16 with average cost of debt of 3.2%. We expect the gearing to rise with the gradual deployment of funds for Funan Mall’s redevelopment exercise, totaling S$560m. Based on a target gearing of 40%, CT would have an estimated debt headroom of c.S$800m for this capex requirement.

Maintain Hold We leave our FY16-18F DPU estimates and DDM-based TP of S$2.20 unchanged. CT is currently trading at 5% FY16F DPU yield, close to the +1s.d. level. We believe earnings catalysts may be limited during the Funan redevelopment period and this will cap further outperformance in the share price. Upside risk could emerge if CT acquires assets to grow inorganically.

▎Singapore




Reuters: CMLT.SI Bloomberg: CT SP Market cap: US$5,380m S$7,475m Average daily turnover: US$12.90m S$17.36m Current shares o/s: 3,543m Free float: 70.7% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0.5 -5 2.9 Relative (%) 1.2 -1.3 9.3

Major shareholders % held CapitaLand 29.3 Blackrock 5.0 NTUC Fairprice Co-operative 5.0

Analyst(s)

LOCK Mun Yee

T (65) 6210 8606 E [email protected] YEO Zhi Bin T (65) 6210 8669 E [email protected]



Gross Property Revenue (S$m) 658.9 669.0 682.6 671.5 678.0Net Property Income (S$m) 448.4 466.2 467.6 460.0 464.5Net Profit (S$m) 614.0 579.8 444.0 385.2 390.3Distributable Profit (S$m) 375.3 392.0 389.6 381.6 386.5Core EPS (S$) 0.12 0.14 0.11 0.11 0.11Core EPS Growth 6.3% 11.6% (19.3%) (1.0%) 1.3%FD Core P/E (x) 17.29 15.49 19.21 19.40 19.15DPS (S$) 0.11 0.11 0.11 0.11 0.11Dividend Yield 5.14% 5.33% 5.21% 5.11% 5.17%Asset Leverage 32.1% 32.0% 31.8% 32.5% 33.3%BVPS (S$) 1.81 1.89 1.93 1.98 2.05P/BV (x) 1.16 1.12 1.09 1.06 1.03Recurring ROE 6.87% 7.35% 5.75% 5.55% 5.47%% Change In DPS Estimates 0% 0% 0%CIMB/consensus DPS (x) 1.00 0.98 0.96

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Property Devt & Invt│Singapore│Equity research│October 21, 2016

Company Note



City Developments Establishes residential PPS ■ Unlocking the value of Nouvel 18 through a residential PPS ■ Accretive transaction with a 2-3 Scts uplift to book NTA and EPS ■ Well positioned to tap new investment opportunities with low gearing of 19% post

divestment ■ Maintain Add, with a slightly higher TP of S$10.40

Establishing a residential PPS platform CIT has unlocked the value of Nouvel 18 through its third profit participation securities (PPS) platform. Valued at S$977.6m (inclusive of S$12.2m in associated expenses), the structure comprises S$102m of PPS, S$579m of senior loans and S$296m of notes due in 2021-2023. CIT will hold S$140m of the notes (14.3%) due in 2023. The PPS will be issued to a special purpose vehicle (SPV), Green 18, whose shareholders are high net worth Singaporeans and companies owned by Singapore citizens.

Implied pricing of S$2,750psf for Nouvel 18 Nouvel 18 is a 156-unit luxury condominium project along Anderson Road. The deal effectively prices Nouvel 18 at S$965.4m or S$2,750psf. Green 18 will enjoy a preferred 5% annual IRR and further upside, less any incentive fees payable. CIT’s wholly-owned subsidiary Trentwell Management will be appointed as exclusive asset manager and marketing agent for five years (with an option to extend to seven years) to manage, lease, market and sell the units at Nouvel 18.

Accretive deal with positive medium-term spillover benefits We see this deal as positive for CIT as it would unlock capital to be redeployed into other developments and minimise potential penalty leakages as well as expand the group’s fund management platform with c.S$3.5bn funds under management. We project CIT to recognise a S$27.3m (3 Scts) boost to book NTA and S$18.2m (2 Scts) gain to bottomline in FY16. Gearing is also likely to dip from 27% to 19% when the transaction is completed, in our view.

Adjusting RNAV by 2 Scts The implied pricing of S$2,750psf for Nouvel 18 is slightly higher than our current assumption of S$2,600psf. Post transaction, our FY16 net profit forecast would be raised by c.3%, and our RNAV estimate increased by 2 Scts to S$13.87.

Maintain Add, with slightly higher TP of S$10.40 We continue to like CIT for its ability to unlock value from its assets. With its strong balance sheet and low projected gearing of 19%, it is well positioned to tap new investment opportunities. We see the latter as a key re-rating catalyst for its share price. We maintain our Add rating, with a revised target price of S$10.40, pegged to an unchanged 25% discount to RNAV. Downside risks to our call include overseas execution risks.

▎Singapore


Current price: S$8.78 Target price: S$10.40 Previous target: S$10.38 Up/downside: 18.5% CIMB / Consensus: 3.5%

Reuters: CTDM.SI Bloomberg: CIT SP Market cap: US$5,746m S$7,984m Average daily turnover: US$9.15m S$12.46m Current shares o/s: 909.3m Free float: 49.9% *Source: Bloomberg Key changes in this note

FY16F net profit increased by 3.0%. FY17F net profit decreased by 4.9%. FY18F net profit increased by 2.7%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -2 2.5 6.7 Relative (%) -1.6 6 12.6

Major shareholders % held Hong Leong 35.2 Aberdeen 14.9

Analyst(s)

LOCK Mun Yee T (65) 6210 8606 E [email protected] YEO Zhi Bin T (65) 6210 8669 E [email protected]


Financial Summary Dec-14A Dec-15A Dec-16F Dec-17F Dec-18F Total Net Revenues (S$m) 3,764 3,304 4,495 3,350 3,315 Operating EBITDA (S$m) 1,205 840 1,053 1,086 1,061 Net Profit (S$m) 950.7 704.0 612.0 596.0 558.9 Core EPS (S$) 0.68 0.52 0.61 0.62 0.59 Core EPS Growth 47.9% (24.2%) 17.7% 2.4% (6.2%) FD Core P/E (x) 12.85 16.94 14.40 14.06 14.99 DPS (S$) 0.16 0.15 0.17 0.17 0.16 Dividend Yield 1.82% 1.74% 1.94% 1.94% 1.82% EV/EBITDA (x) 9.39 16.08 11.34 11.07 9.69 P/FCFE (x) 5.9 102.4 3.7 15.1 5.0 Net Gearing 5.3% 26.0% 10.5% 9.9% (4.9%) P/BV (x) 1.00 0.93 0.89 0.85 0.81 ROE 7.84% 5.68% 6.31% 6.17% 5.54% % Change In Core EPS Estimates 3.0% (4.9%) 2.7% CIMB/consensus EPS (x) 1.02 0.98 0.85

89.0

99.0

109.0

119.0

6.40

7.40

8.40


5101520


Vol m

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Company Note



Frasers Centrepoint Trust Continued volatility from NP AEI

4Q/FY16 DPU of 2.81/11.76 Scts in line with expectations at 23.9%/99.8% of our ■forecast.

Positive rental reversions offset by lower occupancies at NP and CCP. ■ Expect deceleration in earnings momentum to trough in FY17 as NP AEI is ■scheduled to be completed in Sep 17.

Low gearing provides deep capacity to explore inorganic growth prospects. ■ Maintain Add with a higher target price of S$2.28. ■

4Q/FY16 results highlights 4QFY9/16 revenue was dragged 6% lower to S$44.6m (US$32.3m) due to lower contribution from Northpoint (NP) and Changi City Point (CCP). However, lower property expenses from utilities savings and reduced interest expense as well as a higher proportion of management fees in units led to a smaller 1.2%/1.5% dip in distribution income and DPU of 2.81 Scts. For FY16, FCT reported DPU of 11.76 Scts, +1.3% yoy. It revalued its portfolio boosting book NAV to S$1.93/unit.

Positive rental reversion offset by lower occupancies Although FCT experienced positive rental reversion of 4.6%/9.9% in 4Q/FY16, lower occupancy of 89.4% dragged on performance. NP is currently undergoing AEI and saw take-up sliding to 70.9% while at CCP, transitional vacancy from the changeover of an anchor tenant and tenant remixing lowered occupancy to 81.1%. This was partially offset by a better performance at Causeway Point (CP) and other malls. Bedok Point continues to see lower performance yoy.

NP AEI to peak in 2QFY17 We anticipate rental reversions to stay positive, although at a more moderated pace given the difficult retail environment. FCT has 39.2%/30.9%/23.8% to be renewed in FY17-19. A sizeable proportion of FY17 expiries are in CP and given its niche location, we think the mall can grow its rents. Also, we think vacancies at NP are expected to peak in 2HFY17 after seeing further retracement in occupancy in 1H17. NP’s AEI is scheduled to end in Sep 17 and we understand there is good leasing interest post AEI.

Low gearing provides headroom for inorganic expansion The balance sheet is healthy with gearing at 28.3%. This puts the trust in a strong position to explore inorganic growth, both overseas and locally. Its Sponsor has two assets that could be injected when stabilised. FCT’s borrowing cost remains low at 2.1% with 59% of interest cost hedged. The trust has S$218m (30%) of its loans to be refinanced in FY17.

Maintain Add We adjust our FY17-18 DPU estimates post results and introduce our FY19 numbers. Hence, our DDM-based target price is raised to S$2.28 as we roll forward our estimates. FCT currently offers investors 5.6-5.7% FY17-18 DPU yield. We think investor interest would pick up when the peak of NP’s AEI passes through in 2HFY17 and occupancies and earnings recover. Downside risk could come from a delay in the completion of the NP AEI.

▎Singapore




Reuters: FCRT.SI Bloomberg: FCT SP Market cap: US$1,408m S$1,957m Average daily turnover: US$1.60m S$2.18m Current shares o/s: 920.2m Free float: 48.7% *Source: Bloomberg Key changes in this note

FY17F DPU increased by 0.5%. FY18F DPU increased by 1.7%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 1.4 -1.9 7 Relative (%) 2.1 1.8 13.4

Major shareholders % held Fraser Centrepoint Ltd 41.2 Schroders Plc 6.0 Capital Group 4.1

Analyst(s)

LOCK Mun Yee

T (65) 6210 8606 E [email protected] YEO Zhi Bin T (65) 6210 8669 E [email protected]


Financial Summary Sep-15A Sep-16A Sep-17F Sep-18F Sep-19F

Gross Property Revenue (S$m) 189.2 183.8 185.4 197.1 202.2Net Property Income (S$m) 131.0 129.9 131.6 140.3 144.0Net Profit (S$m) 171.5 123.4 101.3 109.6 113.0Distributable Profit (S$m) 106.4 108.1 109.2 113.2 116.6Core EPS (S$) 0.11 0.11 0.11 0.12 0.12Core EPS Growth 4.87% (0.47%) (0.31%) 7.61% 2.74%FD Core P/E (x) 19.28 19.37 19.43 18.05 17.57DPS (S$) 0.12 0.12 0.12 0.12 0.13Dividend Yield 5.45% 5.52% 5.55% 5.72% 5.88%Asset Leverage 28.2% 28.3% 29.0% 29.2% 29.4%BVPS (S$) 1.91 1.93 1.94 1.93 1.93P/BV (x) 1.11 1.10 1.10 1.10 1.10Recurring ROE 5.86% 5.72% 5.67% 6.09% 6.27%% Change In DPS Estimates 0.52% 1.72%CIMB/consensus DPS (x) 0.99 1.01

94.0

102.3

110.7

119.0

1.700

1.900

2.100


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Sri Lanka Equities

QUARTERLY HIGHLIGHTS

October 2016

John Keells Stock Brokers (Pvt) Ltd.

A JKSB Research Publication

Lourdeena Kudaliyanage [email protected]

LB Finance PLC (LFIN)

This document is published by John Keells Stockbrokers (Pvt.) Limited for the exclusive use of their clients. All information has been compiled from available documentation and JKSB’s own research material. Whilstall reasonable care has been taken to ensure the accuracy of the contents of this issue, neither JKSB nor its employees can accept responsibility for any decisions made by investors based on information contained herein.

LFIN 2Q PROFIT 20%

(Rs. Mn) (Rs. Mn) (Rs. Mn) (Rs. Mn) (Rs. Mn) (Rs.)

This quarter 2Q FY2017 4,312 1,894 2,418 2,734 948 6.84

Previous 2Q FY2016 3,459 1,390 2,069 2,336 789 5.70

Change (%) 24.7 36.2 16.9 17.0 20.1 20.1

This 6 mnths Apr-Sep 16 8,353 3,604 4,749 5,341 1,860 13.43

Previous 6 mnths Apr-Sep 15 6,834 2,695 4,139 4,702 1,565 11.30

Change (%) 22.2 33.7 14.8 13.6 18.8 18.8

EPSInterest income

Interest expense

Net interest income

Operating income (before

impairment charges)

Earnings

LAST PRICERs.

CONSIDER BUYRs.

CONSIDER SELLRs.

52 WEEK HIGHRs.

52 WEEK LOWRs.

128.30 120.00 138.00 133.60 99.70

NBVPS (Rs.) 81.70

Issued Capital (Shares 'mn) Voting 139

Market Capitalisation (Rs. 'mn) 17,771

Forecast NPAT FY17E (Rs. 'mn) 4,021

FY17E EPS (Rs.) 29.03

FY17E PER (x) 4.42

PBV (x) 1.6

LFIN 2QFY17

1HFY17 PAT +19% YoY; revising down our full year forecast on concerns of rising funding costsLFIN reported a 20% YoY increase in earnings for 2QFY17, driven mainly by 1) a 17% increase in net

interest income on the back of moderate loan book growth (+10.5% in 1HFY17); and 2) a reversal of

impairment provisions on its leasing portfolio, supported by a further improvement in NPLs (due to

better debt recovery) and a sharp increase in second hand vehicle prices which resulted in a lower-than-

expected LGD (Loss Given Default) ratio. Fee and commission income grew 10% YoY, in-line with loan

book growth. While 1HFY17 earnings are up 19% YoY, we have revised our full year PAT projection for

FY17 down to Rs. 4.0bn (+8% YoY) on concerns of rising funding costs in 2HFY17, as a lack of liquidity

in the system, following a 1.5% increase in the Statutory Reserve Ratio, has resulted in a sharp increase in

deposit rates in recent months. With large LCBs such as HNB now offering rates of >12% (AER) on 6

month FDs, LFIN and other finance companies are offering the ceiling deposit rate of 12.5% on one year

FDs. Consequently, the CBSL is expected to raise the cap on deposit interest rates offered by finance

companies which would result in a further increase in funding costs across the sector. At its current price

of Rs. 128.30, LFIN trades at a FY17E P/E of 4.4x, at the lower end of its historical trading range of 5x-

6x, and at an unwarranted discount to its peer average FY17E P/E multiple of 5.3x. The stock currently

trades at a P/BV of 1.6x (based on September 2016 NAVPS) and offers a generous 6% dividend yield.

Increase in registered vehicle leasing disbursements could pressure longer term asset qualityAs expected, second-hand vehicle leasing demand has increased sharply over the last six months. While

LFIN has seen a near 60% decline in leasing volumes of unregistered three wheelers (vs. FY16 levels),

this has been partially offset by increased disbursements in the higher margin second-hand three wheeler

segment. This, coupled with a 12% increase in gold loan volumes and healthy leasing demand in the

motor bike segment, supported a 10.5% increase in net loan book growth for 1HFY17. Given that NPLs

in the registered three wheeler segment are typically higher than unregistered vehicles, LFIN could see

a slight deterioration in asset quality of its leasing portfolio going forward. However, this should be offset

by the higher yield on registered vehicles (lending rate is 7%-8% higher), while imposition of a more

stringent 70% LTV ratio amid rising second hand vehicle prices should further mitigate the risk of

defaults. While gold loans prices declined during the quarter - and could drop further towards December

- we do not see near term risks to the company’s gold loan portfolio which has an overall 71% LTV ratio

and is dominated by the short tenor product (as detailed in previous reports).

Dependence on FDs would be reduced if funding costs continue to riseOn the funding side, LFIN’s bank borrowings increased by 32% in 1HFY17, with the company securing

long term (four year funding), thereby reducing dependence on deposits and narrowing its asset-liability

maturity mismatch. While customer deposits have dipped marginally in 1HFY17, this reflects a drop in

the savings deposit base amid an outflow of funds into fixed deposits. Management has stated that the

company would look to reduce dependence on FDs as a source of funding if interest rates continue to rise

significantly.

20

Technology - PC hardware│Taiwan│Equity research│October 23, 2016

Company Note



Adlink 3Q16F preview: Street numbers still too high

Transfer of Adlink coverage due to change in internal resource allocation. ■ We cut our sales growth estimates for FY16/FY17/FY18F by 3.3%/6.7%/9.2% to ■factor in lower-than-expected 3Q16 sales.

We now forecast that FY17F sales will grow by 6.3% yoy, with lower operating ■margin due to reduced operating leverage despite more cost-cutting efforts.

Maintain Reduce rating and lower target price to NT$57, still based on 20x FY17F ■P/E (implying 3x FY17F BVPS). We await signs of a demand recovery.

Segment dynamics point to lower FY17F sales growth 3Q16 sales were 7% below our forecast, partially due to shipment delays caused by two typhoons that hit Taiwan in Sep. We fine-tune 4Q16F sales growth to 5.1% from 3.9% qoq and expect the bulk of delayed shipments to be delivered in Oct. Our FY17F sales forecast is lowered, factoring in: 1) still cautious capex plans at tech component vendors; 2) conservative telco equipment spending, and 3) reacceleration in gaming-related shipments. We lower FY16-18F EPS by 0.1-23.1% due to reduced operating leverage.

Gaming segment reacceleration Adlink had guided for gaming-related revenues to grow by 0-5% yoy in 2H16F, versus a sharp yoy decline in 1H16 (revenue from North America was down 54% yoy). This is in line with the 2H16F guidance offered by leading gaming equipment vendors such as International Game Technology and Everi. Moreover, we expect gaming products with a major Japanese customer to enter a phase of shipment volume expansion in 2017F, which may drive MCPS sales growth back to a double-digit rate, in our view.

MAPS sales growth likely to remain muted in 2017F We expect flattish MAPS sales growth in 2017F, as most tech downstream component vendors, except Largan (3008 TT, Add), are likely to see another year of capex decline, in our view. Historically, there has been strong correlation between Adlink’s MAPS sales and capex of tech component vendors. We project that smartphone demand growth will slow to 3-4% yoy in 2017F and think the peak of components capex is over. However, demand from other sectors may partially offset downward pressure on sales.

IIoT still in early stages of development We expect PrismTech to remain operating margin dilutive in the foreseeable future. We have yet to see synergies from the PrismTech acquisition or progress in industrial internet of things (IIoT) from a financial perspective but we do see progress in terms of brand recognition and increased exposure among industry participants. We forecast that PrismTech’s sales will stay flat at around NT$280m (US$8.9m) in FY17F on operating margin of -5% to -10%, given that IIoT is still in its early stages of development.

Maintain Reduce; Lower target price to NT$57 Our Reduce rating is maintained until we see signs of a demand recovery. We lower our TP to NT$57, still based on 20x FY17F P/E (implying 3x FY17F BVPS). Our revised FY16/17F EPS is still 43%/22% lower than Bloomberg consensus estimates. We still like the company but we believe the street’s numbers are too high and could face significant downward revision in the next 3-6 months, as 2H16 results are released. Potential upside/downside risks are better/worse-than-expected sales growth in its end markets.

▎Taiwan

REDUCE (no change) Consensus ratings*: Buy 7 Hold 8 Sell 2

Current price: NT$65.60 Target price: NT$57.00 Previous target: NT$60.00

Up/downside: -13.1% CIMB / Consensus: -22.0%

Reuters: 6166.TW Bloomberg: 6166 TT Market cap: US$450.1m NT$14,254m Average daily turnover: US$1.08m NT$34.08m Current shares o/s: 216.8m Free float: 50.5% *Source: Bloomberg Key changes in this note

FY16F/17F/18F revenue decreased by 3.3%/6.7%/9.2%.

FY16F/17F/18F EPS decreased by 23.1%/5.6%/0.1%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 7 -4.2 -26.1 Relative (%) 6.2 -7 -34.2

Major shareholders % held Chroma Ate Inc. 11.6 Citibank (Taiwan) & United Kingdom Agile 7.4 Zenitron Corp. 6.4

Analyst(s)

James TAN

T (886) 2 8729 8378 E [email protected] Felix PAN T (886) 2 8729 8386 E [email protected]



Revenue (NT$m) 8,047 9,068 9,134 9,714 10,294Operating EBITDA (NT$m) 846 950 613 958 1,155Net Profit (NT$m) 588.4 607.2 323.9 615.5 768.7Normalised EPS (NT$) 3.21 3.01 1.49 2.84 3.55Normalised EPS Growth 32.2% (6.2%) (50.3%) 90.0% 24.9%FD Normalised P/E (x) 20.45 21.80 43.90 23.10 18.50DPS (NT$) 1.50 1.90 2.40 1.28 2.43Dividend Yield 2.29% 2.90% 3.66% 1.95% 3.71%EV/EBITDA (x) 13.70 13.37 22.21 14.33 11.87P/FCFE (x) 52.44 18.81 22.62 41.68 22.69Net Gearing (12.0%) (1.0%) (2.6%) 0.5% (0.2%)P/BV (x) 3.33 3.40 3.80 3.49 3.29ROE 17.3% 16.2% 8.5% 15.8% 18.3%% Change In Normalised EPS Estimates (23.1%) (5.6%) (0.1%)Normalised EPS/consensus EPS (x) 0.57 0.77 0.85

53.0

66.3

79.7

93.0

106.3

51.0

61.0

71.0

81.0

91.0

Price Close Relative to TAIEX (RHS)

1

2

3


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Banks│Thailand│Equity research

Company Flash Note



Bangkok Bank 3Q16 earnings in line with poorer asset quality

3Q16 net profit of THB8.06bn (US$230m), -11% yoy but +12.4% qoq. ■ Sluggish loan growth but continued rise in NPL ratio with qoq higher credit cost. ■ We keep our Hold call with a target price of THB166 (based on 0.8x FY17F P/BV). ■

3Q16 net profit of THB8.06bn (US$230m) ● BBL's 3Q16 net profit was down 11% yoy but rose 12.4% qoq, which came in line

with our and consensus forecasts. Its 9M16 net profit formed 78% of our FY16F estimate. Meanwhile, its pre-provision profit growth was -5.6% yoy but +21.3% qoq.

Sluggish loan growth but net-interest margin expanded ● Loan growth in 3Q16 became negative at 0.5% qoq due to repayment of overseas

loans. But loan growth was 1.1% from end-FY15, below our FY16F estimate. Net-interest margin expanded 9bp qoq to 2.3%, thanks to lower funding cost.

● Its sluggish loan growth was from repayment of overseas loans which accounted for 16% of its total loans in 1H16. Retail loans were relatively flat qoq.

Continued rise in NPLs ratio with qoq higher credit cost ● BBL's NPL ratio rose significantly from 3.1% in 2Q16 to 3.4% in 3Q16. This came

from all the loan segments. On top of that, its special mention loans swelled markedly by 17% qoq in 3Q16 after seeing a slight drop in 2Q16.

● The bank set aside qoq higher credit cost of 104bp, from 74bp in 2Q16. However, its NPL coverage ratio fell to 160% in 3Q16, the lowest level over the last five years.

Qoq pick-up in non-interest income and falling opex ratio ● 3Q16 non-interest income growth accelerated to 17.7% qoq which came from qoq

higher investment gain and gains on trading and forex transactions. ● Net fee income growth was still low at 2.4% yoy and 3.0% qoq, driven mainly by

electronic transactional and money transfer fees, mutual fund fee and bancassurance fee.

● Its cost-to-income ratio dropped from 50.7% in 2Q16 to 45% in 3Q16. This was a result of lower premises expenses.

Maintain our Hold rating and target price of THB166 ● Our target price of THB166 is based on 0.8x FY17F P/BV (assuming LT ROE of

9.0% and CoE of 10.6%). Its valuation remains undemanding due to asset quality issues.

● Its NPL coverage ratio has been on a downtrend over the last one year while the bank has not raised its provisioning guidelines.

● Upside risk to our call is stronger-than-expected loan growth while downside risk to our call is huge credit cost in FY17F to rebuild its NPL coverage ratio.

Figure 1: Results comparison

SOURCES: CIMB, COMPANY REPORTS

FYE Dec (THB m) 3Q16 3Q15yoy %

chg

qoq %

chg

3Q16

cum

3Q15

cum

yoy %

chg Comments

Net interest income 16,066 14,441 11.3 3.0 47,695 41,893 13.8 Loan growth of -0.5% qoq but +1.1% from end-FY15

Non-interest income 10,887 12,299 (11.5) 17.7 30,810 34,439 (10.5) Qoq pick-up from investment gain and gain on trading and forex

Total income 26,953 26,739 0.8 8.5 78,504 76,332 2.8

Operating expenses (12,095) (10,948) 10.5 (4.0) (37,550) (32,913) 14.1 3Q16 cost-to-income ratio of 45%, down from 50.7% in 2Q16

Pre-provision profit 14,858 15,791 (5.9) 21.3 40,954 43,419 (5.7)

Loan loss provisions (4,946) (4,872) 1.5 39.6 (12,132) (10,774) 12.6 3Q16 credit cost of 104bp with NPL ratio of 3.4%

Pretax profit 9,912 10,919 (9.2) 13.9 28,823 32,645 (11.7)

Tax (1,785) (1,810) (1.4) 21.2 (5,087) (5,987) (15.0)

Tax rate (%) 18.0 16.6 17.6 18.3 (3.8)

Minority interests (66) (51) 27.5 4.5 (189) (159) 18.4

Net profit 8,061 9,057 (11.0) 12.4 23,547 26,499 (11.1) BBG consensus of THB8.1bn

EPS (THB) 4.22 4.74 (11.0) 12.4 12.34 13.88 (11.1)

▎Thailand October 21, 2016 - 11:10 AM


Current price: THB162.0 Target price: THB166.0 Previous target: THB166.0


Reuters: BBL.BK Bloomberg: BBL TB Market cap: US$8,835m THB309,233m Average daily turnover: US$28.33m THB988.1m Current shares o/s 1,909m Free float: 95.0% *Source: Bloomberg Key financial forecasts

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) -2.4 -5.8 -2.4 Relative (%) -3.7 -4.6 -7.6

Major shareholders % held Sophonpanich family 4.2

Analyst(s)

Weerapat WONK-URAI


Dec-16F Dec-17F Dec-18F

Net Profit (THBm) 30,090 31,955 36,287Core EPS (THB) 15.76 16.74 19.01Core EPS Growth (12.0%) 6.2% 13.6%FD Core P/E (x) 10.28 9.68 8.52Recurring ROE 8.09% 8.15% 8.76%P/BV (x) 0.81 0.77 0.73DPS (THB) 6.50 6.50 6.50Dividend Yield 4.01% 4.01% 4.01%

84.0

92.3

100.7

109.0

130.0

150.0

170.0

190.0Price Close Relative to SET (RHS)

10

20

30


Vol m

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Asia Pacific Daily│Equity research│October 24, 2016

7

REGIONAL HEAD

Michael William GREENALL Regional Head of Research +60 (3) 2261 9088 [email protected]

COUNTRY HEADS OF RESEARCH

Ivy NG, CFA Siew Khee. LIM Erwan TEGUH Kasem PRUNRATANAMALA, CFA Michael KOKALARI, CFA Malaysia Singapore Indonesia Thailand Vietnam +60 (3) 2261 9073 +65 6210 8664 +62 (21) 3006 1720 +66 (2) 657 9221 +84 907 974408 [email protected] [email protected] [email protected] [email protected] [email protected] Bertram LAI Dohoon LEE Eric LIN Pramod AMTHE Joyce Anne, RAMOS Hong Kong/China South Korea Taiwan India Philippines +852 2532 1111 +82 (2) 6730 6121 +886 (2) 8729 8380 +91 (22) 6602-5167 +63 (2) 888 7293 [email protected] [email protected] [email protected] [email protected] [email protected] Coverage via partnership arrangement with

Yolan SEIMON SB Equities

Sri Lanka +94 (11) 2306273 [email protected] Coverage via partnership arrangement with

John Keells Stock Brokers

REGIONAL SECTOR HEADS

KJ KWANG Ivy NG, CFA Raymond YAP, CFA Offshore & Marine Plantations Transportation +82 (2) 6730 6123 +60 (3) 2261 9073 +60 (3) 2261 9072 [email protected] [email protected] [email protected]

23


8

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This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

By accepting this report, the recipient hereof represents and warrants that he is entitled to receive such report in accordance with the restrictions set forth below and agrees to be bound by the limitations contained herein (including the “Restrictions on Distributions” set out below). Any failure to comply with these limitations may constitute a violation of law. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this report may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB.

The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB, John Keells, SBE and/or Morgans, as the case may be, may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. None of CIMB, John Keells, SBE or Morgans is under any obligation to update this report in the event of a material change to the information contained in this report. None of CIMB, John Keells, SBE or Morgans has any and none of them will accept any, obligation to (i) check or ensure that the contents of this report remain current, reliable or relevant, (ii) ensure that the content of this report constitutes all the information a prospective investor may require, (iii) ensure the adequacy, accuracy, completeness, reliability or fairness of any views, opinions and information, and accordingly, CIMB, John Keells, SBE and Morgans and their respective affiliates and related persons (and their respective directors, associates, connected persons and/or employees) shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. In particular, CIMB, John Keells, SBE and Morgans disclaim all responsibility and liability for the views and opinions set out in this report.

Unless otherwise specified, this report is based upon reasonable sources. Such sources will, unless otherwise specified, for market data, be market data and prices available from the main stock exchange or market where the relevant security is listed, or, where appropriate, any other market. Information on the accounts and business of company(ies) will generally be based on published statements of the company(ies), information disseminated by regulatory information services, other publicly available information and information resulting from our research.

Whilst every effort is made to ensure that statements of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other subjective judgments contained in this report are based on assumptions considered to be reasonable as of the date of the document in which they are contained and must not be construed as a representation that the matters referred to therein will occur. Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and those investing may, depending on the investments in question, lose more than the initial investment. No report shall constitute an offer or an invitation by or on behalf of CIMB, John Keells, SBE or Morgans or their respective affiliates to any person to buy or sell any investments.

CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report.

CIMB, John Keells, SBE and/or Morgans and/or their respective affiliates may enter into an agreement with the company(ies) covered in this report relating to the production of research reports. CIMB, John Keells, SBE and/or Morgans may disclose the contents of this report to the company(ies) covered by it and may have amended the contents of this report following such disclosure.

The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and autonomously. No part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or view(s) in this report. The analyst(s) who prepared this research report are prohibited from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company. Information barriers and other arrangements may be established where necessary to prevent conflicts of interests arising. However, the analyst(s) may receive compensation that is based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations and the research personnel involved in the preparation of this report may also participate in the solicitation of the businesses as described above. In reviewing this research report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request.

The term “John Keells Stock Brokers” shall, unless the context otherwise requires, mean each of John Keells Stock Brokers and its affiliates, subsidiaries and related companies. The term “SB Equities Inc.” shall, unless the context otherwise requires, mean each of SB Equities Inc. and its affiliates, subsidiaries and related companies. The term “Morgans Financial Limited” shall, unless the context otherwise requires, mean each of Morgans Financial Limited and its affiliates, subsidiaries and related companies. The term “CIMB” shall denote, where appropriate, the relevant entity distributing or disseminating the report in the particular jurisdiction referenced below, or, in every other case, CIMB Group Holdings Berhad ("CIMBGH") and its affiliates, subsidiaries and related companies.

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Country CIMB Entity Regulated by Hong Kong CIMB Securities Limited Securities and Futures Commission Hong Kong

India CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI)

Indonesia PT CIMB Securities Indonesia Financial Services Authority of Indonesia Malaysia CIMB Investment Bank Berhad Securities Commission Malaysia

Singapore CIMB Research Pte. Ltd. Monetary Authority of Singapore

South Korea CIMB Securities Limited, Korea Branch Financial Services Commission and Financial Supervisory Service

Taiwan CIMB Securities Limited, Taiwan Branch Financial Supervisory Commission Thailand CIMB Securities (Thailand) Co. Ltd. Securities and Exchange Commission Thailand

Information in this report is a summary derived from individual research reports. As such, readers are directed to the individual research report or note to review the individual Research Analyst’s full analysis of the subject company. Important disclosures relating to the companies that are the subject of research reports published by CIMB, John Keells, SBE or Morgans, as the case may be, and the proprietary position by each of them and shareholdings of its Research Analysts’ who prepared the report in the securities of the company(s) are available in the individual research report.

This report does not purport to contain all the information that a prospective investor may require. CIMB, John Keells, SBE and Morgans and their respective affiliates do not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. None of CIMB, John Keells, SBE, Morgans and their respective affiliates and related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates’ clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto.

Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report.

The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.

Australia : The distribution of this report is not an offer to buy or sell to any person within or outside Australia or a solicitation to any person within or outside of Australia to buy or sell any instrument described herein. This report is being issued outside Australia to a limited number of institutional investors and may not be provided to any person other than the original recipient and may not be reproduced or used for any other purposes.

Canada: This research report has not been prepared in accordance with the disclosure requirements of Dealer Member Rule 3400 – Research Restrictions and Disclosure Requirements of the Investment Industry Regulatory Organization of Canada. For any research report distributed by CIBC, further disclosures related to CIBC conflicts of interest can be found at https://researchcentral.cibcwm.com .

China: For the purpose of this report, the People’s Republic of China (“PRC”) does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan. The distributor of this report has not been approved or licensed by the China Securities Regulatory Commission or any other relevant regulatory authority or governmental agency in the PRC. This report contains only marketing information. The distribution of this report is not an offer to buy or sell to any person within or outside PRC or a solicitation to any person within or outside of PRC to buy or sell any instruments described herein. This report is being issued outside the PRC to a limited number of institutional investors and may not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose.

France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument.

Germany: This report is only directed at persons who are professional investors as defined in sec 31a(2) of the German Securities Trading Act (WpHG). This publication constitutes research of a non-binding nature on the market situation and the investment instruments cited here at the time of the publication of the information.

The current prices/yields in this issue are based upon closing prices from Bloomberg as of the day preceding publication. Please note that neither the German Federal Financial Supervisory Agency (BaFin), nor any other supervisory authority exercises any control over the content of this report.

Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities Limited (“CHK”) which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are of CIMB, John Keells, SBE or Morgans, as the case may be, as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CHK.

India: This report is issued and distributed in India by CIMB Securities (India) Private Limited (”CIMB India") which is registered with SEBI as a stock-broker under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992, the Securities and Exchange Board of India (Research Analyst) Regulations, 2014 (SEBI Registration Number INH000000669) and in accordance with the provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required

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to seek registration with SEBI as an Investment Adviser.

The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from equity stock broking and merchant banking of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates.”

Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (“CIMBI”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable Indonesian capital market laws and regulations.

This research report is not an offer of securities in Indonesia. The securities referred to in this research report have not been registered with the Financial Services Authority (Otoritas Jasa Keuangan) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market law and regulations.

Ireland: CIMB is not an investment firm authorised in the Republic of Ireland and no part of this document should be construed as CIMB acting as, or otherwise claiming or representing to be, an investment firm authorised in the Republic of Ireland.

Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”) solely for the benefit of and for the exclusive use of our clients. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update, revise or reaffirm its opinion or the information in this research reports after the date of this report.

New Zealand: In New Zealand, this report is for distribution only to persons who are wholesale clients pursuant to section 5C of the Financial Advisers Act 2008.

Singapore: This report is issued and distributed by CIMB Research Pte Ltd (“CIMBR”). CIMBR is a financial adviser licensed under the Financial Advisers Act, Cap 110 (“FAA”) for advising on investment products, by issuing or promulgating research analyses or research reports, whether in electronic, print or other form. Accordingly CIMBR is a subject to the applicable rules under the FAA unless it is able to avail itself to any prescribed exemptions.

Recipients of this report are to contact CIMB Research Pte Ltd, 50 Raffles Place, #19-00 Singapore Land Tower, Singapore in respect of any matters arising from, or in connection with this report. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CIMBR directly, you may not rely, use or disclose to anyone else this report or its contents.

If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following :

(a) Section 25 of the FAA (obligation to disclose product information);

(b) Section 27 (duty not to make recommendation with respect to any investment product without having a reasonable basis where you may be reasonably expected to rely on the recommendation) of the FAA;

(c) MAS Notice on Information to Clients and Product Information Disclosure [Notice No. FAA-N03];

(d) MAS Notice on Recommendation on Investment Products [Notice No. FAA-N16];

(e) Section 36 (obligation on disclosure of interest in securities), and

(f) any other laws, regulations, notices, directive, guidelines, circulars and practice notes which are relates to the above, to the extent permitted by applicable laws, as may be amended from time to time, and any other laws, regulations, notices, directive, guidelines, circulars, and practice notes as we may notify you from time to time. In addition, the recipient who is an accredited investor, expert investor or institutional investor acknowledges that a CIMBR is exempt from Section 27 of the FAA, the recipient will also not be able to file a civil claim against CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA, the recipient will also not be able to file a civil claim against CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA.

South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch (“CIMB Korea”) which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market Act of Korea (“FSCMA”).

Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities.

CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services.

Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden.

Switzerland: This report has not been prepared in accordance with the recognized self-regulatory minimal standards for research reports of banks issued by the Swiss Bankers’ Association (Directives on the Independence of Financial Research).

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Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.

Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (“CIMBS”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CIMBS has no obligation to update its opinion or the information in this research report.

If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient are unaffected.

CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.

AAV, ADVANC, AMATA, ANAN, AOT, AP, BA, BANPU, BBL, BCP, BDMS, BEAUTY, BEC, BEM, BH, BJCHI, BLA, BLAND, BTS, CBG, CENTEL, CHG, CK, CKP, CPALL, CPF, CPN, DELTA, DTAC, EARTH, EGCO, EPG, GL, GLOW, GPSC, GUNKUL, HANA, HMPRO, ICHI, INTUCH, IRPC, ITD, IVL, JAS, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, M, MAJOR, MINT, PLANB, PLAT, PS, PTG, PTT, PTTEP, PTTGC, QH, ROBINS, RS, S, SAMART, SAMTEL, SAWAD, SCB, SCC, SCCC, SCN, SGP, SIRI, SPALI, SPCG, STEC, STPI, SVI, TASCO, TCAP, THAI, THCOM, TICON, TISCO, TMB, TOP, TPIPL, TRUE, TTA, TTCL, TTW, TU, UNIQ, UV, VGI, VNG, WHA, WORK.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result

Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. Unless specified to the contrary, this report has been issued and approved for distribution in the U.K. and the EEA by CIMB UK. Investment research issued by CIMB UK has been prepared in accordance with CIMB Group’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jurisdiction, or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

Where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent report must be considered as a marketing communication.

United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC

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member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2015, Anti-Corruption Progress Indicator 2015.

AAV – Very Good, 3B, ADVANC – Excellent, 3A, AEONTS – Good, 1, AMATA – Very Good, 2, ANAN – Very Good, 3A, AOT – Very Good, 2, AP - Good, 3A, ASK – Very Good, 3B, ASP – Very Good, 4, BANPU – Very Good, 4, BAY – Very Good, 4, BBL – Very Good, 4, BCH – not available, no progress, BCP - Excellent, 5, BEM – not available, no progress, BDMS – Very Good, 3B, BEAUTY – Good, 2, BEC - Good, 3B, BH - Good, 2, BIGC - Excellent, 3A, BJC – Good, 1, BLA – Very Good, 4, 1, BTS - Excellent, 3A, CBG – Good, 1, CCET – not available, 1, CENTEL – Very Good, 3A, CHG – Good, 3B, CK – Excellent, 3B, COL – Very Good, 3A, CPALL – Good, 3A, CPF – Very Good, 3A, CPN - Excellent, 5, DELTA - Very Good, 3A, DEMCO – Very Good, 3A, DTAC – Excellent, 3A, EA – not available, 3A, ECL – Good, 4, EGCO - Excellent, 4, EPG – not available, 3B, GFPT - Very Good, 3A, GLOBAL – Very Good, 2, GLOW - Good, 3A, GPSC – not available, 3B, GRAMMY - Excellent, 3B, GUNKUL – Very Good, 1, HANA - Excellent, 4, HMPRO - Excellent, 3A, ICHI – Very Good, 3A, INTUCH - Excellent, 4, ITD – Good, 1, IVL - Excellent, 4, JAS – not available, 3A, JASIF – not available, no progress, JUBILE – Good, 3A, KAMART – not available, no progress, KBANK - Excellent, 4, KCE - Excellent, 4, KGI – Good, 4, KKP – Excellent, 4, KSL – Very Good, 2, KTB - Excellent, 4, KTC – Very Good, 3A, LH - Very Good, 3B, LPN – Excellent, 3A, M - Good, 2, MAJOR - Good, 1, MAKRO – Good, 3A, MALEE – not available, 2, MBKET – Good, 2, MC – Very Good, 3A, MCOT – Excellent, 3A, MEGA – Very Good, 2, MINT - Excellent, 3A, MTLS – Good, 2, NYT – Good, no progress, OISHI – Very Good, 3B, PLANB – Good, 3B, PS – Excellent, 3A, PSL - Excellent, 4, PTT - Excellent, 5, PTTEP - Excellent, 4, PTTGC - Excellent, 5, QH – Very Good, 2, RATCH – Excellent, 3A, ROBINS – Excellent, 3A, RS – Very Good, 1, SAMART - Excellent, 3B, SAPPE - Good, 3B, SAT – Excellent, 5, SAWAD – Good, 1, SC – Excellent, 3B, SCB - Excellent, 4, SCBLIF – not available, no progress, SCC – Excellent, 5, SCN – Good, 1, SCCC - Good, 3A, SIM - Excellent, 3B, SIRI - Good, 1, SPALI - Excellent, 3A, SPRC – not available, no progress, STA – Very Good, 1, STEC – Very Good, 3B, SVI – Very Good, 3A, TASCO – Very Good, 3A, TCAP – Very Good, 4, THAI – Very Good, 3A, THANI – Very Good, 5, THCOM – Excellent, 4, THRE – Very Good, 3A, THREL – Very Good, 3A, TICON – Very Good, 3A, TISCO - Excellent, 4, TK – Very Good, 3B, TKN – not available, no progress, TMB - Excellent, 4, TPCH – Good, 3B, TOP - Excellent, 5, TRUE – Very Good, 2, TTW – Very Good, 2, TU – Very Good, 3A, UNIQ – not available, 2, VGI – Excellent, 3A, WHA – Good, 3A, WORK – not available, no progress.

Comprises level 1 to 5 as follows:

Level 1: Committed

Level 2: Declared

Level 3: Established (3A: Established by Declaration of Intent, 3B: Established by Internal Commitment and Policy)

Level 4: Certified

Level 5: Extended.

CIMB Recommendation Framework

Stock Ratings Definition:

Add The stock’s total return is expected to exceed 10% over the next 12 months.

Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.

Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.

Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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