Smartkarma Top 10 Ideas of 2016

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Welcome to the Smartkarma Top 10 Ideas of 2016!Smartkarma provides unconflicted and unmatched analysis, transparency, and context into Asian markets to help global institutional investors confidently drive their investment strategies. Unlike traditional research companies, Smartkarma combines intelligence from the world’s premier analysts, academics, data scientists and strategists in one unique ecosystem.

In 2016, Smartkarma published almost 5,000 Insights over the course of the year. We’ve put together a small selection of some of the best and brightest from the Smartkarma ecosystem, representing non-consensus calls, differentiated ideas, and in depth coverage in areas under covered by the Street. We look forward to bringing you even more unparalleled coverage on Asian markets in 2017!

Happy Reading, Smartkarma

Table of Contents

Deal or No Deal, GLP Still Linchpin in China’s Domestic Logistics .............................. 3Network, Still Deeply Undervalued - Daniel Hellberg

ZTO Express IPO: Why Pay up for a Second Derivative - Daniel Hellberg ................... 4and Sumeet Singh

Hitachi Zosen Fukui (6163:JP). Huge Upside Optionality. Downside.......................... 5Protection - Perry Tan

Jasmine’s 4G Failure Does Not Mean the Good Times Are Back for AIS .................... 6and DTAC - New Street Research

Dry Bulk Shipping - Turning Neutral as Normalisation Takes Hold, ............................. 7- Drewry Maritime Financial Research

Eagle High Plantations - Blind Spot - On the Ground in J -Town .................................. 8- Angus Mackintosh

Dah Sing Ka Ching? - Travis Lundy ................................................................................. 9

A Tragicomedy of Errors - Dealing with Sharp Sharpish - Travis Lundy ..................... 10

Cracking the SAFE; Is There A Risk To Chinese Outbound Acquisitions? ................. 11- Arzish Baaquie, Crispin Francis and Pranav Rao

Interesting Development for Samsung Restructuring: Opposition Party .................. 12Is Now Samsung’s Best Supporter? - Sanghyun Park#03-08 The Signature,

Changi Business Park Central 2, Singapore 486066

+65 6715 1480

sales@smartkarma.com www.smartkarma.com

3

Attributed Insight Provider

Daniel Hellberg 20+ yrs Equities Analyst

Asian Industrials Focus

GLP SP

GLP: Misplaced Strategic ValueDominant leader was trading below IPO price, and at a discount to replacement cost

• May 2016: GLP trading below IPO Price. Daniel Hellberg notes that dominant provider of modern warehouses deeply discounted, and provides solution to China's congestion woes.

• Nov 2016: Speculation emerges of a possible takeover bid. Market remains in disbelief.

• Hellberg sees GLP trading up to SGD 2.59 (fair value), or SGD 3.57 (strategic acquisition price).

"Deal or No Deal, GLP Still Linchpin in China’s Domestic Logistics Network, Still Deeply Undervalued."

15.2 Mn SQMOF WAREHOUSE SPACE

7x THE NEXT LARGEST PLAYER

0.7x PRICE/BOOKDeal or No Deal, GLP Still Linchpin in China’s Domestic Logistics Network, Still Deeply Undervalued

Equity Bottom-Up

4

Attributed Insight Providers

Daniel Hellberg 20+ yrs Equities Analyst

Asian Industrials Focus

Sumeet Singh Smartkarma

ZTO US

ZTO Express: BreakdownBig valuation gaps to fill; why pay up for a second derivative

• ZTO Express planned to list on the NYSE at a rich valuation based on impressive headline growth figures.

• While revenue growth was quick, it was slowing after adjusting for acquisitions.

• Corporate governance concerns as well as changing industry dynamics which would likely bring down margins going forward.

"All the large players in the industry are trying to list and will raise fresh money. Undoubtedly, the fresh money will be used to build capacity and fight for market share. This will probably put pressure on margins for everyone."

20%INCREASE IN MARKET SHARE OF SMALLER PLAYERS

RELATED PARTY TRANSACTIONS AMOUNT TO MORE THAN

13% OF REVENUE

43% OF EBITDA

15% DOWN VS IPO PRICE ON DAY ONE ZTO Express IPO: Why Pay up for a Second Derivative

Impacted of adjustment for acquisition on revenue growth (%)

Data: CompanySmartkarma Chartbuilder 1.0

Reported

Acquisitionadjusted

FY15

55.9

46.9

6M16

70.8

37.5

IPOs & Placements

5

Attributed Insight Provider

Perry TanSenior Investment Analyst Black Crane Investment Mgmt Ltd

6163 JP

Hitachi Zosen Fukui has huge upside optionalityA deep-value, free cash flow generative company with a smart activist investor on the register

• Stable and free cash generative with an ROIC of 23% and ROE of 14% trading at tangible book value.

• Overlooked by institutional investor due to its low free-float and market capitalisation.

• An activist fund has built up a 13% stake in Hitachi Zosen Fukui over the last few years.

"Hitachi Fukui Zosen’s business is higher return, more cash producing business than its Parent Company whose core business is waste to energy conversion...If the parent company offers to privatise H&F at a fair valuation, they can benefit from the tapping into all of the recurring free cash flow of the press machine business."

23% ROIC

14% ROE

1x TBV

50% PREMIUM AT OFFER PRICE Hitachi Zosen Fukui (6163:JP). Huge Upside Optionality. Downside Protection

Equity Bottom-Up

6

Attributed Insight Provider

New Street ResearchDifferentiated Global TMT and Internet Research

ADVANC TB, JAS TB, DTAC TB, TRUE TB

Thai Telecom: The Good, The Bad and The UglyIdentifying the real winner

• The dynamics of the Thai telecom market ensured that the 4G spectrum auctions in Dec 2015 would end up being a winner's curse.

• With Jasmine's default on its 4G license, ADVANC and DTAC rallied, but NSR rightly exercised caution.

• NSR underlined that the only winner was #3 player TRUE, which has secured more spectrum than its larger competitors, rare in any market.

"We see risks for both AIS and DTAC from continued market share gains by TRUE. AIS is best equipped to deal with this threat and is rolling out 4G aggressively now with close to full coverage expected in 2017."

#3 PLAYER,

#1SPECTRUM HOLDINGS

DTAC PRICE TARGET IMPLIES

50% DOWNSIDE

ADVANC SERVICE REVENUE SHARE DOWN

2.8% YoY Jasmine’s 4G Failure Does Not Mean the Good Times Are Back for AIS and DTAC

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%Q3 13

AIS DTAC TRUE TRUE underlying Market

Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

Service revenue growth (ex-IC, % YoY)

Source: New Street Research estimates

Top-Down & Thematic

7

Attributed Insight Provider

Drewry Maritime Financial ResearchMaritime Sector, Equity & Credit Research

2343 HK, GOGL US, SALT US and SBLK US

Dry Bulk RecoveryLong-awaited normalization process in the Dry Bulk sector has begun

• Demand slowing but there was no demand destruction.

• Huge positives on the supply side with the much-awaited fleet rationalisation with negative fleet growth after years of excessive supply.

• Pessimism was at its peak, speculative money was throwing in the towel and patient capital was being deployed.

"We at DMER believe the long-awaited normalisation process has already begun; even as we highlight that recovery will be slow, the time to be permanently bearish on the sector has passed."

THE BALTIC HANDYSIZE INDEX MOVED UP BY

60% SINCE MID 2016

SUPRAMAX INDEX MOVED UP

50% SINCE MID 2016

BDI ABOVE

1,000 FOR THEFIRST TIME IN 15 MONTHS Dry Bulk Shipping - Turning Neutral as Normalisation Takes Hold

Baltic Dry Index, 1 year (October 2015 - October 2016)

1100

1000

900

800

700

600

500

400

300

200

26/10/1

5

26/11/1

5

26/12/1

5

26/01/1

6

26/02/1

6

26/03/1

6

26/04/1

6

26/05/1

6

26/06/1

6

26/07/1

6

26/08/1

6

26/09/1

6

26/10/1

6

Top-Down & Thematic

8

Attributed Insight Provider

Angus MackintoshSmartkarma

BWPT IJ

Eagle High: Timing TransformationWhen investment ends, FCF turns positive and efficiency can improve

• Angus met the company and highlighted that it was on the cusp of a new growth phase after a period of M&A indigestion.

• 2016 marked the end of Eagle High’s investment phase, and Angus expected the company to turn FCF positive in 4Q16 when debt could be paid down.

• Angus believed that this would provide room for the company to focus on improving operational efficiencies.

"The price paid represents a valuation of 8x EV/EBITDA for the company, which make the current valuation of around 4x look pretty attractive."

<1xPRICE/BOOK FOR NORMALIZED ROE OF

16-17%NOVEMBER 2016 EBITDA =

~50% OF 9M16 EBITDA

37% STAKE SALE AT

8x EV/EBITDA VERSUS PREVAILING

4x EV/EBITDAEagle High Plantations - Blind Spot - On the Ground in J -Town

Best Performing Palm Oil Play in ASEAN in 2016

100%

50%

0%

-50%

Peer years to date

NOBLSSMS

GZCOFGV

DSNGGENP

FR KLKSIM

ESGRO

IFAR

AALIBAL

OLAMWIL

LSIPSIM

PBWPT

Equity Bottom-Up

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Attributed Insight Provider

Travis LundySmartkarma

440 HK

Dah Sing Financial, hard catalyst to crystallize valueCollapse of the Holdco Structure

• Early in 2016, it was reported that Dah Sing Financial Holdings (DSFH) was considering a sale of its life insurance business with an estimated price tag of more than USD 1 Bn.

• If a sale of the insurance business was on the cards, one could expect at least 1.5x book, which would be a 75% premium to DSFH's then share price.

• The holdco structure would be flattened post sale of insurance business.

"The real trade is what it means for the Holdco afterwards."

29-40% DISCOUNT TO NAV

INSURANCE BUSINESS SOLD FOR

USD 1.38 Bn

40%+ CUMULATIVE RETURNS Dah Sing Ka Ching?

Discount to NAV of Dah Sing Financial Holdings

0%

-5%

-10%

-15%

-20%

-25%

-30%

-35%

-40%

-45%

0%

-5%

-10%

-15%

-20%

-25%

-30%

-35%

-40%

-45%

Disc

ount

to N

AV o

f DSF

H

Disc

ount

to N

AV o

f DSF

H

DSFH Discount to NAV - Insurance at 1 x PBR

DSFH Discount to NAV - ADJ for Insurance Sal $1.38bn

DSFH Discount to NAV - ADJ for Insureance Sale (US =$1bn)

4-Aug-14

4-Sep-14

4-Oct-

14

4-Nov-1

4

4-Dec-1

4

4-Jan-15

4-Feb-15

4-Mar-1

5

4-Apr-1

5

4-May-1

5

4-Jun-15

4-Jul-15

4-Aug-15

4-Sep-15

4-Oct-

15

4-Nov-1

5

4-Dec-1

5

4-Jan-16

4-Feb-16

4-Mar-1

6

4-Apr-1

6

4-May-1

6

4-Jun-16

4-Jul-16

4-Aug -1

6

Event-Driven

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Attributed Insight Provider

Travis LundySmartkarma

6753 JP

Sharp: Exclusion Also Presents OpportunitiesGovernment intervention, contingent liabilities, index exclusions and punter stock renaissance

• Amidst a “tragicomedy of errors”, Sharp’s share price had dropped to a lifetime low of JPY 108 when Hon Hai became interested in acquiring the company.

• The situation was complicated by the variety of stakeholders involved as well as the contingent liabilities that Sharp disclosed only post offer.

• The deal got done in the end, but the over-reaction to the index exclusion of Sharp Corp provided alpha-generating opportunities.

"It looks to me to be a setup for a classic Japanese "punter stock renaissance."

LIFETIME LOW OF

JPY 108 WITH BOOK VALUE

BELOW 0

JPY 300-350 Bn OF CONTINGENT LIABILITIES

POST DEAL INDEX EXCLUSION LED PRICE DOWN TO

JPY 94 ONLY TO BOUNCE TO

JPY 190 FOUR MONTHS AFTER A Tragicomedy of Errors - Dealing with Sharp Sharpish

350

300

250

200

150

100

50

0

Sharp (6753) Volume (shs mm)Sharp (6753) Share Price

2-Dec-1

4

2-Jan-15

2-Feb-15

2-Mar-1

5

2-Apr-1

5

2-May-1

5

2-Jun-15

2-Jul-15

2-Aug-15

2-Sep-15

2-Oct-

15

2-Nov-1

5

2-Dec-1

5

2-Jan-16

2-Feb-16

2-Mar-1

6

2-Apr-1

6

2-May-1

6

2-Jun-16

2-Jul-16

2-Aug-16

2-Sep-16

2-Oct-

16

2-Nov-1

6

2-Dec-1

6

Sharp Share Price Performance

Event-Driven

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Attributed Insight Providers

Arzish BaaquieSmartkarma

Crispin FrancisSmartkarma

Pranav RaoSmartkarma

LSCC US, IM US, JMEI US, KANG US, YY US

CFIUS SAFEty ConcernsThe alphabet soup threatening M&A deal completion

• China’s State Administration of Foreign Exchange ("SAFE") found issue with the movement of capital out of the country, threatening outbound M&A, especially ADR privatizations.

• The secretive CFIUS approval process was complicated by the 2016 US Presidential Elections.

• Insights and discussions highlighted how to navigate in the presence of these deal risks.

"It might very well be a case of offshore public market participants simply not being aware of the risk that SAFE poses. We'd hope offshore public market participants to do the same, sooner rather than later."

ADR PRIVATIZATIONS WITH COMBINED VALUE

>USD 45 BnCFIUS RISK WIDENED LSCC SPREAD

~9%QIHU AND YY FELL

~12% ON 9 MAY 2016 BECAUSE OF SAFE CONCERNS Cracking the SAFE; Is There A Risk To Chinese Outbound Acquisitions?

China's Black Monday vs 9 May 2016 for Select ADRs Undergoing Privatisations

Source: Capital IQ, market data as a 9 May 2016

QIHU (binding)

WX (Delisted)

YY (non-binding)

BABA

24-Aug-15

-9.1%

-4.9%

-12.9%

-3.5%

9-May-16

-11.3%

Delisted - Dec 2015

-13.8%

0.3%

Smartkarma Chartbuilder 1.0

Top-Down & Thematic

12

Attributed Insight Provider

Sanghyun Park10+ yrs Equities Analyst

South Korea Specialist

005930 KS

Samsung Electronics: Chaebol RestructuringTracking the progress of Samsung's restructuring

• Chaebols have inherently got convoluted structures, and none more so than Samsung.

• Sanghyun has thoroughly covered all news in this process while also highlighting the manner in which the structure could unravel.

• While Elliott Management has made demands of Samsung, Sanghyun argues that people at the chaebol are nonetheless looking to restructure the business and that this restructuring is not a desire but a “must” for survival.

"I firmly believe that SEC will eventually do holdco conversion.... we also have to note that this is actually the first time SEC officially mentioned about "holdco conversion" and "US listing", which are the two critical elements of Elliott's demands."

3 REQUESTS FOR INDEPENDENT DIRECTORS TO BE ADDED

KRW 30 Tn REQUESTED TO BE GIVEN IN DIVIDENDS

75% OF FCF REQUESTED TO BE GIVEN AS DIVIDENDS GOING FORWARD

Interesting Development for Samsung Restructuring: Opposition Party Is Now Samsung’s Best Supporter?

Source: bbc.com

Governance & Shenanigans

#03-08 The Signature, Changi Business Park Central 2, Singapore 486066

+65 6715 1480 sales@smartkarma.com www.smartkarma.com