Thursday, 06 November 2014 20,000 25,000 15 25 Asian Daily...

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Thursday, 06 November 2014

Asian Daily (Asia Edition)

EPS, TP and Rating changes EPS TP

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

PICC P&C (4) (7) (5) 21 O (O) Ping An Bank 5 (8) (5) 5 N (N) Tuniu Corporation n.m n.m (6) (6) N (N) HK Exchanges and Clearing (4) (4) 0 (2) N (N) Aban Offshore Ltd 28 0 0 40 O (O) Ashok Leyland Ltd 0 0 0 3 N (O) Colgate-Palmolive India 2 3 6 15 O (O) Hexaware Technologies 3 1 5 (10) N (N) Jindal Steel & Power Ltd 0 0 0 (3) N (U) Media Nusantara Citra (17) (19) (11) 1 N (N) BAT Malaysia (1) (3) (2) 12 O (O) OUE Ltd (27) 1 (8) 12 N (N) Sembcorp Marine Ltd. 0 (5) (8) (1) N (N) Singapore Exchange (4) (2) 0 6 N (N) StarHub Ltd (3) (2) 0 (5) U (U) Hyundai Steel (2) 1 0 44 O (O) Lextar (15) 0 (4) 39 O (O) Jardine Matheson 0 (1) 2 N (N) Jardine Strategic 0 (1) 0 N (N)

Connecting clients to corporates

Thematic Trip

China Solar and T&D Tour Date 10-12 November, China

(Shanghai, Wuxi, Changzhou, Nanjing)

Analyst Edmond Huang

China Industrial Tour Date 17-21 November, China

(Shanghai, Tianjin and Beijing)

Analyst Edmond Huang

China Environment “Green Trip” Date 18-21 November, China

(Beijing, Wuhan, Jiangsu, Shanghai)

Analyst Trina Chen

Corporate Days / Conferences

Japan/Korea Corporate Day Date 17 November, Hong Kong

China O2O E-Commerce and Logistics Corporate Day Date 20 November, Hong Kong

Analyst Dick Wei / Kevin Yin / Eva Wang / Jinsong Du

Hong Kong / China (Non-deal roadshow)

UTAC Date 17-18 November, Hong Kong

Analyst Randy Abrams

Doosan Infracore (042670.KS) Date 18 November, Hong Kong

Analyst Minseok Sinn

Singapore (Non-deal roadshow)

Mediaplex Inc (086980.KQ) Date 18 November, Singapore

Analyst Taewon Kim

Europe (Non-deal roadshow)

VGI Global Media PCL (VGI.BK) Date 17-18 November, Europe

Analyst Warayut Luangmettakul

Contact [email protected] or your usual sales representative.

Top of the pack ...

Macau Gaming sector Kenneth Fong (3) New report: Mass revenue dropped 8% YoY in Oct, worse than our already bearish estimate

APAC Airline Sector – Increase to MW Timothy Ross (4) Jet kerosene prices too low to ignore

China Power Transmission Equipment Sector – Maintain OW Baiding Rong (5) New report: Three UHV lines started construction, confirming accelerating investment

CS pic of the day

Macau Gaming Sector — Uncertain mass-market outlook; time to lock in profit post

rally

According to DICJ, Macau gaming revenue fell 23% YoY to MOP28.0 bn in Oct, worse than the expected

21% drop. By segment, we estimate VIP may have fallen 33-35% while mass could be flat or even dropped

slightly YoY. We believe the new smoking ban rule has diverted some premium mass players to low margin

VIP rooms where smoking is allowed, hurting margin. We downgrade Sands China to NEUTRAL and Wynn

and SJM to UNDERPERFORM. We suggest investors trim position here post the rally.

Source: DICJ, Credit Suisse estimates.

-35-25-15-551525354555

0

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Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

(%)(MOPmn)

VIP Mass Slots Mass table YoY % chg - RHSVIP YoY % chg - RHS

Mass-market may deteriorate to flat or even negative growth in Oct

... and the whole pack

Regional

APAC Airline Sector – Increase to MW Timothy Ross (4) Jet kerosene prices too low to ignore

China

China Power Transmission Equipment Sector – Maintain OW Baiding Rong (5) New report: Three UHV lines started construction, confirming accelerating investment

PICC P&C (2328.HK) – Maintain O Arjan van Veen (6) Another rights issue (further capital flexibility)

Ping An Bank (000001.SZ) – Maintain N Victor Wang (7) New report: New branch expansion plan indicates cost-saving potential

Tuniu Corporation (TOUR.OQ) – Maintain N Dick Wei (8) Prolonged investment phase to step up

Hong Kong

Macau Gaming sector Kenneth Fong (3) New report: Mass revenue dropped 8% YoY in Oct, worse than our already bearish estimate

Hong Kong Exchanges and Clearing (0388.HK) – Maintain N Arjan van Veen (9) 3Q14 result: Miss due to LME and higher costs

India

Today is a public holiday in this market

India Market Strategy Neelkanth Mishra (10) Sep-14 ownership: FII stake at another all-time high; domestic MFs net buying at record high

[email protected] Ky Seong 11/06/14 12:29:02 AM Samsung Information Systems of

股票报告网整理http://www.nxny.com

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Asian Daily

- 2 of 37 -

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

ASX300 5,453.49 (0.1) 1.2 0.0 2.8

CSEALL 7,358.46 0.5 1.3 6.5 24.5

Hang Seng 23,695.62 (0.6) (0.5) (2.8) 1.7

H-SHARE 10,622.00 (1.0) (1.0) (2.3) (1.8)

JCI 5,066.83 (0.1) (0.1) (0.0) 18.5

KLSE 1,839.29 (0.4) (0.0) (1.5) (1.5)

KOSPI 1,931.43 (0.2) (1.5) (6.0) (4.0)

KSE100 30,593.31 0.7 1.6 3.6 21.1

NIFTY 8,338.30 0.2 3.1 9.0 32.3

NIKKEI 16,937.32 0.4 8.9 11.2 4.0

TOPIX 1,371.76 0.2 8.0 9.0 5.3

PCOMP 7,208.81 (0.2) 1.6 3.6 22.4

RED CHIP 4,468.71 (1.2) (0.5) (4.5) (1.9)

SET 1,577.40 (0.5) 0.9 3.6 21.5

STI 3,287.54 0.2 2.0 (0.8) 3.8

TWSE 8,962.60 (0.3) 0.7 (1.8) 4.1

VNINDEX 597.01 (0.2) 1.0 (1.7) 18.3 Thomson Reuters

Asian currencies (vs US$) (% change) Closing 1D 1W 3M YTD

A$ 0.87 (0.1) (0.7) (5.8) (2.0)

Bt 32.72 0.2 0.8 1.5 0.1

D 21,260 0.0 0.1 0.4 0.9

JPY 113.99 0.4 4.7 11.7 8.3

NT$ 30.50 0.0 0.5 1.6 2.3

P 44.89 (0.2) 0.5 1.9 1.2

PRs 102.50 - (0.4) 3.9 (2.6)

Rp 12,110 0.0 0.3 2.7 (0.4)

Rs 61.35 (0.0) 0.1 0.2 (0.7)

S$ 1.29 0.1 1.0 3.1 2.1

SLRs 130.90 0.0 0.1 0.6 0.1

W 1,080.40 0.3 2.6 4.2 2.4 Thomson Reuters

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

DJIA 17,477.60 0.5 3.0 6.8 5.4

S&P 500 2,012.10 (0.3) 1.4 4.8 8.9

NASDAQ 4,623.64 (0.3) 1.3 6.2 10.7

SOX 642.99 (0.3) 3.1 5.8 20.2

EU-STOX 2,987.97 1.7 2.1 2.5 2.3

FTSE 6,539.14 1.3 1.3 (0.9) (3.1)

DAX 9,315.48 1.6 2.6 3.1 (2.5)

CAC-40 4,208.42 1.9 2.4 1.4 (2.0)

10 YR LB 2.3640 1.2 1.9 (1.9) (21.9)

2 YR LB 0.5257 1.6 7.5 21.5 37.0

US$:E 1.2557 0.1 (0.6) (6.0) (8.6)

US$:Y 113.99 0.4 4.7 11.7 8.3

GOLD 0.00 0.3 (4.9) (10.6) (3.1)

VIX 0.00 1.1 3.5 (9.0) 8.5 Thomson Reuters

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

MSCI Index 14E 15E 14E 15E 1D 1M YTD

Asia F X Japan 12 11 12.0 10.8 (0.4) 1.5 3.6

Asia Pac F X J. 12 10 12.5 11.3 (0.2) 2.3 2.9

Australia 8 6 15.6 14.8 0.5 4.8 1.0

China 8 10 9.7 8.7 0.2 3.3 1.7

Hong Kong 8 9 15.8 14.5 (0.6) 5.1 5.3

India 15 15 18.4 15.9 0.0 3.7 27.8

Indonesia 10 13 15.6 13.8 (0.6) 4.2 23.1

Japan 74 6 15.6 14.0 3.7 4.0 (2.8)

Korea 19 13 9.4 8.3 (1.4) -2.2 (9.8)

Malaysia 3 10 16.2 14.7 (0.7) -2.0 (4.2)

Pakistan 30 14 8.6 7.5 0.00 -2.5 3.4

Philippines 7 14 20.9 18.3 (1.5) -0.3 22.1

Singapore 7 9 14.1 13.0 (0.2) -0.1 (0.8)

Sri Lanka 15 10 14.9 13.7 (1.0) -1.5 18.0

Taiwan 11 12 14.2 12.7 (0.2) 0.5 7.8

Thailand 12 11 16.5 14.9 0.1 0.4 20.0 Thomson Reuters, All data as of the most recent market close.

Aban Offshore Ltd (ABAN.BO) – Maintain O Sanjay Mookim (11) 2Q in line; focus now on rig renewals

Ashok Leyland Ltd (ASOK.BO) – Downgrade to N Jatin Chawla (12) Strong recovery already priced in

Colgate-Palmolive India (COLG.BO) – Maintain O Arnab Mitra (13) 2Q FY15: Strong results, entering a phase of high earnings growth

Hexaware Technologies (HEXT.BO) – Maintain N Anantha Narayan (14) A very good quarter but predictability has been low

Jindal Steel & Power Ltd (JNSP.BO) – Upgrade to N Neelkanth Mishra (15) 2Q shows some encouraging improvements, but overhang of ore + coal cost increase remains

Indonesia

Indonesia Economics Santitarn Sathirathai (16) 3Q GDP: Slowing down in line with our call, and more moderation likely

Media Nusantara Citra (MNCN.JK) – Maintain N Ella Nusantoro (17) Lower audience shares lead to lower earnings; pending lawsuit remains a risk

Japan

Kakaku.com (2371.T) – Maintain O Yuki Nakayasu (18) Aiming to make Tabelog the de-facto standard for users and restaurants

Toyota Motor (7203.T) – Maintain O Masahiro Akita (19) 2Q results: Expect good response to dividend hike, increase in full-year OP guidance

Malaysia

Malaysia Market Strategy Tan Ting Min (20) Big cap P/E premium has widened to 37% from a low of 14%

BAT Malaysia (BATO.KL) – Maintain O Foong Wai Loke (21) A surprise duty hike

Tenaga (TENA.KL) – Maintain N Foong Wai Loke (22) The Minister speaks...

Philippines

Bloomberry Resorts Corporation (BLOOM.PS) – Maintain O Patricia Palanca (23) High expectations met

Singapore

Jardine Matheson / Jardine Strategic Gerald Wong, CFA (24) Interim management statement in line; subdued performance across most businesses

OUE Ltd (OVES.SI) – Maintain N Yvonne Voon (25) 9M14 miss on higher costs; pushing out completion targets for CPCA extension; OUE Downtown AEIs

Sembcorp Marine Ltd. (SCMN.SI) – Maintain N Gerald Wong, CFA (26) 3Q14 miss, as operating margin fell to 10% with increased drillship recognition

Singapore Exchange (SGXL.SI) – Maintain N Arjan van Veen (27) New report: Derivative volumes strong, but continued weak equity volumes

StarHub Ltd (STAR.SI) – Maintain U Chate Benchavitvilai (28) 3Q14A weaker than expected: Broadband remains the key drag, subsidies to hit 4Q margins

South Korea

Hyundai Steel (004020.KS) – Maintain O Minseok Sinn (29) Continuing earnings improvement indicates recent correction ovedone

Taiwan

Lextar (3698.TW) – Maintain O Derrick Yang (30) 3Q14 in line; slow season ahead of the strong growth in 2015

Thailand

Thailand Economics Santitarn Sathirathai (31) Monetary policy: Higher risk of a rate cut

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

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




Asian Daily

- 3 of 36 -

Top of the pack ...

Macau Gaming sector ----------------------------------------------------------------------------------------- New report: Mass revenue dropped 8% YoY in Oct, worse than our already bearish estimate Kenneth Fong / Research Analyst / 852 2101 6395 / [email protected] Isis Wong / Research Analyst / 852 2101 7109 / [email protected]

● October mass revenue was down 8%, much worse than our expectation. There is a market misconception that the decline was mainly due to the reclassification of premium mass revenue into VIP. However, even adjusted for such, mass revenue was still -6.3%. Industry VIP luck was normal, further supporting our view that only a tiny mass revenue was classified as VIP. Full report

● By segment, VIP rolling chips of MOP526 bn was the best since June while mass revenue of MOP10 bn was the weakest since Nov 13. The better VIP and weaker mass performance support our thesis that the smoking ban has diverted some premium mass players to VIP rooms where smoking is allowed. We see limited room for this to be resolved in the near term.

● As the market is not prepared for a decline in mass revenue, we expect share prices to react negatively and this may trigger another round of earnings downgrades. The stocks have bounced 10% from bottom in mid-Oct. With data points now getting worse, we believe they could break prior lows.

● Near term, we are negative on the sector on limited visibility.

Smoking ban is hurting mix

In our Macau trip takeaway dated 24 October, we were among the first in the industry to highlight the impact of smoking ban on revenue mix. As the mass and premium mass areas do not allow smoking but VIP rooms do, more high-end players are moving from premium mass (high margin) to VIP room (low margin) to play and smoke. We have confirmed this with premium mass hosts and junket agents.

If the issue is not resolved, the impact may be more significant in the future when the returning players gradually find out that smoking is only allowed in VIP rooms and more players may go directly to VIP rooms instead of the premium mass. This will further drag the mass revenue.

Impact of VIP vs. premium table classification drag overall mass growth by around 1.7%

The impact of the conversion from premium mass to VIP table by operator to get around the smoking ban (to allow the high-end players to smoke in the premium mass area) has caused a lot of confusion in the market. Some investors believe that negative mass growth for Oct was the result of such reclassification, which is not totally true.

Note, even though the tables are essentially premium mass, under the new table classification, they are reported as VIP revenue. So far, only one operator did that and the conversion only happened in the last two weeks of October. We estimate that the net impact is only 1.7% of the total mass revenue. As such, the true mass revenue decline should be 6.3% instead of 8%, which is still weaker than expectation.

The other way to validate this is to look at the overall industry VIP hold rate. Premium mass is purely cash play with no rolling chips. As VIP hold rate is calculated by dividing revenue by rolling chips volume, if a big part of premium mass revenue is classified as VIP, the industry VIP hold rate would be inflated. This is because the inclusion of premium mass revenue will only boost the numerator (revenue) but not the denominator (rolling chips volume), inflating hold rate. But the VIP hold for Oct was normal, meaning that such impact is immaterial.

MGM is the only operator that show mass-market growth

October mass revenue was the worst since Nov 13. This shows that segment fundamentals are deteriorating. By operators, except for MGM, who is still showing positive growth of 16%, all operators saw a YoY decline. Sands’ mass was relatively flat YoY as it has the largest grind mass exposure, which is still growing.

Investment conclusion: cut position as there is likely to have more downside

In our view, negative mass revenue growth was a total surprise to the market. Over the next few weeks, we may see more earnings downgrades due to that. A slower mass revenue should also hurt margin for 4Q, which is yet to be factored in by the street.

In the past, the growth of mass market has been supporting share price and earnings amid decline in VIP revenue, we believe negative growth now both on VIP and mass would trigger a significant valuation multiple de-rating. The Macau gaming names have bounced 10% from bottom in mid-Oct. With data points now getting worse, we believe they could break prior lows.

Long term, our view on the sector remains constructive. However, before we have any clarity of the smoking ban implementation and stabilisation of mass revenue, we remain negative on the sector near term.

Figure 1: Valuation comparison Mkt Credit Pot. P/E EV/EBITDA FCF yield Dividend

Cap Price Suisse TP up/down (x) (x) (%) (%)

Company Ticker US(mn) (l.c.) Rating (l.c.) (%) 2014C 2015C 2016C 2014C 2015C 2016C 2014C 2015C 2016C 2014C 2015C 2016C

MGM China 2282.HK 11,913 24.30 O 30.2 24.3 15.0 15.9 14.7 12.9 14.2 12.4 3.0 -1.3 2.6 5.0 5.0 5.4

Melco Crown MPEL.OQ 14,053 25.47 O 31.2 22.5 21.7 18.7 13.1 12.0 9.6 6.7 -0.7 1.8 10.3 1.6 2.1 3.1

Sands China 1928.HK 47,089 45.25 N 53.8 18.9 17.2 16.0 14.7 14.4 13.8 12.2 0.7 0.5 0.8 5.8 6.2 6.8

Galaxy 0027.HK 27,838 50.85 N 50.0 -1.7 19.3 18.9 15.4 14.9 13.8 10.6 2.6 4.3 6.8 1.6 1.7 2.0

Wynn Macau 1128.HK 17,695 26.40 U 23.4 -11.4 18.5 19.4 15.1 15.8 17.0 13.1 -0.3 -3.1 6.0 4.6 4.1 5.3

SJM 0880.HK 11,382 15.60 U 13.6 -12.8 12.4 12.8 14.7 8.2 8.8 10.6 2.1 -0.3 -7.1 5.9 5.7 5.0

Melco Int'l 0200.HK 3,825 19.02 O 22.1 16.2 18.4 15.3 10.3 n.a. n.a. n.a. 1.2 1.7 2.5 1.1 1.3 2.0

Macau Legend 1680.HK 3,171 3.82 U 3.40 -11.0 39.4 27.2 22.1 26.4 20.7 15.9 -2.8 -7.7 -3.9 0.0 0.0 0.0

Sector average 136,965 18.2 17.3 14.8 13.7 13.2 11.1 1.1 0.5 3.1 4.0 4.2 4.7

Source: Datastream, Credit Suisse estimates



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Asian Daily

- 4 of 36 -

APAC Airline Sector ------------------------------------------------- Increase to MARKET WEIGHT Jet kerosene prices too low to ignore Timothy Ross / Research Analyst / 65 6212 3337 / [email protected]

● With Brent prices plumbing three-year lows and jet kerosene following suit, the positive impact of price declines on airline P&Ls cannot be dismissed, and we have upped our sector view to MW.

● Singapore jet is down 18% YoY to US$98/bbl and has fallen 17% on average this quarter. At about 38% of the region's airlines' average operating costs, this could cut ~7% from annualised jet fuel expenses.

● The wrinkle is that practically all of the region's currencies have deteriorated vs the USD and most of its airlines are operationally short that unit. On top of this, hedge losses and hedge book mark-to-markets will deprive most of the quality names of some of the benefits of lower jet fuel, with a number of carriers 60% or more hedged for 4Q14.

● No airlines have the perfect combination of balanced currency, high jet kerosene leverage and no hedge coverage. However, LCCs (especially AirAsia) and Cathay Pacific, probably have the most advantageous blends, with Singapore Airlines, Thai Airways, Garuda and ANA Holdings benefitting least.

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

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

Cathay Pacific 0293.HK O 14.68 17.00 12/14 16.2 9.5 0.9 JAL 9201.T O 2,972 3,262 03/14 5.5 6.9 1.3 ANA 9202.T O 258.10 275.00 03/14 22.3 19.0 1.2 EVA 2618.TW O 18.85 18.00 12/14 18.8 15.3 1.6 Korean Airlines 003490.KS O 36,100 44,500 12/14 154.9 9.3 0.8 AirAsia AIRA.KL O 2.56 2.90 12/13 9.1 7.3 1.3

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

LCCs expense arithmetic works in their favour

Because differentiable costs are so much lower, the region's LCCs have the greatest exposure to changes in the price of jet kerosene, which is typically a higher proportion of opex than at FSCs. As this has faithfully followed Brent prices lower, they typically benefit the most from any read through to earnings. They also have typically less jet fuel hedge coverage, losses on which are expected at FSCs from 4Q14 onwards given the build in hedge books during 3Q14.

Figure 1: Jet fuel as percentage of opex vs hedge coverage (2014E)

15%

25%

35%

45%

55%

65%

75%

85%

AK 5J D7 FD CI TR BR CX GA TG SQ OZ MH KE JL NH

Fuel expenses % of opex % hedged for FY14

Source: Company data, Credit Suisse estimates

However, as jet fuel is priced in USD (along with operating lease payments, aircraft spare parts, some landing and over flight fees) and LCCs generate very little if any USD revenues, this leaves them very exposed to the USD on the short side. Full service carriers (especially

those like Cathay Pacific, which has a large US route exposure or generates income in USD proxy currencies) are much less exposed to this variable.

Figure 2: USD operational short exposure

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%D7 5J FD TR MH OZ GA MU AK CZ SQ KE NH CI TG QF VA JL CA BR CX


It becomes an issue whenever there are significant changes in the value of the USD, with recent strength depriving those with large USD cost exposures of some of the benefits of the drop in jet kerosene prices.

Figure 3: Currency movements vs USD (31 Oct 14 vs 31 Oct 13)

-8.5%

-8.0%

-7.4%

-4.3%

-4.1%

-4.0%

-3.4%

-2.6%

-0.5%

-0.3%

0.1%

-9.0% -8.0% -7.0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0%

IDR

JPY

AUD

MYR

THB

PHP

TWD

SGD

CNY

KRW

HKD

Source: Bloomberg

The negative offset of foreign exchange movements has been most extreme for the Japanese players, although significant currency hedges have mitigated most of this. On balance, though, Air Asia, Cebu Pacific (not covered) and Cathay Pacific benefit most while ANA and Japan Airlines along with Garuda are expected to generate the least upside.

Elsewhere, declining oil prices have typically been associated with more sluggish levels of economic growth and are bad for airline demand and stock prices. We ask whether this time it might actually be different, with prices driven more by supply than demand side fundamentals, which would be structurally favourable for airlines. The potential for this underpins our sector upgrade to MARKETWEIGHT.




Asian Daily

- 5 of 36 -

China Power Transmission Equipment Sector --------------------- Maintain OVERWEIGHT New report: Three UHV lines started construction, confirming accelerating investment Baiding Rong / Research Analyst / 852 2101 6703 / [email protected] Edmond Huang, CFA / Research Analyst / 852 2101 6701 / [email protected]

● According to State Grid, three ultra-high-voltage (UHV) transmission lines started construction on 4 Nov. This further confirms State Grid's acceleration of UHV construction execution. Full report

● The total investment of the three UHV lines is about Rmb68.3 bn, with an aggregate power transformation capacity of 43 mn kVA and an aggregate length of 4,740 km, to be in operation in 2016. The equipment tenders started recently in Jul, Sep and Oct, respectively. Huainan-Nanjing-Shanghai UHV AC line tender has closed, while the two lines' tenders are still under evaluation.

● According to State Grid, another three UHV DC lines also started primary preparation work in 2H14. We estimate a total capex of Rmb64.8 bn, and it is likely to start the tender process in early 2015.

● We believe companies with high UHV exposure will be the direct beneficiaries for strong order growth and favourable product mix change. Pinggao Electric is our pick, given that it is the most leveraged play for UHV acceleration with leading market share. China XD and XJ Electric are also potential beneficiaries but with smaller exposures. TBEA is the least preferred for its over-diversification.

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

(x)

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

Pinggao Electric 600312.SS O 13.77 18.50 12/13 20.8 14.8 3.1 China XD 601179.SS N 5.35 5.00 12/13 44.5 31.8 1.5 TBEA 600089.SS U 10.16 8.00 12/13 15.8 14.6 1.6 XJ Electric 000400.SZ O 20.98 24.50 12/13 23.8 18.7 4.8


According to State Grid, three ultra-high-voltage (UHV) transmission

lines started construction on 4 November. This further confirms State

Grid's acceleration of UHV construction execution. The three lines

were among the 8 UHV transmission lines proposed and approved by

NEA, NDRC and Ministry of Environment Protection in early 2014.

The total investment of the three UHV lines is about Rmb68.3 bn, with

an aggregate power transformation capacity of 43 mn kVA and an

aggregate length of 4,740 km, to be in operation in 2016. Two of the

lines are alternative current (AC) and one is a direct current (DC) line.

The equipment tenders started recently in July, September and October,

respectively. The Huainan-Nanjing-Shanghai UHV AC line tender has

closed, while the two lines' tenders are still under evaluation.

According to State Grid, another three UHV DC lines also started

primary preparation work in 2H14, including Inner Mongolia (Shanghai

Temple) – Shandong, Shanxi-Jiangsu, and Ximeng – Jiangsu. We

estimate a total capex of Rmb64.8 bn and it is likely to start the tender

process in early 2015.

We believe companies with high UHV exposures will be the direct

beneficiary for strong order growth and favourable product mix change.

Pinggao Electric is our pick, given that it is the most leveraged play for

UHV acceleration with leading market share. China XD and XJ

Electric are also potential beneficiaries but with smaller exposures.

TBEA is the least preferred despite its strong technology in UHV

transformer, because (1) it is diversifying into non-core businesses such

as mining and power plant construction, (2) we see execution risks for

its overseas business. We have OUTPERFORM ratings on Pinggao

and XJ; NEUTRAL on China XD; and UNDERPERFORM on TBEA.

Figure 1: Specifications of the three UHV lines recently started construction

Line name Capex Technology Capacity Length

Unit Rmb bn mn kVA km

Huainan-Nanjing-Shanghai 26.8 AC 12 2*780

Ximeng-Shandong 17.8 AC 15 2*730

Ningdong-Zhejiang 23.7 DC 16 1,720

Total 68.3 43 4,740

Source: State Grid

Figure 2: Market share of Huainan-Nanjing-Shanghai key UHV equipment tender

1000kV (unit) Transformer Reactor GIS

China XD 4 13 9

Shandong Power

Equipment

4

TBEA 7

TWBB 14

Pinggao 16

New Northeast 9

Total 15 27 34

Source: State Grid



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Asian Daily

- 6 of 36 -

China

PICC P&C ----------------------------------------------------------------------- Maintain OUTPERFORM Another rights issue (further capital flexibility) EPS: ▼ TP: ▼ Arjan van Veen / Research Analyst / 852 2101 7508 / [email protected] Frances Feng / Research Analyst / 852 2101 6693 / [email protected]

● PICC P&C has announced a 0.9 for 10 rights issue at HK$7.45 per share (47% discount to closing price) representing an issue of an additional 9% of share and capital raising of Rmb7.2 bn. As such, we have downgraded our outer year earnings by 7-8% for the dilution from the rights issue (ex-rights date 10 November 2014).

● The proceeds will mainly be used to strengthen the capital base, with the solvency ratio rising to >200% from 181% at 30 June 2014 (see Fig 1). We note that the new RBC solvency requirements likely introduced in 2015 will be lower than current requirements, so we don't fully see the need for the rights issue. However, it does provide PICC P&C additional flexibility, particularly with regard to its reinsurance arrangements, which it can materially reduce, in our view.

● Catalysts: Ex-rights date 10 Nov 14, record date 17 Nov 14, first day fully paid trading 10 Dec 14.

● We have reduced our target price to HK$17.15 (from HK$ 18.00) to allow for dilution (effective 10 Nov). PICC P&C is trading on 11x P/E and 2x book, with ROE generation close to 20% (trading well below global retail P&C averages – see Fig 3).

Another rights issue

PICC P&C has announced a 0.9 for 10 rights issue at HK$7.45 per share (47% discount to closing price) representing an issue of an additional 9% of share and capital raising of Rmb7.2 bn.

As such, we have downgraded our outer year earnings by 7-8% for the dilution from the rights issue.

The proceeds will mainly be used to strengthen the capital base, with solvency ratio rising to >200% from 181% at 30 June 2014 (see Fig 1). We note that the new RBC solvency requirements likely introduced in 2015 will be lower than current requirements, so don't fully see the need for the rights issue. However, it does provide PICC P&C

additional flexibility, in particular with regard to its reinsurance arrangements, which it can materially reduce, in our view.

PICC Group (1339.HK) and AIG (AIG.N) have stated they will fully subscribe to their share of the issue.

Figure 1: Rights issue improves solvency ratio >200%

0%

50%

100%

150%

200%

250%

2H08

1H09

2H09

1H10

2H10

1H11

2H11

1H12

2H12

1H13

2H13

1H14

2H14F

1H15F

% o

f m

inim

um

so

lven

cy r

equ

irm

ent

Tier 1 Tier 2 Solvency Minimum Maximum gearing

F'castRights issues


Timetable:

Key dates for the rights issue are as follows:

Figure 2: PICC P&C rights issue timetable Date Event

07-Nov-14 Last day trading post rights 10-Nov-14 First day trading ex-rights 17-Nov-14 Record date 20-Nov-14 First day trading Nil paid rights 27-Nov-14 Last day trading Nil paid rights 08-Dec-14 Announcement of acceptances etc. 10-Dec-14 First day trading full-paid form

Source: Company data, Credit Suisse estimates.

Valuation attractive relative to global peers

Despite recent outperformance, PICC P&C's valuation remains attractive; trading at 11x P/E (despite around 15% top-line growth) and 2x book value (despite already generating close to 20% ROE) well below comparable global peers with a lower growth potential.

Figure 3: Global retail P&C valuation multiples PE (x) Prem growth* P/NTA ROTE

IAG 16.5x 3.2% 4.7x 28.3% Suncorp 14.6x 3.3% 2.2x 15.3% PICC P&C 11.4x 15.4% 2.0x 17.7%

Direct Line 10.9x -2.9% 2.0x 18.5% Tryg 12.4x -5.7% 2.9x 23.2% Gjensidige 15.9x -0.1% 3.0x 18.9%

Progressive 15.5x 2.2x 14.0% Intact 12.5x 17.0% 1.8x 14.5%

Average 13.6x 6.2% 2.4x 18.5%

Source: Company data, *2001-14 GWP growth (% p.a.)

Bbg/RIC 2328 HK / 2328.HK Rating (prev. rating) O (O) Shares outstanding (mn) 13,604 Daily trad vol - 6m avg (mn) 12.4 Daily trad val - 6m avg (US$ mn) 20.8 Free float (%) 31.0 Major shareholders PICC Group - 69%,

AIG - 9.9%

Price (05 Nov 14 , HK$) 14.18 TP (prev. TP HK$) 17.15 (18.00) Est. pot. % chg. to TP 21 52-wk range (HK$) 14.9 - 9.8 Mkt cap (HK$/US$ bn) 192.9/ 24.9

Performance 1M 3M 12M

Absolute (%) (2.2) 16.2 20.2 Relative (%) (4.4) 17.9 16.4

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

Life GWP (Rmb bn) — — — — — P&C GWP (Rmb bn) 193.5 223.5 255.1 290.8 331.7 Net profit (Rmb bn) 10.4 10.6 13.8 15.3 17.3 EPS (Rmb) 0.85 0.82 0.97 1.03 1.17 - Change from prev. EPS (%) n.a. n.a. (4) (7) (8) - Consensus EPS (Rmb) n.a. n.a. 0.91 1.01 1.20 EPS growth (%) 24.2 (3.8) 18.9 6.1 13.3 P/E (x) 13.2 13.7 11.5 10.9 9.6 NTA per share (Rmb) 3.71 4.23 4.99 5.67 6.41 EV per share (Rmb) Dividend yield (%) 1.9 4.1 3.2 3.7 4.2 EV/EBITDA (x) 11.9 11.5 8.8 8.0 7.0 P/B (x) 3.0 2.6 2.2 2.0 1.7 ROE (%) 25.8 20.5 21.0 19.3 19.3 P&C combined ratio (%) 95.1 96.7 95.9 95.6 95.6

Note 1: ORD/ADR=25.00. Note 2: PICC Property and Casualty Co Ltd is a non-life insurance company in mainland China, providing a range of motor vehicle insurance, commercial property insurance, homeowners insurance, cargo insurance, liability insurance, accidental injury insurance.




Asian Daily

- 7 of 36 -

Ping An Bank --------------------------------------------------------------------------Maintain NEUTRAL New report: New branch expansion plan indicates cost-saving potential EPS: ▲ TP: ▼ Victor Wang / Research Analyst / 852 2101 6730 / [email protected] Arjan van Veen / Research Analyst / 852 2101 7508 / [email protected]

● Following our recent visit to PAB's Shenzhen flagship branch and based on conversation with management, we believe that PAB has the potential to cut its cost-to-income ratio (CIR) more than our forecast. (FY13 CIR 41% vs FY14/15/16E: 38%/38%/37%). We estimate every 1% CIR reduction could lift its FY15/16E net profits by 1.8%/2.2%. Click here for full report.

● PAB plans to establish four tiered branches (flagship, standard, retail and community branches). We believe PAB's new branch expansion can be more cost-efficient due to new technology (e.g., automatic account opening cheaper than that made through teller counters).

● Q&A with PAB suggests new technology rollout requires (1) a robust internal accounting system; (2) strong management commitment, and (3) decent IT and R&D capacity to manage hardware cost.

● We reduce our TP from Rmb12.00 to Rmb11.40 to factor in the impact of a proposed private placement. We maintain our NEUTRAL rating on PAB but see two key upside risks: (1) faster-than-expected SME customer and deposit acquisitions; and (2) a reversal of the NPL trend in 2015.

Click here for detailed financials

Following our recent branch visit to PAB, we see upside risks to our current forecasts. We believe PAB can potentially manage down its cost-to-income ratio at a speed faster than market expectations, as it is carrying out an impressive branch restructuring/expansion, allowing significant substitution of automatic machines of expensive branch tellers.

We forecast PAB will deliver a 2013-16 profit CAGR of 23%. Our forecasts assume PAB would largely deliver a flat cost-to-income ratio in the next two years, given the bank will continue to grow its network. However, if PAB is able to better manage cost growth, we estimate every 1 pp decline in the cost-to-income ratio would result in about 3% increase each in 2015 and 2016 earnings estimates.

We revise our PAB target price from Rmb12.00 to Rmb11.40. This is mainly to factor in its proposed Rmb10 bn placement. We estimate the placement will happen in 4Q14 and bring in a 7% dilution, as we assume the new shares would be priced at Rmb11.0 per share. Ping An Group (PAG) directly owns a 57% of the bank (excluding investments via its life products) before placement.

Figure 1: PAB's current forecast vs new forecast on 1% lower CIR

(Rmb bn) Current forecasts New forecast

2014E 2015E 2016E 2015E 2016E

Revenue 71.4 86.1 102.3 86.1 102.3

Exp ex business tax -27.3 -33.3 -38.5 -32.3 -37.9

PPOP 36.8 44.3 52.2 47.2 56.7

Net profit 18.6 22.2 27.3 22.6 27.9

% chg vs. current 1.80% 2.20%

CIR ex business tax 37.9% 38.5% 38.1% 37.5% 37.1%

ROAE 15.1% 14.9% 16.6% 15.3% 17.1%

# of shares (mn)* 12,334 12,641 12,825 12,641 12,825

EPS (Rmb) 1.63 1.94 2.42 1.70 1.83

BVPS (Rmb) 11.3 12.9 15.0 11.2 12.8

Note: * 2014 number includes the impact of (1) 2-for-10 bonus share payout and (2) Rmb10 bn private placements priced at Rmb11 per share. Source: Company data, Credit Suisse estimates

Figure 2: We expect 7% dilution, if the new shares are priced at Rmb11

3Q14 shares before placement (mn) 11,425

RWA by 3Q14 1,310

3Q14 CET1 capital 115

3Q14 CET1 CAR 8.78%

Different scenarios More conservative case Base-case More aggressive case

New share price 10 11 12

# of new shares offered 1,000 909 833

Dilution 8.00% 7.40% 6.80%

Pro-rata 3Q14 CET1 CAR 9.54% 9.54% 9.54%


Figure 3: Bird's view of PAB Shenzhen flagship branch

Note: (1) Customer waiting area where they can input information via tablet; (2) Hybrid Tell Machine (HTM, where a teller is standing by two machines to provide instant assistance); (3) corporate and retail counters; (4) automatic credit card issuance machine; (5) virtual teller machine (VTM), and (6) area for products consulting and meetings with bank staff. Source: Credit Suisse (corporate visit: photo taken by Victor Wang

Bbg/RIC 000001 CH / 000001.SZ Rating (prev. rating) N (N) [V] Shares outstanding (mn) 11,425 Daily trad vol - 6m avg (mn) 63.8 Daily trad val - 6m avg (US$ mn) 106.8 Free float (%) 48.0 Major shareholders Ping An

Price (05 Nov 14, Rmb) 10.82 TP (prev. TP Rmb) 11.40 (12.00) Est. pot. % chg. to TP 5 52-wk range (Rmb) 11.74 - 8.42 Mkt cap (Rmb/US$ bn) 123.6/ 20.2


Absolute (%) 6.7 3.0 (4.9) Relative (%) 5.3 5.4 (7.9)

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

Pre-prov Op profit (Rmb mn) 20,672.3 26,845.0 38,265.7 46,655.7 55,194.4 Net profit (Rmb mn) 13,403 15,231 18,657 22,272 27,915 EPS (CS adj. Rmb) 1.64 1.86 1.71 1.80 2.22 - Change from prev. EPS (%) n.a. n.a. 5 (8) (8) - Consensus EPS (Rmb) n.a. n.a. 1.69 1.98 2.15 EPS growth (%) (33.7) 13.6 (8.1) 5.2 23.8 P/E (x) 6.6 5.8 6.3 6.0 4.9 Dividend yield (%) 1.6 1.7 1.1 1.5 1.5 BVPS (CS adj. Rmb) 16.6 11.8 11.2 12.7 14.6 P/B (x) 0.65 0.92 0.96 0.85 0.74 ROE (%) 17.0 15.5 14.9 15.0 16.3 ROA (%) 0.9 0.9 0.9 0.9 1.0 Tier 1 Ratio (%) 8.6 8.6 9.9 8.8 9.1

Note 1: Ping An Bank is the first public-listed commercial bank in China. SDB is headquartered in Shenzhen with more than 300 branches nationwide. It is now a subsidiary of Ping An Group.



https://rave.credit-suisse.com/research/company/financials?ric=1988.HK

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Asian Daily

- 8 of 36 -

Tuniu Corporation -------------------------------------------------------------------Maintain NEUTRAL Prolonged investment phase to step up EPS: ▼ TP: ▼ Dick Wei / Research Analyst / 852 2101 7339 / [email protected] Evan Zhou / Research Analyst / 852 2101 6745 / [email protected]

● We see Tuniu's recently stepped-up spending on branding campaign, mobile user acquisition and offline branch network expansion as an proactive investment toward its long-term volume growth, market share gain and improved economy of scale. However, profitability progress might be further delayed, and now we won't expect breakeven until late 16E.

● 3Q14 preview. On 11 Nov, we expect Tuniu to report 3Q revenue of Rmb1,268 mn, and 3Q non-GAAP net loss of -Rmb100 mn.

● Key focus areas in 3Q results: (1) Volume growth in organised and self-service tours; (2) gross margin trend by products; (3) marketing spend and investment guidance for 4Q and 15E; and (4) comment on competitive landscape dynamics.

● Maintain Neutral and reduce TP to US$17. We revise down our 14E/15E/16E non-GAAP net income by 37%/200%/36% respectively, due to meaningfully increased spending on brand-building marketing, mobile traffic acquisition and offline network expansion cost. Our TP of US$17 is based on DCF, with 12% WACC and a 3% terminal growth rate.


Aggressive brand campaign

Besides launching a brand ad featuring Chinese celebrity Jimmy Lin, Tuniu also started several brand campaigns in 3Q to boost its brand recognition. For example, Tuniu has become the title sponsor of (If

you are the one(非诚勿扰)), one of the most popular variety shows

in China. Besides title sponsorship, Tuniu provides a special discount product '1RMB Tour' for audience who log on to Tuniu’s mobile app 30 minutes after the show. Meanwhile, it has also become the title

sponsor of (A heaven-sent fortune (喜从天降 )), a family theme

variety show of Tianjin TV. Tuniu also cooperated with Jiangsu TV's

variety show (Beauty Traveler（最美体验师）) to launch a country

wide beauty contest in over 100 universities in China to choose a young spokesperson for Tuniu.

We view the brand campaigns will help support user expansion of Tuniu, especially in Tier 2-3 cities. But rising marketing cost will also become a drag to its margin profile.

Launches supply chain financing service 'Bull Loan' to enhance supplier co-operation

Tuniu recently launched 'Bull Loan ( 牛业贷 )', a supply chain

financing service for Tuniu's SME suppliers. Due to relatively small scale of these companies, it is difficult for them to directly get loans from financial institutions. To solve this problem, Tuniu has cooperated with CMBC/NJCB to launch a loan service especially for them. Tuniu has rich transaction data of its suppliers via its proprietary N-booking system that provide great data support on valuing suppliers' credibility. We expect this service to further strengthen Tuniu's partnership with its suppliers.

3Q14 preview

We expect Tuniu to report 3Q revenue of Rmb1,268 mn, and 3Q non-GAAP net loss of -Rmb100 mn. Tension in ASEAN countries is still dragging down outbound demand in the region.

3Q results call details: 11 Nov, 9PM HK/ 8AM EST. Dial-in: + 1-888-346-8982 / +852-800-905945, PW: Tuniu Corporation conference call

Figure 1: Earnings revision Revised Changes

(Rmb mn) 3Q14E 4Q14E 2015E 2016E 3Q14E 4Q14E 2015E 2016E

Gross Revenue 1,268 881 6,516 10,131 0.0% -4.5% -2.8% -0.1% Organized tours 1,238 851 6,361 9,907 0.1% -4.3% -2.8% -0.1% Self-guided tours 22.1 19.8 113.0 166.5 -11.8% -12.8% -10.2% -7.0% Net Revenue 1,262 876 6,483 10,081 0.0% -4.5% -2.8% -0.1% Gross profit 77 52 442 815 -1.2% -13.5% -7.9% -3.4% GPM (%) 6.1% 5.9% 6.8% 8.1% Adj. Op. Profit (108) (107) (234) 24 -101% -85% -136% -58% Adj. OPM (%) -8.5% -12.1% -3.6% 0.2% Adj. NI (ex-SBC) (100) (99) (205) 71 -113% -93% -211% -36% Adj. NPM (%) -7.9% -11.3% -3.1% 0.7% Adj. Dil. EPS (RMB) -2.01 -2.00 -4.12 1.44 -113% -93% -211% -36%


Figure 2: China online travel comps Close Mkt cap PE PS

Company price (US$Mn) 2014E 2015E 2016E 2014E 2015E 2016E

Ctrip 57.7 8,206 53.0x 33.4x 22.3x 6.7x 5.4x 4.5x Qunar 27.0 3,200 -24.1x -34.3x 105.0x 11.5x 6.7x 4.1x eLong 18.2 628 111.5x 42.8x n.a 3.1x 2.6x n.a Tuniu 18.1 985 -14.9x -27.3x 79.6x 16.8x 9.1x 5.5x

Average 31.4x 3.7x 69.0x 9.5x 6.0x 4.7x

Source: Company data, Credit Suisse estimates, Bloomberg

Maintain Neutral and reduce TP to US$17 (from US$18)

We revise down our 14E/15E/16E non-GAAP net income by 37%/200%/36% respectively, due to meaningfully increased spending on brand-building marketing, mobile traffic and offline network expansion cost. Our TP of US$17 is based on DCF, with ~30-35% growth over 2020-25, a WACC of 12% and a 3% terminal growth rate.

Bbg/RIC TOUR US / TOUR.OQ Rating (prev. rating) N (N) [V] Shares outstanding (mn) 49.75 Daily trad vol - 6m avg (mn) 0.1 Daily trad val - 6m avg (US$ mn) 2.3 Free float (%) 19.1 Major shareholders DCM (20.7%)

Price (04 Nov 14 , US$) 18.12 TP (prev. TP US$) 17.00 (18.00) Est. pot. % chg. to TP (6) 52-wk range (US$) 24.0 - 10.1 Mkt cap (US$ mn) 901.5


Absolute (%) 10.5 (24.2) — Relative (%) 8.3 (22.6) —

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

Revenue (Rmb mn) 1,113 1,950 3,433 6,483 10,081 EBITDA (Rmb mn) (102.7) (87.8) (409.2) (242.9) 13.1 Net profit (Rmb mn) (107.2) (139.1) (372.5) (205.2) 71.5 EPS (Rmb) (4.12) (5.35) (7.49) (4.12) 1.44 - Change from prev. EPS (%) n.a. n.a. n.m n.m (36) - Consensus EPS (Rmb) n.a. n.a. (9.6) (4.8) 0.3 EPS growth (%) n.m. n.m. n.m. n.m. n.m. P/E (x) n.m. n.m. n.m. n.m. 77.1 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) (50.8) (58.0) (11.3) (17.6) 256.4 P/B (x) (10.2) (6.8) 9.7 15.2 12.7 ROE (%) 47.1 39.4 (520.4) (44.1) 17.9 Net debt(cash)/equity (%) (430.1) (143.9) (158.9) (342.9) (496.4)

Note 1: Tuniu Corporation is an online leisure travel company. The company offers a selection of packaged tours, including organised tours and self-guided tours, as well as travel-related services for leisure travellers.



https://rave.credit-suisse.com/research/company/financials?ric=TOUR.OQ


Asian Daily

- 9 of 36 -

Hong Kong

Hong Kong Exchanges and Clearing ------------------------------------------Maintain NEUTRAL 3Q14 result: Miss due to LME and higher costs EPS: ▼ TP: ◄► Arjan van Veen / Research Analyst / 852 2101 7508 / [email protected]

● HKEx reported a 3Q14 NPAT of HK$1,287 mn, up 7% YoY, but around 10% below our forecasts, with the miss mainly from LME and higher operating expenses—as such, we have downgraded earnings by 4-5% in our forecast period.

● Key highlights: The weaker-than-expected 3Q14 result was due to: (1) Lower securities income per $ of turnover, down 4% YoY; (2) Weaker LME 3Q trading revenue (29% below our forecast); and (3) Higher operating expenses due to higher staff costs and depreciation. Key new P&L drivers over the next 12M are: (1) LME Clear starting (from 4Q14) and (2) LME price increase 1Q15.

● Key catalysts: Key driver of stock price remains market sentiment and market volumes, with the start of SH-HK Connect key. Recent activity has been strong, with ADT at HK$72 bn for the last week, relative to HK$67 mn for October 14 and HK$66 bn for 2014 YTD.

● Our target price is unchanged at HK$170 due to roll forward. HKEx is trading at 29.6x 2015E earnings (8yr avg 26x), with our volume assumption (ADT HK$89 bn) relying on improving volumes.

Volumes strong in 3Q14, continuing in 4Q14

Whilst there is no doubt the long-term growth profile of the HKEx is very strong, we highlight that the nearer-term outlook for the stock is more market-volume related. Around 70% of HKEx’s revenues relate to the value of trades in its equities and derivative markets and a further 15% comes from listing fees (>50% from capital raisings).

We highlight that average daily turnover (ADT) in the last week remained strong (see Figure 1), averaging HK$72 bn, ahead of HK$66 bn year to date. We note that volumes picked up recently in anticipation of the start of HK-SH Connect (no firm date yet), but have eased a little since the delay in commencement.

Figure 1: Volumes remain strong (but off peaks) HKEx daily turnover (HK$ bn)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

01-Jul10-Jul19-Jul30-Jul08-A

ug19-A

ug28-A

ug06-S

ep17-S

ep26-S

ep07-O

ct16-O

ct25-O

ct05-N

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ov04-D

ec13-D

ec24-D

ec02-Jan13-Jan22-Jan31-Jan11-F

eb20-F

eb03-M

ar12-M

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ay09-Jun18-Jun27-Jun08-Jul17-Jul28-Jul06-A

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2013 average2014 average

SH-HK Connect announcement

Source: Company data, Credit Suisse research

We are assuming average daily turnover of HK$67 bn for 2014E, and HK$89 bn for 2015E (following start of HK-SH connect). Sensitivity valuation to volumes and trading multiples is highlighted below.

Figure 2: Valuation sensitivity to ADT and P/E multiple HKEx valuation sensitivity to average daily volumes (HK$ bn) and P/E multiple (x)

Daily average equity turnover (HK$bn) - 2015E

PE (x) 75 80 85 Base = 89 95.0 100.0 105.0

16x 88.1 91.7 94.5 96.6 100.9 104.4 108.0

18x 99.2 103.1 106.3 108.7 113.5 117.5 121.4

20x 110.2 114.6 118.1 120.8 126.1 130.5 134.9

22x 121.2 126.1 129.9 132.9 138.7 143.6 148.4

24x 132.2 137.5 141.8 145.0 151.3 156.6 161.9

26x 143.2 149.0 153.6 157.0 163.9 169.7 175.4

28x 154.2 160.4 165.4 169.1 176.5 182.7 188.9

30x 165.3 171.9 177.2 181.2 189.1 195.8 202.4

32x 176.3 183.4 189.0 193.3 201.8 208.8 215.9

34x 187.3 194.8 200.8 205.4 214.4 221.9 229.4

36x 198.3 206.3 212.6 217.4 227.0 234.9 242.9 Source: Company data, Credit Suisse estimates

Key catalysts / 2015E P&L drivers

We highlight three key events/drivers that should have a material impact over time on HKEx's earnings:

(1) Start of HK-SH Connect. Whilst the additional quotas will not lead to material additional revenue for HKEx (<2%), market sentiment is likely to boost trading as we have seen recently. Continued delay is also a key risk for trading volumes.

(2) LME Clear commenced. LME clearing was previously outsourced to LCH.Clearnet and was insourced from the end of September 2014.

(3) LME price increases. From 1 January 2015, HKEx will increase LME trading fees by 64% on average. We expect further price increases going forward (we assume a further 35% from 1 January 2016). We highlight that post fee increases, LME prices will remain very competitive relative to comparable products on other exchanges.

.

Bbg/RIC 388 HK / 0388.HK Rating (prev. rating) N (N) Shares outstanding (mn) 1,168.02 Daily trad vol - 6m avg (mn) 6.4 Daily trad val - 6m avg (US$ mn) 136.9 Free float (%) 100.0 Major shareholders HK SAR 5.8%

Price (05 Nov 14, HK$) 173.10 TP (prev. TP HK$) 170.00 (170.00) Est. pot. % chg. to TP (2) 52-wk range (HK$) 184.5 - 113.2 Mkt cap (HK$/US$ bn) 202.2/ 26.1


Absolute (%) (1.0) (2.5) 38.4 Relative (%) (2.7) 0.2 35.4

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

Revenue (HK$ bn) 6.9 8.7 9.5 12.2 14.2 EBITDA (HK$ bn) 5.0 5.7 6.3 8.7 10.4 Net profit (HK$ bn) 4.3 4.6 5.0 6.9 8.2 EPS (HK$) 3.97 3.94 4.24 5.84 7.00 - Change from prev. EPS (%) n.a. n.a. (4) (4) (5) - Consensus EPS (HK$) n.a. n.a. 4.44 5.83 6.66 EPS growth (%) (15.8) (0.8) 7.5 37.8 19.9 P/E (x) 43.6 43.9 40.8 29.6 24.7 Dividend yield (%) 1.9 2.0 2.2 3.0 3.6 EV/EBITDA (x) 41.3 35.6 29.2 20.3 16.0 P/B (x) 11.2 9.8 8.9 7.9 7.1 ROE (%) 32.2 23.9 23.0 28.2 30.2 Net debt (cash)/equity (%) 14.5 2.5 (78.1) (102.9) (124.7)

Note 1: ORD/ADR=1.00. Note 2: Hong Kong Exchanges and Clearing Limited (HKEx) owns and operates the stock exchange and futures exchange in Hong Kong and their related clearing houses. It also owns the London Metal Exchange, the main global exchange for industrial metals.




Asian Daily

- 10 of 36 -

India

India Market Strategy ------------------------------------------------------------------------------------------ Sep-14 ownership: FII stake at another all-time high; domestic MFs net buying at record high Neelkanth Mishra / Research Analyst / 91 22 6777 3716 / [email protected] Ravi Shankar / Research Analyst / 91 22 6777 3869 / [email protected]

● FII ownership rose to 20.3% at end-2Q15 vs. 19.9% in 1Q, a new all-time high (Fig 1). Promoter stake fell due to capital raising (e.g., Idea, RCom). Govt. stake declined as PSU stock prices (e.g., CIL, SBI) did. FIIs bought defensives, sold industrials & cement (Fig 2).

● DIIs net sold deep cyclicals like industrials too, even though overall DII ownership was unchanged. LIC net sold, but MF ownership increased, with strongest ever inflows (US$2.7 bn, Fig 3): they bought Autos, Staples, Pharma & IT (Fig 4).

● There has been much concern on FII limits getting exhausted somehow capping the market. We believe flows don't drive prices, but nevertheless, still find room for ~US$160 bn in stocks which trade >$2 mn a day, before they hit their FII ownership limit (Fig 5).

● Cumulative FII equity flows are negative since mid-Sep this year. We believe lower commodity prices hurt fund flows into India, as countries exporting capital (i.e., ones with Current Account Surpluses) see fewer funds to invest abroad. Over time though, pension/insurance/SWFs should continue to raise their India weights. Next wave of buying could be during govt disinvestment.

FII ownership at a new high in Sep-14

Figure 1: FII ownership continues to inch higher; FIIs now own ~$288bn

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Source: CMIE, Credit Suisse estimates.

FII ownership increased to 20.3% at end-2Q15 vs. 19.9% last quarter, reaching a new all-time high (Fig 1). Promoter stake went down due to capital raising (e.g., Idea, RCom). Govt. stake declined as PSU stock prices (e.g. Coal India, SBI) fell. FIIs mostly bought defensives.

Figure 2: FIIs bought defensives, sold cyclicals over the quarter

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Staples

As % of total FII Buying

Due to UNSP open offer


FIIs also net sold deep cyclicals like industrials and metals (Fig 2).

Domestic mutual funds see largest ever inflows

Figure 3: Domestic MFs re-entered the market; largest quarterly inflows

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While DII ownership did not change much as LIC booked profits, MF ownership picked up strongly, with the strongest ever inflows (Fig 3, US$2.7 bn): they bought Autos, Staples, Pharma & IT (Fig 4).

Figure 4: Domestics also used the opportunity to cut Industrials weight

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Ample room still left for more FII inflows

There has been much concern on FII limits getting exhausted somehow capping the market. We believe flows don't drive prices, but nevertheless, still find room for ~US$160 bn in stocks which trade >$2 mn a day, before they hit their respective FII limits.

Figure 5: US$160 bn of FII limit still available in liquid stocks

Energy 20%

IT services 18%

NBFC 7%

Metals 7%

Healthcare 7%

Staples 7%

Autos 6%Telecom 5%

Industrials 5%

Pvt Bank 5%

Utilities 5%PSU Bank 3%

Cons. Disc 2% Others 3%

US$160bn of FII limit (excl. ADRs/GDRs) available in BSE500 with ADTV > $2mn

Source: CMIE, Bloomberg, Credit Suisse estimates.




Asian Daily

- 11 of 36 -

Aban Offshore Ltd ----------------------------------------------------------- Maintain OUTPERFORM 2Q in line; focus now on rig renewals EPS: ▲ TP: ◄► Sanjay Mookim / Research Analyst / 65 6212 3017 / [email protected] Badrinath Srinivasan / Research Analyst / 91 22 6777 3698 / [email protected]

● Aban's results were operationally in line with CSe, although PAT was ahead due to lower tax rates. Management suggests it has utilised higher MAT credit during the quarter. Taxes at the India subsidiary were also lower due to the partial idling of Aban IV.

● Global jack-up utilisations are down 440 bp since Apr-14 on ample supply; rig-rates, however, appear to have held up well so far. Contracts for six of Aban's rigs (including two currently idling), which can account for 25-30% of revenues are to be renewed by Apr-15; these announcements can act as catalysts.

● Aban has a 14.25% bond bullet repayment (US$216 mn) due Mar-15; this accounts for c.70% of its high-cost debt. We estimate interest cost savings from this alone to equal c.20% of FY14 PBT.

● We update our model for 1HFY15 numbers and current status of contracts. FY15 EPS increases 28%. Aban trades an inexpensive 6x FY16E EPS. The key risks to our call are (1) sustained idling of Aban V/VII, (2) material cuts to E&P capex, and (3) impact of the recent removal of the 10% domestic price preference by ONGC.


2Q operationally in line; PAT beat on lower taxes

Aban reported 2Q EBITDA of Rs5.9 bn, in line with our estimates. Revenues were flat QoQ as stronger currency countered lower one-offs (US$3.8 mn on rig mobilisation revenues; other expenses also fell by a corresponding amount). Staff costs were 15% ahead of estimates and up 30% YoY. Management suggest 2Q employee expenses appear elevated as they include provisions for bonuses. Depreciation in 1HFY15 has been trending 7% higher than FY14 levels due to (1) capitalisation of some maintenance expenditure on Aban Ice (completed 4QFY14), and (2) application of the new Companies' Act. While long-term borrowings have increased by Rs21.2 bn over the past six months, Aban suggests that headline debt has stayed flattish – as current maturities of debt have fallen (Rs31.2 bn on Mar-14). Aban is also building up cash reserves (up Rs6 bn in the past half) to

help debt repayments in Mar-15. PAT was 36% ahead of estimates due to lower headline tax rates.

Figure 1: Aban operationally in line; PAT beat on lower taxes

INR Million 2Q14 1Q15 2Q15 2Q15E YoY (%) QoQ (%) Vs Est

Income 10,016 10,278 10,185 10,239 2 (1) (1)

Expenditure 4,698 4,256 4,294 4,402 (9) 1 (2)

EBITDA 5,318 6,022 5,891 5,836 11 (2) 1

Depreciation 1,407 1,452 1,494 1,470 6 3 2

Interest 2,887 2,753 2,794 2,753 (3) 1 1

Other Income 87 80 154 75 78 93 106

PBT 1,110 1,897 1,757 1,688 58 (7) 4

Tax Expenses 316 395 288 591 (9) (27) (51)

PAT 777 1,527 1,488 1,097 91 (3) 36

EPS 17.9 35.1 34.2 25.2 91 (3) 36


Rig renewals now the focus; 70% of high cost debt to be retired by Mar-15

Global jackup utilisations have fallen since Apr-14 on ample supply, although average rig-rates continue to see a steady up-trend. Aban will have to re-contract six rigs (excluding the recent ONGC award) accounting for c.25-30% of revenues by Apr-15. Falling oil prices so far do not seem to have changed E&P capex plans for oil majors materially; announcements of new rig contracts can be a key catalyst.

Aban has two bullet debt re-payments due Mar-15 and Dec-15 amounting to a total US$316 mn. A 14.25% p.a. bond, accounting for 70% of high-cost debt is to be repaid by Mar-15 and interest cost savings (replacement with debt @6% p.a.) can be c.20% of FY14 PBT.

Update model; retain OUTPERFORM

We update our model for 2Q and the current status of rig contracts. FY15 EPS increases 28% to reflect stronger 1H profitability. We maintain OUTPERORM. The key risk to our call is the sustained idling of rigs Aban V and VII, which are currently under marketing and delays in re-deployment of four other rigs whose contracts expire by Apr-15.

Figure 2: Global jackup utilisations have fallen since Apr-14

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Source: ODS Petrodata, Credit Suisse estimates

Bbg/RIC ABAN IN / ABAN.BO Rating (prev. rating) O (O) [V] Shares outstanding (mn) 56.86 Daily trad vol - 6m avg (mn) 1.9 Daily trad val - 6m avg (US$ mn) 22.0 Free float (%) 45.9 Major shareholders India Offshore (19%)

Price (05 Nov 14 , Rs) 643.70 TP (prev. TP Rs) 900.00 (900.00) Est. pot. % chg. to TP 40 52-wk range (Rs) 881.8 - 236.5 Mkt cap (Rs/US$ mn) 36,601.6/ 596.6


Absolute (%) 11.8 (17.4) 146.4 Relative (%) 6.7 (26.5) 113.3

Year 03/13A 03/14A 03/15E 03/16E 03/17E

Revenue (Rs mn) 36,727 39,363 40,208 42,194 41,524 EBITDA (Rs mn) 21,135 23,226 23,928 24,607 23,319 Net profit (Rs mn) 1,939 3,931 5,092 6,178 5,726 EPS (Rs) 45 90 96 106 98 - Change from prev. EPS (%) n.a. n.a. 28 0 0 - Consensus EPS (Rs) n.a. n.a. 94 115 116 EPS growth (%) (39.7) 102.7 6.7 10.0 (7.3) P/E (x) 14.4 7.1 6.7 6.1 6.6 Dividend yield (%) 0.6 0.6 0.7 0.9 0.8 EV/EBITDA (x) 8.1 7.8 6.5 5.8 5.7 P/B (x) 0.9 0.7 0.7 0.6 0.6 ROE (%) 6.3 10.6 10.7 10.7 8.8 Net debt(cash)/equity (%) 411.4 346.1 221.1 172.4 143.0

Note 1: Aban Offshore Limited is engaged in providing drilling and oil field services to exploration and production companies in Indian and international waters. It has two divisions: offshore oil drilling and production services and wind power generation.



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


Asian Daily

- 12 of 36 -

Ashok Leyland Ltd ----------------------------------------------------------- Downgrade to NEUTRAL Strong recovery already priced in EPS: ◄► TP: ◄► Jatin Chawla / Research Analyst / 91 22 6777 3719 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected]

● From its lows of Rs12 in Aug-13, Ashok Leyland stock is already up ~4x in the past 15 months. On our estimates which are almost ~35% higher than consensus, the stock is trading well at peak multiples. We believe the risk-reward is no longer favourable and are downgrading the stock to NEUTRAL. Full Report.

● Implementation of GST could be another risk as it (1) should free up freight capacity, impacting the CV industry growth, and (2) results in market share movement in favour of MNC players.

● We have a positive view on the CV cycle which has seen two straight years of a big slowdown. Our CV industry tracker, which detected signs of recovery a few months ago, continues to inch up; however that is already priced in the stock.

● During previous upcycle periods of FY06-08 and FY11-12, AL had traded at an average one-year forward P/E of 12x and one-year forward EV/EBITDA of 8x. Currently, the stock is already trading above those multiples even on 24-month forward earnings. To play the CV cycle we now prefer a basket of auto-component stocks with Apollo Tyres as the top pick.


Downgrading to NEUTRAL on rich valuations

After declining for ~30 continuous months, the M&HCV industry posted healthy double-digit growth for the third straight month in October. Given their market-share dominance in the Indian CV space, Indian OEMs will be direct beneficiaries of a CV cycle recovery. Other than the robust volume growth, they should also see strong margin expansion from higher capacity utilisation and lower discounts.

We have been positive on Ashok Leyland (which is the only OEM which is CV play) for some time but are now downgrading the stock to NEUTRAL. Valuations are high for the stock with AL now trading at ~20x one-year forward EV/EBITDA (consensus) compared to historic average of ~8x. While earnings are depressed at the moment, the stock has seldom traded above ~12x EV/EBITDA in the past

Figure 1: Our CV industry tracker, which detected signs of recovery a few months ago, continues to inch up

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Even if we take 24-month forward earnings (which already build in the recovery), the stock is trading at ~13x 24-month forward EV/EBITDA (consensus) compared with its historical average of ~7x.

Figure 2: Ashok Leyland's valuations rich even on two-year forward basis, assuming a full-blown recovery

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Ashok Leyland EV to 24M fwd EBITDA Source: Company data, Credit Suisse estimates.

Our FY17 earnings estimates for the stock are ~35% higher than consensus as we are building a sharp rebound in volumes with 15%/30%/12% growth in FY15/FY16/FY17 along with a return to peak margins of the previous cycle. Even on these numbers, the stock is trading at peak multiples of ~10x 24-month forward EV/EBITDA.

Implementation of GST can be another risk to our estimates as (1) it frees up freight capacity as movement of goods between states eases up impacting CV industry growth and (2) results in market share movement in favour of MNC players (Bharat Benz, Eicher, Volvo) as their product portfolio is more suited for the same.

Bbg/RIC AL IN / ASOK.BO Rating (prev. rating) N (O) Shares outstanding (mn) 2,845.88 Daily trad vol - 6m avg (mn) 21.2 Daily trad val - 6m avg (US$ mn) 12.4 Free float (%) 45.0 Major shareholders Hinduja group

Price (03 Nov 14 , Rs) 46.50 TP (prev. TP Rs) 48.00 (48.00) Est. pot. % chg. to TP 3 52-wk range (Rs) 46.5 - 15.2 Mkt cap (Rs/US$ bn) 132.3/ 2.2


Absolute (%) 10.7 34.8 152.0 Relative (%) 5.8 25.9 119.2

Year 03/13A 03/14A 03/15E 03/16E 03/17E

Revenue (Rs mn) 124,812 99,434 113,338 150,100 174,171 EBITDA (Rs mn) 8,765 1,666 7,400 15,901 18,443 Net profit (Rs mn) 4,337 294 677 7,856 9,867 EPS (Rs) 1.62 0.11 0.25 2.94 3.69 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. (0.21) 1.62 2.64 EPS growth (%) (23.4) (93.2) 130.3 1,059.7 25.6 P/E (x) 28.7 422.6 183.5 15.8 12.6 Dividend yield (%) 1.5 0 0 0.6 0.6 EV/EBITDA (x) 20.1 107.5 23.4 10.6 8.7 P/B (x) 2.8 2.8 2.4 2.1 1.8 ROE (%) 10.0 0.7 1.4 14.2 15.5 Net debt(cash)/equity (%) 97.4 105.2 78.4 60.2 41.1

Note 1: ORD/ADR=3.00. Note 2: Ashok Leyland Limited is an India-based company. The company is engaged in the manufacturing of commercial vehicles and related components. Its principal products include commercial vehicles, engines and spare parts.



https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x599402&serialid=kO%2b%2fk5sT%2fov%2fHsqJyD7V1VrqamfSl74hHJJZP7NtuHA%3d

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


Asian Daily

- 13 of 36 -

Colgate-Palmolive India ---------------------------------------------------- Maintain OUTPERFORM 2QFY15: Strong results, entering a phase of high earnings growth EPS: ▲ TP: ▲ Arnab Mitra / Research Analyst / 91 22 6777 3806 / [email protected] Akshay Saxena / Research Analyst / 91 22 6777 3825 / [email protected]

● Colgate's 2QFY15 earnings grew 18% YoY driven by very strong 27% growth in EBITDA. A decline in other income and rise in tax rate caused a lower PAT growth of 18%.

● Volume growth picked up to 7% YoY in 2Q from 5% in 1Q. This is comforting as there were fears of an extended period of low volume growth. Market share gains continued with toothpaste and toothbrush gaining 80 bp and 110 bp YoY, respectively.

● EBITDA margin expanded 230 bp YoY. What was heartening was that this was entirely driven by gross margin expansion from premiumisation and lower prices of essential oils and sorbitol. The cost of packaging material is likely to also come off with a lag in 2H, which will further add to tailwinds. Ad spends marginally came off and we expect a much sharper reduction in 2H as competitive intensity in the category has come off significantly post P&G failed to launch in the category.

● We maintain OUTPERFORM and increase our estimates by 2-3% and TP increased to Rs1,970. We expect EPS CAGR to accelerate to 21% over FY14-17 as against 6% over FY11-14.


Quantum of raw material cost reduction a positive surprise, ad spend drop in 2H likely to be higher: Prices of key inputs like paper, maize, sorbitol and essential oils are either flattish or lower YoY. We also expect crude derivative packaging costs to come off in 2H. With premiumisation playing out, gross margins have strong tailwinds. We also expect ad spends to drop going ahead on a very high base. P&G's toothpaste launch failed to create any impact due to poor execution and Colgate's aggressive ad spends and successful launch of a number of innovations. While P&G may make further attempts, we do not expect the initial intensity. P&G has lowered its competitive intensity across categories from hair to detergents to skin care, relative to the levels a year back, a shift in focus to profitability.

Colgate entering a phase of 20%+ earnings growth: Colgate has multiple margin levers on lower commodity costs, premiumisation and lowering ad spends as competitive intensity has weakened. We expect 450 bp EBITDA margin expansion over FY14-17, which will drive earnings growth of 21% over the period.

Figure 1: Colgate 2QFY15 results

Colgate (INR mn) 2QFY14 2QFY15 % YoY

Net sales 8,957 9,936 10.9

Expenditure (7,544) (8,140) 7.9

EBITDA 1,413 1,796 27.1

EBITDA margin (%) 15.8 18.1 230 bps

Depreciation (117) (177) 52.2

Other income 181 169 -6.6

PBT 1,477 1,787 21.0

Tax (382) (491) 28.7

Tax rate (%) 25.8 27.5 164 bps

Reported PAT 1,095 1,296 18.3

Cost Heads (% of sales)

Raw Materials 40.4 37.5 -289 bps

Staff Costs 6.0 6.9 88 bps

Ad Spend 20.6 20.2 -39 bps

Other Expenditure 17.2 17.3 10 bps Source: Company data, Credit Suisse estimates

Figure 2: Volume growth came off from the low of 1Q

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Figure 3: The first quarter of YoY decline in ad spends after 7 quarters

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Bbg/RIC CLGT IN / COLG.BO Rating (prev. rating) O (O) Shares outstanding (mn) 135.99 Daily trad vol - 6m avg (mn) 0.2 Daily trad val - 6m avg (US$ mn) 3.8 Free float (%) 38.0 Major shareholders Promoter

Price (05 Nov 14 , Rs) 1,714.35 TP (prev. TP Rs) 1,970 (1,860) Est. pot. % chg. to TP 15 52-wk range (Rs) 1739.6 - 1231.3 Mkt cap (Rs/US$ bn) 233.1/ 3.8



Year 03/13A 03/14A 03/15E 03/16E 03/17E

Revenue (Rs mn) 30,841 35,449 39,958 46,144 53,289 EBITDA (Rs mn) 5,771 6,301 7,935 9,717 11,857 Net profit (Rs mn) 4,968 4,755 5,726 6,877 8,460 EPS (Rs) 36.5 35.0 42.1 50.6 62.2 - Change from prev. EPS (%) n.a. n.a. 2 3 3 - Consensus EPS (Rs) n.a. n.a. 41.3 48.3 57.2 EPS growth (%) 11.3 (4.3) 20.4 20.1 23.0 P/E (x) 46.9 49.0 40.7 33.9 27.6 Dividend yield (%) 1.6 1.6 1.7 1.9 2.1 EV/EBITDA (x) 39.6 36.5 28.9 23.5 19.0 P/B (x) 47.6 38.9 33.3 26.9 20.4 ROE (%) 107.4 87.3 88.1 87.7 84.2 Net debt(cash)/equity (%) (88.5) (48.5) (53.6) (57.4) (63.9)

Note 1: Colgate is a player in the fast moving consumer goods company in India with market share of over 50% in oral care.



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


Asian Daily

- 14 of 36 -

Hexaware Technologies -----------------------------------------------------------Maintain NEUTRAL A very good quarter but predictability has been low EPS: ▲ TP: ▲ Anantha Narayan / Research Analyst / 91 22 6777 3730 / [email protected] Nitin Jain / Research Analyst / 91 22 6777 3851 / [email protected]

● A very good quarter: 3Q CY14 revenue grew 7.8% QoQ (USD), after a strong 2Q (6.5% QoQ growth). EBIT margins rose 150 bp QoQ (despite an offshore wage hike from July 2014). EPS grew 12% QoQ and the company announced Rs2.35 dividend/share for 3Q, taking the total in 9M to Rs6.95, over 100% payout).

● Broad-based growth: Most segments grew smartly this quarter, but specifically financial services rose 15% QoQ, the European geography grew 11% and infra management rose 26% QoQ (though it is relatively small at 9% of total revenue).

● Revenue growth has been choppy: QoQ growth has varied between -4% and +7% over the past four quarters, and the variance has been driven by top clients (top client grew 16% QoQ in 3Q). Concentration remains high: top 5 form 38% of revenue. Management expects 3-4 quarters for this to stabilise.

● Fundamentals seem to be picking up again and the high dividend payout helps, but valuations are rich relative to mid-sized peers and there is choppiness still in growth. We revise our earnings and target price by 2-5% to reflect 3Q numbers.


A very good quarter

Hexaware's 3Q CY14 was strong all around. Revenue grew 7.8% QoQ (USD) on the back of a strong 2Q (6.5% QoQ growth). Revenue was 4% ahead of our estimates. The financial services segment was particularly strong with 15% QoQ growth. EBIT margins were also strong at 16.4%, about 150 bp higher QoQ expansion despite an offshore wage hike effective July 2014 (impacting 3Q margins by 40 bp, with a further 70 bp expected in 4Q). Though margins are still 600 bp lower YoY, it was 140 bp ahead of estimates. Lower other income (down ~60% QoQ) and forex losses of Rs35 mn (vs forex gains of Rs10 mn in 2Q) negatively impacted EPS. Despite these, EPS grew 12% QoQ and was 7% ahead of our estimates.

The dividend payout of the company remains high. The board has declared an interim dividend of Rs2.35 per share. The total interim dividend for 9M CY14 is thus Rs6.95 (over 100% payout).

Employee attrition remains quite attractive at 13%, up 30 bp QoQ and 70 bp YoY. The increase in attrition over the past 12 months has been low relative to most of its peers, including the larger ones.

Figure 1: Hexaware's 3Q CY14 financial highlights

Rs mn 3Q14A 2Q14A % QoQ 3Q13A % YoY 3Q14E % Diff

Revenues (US$mn) 110 102 7.8% 99 11% 106 4%

Revenues 6,706 6,104 9.9% 6,211 8% 6,418 4%

EBIT 1,097 909 21% 1,380 -20% 958 14%

EBIT Margins 16.4% 14.9% 147 bps 22.2% -586 bps 14.9% 143 bps

Diluted EPS 2.85 2.54 12% 3.28 -13% 2.67 7%


Revenue growth has been choppy

QoQ revenue growth has varied between -4% and +7% over the past four quarters, and the variance has been driven by top clients. The top client grew at 16% QoQ this time around. Client concentration remains high, with the top client contributing 14% and this could create further choppiness in growth.

Management sees a solid pipeline but expects 3-4 quarters to establish a certain trajectory of revenue growth and a sustainable level of margins.

Figure 2: Revenue growth has been choppy….

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Figure 3: …and so have margins

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Bbg/RIC HEXW IN / HEXT.BO Rating (prev. rating) N (N) Shares outstanding (mn) 300.80 Daily trad vol - 6m avg (mn) 2.3 Daily trad val - 6m avg (US$ mn) 6.4 Free float (%) 29.0 Major shareholders Baring PE - 71%

Price (05 Nov 14, Rs) 216.15 TP (prev. TP Rs) 195.00 (185.00) Est. pot. % chg. to TP (10) 52-wk range (Rs) 216.2 - 113.4 Mkt cap (Rs/US$ mn) 65,018.0/ 1,059.8



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

Revenue (Rs mn) 19,482 22,854 25,464 29,322 33,016 EBITDA (Rs mn) 4,074 5,124 4,555 5,301 6,131 Net profit (Rs mn) 3,276 3,792 3,223 3,984 4,610 EPS (Rs) 10.9 12.6 10.7 13.2 15.3 - Change from prev. EPS (%) n.a. n.a. 3 1 1 - Consensus EPS (Rs) n.a. n.a. 11.1 13.1 14.5 EPS growth (%) 22.1 15.6 (15.1) 23.6 15.7 P/E (x) 19.8 17.2 20.2 16.4 14.1 Dividend yield (%) 2.5 5.1 4.4 5.6 6.5 EV/EBITDA (x) 14.9 11.4 12.8 11.2 9.9 P/B (x) 5.4 5.4 5.1 5.2 5.3 ROE (%) 29.5 31.6 26.1 31.6 37.3 Net debt (cash)/equity (%) (37.1) (54.7) (52.7) (44.4) (34.7)

Note 1: ORD/ADR=0.5. Note 2: Hexaware is a mid-sized Indian IT services company with a niche positioning in implementation of Peoplesoft.



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Asian Daily

- 15 of 36 -

Jindal Steel & Power Ltd ------------------------------------------------------ Upgrade to NEUTRAL 2Q shows some encouraging improvements, but overhang of ore + coal cost increase remains EPS: ◄► TP: ◄► Neelkanth Mishra / Research Analyst / 91 22 6777 3716 / [email protected] Prateek Singh / Research Analyst / 91 22 6777 3894 / [email protected]

● Sales were 1% ahead of CS but 4% below consensus estimates (Fig1). The beat was driven mostly by higher sales at Shadeed (Fig2) as well as the faster-than-expected ramp of Tamnar-II (54% PLF at the 1st 600 MW unit). Domestic steel volumes disappointed.

● Consol. EBITDA beat CSe by 4%: India steel EBITDA/t rose to US$237/t on higher ASPs. Shadeed EBITDA/t improved too, but Australian coal continued to make losses. With capacities commissioning, interest cost jumped 57% YoY, pushing pre-tax income to 5% below CS. Tax credits then drove a 20% EPS beat.

● Net debt rose Rs9 bn QoQ to Rs377 bn. The disgorgement charge would increase debt but only after the SC addresses its review petition. Even without that, covenant of 4x Net Debt/EBITDA by FY15 end is likely to be breached. FY16 outlook is better.

● Much uncertainty remains for JSPL around coal block auctions. But till they are done, we don't expect the market to get any more information to judge whether the Rs1,500/t rise in coal costs we already built in are too high or too low. We maintain TP at Rs158, upgrade to NEUTRAL. Auction timelines to be tracked carefully.


Shadeed & JPL help revenues, Australia still a drag

Consolidated sales were 1% ahead of CS but 4% below consensus estimates (Fig 1). The beat was driven mostly by higher sales at Shadeed (Fig 2) as well as faster than expected ramp of Tamnar-II (54% PLF at the 1st 600 MW unit). Domestic steel sales volumes were hurt by a furnace shutdown to upgrade capacity.

Consol. EBITDA beat CS estimates by 4%: India steel EBITDA/t rose to US$237/t on higher premiums and Shadeed profitability improved with SMS start, but Australian coal mines continued to make losses.

With capacities commissioning, interest cost jumped 57% YoY, pushing pre-tax income to 5% below CS. Tax credits drove a 20% EPS beat.

Figure 1: 2Q15 actuals vs. estimates (consolidated)

Rs Mn 2Q15A 2Q15E Diff 2Q14A Y/Y%

Net Sales 50,727 49,983 1% 49,490 2%

Total Expenditure 35,031 34,847 1% 35,270 -1%

EBITDA 15,696 15,135 4% 14,220 10%

Depreciation 6,503 6,441 1% 4,338 50%

EBIT 9,193 8,695 6% 9,882 -7%

Other Income 1,105 1,073 3% 197 462%

Interest Cost 5,986 5,245 14% 3,805 57%

Net Non-Oper. Income (Loss) -4,881 -4,173 17% -3,608 35%

Pretax Income 4,312 4,522 -5% 6,274 -31%

Income Taxes 311 959 -68% 1,725 -82%

Minority Interest/Share of assoc. 417 119 -29 -1554%

Net Income 4,418 3,682 20% 4,521 -2%

EPS (Rs) Basic 4.73 3.97 20% 4.87 -2%


Figure 2: Consolidated Sales & EBITDA Bridge vs. estimates

Sales (Rs mn) EBITDA (Rs mn)

2Q15A 2Q15E Diff 2Q15A 2Q15E Diff

Standalone 34,135 33,642 493 9,504* 8,648 856

JPL 9,270 6,892 2,378 5,224 4,379 845

Shadeed 10,436 6,795 3,641 2,302 1,272 1,030

Others -803 2,653 -3,457 19* 2,224 -2,205

Source: Company data, CS estimates; * adj. for forex gain in India and loss in Australia

4x Net Debt-to-EBITDA unattainable by FY15 end

Consolidated net debt increased Rs9 bn QoQ to Rs377 bn. The Rs295/t disgorgement charge may increase debt but only after the Supreme Court addresses its review petition. Even without that JSPL says that it won't be able to meet the covenant of 4x Net Debt/EBITDA by FY15 end, but with new facilities ramping, it hopes to improve in FY16.

Other key takeaways

● Post the upgradation of Raigarh BF2 in 4Q14, the shutdown taken this quarter has upgraded and modernised BF1, taking total capacity from 3 mt to 3.6 mt, and also upgraded the plate mill.

● Angul expansion on track at 60% utilisation, and on full ramp now: coal gasifiers are functional, and DRI units working well with them. If they get Utkal-B1, cost of DRI can be Rs16-17,000/t.

● Three units of Tamnar II nearly commissioned. Utilisation impaired by lack of coal availability: JSPL confident of improvement by Apr-15.

● Ore availability: Raigarh is fully covered for the next three months. Angul has pellet stock for 1.5-2 months. JSPL is procuring fines from neighbouring mines for requirement over & above Tensa supply. It is unable to utilise its 14 mt fines inventory lying at Sarda pitheads. The Odisha High Court has reserved its judgment in this case.

● In 2H15, with SMS at Oman up and running, product mix should improve and JSPL targets 30% EBITDA margin (currently 22%) as it starts selling more billets and rounds.

● Coal auctions: JSPL has been assured by the government that if it is not able to retain its coal blocks in auction, it will be granted linkages. The ordinance applies to coal bearing land. Adjoining land with washery etc. will lie with JSPL.

Bbg/RIC JSP IN / JNSP.BO Rating (prev. rating) N (U) [V] Shares outstanding (mn) 914.90 Daily trad vol - 6m avg (mn) 6.0 Daily trad val - 6m avg (US$ mn) 23.2 Free float (%) 41.3 Major shareholders Promoters 58.91%

Price (05 Nov 14 , Rs) 162.40 TP (prev. TP Rs) 158.00 (158.00) Est. pot. % chg. to TP (3) 52-wk range (Rs) 340.2 - 135.4 Mkt cap (Rs/US$ bn) 148.6/ 2.4


Absolute (%) (5.0) (42.5) (34.6) Relative (%) (10.1) (51.6) (67.7)

Year 03/13A 03/14A 03/15E 03/16E 03/17E

Revenue (Rs mn) 198,068 200,040 233,579 304,244 302,055 EBITDA (Rs mn) 59,944 54,568 67,018 67,106 69,360 Net profit (Rs mn) 29,101 19,104 2,639 17,216 19,658 EPS (Rs) 31.1 20.4 2.8 18.4 21.0 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (Rs) n.a. n.a. 25.0 25.7 26.5 EPS growth (%) (26.6) (34.4) (86.2) 552.3 14.2 P/E (x) 5.2 8.0 57.6 8.8 7.7 Dividend yield (%) 1.0 0.9 0.1 0.8 1.0 EV/EBITDA (x) 6.6 9.2 8.6 9.1 8.8 P/B (x) 0.7 0.7 0.7 0.6 0.6 ROE (%) 14.8 8.7 1.2 7.3 7.8 Net debt(cash)/equity (%) 112.0 149.2 178.7 180.2 169.8

Note 1: JSPL is an integrated steel producer and also one of the large power producers in India. It also owns mining assets internationally.



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Asian Daily

- 16 of 36 -

Indonesia

Indonesia Economics ------------------------------------------------------------------------------------------ 3Q GDP: Slowing down in line with our call, and more moderation likely Santitarn Sathirathai / Research Analyst / 65 6212 5675 / [email protected]

● 3Q real GDP growth came in 5.01% YoY, below consensus (5.10%), but in line with our call.

● Private consumption growth was more resilient than expected, thanks to spending on food while investment was weaker than anticipated due to capital goods purchase. Government spending and change in inventory were also strong.

● We expect growth to remain weak over the next six months but should start to recover in 2H15. The drags on domestic demand include the likely fuel price hike, lagged impact of interest rate increase and weak non-oil commodity prices.

● We remain on the cautious side, expecting GDP growth to print 5.2% (consensus: 5.6%) in 2015 after 5.0% (consensus: 5.2%) this year.

Figure 1: Indonesia's real GDP and its components

% YoY unless otherwise stated 3Q 2013 4Q2013 1Q2014 2Q2014 3Q2014

GDP 5.6 5.7 5.2 5.1 5.0

GDP (QoQ % sa) 1.3 1.6 0.9 1.2 1.2

Expenditure components

Private consumption 5.5 5.3 5.6 5.6 5.4

Government consumption 8.9 6.4 3.6 -0.7 4.4

Gross fixed capital formation 4.5 4.4 6.0 5.2 4.0

Exports 5.2 7.4 -0.4 -0.8 -0.7

Imports 5.1 -0.6 -0.7 -5.1 -3.6

By Industry

Agriculture 3.3 3.8 3.2 3.4 3.7

Mining and Quarrying 2.0 3.9 -0.3 -0.2 0.3

Manufacturing 5.0 5.3 5.1 5.0 4.6

Utilities 3.8 6.6 6.3 7.4 6.6

Construction 6.2 6.7 6.5 6.2 6.3

Hotels/Restaurants 6.1 4.8 4.8 4.5 4.2

Transport/Communication 9.9 10.3 10.2 9.8 9.0

Financial Services 7.6 6.8 6.2 6.3 6.0

Other services 5.6 5.3 5.7 5.7 6.5

Source: Bloomberg, Badan Pusat Statistics Indonesia, Credit Suisse estimates.

On a seasonally adjusted QoQ, we estimated that this print implies a 1.2% expansion, broadly similar to the 2Q reading. Nominal GDP moderated to 11% YoY from 12.3% YoY in 2Q. Figure 1 provides the details of GDP data release.

Private consumption growth more resilient than expected, thanks to spending on food while investment was weaker than anticipated due to capital goods purchase

Private consumption slowed only marginally to 5.4% YoY from 5.6% in 2Q, while investment growth moderated more than we had thought to 4% YoY from 5.2%. Private consumption was supported by robust food consumption (around 44% of total consumption basket), while non-food spending growth decelerated from the previous quarter. Spending on food was likely boosted by relatively moderate food inflation. Weaker non-food spending growth probably reflected the fading pre-election catalyst (see Indonesia: Further growth disappointment likely).

Softer investment growth was driven mainly by a sharp downturn in capital goods purchase, and a mild moderation in construction investment.

Soft growth print despite sizable positive inventory contribution and pick up in government spending.

It is worth noting that change in inventory added about 1.5 pp to headline GDP in 3Q, while government spending also rebounded from -0.7% YoY to 4.4%. Given its volatile nature, the potential correction in inventory could cut into 4Q GDP growth.

We continue to stay on the cautious side, expecting GDP growth to print 5.2% (consensus: 5.6%) in 2015 after 5.0% (consensus: 5.2%) this year.

We stick with our long-held views that there are still a number of negative factors capping growth over the next 6 months.

The likely increase in the subsidised fuel prices should act as a drag on both private consumption and investment growth going forward. We continue to pencil in a Rp2,000 per litre increase in the fuel prices in 4Q. Given lower global oil prices and limited provision for compensation package in the budget, we doubt the government will deliver a larger hike.

Meanwhile, the lagged impact of interest rate hikes, and fading pre-election boost would continue to put a lid on consumer spending, as we have been highlighting for a while (see Assessing election boost to consumption). On the investment side, weakness in the coal price provides yet another headwind against significant recovery.

We expect growth to remain weak in the first half of next year but it should start to recover in 2H15.

These factors will likely bring YoY growth rate down to between 4.5% and 5% over the next two quarters.

Beyond the next six months, however, we think domestic demand growth should see some improvement. The magnitude and timing of this recovery depends largely on how effective the new government is in delivering two key policies:

1) How fast it can recycle the savings from fuel subsidy cut that could be as large as 1.2% of GDP (also taking into account lower oil prices, see Asia: Weaker commodity prices could be a game changer) to spend on more targeted social programmes and rural infrastructure as indicated by the Finance Minister.

2) How soon it can build reform momentum to help boost foreign direct investment. Announcement of measures to cut red tapes such as the recently announced one stop investment permit shop should help boost investment.



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Asian Daily

- 17 of 36 -

Media Nusantara Citra --------------------------------------------------------------Maintain NEUTRAL Lower audience shares lead to lower earnings; pending lawsuit remains a risk EPS: ▼ TP: ▼ Ella Nusantoro / Research Analyst / 62 21 255 37917 / [email protected]

● We downgraded our earning estimates by 16% this year and 19% next year on the back of weak 9M14 financial results and we also included the new loans that the company recently received amounting to US$250 mn. As such, we reduce our DCF-based target price to Rp2,800 (from Rp3,150). Our new target price equates to 18.5x 2015E P/E with an estimated 15% earnings growth over the next two years. Maintain NEUTRAL rating.

● Revenue was lowered by 15% for this year and next year, underpinned by the lower audience share as well as the industry's slower growth.

● In 9M14, MNCN's revenue increased 6% YoY with flat margins, on 29% lower audience shares YoY. Net profit was 7% higher YoY, and net margin stood at 26.8%. In 3Q14, audience shares improved by 8% YoY, however, revenue was 11% lower QoQ (+4% YoY), and net profit is 29% lower QoQ (-7% YoY).

● We do not include the impact of the currently pending lawsuits that MNCN currently has in our estimates, and this remains a risk to our earnings and estimates.


Earnings downgraded. We revisited our estimates on MNCN on the back of weak 9M14 financial results. We downgraded our earnings estimates by 17% this year and 19% next year, and our new estimates are below that of the consensus'. We have also included the new loans that the company recently received amounting to US$250 mn, which resulted in higher interest expenses. As such, we reduce our DCF-based target price to Rp2,800 (from Rp3,150). Our new target price equates to 18.5x 2015E P/E with an estimated 15% earnings growth over the next two years. Maintain NEUTRAL rating.

New loan obtained for capex and working capital. New syndicated loan of US$250 mn for capex and working capital was recently obtained. The interest rate is at 3.5% plus three-month LIBOR and the tenure is three years. Thus, its debt-to-equity is estimated to be at 0.4x as at the end of 2014E, from previously 0.1x. We are assuming capex to be at US$70 mn this year and US$50 mn next year, from US$65 mn in the previous year.

Revenue was lowered as audience shares declined. We lowered our revenue estimates by 15% for this year and next year, of which revenue from advertisements was lowered by 11%. This is under-pinned by the lower audience share as well as the industry's slower growth. MNCN's audience share declined 29% YoY to 28.3% in 9M14, according to Nielsen Audience Measurement. We believe this is due to the viewers' preference shift towards variety shows as compared to regular soap operas. Its share across all of its three channels declined, with RCTI down by 27% YoY, MNC TV down by 42% YoY and Global TV down by 13% YoY. The company is gaining back some of its shares as is evident from the improving Oct 14 share, though still far off from its peak in 2013 at 39% (please refer to Indonesia Media Sector: News channels are gainers, on 3 Nov 14).

In 9M14, MNCN's revenue only increased by 6% YoY to Rp5 tn, with flat margins. Gross margin stood at 57.8% and operating margin at 37.8%. Its net profit stood at Rp1.3 tn, or 7% higher YoY, and net margin stood at 26.8%.

In 3Q14, audience shares improved by 8% YoY to 29%, however, revenue was 11% lower QoQ (+4% YoY), and net profit is 29% lower QoQ (-7% YoY) to Rp400 bn.

Figure 1: MNCN—earnings lowered Old New Changes (%) YoY chg (%)

Rp bn 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E

Advertisements 7,104 8,138 6,324 7,251 -11.0 -10.9 10.6 14.7 Content 262 300 190 218 -27.6 -27.6 -28.8 14.7 Others 710 814 316 363 -55.5 -55.4 -41.0 14.7 Total revenue 8,077 9,252 6,830 7,831 -15.4 -15.4 4.7 14.7 Gross profit 4,381 5,021 3,856 4,422 -12.0 -11.9 5.0 14.7 Operating profit 2,860 3,301 2,650 3,058 -7.3 -7.4 10.2 15.4 Net profit 2,255 2,620 1,895 2,133 -16.0 -18.6 12.1 12.5 Margin analysis (%) Gross 54.2 54.3 56.5 56.5 Operating 35.4 35.7 38.8 39.0 Net 27.9 28.3 27.7 27.2


Lawsuits. We do not include the impact of the currently pending lawsuits that the company currently has in our estimates, and this remains a risk to our earnings and estimates. (1) On the legal lawsuit from the previous owner of MNC TV (previously known as TPI) the case is still pending, as the former controlling shareholders, PT. Berkah Karya Bersama (Berkah) has sought a legal remedy by filing a petition for Reconsideration of the Supreme Court decision on 2 Oct 13 that basically granted the ownership of MNC TV to the previous owner. Nonetheless, MNCN believes that the lawsuit will not be binding against the company and will not change its current position on the share ownership over MNC TV' shares. Thereby, MNCN remains the legitimate owner/holder of 75% shares in MNC TV. (2) On Linktone, one of its shareholders filed a claim on the right of ownership on 26 Sep 14 against the other shareholders (Linktone et al). The Tribunal has passed a decision for Linktone et al to pay S$4.8 mn as compensation. Linktone et al are still preparing to appeal this award to the High Court in Singapore.

Bbg/RIC MNCN IJ / MNCN.JK Rating (prev. rating) N (N) Shares outstanding (mn) 14,180 Daily trad vol - 6m avg (mn) 6.7 Daily trad val - 6m avg (US$ mn) 1.6 Free float (%) 25.0 Major shareholders PT Global Mediacom

Tbk (70%)

Price (05 Nov 14 , Rp) 2,780.00 TP (prev. TP Rp) 2,800 (3,150) Est. pot. % chg. to TP 1 52-wk range (Rp) 3220.0 - 2220.0 Mkt cap (Rp/US$ bn) 39,421.4/ 3.3



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

Revenue (Rp bn) 6,265 6,522 6,830 7,831 8,995 EBITDA (Rp bn) 2,287 2,710 2,809 3,241 3,746 Net profit (Rp bn) 1,657 1,695 1,895 2,133 2,483 EPS (Rp) 119 120 134 151 176 - Change from prev. EPS (%) n.a. n.a. (17) (19) (19) - Consensus EPS (Rp) n.a. n.a. 146 171 200 EPS growth (%) 54.8 1.3 11.8 12.5 16.4 P/E (x) 23.4 23.1 20.7 18.4 15.8 Dividend yield (%) 1.3 2.0 2.2 2.5 2.9 EV/EBITDA (x) 16.0 13.8 12.5 10.8 9.2 P/B (x) 5.2 5.0 4.4 3.9 3.4 ROE (%) 24.5 22.3 22.7 22.6 23.2 Net debt(cash)/equity (%) (37.9) (24.9) (48.6) (44.0) (43.2)

Note 1: ORD/ADR=100.00. Note 2: Media Nusantara Citra provides pay-television content distribution and production as well as multimedia services.



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Asian Daily

- 18 of 36 -

Japan

Kakaku.com -------------------------------------------------------------------- Maintain OUTPERFORM Aiming to make Tabelog the de-facto standard for users and restaurants EPS: ◄► TP: ◄► Yuki Nakayasu / Research Analyst / 81 3 4550 9966 / [email protected]

● Impression: Positive; investing for the future. Kakaku.com reported 2Q FY3/15 OP of ¥3.7 bn, beating guidance of ¥3.4 bn. Sales rose 26% YoY, regaining some momentum after growth of 21% YoY in 1Q, which was hit by the pullback in spending after the consumption tax hike.

● The operating margin deteriorated slightly to 43%, mainly due to: (1) a decline in profitability by newly consolidated company, Time Design, and (2) an increase in agent commissions related to Tabelog marketing. However, we see these costs as necessary investment to remain competitive in a highly competitive market.

● Revenues from kakaku.com rose 2% YoY and shopping transactions were weak, suggesting the site needs more time to shrug off the impact of changes to its cost-per-click (CPC) rates.

● We look for the company to develop fresh ideas for the site, such as shifting to apps. Revenues from the Tabelog site rose 79% YoY, with the number of users and ARPU both seeing continued solid growth. Click here for full report.


The number of reservations expanded sharply, as more restaurants

shifted to online reservations to take advantage of a new scheme from

Tabelog that allows reservation costs to be booked as fixed expenses.

Revenues in the travel and real estate segment increased a solid 63%

YoY, partly helped by revenues from Time Design.

Tabelog aiming to become the de-facto standard for bars and

restaurants

Tabelog faces an increasingly tough competitive environment in

Japan and overseas. The site is already the leader in Japan in terms

of user numbers, but is also aiming to become the de facto standard

for bars and restaurants by providing a full range of support in areas

such as online reservations and bill settlement. We believe now is the

time to invest in site development and marketing to achieve to that

goal. We intend to monitor KPIs, such as the number of restaurants

that accept online bookings and the Tabelog Pay system.

This is an extract from the Kakaku.com report published on

5 November 2014. Please see the R&A website for more details.

Figure 1: Earnings forecasts summary (Earnings: Nov 5, 11:40 AM | Briefing: Nov 5, 5:00 PM)

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

Bbg/RIC 2371 JP / 2371.T Rating (prev. rating) O (O) Shares outstanding (mn) 221.11 Daily trad vol - 6m avg (mn) 2.0 Daily trad val - 6m avg (US$ mn) 29.1 Free float (%) 50.0 Major shareholders

Price (05 Nov 14, ¥) 1,554.00 TP (prev. TP ¥) 2,250 (2,250) Est. pot. % chg. to TP 45 52-wk range (¥) 2166.0 - 1375.0 Mkt cap (¥/US$ bn) 343.6/ 3.0


Absolute (%) 4.4 (13.1) (19.6) Relative (%) (1.4) (22.1) (35.6)

Year 03/13A 03/14A 03/15E 03/16E 03/17E

Revenue (¥ bn) 23.3 29.8 38.2 46.0 — EBITDA (¥ bn) 12.2 15.3 19.6 23.5 — Net profit (¥ bn) 7.1 9.1 11.7 14.0 — EPS (¥) 31.1 40.5 52.2 62.5 - Change from prev. EPS (%) n.a. n.a. 0 0 - Consensus EPS (¥) n.a. n.a. 50.0 63.3 75.3 EPS growth (%) 37.3 30.0 29.1 19.7 n.a. P/E (x) 49.9 38.4 29.8 24.9 — Dividend yield (%) 2.3 0.8 0.8 1.0 EV/EBITDA (x) 26.7 20.8 15.8 12.7 — P/B (x) 18.7 13.3 9.9 7.7 — ROE (%) 38.0 40.2 38.2 34.8 — Net debt(cash)/equity (%) (98.5) (93.3) (95.2) (96.1) —

Note 1: Kakaku.com, Inc. is in the electronic commerce (EC) business. The Internet Media segment maintains various travel and accomodation websites and the Finance segment is engaged in on-line trade services for forex margin trading & insurance agency business.



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Asian Daily

- 19 of 36 -

Toyota Motor ------------------------------------------------------------------ Maintain OUTPERFORM 2Q results: Expect good response to dividend hike, increase in full-year OP guidance EPS: ◄► TP: ◄► Masahiro Akita / Research Analyst / 81 3 4550 7361 / [email protected] Koji Takahashi / Research Analyst / 81 3 4550 7884 / [email protected]

● Toyota Motor announced 2Q (Jul–Sep) results at on 5 November, with 2Q OP of ¥659.2 bn (up 11.3% YoY) pretty much in line with our ¥670 bn forecast and the ¥644.2 bn I/B/E/S consensus estimate.

● Consolidated sales volume was flat YoY in 2Q at 2,235k units. Sales fell 8.9% YoY to 524k units in Japan due to lingering effects from the consumption tax hike, but overseas sales grew 3.1% to 1,711,000 units.

● OPM remained high in 2Q, at 10.1%. OP boosts came from cost reduction efforts, favorable forex, marketing efforts, and valuation gains/losses from interest rate swaps, etc., partially offset, though, by an increase in expenses and other factors.

● We see earnings momentum continuing to strengthen amid ongoing benefits from yen devaluation and improvement in the model cycle in FY3/16. We expect the market’s focus to shift to FY3/16, and think this could drive up the share price. Maintain OUTPERFORM. Full report


Toyota Motor announced 2Q (Jul–Sep) results at 3:00 p.m. on 5 November, with 2Q OP of ¥659.2 bn (up 11.3% YoY) pretty much in line with our ¥670 bn forecast and the ¥644.2 bn I/B/E/S consensus estimate. While it was not unexpected, we take a somewhat positive view of Toyota’s upward revision to full-year OP guidance and increase in interim dividend.

Consolidated sales volume was flat YoY in 2Q at 2,235k units. Sales fell 8.9% YoY to 524k units in Japan due to lingering effects from the consumption tax hike, but overseas sales grew 3.1% to 1,711k units. The company fared especially well in North America, where sales rose 12.5% to 685k units amid increasing demand for the RAV4, and a sell-out for the Camry. Sales in Europe were down 3.3% at 207k units, due in part to weakness in Russia. Toyota's Asia sales also fell, 4.2% to 369k units, with slow demand in Thailand and stiffer competition in Indonesia.

OPM remained high in 2Q, at 10.1%. OP boosts came from cost reduction efforts (+¥80 bn), favorable forex (+¥40 bn), marketing efforts (+¥20 bn), and valuation gains/losses from interest rate swaps, etc. (+¥7.4bn). These were partially offset, though, by an increase in expenses (–¥80bn) and other factors (–¥300 mn). The difference between actual OP and our forecast can be explained by sales factors other than volume and mix contributing more to profit growth than we expected, while other costs eroded profit by more than we anticipated.

Toyota raised its full-year OP guidance from ¥2,300 bn to ¥2,500 bn. The company changed its 2H assumption for USD/JPY to ¥105 (from ¥100) and left EUR/JPY at ¥135. Toyota also lowered its projection for consolidated sales volume by 50k units, from 9,100k to 9,050k. This was the net effect of cuts amounting to 20k, 40k, and 30k for Japan, Asia, and other markets, and increases of 30k and 10k units for North America and Europe. Relative to its original projections, Toyota also expects forex and cost reduction efforts to contribute an extra ¥135 bn and ¥50 bn, respectively, to profit. In addition, it factored in positive effects from pricing changes.

Toyota also raised its full-year NP guidance from ¥1,780 bn to ¥2,000 bn, citing higher-than-expected nonoperating income. In addition, the company increased its interim dividend to ¥75, from ¥65 the previous year. In view of increasing uncertainty over the business climate surrounding automakers in some markets—exemplified by sluggish demand—we think investors will be impressed by Toyota's announcement of an upward revision to full-year guidance and increase in its interim dividend. We see earnings momentum continuing to strengthen amid ongoing benefits from yen devaluation and improvement in the model cycle in FY3/16. We expect the market’s focus to shift to FY3/16, and think this could drive up the share price.

This is an extract of Masahiro Akita's report, "2Q results: Expect good response to dividend hike, increase in full-year OP guidance," published on 5 November 2014.

Bbg/RIC 7203 JP / 7203.T Rating (prev. rating) O (O) Shares outstanding (mn) 3,160.88 Daily trad vol - 6m avg (mn) 8.0 Daily trad val - 6m avg (US$ mn) 428.4 Free float (%) 65.0 Major shareholders

Price (05 Nov 14 , ¥) 6,808.00 TP (prev. TP ¥) 7,550 (7,550) Est. pot. % chg. to TP 11 52-wk range (¥) 6808.0 - 5314.0 Mkt cap (¥/US$ bn) 21,519.3/ 188.8


Absolute (%) 6.7 12.9 7.7 Relative (%) 0.8 3.9 (8.3)

Year 03/13A 03/14A 03/15E 03/16E 03/17E

Revenue (¥ bn) 22,064 25,692 26,587 27,847 29,034 EBITDA (¥ bn) 2,048 3,068 3,412 3,796 4,240 Net profit (¥ bn) 962 1,823 1,988 2,268 2,582 EPS (¥) 304 575 633 722 822 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (¥) n.a. n.a. 639 706 792 EPS growth (%) 236.8 89.4 10.1 14.1 13.8 P/E (x) 22.4 11.8 10.7 9.4 8.3 Dividend yield (%) 1.3 2.4 2.7 3.6 4.6 EV/EBITDA (x) 10.5 7.0 6.3 5.7 5.1 P/B (x) 1.8 1.5 1.4 1.2 1.1 ROE (%) 8.5 13.7 13.2 13.8 14.4 Net debt(cash)/equity (%) — — — — —

Note 1: ORD/ADR=2.00. Note 2: TOYOTA MOTOR CORPORATION manufactures, sells, leases, and repairs passenger cars, trucks, buses, and their related parts worldwide. The Company also operates financing services through their subsidiaries.



https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1040248801&serialid=gAyzfkmvfNqUtQjD0LDFODBoOtSTnrwIBDD1ENlCi%2f4%3d

https://rave.credit-suisse.com/research/company/financials?ric=7203.T




Asian Daily

- 20 of 36 -

Malaysia

Malaysia Market Strategy ------------------------------------------------------------------------------------- Big cap P/E premium has widened to 37% from a low of 14% Tan Ting Min / Research Analyst / 60 3 2723 2080 / [email protected] Nicholas Teh / 603 2723 2085 / [email protected]

● Foreign institutions were net sellers again of RM0.5 bn, while domestic institutions were net buyers of RM0.9 bn for October 2014. YTD, foreign institutions have sold a net RM3.3 bn, reversing all and more of the foreign net inflows for the entire 2013.

● MSCI Malaysia earnings have been cut by 7.9% YTD and 1.0% MoM. Sectors that have seen the largest MoM earnings cut for October are industrials, consumer discretionary and financials.

● The big cap P/E premium over the small cap in Malaysia is now 37%, which has widened from 14% in October 2013, but is still lower than the long-term average of 57%.

● Among the small caps we cover, we continue to like Tune Insurance and Uzma.

Figure 1: Foreign institutions were net sellers in Oct 2014 (-RM0.5 bn)

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Foreign institutions were net sellers again in October 2014

Foreign institutions were net sellers again of RM0.5 bn, while domestic institutions were net buyers of RM0.9 bn for October 2014. YTD, foreign institutions have sold a net RM3.3 bn, reversing all and more of the foreign net inflows for the entire 2013.

Figure 3: Summary table for net flows in Malaysia

Value (RM bn) 2010 2011 2012 2013 10M2014

Foreign institutions 15.2 2.2 14.4 3.0 -3.3

Domestic institutions -7.8 4.5 -4.1 10.3 7.3

Domestic retail -2.7 -2.8 -4.4 -6.4 -1.5

Source: Bursa

Figure 4: Malaysia’s foreign flows vs other Emerging Asian markets Indo- Philip- Thai- Malay- US$ mn India nesia Korea pines Taiwan land sia

Net inflow/(outflow)–Oct14 -191 -264 -1,967 -540 19 -497 -153 Net inflows/(outflow)–10M14 13,693 3,927 6,131 794 11,171 -587 -984

Source: MSCI, Credit Suisse estimates

Domestic retail trading normalised in October, accounting for 22% of total value traded versus 26% in August 2014 (2013 average was 18% and long-term average was 22%).

Earnings momentum remains negative in October

MSCI Malaysia earnings have been cut by 7.9% YTD and 1.0% MoM. Sectors that have seen the largest MoM earnings cut in Malaysia for October are industrials, consumer discretionary and financials.

Figure 5: MSCI Malaysia MoM earnings downgrade was the worst in APAC after Korea in September

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Big cap P/E premium over the small cap is now 37%

The big cap P/E premium over the small cap in Malaysia is now 37%, which has widened from 14% in October 2013. This is partly because small caps suffered the brunt of the market correction in September/October 2014.

However, the big cap P/E premium of 37% is still lower than the long-term average of 57%.

Figure 6: Big cap P/E premium over small cap

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Among the small caps we cover (market cap of below US$1 bn), we continue to like Tune Insurance and Uzma.

Figure 7: Small caps under CS coverage

Px TP Mkt

cap

ADV P/E P/B ROE YTD

perf

Name Ticker (RM) Rec (RM) (US$ mn) t t+1 t+2 t+1 t+1 (%)

Tune Ins TIH MK 2.12 O/P 2.85 478 0.7 23.2 19.2 15.7 3.8 20.0% 9%

Uzma UZMA MK 3.33 O/P 4.60 264 0.5 23.5 18.5 13.6 3.3 16.6% 20%

AirAsia X AAX MK 0.79 U/P 0.70 558 2.4 12.9 19.1 8.0 1.5 7.9% -21%

CMMT CMMT MK 1.44 N 1.41 768 0.4 17.2 17.2 16.2 1.1 6.5% 3%

Icon ICON MK 1.32 N 1.50 466 0.5 7.6 10.8 12.2 1.4 9.9% NA





Asian Daily

- 21 of 36 -

BAT Malaysia ------------------------------------------------------------------ Maintain OUTPERFORM A surprise duty hike EPS: ▼ TP: ▼ Foong Wai Loke / Research Analyst / 60 3 2723 2082 / [email protected]

● BAT has raised selling prices by an average of 12% following a surprise excise duty increase of 12%.

● We now assume a 6.5% YoY drop in volumes for 2014E (previously -6% YoY) and an 8% drop for 2015E (previously +1.5% YoY). We have fine-tuned our net profit estimates lower by 1-3% for FY14-15E to reflect the above. If active enforcement results in stronger-than-expected volumes (as was the case for 9M14), this could drive stronger-than-expected net profits.

● For the first time in history, the government is taking serious action against illicit trade and this is yielding positive results. Action against errant retailers has driven illicit levels down to 36% currently vs a recent high of 39%. Recently, the authorities have upped the ante by arresting consumers for buying illicit product.

● We maintain our OUTPERFORM rating on BAT. It offers an attractive 4.8% FY15E net dividend yield and is an attractive defensive play during market uncertainty. BAT also has an excellent corporate governance track record.


Selling prices raised following tax hike

Figure 1: Price hikes for Dunhill (% per pack)

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BAT has raised selling prices by an average of 12% following a surprise excise duty increase of 12%.

We now assume a 6.5% YoY drop in volumes for 2014E (previously -6% YoY) and an 8% drop for 2015E (previously +1.5% YoY). We have fine-tuned our net profit estimates lower by 1-3% for FY14-15E to reflect the above. The relatively small impact on our estimates is due to the magnitude of price increase exceeding the tax impact. If active enforcement results in stronger-than-expected volumes (as was the case for 9M14), this could drive stronger-than-expected net profits. BAT has thus far reported a 13% increase YoY in net profit YTD 9M14.

Figure 2: Volumes were recovering but expect drop off in 4Q14

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Clampdown hitting the illicit segment

For the first time in history, the authorities are taking serious action against the illegals, namely arresting/imprisoning retailers (who sell illicit) and also, arresting consumers (for buying illicit). Action against retailers has driven current illicit levels down to 36% vs a recent high of 39%. If stringent enforcement results in lower illicit volumes, this will directly benefit the government (in terms of tax revenues) and spell upside risk to BAT's earnings.

Figure 3: Illicit fell in 1H14 due to a clampdown by customs

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We maintain our OUTPERFORM rating on BAT. It offers an attractive 4.8% FY15E net dividend yield and is an attractive defensive play during market uncertainty. BAT also has an excellent corporate governance track record.

Bbg/RIC ROTH MK / BATO.KL Rating (prev. rating) O (O) Shares outstanding (mn) 285.53 Daily trad vol - 6m avg (mn) 0.2 Daily trad val - 6m avg (US$ mn) 3.5 Free float (%) 50.0 Major shareholders BAT PLC (50%)

Price (05 Nov 14, RM) 67.86 TP (prev. TP RM) 76.00 (77.50) Est. pot. % chg. to TP 12 52-wk range (RM) 73.4 - 58.1 Mkt cap (RM/US$ mn) 19,376.1/ 5,809.9


Absolute (%) (0.4) (2.8) 8.1 Relative (%) (0.4) (1.3) 6.3

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

Revenue (RM mn) 4,365 4,517 4,876 4,910 4,977 EBITDA (RM mn) 1,122 1,182 1,380 1,356 1,394 Net profit (RM mn) 798 823 977 961 1,003 EPS (RM) 2.80 2.88 3.42 3.36 3.51 - Change from prev. EPS (%) n.a. n.a. (1) (3) (3) - Consensus EPS (RM) n.a. n.a. 3.20 3.22 3.36 EPS growth (%) 10.6 3.2 18.7 (1.7) 4.4 P/E (x) 24.3 23.5 19.8 20.2 19.3 Dividend yield (%) 4.0 4.2 4.9 4.8 5.0 EV/EBITDA (x) 17.6 16.8 14.3 14.5 14.1 P/B (x) 40.0 38.1 29.1 29.2 26.9 ROE (%) 174.1 165.8 166.4 144.4 144.8 Net debt(cash)/equity (%) 87.5 89.3 50.4 50.5 38.7

Note 1: British American Tobacco (Malaysia) Berhad provides its subsidiaries, engaged in the manufacture, import & sale of cigarettes, pipe tobaccos & cigars with management and admin services to . It distributes its products within Malaysia under various brands.



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


Asian Daily

- 22 of 36 -

Tenaga -----------------------------------------------------------------------------------Maintain NEUTRAL The Minister speaks... EPS: ◄► TP: ◄► Foong Wai Loke / Research Analyst / 60 3 2723 2082 / [email protected]

● The government has announced that the electricity tariff will be maintained until June 2015 and PPA cost savings will be used to neutralise Tenaga's under-recovery (from higher LNG costs).

● The government missed a mid-year review and whilst this is a welcome move, it demonstrates that Tenaga's future is still largely in the hands of politicians. The tariff mechanism is not automatically applied but is subject to cabinet approval.

● Tenaga is a crowded stock, with foreign ownership at 25% close to an all-time high (vs a historical low of 2%). This suggests expectations are high and there's little room for error. If fuel costs eventually turn for the worse or if there are hiccups with IBR implementation, there'll be risk of a sell-off, in our view.

● Tenaga's current discount to market P/E of 24% is similar to the historical average discount of 22% (excluding the gas crisis period). At its worst, Tenaga has traded at a 50% discount to market. Maintain NEUTRAL. Domestic investors could still retain their holdings in Tenaga as O&G and CPO stocks are currently not in favour (due to weak prices).


No change to electricity tariff till June 2015

Datuk Seri Maximus Ongkili, the Minister of Energy, Green Technology and Water has announced that the electricity tariff will be maintained until June 2015 and PPA cost savings will be used to neutralise Tenaga's under-recovery (from higher LNG costs). Tenaga will likely book a one-off exceptional gain of ~RM600 mn in FY15E.

The government missed a mid-year review and whilst this is a welcome move, it demonstrates that Tenaga's future is still largely in the hands of politicians. The ICBT is not automatically applied but is subject to cabinet approval. This appears to be an attempt to garner favour with the public who will see disposable incomes crimped when GST is implemented in April 2015. The key risk, in our view, is whether the government will have the strength to impose higher tariffs in mid-2015 (if one is necessary).

Backtracking on competitive bidding

The regulator has repeatedly cited the importance of competitive bids (for new power plants) and 2014 was earmarked as THE year for implementation of competitive bidding. However, a string of new projects have recently been awarded to 1MDB via direct negotiations instead of via competitive bidding, including a 2000MW gas-fired plant which is only due for commissioning in 2021. In our view, such backtracking is negative for the sector, whereby a lack of transparency creates risk of uncompetitive contracts.

Crowded trade

Tenaga is a crowded stock, with foreign ownership at 25% close to an all-time high (vs a historical low of 2%). This suggests expectations are high and we see little room for error. If fuel costs eventually turn for the worse or if there are hiccups with IBR implementation, we could potentially see a sell-off.

Tenaga's share price is currently at a 20-year high and the stock has been a consensus buy for the past year.

However, domestic liquidity could act as a share price driver for Tenaga as local investors are less concerned about the implementation of a tariff formula given that fuel costs are relatively benign currently. Also, some see Tenaga as a safe haven given that the Oil & Gas sector and CPO stocks are not in favour due to weak commodity prices.

Tenaga has historically traded at a discount to the market

Whilst Tenaga's valuations do not appear stretched at 11x FY15E, the current discount to market P/E of 24% is similar to the historical average discount of 22% (excluding the gas crisis period).

At its worst, Tenaga has traded at a 50% discount to market.

Figure 1: Tenaga's discount/premium to Market PE

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Bbg/RIC TNB MK / TENA.KL Rating (prev. rating) N (N) Shares outstanding (mn) 5,643.61 Daily trad vol - 6m avg (mn) 7.8 Daily trad val - 6m avg (US$ mn) 28.9 Free float (%) 34.0 Major shareholders Government bodies

66%

Price (05 Nov 14 , RM) 13.46 TP (prev. TP RM) 14.00 (14.00) Est. pot. % chg. to TP 4 52-wk range (RM) 13.6 - 9.4 Mkt cap (RM/US$ bn) 76.0/ 22.8



Year 08/13A 08/14A 08/15E 08/16E 08/17E

Revenue (RM mn) 37,131 42,792 44,625 46,387 48,097 EBITDA (RM mn) 10,446 12,054 13,435 13,972 15,362 Net profit (RM mn) 4,754 6,018 6,580 6,930 7,824 EPS (RM) 0.86 1.09 1.20 1.26 1.42 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (RM) n.a. n.a. 1.01 1.09 1.15 EPS growth (%) 20.5 26.6 9.3 5.3 12.9 P/E (x) 15.6 12.3 11.3 10.7 9.5 Dividend yield (%) 1.9 2.2 2.3 2.5 2.7 EV/EBITDA (x) 8.5 7.7 6.8 6.3 5.4 P/B (x) 2.0 1.7 1.5 1.4 1.2 ROE (%) 12.9 14.9 14.3 13.5 13.6 Net debt(cash)/equity (%) 35.1 39.9 30.9 21.6 11.5

Note 1: ORD/ADR=4.00. Note 2: Tenaga Nasional Berhad (TNB) is engaged in the business of the generation, transmission, distribution and sale of electricity. The Company operates through three divisions: Generation Division, Transmission Division and Distribution Division.



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


Asian Daily

- 23 of 36 -

Philippines

Bloomberry Resorts Corporation --------------------------------------- Maintain OUTPERFORM High expectations met EPS: ◄► TP: ◄► Patricia Palanca / Research Analyst / 63 2 858 7752 / [email protected] Kenneth Fong / Research Analyst / 852 2101 6395 / [email protected] Alvin Arogo / Research Analyst / 63 2 858 7716 / [email protected]

● BLOOM reported 3Q14 GGR of P7.673 bn bringing 9M14 GGR to P21.5 bn, in line with our FY forecast of P28.4 bn. We attribute the strong GGR growth to the junket-driven VIP segment.

● BLOOM has already reached the same level of GGR as RWM. We believe the robust GGR growth will be sustained as we see the company’s ongoing efforts to ramp up the VIP junket business, as evidenced by the increase in receivables. We also expect the opening of City of Dreams (CoD) Manila in late 2014 to increase visitation and form critical mass in the Entertainment City.

● BLOOM’s Phase 1A expansion, which includes a wide array of non-gaming facilities, is set to open by end-November. It will also include ~65 additional VIP tables and ~220 slot machines. The company has also reportedly been looking for expansion projects outside of the Philippines, particularly in S.Korea and Japan.

● We maintain our OUTPERFORM rating. BLOOM is currently trading at a 2015E EV/EBITDA of 12.3x, which is at a discount to Macau’s average of 13.6x.


9M14 GGR of P21.5 bn in line with forecast. BLOOM reported 3Q14 GGR of P7.673 bn bringing 9M14 GGR to P21.5 bn, in line with our FY forecast of P28.4 bn. We attribute the robust GGR growth to the junket-driven VIP segment, which we estimate accounted for 48% of 3Q14 GGR. 9M14 net revenues and net income are slightly below (71% of FY) our estimates while 9M14 EBITDA accounted for 72% of our FY estimate. We maintain our numbers however, given that we expect higher non-gaming revenues in 4Q14 due to the holiday season and the opening of Solaire’s Phase 1A by end-November.

GGR growth to be sustained as junkets boost VIP revenues and synergies form once CoD Manila opens in Entertainment City. BLOOM has consistently improved its GGR and EBITDA margin and has already achieved the same level of GGR as RWM’s despite having just opened in March 2013 (Figure 1). We continue to expect a

robust GGR in 4Q14 given the fresh credit extended to junkets as evidenced by the increase in receivables (Figure 2). In the experience of Macau casino operators, credit extension tends to yield the most revenues in the first six months, which will apply for the rest of the year in the case of BLOOM. Moreover, we expect Solaire to benefit from the opening of CoD Manila in late 2014, which should drive up visitation and form critical mass in the Entertainment City.

Figure 1: Quarterly summary (P mn)

3Q13 4Q13 1Q14 2Q14 3Q14

GGR 4,881 5,473 7,034 6,796 7,673

EBITDA 794 734 2,141 2,333 2,434

Net revenues 4,109 4,043 5,976 5,450 5,833

EBITDA margin 19% 18% 36% 43% 42%

Note: Figures exclude interest income.


Figure 2: Accounts receivable vs. VIP GGR (P mn)

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Phase 1A to open by end-November; looking to expand offshore. Solaire’s Phase 1A, set to open this month, will include a 312 all-suite room hotel, a 1,760 Broadway-style theatre, a 10,000-sq m retail area, a night club and a karaoke bar. It will also include ~65 additional VIP tables and ~220 slot machines which we have included in our 2015E forecasts. Furthermore, the company has reportedly been looking to expand in S. Korea and Japan. While the timeline for these expansion projects are unknown and not likely to occur in the near term, we note that capital raising (partially equity) will be needed in order to fund these projects.

Maintain OUTPERFORM. BLOOM is currently trading at a 2015E EV/EBITDA of 12.3x, which is at a discount to Macau’s average of 13.6x. Risks include: unfavourable results on the GGAM share sale arbitration, equity raising for offshore expansion projects, intense competition in the Philippine gaming industry and adverse regulatory changes.

Bbg/RIC BLOOM PM / BLOOM.PS Rating (prev. rating) O (O) Shares outstanding (mn) 10,590 Daily trad vol - 6m avg (mn) 9.3 Daily trad val - 6m avg (US$ mn) 2.6 Free float (%) 28.1 Major shareholders Prime Metroline

Holdings, Inc.

Price (05 Nov 14 , P) 15.48 TP (prev. TP P) 16.00 (16.00) Est. pot. % chg. to TP 3 52-wk range (P) 15.58 - 8.30 Mkt cap (P/US$ bn) 163.9/ 3.7



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

Revenue (P mn) — 12,291 23,196 35,763 40,006 EBITDA (P mn) (785) 1,065 9,694 14,954 16,873 Net profit (P mn) (688) (1315) 4,664 6,272 7,759 EPS (P) (0.06) (0.12) 0.44 0.59 0.73 - Change from prev. EPS (%) n.a. n.a. 0 0 0 - Consensus EPS (P) n.a. n.a. 0.44 0.63 0.78 EPS growth (%) n.m. n.m. n.m. 34.5 23.7 P/E (x) n.m. n.m. 35.2 26.1 21.1 Dividend yield (%) 0 0 0 0 0 EV/EBITDA (x) (209.1) 164.8 19.7 12.3 10.4 P/B (x) 9.5 10.2 7.9 6.1 4.7 ROE (%) (6.1) (7.9) 25.4 26.3 25.2 Net debt(cash)/equity (%) 2.0 72.0 130.0 74.8 34.9

Note 1: Bloomberry Resorts Corporation is the owner and developer of Solaire Manila, an integrated hotel and casino complex that forms part of the Entertainment City gaming strip on Manila Bay.



https://rave.credit-suisse.com/research/company/financials?ric=BLOOM.PS


Asian Daily

- 24 of 37 -

Singapore

Jardine Matheson / Jardine Strategic -------------------------------------------------------------------- Interim management statement in line; subdued performance across most businesses Gerald Wong, CFA / Research Analyst / 65 6212 3037 / [email protected] Shih Haur Hwang / Research Analyst / 65 6212 3024 / [email protected]

● Underlying earnings for Jardine Matheson and Jardine Strategic from 1 July to 4 November 2014 remained in line with the same period in 2013. This is in line with management guidance at the 1H14 results and market expectations.

● Performance was mixed across businesses, with weak performance from Dairy Farm and Astra offset by improved earnings in Jardine Pacific and Jardine Motors. Astra’s 9M14 earnings were up 8% YoY, representing 65% of our expectation, as lower automotive sales were a drag to higher contributions from its agribusiness and heavy equipment segments.

● Vacancy rate for HongKong Land’s Central office portfolio increased to 6.8% versus 6.0% as at 30 June. Rental reversions were negative from 2H14, reversing the positive reversions in 1H14. Dairy Farm's earnings were lower YoY due to cost pressures in Singapore, Indonesia, Malaysia and the Philippines, particularly in its foods and health and beauty segments.

● After incorporating the low TP of Astra, we cut our TP for JM to US$61 (from US$66), and for JS to US$35 (from US$38). Maintain NEUTRAL.

3Q14 results mixed

Jardine Matheson and Jardine Strategic released interim

management statements for their subsidiaries from 1 July to 4

November, with underlying earnings broadly flat compared with the

same period last year. Performance was mixed across businesses,

with weak performance from Dairy Farm and Astra offset by improved

earnings in Jardine Pacific and Jardine Motors.

Astra International: Astra’s 3Q14 earnings were down 7% QoQ but

up 1% YoY. 9M14 earnings were up 8% YoY, representing 65% of our

expectations. Earnings growth came mainly from its agribusiness, and

heavy equipment and mining segments, with 107% and 40% growth

YoY, respectively. Car sales volumes were down 1% and below our

estimate, with a recovery in volumes unlikely for the rest of the year.

Astra suffered market share loss for its four-wheeler segment due to

delays in new product launches, with market share dropping from

53% to 51%. In addition, a potential fuel price hike weakens the

outlook for car sales. The weaker rupiah reduced the contribution on

consolidation further.

HongKong Land: Vacancy rate for HongKong Land’s Central office

portfolio as at 4 November 2014 was 6.8% (vs 6.0% as at 30 June).

However, management expects vacancy to decrease by end 2014,

likely due to commitments by new tenants. Rental reversions of the

office segment have overall been negative since the start of 2H14,

reversing the positive reversions in 1H14. The retail segment has held

up well with continued positive reversions at almost full occupancy.

Dairy Farm International: Dairy Farm's performance was subdued as

cost pressures led to earnings being lower YoY. Sales and profit

growth was achieved in the health and beauty, home furnishing and

restaurants divisions, despite continuing margin pressure. The food

businesses recorded lower profit due to escalating costs and weak

sales in Singapore, Malaysia, Indonesia and the Philippines, which

more than offset increased profitability in North Asia. Health and

Beauty mirrored the food business, with strong results in Greater

China and a challenging environment elsewhere. Management

expects the challenging environment and margin pressure to continue

for the rest of the year.

Other businesses: Mandarin Oriental’s trading momentum remained

positive, although some hotels experienced challenging conditions,

including in Bangkok, London and Washington. Two new

management contracts were announced in Dubai and Manila. Jardine

Pacific saw positive earnings growth during the period. Jardine Motors

saw improved earnings from reduced operating losses in Southern

China and enhanced performances in Hong Kong and the United

Kingdom. Jardine Lloyd Thompson’s performance was underpinned

by above-market organic growth.

Maintain NEUTRAL

We are incorporating recently lowered forecasts and target price of Astra

(to Rp8,000 from Rp9,000 on 30 October). We reduce our target price for

JM to US$61 (from US$66), and that for JS to US$35 (from US$38). JM is

trading at a 15% discount to NAV, in line with its historical average of 26%.

JS is trading at a 27% discount to NAV, vs its historical average of 35%.

Figure 1: JM—discount to NAV in line with historical average

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Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates

Valuation metrics Company Ticker Rating

(prev. Price TP

chg Up/dn to TP

Year EPS chg (%) EPS EPS grth (%) P/E (x) Div. yld (%)

ROE (%)

P/B (x)

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

Jardine Matheson JARD.SI N (N) 59.90 61.00 (8) 2 12/13 0 (1) 4.27 4.53 5 6 14.0 13.2 2.1 8.4 1.2 Jardine Strategic JSH.SI N (N) 35.07 35.00 (8) 0 12/13 0 (1) 2.64 2.76 0 5 13.3 12.7 0.7 7.1 0.9




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


Asian Daily

- 25 of 37 -

OUE Ltd ---------------------------------------------------------------------------------Maintain NEUTRAL 9M14 miss on higher costs; pushing out completion targets for CPCA extension; OUE Downtown AEIs EPS: ▼ TP: ▼ Yvonne Voon / Research Analyst / 65 6212 3026 / [email protected] Daniel Lim / Research Analyst / 65 6212 3011 / [email protected]

● 9M14 core profit of S$24.5 mn missed, at only 38% of ours and 30% of street's FY14E. Despite higher property investment income from USBT, completion of ORP retail (commenced May-14) and the inclusion of Lippo Plaza, 9M14 EBIT fell 21% YoY due to lower residential profits, sale of CH hotels, and higher-than-expected marketing and admin costs.

● Development updates: (1) development of the extension building to CPCA, which will add 243 rooms to CPCA's existing 320 rooms, commenced in Aug-14 and is expected to complete late 2015 with c.S$70 mn capex; and (2) asset enhancements at OUE Downtown and USBT's observation deck and lobby are currently underway.

● We have cut our profit forecast by 27% this year to reflect the impact of higher costs (operating leverage impact on its earnings) and adjust FY15E/16E core profit by 0.9%/-4.3%, respectively. We lower our RNAV from S$3.69 to S$3.39. Our new TP is S$2.38.

● Maintain NEUTRAL. Near-term share price is likely to be range-bound due to overhang from Twin Peaks and from costs.


9M14 PATMI missed: Despite higher property investment income from US Bank Tower (acquired Jun-13), completion of One Raffles Place (ORP) retail (commenced May-14) and inclusion of Lippo Plaza (acquired by OUECR, listed on 27 Jan), 9M14 EBIT was -21% YoY due to lower residential profits (URA Realis shows 1 unit at Twin Peaks sold in 3Q14 at S$2,984 psf), sale of CH hotels, and higher-than-expected marketing & admin expenses (legal and professional fees).

Figure 1: Revenue breakdown

9M14 (%) 9M13 (%) % YoY

Hospitality 154.8 49 175.3 52 -11.7

Property investment 119.2 38 96.3 29 23.8

Property development 32.1 10 61.0 18 -47.3

Others 7.2 2 4.0 1 81.6


Development updates: (1) development of the 10-storey extension building to Crown Plaza (CPCA), which will add 243 rooms to CPCA's existing 320 rooms, commenced in Aug-14 (expected to complete in late 2015) with c.S$70 mn capex; and (2) asset enhancements at OUE Downtown and US Bank Tower's observation deck and lobby are currently underway.

AEIs to fuel near term earnings: 6 Shenton Way (to be renamed OUE Downtown) retail and service apartments AEIs are underway (capex c.S$40 mn and c.S$50 mn, respectively). AEIs at CPCA, US Bank Tower and ORP (retail) will continue to drive growth. We have cut our profit forecast by 27% this year to reflect impact of higher costs (operating leverage impact on its earnings) and adjust FY15E and FY16E core profit by 0.9% and -4.3%, respectively. Our RNAV subsequently trimmed from S$3.69 to S$3.39, resulting in our TP being trimmed from S$2.58 to S$2.38 (based on a 30% discount to RNAV). Near-term share price is likely to be range-bound due to the overhang on Twin Peaks and costs, any fruition from AEIs/investments will come through end-2015/2016 onwards. Maintain NEUTRAL.

Figure 2: Change in estimates

New estimates Old estimates % change

S$ mn, FYE Dec '14E '15E '16E '14E '15E '16E '14E '15E '16E

Revenue 436.1 399.3 407.4 417.3 433.2 422.3 4.5 (7.8) (3.5)

EBIT 144.1 149.3 156.6 147.7 156.4 169.0 (2.4) (4.5) (7.3)

Core PATMI 46.8 89.8 95.1 64.5 89.0 99.4 (27.4) 0.9 (4.3)

Source: Credit Suisse estimates

Figure 3: OUE discount to RNAV

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OUE Prem/(disc) to RNAV Mean - (39.9)% ± 1 std

(%)


Figure 4: Results summary S$ mn, FYE Dec 9M14 9M13 % YoY 3Q14 3Q13 % YoY 2Q14 % QoQ CS FY14E % of CS % of street

Revenue 313.4 336.5 -6.9 106.3 119.1 -10.8 100.2 6.1 417.3 75% 83%

EBIT 81.3 103.4 -21.3 25.4 35.1 -27.7 20.7 22.9 147.7 55% 37%

Net finance expenses -52.2 -78.2 -33.2 -12.5 -24.9 -49.6 -16.6 -24.2 -89.9 58%

Attributable profit 966.5 29.7 >100.0 16.5 13.4 23.1 4.4 271.9 1209.9

Core PATMI* 24.5 33.8 -27.5 12.8 18.2 -29.5 4.8 165.5 64.5 38% 30%

*Excludes fair value gains/losses; Source: Company data, I/B/E/S, Credit Suisse estimates

Bbg/RIC OUE SP / OVES.SI Rating (prev. rating) N (N) Shares outstanding (mn) 981.60 Daily trad vol - 6m avg (mn) 0.5 Daily trad val - 6m avg (US$ mn) 0.9 Free float (%) 32.0 Major shareholders Lippo Group (68%)

Price (04 Nov 14 , S$) 2.12 TP (prev. TP S$) 2.38 (2.58) Est. pot. % chg. to TP 12 52-wk range (S$) 2.50 - 2.04 Mkt cap (S$/US$ mn) 2,081.0/ 1,614.7


Absolute (%) 1.4 (9.0) (5.3) Relative (%) 0.6 (8.0) (7.7)

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

EBITDA (S$ mn) 213.3 114.1 154.1 159.3 167.9 Net profit (S$ mn) 103.1 (6.8) 46.8 89.8 95.1 EPS (S$) 0.11 (0.01) 0.05 0.10 0.10 - Change from prev. EPS (%) n.a. n.a. (27) 1 (4) - Consensus EPS (S$) n.a. n.a. 0.09 0.09 0.12 EPS growth (%) 20.1 n.m. n.m. 92.0 5.9 P/E (x) 18.7 n.m. 41.3 21.5 20.3 Dividend yield (%) 5.2 10.8 1.9 3.9 3.6 EV/EBITDA (x) 19.0 35.9 22.7 23.0 22.1 ROE (%) 3.2 (0.2) 1.6 2.9 3.1 Net debt(cash)/equity (%) 62.1 57.2 34.5 38.3 39.3 NAV per share (S$) — — 3.39 — — Disc./(prem.) to NAV (%) — — 37.5 — —

Note 1: OUE is Lippo Group's flagship development company in Singapore. It currently owns and manages commercial, hotel, retail, and residential properties situated in prime locations.




Asian Daily

- 26 of 36 -

Sembcorp Marine Ltd. --------------------------------------------------------------Maintain NEUTRAL 3Q14 miss, as operating margin fell to 10% with increased drillship recognition EPS: ▼ TP: ▼ Gerald Wong, CFA / Research Analyst / 65 6212 3037 / [email protected] Shih Haur Hwang / Research Analyst / 65 6212 3024 / [email protected]

● Sembcorp Marine's 9M14 net profit of S$386 mn was below expectations, representing 67% of consensus' FY14 forecast. This was largely driven by a decline in operating margin to 10.0% in 3Q14 from 11.5% in 2Q14, as a change in accounting policy led to a negative mix effect.

● Sembcorp Marine revised its estimates to commence revenue recognition when activity milestones are established rather than achieving 20% completion. Four projects achieved initial revenue recognition in 3Q14, including two Sete Brasil drillships which are 14% and 23% complete. We estimate that these low-margin drillships contributed 30-40% to revenue in 3Q14, vs10% in 1H14.

● Management maintains its guidance for the first drillship to arrive in Brazil in November and be delivered in mid-2015. Most facilities in the new yard have been awarded environmental licenses, and fabrication work for two Petrobras FPSOs has started.

● We reduce our 2015-16E EPS by 5-9% due to lower margin assumptions. Our target price is lowered to S$3.60, based on 12x 2015E P/E. Maintain NEUTRAL.


Figure 1: Results summary

Reported results Change (%) Relative to old est.

(S$ mn) 3Q13 2Q14 3Q14 QoQ YoY 9M14 FY14E YTD

(%)

Revenue 1,659 1,341 1,712 27.7 3.2 4,388 5,750 76.3

- Ship repair 204 150 157 4.7 (23.0) 465 705 66.0

- Conv. & offshore 271 296 300 1.4 10.7 958 1,184 80.9

- Rig building 1,142 873 1,235 41.5 8.2 2,904 3,785 76.7

- Others 42 22 19 (13.6) (55.0) 61 77 79.3

Op. profit 166.7 154.4 171.4 11.0 2.8 475 661 71.9

Net profit ex-EI 129.7 131.6 132.0 0.3 1.8 386 560 69.0

Op. margin 10.1% 11.5% 10.0% (13.1) (0.4) 10.8% 11.5%


3Q14 below expectations on weak margins

Sembcorp Marine’s 9M14 net profit of S$386 mn was below expectations, representing 67% of consensus' FY14 forecast. 9M14 revenue of S$4.39 bn represents only 76% of consensus' FY14 forecast, as a change in accounting policy led to a surge in revenue to S$1.71 bn in 3Q14 from S$1.34 bn in 2Q14. In accordance with the recent clarification issued by the Institute of Singapore Chartered Accountants (ISCA), Sembcorp Marine has revised its estimates to commence revenue recognition when the project activity milestones are established instead of when work is at least 20% complete.

Operating margin fell to 10.0% in 3Q14 from 11.5% in 2Q14, due to initial revenue recognition for four projects in 3Q14, including a Hercules jackup and Helix semisub (both below 20% complete), and the third and fourth Sete Brasil drillships (23% and 14% complete, respectively). Ship repair revenue in 3Q14 was S$157 mn, a 23% YoY decline due to a cyclical downturn in the shipping industry. In total, 335 vessels were repaired in 9M14, with an average value per vessel of US$1.4 mn, down from US$1.8 mn in 1H13. Management expects larger ship repair jobs in 4Q14 to drive higher revenue.

Figure 2: SMM—revenues vs operating margins

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Focus on Brazil execution

According to Upstream, Petrobras is considering canceling the contract for integration of the P-68 and P-71 FPSOs due to delays with environmental permitting and problems on detailed engineering for the FPSO modules. Awarded in 2012, the contract is valued at US$674 mn. Management noted that it has received close to S$100 mn of payment from Petrobras, and the company is in a net cash position after deducing working capital requirements. Licenses have been awarded to a number of facilities in the yard, including the hull shop and floating crane. Fabrication work has started for the FPSO topsides, although the project is still below 20% completion.

Sembcorp Marine’s first drillship left Singapore in early October and is expected to arrive in Brazil in about a month’s time for full completion. Management expects the rig to be on track for delivery in June/July 2015. Its yard in Brazil commenced initial operations in 2H14, and will be fully completed in 2015. It currently has close to 900 full-time employees, and will gradually ramp up to have 2,500-3,000 employees.

Bbg/RIC SMM SP / SCMN.SI Rating (prev. rating) N (N) Shares outstanding (mn) 2,089.76 Daily trad vol - 6m avg (mn) 2.8 Daily trad val - 6m avg (US$ mn) 8.4 Free float (%) 28.1 Major shareholders Sembcorp Industries

(60.62%)

Price (05 Nov 14, S$) 3.63 TP (prev. TP S$) 3.60 (3.90) Est. pot. % chg. to TP (1) 52-wk range (S$) 4.48 - 3.58 Mkt cap (S$/US$ mn) 7,585.8/ 5,880.0


Absolute (%) 1.4 (9.3) (18.9) Relative (%) 0.3 (8.4) (21.5)

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

Revenue (S$ mn) 4,430 5,526 6,005 6,544 7,205 EBITDA (S$ mn) 671 749 952 1,037 1,131 Net profit (S$ mn) 500.0 552.7 558.2 614.2 697.7 EPS (S$) 0.24 0.26 0.27 0.29 0.33 - Change from prev. EPS (%) n.a. n.a. 0 (5) (9) - Consensus EPS (S$) n.a. n.a. 0.27 0.29 0.31 EPS growth (%) (33.7) 10.4 0.8 9.6 13.2 P/E (x) 15.1 13.7 13.6 12.4 11.0 Dividend yield (%) 3.6 3.6 3.6 4.1 5.0 EV/EBITDA (x) 9.7 8.9 6.9 6.0 5.1 P/B (x) 3.1 2.8 2.6 2.3 2.1 ROE (%) 20.6 21.6 19.8 19.6 20.0 Net debt(cash)/equity (%) (42.2) (32.7) (34.2) (39.6) (46.3)

Note 1: ORD/ADR=10.00. Note 2: Sembcorp Marine Ltd. is an investment holding company engaged in the provision of management services. The Company operates in two segments: ship and rig repair, building and conversion, and ship chartering.



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


Asian Daily

- 27 of 36 -

Singapore Exchange ----------------------------------------------------------------Maintain NEUTRAL New report: Derivative volumes strong, but continued weak equity volumes EPS: ▼ TP: ◄► Arjan van Veen / Research Analyst / 852 2101 7508 / [email protected]

● We have downgraded earnings by 2-4% after reviewing October 2014 market volumes, with equity volumes continuing to be weak but derivatives being strong. Key trends in October were: Equity markets (33% of revenues)—October average daily turnover (ADT) was down 7% YoY to S$1.04 bn, and up 8% in September (relative to our 2Q15E forecasts of S$1.1 bn).

● Derivatives markets (32%): Derivative volumes were up 25% YoY, and strengthened compared with the last few months, up 1% in September and up 14% in August, driven by stronger volumes of the China A50 futures product in particular.

● Depository services (13%): These fees are more based on equity volumes than value, with volumes in October down 55% YoY. Listing (10%): There were three new equity listings in the month.

● Valuation unchanged at S$7.50, implying 23x 12-month forward earnings (below eight-year average). We retain our NEUTRAL investment rating, noting strong yield support (~5%). Full report.


We believe SGX to have a solid longer-term growth profile as a regional hub (especially in derivatives), with nearer term fortunes of the stock more market-volume related.

We highlight that Singapore equity market activity has been very subdued at the beginning of the year, then we see activity slowly picking up and stabilising, but recently trading value is slowing again with S$1.0 bn for September, S$1.0 bn for August, S$0.95 bn for July and S$0.98 bn for June.

October 2014 traded derivative contracts were up 25% YoY, while up 1% in September and up 14% in August. The stronger derivative contracts were mainly driven by the China A50 futures product, which are now at around 40% of volumes, up from 20% earlier last year.

Figure 1: SGX equity volumes remain weak SGX average daily turnover (S$ bn)

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Source: Reuters, company data, Credit Suisse estimates

We highlight that October 2014 ADT was at S$1.04 bn, in line with our adjusted 2Q15E forecasts of S$1.0 bn, and up 8% in September.

We highlight sensitivity to valuation/earnings to average daily turnover (ADT) in Figure 2 below:

Figure 2: Valuation sensitivity to trading volumes Valuation sensitivity to average daily trading volume (SGX is October YE)

Daily average equity turnover (S$bn) - 2015E Daily average equity turnover (S$bn) - 2015E

PE (x) 0.5 0.7 0.9 Base= 1.1 1.3 1.5 1.7

14x 3.24 3.54 3.87 4.21 4.58 4.94 5.44

16x 3.70 4.05 4.42 4.82 5.23 5.65 6.21

18x 4.17 4.55 4.98 5.42 5.89 6.35 6.99

20x 4.63 5.06 5.53 6.02 6.54 7.06 7.76

22x 5.09 5.57 6.08 6.62 7.19 7.77 8.54

24x 5.56 6.07 6.64 7.22 7.85 8.47 9.32

26x 6.02 6.58 7.19 7.83 8.50 9.18 10.09

28x 6.48 7.09 7.74 8.43 9.16 9.88 10.87

30x 6.95 7.59 8.30 9.03 9.81 10.59 11.65

32x 7.41 8.10 8.85 9.63 10.46 11.30 12.42 Source: Reuters, IBES consensus 12-month forward forecasts

The stand-out area for SGX in the last few years is its derivatives volumes, where we believe it is starting to build critical mass in many products and SGX stands a good chance of becoming a regional trading hub for such contracts. Derivatives accounted for 30% of SGX revenues in FY14, up from 21% in FY10, which we expect to increase over time.

Derivatives are an important part for SGX now in terms of current size and strategy, but are still not large enough to offset the weakness in equities volumes (and has been weaker recently).

Please click here for full report.

Bbg/RIC SGX SP / SGXL.SI Rating (prev. rating) N (N) Shares outstanding (mn) 1,071.64 Daily trad vol - 6m avg (mn) 1.3 Daily trad val - 6m avg (US$ mn) 7.1 Free float (%) 92.4 Major shareholders SEL Holdings (23%)

Price (05 Nov 14 , S$) 7.06 TP (prev. TP S$) 7.50 (7.50) Est. pot. % chg. to TP 6 52-wk range (S$) 7.40 - 6.68 Mkt cap (S$/US$ mn) 7,565.8/ 5,864.5


Absolute (%) 0.1 (0.7) (4.6) Relative (%) (0.9) 0.1 (7.2)

Year 06/13A 06/14A 06/15E 06/16E 06/17E

Revenue (S$ bn) 0.7 0.7 0.7 0.8 0.9 EBITDA (S$ bn) 0.4 0.4 0.4 0.5 0.6 Net profit (S$ bn) 0.3 0.3 0.3 0.4 0.5 EPS (S$) 0.31 0.30 0.30 0.36 0.41 - Change from prev. EPS (%) n.a. n.a. (4) (2) (2) - Consensus EPS (S$) n.a. n.a. 0.32 0.36 0.41 EPS growth (%) 15.0 (5.5) 0.5 21.4 14.8 P/E (x) 22.6 23.9 23.7 19.6 17.0 Dividend yield (%) 4.0 4.0 4.7 5.7 6.5 EV/EBITDA (x) 15.3 16.1 15.6 12.9 11.3 P/B (x) 8.5 8.2 8.0 7.9 7.9 ROE (%) 39.0 35.4 34.8 42.0 48.4 Net debt(cash)/equity (%) (85.0) (81.5) (81.3) (76.9) (72.8)

Note 1: ORD/ADR=15.00. Note 2: Singapore Exchange Limited (SGX)owns and operates the main stock exchange of Singapore, principally engaged in the clearing and settlement of equities, derivatives and bonds.



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

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1040249041&serialid=Nc1KIhSJQASUmS4ocGO2arIXWg4STpj9b%2blZhHsGikk%3d


Asian Daily

- 28 of 36 -

StarHub Ltd ---------------------------------------------------------------- Maintain UNDERPERFORM 3Q14A weaker than expected: Broadband remains the key drag, subsidies to hit 4Q margins EPS: ▼ TP: ◄► Chate Benchavitvilai / Research Analyst / 65 6212 3241 / [email protected]

● STH reported weak 3Q14 results. Service revenue declined 1% YoY, as growth in postpaid mobile, TV and fixed-network were again offset by broadband and prepaid mobile revenues decline. Given higher NGN-related grant, EBITDA still grew 2.1% YoY.

● STH maintained FY14 guidance for flat service revenue and 32% EBITDA margin (lower than 33.7% in 9M14), as it expected costs related to handset sales and subsidies to increase into 4Q.

● STH noted that given broadband subscriber growth and shift in competition more towards speed than price, broadband revenues could grow again in 2H15E and recent mobile tariff adjustment should be accretive to growth. These are already well incorporated in our forecasts, and risk to broadband could still be to the downside.

● We revise down our FY14–16E EPS forecasts by 1.7–2.6% to reflect lower service revenue forecasts (largely from lower mobile voice revenues and broadband ARPU assumptions). While STH offers 4.8% dividend yield, risk-reward remains unattractive, in our view. Maintain UNDERPERFORM.


Mobile revenue only grew 0.8% YoY

STH's mobile service revenue only grew 0.8% YoY in 3Q14, as 4% YoY growth in postpaid (better data monetisation from migration to tiered-pricing) was again not enough to offset 12% YoY decline in prepaid revenues (lower voice usage & IDD, possibly driven by OTT cannibalisation). While data revenue continued to grow by 16.2% YoY (even a slight acceleration from 13.8% YoY in 2Q14), voice revenues continued to decline by 10.2% YoY as smartphone / data usage continued to penetrate into prepaid segment.

Broadband revenue declined 17.4%, remained a key drag

STH’s broadband revenue again remained a key drag, declining by 3.5% QoQ and 17.4% YoY, led by 20.5% YoY decline in broadband ARPU to S$35/mth as customers continued to re-contract at lower tariffs. Management noted though that: (1) STH now managed to grow its subscriber base again (13k net adds YTD, sub base grew 4% YoY)

and (2) competition has shifted more towards speed than price (hence could help stabilise ARPU). Management noted that this might allow STH to start growing broadband revenue in 2H15E, though admitted competition remained intense and that there could be downside risk.

On the cable TV side, STH’s Cable TV revenue declined 1.0% QoQ (partly seasonality) but grew 2.0% YoY driven by subscriber growth partly driven by its effort in limiting the illegal set-top-box.

Fixed-network continued to grow, but still only gradually

Fixed network service revenues grew 3.5% QoQ and 2.7% YoY, driven by 4.6% YoY growth in Data & Internet enough to offset 5.7% YoY decline in voice revenues (lower voice price and usages). STH's progress in this segment remained quite gradual, though management remain optimistic on the opportunity to gain share from incumbent as well as cost saving as STH continue to invest in its fixed-line network.

Figure 1: StarHub 3Q14A results – QoQ and YoY analysis

S$ mn 3Q14A 2Q14A QoQ % 3Q13A YoY %

Revenue - Mobile 310.9 310.3 0.2% 308.3 0.8%

Revenue - Pay TV 97.4 98.4 -1.0% 95.5 2.0%

Revenue - Broadband 49.2 51.0 -3.5% 59.6 -17.4%

Revenue - Fixed Network 95.2 92.0 3.5% 92.7 2.7%

Total Service revenues 552.7 551.7 0.2% 556.1 -0.6%

Consolidated revenues 609.4 581.7 4.8% 589.9 3.3%

EBITDA 190.9 187.4 1.9% 187.0 2.1%

EBITDA margin (%)* 34.5% 34.0% 33.6%

Net Profit 97.7 94.3 3.6% 95.3 2.5%

Source: Company data, Credit Suisse. *on service revenues

EBITDA helped by higher NGNBN grant

On the EBITDA level, STH's revenue decline was helped by lower traffic expenses (in-line with lower IDD, better rates), overall good cost control and more importantly higher NGNBN-related grant (~S$6 mn higher YoY) as STH added more fibre broadband customers. STH was therefore able to report 2.1% YoY growth in EBITDA, which fed through to 2.5% YoY growth in net profit in 3Q14A.

STH's management maintained its FY14E guidance for flat revenue and 32% EBITDA margin (lower than 33.7% in 9M14) as it expected costs, particularly related to handset sales and subsidies to rise in 4Q.

Mobile tariff increased, but risk reward remain unattractive

Along with iPhone 6, STH adjusted its mobile tariffs to be in-line with peers (increased monthly fee, but increase allowance by 1GB/month and waive 4G surcharge). Given STH's tariffs were at discount earlier, its increase was thus more aggressive (S$5/mth, or 5-13% compared to S$2-3/month for peers). We expect this to be accretive to growth into FY15-16E, but already captured its impact within our forecasts.

We revise down our FY14-16E EPS by 1.7–2.6% to reflect 0.5–1.0% lower service revenues forecasts (largely from lower mobile voice revenues and broadband ARPU assumptions). While STH offers 4.8% dividend yield (20 cents / year), risk-reward remains unattractive, in our view. Maintain UNDERPERFORM.

Bbg/RIC STH SP / STAR.SI Rating (prev. rating) U (U) Shares outstanding (mn) 1,726.21 Daily trad vol - 6m avg (mn) 1.8 Daily trad val - 6m avg (US$ mn) 5.7 Free float (%) 33.0 Major shareholders Asia Mobile Hldgs

(49.16%)

Price (05 Nov 14 , S$) 4.16 TP (prev. TP S$) 3.95 (3.95) Est. pot. % chg. to TP (5) 52-wk range (S$) 4.37 - 4.01 Mkt cap (S$/US$ mn) 7,181.0/ 5,566.3


Absolute (%) 1.5 0.5 (4.1) Relative (%) 0.4 1.3 (6.7)

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

Revenue (S$ mn) 2,448 2,409 2,446 2,514 2,573 EBITDA (S$ mn) 719.8 732.7 731.4 769.2 786.9 Net profit (S$ mn) 359.3 370.7 363.7 389.4 398.0 EPS (S$) 0.21 0.22 0.21 0.23 0.23 - Change from prev. EPS (%) n.a. n.a. (3) (2) (2) - Consensus EPS (S$) n.a. n.a. 0.21 0.22 0.23 EPS growth (%) 13.8 2.9 (1.9) 7.1 2.2 P/E (x) 19.9 19.3 19.7 18.4 18.0 Dividend yield (%) 4.8 4.8 4.8 5.3 5.3 EV/EBITDA (x) 10.5 10.4 10.4 9.9 9.7 P/B (x) 164.2 86.6 70.1 63.5 54.2 ROE (%) 1,087.1 587.5 393.6 362.4 325.1 Net debt(cash)/equity (%) 863.2 508.6 434.4 382.7 364.8

Note 1: ORD/ADR=10.00. Note 2: StarHub Ltd (StarHub) is a Singapore-based company. The Company is engaged in the operation and provision of telecommunications services and other businesses relating to the info-communications industry.



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


Asian Daily

- 29 of 36 -

South Korea

Hyundai Steel ------------------------------------------------------------------ Maintain OUTPERFORM Continuing earnings improvement indicates recent correction ovedone EPS: ▼ TP: ◄► Minseok Sinn / Research Analyst / 82 2 3707 8898 / [email protected] Hayoung Chung / Research Analyst / 822 3707 3795 / [email protected]

● Hyundai Steel's 3Q14 operating profit of W376 bn (consolidated, +134% YoY, flat QoQ) was above expectations, thanks to well-protected steel price backed by improved product mix (ASP of W816k/t in 3Q14 went down only by W5k/t QoQ, which is much milder than raw material price fall during the same period), despite continued weakness in the Asia steel market.

● We anticipate sales volume growth from 4.7 mn tonnes in 3Q14 to 5.3 mn tonnes in 4Q14E to drive additional improvement in Hyundai Steel's operating profit to W404 bn in 4Q14E.

● We understand the negative impact of Japan's QE and slower growth outlook of China on the Korean steelmakers' export competitiveness and steel product demand outlook in domestic market.

● Nonetheless, we believe Hyundai Steel's recent sharp correction has been overdone and its current cheap valuation offers a compelling risk-averse return profile, given its sequential earnings improvement in the past several quarters since the bottom in 3Q13, which is likely to continue throughout 2015/16. Maintain O/P.


Well-protected steel price led to strong earnings in 3Q14

Hyundai Steel on 5 November before market close posted its 3Q14 preliminary results. Operating profit of W376 bn (consolidated, +134% YoY, flat QoQ) was above consensus forecast of W339 bn. Whereas sales volume decreased from 5.1 mn tonnes in 2Q14 to 4.7 mn tonnes in 3Q14 due to lower seasonal effect, well-protected steel price backed by improved product mix (its ASP of W816k/t in 3Q14 went down only by W5k/t QoQ, which is much milder than raw material price falls during the same period) led strong earnings in 3Q14 despite continued weakness in the Asia steel market. Meanwhile, considerably smaller-than-expected net forex loss of W49 bn vs. our forecast of W129 bn also helped the company's strong pre-tax profit of W208 bn in 3Q14.

Figure 1: Hyundai Steel—summary P&L (consolidated)

3Q14 4Q14E 2014E 2015E

(W bn) Act’l CS Cons. CS Cons. CS Cons. CS Cons.

Sales 4,008 3,957 4,075 4,398 4,341 16,913 16,800 16,842 16,928

EBITDA n/a 627 613 700 673 2,621 2,423 2,743 2,512

Operating profit 376 336 339 404 392 1,407 1,326 1,510 1,421

Pre-tax profit 208 119 177 299 320 1,137 1,092 1,177 1,167

Net profit 127 90 151 228 239 776 809 850 885

EBITDA mgn (%) n/a 15.8 15.0 15.9 15.5 15.5 14.4 16.3 14.8

Sales (mn t) * 4.7 4.7 n/a 5.3 n/a 19.7 n/a 20.1 n/a

ASP (W ‘000/t) * 816 805 n/a 798 n/a 823 n/a 800 n/a

EBITDA/t (U$)* 132 124 n/a 120 n/a 118 n/a 122 n/a

*: Separated. Source: Company data, Bloomberg, Credit Suisse estimates

Volume growth to lead additional earnings growth in 4Q14

We expect ASP erosion by W18k/t QoQ and depreciation of KRW to reduce the company's EBITDA/t from U$132 in 3Q14 to U$120 in 4Q14. On the other hand, we anticipate sales volume growth from 4.7 mn tonnes in 3Q14 to 5.3 mn tonnes in 4Q14 to drive additional improvement in Hyundai Steel's operating profit to W404 bn in 4Q14 despite the contraction in the EBITDA/t.

Background of recent sharp correction understandable; nonetheless the correction has been overdone, in our view

We understand the negative impact of Japan's QE and slower growth outlook of China on the Korean steelmakers' export competitiveness and steel product demand outlook in the domestic market, while most major steel customers in Korea (i.e., automakers, shipbuilders, machinery makers, etc) directly or indirectly compete against Japanese peers. Nonetheless, we believe Hyundai Steel's recent sharp correction has been overdone and its current cheap valuation (i.e., forward P/B of only 0.5x) offers a compelling risk-averse return profile, given its sequential earnings improvement history in the past several quarters since the bottom in 3Q13, which is likely to continue in the near term. While a stiffer fall in raw material prices despite weakness of steel prices has helped the company's margins and earnings in recent quarters, we anticipate the positive earnings driver to remain intact throughout 2015/16 and increase of Hyundai Steel's EBITDA from W2.6 tn in 2014E to W2.9 tn in 2016E.

Figure 2: Hyundai Steel–quarterly EBITDA-to-Equity (annualized) vs. Price-to-Book (12-months-forward)

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Rating history (004020.KS) Date Old rating New rating Old TP New TP

Jul 28, 2014 NEUTRAL NEUTRAL W71,000 W84,000 Aug 12, 2014 NEUTRAL OUTPERFORM W84,000 W90,000

Bbg/RIC 004020 KS / 004020.KS Rating (prev. rating) O (O) Shares outstanding (mn) 116.55 Daily trad vol - 6m avg (mn) 0.4 Daily trad val - 6m avg (US$ mn) 24.8 Free float (%) 53.0 Major shareholders Kia Motors and

related parties: 41.8%

Price (05 Nov 14 , W) 62,700 TP (prev. TP W) 90,000 (90,000) Est. pot. % chg. to TP 44 52-wk range (W) 88600.0 - 62300.0 Mkt cap (W/US$ bn) 7,307.7/ 6.8


Absolute (%) (9.5) (19.0) (28.6) Relative (%) (7.6) (13.0) (24.5)

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

Revenue (W bn) 14,893 13,533 16,913 16,842 16,995 EBITDA (W bn) 1,629 1,477 2,621 2,743 2,928 Net profit (W bn) 796.4 691.9 775.8 850.3 927.5 EPS (W) 9,449 5,971 6,695 7,337 8,004 - Change from prev. EPS (%) n.a. n.a. (2) 1 (3) - Consensus EPS (W) n.a. n.a. 6,901 7,612 8,475 EPS growth (%) 6.6 (36.8) 12.1 9.6 9.1 P/E (x) 6.6 10.5 9.4 8.5 7.8 Dividend yield (%) 0.8 0.8 0.8 0.8 0.8 EV/EBITDA (x) 10.4 13.2 7.5 7.1 6.3 P/B (x) 0.5 0.6 0.5 0.5 0.5 ROE (%) 8.4 6.0 5.7 5.9 6.1 Net debt(cash)/equity (%) 96.7 91.4 87.6 80.8 69.6

Note 1: Hyundai Steel is the second largest steel mill in Korea, manufacturing both long and flat steel products. The company is one of the major subsidiary companies of Hyundai Motor Group.



https://rave.credit-suisse.com/research/company/financials?ric=004020.KS


Asian Daily

- 30 of 36 -

Taiwan

Lextar ---------------------------------------------------------------------------- Maintain OUTPERFORM 3Q14 in line; slow season ahead of the strong growth in 2015 EPS: ▼ TP: ▼ Derrick Yang / Research Analyst / 886 2 2715 6367 / [email protected] Jerry Su / Research Analyst / 886 2 2715 6361 / [email protected]

● Lextar reported 3Q14 EPS of NT$0.58 (net profit of NT$313 mn), in line with our estimate of NT$0.59. GM expanded 230 bp to 16.8% as the cost reductions and efficiency improvement more than offset the ASP decline. In 3Q14, general lighting relatively outperformed, as the growth in IT and small/medium-size backlighting was partially offset by the slowdown in TV.

● Management expects 4Q14 revenue to be down 15% QoQ, similar to the normal seasonality, though this is lower than the market expectation of a single-digit QoQ decline, as customers' inventory digestion extends longer than expected. 4Q14 GM should trend down as well on lower utilisation and ASP decline.

● We expect Lextar to deliver 20% YoY revenue growth in 2015 on share gains in backlighting and Cree's contribution. 2015 GM should improve to 17.6% on its better product and customer mix.

● We cut our 2014E earnings by 15% to factor in the weaker 4Q14 and cut our TP to NT$36.5 (from NT$38.2), although we stay OUTPERFORM on its strong growth in 2015E and attractive P/B.


3Q14 results in line

Lextar reported 3Q14 EPS of NT$0.58 (net profit of NT$313 mn), in

line with our estimate of NT$0.59. Its gross margin expanded to

16.8% from 14.5% in 2Q14, as the cost reductions and China fab

efficiency improvement more than offset the ASP decline (3-4%).

3Q14 operating margin improved to 8.8% (vs 5.8% in 2Q14), helped

by its well-controlled opex, which grew modestly, by 1% QoQ, to

NT$334 mn, vs 10% QoQ growth on the top line. The backlighting

application accounted for 70% of its total 3Q14 revenue, while the

general lighting application accounted for the remaining 30%. In 3Q14,

general lighting relatively outperformed, as the growth in IT and small-

/medium-size backlighting was partially offset by TV slowdown.

Figure 1: Lextar—3Q14 results in line

(NT$ mn) 3Q14 CS +/- % Street +/- % QoQ YoY

Net sales 4,173 4,173 0 4,275 -2 10 13

Gross profits 701 692 1 701 0 28 29

Operating profits 368 363 1 328 12 68 57

Pre-tax income 364 343 6 95 84

Net income 313 319 -2 301 4 87 71

EPS (NT$) 0.58 0.59 -2 0.56 4 87 66

GM (%) 16.8 16.6 16.4

OPM (%) 8.8 8.7 7.7

NM (%) 7.5 7.6 7.0

Source: Company data, Credit Suisse estimates, Bloomberg

Seasonal weakness expected in 4Q14

Management expects 4Q14 revenue to be down 15% QoQ, similar to the normal seasonality, although this is lower than the market expectation of a single-digit QoQ decline, as customers' inventory digestion extends longer than expected. Its gross margin should trend down sequentially as the impact of lower utilisation and ASP decline will likely outweigh cost reductions. 2014 capex is now guided to be NT$2.5 bn vs NT$3.0 bn previous (including NT$1.1 bn for the factory and land purchased from AUO in 3Q14), with NT$0.5 bn being pushed out to 2015 on weaker order outlook in 4Q14.

Growth trend on track in 2015

We continue to believe that Lextar will see decent growth in 2015. Despite the peaking LED penetration in TV backlighting, the migration to more premium models, including 4K2K and wide colour gamut will require better LED chips and will benefit quality suppliers such as Lextar. In the general lighting application, Cree's order contribution will become more significant, which we expect to account for over 10% of Lextar's total 2015 revenue. We believe both the factors will kick in and drive sequential growth from 1Q15. For 2015, we forecast Lextar will deliver 20% revenue growth, with gross margin expansion to 17.6% on its better product and customer mix.

Maintain OUTPERFORM

We cut our 2014E earnings by 15% to factor in the weaker revenue and margin assumptions in 4Q14 and lower our TP to NT$36.5, based on 1.5x 12-month forward P/B (from 1.6x) vs its long-term trading range of 0.8-1.9x. We remain positive on Lextar as we expect to see strong earnings growth amid increasing LED lighting penetration in 2015, while its stock is now trading at 1.1x P/B, one standard deviation below its long-term average of 1.3x.

Figure 2: Lextar—quarterly P&L

(NT$ mn) 1Q14 2Q14 3Q14 4Q14E 2013 2014E 2015E

Revenues 3,222 3,793 4,173 3,546 13,752 14,734 17,688

Gross profits 401 548 701 526 1,747 2,177 3,110

Operating profits 70 219 367 207 534 864 1,728

Net profits 27 168 313 192 980 699 1,530

EPS (NT$) 0.05 0.31 0.58 0.36 1.86 1.29 2.45

GM 12.5% 14.5% 16.8% 14.8% 12.7% 14.8% 17.6%

OPM 2.2% 5.8% 8.8% 5.8% 3.9% 5.9% 9.8%

NM 0.8% 4.4% 7.5% 5.4% 7.1% 4.7% 8.6%


Bbg/RIC 3698 TT / 3698.TW Rating (prev. rating) O (O) Shares outstanding (mn) 540.01 Daily trad vol - 6m avg (mn) 5.7 Daily trad val - 6m avg (US$ mn) 5.6 Free float (%) 76.0 Major shareholders AUO group (27%)

Price (05 Nov 14, NT$) 26.20 TP (prev. TP NT$) 36.50 (38.20) Est. pot. % chg. to TP 39 52-wk range (NT$) 35.9 - 22.3 Mkt cap (NT$/US$ mn) 14,148.2/ 463.9


Absolute (%) (16.7) (12.8) 6.3 Relative (%) (15.2) (11.0) (2.2)

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

Revenue (NT$ mn) 10,056 13,752 14,734 17,688 19,758 EBITDA (NT$ mn) 2,251 2,546 3,055 4,165 4,493 Net profit (NT$ mn) 291 980 699 1,530 1,802 EPS (NT$) 0.69 1.86 1.29 2.45 2.89 - Change from prev. EPS (%) n.a. n.a. (15) 0 0 - Consensus EPS (NT$) n.a. n.a. 1.49 2.39 2.90 EPS growth (%) n.a. 170.7 (30.6) 89.7 17.8 P/E (x) 38.0 14.0 20.2 10.7 9.1 Dividend yield (%) 1.6 4.7 2.3 5.1 6.1 EV/EBITDA (x) 8.1 6.0 4.7 3.0 2.3 P/B (x) 1.3 1.2 1.2 1.1 1.0 ROE (%) 3.4 9.6 6.0 11.5 11.5 Net debt(cash)/equity (%) 47.2 10.1 0.8 (12.2) (24.1)

Note 1: Lextar is involved in LED wafer production, LED chip packaging and light bar assembly for display backlights.



https://rave.credit-suisse.com/research/company/financials?ric=3698.TW


Asian Daily

- 31 of 36 -

Thailand

Thailand Economics ------------------------------------------------------------------------------------------- Monetary policy: Higher risk of a rate cut Santitarn Sathirathai / Research Analyst / 65 6212 5675 / [email protected]

● The Monetary Policy Committee (MPC) voted 6-1 to keep the policy rate unchanged at 2%. The decision was consistent with the consensus and our call. One member voted for a cut.

● We found the BoT’s statement to be more dovish than before, highlighting that the central bank has room to cut rate if needed and that it is concerned about growing risk to the economy. The central bank also announced that it plans to reduce its GDP growth forecasts for 2014 and 2015.

● We see higher risk of a rate cut over the next six months, although our central case is still for no change in the near term. Lower inflation, positive real policy rate amidst weak GDP growth and credit growth leave plenty of room to ease, in our view.

● Two reasons that might hold the BoT back are the likely US Fed funds rate increase next year and its view that rate cut will not boost growth materially.

Figure 1: Headline inflation would likely grind lower, keeping the real policy rate in positive territory

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Real policy rateHeadline inflation (% yoy)Policy rate (%)

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Source: the BLOOMBERG PROFESSIONAL™ service, CEIC, Credit Suisse

The Monetary Policy Committee (MPC) voted 6-1 to keep the policy rate unchanged at 2%

The decision was consistent with the consensus and our call. One member voted for a cut. This is the first monetary policy meeting for the new MPC.

More dovish. We found the BoT’s statement to be more dovish than before, highlighting that the central bank has room to cut rate if needed and that it is concerned about growing risk to the economy. We also suspect that many observers might be surprised to see that one member dissented and voted for a cut.

Downgrading GDP growth outlook. The central bank also announced that it plans to reduce its GDP growth forecasts for 2014 and 2015, without indicating the magnitude of the reductions. The concerns seem to stem from the global growth outlook as well as potential delays in public investment. As a reminder, the BoT has been projecting 1.5% for 2014 and 4.8% for 2015 (vs our more cautious projections of 0.9% for 2014, and 4.5% in 2015).

We see higher risk of a rate cut over the next six months

Although our central case is still for no policy rate cut, we have been noting that the chance of a rate cut is higher than many observers believe (see Asia: Weaker commodity prices could be a game changer). With recent weakness in inflation, and the central bank’s

more dovish statements today, we think the risk of further easing is even higher.

Inflation to move lower. While we have been more dovish than the consensus, we were still taken by surprise by the magnitude of disinflation in the economy. Going forward, we think headline inflation could move lower closer to 1% in coming months, given lower global oil price. Even if the government were to raise duties on diesel to keep the price at THB30 per litre as we had been anticipating, inflation will likely remain on the weak side. This means that headline inflation will likely remain below 3% over the next 12 months or so. We consider 3% (+ or – 1.5%) to be the operational inflation target that the central bank is using.

Positive real rate. Lower inflation implies that real policy rate (calculated using policy rate- monthly headline inflation) should stay positive for a considerable time, at a time when output gap is probably negative.

Financial stability concerns? While concerns over financial stability will likely hold the BoT back from easing its policy rate further, we also think this constraint is gradually abating. Private credit growth has already moderated to below 6%, the weakest since early 2010.

Two potential reasons holding back a rate cut. There are perhaps two key reasons that may still hold the central bank back from delivering additional easing. First, it might be concerned about the impact on the currency and capital flows as and when the US Fed raises its main interest rate. Second, it probably views rate cut as an ineffective instrument for boosting growth in the current environment.






Asian Daily

- 32 of 36 -

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Asian Daily

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Companies Mentioned

Aban Offshore Ltd (ABAN.BO, Rs643.7, OUTPERFORM[V], TP Rs900.0) AirAsia (AIRA.KL, RM2.56, OUTPERFORM, TP RM2.9) AirAsia X (AIRX.KL, RM0.78) American International Group Inc. (AIG.N, $53.4) ANA Holdings (9202.T, ¥258, OUTPERFORM, TP ¥275) Apollo Tyres (APLO.BO, Rs229.85, OUTPERFORM, TP Rs266.0) Ashok Leyland Ltd (ASOK.BO, Rs46.5, NEUTRAL, TP Rs48.0) Asia Aviation (AAV.BK, Bt4.36) Asiana Airlines (020560.KS, W3,955) Astra International (ASII.JK, Rp6,950) BAT Malaysia (BATO.KL, RM67.86, OUTPERFORM, TP RM76.0) Bloomberry Resorts Corporation (BLOOM.PS, P15.48, OUTPERFORM, TP P16.0) CapitaMalls Malaysia Trust (CAMA.KL, RM1.44) Cathay Pacific (0293.HK, HK$14.68, OUTPERFORM, TP HK$17.0) Cebu Air (CEBUY.PK, $17.0) China Airlines (2610.TW, NT$12.2) China Pacific (2601.HK, HK$28.85) China Taiping (0966.HK, HK$16.66) China XD (601179.SS, Rmb5.35, NEUTRAL, TP Rmb5.0) Coal India (COAL.BO, Rs360.3) Colgate-Palmolive India (COLG.BO, Rs1714.35, OUTPERFORM, TP Rs1970.0) Cree (CREE.OQ, $32.29) Ctrip.com International (CTRP.OQ, $57.66) Dairy Farm International (DAIR.SI, $9.49) Eicher Motors (EICH.BO, Rs12721.2) eLong (LONG.OQ, $18.18) EVA Air (2618.TW, NT$18.85, OUTPERFORM, TP NT$18.0) Hexaware Technologies (HEXT.BO, Rs216.15, NEUTRAL, TP Rs195.0) Hong Kong Exchanges and Clearing (0388.HK, HK$173.1, NEUTRAL, TP HK$170.0) Hongkong Land Holdings (HKLD.SI, $6.99) Hyundai Steel Co. (004020.KS, W62,700, OUTPERFORM, TP W90,000) Icon Offshore Berhad (ICON.KL, RM1.32) Idea Cellular Ltd (IDEA.BO, Rs162.25) Japan Airlines (9201.T, ¥2,972, OUTPERFORM, TP ¥3,262) Jardine Lloyd (JLT.L, 884.0p) Jardine Matheson (JARD.SI, $59.9, NEUTRAL, TP $61.0) Jardine Strategic (JSH.SI, $35.07, NEUTRAL, TP $35.0) Jindal Steel & Power Ltd (JNSP.BO, Rs162.4, NEUTRAL[V], TP Rs158.0) Kakaku.com (2371.T, ¥1,554, OUTPERFORM, TP ¥2,250) Korean Air (003490.KS, W36,100, OUTPERFORM, TP W44,500) Lextar (3698.TW, NT$26.2, OUTPERFORM, TP NT$36.5) Linktone (LTON.PH, $1.22) M1 Limited (MONE.SI, S$3.57) Malaysia Airlines (MASM.KL, RM0.255) Mandarn Ornt Int (MOIL.SI, $1.775) Media Nusantara Citra (MNCN.JK, Rp2,780, NEUTRAL, TP Rp2,800) Oil & Natural Gas Corporation Limited (ONGC.BO, Rs403.45) OUE Hospitality Trust (OUER.SI, S$0.92) OUE Ltd (OVES.SI, S$2.13, NEUTRAL, TP S$2.38) PICC Group (1339.HK, HK$3.4, NEUTRAL, TP HK$3.75) PICC P&C (2328.HK, HK$14.18, OUTPERFORM, TP HK$17.15) Ping An (2318.HK, HK$62.7) Ping An Bank (000001.SZ, Rmb10.82, NEUTRAL[V], TP Rmb11.4) Pinggao Electric (600312.SS, Rmb13.77, OUTPERFORM, TP Rmb18.5) PT Garuda Indonesia Tbk (GIAA.JK, Rp520) Qunar (QUNR.OQ, $26.99) Reliance Communication Ltd (RLCM.BO, Rs108.7) Sembcorp Marine Ltd. (SCMN.SI, S$3.63, NEUTRAL, TP S$3.6) Singapore Exchange (SGXL.SI, S$7.04, NEUTRAL, TP S$7.5) Singapore Telecom (STEL.SI, S$3.75) StarHub Ltd (STAR.SI, S$4.16, UNDERPERFORM, TP S$3.95) State Bank Of India (SBI.BO, Rs2721.25) Surya Citra Media (SCMA.JK, Rp3,240) TBEA Co Ltd (600089.SS, Rmb10.16, UNDERPERFORM, TP Rmb8.0) Tenaga (TENA.KL, RM13.46, NEUTRAL, TP RM14.0) Thai Airways International (THAI.BK, Bt14.2) Tiger Airways (TAHL.SI, S$0.32) Toyota Motor (7203.T, ¥6,808, OUTPERFORM, TP ¥7,550) Travellers International Hotel Group, Inc. (RWM.PS, P9.04) Tune Ins Holdings Berhad (TUNE.KL, RM2.12) Tuniu Corporation (TOUR.OQ, $18.12, NEUTRAL[V], TP $17.0) United Spirits Ltd. (UNSP.BO, Rs2690.85) Uzma Bhd (UZMA.KL, RM3.33) Volvo (VOLVY.PK, $11.33) XJ Electric (000400.SZ, Rmb20.98, OUTPERFORM[V], TP Rmb24.5) Galaxy Entertainment Group (0027.HK, HK$50.85) MGM China (2282.HK, HK$24.3) Macau Legend Development Limited (1680.HK, HK$3.82) Melco Crown Entertainment-ADR (MPEL.OQ, $25.46) Melco International (0200.HK, HK$19.02) SJM (0880.HK, HK$15.6) Sands China (1928.HK, HK$45.25) Wynn Macau (1128.HK, HK$26.4)




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Disclosure Appendix

Important Global Disclosures

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd Oc tober 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a st ock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a st ock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 45% (54% banking clients)

Neutral/Hold* 39% (51% banking clients)

Underperform/Sell* 13% (44% banking clients)

Restricted 3%

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

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Important Regional Disclosures

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

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.




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Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.

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

Important MSCI Disclosures

The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create and financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.

Important Credit Suisse HOLT Disclosures

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

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

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

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

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

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




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Disclaimers

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