CS Daily 14 Mar

Wednesday, 14 March 2018
Asian Daily (Asia Edition)

EPS, TP and Rating changes Top of the pack ...
EPS TP
(% change) T+1 T+2 Chg Up/Dn Rating
China Taiping 6 2 0 31 O (O) China Market Strategy Vincent Chan (4)
China Pacific 7 6 0 24 O (O) Takeaways from expert call: Implications of State Council institutional reform
China Life 5 16 (6) 19 O (O)
Longyuan Power (6.9) (6.7) (5) 28 O (O) Global Equity Strategy Andrew Garthwaite (5)
Nexteer Automotive Grp 0 5 0 (37) U (U) Japanese equities: Downgrade to benchmark
Qudian Inc. 3 8 21 26 O (O)
Hong Kong Electric 0 0 0 (24) U (U)
Investments Studio Dragon (253450.KQ) – Maintain O Ray Kim (6)
Techtronic Industries (0.1) 0 12 19 O (O) Export momentum will keep share price upwards during 1H18E
PT Waskita Karya 0 (9.6) 0 16 O (O)
(Persero) Tbk Venture Corporation Ltd (VENM.SI) – Maintain O Dawei Lee (7)
Rakuten 3 (1.3) (9) 7 N (N) New report: A developer of next generation products
Taiheiyo Cement 0 (0.02) (15) 33 O (O)
CJ E&M 0 (0.3) 4 15 O (O)
Mando Corp 0 (7.6) (9) 26 O (O) Muang Thai Leasing Company Limited (MTLS.BK) – Maintain O Atul Sethi (8)
Studio Dragon (0.7) 19 30 20 O (O) New report: Regulatory fears overdone
Sinbon Electronics Co. 2 (3.1) 0 23 O (O)
Taishin Financial Hldg (13) 0 0 (8) N (N) SAVE THE DATE
This Article is intended for ericalau@lionglobalinvestors.com
Wistron 2 2 6 21 O (O)
China Life (A) 5 16 (5.7) (17) U (U)
Bank Mandiri 7 (2.1) 2.1 17 O (O)
Bank Central Asia 4 1 6.5 12 N (N)
Bank Negara Indonesia 6 7 0 11 N (N)
Bank Rakyat 2 (1.1) (4.3) 17 O (O)
Bank Danamon 2 2 — — R (R)
Bank Tabungan Negara 3 3 (2.7) (4) N (N)
BTPN 9 9 63 45 O (N)
Bank Jabar Banten (6.1) (9) (14) (17) U (U) CS pic of the day
INDU 4 9 0 13 N (N)
Australian Investment Strategy—Gross equity retiral remains solid (ASX 200 de-
Connecting clients to corporates equitisation resulting from M&A and Buybacks (A$bn)
Given the dismal amount of equitisation, it seems that Australia Inc. is treating the market as shut. The ASX 200
Thematic Trip equitised by A$13 bn in 2017, and we expect even less in 2018. Compounding the issue of low equitisation has
Pre AIC: India Autos Tour been the solid pace of equity retiral. Buybacks totaled just over $4 bn last year which is slightly higher than the
Date 12-14 March, New Delhi, Mumbai, Pune longer-term average. Rio Tinto (c$800 mn), CSL (c$500 mn) and Qantas (c$500 mn) executed on the biggest
Pre AIC: India Consumer Tour buybacks in 2017. Equity retiral via acquisitions have also been solid and totaled $15 bn in 2017 which was in
Date 14-16 March, Mumbai line with the longer-term average. The biggest acquisitions were of Duet ($7.5 bn) and Tatts ($6 bn). While much
of the capital to acquire Tatts came from the equity market (new shares issued by Tabcorp), Duet was acquired
Pre AIC: Indonesia Macro, Politics and Asian Games
by CKI based in Hong Kong.
Date 15-16 March, Jakarta
Analyst Jahanzeb Naseer 50
45
Post AIC : China Macro/Policy Tour 40
Date 23 March, Beijing 35
Analyst Vincent Chan 30
25
Corporate Days / Conferences 20
21st Annual Asian Investment Conference 15
Date 19-22 March, Hong Kong 10
5
5th Annual Australian Corporate Day 0
Date 20 March, Singapore 09 10 11 12 13 14 15 16 17
Buybacks M&A
Hong Kong / China (Non-deal roadshow)
Tongda Group (0698.HK) Post Results Source: Company data, S&P, Credit Suisse
Date 20 March, Hong Kong
Analyst Kyna Wong
O-Net Tech (877 HK) Post Results ... and the whole pack
Date 21 March, Hong Kong
Global
Analyst Kyna Wong
Singapore (Non-deal roadshow) Global Equity Strategy Andrew Garthwaite (5)
Japanese equities: Downgrade to benchmark
PTT Global Chemical Public (PTTGC.BK)
Date 13-14 March, Singapore Global Equity Strategy Andrew Garthwaite (9)
Analyst Paworamon Suvarnatemee Thoughts on Protectionism
China Eastern Airlines (0670.HK) Post Results
China
Date 05-06 April, Singapore
Analyst Baoying Zhai China Market Strategy Vincent Chan (4)
Takeaways from expert call: Implications of State Council institutional reform
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision.
Asian Daily
Luye Pharma Group (2186.HK) China Healthcare Sector – Maintain OW Serena Shao (10)
Date 17 April, Singapore
Analyst Serena Shao
Healthcare institutional reforms to help improve efficiency
China Insurance Sector – Maintain OW Charles Zhou, CFA (11)
US (Non-deal roadshow) China to merge banking and insurance regulators
SM Prime Holdings, Inc. (SMPH.PS)
Date 29-April - 04-May, US China Taiping (0966.HK) – Maintain O Charles Zhou, CFA (12)
Analyst Danielo Picache Sluggish Feb, but focus shifts to higher margin health products in March
Europe (Non-deal roadshow) China Pacific (2601.HK) – Maintain O Charles Zhou, CFA (13)
2M18 premium: Life growth leading peers, P&C improving
Sembcorp Industries Ltd (SCIL.SI) Post Results
Date 21-22 March, London China Life (2628.HK) – Maintain O Charles Zhou, CFA (14)
Analyst Gerald Wong Improving momentum in Feb, but still lagging peers
RHB Bank Berhad NDR (RHBC.KL)
China Coal Sector Yang Luo (15)
Date 26 March, London
Analyst Danny Goh Takeaways from our trip—Day 2
Contact cseq.events@credit-suisse.com or your usual sales GDS Holdings Limited (GDS.OQ) – Maintain U Colin McCallum, CA (16)
representative. FY17 EBITDA beats, but FY18 guidance a little soft, and valuation looks very unattractive
Longyuan Power (0916.HK) – Maintain O Dave Dai, CFA (17)
Management expects utilisation and receivables to improve further for FY18
Nexteer Automotive Group Limited (1316.HK) – Maintain U Bin Wang (18)
2H 2018 operating profit down 6% YoY—first drop since its IPO

Qudian Inc. (QD.N) – Maintain O Charles Zhou, CFA (19)
4Q17 weakness well-expected; eye on cash loan recovery and auto finance potential
Wanhua Chemical (600309.SS) – Maintain N Horace Tse (20)
FY17 NP +203% YoY, payout up to 37%; downside risk to MDI prices as supply disruption recedes
Hong Kong
Hong Kong Electric Investments (2638.HK) – Maintain U Dave Dai, CFA (21)
FY17 results in line; yield appeal no longer attractive
Techtronic Industries (0669.HK) – Assuming Coverage with O Sophia Chang (22)
Solid result in line with expectation, with higher dividend payout ratio
India
India Market Strategy Neelkanth Mishra (23)
New report: State Budgets #02: RJ a pre-election budget
India Cement Sector Anubhav Aggarwal (24)
Double hit: Sharply higher cost and weak prices
India Capital Goods Sector Lokesh Garg (25)
Investment cycle pick-up—more optimism; data points better but not entirely conclusive
Indonesia
Indonesia Banks Sector – Maintain OW Sanjay Jain (26)
New report: Mid-teen EPS growth despite modest margin compression; green shoots in loan demand
PT Waskita Karya (Persero) Tbk (WSKT.JK) – Maintain O Ari Jahja (27)
Imminent toll roads stake sale & AGMS catalysts; baking in more moderate new contracts
assumptions
Japan
Rakuten (4755.T) – Maintain N Keiichi Yoneshima (28)
MNO business an unknown, but share-price negative for now
Taiheiyo Cement (5233) – Maintain O Yasuko Fukuda (29)
Lowering our OP estimate for domestic ops
For more Japan equity reports, please see Japan Daily (First Edition) – 14 March 2018
Malaysia
Asia Palm Oil Sector Ella Nusantoro (30)
Malaysia’s Feb-2018 palm oil stocks fell another 2.8% MoM
Pakistan
Pakistan Auto Sector Fahd Niaz, CFA (31)
Feb volumes rise 15% YoY with PSMC and HCAR dominating
Singapore
Venture Corporation Ltd (VENM.SI) – Maintain O Dawei Lee (7)
New report: A developer of next generation products
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Asian Daily
Asian indices - performance South Korea
(% change) Closing 1D 1W 3M YTD
ASX300 5,937 (0.4) 0.2 (0.6) (1.4) CJ E&M (130960.KQ) – Maintain O Ray Kim (32)
CSEALL 6,555 0.1 0.3 3.2 2.9 Despite uncertainty post merger, share price is under upward direction
Hang Seng 31,601 0.0 3.6 8.1 5.6
H-SHARE 12,747 0.4 3.5 10.7 8.9 Mando Corp (204320.KS) – Maintain O Michael Sohn (33)
JCI 6,413 (1.4) (1.3) 5.9 0.9 Near-term headwinds continue, yet we believe 1Q18E is the bottom
KLSE 1,864 0.2 0.8 7.3 3.7 POSCO (005490.KS) – Maintain O Hoonsik Min (34)
KOSPI 2,494 0.4 3.4 0.6 1.1
KSE100 43,618 0.5 (0.2) 12.4 7.8
Temporary surge in inventory to fade due to strong demand in spring
NIFTY 10,427 0.1 1.7 2.3 (1.0) Studio Dragon (253450.KQ) – Maintain O Ray Kim (6)
NIKKEI 21,968 0.7 2.6 (3.5) (3.5) Export momentum will keep share price upwards during 1H18E
TOPIX 1,751 0.6 2.0 (3.3) (3.7)
PCOMP 8,420 (0.4) 0.7 0.7 (1.6) Taiwan
RED CHIP 4,525 (0.8) 2.0 5.8 2.2
SET 1,810 0.5 0.6 6.0 3.2 Universal Microwave Technology – NOT COVERED Pauline Chen (35)
STI 3,554 0.4 1.8 2.4 4.4 Key takeaways from analyst meeting
TWSE 11,096 0.9 2.9 6.0 4.3
VNINDEX 1,133 0.6 1.2 22.6 15.1
Taiwan Component Sector Pauline Chen (36)
Thomson Reuters Feb sales: Smartphone inventory adjustments weigh on sales
Asian currencies (vs US$) Sinbon Electronics Co., Ltd (3023.TW) – Maintain O Pauline Chen (37)
(% change) Closing 1D 1W 3M YTD Margins softer in 4Q17, but long-term rerating story intact
A$ 0.787 (0.0) 0.5 3.1 0.9
Bt 31.2 (0.2) (0.2) (4.0) (4.0) Taishin Financial Holding (2887.TW) – Maintain N Chung Hsu, CFA (38)
D 22,762 0.0 (0.0) 0.3 0.3 Weaker 4Q17 results with moderate guidance for 2018
HK$ 7.84 (0.0) 0.1 0.4 0.3
JPY 106.7 0.3 0.6 (5.1) (5.2) Wistron (3231.TW) – Maintain O Thompson Wu (39)
NT$ 29.26 0.0 0.2 (2.5) (1.4) iPhone business on track, share and yield gains offset potential for further cuts
P 52.03 0.0 0.2 3.4 4.1
PRs 110.5 0.0 0.0 1.4 0.1 Thailand
RM 3.91 0.1 0.1 (4.4) (3.4) Muang Thai Leasing Company Limited (MTLS.BK) – Maintain O Atul Sethi (8)
Rmb 6.33 (0.0) 0.2 (4.4) (2.8)
New report: Regulatory fears overdone
Rp 13,751 (0.1) (0.1) 1.3 1.4
Rs 64.96 (0.0) 0.1 0.8 1.8
S$ 1.31 0.0 (0.2) (2.5) (1.8)
W 1,064 0.0 0.1 (1.8) (0.1)
Thomson Reuters
Global indices
(% change) Closing 1D 1W 3M YTD
DJIA 25,206 0.1 1.3 2.5 2.0
S&P 500 2,772 (0.4) 1.6 4.1 3.7
NASDAQ 7,588 0.4 3.5 10.6 9.9
SOX 1,446 1.0 5.1 17.2 15.4
EU-STOX 2,993 (1.0) 0.9 (6.6) (5.8)
FTSE 7,139 (1.1) (0.1) (4.8) (7.1)
DAX 12,221 (1.6) 0.9 (6.9) (5.4)
CAC-40 5,243 (0.6) 1.4 (2.9) (1.3)
10 YR LB 2.854 (0.8) (0.2) 21.6 18.2
2 YR LB 2.258 (0.7) 0.7 27.0 19.7
US$:E 1.233 (0.0) (0.6) 4.3 2.7
US$:Y 106.7 0.3 0.6 (5.1) (5.2)
GOLD 1,323 (0.1) 0.2 6.4 1.6
VIX 16.2 2.9 (11.5) 59.5 47.1
Thomson Reuters
MSCI Asian indices – valuation & perf.
EPS grth. P/E (x) Performance
MSCI Index 18E 19E 18E 19E 1D 1M YTD
Asia F X Japan 13 10 13.5 12.2 1.7 7.1 4.6
Asia Pac F X J. 12 9 13.8 12.7 1.5 6.3 3.5
Australia 7 6 17.3 16.1 0.9 2.9 (1.1)
China 16 16 14.1 12.2 1.7 9.7 8.8
Hong Kong 9 6 16.7 15.7 1.7 7.9 3.0
India 21 17 17.6 15.0 2.0 (1.7) (4.5)
Indonesia 14 12 16.7 14.8 1.4 (1.5) (1.1)
Japan 27 5 18.4 14.5 2.0 2.2 1.5
Korea 11 5 9.0 8.6 1.4 9.4 1.2
Malaysia 6 8 16.7 15.6 1.2 2.5 6.2
Pakistan 33 12 9.6 8.6 0.7 0.0 8.8
Philippines 11 13 18.8 16.7 1.0 (1.7) (6.2)
Singapore 13 8 14.1 13.0 1.7 6.2 5.7
Sri Lanka 10 7 14.2 13.3 (1.0) (0.1) 4.7
Taiwan 8 9 16.2 14.9 1.7 7.5 6.9
Thailand 8 15 10.7 10.5 1.7 5.8 10.1
Thomson Reuters; All data as of the most recent market close.
O=Outperform N=Neutral U=Underperform R=Restricted OW= Overweight MW=Market Weight UW=Underweight

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- 3 of 45 -
Asian Daily
Top of the pack ...
China Market Strategy -----------------------------------------------------------------------------------------
Takeaways from expert call: Implications of State Council institutional reform
Vincent Chan / Research Analyst / 852 2101 6568 / vincent.chan@credit-suisse.com
Hu Shen / Research Analyst / 852 2101 6540 / hu.shen@credit-suisse.com
● The cabinet restructuring plan of the State Council was unveiled Ecological environment
today. After the reform, State Council will consist of 26 ministries and The expert cited Ministry of Natural Resources and Ministry of
commissions. It will also have changes in other affiliate institutions. Ecological Environment. The two new ministries will integrate
● We invited an expert to share his views about the reforms with us in functions which were scattered over many ministries in the past.
a conference call today. He is a researcher on government systems In addition, the reform also tries to shore up weak links by establishing
who closely monitors reforms aimed at party and state institutions. Ministry of Veteran Affairs, Ministry of Emergency Management and
the State Administration for International Development Cooperation.
● The expert said the reform measures were quite aggressive by
cutting eight ministry-level institutions and seven deputy-ministry- The expert also said the responsibility of National Audit Office (NAO)
level institutions. will be greatly strengthened than before. Supervision for major
● He divided the measures into five themes. In addition, he said the projects which now belongs to NDRC, supervision for budget
reform also tries to shore up weak links in the current government implementation which now belongs to MoF, audit for SOE leaders
functions, and will greatly strengthen the power of the National Audit which now belongs to State-owned Assets Supervision and
Office. Administration Commission of the State Council (SASAC), and
The cabinet restructuring plan of the State Council was unveiled today. probably tax audit in the future, will all go to NAO. This is powerful
After the reform, State Council will consist of 26 ministries and control over many aspects including local governments’ behaviour.
commissions. It will also have changes in other affiliate institutions. As to the reform concerning financial regulators, he thought it might be
a transitionary plan, which might be subject to potential changes in the
For details, please refer to “China’s Cabinet Restructuring – Quick future, particularly related to the supervision of the capital market
Take: Most drastic reform in last 20 years?” published on 13 activities.
March 2018.
Q&A
Five themes Q: Why will National Health and Family Planning Commission be
The expert said the central government institution reform is reorganised and become National Health Commission?
aggressive. Though the number of ministries and commissions is only A: The transition reflects that the country’s focus has shifted from
reduced by one, the number of ministry-level institutions is cut by eight family planning to addressing challenges brought by an aging society.
and deputy-ministry-level institutions have been reduced by seven.
The reform aims at streamlining the regulatory lines, optimising Q: Why should the state tax system and local tax system combine?
responsibility setting, and avoiding overlapping responsibilities. It A: The tax system was separated in 1994 for the introduction of tax
centres five themes: macro control, market supervision, social sharing system. Since then, central government’s financial capabilities
management, public service and ecological environment. has greatly strengthened. Now that the sharing system has well been
Macro control established and clarified, there is no need for further separation. The
There are some big adjustments in the responsibilities of National revenue sharing between central and local governments can be
Development and Reform Commission (NDRC), Ministry of solved by adjusting the sharing mechanism and introducing tax
Commerce (MOFCO) and Ministry of Finance (MoF). For example, in categories. The arrangement also prepares for the future collection of
the past, NDRC had many overlaps with other ministries in its property tax.
responsibilities. Now, the overlaps have been done away with and
returned to the concerned ministries. In the future, NDRC will focus Q: What is the future of central-local relation adjustment?
more on macro control and strategic planning, and reduce its A: One of the targets of this reform is to give local governments more
management on micro issues like approvals for projects. independence. First, in the future, local governments will no longer be
required to have all the corresponding institutions as in the central
Market Supervision government. They will enjoy freedom to decide which institutions they
The expert cited the State Administration for Market Supervision should have, in addition to certain required institutions. Second,
(SAMS) and the merger of China Banking Regulatory Commission governments below county level will enjoy more support to improve
(CBRC) and China Insurance Regulatory Commission (CIRC) into the grass-roots governance. Finally, when the reform starts in the
China Banking and Insurance Regulatory Commission. The SAMS to State Council it will also start in provincial governments at the same
be established will integrate responsibilities of the three ministry-level time. I think after one year, it will expand to city-level governments.
institutions and anti-monopoly function of NDRC. It will work as a
powerful non-financial market supervisor and hopefully solve the
problem of ineffective supervision.
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Asian Daily
Global Equity Strategy ----------------------------------------------------------------------------------------
Japanese equities: Downgrade to benchmark
Andrew Garthwaite / Research Analyst / 44 20 7883 6477 / andrew.garthwaite@credit-suisse.com
● A relative loser from protectionism. The Yen is not only a safe Figure 2: Japan has been more of a Yen play
haven (with Japan a net foreign creditor with a current account 130
surplus), but we think the countries most vulnerable to trade wars
1.85
are regions with a high manufacturing share of GDP (in Japan this
is around 20% of GDP) and runs a trade surplus with the US. 135
1.80
Japan thus ranks badly on our protectionism scorecard.
● Japan’s profit share of GDP is already above that of the US using
1.75 140
national accounts data, though we admit that bottom up margins
are 2pp (or 23%) below those in the US.
1.70
● Fundamental challenges persist: Many fundamental problems in 145
Japan have not been resolved: government debt to GDP remains 1.65
extreme. Demographics remain extremely poor, resulting in a Japan relative to global, lc
trend growth rate of just c0.5%. Beyond that, there has been a 1.60 JPY TWI
150
lack of change to the 1970s labour law, and it is an economy that

is close to full capacity in the labour market.

1.55 155
● Sectors in Japan that are cheap versus their global peers include Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18
capital goods, utilities, real estate and energy. Sectors which are Source: Thomson Reuters Datastream, Credit Suisse research
expensive include pharma, food retail and health care equipment. Japan is still a yen play: At times, there have been signs of a
Figure 1: Japan is one of the more DMs to US protectionist measures weakening relation between Japanese equities and the yen. However,
Exports to US Exports to US as % GDP, Manufacturing Goods deficit/ Surplus/deficit year-to-date, the relative performance of Japan has remained very
% of GDP value added basis % of GDP surplus with US ($bn) % GDP
Mexico 28.2% 5.5% 19.1% -58.4 -5.6%
tightly correlated to the trade-weighted yen. EPS has decoupled from
Canada 19.3% 4.0% 10.6% -15.2 -1.0% the trade-weighted yen, but not when we look at Japanese EPS
Germany
Malaysia
3.6%
11.4%
0.8%
1.1%
22.9%
22.3%
-74.2
-21.5
-2.1%
-7.3%
relative to global EPS.
China 4.3% 0.8% 29.4% -365.7 -3.3%
Japan 2.7% 0.5% 20.6% -68.6 -1.4%
A domestic slowdown: Japan has slipped to the bottom of our PMI
Korea 5.1% 1.0% 29.3% -28.3 -2.0% scorecard. Our economist, Hiro Shirakawa, believes that Abe will go
Thailand
Taiwan
7.0%
7.7%
1.2%
-
27.4%
28.5%
-17.3
-14.8
-4.3%
-2.8%
ahead with a sales tax rise in October 2019. The last two occasions
Italy 2.4% 0.5% 16.3% -27.8 -1.5% this happened, Japanese real GDP fell sharply.
India 2.0% 0.5% 16.5% -23.2 -1.0%
France 1.9% 0.4% 11.4% -16.3 -0.7% There are signs of change: Japan is, we believe, changing: buyback
Singapore
UK
6.1%
2.2%
2.8%
0.6%
19.6%
10.1%
10.4
-1.5
3.5%
-0.1%
activity has been encouraging, there has been an increase in outside
Hungary 4.6% 1.0% 23.5% -4.0 -3.2% directors, and some modest hostile M&A. Unwinding of cross holdings
Philippines 3.3% 0.6% 19.7% -2.3 -0.8% is also evidence of this change. If all the cross holdings unwound,
South Africa 2.5% 0.5% 13.3% -1.9 -0.6%
Russia 1.3% 0.4% 13.7% -9.5 -0.7%
then EPS could be 35% higher. A potential change in the tax law in
Source: Thomson Reuters Datastream, Credit Suisse research December could allow much more consolidation. The scope for
Why do we opt to downgrade Japanese equities now? change remains huge, with CFROI a third of the US and labour
We downgrade Japan to benchmark from a small overweight for the productivity 30% below that of France.
following reasons: The BoJ still has ammunition: Although there are pressures on the
Japan is the most cyclical of the global markets as PMIs peak: Japan BoJ to reduce stimulus, they have not run out of ammunition
stands out with the highest operational leverage of any region, the altogether. Because Japan has net foreign assets, it can buy overseas
second highest sensitivity to global PMIs, and with its large overweight assets (as the SNB did) or directly finance government spending.
of cyclicality at a time when global PMIs look like they are peaking.
The labour market as an eventual source of inflation: Japan could get
85% of the time Japan (in dollar terms) underperforms following a
inflation and a positive asset allocation shift once the deflationary
peak in ISM manufacturing new orders, on a 3 month view.
impact of the changing composition of the workforce (rising female
China exposure makes us uncomfortable: Japan has a higher and part time workers) has run its course.
sensitivity to Chinese than US PMIs. The official NBS China PMI fell
by the largest amount in six years in February and credit growth is This is an extract from Andrew Garthwaite’s Global Equity Strategy
slowing. Despite this, no-one is asking about China. report on Japan equities published on 13 March 2018.
BoJ tapering: Our economists believe the BoJ will increase the yield curve
control cap to 20bp in Q4 18 (from 11bp) and implicitly see the BoJ
tapering purchases at c¥20-25trn a year (i.e. the BoJ end QE in FY20).
We see ongoing yen strength: The Credit Suisse house view is for yen
strength. The current account surplus is 4.2% of GDP, the yen is 8%
cheap on PPP yet speculators are short.
- 5 of 45 -
Asian Daily
Studio Dragon ----------------------------------------------------------------- Maintain OUTPERFORM
Export momentum will keep share price upwards during 1H18E EPS: ▲ TP: ▲
Ray Kim / Research Analyst / 82 2 3707 3776 / ray.kim@credit-suisse.com
● We revise up our assumptions in new title exports to overseas We also expect content sales to Chinese OTTs to resume by 2H18E with
OTTs and reiterate positive view on Studio Dragon (Dragon). a higher ASP/episode (W1.0 bn/ep vs Netflix W0.6 bn/ep in 1H18A),
● We track/highlight sales of new major titles to overseas as it can which is also enjoying the tailwind from recent geopolitical easing.
incrementally drive up earnings, given higher ASP (~16x vs Figure 1: Upside in Dragon's export ASP to Netflix/China
average) and pure earnings accretion (~85% OPM). 1.2 (W bn/episode) ASP per episode 1.00
● As of 1Q18E, Dragon has sold two new titles to Netflix, and we 0.9 0.75
0.63
expect additional blockbuster drama export in 2H18E (Mr. 0.6 0.35
Sunshine). Content acquisition race in overseas OTTs is only at a 0.3 0.07
0.23
beginning phase, which is pushing up both ASP/episode and the 0.0

number of export titles. We also expect content sales to Chinese 2017 2017 1H18A 2018E 2016 2018E
OTTs to resume by 2H18E with a higher ASP/episode, which is Blended avg. Global OTT export China export
also enjoying the tailwind from recent geopolitical easing. Note: A drama usually consists of 16 episodes. Source: Company data, CS estimates
● Reiterate OUTPERFORM with new target price of W112k (from Figure 2: Quarterly sales/OP and new title exports
(W bn) 1Q17 2Q17 3Q17 4Q17 1Q18E 2Q18E 3Q18E 4Q18E
W86k) based on DCF. Share price outperformed despite valuation

Sales 75 62 77 72 96 76 121 100
burdens, thanks to positive outlook in the content industry.
No. of new exports 0 1 0 0 1.5 0.5 2 0
Earnings are consistent given captive sales (~50% mix) from CJ - Global OTT 0 1 0 0 1.5 0.5 1 0
E&M. FY18-19E EPS are revised up by 19%/5%, respectively. - China 0 0 0 0 0 0 1 0
OP 14 9 7 3 18 8 29 19
Bbg/RIC 253450 KS / 253450.KQ Price (13 Mar 18 , W) 93,500 OP margin 19% 14% 9% 5% 19% 11% 24% 19%
Rating (prev. rating) O (O) [V] TP (prev. TP W) 112,000 (86,000) Note: New titles denote newly aired major TV dramas sold to OTTs at a higher ASP.
52-wk range (W) 93500.0 - 57800.0 Est. pot. % chg. to TP 20 Source: Company data, Credit Suisse estimates
Mkt cap (W/US$ bn) 2,621.5/ 2.5 Blue sky scenario (W) 154,000
ADTO-6M (US$ mn) 34.9 Grey sky scenario (W) 46,000 Figure 3: 2018E new title export assumptions for major dramas
Free float (%) 21.0 Performance 1M 3M 12M Titles On-air Writers 1Q18E 2Q18E 3Q18E 4Q18E
Major shareholders CJ E&M; 71% Absolute (%) 21.4 50.8 — Hwayuki Dec 17 Hong sisters Netflix
Relative (%) 16.2 36.0 — Live Mar 18 Noh, Heekyung *Netflix *Netflix
Year 12/15A 12/16A 12/17E 12/18E 12/19E Mr. Sunshine 2H18E Kim, Eunsuk Netflix/CN
Revenue (W bn) — 154.5 286.8 392.7 552.3 Alhambra's Palace 2H18E Song, Jaejong
EBITDA (W bn) — 38.8 74.5 130.7 230.2 No. of new exports 1.5 0.5 2 0
Net profit (W bn) — 8.1 23.8 60.3 120.9 * Sales recognition over quarters. CN=China. Source: Company data, CS estimates
EPS (CS adj. W) 290 850 2,150 4,310
- Change from prev. EPS (%) n.a. n.a. (0.7) 18.5 4.9 Reiterate OUTPERFORM
- Consensus EPS (W) n.a. n.a. 1,089 1,830 2,664 Our new target price is W112k (from W86k) based on DCF, after
EPS growth (%) n.a. n.a. 193.0 152.8 100.5 upping earnings forecasts. Share price outperformed despite valuation
P/E (x) — 322.1 109.9 43.5 21.7 burdens, thanks to positive outlook in the content industry. Risk in
Dividend yield (%) 0 0 0 0
EV/EBITDA (x) — 68.0 32.2 17.9 9.8
earnings delivery is relatively low and is consistent, given captive
P/B (x) — 19.3 7.8 7.0 4.9 sales (~50% mix) from the parent entity (CJ E&M) and growing
ROE (%) — 6.0 10.1 16.9 26.6 domestic VoD window (~20% mix). FY18-19E EPS are revised up by
Net debt(cash)/equity (%) — 12.1 (67.9) (76.1) (67.7) 19%/5%, respectively, after adjusting key drivers.
Note 1: Studio Dragon operates as a drama manufacturing company. The company produces and
sells traditional dramas, modern dramas and other dramas. Studio Dragon also provides drama
exporting services.
Figure 4: Earnings revisions in key revenue drivers
Click here for detailed financials 2017 2018 2019
Upside momentum in new drama export to persist (W bn/episode, W bn) Actual Old New Chg Old New Chg
We revise up our assumptions in new title exports to overseas OTTs ASP/episode (W bn) 0.23 0.75 0.75 0% 0.75 1.00 33%
No. of new title export 1 2 3 50% 3 4 33%
and reiterate positive view on Studio Dragon (Dragon). We (1) Global OTT export (W bn) 4 24 36 50% 36 64 78%
track/highlight sales of new major drama titles to overseas (e.g., ASP/episode (W mn) 0.75 1.00 33% 0.75 1.00 33%
Netflix and global OTTs), as it can incrementally drive up earnings No. of new title export 1 1 0% 3 3 0%
given higher ASP (~16x vs blended domestic/export average) and (2) China export (W bn) 0 12 16 33% 36 48 33%
pure earnings accretion (85% GPM; no additional cost involved except (3) Global production (W bn) 0 0 0 NM 12 12 0%
for distributional commissions to CJ E&M). China/Global sales (W bn) 4 36 52 44% 84 124 48%
% of Total Sales 1% 9% 13% 16% 22%
Netflix is real, while China as an option value Source: Company data, Credit Suisse estimates
As of 1Q18, Dragon has sold two new titles to Netflix (source:
Business Post), and we expect additional blockbuster drama export in
2H18E (Mr. Sunshine). Content acquisition race in overseas OTTs
(triggered by Disney and Netflix) is only at a beginning phase, which is
pushing up both ASP/episode and the number of export titles.
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Asian Daily
Venture Corporation Ltd --------------------------------------------------- Maintain OUTPERFORM
New report: A developer of next generation products EPS: ◄► TP: ◄►
Dawei Lee / Research Analyst / 65 6212 3004 / dawei.lee@credit-suisse.com
● Growth partly driven by a next-gen consumer device. We believe Figure 2: Xiamen Intretech’s gross margins (%) on electronic cigarettes
that one other product (aside from genome sequencing machines) vs competitors
that has partly contributed to its strong growth was due to the 80.0
66.8 66.9
70.0
launch of a next-generation consumer device – iQOS 2015 2016 1H17
60.0
● We expect iQOS to contribute ~14% of revenue in FY18. 50.0
49.4
According to PMI’s management, iQOS device contributed 40.0

31.5 30.7
~US$160/900 mn to PMI’s sales in FY16/17. Based on our 30.0
28.6 28.4 26.7
estimates, ~3 mn and ~11 mn units of iQOS device was sold in 20.0
FY16/17, and we expect ~20/23/26 mn units of iQOS device to be 10.0
sold in FY18/19/20. We believe that iQOS contributed ~S$421 mn 0.0

Xiamen Intretech Competitor A Competitor B
or 11% of Venture’s overall revenue in FY17. Source: Company data, Credit Suisse estimates.
● Not a one-trick pony. Aside from iQOS and Novaseq, we believe Estimating revenue contribution of iQOS
that Venture likely has other businesses that are displaying strong Based on our estimates, we believe that iQOS contributed ~S$421 mn
growth too, given that the T&M/Med segment excluding Novaseq or 11% of Venture’s overall revenue in FY17, and we expect iQOS to
and iQOS grew 54% YoY in FY17, based on our estimates. contribute ~14% of revenue in FY18.
● Stay OUTPERFORM. We like Venture as it would launch more
next-gen products that will drive growth with better margins. Net Figure 3: iQOS assumptions
cash position of S$721.6 mn as of 4Q17 represents ~33% of NAV. FY16 FY17 FY18E FY19E FY20E
iQOS ASP (US$) 83 83 94 110 110
Bbg/RIC VMS SP / VENM.SI Price (12 Mar 18 , S$) 27.97
Stick volumes (bn) 7 33 60 72 84
Rating (prev. rating) O (O) TP (prev. TP S$) 32.00 (32.00)
52-wk range (S$) 28.0 - 11.1 Est. pot. % chg. to TP 14 # device sold per bn stick (mn) 0.35 0.35 0.33 0.32 0.31
Mkt cap (S$/US$ mn) 8,000.8/ 6,094.4 Blue sky scenario (S$) 37.50 Device sales (US$ mn) 160 900 1,851 2,530 2,860
ADTO-6M (US$ mn) 20.3 Grey sky scenario (S$) 25.60 Total # units (mn) 3 11 20 23 26
Free float (%) 91.1 Performance 1M 3M 12M Takeup by VMS (%) 100 90 65 60 55
Major shareholders Wong Ngit Liong Absolute (%) 28.7 35.3 150.9 # units produced by VMS (mn) 3 10 13 14 14
(7%) Relative (%) 23.6 33.0 138.1 % accrue to VMS 40% 40% 40% 40% 40%
Year 12/16A 12/17A 12/18E 12/19E 12/20E iQOS revenue contribution (S$ mn) 129 421 626 789 818
Revenue (S$ mn) 2,874 4,005 4,544 5,025 5,489 as % of VMS overall revenue 4 11 14 16 15
EBITDA (S$ mn) 255.8 470.3 567.7 616.9 658.6 Source: Company data, Credit Suisse estimates.
Net profit (S$ mn) 180.7 372.6 453.9 492.9 525.5
EPS (CS adj. S$) 0.65 1.31 1.57 1.71 1.82 Figure 4: % upside / (downside) to revenue assumptions
- Change from prev. EPS (%) n.a. n.a. 0 0 0 # iQOS units produced by VMS (mn)
- Consensus EPS (S$) n.a. n.a. 1.54 1.71 1.92 10 12 14 16 18 20
EPS growth (%) 16.4 102.0 20.0 8.6 6.6 10% -11.1 -10.6 -10.0 -9.5 -9.0 -8.4
P/E (x) 43.2 21.4 17.8 16.4 15.4 20% -8.4 -7.4 -6.3 -5.2 -4.1 -3.1
Dividend yield (%) 1.8 2.1 2.1 2.1 2.1 30% -5.7 -4.1 -2.5 -0.9 0.7 2.3
EV/EBITDA (x) 29.7 15.5 12.6 11.3 10.3 % accrue to VMS 40% -3.1 -0.9 1.2 3.3 5.5 7.6
P/B (x) 4.0 3.7 3.4 3.0 2.6 50% -0.4 2.3 5.0 7.6 10.3 13.0
ROE (%) 9.4 18.1 20.0 19.4 18.3
60% 2.3 5.5 8.7 11.9 15.1 18.3
Net debt(cash)/equity (%) (20.8) (33.3) (35.8) (38.8) (40.7)
Note 1: ORD/ADR=5.00. Note 2: Venture Corporation Limited is a Singapore-based provider of
70% 5.0 8.7 12.4 16.2 19.9 23.7
technology services, products and solutions. The company is engaged in providing manufacturing, Source: Credit Suisse estimates.
product design and development, engineering and supply-chain management services. Not a one-trick pony
Click here for detailed financials While the growth from iQOS was very strong in FY17 (+227% YoY
Growth partly driven by a next-gen consumer device
based on our estimates), we also like to highlight that we believe
Figure 1: Xiamen Intretech’s revenue from Venture
800.0 60.0
Venture likely has other businesses that are displaying strong growth
52.7
700.0 Revenue from Venture (RMB mn) as % of overall sales
50.0
too, given that the T&M/Med/Lifescience segment excluding Novaseq
600.0 and iQOS grew 54% YoY in FY17. For FY18, we expect the segment
40.0
500.0
29.3 to grow at 13% YoY, with contribution from Novaseq to grow 23% YoY
400.0 30.0
and iQOS to grow 49% YoY.
300.0
200.0 10.3
20.0 We draw comfort from a positive sales outlook trend in Venture's
100.0
10.0 notable customers. In FY15, only six of the 14 customers listed below
0.0
101.4 482.4 692.6
0.0 experienced positive top-line growth. However, based on IBES
2015 2016 1H17
estimates, the number of customers experiencing positive top-line
Source: Company data, Credit Suisse estimates.
growth will increase to 12 (out of 14) in FY18. We believe that Venture
will be an eventual beneficiary from the improved sales outlook of its
customers.
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Asian Daily
Muang Thai Leasing Company Limited------------------------------- Maintain OUTPERFORM
New report: Regulatory fears overdone EPS: ◄► TP: ◄►
Atul Sethi / Research Analyst / 66 2 614 6211 / atul.sethi.2@credit-suisse.com
● MTLS’ share price has fallen by almost 20% in the last 10 days, timing, we expect that there will be a public hearing of the act by April
due to fears regarding potential regulatory changes. or May, but do not expect implementation until 2019 at the earliest.
● This has been prompted by news which emerged on 27 February
Figure 1: MTLS share price has fallen by almost 20% in last 10 days
reporting the creation of a new autonomous body to regulate non- (Indexed)
bank financial institutions. This has prompted investors to fear the 110
worst for MTLS, specifically that an all-in interest rate cap well 105
below current effective yields—23% for MTLS—will be imposed. 100
● Whilst it is possible that an interest rate ceiling for title loans will 95
be introduced, we see several reasons that indicate to us that 90
fears may be overdone. This includes (1) effective yields charged 85
are well below that for other consumption loan products, (2) our 80
conversations with the regulator suggests the creation of this body 26-Feb-18 28-Feb-18 2-Mar-18 4-Mar-18 6-Mar-18 8-Mar-18 10-Mar-18 12-Mar-18
is consumer protection, rather than an inquisition into current rate MTLS SAWAD THANI TK SET Index
caps, and (3) pass-through readings from SAWAD restructuring
Source: Bloomberg.
under the purview of the Bank of Thailand (BOT).
Onerous all-in interest cap unlikely
● MTLS is trading at a 12-month forward P/E multiple of 19.7x, We believe the main fear driving the recent share price pressure is
representing a 24% discount to long-term average. Our target concerns that the new regulation will introduce an 'all-in' 15% interest
price implies 35% upside to current share price. rate cap for title loans. There are several reasons why we view it
Bbg/RIC MTLS TB / MTLS.BK Price (13 Mar 18 , Bt) 38.50 unlikely that such a cap will be imposed. Firstly, the spread between
Rating (prev. rating) O (O) TP (prev. TP Bt) 52.00 (52.00)
52-wk range (Bt) 44.8 - 27.8 Est. pot. % chg. to TP 35
title loans and other consumption loan products are unlikely to be
Mkt cap (Bt/US$ mn) 81,620.0/ 2,613.5 Blue sky scenario (Bt) 63.00 widened. Effective yields for MTLS of 23% is sufficiently below rate
ADTO-6M (US$ mn) 12.2 Grey sky scenario (Bt) 35.00 caps for other consumption loans, and we do not think that the spread
Free float (%) 24.9 Performance 1M 3M 12M between the two will be widened.
Major shareholders Petraamphai family Absolute (%) (7.2) — 38.7
(70%) Relative (%) (8.5) (6.0) 20.9 Figure 2: Comparison of interest rate caps for consumption loans
Year 12/16A 12/17A 12/18E 12/19E 12/20E Loan type Applicable interest rate caps
Pre-prov Op profit (Bt mn) 2,159.4 3,809.0 5,608.0 7,623.7 9,619.9 Title loans 15% interest rate, with additional service fees allowed
Net profit (Bt mn) 1,464 2,501 3,650 4,980 6,270 Hire purchase No cap. 7% VAT payable on interest income
EPS (CS adj. Bt) 0.69 1.18 1.72 2.35 2.96 Personal loans 28% ceiling interest rate (including all fees)
- Change from prev. EPS (%) n.a. n.a. 0 0 0
Nano finance 36% ceiling interest rate (including all fees)
- Consensus EPS (Bt) n.a. n.a. 1.63 2.20 2.77
EPS growth (%) 77.6 70.8 46.0 36.5 25.9 Pico finance 36% ceiling interest rate (including all fees)
P/E (x) 55.7 32.6 22.4 16.4 13.0 Credit card 18% ceiling interest rate (including all fees)
Dividend yield (%) 0.3 0.5 0.7 0.9 1.1 Source: Company data, Bank of Thailand, Finance Ministry
BVPS (CS adj. Bt) 3.2 4.2 5.7 7.7 10.2 Our conversations with the Fiscal Policy Office also suggest it unlikely
P/B (x) 12.2 9.1 6.8 5.0 3.8
ROE (%) 23.7 32.0 34.8 35.1 33.0
that there will be overly punitive measures taken against lenders like
ROA (%) 7.8 8.1 8.3 8.6 8.6 MTLS. It appears to us that the key drafting of the bill is consumer
Tier 1 ratio (%) — — — — — protection and enforcement of laws, rather than an inquisition into
Note 1: MTLS provides loans backed by vehicle titles in Thailand. As of 1H17, MTLS has over 2,000 prevailing interest rates charged. Additionally, we understand that
branches in its nationwide network.
Click here for detailed financials
SAWAD has notified the BOT that interest rates they will charge for
Share price overly punished title loan contracts under BFIT will be below 36%. A scenario whereby
MTLS' share price has fallen by 17% since the last week of February, MTLS is able to charge materially lower yields than SAWAD for the
due to concerns and speculation regarding unfavourable changes in same product is unlikely to us: our channel checks with the BOT
the regulatory environment. Share price has also fallen more than indicate that they will likely want to promote a level playing field in this
other stocks potentially vulnerable to the impact of aforementioned regard.
changes, which we think represents too harsh an indictment. 12-month fwd. P/E -1 STDV below long-term average
Fears a result of regulatory act being drafted MTLS is now trading at more than -1 STDV below its average since
Much of the negative share price reaction has been borne out of IPO on a 12-month forward P/E basis. The stock is trading at a 12-
confusion regarding the potential scope and impact from potential month forward P/E of 20x, a 24% discount to long-term average. Our
regulatory changes. More details are available in the larger report, but target price implies 35% upside to current share price.
the facts as we know it currently are that the Finance Ministry wants to
set up an autonomous body to regulate non-bank financial institutions
that are not supervised by the central bank. Initially, title loans were
not included in the scope of this body, but have since been included in
an updated iteration over the past few days. In terms of process and
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Asian Daily
Global
Global Equity Strategy ----------------------------------------------------------------------------------------
Thoughts on Protectionism
Andrew Garthwaite / Research Analyst / 44 20 7883 6477 / andrew.garthwaite@credit-suisse.com
Marina Pronina / Research Analyst / 44 20 7883 6476 / marina.pronina@credit-suisse.com
Robert Griffiths / Research Analyst / 44 20 7883 8885 / robert.griffiths@credit-suisse.com
● The interconnectivity of the US economy across national borders Non-tariff barriers are generally more damaging
implies that a trade war would clearly be counterproductive. We think it is non-tariff barriers that are, on the whole, more damaging
Illustrating this, the US has five times more FDI in China than the than tariffs. Moreover, tariffs tend to hit manufacturing, which is 80%
other way around. Full report of all trade, but manufacturing is now just 12% of US GDP compared
● Last year there were moves by some Republicans to pass legislation to 25% in the 1960s.
that would limit the President's authority on trade. The threat of Impact
retaliation against US agricultural products might also force a re-think So far, the economic impact appears tiny. We view tariffs as pushing
on tariffs in the same way as it did in 2003 when the EU threatened inflation higher, and being negative for growth and the dollar (as
tariffs, leading then-President Bush to lift the steel tariffs. capital flight typically occurs way before any potential improvement in
● We think it is non-tariff barriers that are, on the whole, more the trade account). The dollar fell 20% under the Bush tariffs. The
damaging than tariffs. Moreover, tariffs tend to hit manufacturing, worry on bonds is whether foreign central banks retaliate by reducing
which is 80% of all trade, but manufacturing is now just 12% of US US bond holdings – especially if their FX reserves fall. Foreigners own
GDP compared to 25% in the 1960s. c.42% of outstanding Treasuries at a time when the US budget deficit
● If investors are worried about a trade war, we would recommend is set to rise to 5.3% of GDP. If anything, tariffs will likely make the
focusing on services, not goods, and domestic relative to Fed more hawkish (higher inflation and lower potential growth rate).
international sectors. This is yet another reason to underweight Service and Domestic
non-financial cyclicals (ex tech). Higher inflation and bond yields If investors are worried about a trade war, we would recommend
help banks. focusing on services, not goods, and domestic relative to international
Figure 1: Europe (ex intra EU trade) is a relatively closed economy
sectors. This is yet another reason to underweight non-financial
80%
cyclicals (ex tech). Higher inflation and bond yields help banks. Tech
70% Goods trades ( Exports + Imports), % of GDP should be a relative winner (it is hard to impose tariffs on tech
60%
services, US tech tends to dominate, fabless makes tariffs illogical,
50%
and tech's cash position means it outperforms as bond yields rise).
40% The areas to underweight in response
30% Trade facilitators are expensive and disrupted with negative earnings
20% revisions. We believe global trade is growing only in line with global
10% GDP (from 1.5x). Among European companies, Panalpina and K&N
0% are Underperform-rated. We take testing companies to underweight:
Russia
Turkey
Indonesia
Japan
Brazil
Mexico
South Korea
Saudi Arabia
EU*
Argentina
India
Germany*
Canada
UK
Australia
US
Italy*
France*
China
South Africa
they look expensive, have negative earnings revisions and a third of

*excluding intra-EU revenue is related to oil, where speculative positions are extreme.
Source: Thomson Reuters, Credit Suisse research
Our base case is that a large escalation of trade retaliation is unlikely Europe is a relatively closed economy and thus relatively immune
because: from global trade wars. Many of the sectors that we regard as plays
on European domestic demand are not affected by tariffs: retail banks,
Global nature of supply chains budget airlines, employment agencies and French concessionaires.
The interconnectivity of the US economy across national borders implies
that a trade war would clearly be counterproductive. Illustrating this, the (This is an extract from Andrew Garthwaite’s report, ‘Thoughts on
US has five times more FDI in China than the other way around. Protectionism’, published on 13 March 2018. For details, please see
the CS Plus website.)
Domestic political backlash
Last year there were moves by some Republicans to pass legislation
that would limit the President's authority on trade. The threat of
retaliation against US agricultural products might also force a re-think
on tariffs (with at least 11 Republican states having big agricultural
votes) in the same way as it did in 2003 when the EU threatened
tariffs, leading then-President Bush to lift the steel tariffs.
China has not been labelled a currency manipulator
President Trump has stated he wants to reduce the bilateral deficit by
$100 bn (from $375 bn). A Section 301 investigation could take a long
time.
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Asian Daily
China
China Healthcare Sector ---------------------------------------------------- Maintain OVERWEIGHT
Healthcare institutional reforms to help improve efficiency
Serena Shao / Research Analyst / 852 2101 6438 / serena.shao@credit-suisse.com
Katherine Fu / Research Analyst / 852 2101 6227 / katherine.fu@credit-suisse.com
Niko Liu / Research Analyst / 852 2101 6235 / niko.liu@credit-suisse.com
● The reform on healthcare regulators is consistent with the theme regulators in charge of the healthcare industry, including National
of State Council institutions’ reform, focusing on simplification and Health and Family Planning Commission (CFDA), Ministry of Human
consolidation. Resources and Social Securities, etc. A specific issue could require
● Three committees, namely: National Healthcare Commission approvals from several regulators, which leads to lower efficiency. For
(NHC), State Administration for Market Supervision (SAMS) and example, drug pricing is monitored by CFDA and Price Bureau.
State Administration for Medical Insurance (SAMI), are organised Key focuses
to replace more than 10 departments. 1) The medical insurance for urban residences, urban employees and
● China Drug Administration (CDA) is set under SAMS to monitor the New Rural Cooperative Medical Insurance are now under the
pharmaceutical market specifically replacing CFDA. Despite the management of the same regulator. The insurance department may
changes, the new drug approval and inspection system play an even more important role in drug pricing, going forward.
developed by CFDA remains unchanged.
2) It is also worth noticing that the office for deepening healthcare

● The reforms have helped find a complete, strong, as-well-as cost- reform is dissolved. It indicates that this round of reform is
efficient regulation landscape for long-term steady growth of the approaching an end.
whole industry. We believe large pharma names—including
Hengrui (600276.SS) and Sino Biopharm (1177.HK), are likely to 3) Despite the changes, the new drug approval and inspection system
benefit the most. developed by the CFDA remains unchanged.
Simplification helps improve efficiency

The reform consolidates the authorities of the healthcare industry into
three different authorities. Before this reform, there were lots of
Figure 1: Key changes of departments and committees in healthcare space

Valuation metrics
Company Ticker Rating Price Target TP Up/dn Year EPS Chg EPS EPS grth (%) P/E (x) DY P/B Scenario
Chg to TP (%) (%) (x)
(prev.) Local price (prev.) (%) (%) T T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+1 Blue sky Grey sky
Sino Biopharm 1177.HK O 15.22 18.40 0 21 12/16 0 0 0.39 0.48 52 22 38.9 31.9 0.5 10.1 20.50 12.00
Hengrui Medicine 600276.SS O 78.81 83.40 0 6 12/16 0 0 1.13 1.40 3 24 69.7 56.4 0.2 14.5 96.20 56.10
Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM
Source: Company data, Credit Suisse estimates
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Asian Daily
China Insurance Sector ----------------------------------------------------- Maintain OVERWEIGHT
China to merge banking and insurance regulators
Charles Zhou, CFA / Research Analyst / 852 2101 6177 / charles.zhou@credit-suisse.com
Eddie Zhou / Research Analyst / 852 2101 6192 / eddie.zhou@credit-suisse.com
Richie Jiang / Research Analyst / 852 2101 6198 / richie.jiang@credit-suisse.com
● State Council has announced to merge the country’s banking and Positive move for listed insurers
insurance regulators into CBIRC, according to Reuters. Duties of We view the reform as positive for the insurance sector’s fundamentals,
major policies making and sectors’ macro prudence oversight will especially for leading insurers, against a backdrop of the evolving
be transferred to the PBOC, while CBIRC’s major focus is regulations environment. The insurance sector’s risk management and
regulation implementation and execution. compliance should be enhanced, with insurers potentially exposed to a
● The new initiative should deepen the regulator’s capacity, more comprehensive regulation standard applied by banks. We expect
especially in supervising insurers, driven by ‘Twin Peak’ regulation listed insurers to benefit more from a benign competitive landscape, as
framework and potential cross-agency synergy, including industry irregularities (i.e., the emergence of ‘platform’ insurers) will
resource-sharing among regulatory bodies. likely reduce under the new framework.
● The reform, in our view, is positive for the insurance sector’s After the announcement, what’s next?
fundamentals, especially for leading insurers, as sector’s risk In the near term, we expect the regulators to work together on
management and compliance will likely improve and irregularities detailed responsibility allocation primarily. A fully functioning ‘Twin
will likely reduce. Peak’ framework, for both banking and insurance, requires clearly
defined roles and duties for different parties, namely policy makers
● Regulators to work together on detailed responsibility allocation in and executors. We believe CBIRC will primarily focus on regulations'
the near term, and we see upside of increased across-sector implementation (i.e., product registration, correct market
activities among regulated entities over a longer horizon. misconducts, etc.) post the merger. Having said that, we expect the
Figure 1: Assets size, banking vs insurance CBIRC to still involve decision-making for some rules, under certain
300
circumstances. Over a longer horizon, we see upside of increased
232 252 across-sector activities among regulated entities, driven by potential
250 cross-agency synergy. For instance, insurers are likely to benefit
199
200 172 from easier cooperation with trust companies on investments, under
134
151 the same regulator.
150
Figure 2: ‘Platform’ insurers losing market shares
100 100%
50 90%
7 8 10 12 15 17
80%
-
2012 2013 2014 2015 2016 2017 70%
60%
Total banking assets (Rmb tn) Total insurance assets (Rmb tn)
50%
Source: PBOC, Credit Suisse estimate 40%
Merger to sharpen regulators’ edge 30%
We believe the new initiative will expand regulators' capacity further, 20%
especially in supervising insurers, driven by the ‘Twin Peak’ regulation 10%
framework and potential cross-agency synergy (between banking and 0%
insurance regulators). With duties of policy-making and macro 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
oversights ceded to the central bank, more resources on CBIRC will Other insurers Platform insurers Listed insurers
free up for streamlining regulation over sectors’ micro issues. Cases, Source: CIRC, Credit Suisse estimate
where insurers took major stakes of banks (i.e. Anbang acquired a Merger of top financial regulators
35% stake of Chengdu Rural Commercial Bank), present challenges According to Reuters, State Council announced, on Tuesday, to
for regulators due to unclear responsibilities among different merge the country’s banking and insurance regulators. A new
regulatory bodies. Such issues are expected to be resolved with the regulatory body, CBIRC will assume supervising and regulating roles
potential cross-agency synergy, to some extent. We expect regulators from the current banking and insurance regulators, and will report to
to leverage each other’s strengths under one unified body, China the State Council directly. Duties of major policy making and sectors’
Banking and Insurance Regulatory Commission (CBIRC). In particular, macro prudence oversight will be transferred to the PBOC from CIRC
insurance regulation capacity is expected to be improved with and CBRC. Not mentioned in the reform plan, CSRC will continue to
resources (talent, experience, techniques, etc.) shared from the function separately.
banking regulator and central bank.
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Asian Daily
China Taiping ------------------------------------------------------------------ Maintain OUTPERFORM
Sluggish Feb, but focus shifts to higher margin health products in March EPS: ▲ TP: ◄►
Alice Li, CFA / Research Analyst / 852 2101 6068 / alice.li.2@credit-suisse.com
● CTIH announced life premium decline of 7.3% in 2M18, as the saving policies. In response, the insurer would shift focus to health
insurer cut single pay bancassurance business. The regular insurance in Mar (target over Rmb4 bn), which hopefully could drive
premium from individual/bancassurance recorded 35%/19% overall VNB expansion. Looking into 2018, we remain confident on
growth, led by renewal premium. Facing headwinds in new sales sector leading VNB growth, given CTIH’s strong execution capability.
(particularly in saving products), CTIH shifted focus to health Figure 1: Taiping Life total APE +26% YoY in 2M18
insurance in Mar to drive overall VNB expansion. Feb-18 Growth (%) 2M18 Growth (%)
● P&C maintained strong growth in 2M18 (+37% YoY), but we see Agency regular 3,702 34% 34,943 35%
growth volatilities in Feb (down 2% YoY), possibly due to the CNY Agency single 3 -48% 10 -14%
Agency APE* 3,702 34% 34,944 35%
effect. Despite a challenging outlook, CoR should be largely
Bancassurance regular 2,213 4% 6,939 19%
stable, as CTIH emphasises on achieving underwriting profit. Bancassurance single 0 -100% 4 -100%
● We forecast 29% NPAT growth in FY17, implying 2H growth of Bancassurance APE* 2,213 -4% 6,939 -3%
126%. Full VNB growth remains strong at 39%, while momentum Total premiums 5,918 -11% 41,896 -7%
should moderate in 2H. P&C profitability slightly improved. 2017 In-force APE* 5,915 17% 41,883 26%
results on 23 Mar (noon), followed by analyst briefing at 3:45 pm. In Rmb mn, (*APE = RP + 10% SP). Source: Company data, Credit Suisse estimates
● We lift EPS by ~6% on: (1) realised gains from strong equity P&C: strong premium growth (+37% in 2M18)
market and (2) addition of liquidity/tax spread. CTIH is trading at TPI (China P&C unit) maintained strong growth in 2M18 (+37% YoY),
0.75x P/E, below sector average of 0.94x. We maintain but we see growth volatilities in Feb (down 2% YoY), possibly due to
OUTPERFORM on strong RoEV (~16%) and execution capability. the Chinese New Year (CNY) effect. Despite a challenging outlook,
Bbg/RIC 966 HK / 0966.HK Price (13 Mar 18, HK$) 30.45 combined ratio (CoR) should be largely stable, as TPI emphasises on
Rating (prev. rating) O (O) TP (prev. TP HK$) 40.00 (40.00) achieving underwriting profit.
52-wk range (HK$) 35.4 - 18.3 Est. pot. % chg. to TP 31 Figure 2: China Taiping trading at 0.75x P/E
Mkt cap (HK$/US$ bn) 109.4/ 14.0 Blue sky scenario (HK$) 56.00
1.2x
ADTO-6M (US$ mn) 44.7 Grey sky scenario (HK$) 24.00
Free float (%) 20.7 Performance 1M 3M 12M
Price to Embedded Value (X)
Major shareholders Taiping Group - 53% Absolute (%) 10.7 6.8 61.1 1.0x
Relative (%) 0.2 (4.9) 12.2
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Life GWP (HK$ bn) 102.2 111.6 138.6 154.8 178.1 0.8x
P&C GWP (HK$ bn) 24.9 25.6 29.5 32.7 36.0
Net profit (HK$ bn) 6.3 4.8 6.2 7.1 8.5
EPS (CS adj. HK$) 1.83 1.33 1.71 1.99 2.35 0.6x
- Change from prev. EPS (%) n.a. n.a. 6.1 2.2 1.5
- Consensus EPS (HK$) n.a. n.a. 1.51 2.00 2.42
EPS growth (%) 27.2 (27.6) 28.9 15.9 18.4 0.4x
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
P/E (x) 16.6 22.9 17.8 15.3 12.9
NTA per share (HK$) 17.4 15.6 18.0 20.2 22.8
EV per share (HK$) 28.7 28.5 33.7 39.5 46.1
Source: Reuters, IBES (12 Month Forward), Credit Suisse estimates
Dividend yield (%) 0 0.3 0.7 1.0 1.5
EV/EBITDA (x) 4.3 5.9 5.3 3.5 1.6 2017 preview: Exceptional 2H earning, strong FY VNB growth
P/B (x) 1.7 1.9 1.7 1.5 1.3 We forecast 29% NPAT growth in FY17, implying 2H growth of 126%,
ROE (%) 12.6 8.2 10.2 10.4 10.9 driven by: (1) realised gains from strong equity market (CSI 300 +10%
P&C combined ratio (%) 100.4 100.8 100.6 100.5 100.5 in 2H) and (2) addition of liquidity/tax spread (on top of 750-day bond
Note 1: ORD/ADR=25.00. Note 2: China Taiping Insurance Holdings Co Ltd, formerly China
Insurance International Holdings Company Limited, is an investment holding company. The principal yield curve), as required by CIRC. Full VNB growth remains strong at
activities of the company's subsidiaries include underwriting of all classes of global insurance. 39%. However, momentum moderated in 2H, as CTIH shifted focus to
Click here for detailed financials agency recruitment after excellent 1H VNB growth (+63% YoY). P&C
Life: 2M18 premium down 7.3% after cutting single pay business profitability slightly improved YoY (2017E CoR of 99.6%). CTIH will
China Taiping (CTIH) announced life premium decline of 7.3% in announce its 2017 results on 23 Mar (noon), followed by analyst
2M18, as the insurer cut single pay bancassurance business. The briefing at 3:45 pm.
regular premium from individual/bancassurance recorded 35%/19%
growth, led by renewal premium. Similar to peers, CTIH saw
headwinds in new business sales, particularly in large ticket size
Figure 3: Valuation metrics - 13 Mar 2018
Company Ticker CS Price TP (%) Up/dn Mkt cap ADT P/BV(x) ROE(%) P/EV(x) VNB(x) PE(x) EPSg EVg VNBg
T = Dec 2017 Rating Local Target Chg (%) US$mn US$mn 12-month forward T+1
China Taiping 0966.HK OPFM 30.45 40.00 0% 31% 13,960 33 1.5x 10.5% 0.75x -2.4x 15.3x 16% 17% 17%
Source: Reuters, IBES, Company data, Credit Suisse estimates
- 12 of 45 -
Asian Daily
China Pacific ------------------------------------------------------------------- Maintain OUTPERFORM
2M18 premium: Life growth leading peers, P&C improving EPS: ▲ TP: ◄►
● CPIC announced 2M18 life premium growth of 21%, leading peers. (>Rmb500k) saving policies. In response, the insurer invested more
Feb-18 premium growth moderated to 11%, possibly due to the CNY resources in agency channel and protection business, which hopefully
effect. P&C premium growth accelerated to 17.8% in 2M18. could offset adverse VNB impact from saving ones. For instance, CPIC
● Facing new sales headwinds (particularly large size saving rolled out easy-to-sell consumption type critical illness policies (e.g., Xing
products), CPIC invested more resources in agency channel and Fu An Kang / 幸福安康) and commission rate adjustment plans to
protection business. The recent launch of consumption type CI boost agency retention. We are confident on agency expansion (+c.15%
(e.g., Xing Fu An Kang) and commission adjustment plans YoY to 950k in Jan-18) and above average VNB growth in 2018.
hopefully could offset adverse VNB impact from saving ones. Figure 1: China Pacific 2M18 premium—Life +21%, P&C +18%
● We expect 42% VNB growth in 2017 (double digit in 2H), as CPIC Life Feb-18 2M18 4Q17 3Q17 2Q17 CAGR, 12-mth rolling (% p.a.)
shifted focus to agency recruitment after excellent 1H growth % p.a. % p.a. % p.a. % p.a. % p.a. 1Y 3Y 5Y
(+59%). Group RoEV was strong at 21%, and earnings rose by 27% China Life (3.1) (18.6) 14.7 24.0 9.9 3.3 11.4 8.6
Ping An 25.3 29.5 32.4 29.5 28.3 23.9
(36% in 4Q), we estimate. P&C business should improve YoY, with China Pacific 11.1 21.1 3.0 21.9 19.2 19.8 23.5 15.2
premium growth accelerating and profitability rising (2017E CoR: P&C

98.8%). 2017 result on 29 Mar and briefing on 3 Apr (9:30 am). Ping An 15.8 23.9 23.7 20.9 14.5 16.9
● We lift EPS by 6-8% on: (1) reserve release on rising 750-day bond China Pacific 18.2 17.8 11.2 13.0 12.5 12.3 4.8 8.6
yield since 1H18 and (2) strong investments. CPIC is trading at 0.81x PICC P&C 14.7 13.6 13.3 15.2 11.9 12.7
P/E, vs 3-year average of 0.89x and 5-year trough of 0.75x. We
maintain OUTPERFORM on strong RoEV (~16%) and improving P&C. P&C: Premium growth accelerates to 18% in 2M18
Bbg/RIC 2601 HK / 2601.HK Price (13 Mar 18, HK$) 39.00
P&C recorded strong premium momentum (+17.8% in 2M18, vs +1.3%
Rating (prev. rating) O (O) TP (prev. TP HK$) 48.50 (48.50) in 2M17). As CPIC prioritises underwriting profitability over scale
52-wk range (HK$) 41.9 - 27.8 Est. pot. % chg. to TP 24 expansion, premium growth acceleration should indicate its confidence
Mkt cap (HK$/US$ bn) 410.7/ 52.4 Blue sky scenario (HK$) 63.05 over combined ratio.
Free float (%) 49.3 Performance 1M 3M 12M Figure 2: China Pacific is trading at 0.81x P/EV
Major shareholders Fortune Investment - Absolute (%) 1.7x
7.4 3.9 35.2
14.2%, Shenergy - Relative (%) (3.1) (7.9) (13.7) H share
13.5% 1.5x
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Life GWP (Rmb mn) 108,628 137,565 176,090 216,271 260,561
Price to EV
1.3x
P&C GWP (Rmb mn) 94,710 96,607 105,212 112,577 120,458
Net profit (Rmb mn) 17,728 12,057 15,308 18,507 22,190 1.1x sd + 1
EPS (CS adj. Rmb) 1.96 1.33 1.70 2.05 2.46
- Change from prev. EPS (%) n.a. n.a. 7.2 6.2 8.1 3yr average
0.9x
- Consensus EPS (Rmb) n.a. n.a. 1.71 2.16 2.52
EPS growth (%) 60.4 (32.0) 27.5 20.9 19.9
P/E (x) 16.1 23.6 18.6 15.3 12.8 0.7x sd - 1
NTA per share (Rmb) 14.7 14.5 15.5 16.6 18.0 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
EV per share (Rmb) 22.8 27.0 32.0 37.6 43.9 Source: Reuters, IBES (12 Month Forward), Credit Suisse estimates
Dividend yield (%) 3.2 2.2 2.7 3.3 3.9
EV/EBITDA (x) 14.1 20.4 14.6 12.1 9.8 2017 preview: Strong life (VNB+ 42%) with improving P&C
P/B (x) 2.1 2.2 2.0 1.9 1.7 We expect 42% VNB growth in 2017 (double digit growth in 2H), as
ROE (%) 14.2 9.1 11.2 12.7 14.1 CPIC shifted focus to agency recruitment in 2H after excellent 1H
P&C combined ratio (%) 99.8 99.2 99.0 99.0 99.0 VNB growth (+59%). Life/Group RoEV was strong at 21%/17% per
Note 1: ORD/ADR=4.00. Note 2: China Pacific is the second largest property insurance company
and the third largest life insurance company in China. our estimate. We forecast 27% NPAT growth in 2017, implying 4Q
Life: 2M18 premium + 21%, leading peers growth of 36%, driven by: (1) solid equity market (CSI 300 +5% in 4Q)
China Pacific (CPIC) announced 2M18 life premium growth of 21%, and rising new money yield, and (2) moderation of reserve charges
leading peers. Feb-18 premium growth moderated to 11%, possibly due from 750-day bond yield in 4Q. P&C business should improve YoY,
to the Chinese New Year (CNY) effect (CNY fell in Feb-18 vs Jan-17). with premium growth accelerating (2017: +9.4%, 2016: +1.7%) and
Despite double digit growth of protection business, CPIC continued profitability rising (2017E CoR: 98.8%, 2016: 99.2%). CPIC will
negative momentum in new sales, particularly large ticket size announce its 2017 result on 29 Mar (after market) and host analyst
briefing on 3 Apr (9:30 am).
Figure 3: Valuation metrics—13 Mar 201 8
Company Ticker CS Price TP (%) Up/dn Mkt cap ADT P/BV(x) ROE(%) P/EV(x) VNB(x) PE(x) EPSg EVg VNBg
T = Dec 2017 Rating Local Target Chg (%) US$mn US$mn 12-month forward T+1
China Pacific (H) 2601.HK OPFM 39.00 48.50 0% 24% 52,392 70 1.9x 13.1% 0.81x -2.1x 15.6x 21% 17% 15%
China Pacific (A) 601601.SS NTRL 38.82 41.00 0% 6% 52,392 117 2.3x 13.1% 1.00x 0.0x 18.9x 21% 17% 15%
Source: Reuters, IBES, Company data, Credit Suisse estimates
- 13 of 45 -
Asian Daily
China Life ----------------------------------------------------------------------- Maintain OUTPERFORM
Improving momentum in Feb, but still lagging peers EPS: ▲ TP: ▼
● China Life announced 18.6% premium decline in 2M18, lagging major peers. However, we highlight sales momentum improved in Feb, with
peers. However, sales momentum improved in Feb, with monthly monthly decline narrowed to 3.1% from 21.3% in Jan. The weak
decline narrowed to 3.1% from 21.3% in Jan. New business from momentum YTD was mainly attributable to new sales contraction of
protections was largely flat YoY in 2M18, we estimate. annuity products in both agency and bancassurance (single pay)
● To maintain its #1 position in market share, China Life recently channel, amid sector-wide ‘jumpstart’ sales headwinds. New business
rolled out Sheng Shi Zhen Pin / 盛世臻品, a short pay term and from protections, however, was largely flat YoY in 2M18, we estimate.
high cash value annuity product. We believe such a product could Figure 1: China Life 2M18 premium down 19% YoY
boost premium growth, but at the expense of VNB margins. Feb-18 2M18 4Q17 3Q17 2Q17 CAGR, 12M rolling (% p.a.)
● We expect 7% YoY VNB growth in 2H17 (+21% in full year), which is % p.a. % p.a. % p.a. % p.a. % p.a. 1Y 3Y 5Y
China Life (3.1) (18.6) 14.7 24.0 9.9 3.3 11.4 8.6
not far from sector leaders. Full-year EV growth remains solid at Ping An 25.3 29.5 32.4 29.5 28.3 23.9
15%, and earnings would soar by 62% to Rmb31 bn, per our China Pacific 11.1 21.1 3.0 21.9 19.2 19.8 23.5 15.2
estimate. 2017 result on 22 Mar and briefing on 23 Mar (9:30 am). New China Life 2.7 7.9 1.6 27.8 (1.9) 8.3 (0.7) 3.2
China Taiping (10.7) (7.3) (9.5) 19.9 16.2 5.5 15.7 21.8
● We lift EPS by 5%-16% on: (1) reserve release from rising 750-day
bond yield since 1H18 and (2) strong investments. We cut TP (H) to
HK$28.0 from HK$29.7 and TP (A) to Rmb22.5 from Rmb24.7, after New product could lift growth, but likely at the expense of
margin
trimming VNB growth / multiples on lower-than-expected sales YTD.
Solid RoEV (FY18E: 13%) and undemanding valuation (0.65x P/adj To boost sales and maintain its #1 position in market share, China Life
EV) lead to our OUTPERFORM rating. recently rolled out Sheng Shi Zhen Pin / 盛世臻品, an annuity product
with: (1) short payment term of 3/5 years, (2) high cash value (amounting
Bbg/RIC 2628 HK / 2628.HK Price (13 Mar 18, HK$) 23.50
Rating (prev. rating) O (O) TP (prev. TP HK$) 28.00 (29.70) to 93% of premium at end of year one), and (3) dual universal accounts
52-wk range (HK$) 27.7 - 22.5 Est. pot. % chg. to TP 19 (crediting rate 5.2%/4.5% respectively). We believe the new product
Mkt cap (HK$/US$ bn) 871.5/ 111.2 Blue sky scenario (HK$) 36.40 could boost premium growth, but at the expense of VNB margins.
Free float (%) 31.6 Performance 1M 3M 12M Figure 2: 750-day bond yield to reverse downward trend in 1H18
Major shareholders China Life Group - Absolute (%) 1.5 (5.1) (2.1) 15 11 10
92.8% Relative (%) (9.1) (16.8) (51.0) 8
6 6
750day yield movement (bps)
Year 12/15A 12/16A 12/17E 12/18E 12/19E

5 2
Life GWP (Rmb mn) 363,971 430,498 510,916 584,316 658,573 1 1
P&C GWP (Rmb mn) — — — — —
Net profit (Rmb mn) 34,699 19,127 31,062 40,248 44,734 (5) (2)
(3) (4)
EPS (CS adj. Rmb) 1.23 0.68 1.10 1.42 1.58
- Change from prev. EPS (%) n.a. n.a. 4.9 16.4 13.3 (10)
- Consensus EPS (Rmb) n.a. n.a. 1.14 1.40 1.64 (15)
(15)
EPS growth (%) 7.7 (44.9) 62.4 29.6 11.1
P/E (x) 15.4 28.0 17.3 13.3 12.0 (21)
(25)
NTA per share (Rmb) 11.4 10.7 11.6 12.6 13.6
1H12
2H12
1H13
2H13
1H14
2H14
1H15
2H15
1H16
2H16
1H17
2H17
1H18
2H18
EV per share (Rmb) 22.1 23.1 26.6 29.9 33.4
Dividend yield (%) 2.2 1.3 2.2 3.1 3.5
EV/EBITDA (x) 15.8 37.5 20.3 15.0 13.4 Source: Reuters, Credit Suisse estimates.
P/B (x) 1.7 1.8 1.6 1.5 1.4 2017 preview: Solid EV trend (+15%), VNB growth at 21%
ROE (%) 11.4 6.1 9.8 11.8 12.1 We expect 7% YoY VNB growth in 2H17 (+21% in full year), which is
P&C combined ratio (%) — — — — — not far from sector leaders. Full-year EV growth remains solid at 15%
Note 1: ORD/ADR=5.00. Note 2: China Life is the largest life insurance company in China with an
extensive multi-channel distribution network. The company offers individual life insurance, group life, (+8% HoH in 2H17), after factoring in positive investment variances.
accident insurance, and health insurance policies. We estimate 2017 earnings soared by 62% to Rmb31 bn, in line with
Click here for detailed financials early profit alert, driven by: (1) rapid increase in investment income
Improving momentum in Feb (mainly in 3Q) and (2) easing pressure from reserve charges. China
China Life announced 18.6% premium decline in 2M18, lagging major Life will announce its 2017 result on 22 Mar (after market) and host
analyst briefing on 23 Mar (9:30 am).
Valuation Metrics
Company Ticker Rating Price
Target TP Up/dn Year EPS Chg EPS EPS grth (%) P/E (x) DY P/B Scenario
Chg to TP (%) (%) (x)
China Life (H) 2628.HK O (O) 23.50 28.00 (29.70) (5.7) 19 12/16 4.9 16 1.10 1.42 62 30 17.3 13.3 2.2 1.6 36.40 19.60
China Life (A) 601628.SS U (U) 26.99 22.50 (24.70) (8.9) (17) 12/16 4.9 16 1.10 1.42 62 30 24.6 19.0 1.6 2.3 29.37 15.81
- 14 of 45 -
Asian Daily
China Coal Sector -----------------------------------------------------------------------------------------------
Takeaways from our trip—Day 2
Yang Luo / Research Analyst / 852 2101 6328 / yang.luo@credit-suisse.com
Peter Li / Research Analyst / 852 2101 6320 / peter.li@credit-suisse.com
● Coal prices appear not bottomed yet. We met several coal mines after Chinese New Year, the inventory level is not very high at coal
and traders, and visited the port in Qinhuangdao city today. With traders. The inventory at coal mines is also pretty low, according to
coal prices currently at Rmb647/t (5,500k) level, we think there will coal mines.
be further downside risk to coal prices in the near-term. De-bottleneck of transportation could lead to higher supply
● According to our conversation with coal mines/traders, inventory over demand at ports:
level is quite high at downstream, including power plants and Another major railway transportation route, Mengji railway, is expected
ports. The companies we met have confirmed that the days of to start operation in Apr-2018. This could significantly alter the supply
inventory arrived at is 20-25 days, which is higher-than-normal demand dynamic at ports, further exerting downside pressure on coal
level. However, inventory at coal traders and miners is not very prices, in our view.
high. Valuation: We have OUTPERFORM rating for China Shenhua H
● De-bottleneck of transportation could lead to higher supply over given its strong balance sheet and cash flow. Shenhua H shares are
demand at ports. Mengji railway is expected to start operation in currently trading at 9.2x 2018E P/E and 1.1x 2018E P/B.
Apr-2018. It could significantly alter the SD dynamic at ports,
further exerting downside pressure on coal price, in our view. Figure 2: Coal inventory and inventory days at IPPs
18.0 50
● We have OUTPERFORM rating for China Shenhua H given its
16.0 40
strong balance sheet and cash flow. Shenhua H shares are
currently trading at 9.2x 2018E P/E and 1.1x 2018E P/B. 14.0 30
12.0 20
Figure 1: QHD and Newcastle thermal coal price
10.0 10
800 300
8.0 Jul-12 0
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
600 200
400 100 Coal inventory at 6 costal IPPs (mt)

Coal inventory days at 6 costal IPPs (RHS)
Source: CCTD, Wind, Credit Suisse estimates.
200 -
Jul-14
Jul-15
Jul-16
Jul-17
Jan-15
Jan-14
Oct-14
Jan-16
Jan-17
Jan-18
Oct-13
Apr-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Figure 3: China Shenhua 12-month forward P/B ROE

3.0x 25%
Gap (RHS) Coal price-QHD (Rmb/t) 2.5x 20%
Price-Newcastle (5,500kcal)
Source: CCTD, Wind, Credit Suisse estimates. 2.0x
15%
Coal price appears not bottomed yet: we met several coal mines 1.5x
and traders, and visited port in Qinhuangdao city today. With coal 1.0x
10%
prices currently at Rmb647/t (5,500k) level, we think there will be
5%
further downside risk to coal prices in the near-term. We perceive 0.5x
rising possibility of coal prices to surprise the market on the downside, - 0%
if supply surpasses demand in 2Q18. We think the current market J-10 J-11 J-12 J-13 J-14 J-15 J-16 J-17 J-18
consensus expects coal prices to be held well above Rmb580-600/t P/B 1088.HK ROE (%, RHS)
level. Source: Company data, Credit Suisse estimates.
Inventory builds up at downstream: According to our conversation

with the coal mines/traders, inventory level is quite high at
downstream, including power plants and ports. The companies we
met have confirmed that the days of inventory arrived at is 20-25 days,
which is higher-than-normal level. Given over Rmb100/t price drop
Valuation metrics
Company Ticker Rating
Target TP Up/dn Year EPS Chg Price EPS EPS grth (%) P/E (x) DY P/B Scenario
Chg to TP (%) (%) (x)
Shenhua (H) 1088.HK O 22.20 23.00 0 4 12/16 0 0 2.26 1.94 81 (14) 7.9 9.2 4.5 1.2 32.00 10.00
Chinacoal (H) 1898.HK N 3.56 4.00 0 12 12/16 0 0 0.35 0.30 167 (14) 8.3 9.6 3.0 0.4 7.00 2.00
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Asian Daily
GDS Holdings Limited -------------------------------------------------- Maintain UNDERPERFORM
FY17 EBITDA beats, but FY18 guidance a little soft, and valuation looks very unattractive EPS: ◄► TP: ◄►
Colin McCallum, CA / Research Analyst / 852 2101 6514 / colin.mccallum@credit-suisse.com
Billy Lee / Research Analyst / 852 2101 6529 / billy.lee@credit-suisse.com
● Result snap reaction—EBITDA beats guidance, but a little below Adjusted EBITDA grew by 89.4% YoY to reach Rmb512 mn in FY17.
CSe on revenue and net profit. Across FY17 as a whole, GDS's This was 3.7% ahead of our forecast of Rmb494 mn, and ahead of the
service revenue grew by 58.7% YoY, missing our forecast by guidance range of Rmb480-495 mn. The FY17 adjusted EBITDA
1.3%. However, adjusted EBITDA grew by 89.4% YoY, ahead of margin on service revenue reached 31.7% (up from 25.6% in FY16).
our forecast by 3.7%.
GDS remains in investment phase and is therefore loss-making, with
● GDS remains in investment phase and is therefore loss-making, the net loss over FY17 larger than expected, at Rmb327 mn.
with the net loss 63.4% larger than expected, at Rmb327 mn.
FY18 EBITDA guidance a little below our expectations,
● For FY18 GDS is guiding for revenue in the range of Rmb2,460– capex above
2,560 mn, with a midpoint almost exactly in line with our current For FY18, GDS is guiding for total revenue in the range of Rmb2,460–
FY18 forecast of Rmb2,511 mn. However, GDS is guiding for 2,560 mn. This gives a midpoint of Rmb2,510 mn, bang in line with
FY18 adjusted EBITDA in the range of Rmb905–935 mn, which our current forecast of Rmb2,511 mn, as we fully expect GDS to
suggests a slightly disappointing operational gearing when continue growing rapidly. Adjusted EBITDA for FY18 is guided to be in
compared with our current forecast of Rmb981 mn.
the range of Rmb905–935 mn (midpoint Rmb920 mn). This is a

● While we continue to like the fact that GDS is a non-state owned marginally disappointing guidance versus our current forecast of
enterprise (non-SOE) in a very high-growth segment of China's Rmb981 mn (we expect operational gearing to work in GDS’s favour
telecom services space, the valuation looks very rich at 19.5x as the data centres which are currently under construction come on
FY19E EV/EBITDA and we maintain UNDERPERFORM rating. line, and start to generate EBITDA).
Growth and non-SOE premium looks rather extreme
Bbg/RIC GDS US / GDS.OQ Price (13 Mar 18 , US$) 28.75
Rating (prev. rating) U (U) [V] TP (prev. TP US$) 23.10 (23.10) We continue to like the fact that GDS is a non-SOE in a very high-
52-wk range (US$) 30.73 - 7.12 Est. pot. % chg. to TP (20) growth segment of China's telecom services space.
Mkt cap (US$ mn) 3,612.7 Blue sky scenario (US$) 25.80
ADTO-6M (US$ mn) 4.6 Grey sky scenario (US$) 20.30 However, while it may seem unfashionable, we struggle with GDS’s
Free float (%) 22.3 Performance 1M 3M 12M valuation at current levels. The high capital intensity of the business
Major shareholders STT GDC (33.9%) Absolute (%) 19.2 48.0 269.5 limits the returns on invested capital that we project from GDS (at
Relative (%) 8.7 36.3 220.6 least, when compared with e-Commerce and content businesses),
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Revenue (Rmb mn) 704 1,056 1,613 2,511 3,752
and this in turn limits the valuation driven by our DCF model (currently
EBITDA (Rmb mn) 144 185 441 931 1,444 US$23.1/share, using a WACC of 9.4% and a 4.0% terminal growth
Net profit (Rmb mn) (216.6) (403.4) (200.1) 162.0 446.4 rate). Indeed, FY18 capex guidance of Rmb2.6-3.0 bn is well ahead of
EPS (CS adj. Rmb) (8.0) (10.2) (1.9) 1.3 3.6 our current forecast of Rmb2.0 bn (with higher capex undoubtedly
- Change from prev. EPS (%) n.a. n.a. n.m 0 0
- Consensus EPS (Rmb) n.a. n.a. (3.38) (2.10) 1.18
encouraged by the current price-to-book ratio of 4.8x). The extremely
EPS growth (%) n.m. n.m. n.m. n.m. 174.1 rapid share price appreciation of GDS therefore makes us question
P/E (x) n.m. n.m. n.m. 140.3 51.2 whether or not investors properly understand GDS's business model.
Dividend yield (%) 0 0 0 0 0 We note that GDS is now trading at 19.4x FY19 EV/EBITDA—at a
EV/EBITDA (x) 169.5 136.9 59.9 28.7 19.5
P/B (x) (18.3) 6.1 4.8 3.9 3.6
premium to the global sector average of 15.4x. While GDS may well
ROE (%) 121.3 (30.5) (5.4) 3.2 7.4 generate higher growth than global peers from FY19 onwards,
Net debt(cash)/equity (%) 77.1 83.0 80.5 65.7 84.3 EV/EBITDA multiples ignore both capex and differences in cost of
Note 1: GDS Holdings limited develops and operates data centers in China capital. Given what we therefore believe to be stretched valuation, we
Click here for detailed financials maintain our UNDERPERFORM rating.
GDS achieves rapid growth, beats EBITDA guidance Figure 1: GDS FY17 results analysis
GDS has published FY17 results. Looking at 4Q17 first, the growth (Rmb mn) FY17A FY16A YoY CSFY17E Diff vs est.
trajectory remained impressive, with service revenue rising 16.7% Service revenue 1,592 1,003 58.7% 1,613 (1.3%)
QoQ and 64.7% YoY, as the total area committed rose 68.0% YoY to Net revenue 1,616 1,056 53.0% 1,613 0.2%
102,528 sq m as in December 2017. Adjusted EBITDA rose 15.9% Adjusted EBITDA 512 271 89.4% 494 3.7%
EBITDA margin 31.7% 25.6% 6.1pp 30.6% 1.1pp
QoQ and 68.4% YoY, and the adjusted EBITDA margin rose by 1.1 pp D&A (378) (227) 66.3% (351) 7.7%
YoY to reach 30.6% in 4Q17, as rapid revenue growth allowed GDS Net interest (406) (263) 54.4% (293) 38.9%
to enjoy the benefits of operational gearing over its fixed costs. Net income / (loss)* (327) (403) (19.0%) (200) 63.4%
Source: Company data, Credit Suisse estimates. *attributable to ordinary shareholders
Across FY17 as a whole, GDS's service revenue grew by 58.7% YoY
to reach Rmb1,592 mn. This was 1.3% below our forecast of
Rmb1,613 mn, but beat the guidance range of Rmb1,525-1,575 mn.
- 16 of 45 -
Asian Daily
Longyuan Power ------------------------------------------------------------- Maintain OUTPERFORM
Management expects utilisation and receivables to improve further for FY18 EPS: ▼ TP: ▼
Dave Dai, CFA / Research Analyst / 852 2101 7358 / dave.dai@credit-suisse.com
Gloria Yan / Research Analyst / 852 2101 7369 / gloria.yan@credit-suisse.com
Gary Zhou, CFA / Research Analyst / 852 2101 6648 / gary.zhou@credit-suisse.com
● Longyuan Power's (LYP) 9% YoY recurring earnings growth in FY17 Figure 1: Account receivable balance trend
was in line with market expectations. A key area of improvement was
the 32% HoH drop in accounts receivables, which was a key concern
throughout 9M 2017.
● At the analyst presentation, management guided utilisation to
improve another 6% to 2,160 hours in FY18. New capacity target is
1.2GW, higher than 1GW in FY17. These should warrant another
year of strong growth for wind business (we forecast 20% output
growth), which has recorded 33% output growth in 2M 2018.
● On the policy side, management expects continuing policy support to Source: Company data.
reduce curtailment and improve subsidy payments. Subsidy Key guidance:
receivables should see further decline YoY with the implementation At the analyst presentation held on 13 March, LYP management
of green certificate scheme in FY18E. guided: (1) utilisation to improve from 2,035 hours in FY17 to 2,160
● However, effective borrowing cost may increase from 4.15% to 4.4%. hours in FY18E with lower curtailment rate (from 10% to 7%); (2) new
And because of this, we have cut our FY18-19E EPS and lowered capacity addition is targeted at 1.2GW (1GW in FY17); (3) subsidy
our DCF-based TP to HK$7.1. We believe valuation remains payments have improved and FY18 account receivables are expected
attractive on 0.7x FY18E P/B with continuing ROE recovery. to decline YoY; (4) effective borrowing cost in FY17 was 4.15% and is
likely to increase to 4.4% in FY18E; (5) mandatory trading of green
Bbg/RIC 916 HK / 0916.HK Price (13 Mar 18 , HK$) 5.56
Rating (prev. rating) O (O) TP (prev. TP HK$) 7.10 (7.50) certificate and renewable quotas’ scheme could be implemented in
52-wk range (HK$) 6.74 - 5.05 Est. pot. % chg. to TP 28 FY18E and the company believes subsidy receivables could see
Mkt cap (HK$/US$ mn) 44,682.3/ 5,699.7 Blue sky scenario (HK$) 10.00 further decline with the help of the scheme; and (6) the amount of
ADTO-6M (US$ mn) 10.1 Grey sky scenario (HK$) 5.00 market based transactions could achieve 20.5% of total output in
Free float (%) 41.6 Performance 1M 3M 12M FY18E with 20% tariff discount, similar to FY17.
Major shareholders China Guodian Absolute (%) 7.8 5.5 (17.0) Rising borrowing cost
Corporation 58.44% Relative (%) (2.8) (6.3) (65.9)
One reason that LYP has underperformed its key peer Huaneng
Year 12/16A 12/17A 12/18E 12/19E 12/20E
Revenue (Rmb mn) 22,304 24,592 27,977 29,308 30,667
Renewables (HNR) by ~5% YTD may be on concerns of refinancing
EBITDA (Rmb mn) 13,890 15,135 18,475 19,561 20,624 costs. LYP has actively pursued short-term financing in the past
Net profit (Rmb mn) 3,415 3,688 5,261 5,875 6,444 years, which has resulted in meaningful borrowing cost reductions
EPS (CS adj. Rmb) 0.42 0.46 0.65 0.73 0.80 (lower than HNR). However, with investors showing increasing
- Change from prev. EPS (%) n.a. n.a. (6.9) (6.7) 0 concerns on rising market interest rates (long-term debt more affected
- Consensus EPS (Rmb) n.a. n.a. 0.56 0.63 0.72
EPS growth (%) 18.6 8.0 42.6 11.7 9.7
by benchmark rate), LYP may face larger costs on refinancing. As the
P/E (x) 10.6 9.8 6.9 6.1 5.6 following table shows, LYP's short-term debt has reduced its
Dividend yield (%) 1.9 2.0 2.9 3.3 3.6 contribution in FY17 vs past few years, resulting in average borrowing
EV/EBITDA (x) 7.9 7.2 5.6 5.3 4.9 cost escalating, and the gap should likely reduce vs. Huaneng
P/B (x) 0.9 0.8 0.7 0.7 0.6 Renewables Corporation (HNR).
ROE (%) 8.6 8.5 10.9 11.2 11.2
Net debt(cash)/equity (%) 155.6 136.5 115.5 102.4 91.5 Figure 2: Short-term debt and borrowing costs
Note 1: ORD/ADR=10.00. Note 2: China Longyuan Power Group Corp Ltd is engaged in the design, FY15 FY16 1H17 FY17
development, construction, management and operation of wind farms in areas with wind resources % of short-term borrowing LYP 60% 59% 57% 46%
in the People’s Republic of China. The company is also engaged in the selling of electricity. HNR 38% 44% 43% n.a.
Click here for detailed financials Total effective borrowing cost* LYP 4.60% 3.95% 4.20% 4.15%
FY17 results highlights: HNR 5.40% 4.60% 4.40% n.a.
After market close on 12 March, Longyuan Power (LYP) reported Note: Calculated based on total borrowing cost before capitalization, Source: Company data
FY17 results. Reported total profit to equity shareholders (Rmb3.85 Valuation
bn) increased by 8% YoY. Excluding one-off items (largely unrealised We have cut our FY18-19E EPS by 7% and lowered our DCF-based
FX gain/loss and derivative loss) adjusted recurring total profit of TP to HK$7.1 on higher borrowing cost forecasts. Our FY18E EPS is
Rmb4 bn increased by 9% YoY. Recurring profit is Rmb3.86bn, higher-than-consensus largely due to higher wind output growth
largely in line with Bloomberg consensus. By segment, wind operating forecasts (+20%), which we see given the 2M18 growth of 33%
profit increased by 20% YoY while coal power operating profit already. We also expect coal-fired earnings to recover in FY18E. We
declined by 50% YoY. Net finance expense increased by 16% YoY like both HNR and LYP, but we believe HNR has better risk-reward
(+4% in 1H 2017). Another key change is that total receivables with similar P/B valuation but higher ROE (16% vs 11% in FY18E)
(mostly subsidy receivables) came in at Rmb7.2 bn, meaningfully plus no exposure to coal-fired power.
lower than Rmb10.5 bn reported in 1H 2017. The delayed subsidy
payment has been investors' key concern last year and the
improvement was consistent with our earlier forecast.
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Asian Daily
Nexteer Automotive Group Limited -------------------------------- Maintain UNDERPERFORM
2H 2018 operating profit down 6% YoY—first drop since its IPO EPS: ▲ TP: ◄►
Bin Wang / Research Analyst / 852 2101 6702 / bin.wang@credit-suisse.com
Carrie Jiang / Research Analyst / 852 2101 6723 / carrie.jiang@credit-suisse.com
Nick Li / Research Analyst / 852 2101 6704 / nick.li.3@credit-suisse.com
● In-line with consensus estimate, Nexteer's 2017 net profit rose 19% Figure 1: USA Marketing Promotions Cost by auto group
YoY to US$352 mn. As revenue and gross profit were flat YoY, 2M2018 2M2017 YoY
earnings growth mainly came from the USA federal corporate tax
rate reduction from previous 35% to 21%, which led to US$ 39 mn Industry 3,716 3,528 5.3%
(or 11% total earnings) one-time deferred tax re-measure gains. GM 5,122 4,882 4.9%
● We highlight its 2H18 operating profit, which declined 6% YoY—first Ford 4,120 4,071 1.2%
drop since its IPO, due to falling operating margin (down 0.5 pp YoY Chrysler 4,331 4,293 0.9%
to 9.9%). Company attributed it to (1) reduced selling price in both
Toyota 2,517 2,244 12.2%
North America and Asia Pacific, (2) US$ 9.53 mn PPE impairment
loss for PSA/GM-Opel deal program cancellation. Honda 1,779 1,984 -10.3%
● Looking ahead, Nexteer's revenue growth remained challenging as Nissan 4,133 4,041 2.3%
its 2017 year-end order backlog fell 6.6% YoY to US$23.9 bn. This is
Hyundai 2,451 2,264 8.2%

due to the falling market-wide light vehicle demand in the US, i.e.,
Kia 3,831 2,814 36.1%
Feb-2018 sales down 2.5% YoY after 2% YoY drop in full year 2017.
VW 3,844 3,764 2.1%
● Margin outlook is a concern due to car makers' rising requests for
more supply price cuts. We have noticed incentive rise—US BMW 5,766 4,330 33.1%
market per unit incentive is up 5.3 YoY in 2018's first two months. Source: autodata.
Bbg/RIC 1316 HK / 1316.HK Price (13 Mar 18 , HK$) 16.40 Figure 2: USA light vehicle industry sales growth YoY
Rating (prev. rating) U (U) TP (prev. TP HK$) 10.30 (10.30)
000 Unit
52-wk range (HK$) 20.0 - 10.8 Est. pot. % chg. to TP (37) 5,000 7.9% 8.2% 10%
Mkt cap (HK$/US$ mn) 41,084.4/ 5,240.8 Blue sky scenario (HK$) 13.00 4,500 5.7% 6.2%
ADTO-6M (US$ mn) 13.3 Grey sky scenario (HK$) 9.00 4,000 3.7% 5%
Free float (%) 32.9 Performance 1M 3M 12M 3,500 0.5%
Major shareholders Pacific century Absolute (%) 3.4% -1.1%
2.4 (11.5) 52.4 3,000 1.3% -0.9% 0%
motors (China) Relative (%) (8.0) (23.1) 3.8 2,500 -0.3% -3.1%
Year 12/16A 12/17A 12/18E 12/19E 12/20E 2,000
-1.9% -5%
Revenue (US$ mn) 3,842 3,878 4,135 4,158 4,191 1,500
EBITDA (US$ mn) 578.1 611.8 688.4 721.3 754.9 1,000 -10%
Net profit (US$ mn) 294.7 351.8 369.5 373.6 378.5 500
EPS (CS adj. US$) 0.12 0.14 0.15 0.15 0.15 0
-11.5%
-15%
- Change from prev. EPS (%) n.a. n.a. 0.3 5.4 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- Jan-
- Consensus EPS (US$) n.a. n.a. 0.16 0.19 15 15 15 15 16 16 16 16 16 17 17 17 17 Feb
EPS growth (%) 43.5 18.9 5.0 1.1 1.3 Total USA light vehicle Sales
18
YoY
P/E (x) 17.7 14.9 14.2 14.1 13.9
Source: Wardsauto.
Dividend yield (%) 1.1 1.3 1.4 1.4 1.4
EV/EBITDA (x) 9.2 8.4 7.2 6.5 5.9
P/B (x) 4.9 3.7 3.1 2.6 2.3 Figure 3: Nexteer order backlog (Order to Delivery) trend vs share price
ROE (%) 31.2 28.6 23.8 20.2 17.6
Net debt(cash)/equity (%) 7.2 (8.1) (17.8) (26.5) (34.3) 32
Note 1: Nexteer Automotive is a global leader in automobile steering and driveline systems and
components. The company mainly focus on North America which contributed 66% total revenue in 30
2015. GM, Ford and Fiat-Chrysler are Nexteer's top three customers.
Click here for detailed financials 28
26.2
Reiterate UNDERPERFORM rating because of our conservative 26 US$ bn
25.6
outlook in terms of both revenue and margin. Margin outlook is a 24.0 24.0 24.0 23.9
concern due to car makers' rising requests for more supply price cuts. 24 23.7
Car makers generally squeeze suppliers’ of parts in a downturn. We

have noticed incentive rise—US market per unit incentive is up 5.3 22
YoY in 2018's first two months. We slightly revised up our 2018-19 20

EPS estimates with a lower income tax rate assumption, as we try to 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
factor in the US federal corporate tax rate reduction. Source: Company data, the BLOOMBERG PROFESSIONAL™ service
- 18 of 45 -
Asian Daily
Qudian Inc. --------------------------------------------------------------------- Maintain OUTPERFORM
4Q17 weakness well-expected; eye on cash loan recovery and auto finance potential EPS: ▲ TP: ▲
Thomas Chong / Research Analyst / 852 2101 6164 / thomas.chong@credit-suisse.com
● QD reported Rmb540 mn net income for 4Q17 (+80% YoY), consumption credit later this year. This, in our view, is faster than the
slightly above consensus. Its FY17 net income increased 2.75x industry and reflects QD’s nimble strategy when facing challenging
YoY on strong loan volume growth and operating leverage. situations and effective risk assessment capabilities.
● Earnings declined 17% QoQ in 4Q17 due to sharp increase in Besides, QD has also found solutions for regulatory constraints on the
impairment charges and proactive loan volume control amid funding side. By cooperating with third-party guarantee companies in
industry credit crunch. However, we expect recovery around the off-balance-sheet operation, QD managed to retain all existing funding
corner, as QD’s delinquency for credits facilitated in January partners with moderate funding cost increase (QD expects 50-100 bp
stabilised and the company suggests consumption credit to return increase). This eases market concerns that the funding side could
to a stable growth track later this year. limit further scale expansion.
● The newly established auto finance business is expected to make Auto finance gaining momentum
profit this year, with over 100,000 cars leased out, according to QD tapped into the auto finance business in 4Q17 and moved quickly:
corporate guidance. We believe transformation towards auto by the end of January 2018, it established 175 branches nationwide
finance supports the re-rating (Yixin trades at 26x 2018E P/E). and cumulatively leased out over 4,800 cars as of 10 March 2018.
● We revise up 2018E/19E net income by 3%/8% to reflect the higher After five-months testing of operations, it plans to accelerate the
spread in off-balance-sheet operations and better operating cost conversion of existing users to auto finance customers from 2Q18,
control. This leads to our new TP of US$20.0 (from US$16.5), which and targets over 100,000 car sales this year.
implies 17x 2018E P/E. QD trades at 14x 2018E P/E. We believe QD is competitive in three aspects: (1) its large user base –
Bbg/RIC QD US / QD.N Price (13 Mar 18, US$) 15.85 its registered users number reached 62.4 mn by end-2017; (2) its strong
Rating (prev. rating) O (O) [V] TP (prev. TP US$) 20.00 (16.50) capital position – QD completed IPO in 4Q17 and had around Rmb7 bn
52-wk range (US$) 34.9 - 11.5 Est. pot. % chg. to TP 26 cash in hand; and (3) solid execution capabilities – it established a
Mkt cap (US$ bn) 5,228.3 Blue sky scenario (US$) 23.60
ADTO-6M (US$ mn) 23.3 Grey sky scenario (US$) 14.60 comprehensive brick-and-mortar auto finance network in less than four
Free float (%) 13.1 Performance 1M 3M 12M months. This supports quick development in auto finance and QD
Major shareholders Qufenqi Holding Absolute (%) 21.5 13.4 — expects auto finance to turn profitable within the first year of operation.
Limited Relative (%) 11.3 1.9 —
Year 12/16A 12/17A 12/18E 12/19E 12/20E A smooth transformation towards auto finance, which has strong
Pre-prov Op profit (Rmb bn) 0.85 3.03 4.14 6.26 7.24 demand and low regulatory risk, could drive a re-rating. For example,
Net profit (Rmb bn) 0.6 2.2 2.5 3.9 4.7 Yixin, an online auto finance platform, trades at 26x 2018E P/E, while
EPS (CS adj. Rmb) 7.3 17.1 7.3 11.6 14.0 QD trades at 14x 2018E P/E.
- Change from prev. EPS (%) n.a. n.a. 3 8
- Consensus EPS (Rmb) n.a. n.a. 7.4 10.7 17.3 We revise up 2018E/19E net income by 3%/8% to reflect higher loan
EPS growth (%) n.m. 135.5 (57.1) 57.5 20.7 facilitation income and better operating cost control. This leads to our
P/E (x) 13.8 5.9 13.7 8.7 7.2 new TP of US$20.0 (from US$16.5), which implies 17x 2018E P/E.
Dividend yield (%) 0 0 0 0 0
BVPS (CS adj. Rmb) (43.3) 75.5 35.4 47.0 61.0 Figure 1: Results snapshot
P/B (x) (2.32) 1.33 2.83 2.13 1.65 4Q16 3Q17 4Q17 YoY QoQ
ROE (%) (11.5) 70.8 23.1 28.0 25.8 Finance income 612 1,054 1,061 73% 1%
ROA (%) 11.8 16.3 10.2 9.9 7.5
Sales commission fee 80 295 251 212% -15%
Tier 1 ratio (%) — — — — —
Note 1: Qudian Inc. is a leading provider of online small consumer credit in China. It uses big data-
Revenue from sales-type leases 0 0 26 NA NA
enabled technologies, such as artificial intelligence and machine learning, to transform the Penalty fees 2 1 4 132% 144%
consumer finance experience in China. Loan facilitation income 22 101 149 587% 48%
Click here for detailed financials Total revenue 716 1,451 1,491 108% 3%
Disruptive period in cash loan may end soon Cost of revenue (112) (259) (305) 173% 18%
QD reported Rmb540 mn net income for 4Q17, up 80% YoY due to Operating expenses (181) (292) (196) 8% -33%
strong loan volume growth (+69% YoY) and operating leverage. This Impairment charges (64) (207) (442) 591% 114%
Operating profit 359 694 548 53% -21%
is 1% above consensus and largely in line with our forecasts.
Net income 300 651 540 80% -17%
However, 4Q17 net income declined 17% QoQ due to a sharp Operating profit margin 50% 48% 37% NA NA
increase in impairment charges (+114% QoQ) and proactive loan Net income margin 42% 45% 36% NA NA
volume control, as tightened regulations and the forced departure of Source: Company data, Credit Suisse estimates
non-compliant platforms deteriorated borrowers’ liquidity condition and
led to industry credit crunch. We expect the impact to last in 1Q18 but
it is likely to diminish in the next quarter, as the company mentioned in
the briefing call that its initial delinquency for new credits facilitated in
c.2M18 has already gone back to the level prior to the credit crunch,
which enhances its confidence to resume a stable growth track in
- 19 of 45 -
Asian Daily
Wanhua Chemical --------------------------------------------------------------------Maintain NEUTRAL
FY17 NP +203% YoY, payout up to 37%; downside risk to MDI prices as supply disruption recedes EPS: ◄► TP: ◄►
Horace Tse / Research Analyst / 852 2101 7379 / horace.tse@credit-suisse.com
Beatrice Lam / Research Analyst / 852 2101 7693 / beatrice.lam@credit-suisse.com
Andy Li / Research Analyst / 852 2101 6197 / andy.li@credit-suisse.com
● Wanhua Chem’s FY17 net profit was up 203% YoY to Rmb11.1 bn, spite of weaker margins (-5 pp). The Specialty & New chemicals
slightly ahead of its previous profit alert. 4Q17 earnings retreated 5% segment saw stronger earnings, thanks to new revenue streams in
QoQ as a result of the one-month maintenance turnaround at its wake of its IPDI and HDI plant start-up.
Ningbo plant, plus MDI price correction in 4Q17. FY17 dividend
Figure 1: Wanhua Chemical—FY17 results summary
payout was raised to 37% (FY16: 31%), implying 4% dividend yield.
(RMB mn) 2017 2016 YoY (%) 4Q17 QoQ (%)
● All three segments registered revenue improvement of 32-148% Revenue 53,123 30,100 76% 14,160 -3%
YoY. The PU segment rode on the MDI price rally (+59-95% YoY). Gross profit 21,090 9,355 125% 5,889 3%
The Petrochemical segment witnessed higher utilisation, in spite of Polyurethane (PU) 16,530 6,669 148%
weaker margins. The Specialty & New Chemicals segment saw Petrochemical 1,910 1,173 63%
stronger earnings, thanks to new revenue streams (IPDI, HDI). Specialty & New Chemicals 1,322 1,002 32%
Others 1,328 511 160%
● 1Q18 polymeric MDI prices retreated to Rmb24k/ton from Gross margin (%) 40% 31% 8.6pp 42% 2.2pp
Rmb29k/ton in 4Q17, and we expect further downside to MDI Polyurethane (PU) 60% 49% 11.2pp
prices rest of the year amid hefty capacity additions (545ktpa, 6% Petrochemical 19% 24% -5.0pp
of world total). In our model we assume MDI prices to average to Specialty & New Chemicals 35% 41% -5.3pp
Rmb25k/ton in 1H18 and further retreat to Rmb20k/ton in 2H18. Others 39% 26% 12.4pp
Net profit 11,135 3,679 203% 3,324 13%
● We leave our earnings forecasts and TP unchanged given asset Net margin (%) 21% 12% 8.7pp 23% 3.2pp
restructuring of its parent co is ongoing. Maintain NEUTRAL. EPS (Rmb) 4.1 1.7 139% 1.2 13%
Dividend 4,101 1,139 260%
Bbg/RIC 600309 CH / 600309.SS Price (13 Mar 18, Rmb) 37.94 Payout ratio (%) 37% 31% 5.9pp
Rating (prev. rating) N (N) TP (prev. TP Rmb) 40.00 (40.00) Source: Company data, Credit Suisse estimates
52-wk range (Rmb) 43.5 - 21.9 Est. pot. % chg. to TP 5
Mkt cap (Rmb/US$ bn) 103.7/ 16.4 Blue sky scenario (Rmb) 48.00 Figure 2: MDI trend and our forecasts
('000 Rmb/ton)
ADTO-6M (US$ mn) 287.6 Grey sky scenario (Rmb) 32.00 40 Historical CS Base Case
Free float (%) 48.8 Performance 1M 3M 12M 35 Forecasts
Major shareholders Wanhua Industrial Absolute (%) — — 70.2 30
Group (47.92%) Relative (%) (7.5) (1.9) 50.8 25
20
Year 12/16A 12/17A 12/18E 12/19E 12/20E 15
Revenue (Rmb mn) 30,100 53,123 58,476 66,941 71,259 10
EBITDA (Rmb mn) 9,072 19,916 17,005 16,005 17,031 5
CSE
Jul- 18 CSE
Net profit (Rmb mn) 3,679 11,135 7,600 6,942 7,509 Jan- 16 Jul- 16 Jan- 17 Jul- 17 Jan- 18
1H18 2H18
EPS (CS adj. Rmb) 1.70 4.07 2.78 2.54 2.75 Pure MDI price Polymeric MDI price CSE Pure CSE Polymeric
- Change from prev. EPS (%) n.a. n.a. 0 0 Source: Wind, company data, Credit Suisse estimates
- Consensus EPS (Rmb) n.a. n.a. 4.07 4.42
EPS growth (%) 128.6 139.4 (31.7) (8.7) 8.2 MDI prices could see further downside as supply disruption
P/E (x) 22.3 9.3 13.6 14.9 13.8 recedes
Dividend yield (%) 1.4 4.0 2.2 2.0 2.2 Polymeric MDI prices retreated from historical high levels of
EV/EBITDA (x) 13.6 6.1 6.2 5.9 4.8 Rmb29k/ton in 4Q17 to Rmb24k/ton in 1Q18, while pure MDI prices
P/B (x) 5.6 4.2 3.5 3.0 2.7
shot up from Rmb30k/ton to Rmb34k/ton. Overall, prices remained
ROE (%) 28.0 56.2 27.8 21.7 20.5
Net debt (cash)/equity (%) 108.5 60.6 2.5 (21.6) (44.5) resilient as regional supply stayed tight following a string of unplanned
Note 1: The company is primarily engaged in research and development, production and sales of outages (~6% of global capacity was down in 4Q17-1Q18) and lower
polyurethane products, such as isocyanates (MDI). Other business segments include utilisation in China. China MDI plants have lowered utilisation since
petrochemicals, performance solutions and specialty chemicals.
Click here for detailed financials November 2017 due to winter gas shortage, as gas supply to MDI
FY17 net profit up 203% YoY, dividend payout raised to manufacturers was affected due to gas being prioritised for residential
37% (4% dividend yield) & heating. As China’s gas shortage is coming to an end and
Wanhua Chemical’s FY17 net profit surged 203% YoY to Rmb11.1 production issues at Kumho Mitsui Chemicals and BASF are likely to
bn, slightly ahead of the Rmb10.6 bn guidance (+189% YoY) in the be resolved soon, the increased MDI supply in the market could put
company’s previous profit alert. 4Q17 earnings slightly abated 5% pressure on MDI prices. Our FY18 pure/polymeric MDI price forecasts
QoQ—the first sequential decline since 1Q16—as PU earnings were stand at Rmb23/22k/ton, expecting prices to average to Rmb25k/ton
affected by the one-month maintenance turnaround at its Ningbo No.1 in 1H18 and further retreat to Rmb20k/ton in 2H18.
and No.2 plant (1,200ktpa), as well as the MDI price correction in
4Q17. Wanhua raised its FY17 dividend payout ratio to 37% (from
31% in FY16), implying a 4% dividend yield.
All three segments logged revenue improvement of 32-148% YoY in
2017. The PU segment rode on the MDI price rally, which sent
pure/polymeric MDI prices up 59%/95% YoY in 2017. The
Petrochemical segment witnessed a higher utilisation (CSe: +11 pp) in
- 20 of 45 -
Asian Daily
Hong Kong
Hong Kong Electric Investments ----------------------------------- Maintain UNDERPERFORM
FY17 results in line; yield appeal no longer attractive EPS: ▲ TP: ◄►
Dave Dai, CFA / Research Analyst / 852 2101 7358 / dave.dai@credit-suisse.com
Gary Zhou, CFA / Research Analyst / 852 2101 6648 / gary.zhou@credit-suisse.com
Gloria Yan / Research Analyst / 852 2101 7369 / gloria.yan@credit-suisse.com
● On 13 March, Hong Kong Electric (HKE) released FY17 results Figure 1: Details of HKE's dividends distribution
with total distributable income of HK$3,538 mn (flat YoY), in line (HK$mn) FY16 FY17
with market expectation. Full-year DPS also came in line at Net profit 3,341 3,599
HK$0.40 per share (flat YoY). 1) eliminating the effects of adjustments* 5,178 4,520
2) +/(-)
● Given the rising US 10-year bond yield environment (currently at movement in Fuel Clause Recovery Account -1,317 1,805
~2.9%), we believe HKE has lost its yield appeal with only 2.5% changes in working capital 191 206
spread (based on FY18E yield), close to its historical low (2.4%) employee retirement benefit schemes 15 26
and much lower than its historical average (4.2%). taxes paid -797 -1,154
3) - capital expenditure -2,503 -2,760
● Moreover, with the new HK regulated return cut from 9.99% to 4) - finance costs payment net interest income -842 -8,609
8%, we expect HKE's distributable income to fall by ~30% in 2019 5) - reserve adjustment 272 5,905
given its 100% earnings exposure to Hong Kong. Its dividend yield Total distributable income 3,538 3,538
may fall further to 3.9% in FY19E (vs. 5.4% in FY18E). Distribution amount 3,538 3,538
Dividend per SSU (HK$ cent) 40.04 40.04
● Our earnings forecasts are largely unchanged and our DCF-based
Source: Company data. * Mainly includes 1) transfers to/from tariff stabilization fund
target price is HK$5.6 (unchanged). Among the HK utilities space, under SOC, 2) depreciation and amortization, other non-cash charges, etc.
we prefer CKI Holdings (CKI) with the strongest growth outlook
The expected commission dates for two new gas-fired power units
driven by M&A and we expect the company to have continuing
(L10 & L11) under construction are unchanged in 2020 and 2022. The
dividend growth in FY17. CKI is scheduled to report on 16 March.
company’s oldest coal-fired unit (L1) has been retired in May 2017,
Bbg/RIC 2638 HK / 2638.HK Price (13 Mar 18 , HK$) 7.35 and HKE expects its other coal-fired units to be generally replaced
Rating (prev. rating) U (U) TP (prev. TP HK$) 5.60 (5.60) with gas-fired units towards the end of the next decade. Possible
52-wk range (HK$) 7.42 - 6.74 Est. pot. % chg. to TP (24) investment in an offshore LNG receiving thermal (together with CLP
Mkt cap (HK$/US$ mn) 64,946.1/ 8,284.6 Blue sky scenario (HK$) 8.10
Holdings) is pending for HK government approval, and may come into
Free float (%) 45.6 Performance 1M 3M 12M operation by end-2020 at the earliest.
Major shareholders Power Assets 49.9% Absolute (%) 3.1 2.5 6.2 Loss in yield appeal. With US 10-year bond yield currently at ~2.9%,
Relative (%) (4.0) (5.6) (26.4)
Year 12/16A 12/17A 12/18E 12/19E 12/20E HKE’s yield premium (based on FY18E dividend yield) has narrowed
Revenue (HK$ mn) 11,420 11,693 11,643 10,794 10,787 to 2.5%, close to its historical low (2.4%). Moreover, with the new
EBITDA (HK$ mn) 7,971 8,102 8,139 7,221 7,140 Scheme of Control (SoC) agreement (covering late 2018 to Dec 2033)
Net profit (HK$ mn) 3,599 3,341 3,380 2,275 2,285
EPS (CS adj. HK$) 0.41 0.38 0.38 0.26 0.26
settled in April 2017, its permitted return will be cut to 8% (down from
- Change from prev. EPS (%) n.a. n.a. 0.0 0.1 (0.2) 9.99% currently). Given 100% earnings exposure to Hong Kong, we
- Consensus EPS (HK$) n.a. n.a. 0.39 0.28 expect HKE's distributable income to fall by ~30% in 2019, and
EPS growth (%) 0.2 (7.2) 1.2 (32.7) 0.5 dividend yield may fall further to 3.9% in FY19E.
P/E (x) 18.0 19.4 19.2 28.6 28.4
Dividend yield (%) 5.4 5.4 5.4 3.9 3.9 Maintain UNDERPERFORM. Our earnings are largely unchanged
EV/EBITDA (x) 13.1 12.9 13.0 14.7 15.0 and our DCF-based target price is HK$5.6 (unchanged). Among the
P/B (x) 1.3 1.3 1.3 1.3 1.3
ROE (%) 7.3 6.7 6.8 4.6 4.6 HK utilities space, we prefer CKI Holdings (CKI) with the strongest
Net debt(cash)/equity (%) 78.9 79.9 81.9 82.7 84.4 growth outlook driven by M&As and we expect the company to have
Note 1: HK Electric Investments engages in the generation, transmission, and distribution of continuing dividend growth in FY17. CKI is scheduled to report FY17
electricity in Hong Kong.
results on 16 March.
Figure 2: HKE—one-year forward dividend yield history
FY17 distributable income in line. On 13 March, Hong Kong Electric
(%)
(HKE) released FY17 results with total distributable income of 9.0
8.5% Avg+2SD
HK$3,538 mn (flat YoY), in line with market expectation. Revenue 8.0
7.5% Avg+1SD
increased slightly by 2% YoY mainly helped by 2% growth in 7.0
6.6% Avg
electricity sales. Finance cost dropped by 14% YoY (largely flat HoH 6.0
5.6% Avg-1SD
in 2H17), slightly better than expectation, possibly due to lower 5.0
4.6% Avg-2SD
average debt amount in 2017, slow interest rate hikes in Hong Kong 4.0
and some re-financing costs in FY16. Profit after tax increased by 6% Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17 Feb-18
Source: Bloomberg, Company data, Credit Suisse estimates.
while reported net profit dropped by 7% mainly due to larger SoC
transfers. FY17 capex was HK$2,929 mn, largely in line with our
expectation. Full-year DPS was unchanged YoY at HK$0.40 per share.
- 21 of 45 -
Asian Daily
Techtronic Industries -------------------------------- Assuming Coverage with OUTPERFORM
Solid result in line with expectation, with higher dividend payout ratio EPS: ◄► TP: ▲
Sophia Chang / Research Analyst / 852 2101 7763 / sophia.chang@credit-suisse.com
Edmond Huang, CFA / Research Analyst / 852 2101 6701 / edmond.huang@credit-suisse.com
● Sophia Chang assumes coverage of Techtronic Industries (TTI) products were the only weak spot with an 8% YoY decline, which
with an OUTPERFORM rating, given its leading position in power management attributed to change in strategy to gradually exit corded
tools market and margin expansion thanks to better product mix. product market.
Our target price of HK$57.7 based on DCF mythology implies
Upward margin trend remains
19.6x 2019E P/E. 2017 gross margin continued to expand by 49 bp YoY to 36.7%, while
● TTI reported 2017 net profit of US$471 mn, up 15.1% YoY, in line power tool margin grew to 10.0% from 2016’s 9.6%. Opex ratio stayed
with CS/street expectation. 2017 GPM continued to expand by 49 relatively stable at 28.2% thanks to good cost control. We believe in
bp YoY to 36.7%, while opex ratio stayed relatively stable at TTI’s ability to further expand its market share given its leading
28.2% thanks to good cost control. position in power tool market, as its North America sales continued to
● 2017 revenue totalled US$6,064 mn, as power equipment grow at 11.2% YoY in 2017 with its No.1 share in the market. We
products registered 14.9% YoY growth with 21.7% YoY growth for expect TTI’s margin to continue to grow, thanks to improving products
Milwaukee and continuous double digit growth for Ryobi. Its North mix with products innovation, economic scale and excellent cost
America sales continued to grow at 11.2% YoY in 2017 with its management.
No.1 share in the market.

● We believe in TTI’s ability of margin expansion thanks to better Assume coverage with OUTPERFORM rating
product mix with new product innovation. Dividend pay-out ratio We assume coverage of TTI with OUTPERFORM rating and target
was raised from 28.8% in 2016 to 33.8% in 2017, well supported price of HK$57.7, based on DCF model rolling over to 2018. We keep
by strong cash flow and balance sheet. our positive view on the company as we expect further market share
expansion and improving profitability. TTI also retained its strong free
Bbg/RIC 669 HK / 0669.HK Price (13 Mar 18 , HK$) 48.50 cash flow, and announced to lift its dividend pay-out ratio to 33.8% in
Rating (prev. rating) O (O) TP (prev. TP HK$) 57.70 (51.70) 2017 vs 28.8% in 2016.
52-wk range (HK$) 52.5 - 29.3 Est. pot. % chg. to TP 19
Mkt cap (HK$/US$ bn) 89.0/ 11.4 Blue sky scenario (HK$) 60.00 Figure 1: TTI’s 2017 result overview
Free float (%) 72.5 Performance US$ mn 2H16 2H17 YoY 2016 2017 YoY
1M 3M 12M
Major shareholders Pudwill Family Absolute (%) Power Equipment 2,266 2,671 17.9% 4,471 5,138 14.9%
5.0 2.3 65.8
Relative (%) (2.1) (5.8) 33.2 Floor Care 528 513 -3.0% 1,010 928 -8.1%
Year 12/16A 12/17A 12/18E 12/19E 12/20E Turnover 2,795 3,182 13.9% 5,480 6,064 10.6%
Revenue (US$ mn) 5,480 6,064 6,580 7,260 8,026 COGS (1,778) (2,012) 13.1% (3,495) (3,837) 9.8%
EBITDA (US$ mn) 654 744 903 1,035 1,163 Gross profit 1,016 1,170 15.1% 1,985 2,226 12.1%
Net profit (US$ mn) 409.1 470.9 590.5 689.8 789.2 Other OP. income 3 3 10.2% 5 5 8.2%
EPS (CS adj. US$) 0.22 0.26 0.32 0.38 0.43 Interest income 8 7 -4.3% 12 11 -7.4%
- Change from prev. EPS (%) n.a. n.a. (0.1) 0 Selling expense (395) (495) 25.3% (794) (925) 16.5%
- Consensus EPS (US$) n.a. n.a. 0.31 0.36 Admin expense (299) (306) 2.1% (598) (624) 4.2%
EPS growth (%) 15.4 15.1 25.4 16.8 14.4 R&D costs (76) (86) 13.4% (147) (164) 11.1%
P/E (x) 27.8 24.2 19.3 16.5 14.4 EBIT reported 256 294 14.7% 462 530 14.8%
Dividend yield (%) 1.0 1.4 1.8 2.2 2.5 Finance expenses (10) (12) 21.9% (22) (24) 12.3%
EV/EBITDA (x) 17.7 15.3 12.1 10.2 8.6
Profit before tax 247 282 14.4% 440 505 14.9%
P/B (x) 4.7 4.1 3.6 3.2 2.8
Tax (15) (16) 7.9% (31) (35) 11.9%
ROE (%) 18.0 18.3 20.1 20.6 20.6
Net debt(cash)/equity (%) 8.3 2.2 (13.0) (23.7) (32.1) Minority interest 0 0 52.3% 0 0 15.1%
Note 1: ORD/ADR=5.00. Note 2: Techtronic is a world-class leder in design, manufacturing and Reported profit 232 266 14.8% 409 471 15.1%
marketing of power tools, accessories, hand tools, outdoor power equipment and floor care and Gross Margin 36.4% 36.8% 36.2% 36.7%
appliances for consumers, professional and industrial users. EBIT Margin 9.2% 9.2% 8.4% 8.7%
Click here for detailed financials Net margin 8.3% 8.4% 7.5% 7.8%
2017 preliminary results in line Source: Company data, Credit Suisse estimates
TTI reported 2017 net profit of US$471 mn, up 15.1% YoY on back of
revenue growth of 10.6%, in line with CS/consensus expectation.
2017 revenue totalled US$6,064 mn, as power equipment products
registered 14.9% YoY growth with 21.7% YoY growth for Milwaukee
and continuous double-digit growth for Ryobi. However, floor care
Valuation metrics
Company Ticker Rating Price
Target TP Up/dn Year EPS Chg EPS EPS grth (%) P/E (x) DY P/B Scenario
Chg to TP (%) (%) (x)
Techtronic 0669.HK O (O) 48.50 57.70 (51.70) 12 19 12/17 (0.1) 0 0.32 0.38 25 17 19.3 16.5 1.8 3.6 60.00 47.00
- 22 of 45 -
Asian Daily
India
India Market Strategy ------------------------------------------------------------------------------------------
New report: State Budgets #02: RJ a pre-election budget
Neelkanth Mishra / Research Analyst / 91 22 6777 3716 / neelkanth.mishra@credit-suisse.com
● Rajasthan has budgeted a slow 10% YoY increase in spending in Figure 2: FY15-18r fiscal deficit (ex-UDAY) > 3%
FY19b on a higher base (+22% in FY18r, 5% more than initially 10%
budgeted). Most of this increase was on salaries/pensions. Fiscal Deficit/GSDP UDAY
Receipts were better but fiscal deficit ratio slipped to 3.5% (higher 8%
than 3% for four years in a row now).
● The wage bill has more than doubled from FY16 to FY19b, rising 6%
30%/25% in FY18r/FY19b. The 7th Pay Commission and 27-38%
hikes to temporary workers means the bill is now 38% of 4%
expenses, vs 26% in FY16. This, together with the Rs80 bn farm
2%
loan waiver means no space to increase spending in other areas.
● AT&C losses are down to 24.4% from 26% YoY, and the tariff- 0%
cost gap has shrunk to Rs0.26/kwh from Rs0.29/kwh a year back 2010 2011 2012 2013 2014 2015 2016 2017 2018r 2019b
(still higher than targets). After electrifying 2.4 mn new households Source: Budget Documents, Credit Suisse estimates.
in the last four years, 1 mn houses are targeted in FY19. Some improvement on UDAY goals, but below target
● The state is also trying to improve procurement of foodgrains, but AT&C losses are down to 24.4% from 26% YoY, and the tariff-cost gap
the quantum achieved is still small. Rajasthan intends to has shrunk to Rs0.26/kwh from Rs0.29 a year back. But these are still
outsource front-office functions of its motor-vehicles/driving meaningfully higher than the targets of 16% and Rs0.20 respectively.
licenses, like the central government's passport centres. After electrifying 2.4 mn new households in the last four years (0.6
mn/yr), 1 mn houses are targeted in FY19, but the budgetary allocation
Figure 1: Slower spending growth in FY19 budget has been flat for six years. There has been good progress on rural
2.1 30% housing. The state is also trying to improve procurement of foodgrains,
RJ Govt. spend (INR tn) YoY
1.8 but the quantum achieved is still small. Rajasthan intends to outsource
25%
front-office functions of its motor-vehicles/driving licenses, like the
1.5
20% central government's passport centres.
1.2
15% Figure 3: Split of FY19b expenditure
0.9
Social Welfare Others Education
10%
0.6 7% 5% 19%
5% Power
0.3 7%
0.0 0% Health
2010 2011 2012 2013 2014 2015 2016 2017 2018r 2019b 7% Interest
Source: Budget Documents, Credit Suisse estimates. 12%
Slow spending growth in FY19b, fiscal slippage in FY18r Admin, Police
7%
Rajasthan has budgeted a slow 10% YoY increase in spending in Roads, Urban Pension
FY19b. This is however on a higher base: expenditure surged 22% in Dev 11%
8% Rural Dev
FY18r, 5% more than initially budgeted. Most of this increase was on Agri, Irrigation 9%
salaries/pensions. Receipts were better (more central transfers, own 8% Split of RJ's FY19b Spend - Rs 1.8tn
non-tax revenues) but fiscal deficit ratio still slipped to 3.5%; ex-UDAY Source: Budget Documents, Credit Suisse estimates.
deficits have been higher than 3% for four years in a row now. The 3%
deficit target for FY19b thus lacks credibility, though the receipt Figure 4: Split of FY19b incremental expenditure
assumptions appear reasonable. Education 36%
Pension, Police 34%
Poor quality of expenditure, electoral focus likely cause Agri, Irrigation 19%
Health 12%
The wage bill (salary + pensions) has more than doubled from FY16 Interest 10%
Admin 4%
to FY19b, rising 30% in FY18r (12% more than budgeted) and 25% in Water 3%
FY19b. The 7th Pay Commission and 27-38% hikes to temporary Industry 2%
Urban Dev 2%
workers have meant the bill is now 38% of expenses, vs 26% in FY16. Social Welfare 1%
Housing 0%
This, together with the Rs80 bn farm loan waiver, means no space to Power Subsidy 0% % contribution to incremental
increase spending in other areas. With the state planning to hire 108k Roads -1% spend in FY19b
Power -5%
workers by Dec-2018 (i.e. the next elections), an increase of 13.5%, Rural Dev-17%
FY20 could see another sharp increase. The absolute fiscal deficit is -20% -10% 0% 10% 20% 30% 40%
expected to be down to Rs11 bn in FY19b, but net bond issuance is Source: Budget Documents, Credit Suisse estimates.
budgeted to rise to Rs41 bn in FY19b, to Rs221 bn.
- 23 of 45 -
Asian Daily
India Cement Sector -------------------------------------------------------------------------------------------
Double hit: Sharply higher cost and weak prices
Anubhav Aggarwal / Research Analyst / 91 22 6777 3808 / anubhav.aggarwal@credit-suisse.com
● Mar-2018 quarter is impacted by higher costs (Petcoke up 8% Figure 2: Cement prices have declined over past two quarters
QoQ and freight up 8-9% QoQ) but prices are flattish QoQ and
120
thus impacting margins. Demand is not yet robust (weak infra and
weak urban housing) and high supply pressure (JPA ramp-up and
new capacities) is impacting prices. Players typically push high 115
volumes in 2H of March and prices could further be impacted.
● Spot Petcoke prices are 20% higher than Dec-2017 quarter (8% 110
higher QoQ on average). The increase is due to higher import duty
and strong petcoke prices in international market. Full impact of
Petcoke will be felt in 1Q19 as prices increased from 1 March 2018. 105
● Truck rentals have also increased by 8-9% QoQ due to (a) higher
diesel prices, and (b) higher utilisation due to stronger movement 100
of agri products. Combined impact of higher freight and petcoke is
Rs 125/t QoQ and on spot petcoke, the hit is Rs 220/t.
95
● The supply pressure is high for the sector over the next two years
at 5-6% CAGR and should limit meaningful increase in utilisation
and delay in the margin expansion, which the stocks are already 90
factoring in. We stay cautious on the sector. Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18
Valuation metrics India Cement prices (indexed)

Company Ticker Rating Price Target P/E (x) P/B (x)
Local price FY19 FY20 FY18 Source: Company data, Credit Suisse research.
Ultratech Cement ULTC.BO U 4,164.8 3,500 26.6 21.1 4.3 Cement prices running weak (flattish QoQ)
Ambuja Cements ABUJ.BO U 239.20 220.00 24.8 19.5 2.3
ACC ACC.BO N 1,575.85 1,300 21.3 18.5 3.4
The demand is not yet robust (weak infra and weak urban housing)
Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM and high supply pressure (JPA ramp-up + new capacities) is
Source: Company data, Credit Suisse estimates impacting prices. Cement prices have declined both in Feb-2018 and
Figure 1: Spot Petcoke prices 20% higher than Dec-2017 quarter avg. Mar-2018 on MoM basis. Players typically push high volumes in 2H of
March and prices could further be impacted.
10,000 Petcoke INR/t
9,000 High supply pressure over next two years to check margin
8,000 expansion
7,000 The supply pressure is high for the sector over the next two years at
6,000 5-6% CAGR and should limit meaningful increase in utilisation and
5,000 delay in the margin expansion, which the stocks are already factoring
4,000 in. Additionally, there is further supply pressure from ramp-up of
3,000 Binani Cement and recently acquired assets by Dalmia (KalyanPur
2,000
Cement and Murali) and these capacities together account for about
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18
2% of system capacities. We stay cautious on the sector.
Source: Company data, Credit Suisse research.

Sharp increase in Petcoke and freight costs in 4Q18
Spot Petcoke prices are 20% higher than Dec-2017 quarter (8%
higher QoQ on average). The increase is due to higher import duty
and strong petcoke prices in international market. The increase is
despite the fact that petcoke is not allowed now in the power plants.
Full impact of Petcoke will be felt in 1Q19 as prices increased by Rs
600/t from 1 March 2018.
Truck rentals have also increased by 8-9% QoQ due to (a) higher
diesel prices, and (b) higher utilisation due to stronger movement of
agri products. Combined impact of higher freight and petcoke is Rs
125/t QoQ and on spot petcoke, the hit is Rs 220/t. Typically, volumes
are higher in the March quarter and this leads to better utilisation of
fixed costs. This time, however, higher variable costs sequentially
should only lead to marginal increase in EBITDA/t in March 2018
quarter.
- 24 of 45 -
Asian Daily
India Capital Goods Sector ----------------------------------------------------------------------------------
Investment cycle pick-up—more optimism; data points better but not entirely conclusive
Lokesh Garg / Research Analyst / 91 22 6777 3743 / lokesh.garg@credit-suisse.com
Vaibhav Jain / Research Analyst / 91 22 6777 3968 / vaibhav.jain@credit-suisse.com
● We present thoughts on the investment cycle based on a collection Expect pick up but build likely to be gradual
of data points. While commentary from industrial companies as well We continue to expect a pick-up in investment cycle momentum after
as corporate commentary on select capex has improved, we find seven to eight years of slowdown, but build up is likely to be gradual.
that evidence of a cyclical build up is still very mixed.
Figure 1: FY18 growth rate has been better across variables
● Growth in several variables, e.g., steel, cement and pax vehicles, (%) FY13 FY14 FY15 FY16 FY17 FY12-17 FY18TD
remains modest. 2Ws, MH&CVs and exports are strong and may CAGR
be harbingers. A stronger commodity cycle would aid investments. Power demand 6.5 0.4 6.7 4.3 2.6 4.1 5.9
Steel consumption 3.4 0.8 3.6 4.6 3.7 3.2 5.3
● Within industrials, index of short cycle products and order inflows
Cement production 7.7 3.0 5.6 4.7 (1.0) 4.0 4.3
seem to have had modest growth. The only silver lining is
2W volumes 2.7 7.3 8.1 2.8 6.9 5.5 14.5
execution, growth at 15%+ versus low single digit in FY16-17. PV volumes 2.4 (6.7) 4.0 7.3 9.2 3.1 8.0
● We reiterate OUTPERFORM on (1) L&T – visible execution pick M&HCV - goods (25.8) (27.0) 21.0 31.9 (1.3) (3.1) 17.6
up, steadier margins across segments, operating leverage, Middle Diesel consumption 6.7 (1.0) 1.5 7.5 1.8 3.3 6.5
East risk seem lower and could be an opportunity incrementally, IIP 1.2 3.3 4.1 3.3 4.6 3.3 4.1
and strong cash flows, (2) Cummins – expect traction in domestic Exports (ex oil, gems) (4.1) 7.1 1.0 (9.5) 3.9 (0.5) 13.9
Source: CMIE, SIAM, JPC, CS research
and exports with improvement in margins on low expectations, (3)
Voltas – Strong consumer play and improving project business, Figure 2: Short cycle products revenue growth still in single digits
(4) NTPC – yield pullback, lower earnings drag and capacity Short cycle products sales growth
addition, and (5) Sadbhav – strong execution and inflows in roads. 15.0 11.8
10.0 7.3 7.0 6.4 8.1
Valuation metrics 4.7 5.0
Company Ticker Rating Price Target Year P/E (x) P/B 5.0 2.9 3.9 3.8
1.6
(x) (1.6)
Local price T T+1 T+2 T+1 -
L&T LART.BO O 1,310 1,700 03/17 26.7 23.0 2.9 (0.8)
(5.0)
Cummins India CUMM.BO O 776.85 975.00 03/17 30.9 26.7 5.4
FY12
FY13
FY14
FY15
FY16
FY17
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
Voltas VOLT.BO O 638.50 700.00 03/17 35.6 30.7 6.7
NTPC NTPC.BO O 171.00 190.00 03/17 15.5 12.7 1.4
Sadbhav Engg. SADE.BO O 386.75 480.00 03/17 34.9 27.8 3.6 Source: Company data, Credit Suisse research
Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Figure 3: Capital goods sector’s order inflows yet modest
Better commentary but evidence still mixed Order inflow (Rs bn) Two qtr. moving avg. - YoY growth [%, RHS]
We present thoughts on the investment cycle based on a collection of 100 20
data points. While commentary from industrial companies (e.g. ABB, 75 10
Thermax) as well as corporate commentary on select capex has 50 0
improved (Tata Steel, JSW, Ultra-tech etc.) we find that evidence of a
25 -10
cyclical build up is still very mixed.
- -20
Two wheelers, MH&CVs and even power demand to some extent
Mar-15
Jun-15
Mar-16
Mar-17
Jun-17
Sep-14
Dec-14
Sep-15
Dec-15
Jun-16
Sep-16
Dec-16
Sep-17
Dec-17
suggest improvement. However steel, cement, passenger vehicles
seem to have relatively modest momentum as of now. Data for capital goods order inflows ex L&T, BHEL Source: Company, CS research.
Industrial sector data points also quite sedate till now Figure 4: Construction sector execution has picked up however
Our index of short cycle industrials (aggregate of reported performance
for products such as bearings, engines, compressors etc. reported by 40%
Construction sector revenue growth (%, RHS)
companies such as ABB, Cummins, SKF and Kennametal etc.) was up 20%
in just low single digits on a YoY basis in 2Q and 3Q FY18. Aggregate
0%
order inflow for industrial companies (e.g., ABB, Siemens, Thermax as a
combination) also seemed modest for 3Q FY18. -20%
1Q14
4Q14
3Q15
2Q16
1Q17
4Q17
3Q18
2Q14
3Q14
1Q15
2Q15
4Q15
1Q16
3Q16
4Q16
2Q17
3Q17
1Q18
2Q18
Execution improvement seems more broad based

The only silver lining is that execution has improved across the sector. Source: Company data, Credit Suisse research
We highlight 15%+ growth in aggregate revenues of 12 construction
companies in 1Q FY18 and 3Q FY18 versus low single digit growth in
FY17. Construction sector (incl. L&T) and order inflow seem to have
revived in the last two months. This trend is visible in L&T as well.
- 25 of 45 -
Asian Daily
Indonesia
Indonesia Banks Sector ---------------------------------------------------- Maintain OVERWEIGHT
New report: Mid-teen EPS growth despite modest margin compression; green shoots in loan demand
Sanjay Jain / Research Analyst / 65 6306 0668 / sanjay.jain@credit-suisse.com
Laurensius Teiseran / Research Analyst / 62 21 255 37931 / laurensius.teiseran@credit-suisse.com
Rikin Shah / Research Analyst / 65 6212 3098 / rikin.shah@credit-suisse.com
● That large banks gain while the smaller banks suffer a margin earlier, particularly loans and interbank assets. In loans, one reason
compression amid rising rates is well known. However, our latest for delayed repricing in BCA would be its mortgage book in which the
calculations indicate that Mandiri is now more sensitive and likely bank offer fixed rates for the first few years. As regards investment
to gain the most this time (not BCA). Our economists are book, more of BCA's is repriced earlier, likely on account of floating
forecasting stable policy rates this year, but next move will be up. rate bonds. On the liability side, BCA still has an advantage as it has
● We expect mid-teen earnings growth through 2018-19E. Credit bigger share of current/saving deposits where we assume the bank
costs in Indonesia are still elevated (138 bp of loans in 2017) will keep the rates unchanged for some time.
compared to normalised levels (which we estimate at 100-110 bp). Mid-teen EPS growth through 2018-19
In addition, loan growth seems to be tracking stronger in Jan-Feb. Although net interest margins may see some residual pressure in 1Q-
2Q18 from the 50 bp rate cuts of 3Q17, we believe falling credit costs
● With the last bank in our coverage (BCA) reporting FY17 results, should offset that. Indonesian banks' 2017 provisioning was 138 bp of
we tweak earnings by 4%/0% for FY18E/19E, introduce FY20
loans, still relatively elevated compared to our estimate of normalised

forecasts and revise target prices according to the new ROAs of 100-110 bp levels and we project a gradual decline over the next
FY18-19E. Mandiri remains our top pick. couple of years. On loan growth, we are assuming low-teen
● We also upgrade BTPN to OUTPERFORM from Neutral, which advancement, broadly matching the deposit growth; hence the 91%
should benefit, a la Bank of Ayudhya, from the merger of loan-deposit ratio should remain steady. Fee income should grow at
Sumitomo's Indonesian branch operations, opening a new lending high-single-digit level for most banks, with Mandiri and BNI potentially
segment (large Japanese corporates) when its own business outstripping that thanks to stronger loan-related fees. As regards
model has faced tremendous pressure in the past two years. operating costs, banks are expected to continue exercising tight
Figure 1: Mandiri has the biggest net re-pricing gap ex-CASA, and hence control and generally match revenue growth, with large four banks
should benefit the most from rising interest rates allowing expenses to increase by around 10% while smaller four
50
banks half of that. We forecast the three large state-owned banks to
32
Net re-pric ing gap ex-CASA (%) NIM sensitivity for a 50 bp increase in short term rates (bp)
deliver mid-teen EPS growth with Mandiri likely to be the best and
20
30 22
18 12
BCA the weakest. On dividends, Mandiri may increase the payout
7 10 8 7 ratio to 40-45% but it's not official yet.
10
3 Tweaking earnings, target prices; upgrading BTPN
-10
0 With the last bank (BCA) having reported 2017 results, we tweak the
-10
earnings by 4%/0% for 2018E/19E and update target prices based on
-30
-28 revised ROAs of FY18-19E. We upgrade BTPN to OUTPERFORM
-50
-20
-15
from Neutral based on the benefits it would enjoy from merger with
-48
-54
-22
-24 SMFG's Indonesia branch operations that will bring large corporate
-30
-70
BMRI BBCA BDMN BBRI BBTN BTPN BJBR BMRI BDMN BBCA BBRI BBTN BTPN BJBR (especially Japanese) business into the bank. Mandiri remains our top
Source: Company data, Credit Suisse estimates. pick (best earnings growth), followed by BRI (attractive valuations).
Margin sensitivity—a counter-intuitive discovery
Our latest sensitivity calculation has thrown up a twist—it is Mandiri
rather than BCA that is likely to gain more using end-2017 repricing
profile. It is attributable to more of Mandiri's assets being repriced
Valuation metrics
Company Ticker Rating Price Target TP Up/dn Year EPS Chg EPS EPS grth (%) P/E (x) DY P/B Scenario
Chg to TP (%) (%) (x)
Bank Mandiri BMRI.JK O (O) 8,175 9,600 (9,400) 2.1 17 12/17 6.7 (2.1) 525 631 19 20 15.6 13.0 1.9 2.1 12,000 5,760
Bank Central Asia BBCA.JK N (N) 23,450 26,200 (24,600) 6.5 12 12/17 3.9 0.6 1,041 1,178 10 13 22.5 19.9 1.0 3.9 34,060 18,340
Bank Negara BBNI.JK N (N) 9,250 10,300 (10,300) 0 11 12/17 5.6 6.7 825 987 12 20 11.2 9.4 2.2 1.6 12,875 8,755
Indonesia
Bank Rakyat BBRI.JK O (O) 3,760 4,400 (4,600) (4.3) 17 12/17 1.8 (1.1) 270 313 15 16 13.9 12.0 2.9 2.5 5,720 2,200
Bank Danamon BDMN.JK R (R) 6,850 — — 12/17 1.8 2.0 457 499 19 9 15.0 13.7 2.3 1.6 n.a. n.a.
Bank Tabungan BBTN.JK N (N) 3,750 3,600 (3,700) (2.7) (4) 12/17 3.1 2.7 340 394 19 16 11.0 9.5 1.8 1.6 4,680 1,600
Negara
BTPN BTPN.JK O (N) 3,390 4,900 (3,000) 63 45 12/17 8.5 9 348 390 67 12 9.7 8.7 — 1.0 6,400 3,400
Bank Jabar Banten BJBR.JK U (U) 2,180 1,800 (2,100) (14) (17) 12/17 (6.1) (9) 165 184 32 12 13.2 11.8 4.5 1.9 2,500 1,330
- 26 of 45 -
Asian Daily
PT Waskita Karya (Persero) Tbk ---------------------------------------- Maintain OUTPERFORM
Imminent toll roads stake sale & AGMS catalysts; baking in more moderate new contracts assumptions EPS: ▼ TP: ◄►
Ari Jahja / Research Analyst / 62 21 2553 7976 / ariyanto.jahja@credit-suisse.com
Endo Takashi / Research Analyst / 62 21 2553 7911 / endo.takashi@credit-suisse.com
● We've revised forecasts for WSKT post-results. Of note, our latest Figure 1: Sector recovery YTD is partly driven by potential rotation to
'18 EPS is ~10% lower than guidance but ~10% higher vs. cons. laggards; contractors among higher beta names with catalysts
So far management appears optimistic that at least one toll road 2017 2018
divestment can happen by mid-2018. 6 April Annual General Stock

12M17 new
contract
12M17 %
new contract
12M17
operating
12M17
debt to
YTD stock
New contract
guidance
2M18 % new
contract
Meeting of Shareholders (AGMS) will also be closely watched. performance achievement achievement
(Rp tn) vs. guidance
cashflow
(Rp tn)
equity (x)
performance*
(Rp tn)
achievement
vs. guidance
● 2Q18 toll roads stake sale catalyst could drive incremental upside. JSMR 48% n/a n/a 4.4 1.8 -20% n/a n/a
WSKT -13% 55.8 102% (6.0) 1.9 21% 70.0 n/a
The turnkey project payments to WSKT in 2H might have less PTPP -31% 41.0 101% 1.5 0.6 14% 49.0 11%
stock moving impact, in our view, per recent ADHI shares reaction WIKA
WTON
-34%
-39%
42.4
7.1
98%
101%
(2.7)
0.6
0.6
0.5
16%
9%
57.2
7.7
18%
16%
on LRT payment. Operating cash flow deficit came in larger-than- Total (ex. WTON)
JCI 20%
139.2 100%
1%
176.2
expected in '17 (-Rp6 tn per FS vs -Rp5.5 tn preliminary figure). * as of 13 Mar 2018
Note: WIKA new contract achievement as of mid-3M18, OCF as of 9M17. WSKT has
● Robust 2018 guidance reiterated post WSKT's 4Q17 EPS beat. not disclosed latest new contracts achievement. Source: RAVE, CS estimates.
However, we won't rule out revision possibility in light of widely
anticipated changes in the Board of Directors. We continue to Figure 2: Forecast changes summary. Baked in more conservative new
contract growth assumptions in 2018-19; EPS still above consensus
view WSKT as among the key agents in infra development. Old estimates New estimates
● '18 EPS is relatively unchanged vs previous, while '19 estimate

2017A 2018E 2019E 2018E 2019E
Total new contract (Rp bn) 55,834 63,507 60,408 60,016 56,415
declined by 10% on back of slower new contract assumptions.

% YoY growth -20.2% 13.7% -4.9% 7.5% -6.0%
Our TP is based on 10x '18 EPS, close to -1 stdev. After 21% rally Total Revenue (Rp bn)
% YoY growth
45,213
90.1%
54,153
19.8%
61,229
13.1%
50,887
12.6%
54,412
6.9%
YTD, cash flow progress would be crucial in addition to earnings. Gross Profit 9,464 9,693 11,082 10,682 11,590
% YoY growth 138.5% 2.4% 14.3% 12.9% 8.5%
Bbg/RIC WSKT IJ / WSKT.JK Price (13 Mar 18 , Rp) 2,680.00 Net income (Rp bn) 3,882 4,204 4,886 4,221 4,418
% YoY growth 126.6% 8.3% 16.2% 8.7% 4.7%
Rating (prev. rating) O (O) TP (prev. TP Rp) 3,100 (3,100)
52-wk range (Rp) 3110.0 - 1775.0 Est. pot. % chg. to TP 16 Margin analysis
Gross margin 20.9% 17.9% 18.1% 21.0% 21.3%
Mkt cap (Rp/US$ bn) 36,378.1/ 2.6 Blue sky scenario (Rp) 3,420 Net margin 8.6% 7.8% 8.0% 8.3% 8.1%
ADTO-6M (US$ mn) 5.2 Grey sky scenario (Rp) 2,350 Source: Credit Suisse estimates
Major shareholders Government of Absolute (%) Figure 3: Potential turnkey payments for WSKT; additional projects
(6.9) 38.1 12.6
Indonesia (66%) Relative (%) (5.5) 32.2 (5.9) include Palembang LRT (Rp4 tn) and PLN's transmission line (Rp6 tn)
Investment Contract value
Year 12/16A 12/17A 12/18E 12/19E 12/20E Toll roads with CPF scheme
value (Rp tn) (Rp tn)
Toll road operator Target completion
WTR toll roads

Revenue (Rp bn) 23,788 45,213 50,887 54,412 56,706 Pejagan-Pemalang 6.8 3.1 Pejagan Pemalang Toll Road Section 1 & 2 operating
Bekasi-Cawang-Kampung Melayu 7.2 1.5 Kresna Kusuma Dyandra Marga Section 1B & 1C operating
EBITDA (Rp bn) 3,200 7,393 9,139 9,917 10,489 Pasuruan-Probolinggo 3.0 3.2 Trans Jawa Paspro Jalan Tol 2018
Net profit (Rp bn) 1,713 3,882 4,221 4,418 4,503 Semarang-Batang
Cibitung-Cilincing
11.0
4.2
5.8
5.1
Jasamarga Semarang Batang
Cibitung Tanjung Priok Port Ways
2018
2019
EPS (CS adj. Rp) 126 286 311 325 332 Cimanggis-Cibitung
Krian-Legundi-Bunder-Manyar
4.5
12.2
4.2
3.2
Cimanggis Cibitung Tollways
Waskita Bumi Wira
2019
2019
- Change from prev. EPS (%) n.a. n.a. 0.4 (9.6) Kayu Agung-Palembang-Betung
Cinere-Serpong
14.4
2.2
7.0
2.2
Sriwijaya Markmore Persada
Cinere Serpong Jaya
2019
2020
- Consensus EPS (Rp) n.a. n.a. 269 305 415 Total 65.5 35.2
EPS growth (%) 39.9 126.6 8.7 4.7 1.9 Toll roads with CPF scheme Length (km)
Contract value
Toll road operator Target completion
(Rp tn)
P/E (x) 21.2 9.4 8.6 8.2 8.1 Other toll roads
Dividend yield (%) 0.3 1.4 3.2 3.5 3.6 Semarang-Solo

Terbangi Besar-Pematang Panggang-Kayu Agung
72.6
185.0
2.8
13.1
Trans Marga Jateng
Hutama Karya
2018
2018
EV/EBITDA (x) 14.6 8.8 8.0 7.4 6.9 Jakarta-Cikampek Elevated
Kunciran-Serpong
36.4
11.2
6.2
2.2
Jasa Marga Layang Cikampek
Marga Trans Nusantara
2019
2021
P/B (x) 3.3 2.6 2.1 1.8 1.6 Total 305.2 24.3
ROE (%) 16.6 31.0 27.2 23.7 20.7 Source: Credit Suisse estimates.
Net debt(cash)/equity (%) 61.2 126.8 138.7 123.8 105.8
Note 1: PT Waskita Karya (Persero) Tbk is a state-owned enterprise primarily engaged in the
Figure 4: WSKT trades at ~8.5x forward P/E; this compares to STDEV-1
construction industry. The company's main businesses are construction services, toll road, precast multiple of 8.7x and last 1-year average of 7.6x
sales, buildings rental, and property.
34.0x
2018 might be a peak new-contract year, but we see WSKT benefiting 29.0x
from imminent toll road catalysts. There could be Rp13 tn worth of 24.0x STDEV+2 = 23.6x
Waskita Toll Road's turnkey project payments, while those from other
12M Forward P/E
types might reach Rp3 tn. JSMR said they have earmarked Rp10 tn 19.0x
STDEV+1 = 18.7x
for the Semarang-Batang toll road turnkey project in 2H18. Moreover, 14.0x
Average = 13.7x
we won't be surprised if creative financing schemes such as the Current = 8.5x

2018E target
limited investment fund ("RDPT") would be pursued for the Trans Java 9.0x STDEV-1 = 8.7x
toll roads sub-holding, with read-throughs to WSKT and JSMR. 4.0x

STDEV-2 = 3.8x
Interestingly, management has looked into factoring (Rp9.1 tn A/R

Jan-13
Apr-13
Oct-13
Jan-14
Oct-14
Jan-15
Jan-17
Jan-18
Jul-13
Apr-14
Jul-14
Apr-15
Oct-15
Jan-16
Jul-15
Apr-16
Jul-16
Oct-16
Apr-17
Jul-17
Oct-17
from the Ministry of Transportation's pending payments for Palembang

Historical PE Average STDEV-1
LRT). On 2019—management has reaffirmed confidence in growth STDEV+1 STDEV-2 STDEV+2
outlook. Our estimates remain more conservative vs guidance. Source: RAVE, Credit Suisse estimates.
- 27 of 45 -
Asian Daily
Japan
Rakuten ----------------------------------------------------------------------------------Maintain NEUTRAL
MNO business an unknown, but share-price negative for now EPS: ▼ TP: ▼
Keiichi Yoneshima / Research Analyst / 81 3 4550 9740 / keiichi.yoneshima@credit-suisse.com
● We revise our forecasts for FY12/18 based on FY12/17 results. profits. We also see the company's strengthening of its advertising
We trim our FY12/18 estimates for domestic e-commerce, as business as positive.
profits are recovering more slowly than we anticipated, but expect
In the domestic e-commerce business, growth has been sluggish
continued growth in FinTech despite accounting technicalities
and profit catalysts slow to emerge. Upside risks include faster
hurting Rakuten Card profits. Full report.
growth in FinTech and higher profits from overseas businesses.
● Our forecasts exclude the mobile network operator (MNO) business, Downside risks include profits being hurt by new-business spending
but we think the risk of accompanying upfront investment could be or the entry into MNO (we expect this in 2H CY19 or CY20) and the
negative for the share price. We accordingly lower our target price competitive environment.
from ¥1,100 to ¥1,000 (potential return 7%). We maintain our
NEUTRAL rating and introduce our FY12/21 forecasts. We derive our ¥1,000 target price using sum-of-the-parts (SOTP)
● Assuming Rakuten becomes an MNO, we think upfront methodology. We use DCF for Internet services, P/E (peer multiples)
investment could weigh on profits initially. Government approval for Rakuten Securities and Rakuten Credit, and book value for
for spectrum allocation is due at end-March, and we think this Rakuten Bank and Rakuten Life Insurance.
could prompt investors to focus on related risk. (This is an extract of Keiichi Yoneshima's report "MNO business an unknown
● We derive our ¥1,000 target price using sum-of-the-parts (SOTP) but share-price negative for now" published on 13 March 2018. For the full
methodology. We use DCF for Internet services, P/E (peer report, please visit our CS Plus website.)
multiples) for Rakuten Securities and Rakuten Credit, and book
value for Rakuten Bank and Rakuten Life Insurance.
Bbg/RIC 4755 JP / 4755.T Price (12 Mar 18 , ¥) 933.40
Rating (prev. rating) N (N) TP (prev. TP ¥) 1,000 (1,100)
52-wk range (¥) 1394.0 - 906.0 Est. pot. % chg. to TP 7
Mkt cap (¥/US$ bn) 1,274.3/ 11.9 Blue sky scenario (¥) n.a.
ADTO-6M (US$ mn) 88.4 Grey sky scenario (¥) n.a.
Major shareholders Absolute (%) 0.7 (17.0) (14.0)
Relative (%) (0.4) (13.7) (25.0)
Year 12/16A 12/17A 12/18E 12/19E 12/20E
Revenue (¥ bn) 782 944 1,040 1,137 1,240
EBITDA (¥ bn) 122.8 203.7 189.9 203.7 219.2
Net profit (¥ bn) 38.4 110.6 81.7 90.0 98.6
EPS (CS adj. ¥) 28.8 82.1 60.7 66.8 73.2
- Change from prev. EPS (%) n.a. n.a. 2.7 (1.3) (3.6)
- Consensus EPS (¥) n.a. n.a. 56.7 64.7 70.8
EPS growth (%) (12.6) 184.9 (26.1) 10.1 9.6
P/E (x) 32.8 12.6 15.4 14.0 12.7
Dividend yield (%) 0.5 0.44 0.48 0.48 0.48
EV/EBITDA (x) 12.9 8.4 8.3 7.7 7.2
P/B (x) 1.9 2.0 1.6 1.5 1.3
ROE (%) 5.7 16.2 11.3 11.1 10.9
Net debt (cash)/equity (%) 46.2 46.1 41.1 36.8 32.9
Note 1: ORD/ADR=1.00. Note 2: Rakuten Inc provides Internet Services including "Rakuten Ichiba",
its core marketplace e-commerce site in Japan, Internet Finance services including "Rakuten Card"
and "Rakuten Bank", and Digital Content services including e-book services.
We revise our forecasts for FY12/18 based on FY12/17 results. We
trim our FY12/18 estimates for domestic e-commerce, as profits are
recovering more slowly than we anticipated, but expect continued
growth in FinTech despite accounting technicalities hurting Rakuten
Card profits. Our forecasts exclude the mobile network operator
(MNO) business, but we think the risk of accompanying upfront
investment could be negative for the share price. We accordingly
lower our target price from ¥1,100 to ¥1,000 (potential return 7%). We
maintain our NEUTRAL rating and introduce our FY12/21 forecasts.
Assuming Rakuten becomes an MNO, we think upfront investment
could weigh on profits initially. Government approval for spectrum
allocation is due at end-March, and we think this could prompt
investors to focus on related risk. We meanwhile anticipate steady
growth in existing businesses despite numerous swing factors for
- 28 of 45 -
Asian Daily
Taiheiyo Cement ------------------------------------------------------------- Maintain OUTPERFORM
Lowering our OP estimate for domestic ops EPS: ▼ TP: ▼
Yasuko Fukuda / Research Analyst / 81 3 4550 9259 / yasuko.fukuda@credit-suisse.com
Masahiro Mochizuki / Research Analyst / 81 3 4550 7389 / masahiro.mochizuki@credit-suisse.com
● We reduce our forecasts for Taiheiyo Cement and cut our target (4) sales price increases in China, (5) a rebound in cement prices in
price from ¥5,850 to ¥5,000 (potential return 32%), but we the Philippines, and (6) the start of consignment production for Hitachi
maintain our OUTPERFORM rating. Full report. Cement from FY3/20. We anticipate an OP decline for the domestic
● We previously forecasted that sales volume in Japan's cement cement business in FY3/19. However, we forecast OP growth in the
market would continue to increase by over 2% per year from FY3/18. US, China, and the Philippines.
We lower our estimate to over 1% to reflect the impact of snow and Catalysts/risks:
construction delays in FY3/18 and weak housing demand from Potential catalysts: (1) monthly cement price data from the
FY3/19. We think the share price has sufficiently corrected. Construction Research Institute confirming a rise in cement prices and
● Potential catalysts: (1) monthly cement price data from the (2) confirming OP growth in the US, China, and the Philippines. Risks
Construction Research Institute confirming a rise in cement prices include: (1) no signs of higher domestic prices from FY3/19, (2) a YoY
and (2) confirming OP growth in the US, China, and the decline in sales volume in the US and (3) a YoY decline in domestic
Philippines. Risks include: (1) no signs of higher domestic prices cement sales volume.
from FY3/19, (2) a YoY decline in sales volume in the US and
Valuation:
(3) a YoY decline in domestic cement sales volume Our ¥5,000 target price is based on a fair EV/EBITDA of 7.0x
● Our ¥5,000 target price is based on a fair EV/EBITDA of 7.0x (previously 7.5x) applied to our FY3/19 estimate.
(previously 7.5x) applied to our FY3/19 estimate.
Figure 1: EV/EBITDA
Bbg/RIC 5233 JP / 5233.T Price (13 Mar 18 , ¥) 3,755.00
Rating (prev. rating) O (O) TP (prev. TP ¥) 5,000 (5,850)
52-wk range (¥) 5010.0 - 3460.0 Est. pot. % chg. to TP 33
Mkt cap (¥/US$ bn) 464.8/ 4.4 Blue sky scenario (¥) n.a.
ADTO-6M (US$ mn) 27.5 Grey sky scenario (¥) n.a.
Major shareholders Absolute (%) (7.9) (22.5) (6.8)
Relative (%) (9.0) (19.2) (17.8)
Year 03/16A 03/17A 03/18E 03/19E 03/20E
Revenue (¥ bn) 835.4 798.6 871.6 880.8 920.5
EBITDA (¥ bn) 104.4 107.7 115.6 121.1 136.2
Net profit (¥ bn) 36.4 47.6 41.6 48.8 59.0
EPS (CS adj. ¥) 296 385.5 336.9 395.2 477.8
- Change from prev. EPS (%) n.a. n.a. 0.03 (0.02) (4.08)
- Consensus EPS (¥) n.a. n.a. 318.3 363.9 413.5
EPS growth (%) (17.5) 30.1 (12.6) 17.3 20.9 Source: Company data, Credit Suisse estimates.
P/E (x) 12.7 9.7 11.2 9.6 7.9
Dividend yield (%) 1.6 1.6 1.6 2.4 2.9
EV/EBITDA (x) 7.7 6.9 6.3 5.8 4.9
P/B (x) 1.4 1.3 1.2 1.1 1.0 (This is an extract from Yasuko Fukuda’s report, ‘Lowering our OP
ROE (%) 11.7 14.0 11.0 11.7 12.8 estimate for domestic ops,’ published on 13 March 2018. For details,
Note 1: ORD/ADR=10.00. Note 2: Taiheiyo Cement is Japan's largest cement maker.
please see the CS Plus website)
Action:
We reduce our forecasts for Taiheiyo Cement and cut our target price
from ¥5,850 to ¥5,000 (potential return 32%), but we maintain our
OUTPERFORM rating.
Investment overview:
We previously forecasted that sales volume in Japan's cement market
would continue to increase by over 2% per year from FY3/18. We
lower our estimate to over 1% to reflect the impact of snow and
construction delays in FY3/18 and weak housing demand from
FY3/19. We think the share price has sufficiently corrected. We
maintain our OUTPERFORM rating reflecting potential share price
upside.
We expect the market to price in (1) growth in domestic cement sales
volume from February 2018, (2) an increase in domestic cement sales
prices from FY3/19, (3) higher cement sales prices in the US,
- 29 of 45 -
Asian Daily
Malaysia
Asia Palm Oil Sector -------------------------------------------------------------------------------------------
Malaysia’s Feb-2018 palm oil stocks fell another 2.8% MoM
Ella Nusantoro / Research Analyst / 62 21 2553 7917 / ella.nusantoro@credit-suisse.com
● Malaysia’s February palm oil inventories now stand at 2.48 mn t Figure 3: Malaysia’s palm oil exports in 2M18 +14% YoY
(-3% MoM). Though the drop in production (-15% MoM) has (t) China Pakistan India EU USA Others Total
helped to bring down stock levels, the effect was abated by a Market share 8% 3% 17% 24% 7% 41% 100%
significant reduction in exports (-13% MoM). 2M2018 208,670 78,500 421,850 584,580 174,560 1,012,430 2,480,590
2M2017 289,070 55,500 280,340 409,040 120,380 1,021,560 2,175,890
● As expected, China’s imports fell 53% MoM to a mere 66,670 t as YoY Chg -27.8% 41.4% 50.5% 42.9% 45.0% -0.9% 14.0%
February is typically a seasonally weak month. India, however, Feb-18 66,670 27,000 231,520 306,370 74,790 461,560 1,167,910
continues to import large amounts of palm oil (+22% MoM) Feb-17 143,560 24,000 139,790 195,090 70,030 446,130 1,018,600
despite the government’s effort to curb palm oil imports (it just MoM Chg -53.0% -47.6% 21.6% 10.1% -25.0% -16.2% -11.0%
raised its palm oil import tax for the fourth time in this past year). YoY Chg -53.6% 12.5% 65.6% 57.0% 6.8% 3.5% 14.7%
Source: SGS
● Speakers at the POC 2018 are singing the same tune: Global
Malaysia’s 2M18 palm oil exports +14% higher YoY
palm oil production this year is expected to increase, as oil palms
As expected, China’s imports fell 53% MoM to a mere 66,670 t as
in Indonesia and Malaysia fully recover from the 2016 El Niño.
February is typically a seasonally weak month. India, however,
However, many expect palm oil prices to trade sideways in the
continues to import large amounts of palm oil (+22% MoM) despite the
near future.
government’s effort to curb palm oil imports (it just raised its palm oil
● In the long run, we believe the excess supply in palm oil will be import duty for the fourth time in this past year).
absorbed by the increase in global demand for food and biodiesel,
So far, Malaysia’s 2M18 palm oil exports are +14% higher YoY, driven
especially as oil's price continues its ascent from 2H17.
by India (+51%), the EU (+43%) and the US (+45%).
Figure 1: Malaysia palm oil stocks now stand at 2.48mn t Bearish sentiment at the recent Palm Oil Conference 2018
'000 T Speakers at the Palm Oil Conference (POC) 2018 are singing the
3,000
same tune: Global palm oil production this year is expected to
increase as oil palms in Indonesia and Malaysia fully recover from the
2,500 2016 El Niño. Oil World’s Thomas Mielke expects global palm oil
2,478 production to rise to 70.8 mn t this year (vs 67.9 mn t in 2017).
Figure 4: CPO spot price is currently at RM2,388/t
2,000
3,500 2017 high =
RM3,349
3,300
1,500 1.6mn T
3,100
Current =
1,000 2,900 RM2,388
J M S J M S J M S J M S J M S J M S J M S J M S J
10 11 12 13 14 15 16 17 18 2,700
Source: MPOB 2,500
Figure 2: Malaysia’s Feb-18 palm oil stocks fell another 2.8% MoM 2,300 2017 low=
RM2,340
(‘000 t) Feb-17 Jan-18 Feb-18 MoM Chg YoY Chg 2,100
Production 1,259 1,587 1,343 -15.4% 6.7%
Exports 1,107 1,514 1,312 -13.3% 18.5% 1,900 2015 low =
RM1,783(Aug)
Imports 40 35 67 92.9% 66.5% 1,700
Stocks 1,459 2,550 2,478 -2.8% 69.8% Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
Dom. consumption 274 288 170 -41.0% -37.8% Source: MPOB
Source: MPOB
In the long run, we believe the excess supply in palm oil will be
February palm oil inventories continue to fall to close at
absorbed by the increase in global demand for food and biodiesel,
2.48 mn t
especially as oil's price continues its ascent from 2H17.
Though the drop in palm oil production (-15% MoM) has helped to
bring down stock levels, the effect was abated by a significant Maintain MARKETWEIGHT on sector with a 2018 CPO price
reduction in exports (-13% MoM). assumption of RM2,500/t. Sector top picks: GENP, BAL and LSIP.
Figure 5: Asia Palm Oil Sector—top picks
Price Mkt cap TP 19E PE (x) EPS growth (%) P/E (x) EV/EBITDA (x) DY (%) PB (x) ROE (%) ADTV 3mo
Company Ticker (LC) (US$ mn) Rtg (LC) at TP 18E 19E 18E 19E 18E 19E 18E 19E 19E (US$mn)
Genting Plant GENP.KL 10.20 2,098 O 14.14 27.9 8% 35% 29.1 21.6 18.4 17.8 0.8% 1.7 8% 0.2
Bumitama BUMI.SI 0.71 950 O 1.0 14.5 127% 26% 14.5 11.4 9.2 8.7 1.9% 1.5 14% 0.1
London Sumatra LSIP.JK 1,345 666 O 1,760 11.1 -6% 44% 16.1 11.2 5.7 4.7 2.6% 1.0 12% 0.2
- 30 of 45 -
Asian Daily
Pakistan
Pakistan Auto Sector ------------------------------------------------------------------------------------------
Feb volumes rise 15% YoY with PSMC and HCAR dominating
Fahd Niaz, CFA / Research Analyst / 65 6212 3035 / fahd.niaz@credit-suisse.com
Farhan Rizvi, CFA / Research Analyst / 65 6212 3036 / farhan.rizvi@credit-suisse.com
● As per the latest numbers released by the Pakistan Automotive 41% YoY jump in comparison to a more moderate 11% YoY growth in
Manufacturers Association (PAMA), auto volumes in February passenger vehicles. Overall, volumes for the sector have reached
rose 15% YoY taking 8M FY18 print to 170,355 (+23% YoY). 170,355 in 8M FY18 (+23% YoY) with both PSMC and HCAR taking
● PSMC and HCAR have continued to gain market share. FY18-to- the lead and gaining market share by 283 bp to 56.4% and 215 bp to
date, PSMC has improved by 283 bp YoY to 56.4%, while HCAR is 19.8%, respectively. INDU has slipped by 498 bp YoY to 19.8%.
up by 215 bp YoY to 19.8%. INDU has fallen to 23.8% (-498 bp). Key highlights across companies
● Among company-wise trends, we observe that PSMC’s 25% YoY Pak Suzuki Motors delivered 25% YoY growth in volumes to 13,045
increase in volumes was broad-based across models. INDU saw (9M FY18: +30% YoY to 96,602) with robust demand seen across all
product mix continuing to tilt towards premium variants where car variants. A key driver of demand for PSMC’s cars is the ride
Fortuner and Hilux now account for 5.6% and 11.6% of volumes in hailing apps which have been gaining traction in the large cities.
8M FY18 (vs 1.4% and 9.4% in 8M FY17), respectively. For HCAR, Capacity constraints at Indus Motors (which are being addressed)
inclusion of BR-V in the product shelf enabled volume growth of 20%
pushed headline volumes down by 8% YoY in February, largely driven

YoY, despite slowing momentum seen in Civic and City (+4% YoY). by a slowdown in the Toyota Corolla. INDU’s product mix is still
● With INDU’s high-end variants running above our estimates, we moving towards premium variants as depicted by the Fortuner and
take the opportunity to mark-to-market their share in our model. Hilux taking on a share of 5.6% and 11.6% in volumes in 8M FY18 (vs
FY18-20E estimates are up by 4-9% but we retain our TP of 1.4% and 9.4% in 8M FY17), respectively. On capacity issues, INDU’s
PRs1,960 and our NEUTRAL rating. Our top pick in the sector is management has informed that completion of debottlenecking at the
PSMC with highest EPS growth (22%) and comparable valuations. paint shop is on track for conclusion in 4Q FY18. Once fully
implemented, this initiative should increase nameplate capacity by
Figure 1: Auto sales +15% YoY in Feb (+23% YoY in 8M FY18) ~20% to ~66,000 units p.a.
Name of car/company Feb-18 MoM YoY 8MFY18 YoY
Swift 479 -6% 38% 3,132 9% In Honda Atlas Cars, we saw a 20% YoY increase in sales to 4,501
Cultus 2,150 5% 23% 13,697 34% units in February, boosted by the inclusion of BR-V in the manufacturing
Wagon-R 2,092 -23% 27% 18,936 75%
Mehran 4,360 1% 30% 30,903 27%
line even as sales of Honda Civic and Honda City have slowed to 4%
Bolan 2,012 -9% 23% 14,704 11% YoY. Having said that, over 8M FY18, HCAR is still the dominant
Ravi 1,952 -2% 17% 14,690 17% performer among all three players with a 38% YoY rise in volumes. The
Pak Suzuki Motors 13,045 -5% 25% 96,062 30% company is also working to alleviate constraints at its paint shop (similar
Corolla 4,034 -5% -13% 33,602 -5% to INDU) and fruits should be visible in late FY19E, in our view.
Fortuner 184 -60% -22% 2,287 303%
Hilux 890 32% 33% 4,734 27% Lifting estimates for INDU on product mix
Indus Motors 5,108 -5% -8% 40,623 2% With INDU’s premium variants running above our estimates, we take
Civic & City 3,888 0% 4% 27,411 13%
BR-V 601 20% NM 6,259 NM the opportunity to mark-to-market their share in our product mix.
Honda Atlas Cars 4,501 3% 20% 33,670 38% FY18-20E estimates are increased by 4-9% but we keep our target
Passenger cars 19,027 -5% 11% 142,385 17% price of PRs1,960 unchanged and our NEUTRAL rating in place.
Light Commercial Vehicles 3,627 0% 41% 27,970 66%
Industry cars + LCVs 22,654 -4% 15% 170,355 23% Retain PSMC as top pick in the sector
Market shares Feb-18 MoM YoY 8MFY18 YoY We keep PSMC as our top pick as the company is the ideal proxy to
Pak Suzuki Motors 57.6% -96 bp +473 bp 56.4% +283 bp capture the expansion in Pakistan’s motorisation rates (currently at 17
Indus Motors 22.5% -29 bp -554 bp 23.8% -498 bp cars/1,000 persons) in a backdrop of rising disposable incomes. EPS
Honda Atlas Cars 19.9% +125 bp +81 bp 19.8% +215 bp
Source: PAMA, Credit Suisse research growth at 22% is ahead of peers and valuations are comparable (P/E
of 8.6x). A potential stock price trigger can come from the launch of
Market share gains for PSMC and HCAR continue
Suzuki Alto in 2019E, replacing the legacy model of Suzuki Mehran.
Pakistan Automotive Manufacturers Association (PAMA) has released
the sales data for February. Total vehicle sales have increased by
15% YoY to 22,654, with Light Commercial Vehicles (LCV’s) posting a
Valuation metrics
Company Ticker Rating Price Target TP Chg Up/dn to TP Year EPS Chg (%) EPS EPS grth (%) P/E (x) DY (%) P/B (x) Scenario
PSMC PKSU.KA O 495.14 850.00 0 72 12/16 0 0 47.0 57.5 40 22 10.5 8.6 3.8 1.4 884.00 776.00
INDU INDM.KA N (N) 1,742 1,960 (1,960) 0 13 06/17 3.5 8.6 183 208 11 14 9.5 8.4 7.3 3.9 2,014 1,817
HCAR HATC.KA O 491.46 735.00 0 50 03/17 0 0 49.6 59.2 15 20 9.9 8.3 3.5 3.8 786.00 683.00
- 31 of 45 -
Asian Daily
South Korea
CJ E&M -------------------------------------------------------------------------- Maintain OUTPERFORM
Despite uncertainty post merger, share price is under upward direction EPS: ▼ TP: ▲
Ray Kim / Research Analyst / 82 2 3707 3776 / ray.kim@credit-suisse.com
Eric Cha / Research Analyst / 82 2 3707 3764 / eric.cha@credit-suisse.com
● Post the merger-plan release in mid-January 2018, CJ E&M's (E&M) in home shopping (c10x FY18E P/E) will provide further valuation
share price was down as much as 15%, while Studio Dragon’s support (~30% value contribution within E&M).
(Dragon) share price is up ~30%. Our key observations are below: What are the upside factors for CJ E&M?
● (1) Market is valuing E&M with CJOS/CJHV–—Netmarble stake We acknowledge investors have lost in action on E&M, given
contribution within E&M market cap has dropped to 40% from ~70%, uncertainties post the merger. Share price upside will depend on (1)
(2) resulting in low impact from Netmarble share price on E&M. E&M Market expectations from post-merger operations (while implied core
is outperforming Netmarble post-Dragon IPO. (3) Value contribution value of E&M has halved post the merger plan), which is reading at
from Dragon grew to ~30%—stable operation and undemanding ~W0.3 tn vs CS fair value of W0.8 bn (target 20x FY18E P/E); (2)
valuation in home shopping (c10x P/E) will provide further support. value contribution from listed assets (Dragon etc.).
● E&M's share price upside will depend on (1) market expectations Figure 1: Price performance since the merger plan in mid Jan-2018
26% 26%
from post-merger operations (implied core value halved to ~W0.3 tn), 25% (% chg)
Current Max Min
and (2) value contribution from listed assets (Dragon etc.).
10% 4%
● Maintain OUTPERFORM. Key thesis on E&M remains unchanged -5%
(non-drama exports), and we don’t expect further downside given -7%
-3% -4%
-12%
deep value in core business. TP is revised up to W105k (from -20% -15%
CJ E&M Netmarble-19% StudioDragon
W101k) as we increased Dragon's target price.
Bbg/RIC 130960 KS / 130960.KQ Price (13 Mar 18 , W) 91,100 As of 13 Mar-2018 price. Source: the BLOOMBERG PROFESSIONAL™ service
Rating (prev. rating) O (O) TP (prev. TP W) 105,000 (101,000) Figure 2: E&M and merged entity—Market-implied price decomposition
52-wk range (W) 98000.0 - 68300.0 Est. pot. % chg. to TP 15
Mkt cap (W/US$ bn) 3,528.5/ 3.3 Blue sky scenario (W) 133,000 Company Value Mix Remarks Notables
ADTO-6M (US$ mn) 28.5 Grey sky scenario (W) 71,000 Market Cap base (W bn)
Free float (%) 57.1 Performance 1M 3M 12M Implied Core Biz (CJ E&M+CJOS) 1,384 28% A -
Major shareholders CJ Corp; 39.36% Absolute (%) 5.7 0.7 14.4 *Listed Investment Assets 3,508 72% B Applied 30% d/c
Relative (%) 0.5 (14.1) (29.5) Sum of CJ E&M+CJOS mkt cap 4,892 100% C=A+B 18x FY18E P/E
Year 12/15A 12/16A 12/17E 12/18E 12/19E Per Share base (KRW)
Revenue (W bn) 1,347 1,538 1,750 1,999 2,266 Implied Price of merged entity 221,238 D=C/0.0221 22.1mn shares
EBITDA (W bn) 372.7 427.6 418.3 585.5 666.5 Current CJ E&M Price 91,100 E -
Net profit (W bn) 54.3 62.2 428.6 155.1 240.1 Adjusted CJ E&M Price 221,957 F=E/0.41* *Share swap rate
EPS (CS adj. W) 1,409 1,611 11,110 4,022 6,224 Difference 0% G=D/F-1
- Change from prev. EPS (%) n.a. n.a. 0 (0.3) (1.0) Note: Based on consensus earnings forecasts * Sum of Netmarble/ Dragon/ CJHV.
- Consensus EPS (W) n.a. n.a. 12,383 3,716 4,394 As of 13 Mar 2018 price. Source: Company data, I/B/E/S estimates, CS research.
EPS growth (%) n.m. 14.4 589.6 (63.8) 54.8
P/E (x) 64.7 56.5 8.2 22.7 14.6 Figure 3: (LHS) Netmarble contribution in CJ E&M market cap declined
Dividend yield (%) 0.2 0.2 0.2 0.2 0.2 to 40% from ~70% (RHS) E&M share is outperforming Netmarble by 15%
EV/EBITDA (x) 10.2 9.3 9.8 7.0 6.1 CJ E&M core value Netmarble stakes 20%
P/B (x) 2.3 2.3 1.7 1.7 1.6 Dragon stakes CJOS mkt cap Rel. Perf since Netmarble IPO
ROE (%) 3.6 4.0 23.6 7.4 11.1 100%
13% 10%
Net debt(cash)/equity (%) 16.6 28.3 26.8 25.7 22.0 80%
27% 28%
Note 1: CJ E&M is the largest entertainment and media content company in Korea. Its main
business units are divided into media (17 cable channels), film, music, and live entertainment. 60% 0%
27%
66%
Click here for detailed financials 40% 58%
Why does CJ E&M share price hold up well? -10%
40%
20%
Post the merger-plan release in mid-January, CJ E&M's (E&M) share 21% 15%
price was down as much as 15% (current -7%), while Studio Dragon’s 0% 6% -20% Studio Dragon listed in Nov 2017
Nov 17 Jan 18 Current May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18
(Dragon) share price is up ~30%. Still, considering E&M's 4Q17
Note: Applied 30% holding discount to stakes in Netmarble/Studio Dragon.
earnings shock and lingering concerns on post-merger strategy, share Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse research
prices have held up well.
Figure 4: Stocks related with CJ E&M-CJ O Shopping merger
What does the market imply?
Company Ticker Rating Mkt Cap FY18E P/E Notables
Market seems to view E&M differently post the merger plan: (1) CJ E&M 130960.KQ O 3,528 22.7 To be merged into CJOS
Market is valuing E&M along with CJ O Shopping (CJOS) and CJ CJ OS 035760.KQ NR 1,364 10.6 by
Hellovision (CJHV; subsidiary of CJOS) now, hence Netmarble stake CJ HV 037560.KS NR 669 15.9 CJ OS owns 54% stakes
contribution within E&M market cap, after applying 30% holding Netmarble 251270.KS N 12,627 25.4 CJ E&M owns 22% stakes
discount, has declined to 40% from ~70% in Nov-2017 (before Dragon Dragon 253450.KQ O 2,621 43.5 CJ E&M owns 71% stakes
IPO); (2) This has resulted in a subdued impact from Netmarble share As of 13 Mar 2018 price. Source: Company data, I/B/E/S estimates, CS estimates.
price on E&M, while E&M is outperforming Netmarble post Dragon
IPO; (3) Value contribution from Dragon expanded to ~30% within
E&M market cap, while stable operation and undemanding valuation
- 32 of 45 -
Asian Daily
Mando Corp -------------------------------------------------------------------- Maintain OUTPERFORM
Near-term headwinds continue, yet we believe 1Q18E is the bottom EPS: ▼ TP: ▼
Michael Sohn / Research Analyst / 82 2 3707 3739 / michael.sohn@credit-suisse.com
● Due to Hyundai Motor Group's (HMG) sluggish China sales 2) Low base to YoY OP growth from 2Q18E and after. Considering
growth of -27% YoY in Jan-Feb/2018, we expect 1Q18E OP to HMG China sales growth of -64% YoY in 2Q17, -31% YoY in 3Q17,
miss consensus by 13%. Despite the near-term headwinds, and -25% YoY in 4Q17, Mando should start to experience the low
1Q18E will likely be the bottom, in our view. base from 2Q18E. In addition, as the company had an ordinary wage
● With the low base, we forecast Hyundai Motor Group's (HMG) provision of W157 bn in 3Q17 and product quality related provision of
China sales to rebound by 97% YoY in 2Q18E which will lead W17 bn in 4Q17, YoY OP turnaround should begin from 2Q18E.
Mando's 2Q18E OP to rise to W69 bn (up 25% YoY). Considering 3) Shining Mando's sales diversification strategy. Based on its
3Q17's ordinary wage provision and quality-related provision in secured backlog order book, Mando has guided firmer guidance on its
4Q17, its YoY OP growth will likely continue in 2Q-4Q18E. growth on non-HMG. The company has guided local Chinese OEMs'
● Based on its secured backlog order book, Mando has guided 2020E sales portion to rise to 16% (vs. 11% in 2016). Especially,
firmer sales growth outlook from non-HMG. With growing sales combined sales from BMW, VW, and Volvo are expected to lead
from local Chinese and European OEMs, Mando's HMG sales 2017-2020E European OEMs' sales CAGR of 17%. As such, Mando's
portion is expected to drop to 51% by 2020E (vs. 56% in 2017). HMG sales portion is expected to drop to 51% by 2020E (vs. 56% in
2017).
● To reflect the weaker 1Q18 outlook, we adjust 2018E/2019E EPS

by -7.6%/-6.1% respectively and lower our target price to (4) Safety requirements and automakers' commitments support
W290,000 from W320,000 by applying 2018E global peer average structural ADAS growth. With the support of the AEB (autonomous
P/E of 13.6x to 2018-19E average EPS. emergency braking) adoption requirement in the US (as reported in
theverge.com) and HMG's commitment to provide FCA (forward
Bbg/RIC 204320 KS / 204320.KS Price (13 Mar 18 , W) 230,000 collision-avoidance assist) to every new model coming from 2018E in
Rating (prev. rating) O (O) TP (prev. TP W) 290,000 (320,000)
52-wk range (W) 339500.0 - Est. pot. % chg. to TP 26 Korea and the US (reported in Korea Joongang Daily), Mando's ADAS
221000.0 Blue sky scenario (W) 330,000 sales are expected to witness a 48% CAGR in 2017-20E with sales
Mkt cap (W/US$ bn) 2,160.0/ 2.0 Grey sky scenario (W) 210,000 and OP contribution to rise to 16%, 17%, respectively by 2020E.
ADTO-6M (US$ mn) 16.3 Performance 1M 3M 12M
Free float (%) 71.9 Absolute (%) 2.0 (25.3) (7.4) Figure 1: Mando—1Q18E earnings preview
Major shareholders Halla Hldgs. and Relative (%) (3.5) (25.9) (25.2) (W bn, %) 1Q18E
others; 27.9% 1Q17 4Q17 YoY % QoQ % CS est % diff Cons
Year 12/15A 12/16A 12/17E 12/18E 12/19E Sales revenue 1,430 1,510 -2 -7 1,404 -3 1,453
Revenue (W bn) 5,299 5,866 5,685 6,066 6,790 Operating profit 60 64 -14 -18 52 -13 60
EBITDA (W bn) 490.3 533.6 310.7 521.2 595.0 Pre-tax profit 48 45 -11 -5 42 -14 49
Net profit (W bn) 125.8 199.5 6.3 173.3 221.1 Net profit 33 35 -8 -14 30 -13 35
EPS (CS adj. W) 13,395 21,243 669 18,448 23,544 OP margin 4.2 4.2 3.7 4.1
- Change from prev. EPS (%) n.a. n.a. 0 (7.6) (6.1) Pre-tax margin 3.3 3.0 3.0 3.4
- Consensus EPS (W) n.a. n.a. 2,612 21,192 24,049 NP margin 2.3 2.3 2.2 2.4
EPS growth (%) (73.7) 58.6 (96.9) 2,657.6 27.6 Source: Company data, Bloomberg, Credit Suisse estimates
P/E (x) 17.2 10.8 343.8 12.5 9.8
Dividend yield (%) 2.1 2.1 0.4 2.0 2.2 Figure 2: YoY OP turnaround to begin from 2Q18E and Mando's non
EV/EBITDA (x) 6.5 6.1 10.2 6.1 5.4 HMG sales to lead 2017-2020E sales growth CAGR of 10%
P/B (x) 1.6 1.5 1.5 1.4 1.4 (%) (W tn) Mando '17-'20E Sales CAGR: 10%
40 8.0
ROE (%) 10.6 14.3 0.4 11.5 13.9
6.0
Net debt(cash)/equity (%) 73.9 71.8 69.2 61.4 63.3 20 turn to
Note 1: Mando Corporation is a Korea-based company engaged in the manufacture of automobile profit 4.0
0 2.0
parts. The company's products consist of brake systems, steering systems, and suspension turn to
systems. -20 loss 0.0
Click here for detailed financials 2017 2018E 2019E 2020E
-40 HMG Group North American
Near-term headwinds continue, yet we think 1Q18E is the bottom. 1Q17 3Q17 1Q18E 3Q18E Local Chinese European
Mando's YoY OP growth outlook Others
After guiding a disappointing 2018E earnings outlook (Expecting near-
term headwinds), the stock corrected 24%, underperforming the
KOSPI by -21%. We recently met the company and expect 1Q18E OP Figure 3: Structural ADAS growth should lead to overall growth of Mando
to miss consensus OP by 13%. Despite the near-term headwinds, we (W tn)
10
2017-2020E ADAS sales CAGR: 48% (%) 'Ordinary wage' provision of
W 157 bn in 3Q17
2020E ADAS sales contribution: 16% 25
believe1Q18E likely to be the bottom for the following reasons. 8 20 18 17
15 12
1) Sluggish HMG China sales lowers 1Q18E OP outlook. HMG's YTD 6
10 9
China sales were down 27% YoY. Although we forecast HMG's March 4
5 1
China sales to rebound by 28% YoY, minimising 1Q18E China sales 2 0
0 -5 -3
growth to -12% YoY, we expect the low plants utilization in the first 2015 2016 2017E 2018E 2019E 2020E 2015 2016 2017E 2018E 2019E 2020E
two months to result in 1Q18E China OP of W27 bn (down 33% YoY). Mando ex-ADAS sales Mando ADAS sales ADAS OP contribution
As such, we forecast Mando's 1Q18E OP of W52 bn (down 14% YoY), Source: Company data, Credit Suisse estimates
missing consensus OP by 13%.
- 33 of 45 -
Asian Daily
POSCO --------------------------------------------------------------------------- Maintain OUTPERFORM
Temporary surge in inventory to fade due to strong demand in spring EPS: ◄► TP: ◄►
Hoonsik Min / Research Analyst / 82 2 3707 3761 / hoonsik.min@credit-suisse.com
● After the lunar new year, China steel inventory in major cities Figure 1: Total steel product inventory at major cities
soared by 83% MoM, stronger than we expected. Now the market 25 (Mil tonnes)
wonders whether actual demand in the spring season can meet
expectations or not. Downstream demand doesn’t seem to be
20
excited as yet, but is expected to meet elevated expectation soon, 2018
according to our recent China team’s view.
● Since last week, the sharp fall in iron ore price created concern on 15 2013
steel price, which has 92% correlation with POSCO share price. 2015
But the steelmaker’s earnings are more related to spread, not the 10
2014
price itself. If steel price could remain flat or less weak than iron 2016 2017
ore price, then the actual steel spread could expand.
5
● US steel tariff undermined the sentiments towards Korean Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
steelmakers but it is unrelated to the fundamentals. We believe it is Source: China Iron and Steel Association, CEIC, Credit Suisse
a good time to accumulate POSCO, supported by not only expected
improvements in steel sector but also subsidiaries’ normalisation. Figure 2: China steel net imports/(exports)
6 (mil tonnes)
● We retain our bullish stance on POSCO with a TP of W460k. 4
Current 0.6x fwd P/B is in line with its historical average since 2
0
2011, but we believe sector fundamentals are stronger than that. -2
Bbg/RIC 005490 KS / 005490.KS Price (13 Mar 18 , W) 353,000 -4
Rating (prev. rating) O (O) TP (prev. TP W) 460,000 (460,000) -6
52-wk range (W) 395000.0 - Est. pot. % chg. to TP 30 -8
261500.0 Blue sky scenario (W) 520,000 -10
-12
Mkt cap (W/US$ bn) 30,777.0/ 28.9 Grey sky scenario (W) 350,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
ADTO-6M (US$ mn) 76.6 Performance 1M 3M 12M
Free float (%) 83.9 Absolute (%) 0.3 5.5 25.6
Major shareholders Korea National Relative (%) (5.2) 5.0 7.8 Steel imports Steel exports Steel net exports
Pension - 11.1% Source: China Iron and Steel Association, CEIC, Credit Suisse estimates
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Revenue (W bn) 58,192 53,084 60,655 62,021 61,131 Bargaining power over miners to be tested
EBITDA (W bn) 5,628 6,058 7,912 8,665 8,948 Since last week, the sharp fall in iron ore price has created concern on
Net profit (W bn) 181 1,363 2,790 3,167 3,377 steel price, which has 92% correlation with POSCO share price. However,
EPS (CS adj. W) 2,258 17,042 34,877 39,589 42,213 the steelmaker’s earnings are related to spread, not the steel price itself.
- Change from prev. EPS (%) n.a. n.a. 0 0 0
- Consensus EPS (W) n.a. n.a. 34,464 37,708 40,581 Since last year, the bargaining power of steelmakers strengthened over
EPS growth (%) (71.1) 654.7 104.7 13.5 6.6 iron ore miners, and so share price should follow steel spread, rather than
P/E (x) 156.3 20.7 10.1 8.9 8.4 steel price, in our view. If steel price could remain flat or less weak than
Dividend yield (%) 2.5 2.3 2.3 2.3 2.3 iron ore price, the actual steel spread could expand going forward.
EV/EBITDA (x) 9.1 8.4 6.3 5.6 5.0
P/B (x) 0.7 0.7 0.6 0.6 0.6 Considering that the recent correction was driven by sentiments, we
ROE (%) 0.4 3.3 6.4 6.9 7.0 believe it is a good time to accumulate the stock.
Note 1: ORD/ADR=0.25. Note 2: POSCO is an integrated steel producer in Korea. POSCO's Figure 3: China HRC price and POSCO share price: 92% correlation
product portfolio consists of hot rolled steels, steel plates, wire rods, cold rolled steels, galvanized (KRW)
(U$/t) HRC price (China spot) POSCO share price (W, RHS)
steels, electrical galvanized steels, electrical steels, stainless steels and titanium product
Click here for detailed financials 800 500,000
700
Now steel demand in spring on focus 400,000
600
Recent data point suggests China steel inventory soared by 83% 500 300,000
MoM during the lunar new year season. Even though we had 400
200,000
underlined the potential surge in inventory restocking, it is even 300
stronger than we expected. Now the question is whether the actual 200 100,000
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
demand in spring, especially driven by construction activity, can meet

the traders’ expectation or not going forward. According to our China
Source: Bloomberg, Credit Suisse estimates
team’s channel check, downstream demand doesn’t seem to be
excited as yet; but is expected to meet elevated anticipation soon.
Given robust demand and capacity rationalisation in domestic China,
net exports of steel products – the most disruptive factor for Korean
steelmaker – is in continuous decline.
- 34 of 45 -
Asian Daily
Taiwan
Universal Microwave Technology --------------------------------------------------- NOT COVERED
Key takeaways from analyst meeting
Pauline Chen / Research Analyst / 886 2 2715 6323 / pauline.chen@credit-suisse.com
Angela Pan / Research Analyst / 886 2 27156352 / angela.pan@credit-suisse.com
● UMT manufactures microwave/millimeter-wave (MMW) devices, Figure 2: Wireless backhaul a critical technology to Gigabit-LTE & 5G
which accounted for 65% of 2017 sales. Its top 5 customers are
Ceragon, Huawei, Aviat, Ericsson and NEC, which in total
contributed to 90% of 2017 revenue and 76% of the global best-
of-breed wireless backhaul market in 2016.
● For 2018, UMT expects YoY sales growth (vs YTD up 10% YoY),
mainly driven by its share gains in top Asia customer, its top
customer's order wins in India, higher contribution from satellite
and growth from two subsidiaries. However, UMT also warns that Source: Ceragon
its limited order visibility might lead to volatile monthly sales. 2018 outlook
UMT's monthly revenue is very volatile, given limited order visibility. Its
● UMT expects the adoption of 5G to further stimulate demand from revenue grew 12% YoY in 4Q16-2Q17 but declined 15% YoY in 2H17,
backhaul to fronthaul, given the surge of data transmission and
mainly impacted by its top customer's progress in India. It rebounded

growth from IoT. However, UMT expects more meaningful in Jan/Feb with 10% YoY growth, citing for recovering demand from
revenue contribution from 5G in 2020. India, China and Europe. For 2018, UMT expects to deliver YoY sales
● UMT is trading at 14.0x FY18 consensus EPS of NT$5.18, vs growth, mainly driven by its share gains in top Asia customer and its
historical trading range of 8.6-24.7x. Management indicated top customer's new wins in India. UMT also expects revenue
flattish cash dividend per share (vs NT$4 last year), or 5.5% yield. contribution from satellite to reach high-single-digit in 2018E (from
Figure 1: UMT’s financial summary low-single), driven by new order wins from two customers. Besides its
Ticker 3491.TWO Current Price (NT$) 72.3 core microwave/MMW products, UMT expects Genton to deliver the
Qfii holding (%)
Shares outstanding (mn)
4.6
56
52-wk range (NT$)
Mkt cap (US$mn)
66.1 - 91.24
129
strongest YoY growth off a lower base, but sees uncertainties at
Daily trad vol-6m avg 0.44 Perf. (%) 1M 3M 12M Adicomm. UMT expects its profitability to improve, driven by economy
Daily trad val-6m avg (US$mn)
Free float (%)
1.10
75.5
Absolute
Relative
-2.8%
-8.4%
0.1%
-5.6%
0.1%
-14.0%
of scale. It released January preliminary GM of 36%, vs 34% in 2H17.
Year 2014A 2015A 2016A 2017A 2018E To capture 5G growth opportunity, UMT has completed its rights issue
Revenue (NT$mn)
yoy growth (%)
1,256
16%
1,423
13%
1,516
7%
1,483
-2%
1,823
23%
plan of 4.5 mn shares (or 8% dilution) at NT$68 (vs latest share price
Gross profit (NT$mn) 456 561 548 571 701 of NT$72.3) for a total size of NT$306 mn.
GM (%) 36.3% 39.4% 36.1% 38.5% 38.5%
Operating profit (NT$mn) 190 258 256 273 344 Figure 3: UMT's GM is highly correlated to revenue scale
OPM (%) 15.2% 18.1% 16.9% 18.4% 18.9%
Net profit (NT$mn) 181 232 220 191 266 (NT$mn) revenue (LHS) GM (RHS)
EPS (NT$) 3.57 4.52 4.27 3.70 5.18 500 50%
yoy growth (%) 9% 27% -5% -13% 40%
450 45%
P/E (x) 20.3 16.0 16.9 19.5 14.0
400 40%
Dividend yield (%) 6.4 6.5 6.2 5.5 6.0
P/B (x) 2.3 2.2 2.2 2.3 2.2 350 35%
ROE (%) 13% 15% 13% 13% 16% 300 30%
Source: Company data, the BLOOMBERG PROFESSIONALTM service estimates 250 25%
200 20%
Company background 150 15%
Universal Microwave Tech (UMT), established in 1999, mainly engages 100 10%
in manufacture and sale of microwave/millimeter-wave (MMW) devices, 50 5%

0 0%
which accounted for 65% of 2017 sales. It also produces antenna 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
modules (20% of sales) through 54%-owned subsidiary Radiation Tech Source: Company data
(6541.TWO, not covered), wireless network system (12% of sales)
Figure 4: UMT’s forward P/E
through 100%-owned subsidiary Adicomm and network services (3% of
UMT PE (x)
sales) through 65.5%-owned subsidiary Genton. 35
Wireless backhaul critical to Gigabit-LTE & 5G 30
UMT's microwave/MMW products are mainly used for wireless

+2 Std dev = 24.7
25
backhaul transport network, which transmits voice and data from small
+1 Std dev = 20.7
20
Average = 16.7
cells to evolved packet core. Wireless backhaul serves as an 15
alternative to fibre-optic networks, with advantages of lower total cost 10 -1 Std dev = 12.7
of ownership to operators. UMT's top 5 customers include Ceragon, -2 Std dev = 8.6
5
Huawei, Aviat, Ericsson and NEC, which in total contributed to 90% of
2017 revenue and 76% of the global best-of-breed wireless backhaul 0
Jan-15
Jan-11
Jan-12
Jan-13
Jan-14
Jan-16
Jan-17
Jan-18
market share in 2016. UMT expects the adoption of 5G to further

stimulate demand from backhaul to fronthaul, given the surge of data Source: Company data, the BLOOMBERG PROFESSIONALTM service estimates
transmission and growth from IoT.
- 35 of 45 -
Asian Daily
Taiwan Component Sector -----------------------------------------------------------------------------------
Feb sales: Smartphone inventory adjustments weigh on sales
● Casing below. Catcher’s Feb sales showed continued strength in Figure 1: Smartphone inventory adjustments weigh on sales
unibody adoption among high-end NB. Casetek reported in-line (TWD mn; %) Sales
Feb Sales
MoM YoY
% of 1Q18 sales
vs. CS vs. Street
Seasonality 1Q18 QoQ
CS street
2018 YTD
YoY
sales but a significant profit drop, due to early ramp for 2H18 Catcher
Casetek
5,702
2,167
-30%
-1%
+20%
-7%
70%
69%
63%
67%
61%
66%
-39%
-37%
-33%
-34%
+45%
+13%
projects. FTC’s Feb sales were below on its exposure to high-end FTC
Casing
8,730
16,599
-42%
-35%
+100%
+45%
55%
60%
54%
58%
66%
64%
-28%
-32%
-24%
-28%
+90%
+62%
smartphones and game consoles. Largan 2,217 -37% -35% 70% 51% 64% -49% -37% -20%
Merry 883 -58% -28% 65% 62% 61% -55% -52% +12%
● Handset below street. Largan, Merry, and TXC all reported soft TXC
Concraft
529
86
-23%
-78%
-19%
-50%
60%
n.m
61%
20%
64%
61%
-10%
n.m
-13%
-10%
-13%
+27%
Feb sales, hurt by inventory adjustments from US and China Genius
Handset
416
4,132
-46%
-45%
+18%
-29%
n.m
67%
59%
53%
62%
63%
n.m
-48%
-25%
-37%
+23%
-8%
smartphones. Merry’s weakness was also found in entertainment. Delta 13,374 -29% -17% 62% 61% 63% -15% -13% +6%
LOT 13,037 -21% -19% 61% 60% 64% -15% -12% -8%
● PCB in line. Unimicron is outperforming on RFPCB and SLP Chicony
Power Supply
4,645
31,057
-26%
-26%
-11%
-17%
64%
62%
62%
61%
62%
63%
-19%
-16%
-19%
-14%
+6%
-0%
share gains. Tripod’s sales were helped by the pull-in of the mid- Kinsus
Tripod
1,398
3,325
-32%
-24%
-8%
-1%
60%
68%
59%
68%
63%
66%
-9%
-10%
+17%
-10%
+6%
+15%
end CH smartphone model. NYPCB and Kinsus both saw mid- Unimicron
NYPCB
4,943
1,693
-20%
-25%
+4%
-9%
67%
61%
70%
n.m
63%
63%
-12%
-5%
-14%
NA
+14%
+1%
single digit contributions in Crypto currency. Topoint is on track to Topoint
Flexium
248
1,207
-10%
-60%
+0%
-9%
67%
n.m
67%
68%
66%
66%
-9%
n.m
-8%
-42%
-1%
+38%
1Q18 guidance of a high single-digit decline QoQ.
Compeq 3,122 -31% -15% n.m 58% 64% n.m -19% +1%
ZDT 5,113 -58% +2% n.m 66% 66% n.m -31% +40%
● Delta and Chicony oversaw double-digit MoM declines in power EMC
PCB
1,519
22,567
-23%
-39%
-15%
-4%
n.m
65%
60%
65%
63%
65%
n.m
-10%
+1%
-22%
-5%
+17%
supply while LOT saw sequential growth in power system driven Chin Poon
BizLink
1,568
1,383
-25%
-15%
-17%
+85%
58%
76%
62%
71%
63%
64%
+4%
-7%
+2%
-8%
-3%
+114%
by smart home/cloud. Sinbon grew 3% YoY in Feb on Automotive Sinbon
AutoTech
1,080
4,031
-9%
-18%
+3%
+10%
65%
65%
66%
66%
64%
63%
+13%
+3%
+3%
-1%
+3%
+21%
and Industrial. Bizlink was above estimates on home appliance Source: Company data, Credit Suisse estimates, Bloomberg
sell-through. Chin Poon’s pullback was in line with its guidance. Power supply: continued pull in from non PC
Delta reported 35%/34% MoM pullbacks in Power electronics and
Valuation Metrics
Company Ticker Rating Price Target Year P/E (x) P/B (x)
Automation, while Infrastructure was down 20% MoM. LOT, however,
Local price T T+1 T+2 T+1 sees consecutive growth in Power system, driven by cloud and smart
Catcher 2474.TW O 367 410 16-Dec 12.9 11.1 2.3 home. Chicony power’s Feb sales were down 19% MoM sequentially,
Casetek 5264.TW O 86.2 130 16-Dec 21.9 18.2 1.2 while Chicony reported a 26% MoM decline.
FTC 2354.TW N 81.2 100 16-Dec 10.8 9.9 0.9
Largan 3008.TW O 3,955 4,500 16-Dec 20.4 19.5 5.7 PCB: Share gainers doing better
Merry 2439.TW N 162 212 16-Dec 9 12.3 2.6 Unimicron continued to outperform on share gains in RFPCB and SLP.
TXC 3042.TW N 38.95 44 16-Dec 13.3 13.5 1.4
Delta 2308.TW O 135.5 170 16-Dec 19.1 17.5 2.8
The company will report its 4Q17 result on 16 March. Tripod’s Feb
Lite-on Tech 2301.TW N 42 48 16-Dec 37.6 10.6 1.4 sales declined only 1% YoY (vs PCB's -4% YoY), driven by the pull-in
Chicony 2385.TW O 74 85 16-Dec 13.3 12.7 2.2 of CH smartphone orders. NYPCB said sales from crypto currency
Kinsus 3189.TW N 54.8 61 16-Dec 49.7 15.3 0.9 increased to 5% in Feb sales, and Kinsus is also seeing its crypto
Tripod 3044.TW N 100.5 112 16-Dec 12.1 11.4 1.7
currency contribution reaching close to a mid-single digit percentage.
Unimicron 3037.TW N 19.85 19 16-Dec 101.8 22.3 0.7
NYPCB 8046.TW N 34.5 26 16-Dec n.m. 36.4 0.7 Nevertheless Kinsus’s sales QTD were only 60% of our estimates,
TOPOINT 8021.TW O 21.15 27 16-Dec 14.3 13 0.8 hurt by softer smartphone demand and share loss at US customers.
Chin Poon 2355.TW O 54.2 72 16-Dec 12.9 10.5 1.4 Topoint is on track to 1Q18 guidance of high single-digit decline QoQ.
Bizlink 3665.TW O 285 300 16-Dec 30.7 23.3 5.1
Sinbon 3023.TW O 79.9 98 16-Dec 15 13.4 3.5 AutoTech: MoM down on CNY but strong YoY
Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM Sinbon’s Feb sales grew 3% YoY, as growth in Automotive and
Source: Company data, Credit Suisse estimates Industrial was offset by Medical and Energy. Bizlink came in above
Casing: overall below CS on iPhone X adjustments our estimates, driven by home appliance sell-through. Chin Poon’s
Casetek Feb sales were above CS, but preliminary Feb profit showed 25% MoM decline was in line with its guidance of a significant drop in
a 239% YoY decline, due to early ramp for 2H18 projects and rising Feb, due to a strong recovery in Jan and Chinese New Year impact.
labour costs. Catcher's sales YTD were up 45% YoY, driven by solid
Figure 2: Components YoY growth narrowed to 15%
migration to unibody casing for high-end NBs. FTC’s Feb sales were 80%
below on its exposure to high-end smartphones and game consoles. 60%
+62%
+40%
40%
+21%
Handset: Inventory adjustments still weigh on sales 20%
Avg YoY: +15%
+8%
Largan’s Feb sales only reached 51% of street estimates, which it
+3%
0%
-2% -0% -1%
attributed to inventory adjustments across its customer base. Largan -20%
Casing
-8%
Handset Power Supply
-4%
PCB AutoTech
said new models with higher spec will start pulling in from 2Q18 at the YTD2017 Sales YoY YTD2018 Sales YoY
earliest, suggesting a 45-50% QoQ decline in 1Q18. Merry’s 58% Source: Company data, TEJ
MoM decline is impacted by both US customer inventory adjustment
and entertainment sales. TXC’s sales QTD were below expectation on
weaker US and CH mobile demand.
- 36 of 45 -
Asian Daily
Sinbon Electronics Co., Ltd ---------------------------------------------- Maintain OUTPERFORM
Margins softer in 4Q17, but long-term rerating story intact EPS: ▼ TP: ◄►
● 4Q17 EPS at NT$1.12 was above CS estimates, but OpM was shy relatively underperform in 1Q18. The mix changes could result in
of expectations, hurt by an unfavourable product mix and cost impact sequential margin improvement.
from its Hungary production site. Growth in Industrial, Automotive,
and Green energy was double digit in 2017 on USD basis. Figure 1: Sinbon’s 4Q17 results review
(NT$mn) Actual YoY QoQ CS +/-% Street +/-%
● Sinbon expects March sales to recover to the January level, implying Net sales 3,009 2 -14 3,091 -3 3,404 -12
mid-single digit YoY revenue growth in 1Q18. It expects Industrial to Gross profit 757 -3 -14 770 -2 848 -11
relatively outperform in 1Q18, which should be positive for gross Operating profit 197 -20 -55 285 -31 406 -51
margin. Pre-tax income 304 -10 -34 324 -6
Net income 253 3 -28 225 13 335 -24
● For 2018, Sinbon is still eying double-digit YoY sales growth, mainly EPS (NT$) 1.12 2 -28 1.00 13 1.49 -24
driven by automotive share gains in EV, industrial strength in Gross margin (%) 25.1 24.9 24.9
agriculture, semiconductor and warehouse, and broader product Op margin (%) 6.5 9.2 11.9
offering in medical. It targets a YoY OpM improvement. Source: Company data, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates
● We lower FY18-19 EPS by 3%, factoring in 3% NTD appreciation Figure 2: February sales in line with street
YTD. We still like Sinbon's growing exposure to Industrial, Medical (NT$ mn) Feb-18 Jan-18 MoM Feb-18 Feb-17 YoY
and Automotive, its superior return generation capability, and we Net sales 1,080 1,192 -9% 1,080 1,045 3%
Seasonal trend -13% 10%
view its valuation at 14x FY18 EPS attractive for the long-term
Quarter to date QTD 4Q17E QTD
rerating story. Tracking to CS 2,273 3,230 70%
Bbg/RIC 3023 TT / 3023.TW Price (13 Mar 18 , NT$) 79.80 Tracking to street 2,273 3,404 67%
Rating (prev. rating) O (O) TP (prev. TP NT$) 98.00 (98.00) Seasonal trend 65%
52-wk range (NT$) 92.0 - 67.8 Est. pot. % chg. to TP 23
Mkt cap (NT$/US$ mn) 17,988.2/ 614.8 Blue sky scenario (NT$) 120.00 Source: Company data, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates
ADTO-6M (US$ mn) 4.1 Grey sky scenario (NT$) 50.00 2018 outlook slightly above estimates
Free float (%) 88.1 Performance 1M 3M 12M For 2018, Sinbon is still eying double-digit YoY sales growth, mainly
Major shareholders Fubon Financial Absolute (%) 3.4 (7.6) 10.2 driven by Automotive, Industrial and Medical.
(8.5%) Relative (%) (3.6) (13.6) (4.2)
Year 12/15A 12/16A 12/17E 12/18E 12/19E Automotive: Sinbon is gaining good traction with EV customers,
Revenue (NT$ mn) 12,111 12,926 13,061 13,975 15,032 especially in China and the US, but charging stations will take a longer
EBITDA (NT$ mn) 1,248 1,599 1,566 1,771 1,951 time to contribute. While it has over 50% of automotive sales related to
Net profit (NT$ mn) 970 1,157 1,226 1,306 1,439
EPS (CS adj. NT$) 4.36 5.15 5.44 5.79 6.38
ADAS, it has started sampling Autopilot components for US customers.
- Change from prev. EPS (%) n.a. n.a. 2.4 (3.1) (3.2) Industrial: Strong demand seen in Agriculture, Semiconductor and
- Consensus EPS (NT$) n.a. n.a. 5.51 6.23 6.86
EPS growth (%) 20.0 18.1 5.6 6.5 10.2
warehouse industry.
P/E (x) 18.3 15.5 14.7 13.8 12.5 Medical: Sinbon has penetrated into higher-end areas including
Dividend yield (%) 3.9 4.6 5.0 5.3 5.9 Surgical and Diagnostic Equipment, which offers higher margin. It
EV/EBITDA (x) 13.4 10.3 10.7 9.5 8.7
P/B (x) 3.2 3.1 3.0 2.8 2.5 aims to deliver YoY OpM improvement, driven by operating leverage.
ROE (%) 18.3 20.5 20.8 20.8 21.1 Maintain OUTPERFORM
Net debt(cash)/equity (%) (21.9) (26.4) (19.6) (16.0) (14.5)
Note 1: Sinbon Electronic Co engages in cable assembly and connector business, mainly used in
We lower FY18-19 EPS by 3%, factoring in 3% NTD appreciation YTD.
Communication, Green Energy, Industrial, Medical and Automotive markets. We still like Sinbon's growing exposure to Industrial, Medical and
Click here for detailed financials Automotive, its superior return generation capability and view its
4Q17 bottom line helped by lower tax and non-op valuation at 14x FY18 EPS attractive for the long-term rerating story.
4Q17 OpM of 6.5% was below CS and street estimates, as we
Figure 3:Dividend payout maintained at 70%+
underestimated the labour cost impact from its Hungary production
site. 4Q17 revenue was slightly below our estimates, due to order 6.0
EPS (NT$, LHS) Payout ratio (RHS)
100%
pushout in Industrial sales. The mix change (less industrial and more 5.0 85%
consumer electronics) and margin pressure in Energy led to 1.38 pp 4.0 70%
YoY decline in gross margin bottomline, however, it was above CS 3.0 55%
estimates on lower tax rate and NRE income. Net-net, Sinbon still 2.0 40%
delivered double-digit YoY sales growth in Industrial, Automotive and 1.0 25%
0.0 10%
Green energy in 2017 on USD basis. 2010 2011 2012 2013 2014 2015 2016 2017
Source: Company data

1Q18 revenue guidance implies milder recovery in March
Sinbon expects March sales to recover to January's level (or ~NT$1.2
bn), implying mid-single digit YoY revenue growth in 1Q18. QTD sales
achieved 67% of street estimates, vs past five-year average of 65%.
Sinbon expects Industrial to relatively outperform, and energy to
- 37 of 45 -
Asian Daily
Taishin Financial Holding ---------------------------------------------------------Maintain NEUTRAL
Weaker 4Q17 results with moderate guidance for 2018 EPS: ▼ TP: ◄►
Chung Hsu, CFA / Research Analyst / 886 2 2715 6362 / chung.hsu@credit-suisse.com
● Taishin FHC hosted an analyst meeting to review its 4Q17 results Figure 1: Taishin Bank's quarterly P&L
of NT$2.7 bn (+66% YoY), and 2017 net profit of NT$13.1 bn (NT$ mn) 4Q16 1Q17 2Q17 3Q17 4Q17 QoQ YoY
(+15% YoY), which was 13% below of our full-year estimates. Net interest income 4,562 4,346 4,610 4,750 4,698 -1% 3%
Fee income 2,375 2,797 2,613 2,688 2,635 -2% 11%
● Taishin Bank reported net profit of NT$2.0 bn, +68% YoY, mainly Other non-interest income 702 320 1,015 1,516 929 -39% 32%
due to a very low base last year. PPoP grew by 1% helped by Operating income 7,639 7,463 8,238 8,954 8,262 -8% 8%
higher trading gains (+32% YoY) and fee income (+11% YoY), Operating expense (4,651) (4,449) (4,564) (4,783) (5,236) 9% 13%
which more than offset higher operating expense (+13% YoY) due PPOP 2,988 3,014 3,674 4,171 3,026 -27% 1%
to higher HR cost and credit card related expense. NII grew by a Provisions (1,589) 195 (284) (823) (669) -19% -58%
modest 3%, dragged by a slightly lower NIM. Pre-tax income 1,399 3,209 3,391 3,348 2,357 -30% 68%
Net income 1,215 2,724 2,926 2,887 2,037 -29% 68%
● Management guided for moderate operating improvements in 2018: Source: Company data, Credit Suisse estimates.
(1) high single digit loan growth driven by SME (+10% YoY) and
Figure 2: Taishin Bank's key ratios
home equity loans; (2) slight NIM improvement from US interest
2015 2016 2017E 2018E 2019E
hike. (3) mid-to-high single digit growth in WM fee income after a Loan growth 3.7% 5.0% 9.1% 7.0% 5.5%
subdued 2017; (4) lower net credit costs on benign asset quality.
Fee income growth 11.2% 16.9% 3.4% 8.0% 7.0%

● We adjust our FY17E after the results but keep our FY18-19E Net interest margin (NIM) 1.49% 1.42% 1.36% 1.38% 1.41%
and target price unchanged. The stock is currently trading at 1.1x Loan to deposit ratio (LDR) 80% 79% 80% 81% 82%
Cost to income ratio (CIR) 55% 55% 57% 55% 53%
FY18E P/B and we believe it is fairly valued. 0.14% 0.27%
NPL ratio 0.22% 0.19% 0.21%
NPL coverage ratio 1052% 549% 596% 617% 526%
Bbg/RIC 2887 TT / 2887.TW Price (13 Mar 18 , NT$) 14.20 Credit cost (bps) 30 35 20 16 26
Rating (prev. rating) N (N) TP (prev. TP NT$) 13.00 (13.00) Capital adequacy ratio (CAR) 12.5% 14.2% 13.8% 13.6% 13.3%
52-wk range (NT$) 14.8 - 11.6 Est. pot. % chg. to TP (8)
Reserve to loan 1.43 1.48 1.33 1.19 1.11
Mkt cap (NT$/US$ bn) 141.8/ 4.8 Blue sky scenario (NT$) 17.23
ADTO-6M (US$ mn) 6.7 Grey sky scenario (NT$) 8.77
Free float (%) 60.0 Performance 1M 3M 12M Figure 3: Taishin FHC is currently trading at 1x FY18E P/B
Major shareholders Wu family- 20%, Absolute (%) 4.4 4.4 21.9 (x)
Relative (%) (2.6) (1.6) 7.5
1.6
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Pre-prov Op profit (NT$ mn) 17,397.4 16,006.7 16,579.7 18,052.7 20,780.8
Net profit (NT$ mn) 12,313 10,830 11,581 13,402 14,982 1.2
EPS (CS adj. NT$) 1.39 1.14 1.17 1.35 1.51
- Change from prev. EPS (%) n.a. n.a. (13) 0 0 0.8
- Consensus EPS (NT$) n.a. n.a. 1.15 1.29 1.37
EPS growth (%) 1,620.0 (18.1) 2.5 15.7 11.8 0.4
P/E (x) 10.2 12.5 12.2 10.5 9.4
Dividend yield (%) 3.4 3.7 3.7 1.4 1.6 0.0
BVPS (CS adj. NT$) 12.5 12.3 12.4 13.2 14.4
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
P/B (x) 1.14 1.16 1.15 1.08 0.98
ROE (%) 11.7 9.5 9.7 10.6 10.9 Taishin 1-yr forward P/B Average +1d -1d +2d -2d
ROA (%) 0.8 0.7 0.7 0.8 0.9
Tier 1 ratio (%) 8.4 10.6 10.5 10.6 10.6 Source: TEJ, Credit Suisse estimates.
Note 1: Taishin Financial Holding Co., Ltd. is principally engaged in the finance industry. The Guiding for moderate growth for 2018; maintain NEUTRAL
Company operates its businesses through banking; bill finance, as well as asset management
services, marketing consulting services, trust business, insurance business. For 2018, Taishin expects moderate NII growth based on high single
Click here for detailed financials digit loan growth mainly driven by SME (+10% YoY) as well as home
4Q17 profits lower than expected equity loans, while NIM to see moderate improvement on the back of
Taishin FHC reported its 4Q17 net profit of NT$2.7 bn (+66% YoY) US interest hike. Management also guides at least 5% growth for fee
with 2017 net profit of NT$13.1 bn (+15% YoY), though this came in income, while credit cost will further decrease helped by benign asset
13% below our full year estimates. The bank's profit improved by 68% quality with a lower NPL ratio.
YoY, mainly due to a very low base in 4Q16 while PPoP grew by 1% We tweak our FY17E after the results after keep our FY18-19E
helped by stronger trading gains as well as better fee income growth intact. We maintain our NEUTRAL rating on the stock as we believe it
(11%) supported by WM business, which more than offset the is currently fair-valued at 1.1x FY18E P/B on 10.6% forward ROE.
increase in operating expense (+13% YoY) on higher HR cost and
advertisement expense for credit cards.
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Asian Daily
Wistron -------------------------------------------------------------------------- Maintain OUTPERFORM
iPhone business on track, share and yield gains offset potential for further cuts EPS: ▲ TP: ▲
Thompson Wu / Research Analyst / 886 2 2715 6386 / thompson.wu@credit-suisse.com
Harvie Chou / Research Analyst / 886 2 2715 6364 / harvie.chou@credit-suisse.com
● Passed initial iPhone learning curve, 0.9% OpM was in line with Figure 1: Wistron 4Q17 results and 2018/19E forecasts
Street but EPS missed by 5% due to higher tax rate (but above NT$ mn
Sales
4Q17A
261,603
CS Est. Consens.
261,400 256,950
1Q18E
202,255
2Q18E
208,913
3Q18E
263,080
4Q18E
325,799
2017 2018E 2019E
836,081 1,000,047 1,073,886
CS). Management is optimistic on 2018 margin improvement Gross profit

Operating profit
9,349
2,313
10,713
2,609
10,381
2,340
7,915
1,908
7,732
1,255
9,694
2,538
13,810
6,219
31,639
5,914
39,150
11,920
43,108
14,757
across most product categories, namely smart-device. We lift Non-op income/expense

Pre-tax profit
-379
2,692
310
2,299
-118
2,457
201
1,707
107
1,148
41
2,497
218
6,000
-244
6,158
567
11,353
562
14,195
2018E EPS by 2% and raise TP to NT$33 (from NT$31) on 12x. Net profit
GAAP EPS
1,603
$0.61
1,535
$0.59
1,682
$0.64
1,073
$0.41
689
$0.26
1,533
$0.59
3,870
$1.48
3,885
$1.50
7,166
$2.74
9,061
$3.46
● Expect better margins in 2018. Management said smart-devices Sales YoY %

Sales QoQ %
24.5%
23.3%
24.4%
23.2%
22.3%
21.1%
20.1%
-22.7%
7.8%
3.3%
24.0%
25.9%
24.5%
23.8%
26.7% 19.6% 7.4%
(i.e. iPhone) passed initial learning curve with margins set to GM %

Opex/sales
3.6%
2.7%
4.1%
3.1%
4.0%
3.1%
3.9%
3.0%
3.7%
3.1%
3.7%
2.7%
4.2%
2.3%
3.8%
3.1%
3.9%
2.7%
4.0%
2.6%
improve both from scale/efficiency in 2018. They expect margin OPM % 0.9% 1.0% 0.9% 0.9% 0.6%
Source: Company data, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates
1.0% 1.9% 0.7% 1.2% 1.4%
improvement across all categories except NB, which will be flat.

Planning for portion of LCD with potential for OLED
● Growth outweighs GDR dilution. Board approved GDR shares of Wistron began assembling iPhone 8 Plus in September last year. We
up to 260 mn (renewing 2017 proposal). We see higher chance of expect Wistron to assemble portion of LCD model this year, also with
issuance from smart-device growth and rising rates. Long-term potential for OLED iPhone model. We forecast a total of 23/27 mn
growth should outweigh maximum 9% dilution impact, in our view. shipments in 2018/19E from 14.1 mn in 2017. This assumes
● OUTPERFORM. Wistron trades at 11.5x Street 2018 EPS, below 10%/12% of our total iPhone forecasts and 37%/39% of the key model.
last three-year average of 12x. We believe recent pull-back from We estimate a 4% EPS change for every 1 mn iPhone unit change.
risks of iPhone build cuts is over-done with Wistron in a good Wiwynn plans to raise NT$2.4 bn in Mainboard listing
position to offset through share gains and higher yields. Shares Wiwynn plans to move to Taiwan's Mainboard in 2H18 based on
offer 4.4% cash dividend yield. recent filings. In doing so, Wiwynn plans to raise NT$2.4 bn by selling
Bbg/RIC 3231 TT / 3231.TW Price (13 Mar 18 , NT$) 27.35 20 mn new shares at NT$120 (32% below current share price and 15x
Rating (prev. rating) O (O) TP (prev. TP NT$) 33.00 (31.00) annualised 1H17 EPS). Wistron will participate by purchasing 8.93 mn
52-wk range (NT$) 31.0 - 21.8 Est. pot. % chg. to TP 21
Mkt cap (NT$/US$ mn) 75,176.6/ 2,569.5 Blue sky scenario (NT$) 45.00
new shares with 55% stake post-deal (from 57%). We expect
ADTO-6M (US$ mn) 15.9 Grey sky scenario (NT$) 20.00 Wistron's server/storage (including Wiwynn) to reach NT$132/147 bn
Free float (%) 89.0 Performance 1M 3M 12M in 2018/19E (+12%/+11% YoY). We expect majority of growth to
Major shareholders Acer Absolute (%) 20.5 18.7 7.1 come from higher penetration in existing customers, plus new
Relative (%) 13.5 12.7 (7.3) customer wins.
Year 12/15A 12/16A 12/17E 12/18E 12/19E
Revenue (NT$ bn) 623 660 836 1,000 1,074 2% dilution from employee bonus and 9% from GDR
EBITDA (NT$ bn) 10.7 14.1 13.8 20.1 23.0 Employee bonus of NT$711 mn will be in the form of stock (i.e. 26 mn
Net profit (NT$ bn) 1.3 3.0 3.9 7.2 9.1 shares), or 2% dilution to 2018E EPS, which we have factored in. The
EPS (CS adj. NT$) 0.55 1.20 1.50 2.74 3.46 Board approved a GDR proposal to issue no more than 260 mn new
- Change from prev. EPS (%) n.a. n.a. 1.8 1.7 (6.2)
- Consensus EPS (NT$) n.a. n.a. 1.50 2.42 2.80 shares and is up for voting at the AGM on 14 June, 2018. There is 9%
EPS growth (%) (63.6) 119.0 25.4 82.4 26.4 dilution if the GDR is fully executed. We believe there is a higher
P/E (x) 50.0 22.8 18.2 10.0 7.9 likelihood to fund iPhone/India expansion and rising interest rates.
Dividend yield (%) 4.4 4.4 4.4 8.0 10.1
EV/EBITDA (x) 10.1 5.4 7.3 4.4 4.4 Valuation
P/B (x) 1.0 1.0 1.1 1.0 1.0 Wistron trades at 10x/11.5x our revised/Street 2018E EPS, and below
ROE (%) 1.9 4.4 5.9 10.6 12.7 its historical three-year average of 12x. We believe recent pull-back
Net debt(cash)/equity (%) 47.2 0.3 39.3 18.7 34.0 from iPhone build cuts is over-done and Wistron is in a good position
Note 1: ORD/ADR=10.00. Note 2: Wistron Corporation, an original design manufacturer, provides a
range of design, manufacturing, and after-sales service support functions for information and to offset through share gains and higher profits.
communication technology products. The company also provides fiber channel storage arrays.
Figure 2: Wistron trading below historical three year average
4Q17 results—OpM in line with street; EPS below
Sales were NT$261.6 bn (24.5%/23.3% YoY/QoQ growth). Both 18x
YoY/QoQ growth were driven by smart-devices, which increased 16x

+2 Std dev = 15x
140%/102% YoY/QoQ and reached 36% of total sales vs 19% in 14x

+1 Std dev = 14x
4Q16. We believe transition to iPhone 8 Plus and increased volumes
12x
carried sales growth. Server/storage sales increased 116%/23% Average = 12x
YoY/QoQ, driven by Wiwynn (2H17 has not been officially reported). 10x
-1 Std dev = 10x
Overall, GM was 3.6% and declined 30 bp QoQ driven by higher 8x
-2 Std dev = 8x
iPhone mix. iPhone carries lower-than-corporate margin. Opex/sales 6x
held to multi-year lows at 2.7% given the higher mix of EMS-based 4x

business such as iPhone; with 0.9% OpM. Pre-tax profit was boosted Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18
by 14% from disposal gains. EPS was NT$0.61, slightly below Street.
Source: Company data, the BLOOMBERG PROFESSIONAL™service Credit Suisse research
- 39 of 45 -
Asian Daily
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Asian Daily
Companies mentioned
ABB Ltd. (ABB.BO, Rs1431.1)
ACC Limited (ACC.BO, Rs1575.85, NEUTRAL, TP Rs1300.0)
Adhi Karya (ADHI.JK, Rp2,290)
Ambuja Cements Ltd (ABUJ.BO, Rs239.2, UNDERPERFORM, TP Rs220.0)
Aviat Networks (AVNW.OQ, $17.6)
BASF (BASFn.DE, €85.46)
Bharat Heavy Electricals Ltd (BHEL.BO, Rs86.9)
Binani Cement (BINC.BO^E11)
BizLink Holding Inc (3665.TW, NT$285.0)
BMW (BMWG.DE, €85.71)
Bumitama Agri Ltd (BUMI.SI, S$0.71)
Casetek Holdings Limited (5264.TW, NT$86.2)
Catcher Technology (2474.TW, NT$367.0)
Ceragon Networks (CRNT.OQ, $2.65)
Chicony (2385.TW, NT$74.0)
Chicony Power (6412.TW, NT$61.0)
China Coal Energy Company Limited (1898.HK, HK$3.56, NEUTRAL, TP HK$4.0)
China Coal Energy Company Limited (601898.SS, Rmb5.66, UNDERPERFORM, TP Rmb3.4)
China Life (2628.HK, HK$23.5, OUTPERFORM, TP HK$28.0)
China Life (601628.SS, Rmb26.99, UNDERPERFORM, TP Rmb22.5)
China Pacific (2601.HK, HK$39.0, OUTPERFORM, TP HK$48.5)
China Pacific (601601.SS, Rmb38.82, NEUTRAL, TP Rmb41.0)
China Shenhua Energy Company Limited (1088.HK, HK$22.2, OUTPERFORM, TP HK$23.0)
China Shenhua Energy Company Limited (601088.SS, Rmb23.37, NEUTRAL, TP Rmb19.6)
China Taiping (0966.HK, HK$30.45, OUTPERFORM, TP HK$40.0)

Chin-Poon Industrial Co., Ltd. (2355.TW, NT$54.2)
CJ E&M (130960.KQ, W91,100, OUTPERFORM, TP W105,000)
CJ Hello (037560.KS, W8,640)
CJ O Shopping Co Ltd (035760.KQ, W219,400)
CK Infrastructure (1038.HK, HK$66.0)
CLP Holdings Limited (0002.HK, HK$78.7)
COMPEQ MFG. (2313.TW, NT$32.25)
CONCRAFT (4943.TW, NT$279.5)
Cummins India (CUMM.BO, Rs776.85, OUTPERFORM, TP Rs975.0)
Dalmia Bharat Ltd. (DALA.BO, Rs2860.7)
Delta Electronics (2308.TW, NT$135.5)
Flexium (6269.TW, NT$111.5)
Foxconn Technology Corp (2354.TW, NT$81.2)
GDS Holdings Limited (GDS.OQ, $28.75, UNDERPERFORM[V], TP $23.1)
Genius Products (GNPR.PK, $0.05)
Genting Plantations Bhd (GENP.KL, RM10.2)
Hitachi cement (Unlisted)
Honda Atlas Cars (HATC.KA, PRs491.46, OUTPERFORM, TP PRs735.0)
Honda Motor (7267.T, ¥3,739)
Hong Kong Electric Investments (2638.HK, HK$7.35, UNDERPERFORM, TP HK$5.6)
Huaneng Renewables Corporation (0958.HK, HK$2.73)
Hyundai Motor Company (005380.KS, W153,500)
Indus Motor Company (INDM.KA, PRs1742.09, NEUTRAL, TP PRs1960.0)
Jiangsu Hengrui Medicine Co. Ltd (600276.SS, Rmb78.81, OUTPERFORM, TP Rmb83.4)
JSW Steel Ltd (JSTL.BO, Rs297.95)
Kalyanpur (KALY.BO, Rs10.37)
Kia Motors (000270.KS, W32,550)
Kinsus Interconnect Tech (3189.TW, NT$54.8)
Kuehne + Nagel (KNIN.S, SFr149.2)
Largan Precision (3008.TW, NT$3955.0)
Larsen & Toubro (LART.BO, Rs1309.85, OUTPERFORM, TP Rs1700.0)
Lite-On Technology (2301.TW, NT$42.0)
Longyuan Power (0916.HK, HK$5.56, OUTPERFORM, TP HK$7.1)
Mando Corp (204320.KS, W230,000, OUTPERFORM, TP W290,000)
Merry Electronics Co. Ltd (2439.TW, NT$162.0)
Muang Thai Leasing Company Limited (MTLS.BK, Bt38.5, OUTPERFORM, TP Bt52.0)
Nan Ya Printed Circuit Board (8046.TW, NT$34.5)
Nec N & S Integ (1973.T, ¥2,865)
Netflix, Inc. (NFLX.OQ, $321.3)
Netmarble Games (251270.KS, W148,500)
New China Life (1336.HK, HK$46.0)
New China Life (601336.SS, Rmb52.06)
Nexteer Automotive Group Limited (1316.HK, HK$16.4, UNDERPERFORM, TP HK$10.3)
Nissan Motor (7201.T, ¥1,130)
NTPC Ltd (NTPC.BO, Rs171.0, OUTPERFORM, TP Rs190.0)
Pak Suzuki Motors (PKSU.KA, PRs495.14, OUTPERFORM, TP PRs850.0)
Panalpina (PWTN.S, SFr134.1)
Philip Morris International (PM.N, $107.14)
PICC P&C (2328.HK, HK$16.2)
Ping An (2318.HK, HK$86.4)
Ping An (601318.SS, Rmb69.42)
POSCO (005490.KS, W353,000, OUTPERFORM, TP W460,000)
PT Bank Central Asia Tbk (BBCA.JK, Rp23,450, NEUTRAL, TP Rp26,200)
PT Bank Danamon Indonesia Tbk (BDMN.JK, Rp6,850, RESTRICTED [V])
PT Bank Mandiri (Persero) Tbk (BMRI.JK, Rp8,175, OUTPERFORM, TP Rp9,600)
PT Bank Negara Indonesia (Persero) Tbk (BBNI.JK, Rp9,250, NEUTRAL, TP Rp10,300)
PT Bank Pembangunan Daerah Jawa Barat dan Banten T (BJBR.JK, Rp2,180, UNDERPERFORM, TP Rp1,800)
PT Bank Rakyat Indonesia (Persero) Tbk (BBRI.JK, Rp3,760, OUTPERFORM, TP Rp4,400)
PT Bank Tabungan Negara Persero Tbk (BBTN.JK, Rp3,750, NEUTRAL, TP Rp3,600)
PT Bank Tabungan Pensiunan Nasional Tbk (BTPN.JK, Rp3,390, OUTPERFORM, TP Rp4,900)
- 41 of 45 -
Asian Daily
PT Jasa Marga (Persero) Tbk (JSMR.JK, Rp5,150)
PT Perusahaan Perkebunan London Sumatra Indonesia (LSIP.JK, Rp1,345)
PT Waskita Karya (Persero) Tbk (WSKT.JK, Rp2,680, OUTPERFORM, TP Rp3,100)
Qudian Inc. (QD.N, $16.51, OUTPERFORM[V], TP $20.0)
Rakuten (4755.T, ¥933, NEUTRAL, TP ¥1,000)
Ratchthani Leas (THANI.BK, Bt7.2)
Sadbhav Engineering Ltd (SADE.BO, Rs386.75, OUTPERFORM, TP Rs480.0)
Siemens (SIEM.NS, Rs1106.85)
Sinbon Electronics Co., Ltd (3023.TW, NT$79.8, OUTPERFORM, TP NT$98.0)
Sino Biopharmaceutical Limited (1177.HK, HK$15.22, OUTPERFORM, TP HK$18.4)
Srisawad Finance (BFIT.BK, Bt39.25)
Srisawad Power 1979 Public Company Limited (SAWAD.BK, Bt62.0)
Studio Dragon (253450.KQ, W93,500, OUTPERFORM[V], TP W112,000)
Suzuki Motor (7269.T, ¥5,793)
Taiheiyo Cement (5233.T, ¥3,755, OUTPERFORM, TP ¥5,000)
Taishin Financial Holding (2887.TW, NT$14.2, NEUTRAL, TP NT$13.0)
Tata Steel Ltd (TISC.BO, Rs622.7)
Techtronic Industries (0669.HK, HK$48.5, OUTPERFORM, TP HK$57.7)
The Walt Disney Company (DIS.N, $105.17)
Thermax (THMX.BO, Rs1161.6)
Thitikorn (TK.BK, Bt14.6)
Topoint Technology Co Ltd (8021.TW, NT$21.15)
Toyota Motor (7203.T, ¥6,969)
Tripod Technology (3044.TW, NT$100.5)
TXC Corp. (3042.TW, NT$38.95)
Ultratech Cement Ltd (ULTC.BO, Rs4164.8, UNDERPERFORM, TP Rs3500.0)
Ultratech Cement Ltd (ULTC.BO, Rs4177.25)

UMT (3491.TWO, NT$72.3)
Unimicron Technology Corp (3037.TW, NT$19.85)
Venture Corporation Ltd (VENM.SI, S$27.97, OUTPERFORM, TP S$32.0)
Volkswagen (VOWG_p.DE, €158.58)
Voltas (VOLT.BO, Rs638.5, OUTPERFORM, TP Rs700.0)
Volvo (VLVLY.PK, $19.28)
Wanhua Chemical (600309.SS, Rmb37.94, NEUTRAL, TP Rmb40.0)
Wistron (3231.TW, NT$27.35, OUTPERFORM, TP NT$33.0)
Yixin Group Limited (2858.HK, HK$6.15)
Disclosure Appendix
Analyst Certification
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 a ttractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Eu ropean ratings are based on a stock’s total return
relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector , with Outperforms representing the most
attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and Asia stocks (excluding Japan and
Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regio nal benchmark (India - S&P BSE Sensex Index);
prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its curren t share price and (2) the relative
attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation
includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform wh ere an ETR less than or
equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the
context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%,
which was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company
at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view
on the equity security of the company or related products.
- 42 of 45 -
Asian Daily
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.
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Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 47% (62% banking clients)
Neutral/Hold* 37% (56% banking clients)
Underperform/Sell* 13% (54% banking clients)
Restricted 2%
*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd 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.
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Wednesday, 14 March 2018

Asian Daily (Asia Edition)

2H 2018 operating profit down 6% YoY—first drop since its IPO

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

lack of change to the 1970s labour law, and it is an economy that

is close to full capacity in the labour market.

beginning phase, which is pushing up both ASP/episode and the 0.0

W86k) based on DCF. Share price outperformed despite valuation

According to PMI’s management, iQOS device contributed 40.0

estimates, ~3 mn and ~11 mn units of iQOS device was sold in 20.0

FY16/17, and we expect ~20/23/26 mn units of iQOS device to be 10.0

sold in FY18/19/20. We believe that iQOS contributed ~S$421 mn 0.0

they look expensive, have negative earnings revisions and a third of

2) It is also worth noticing that the office for deepening healthcare

Simplification helps improve efficiency

Source: Company data, Credit Suisse estimates.

premium growth accelerating and profitability rising (2017E CoR: P&C

Year 12/15A 12/16A 12/17E 12/18E 12/19E

400 100 Coal inventory at 6 costal IPPs (mt)

Figure 3: China Shenhua 12-month forward P/B ROE

Inventory builds up at downstream: According to our conversation

the range of Rmb905–935 mn (midpoint Rmb920 mn). This is a

Hyundai 2,451 2,264 8.2%

Car makers generally squeeze suppliers’ of parts in a downturn. We

YoY in 2018's first two months. We slightly revised up our 2018-19 20

No.1 share in the market.

Valuation metrics India Cement prices (indexed)

Source: Company data, Credit Suisse research.

Execution improvement seems more broad based

loans, still relatively elevated compared to our estimate of normalised

divestment can happen by mid-2018. 6 April Annual General Stock

expected in '17 (-Rp6 tn per FS vs -Rp5.5 tn preliminary figure). * as of 13 Mar 2018

● '18 EPS is relatively unchanged vs previous, while '19 estimate

declined by 10% on back of slower new contract assumptions.

WTR toll roads

Dividend yield (%) 0.3 1.4 3.2 3.5 3.6 Semarang-Solo

we won't be surprised if creative financing schemes such as the Current = 8.5x

toll roads sub-holding, with read-throughs to WSKT and JSMR. 4.0x

Interestingly, management has looked into factoring (Rp9.1 tn A/R

from the Ministry of Transportation's pending payments for Palembang

Source: MPOB 2,500

pushed headline volumes down by 8% YoY in February, largely driven

● To reflect the weaker 1Q18 outlook, we adjust 2018E/2019E EPS

demand in spring, especially driven by construction activity, can meet

mainly impacted by its top customer's progress in India. It rebounded

in manufacture and sale of microwave/millimeter-wave (MMW) devices, 50 5%

Wireless backhaul critical to Gigabit-LTE & 5G 30

UMT's microwave/MMW products are mainly used for wireless

market share in 2016. UMT expects the adoption of 5G to further

Source: Company data

Fee income growth 11.2% 16.9% 3.4% 8.0% 7.0%

CS). Management is optimistic on 2018 margin improvement Gross profit

across most product categories, namely smart-device. We lift Non-op income/expense

● Expect better margins in 2018. Management said smart-devices Sales YoY %

(i.e. iPhone) passed initial learning curve with margins set to GM %

improvement across all categories except NB, which will be flat.

YoY/QoQ growth were driven by smart-devices, which increased 16x

140%/102% YoY/QoQ and reached 36% of total sales vs 19% in 14x

held to multi-year lows at 2.7% given the higher mix of EMS-based 4x

Recently Published Research

China Taiping (0966.HK, HK$30.45, OUTPERFORM, TP HK$40.0)

Ultratech Cement Ltd (ULTC.BO, Rs4177.25)

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