2H16 Tech Software Sector Outlook

Transcription

1 Equity Research Information Technology 2H16 Tech Software Sector Outlook Emerging technologies main growth drivers Ryan Zhu, CPA SFC CE No. BDK GF Securities (Hong Kong) Brokerage Limited 29-3/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Sector view Positive Overall sector growth remains stable The software sector saw revenue growth of around 15% in 1Q16, largely stable with the figure of 15.7% one year ago. Growth drivers from technological innovation and Internet Plus Emerging technologies such as enterprise cloud services, the Internet of Things (IoT), artificial intelligence and VR/AR have provided new momentum for the sector. The domestic cloud services industry is now at a stage of rapid development, underpinned by strong growth momentum at industry leaders such as Amazon AWS and Ali Cloud. Sector benefiting from transformation and upgrade of traditional industries Providers of software and services are set to benefit from the ongoing informatization and business model upgrade in traditional industries, e.g. finance, healthcare, education and agriculture. Key themes over next 3-6 months The launch of the SZ-HK Stock Connect should strengthen market attention to cheaplyvalued HK-listed software companies. M&A activities in emerging areas such as VR/AR, cloud computing and artificial intelligence. Strong sales growth momentum currently seen among cloud computing leaders such as Amazon AWS and Ali Cloud will further boost cloud services market conditions. Valuation analysis The HK software sector is valued at around 19x FY16E P/E on average, slightly higher than the sector average forward P/E of 18x for the past three years. Investment strategy Growth opportunities from enterprise cloud services We believe the cloud services industry in China is going through a stage of rapid growth. We favor listed players that have transformed their businesses into this emerging area with strong branding and technological advantages, with a focus on: 1) leading traditional software providers that have stepped into the SaaS space, 2) internet companies that have penetrated the IaaS market. Visible growth on strong partnerships with industry giants Partnerships with industry giants such as Huawei, Tencent and China Mobile will help enhance software players market competitiveness and growth visibility amid fierce competition. Top picks Kingdee (268 HK, Accumulate): Successfully transformed into the enterprise SaaS business with outstanding branding and technical strength in the traditional management software space; Kingsoft (3888 HK, Buy): Successfully penetrated the enterprise IaaS market and established presence in games and video verticals, with internet industry experience and strong R&D capabilities its advantages; Chinasoft (354 HK, Buy): Sustainable growth on strengthened relationships with large customers including Huawei, Tencent and HSBC; potential re-rating driven by transition to the software service platform model. Risks Upside risks: An increase in upstream demand; improved liquidity for small/medium-sized technology stocks driven by the SZ-HK Stock Connect; faster-than-expected commercialization of emerging technologies. Downside risks: Rising labor costs; a slowdown in downstream demand caused by macroeconomic factors; risk of bad debts.

2 Software sector Sector maintains stable growth The software & services sector posted stable sales growth of 15.5% in 1Q16, following growth of 15.7% in FY15. Software services, software products and embedded software, which accounted for 51%, 31% and 18% of 1Q16 sector sales, posted growth of 18%, 12.1% and 16.5% respectively during the quarter. Figure 1: Software & services sector revenue growth and breakdown (Rmb bn) 4,5 4, 3,5 3, 2,5 2, 1,5 1, % 515 2, % 21.1% 1, % 15.5% 37 1,556 1, , , Sources: MIIT, GF Securities (HK) 36.3% 38.7% 31.5% FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 1Q16 Software products Software services Embedded software Overall growth 45% 4 35% 3 25% 2 15% 1 5% Figure 2: Software & services sector total revenue and net profit (Rmb bn) 45, 4, 35, 3, 25, 2, 15, 1, 5, , , ,849 13, % ,97 2.4% 7, % % % 13.6% 12.5% 13.8% % ,341 2,174 2,796 3,366 3,831 4,826 5,766 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 Total revenue 62.2% 37,26 Total profit 42,848 Profit margin Profit growth 7 6 Cloud services industry at a stage of rapid growth The size of the public cloud services market continued to grow rapidly by 49% and exceeded Rmb1bn in FY15. The IaaS segment in China is moving into a fast lane. Internet companies such as Amazon, Ali Cloud and Tencent are believed to be the dominate players in the IaaS field, supported by their abundant hardware resources and strong R&D capabilities. Meanwhile, SaaS services are currently going through a startup period. Looking ahead, the market will be relatively decentralized with two major types of players, namely SaaS startup companies and traditional software developers that have transformed into SaaS service providers. We prefer the latter given their accumulated brand recognition, client resources and R&D capabilities. Figure 3: Size of public cloud services market in China (Rmb bn) 12 71% % % % Size of public cloud services market in China (Rmb bn) growth Sources: Analysys, GF Securities (HK) Figure 4: Size of management SaaS services market in China (Rmb bn) 6 82% 9 79% % 4 52% E 216E Size of management SaaS services market in China (Rmb bn) growth Sources: Analysys, GF Securities (HK) 2

3 Strong growth momentum at leading cloud service providers Leading cloud service providers such as Amazon AWS, Salesforce, NetSuite and Ali Cloud posted solid sales CAGRs of 59%, 28%, 34% and 98% over the past two years. In particular, China s leading cloud service provider Ali Cloud has maintained strong sequential growth momentum over the past four quarters. Figure 5: AWS revenue FY13 FY14 FY15 AWS revenue (US$ m) growth Figure 7: NetSuite Revenue 8 34% 34% % 7 33% 34% % % 4 31% % % 28% FY11 FY12 FY13 FY14 FY15 NetSuite revenue (US$ m) growth Figure 6: Salesforce revenue 8, 7, 6, 5, 4, 3, 2, 1, - 2,267 35% 3,5 Figure 8: Ali Cloud revenue 3,5 3, 2,5 2, 1,5 1, 5 33% 4,71 32% 5,374 6,667 24% 4 35% 3 25% 2 15% 1 5% FY11 FY12 FY13 FY14 FY15 Salesforce revenue (US$ m) growth 26% 19% % 1, % 3,19 FY11 FY12 FY13 FY14 FY15 Ali Cloud revenue growth Figure 9: Ali Cloud s quarterly revenue 1,2 1, ,66 175% % % 14 16% % % 27% 21% 25% 26% % 7% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 Ali Cloud's quarterly revenue growth QoQ growth 3

4 Valuations Figure 1: Valuation comparison for software sector Ticker Company Rating Mkt Cap Price P/E (x) Historical avg BF P/E P/B (x) Earnings CAGR PEG (US$ m) 15/7/ E 218E (past 3 years) 216E 217E 218E FY16-18E FY16E HK peers 3888 HK KINGSOFT CORP Buy 2, HK SINOSOFT TECHNOL NR HK KINGDEE INTL SFT Accumulate HK CHINASOFT INTL Buy hk CHANJET INFO-H Hold n/a n/a n/a 696 HK TRAVELSKY TECH-H NR 5, HK DIGITAL CHINA Hold n/a n/a 327 HK PAX GLOBAL TECHN NR Average A-share peers 657 CH HUNDSUN TECHN-A NR 5, CH NEUSOFT CORP-A NR 3, CH YONYOU NETWORK-A NR 4, CH DIGITAL CHINA -A NR 5, CH TAIJI COMPUTER-A NR 2, n/a n/a n/a n/a 2649 CH BEYONDSOFT COR-A NR 1, CH INSIGMA TECH -A NR 2, n/a n/a n/a n/a n/a n/a n/a n/a n/a Average Global peers ORCL US ORACLE CORP NR 172, SAP US SAP SE-SPONS ADR NR 97, n/a CRM US SALESFORCE.COM NR 55, n/a n/a ULTI US ULTIMATE SOFTWAR NR 6, MSFT US MICROSOFT CORP NR 422, IBM US IBM NR 153, n/a n/a INTU US INTUIT INC NR 29, ACN US ACCENTURE PLC-A NR 75, TCS IN TATA CONSULTANCY NR 71, , INFO IN INFOSYS LTD NR 36, , Average Sources: Bloomberg, GF Securities (HK) 4

5 H16 Sector Outlook Kingdee (268 HK) Accumulate (maintained) Target price: HK$3.9 From No. 1 SME ERP provider to enterprise SaaS service leader Figure 11: Stock performance Figure 12: Key data 1-1 Jul 15 close (HK$) 2.46 Shares in issue (m) 2,94-2 Major shareholder Xu Shaochun 26.7% -3-4 Market cap (HK$ bn) M avg. vol. (m) W high/low (HK$) 6.2 / Sources: Bloomberg Kingdee Hang Seng Index Figure 13: Stock valuation Turnover Net profit Recurring net profit Diluted EPS (Rmb cents) No. 1 SME ERP brand Kingdee is the No. 1 ERP software brand in the domestic SME market. The company provides one-stop products and services to clients of different sizes, meeting both offline and online demands. Steady growth in traditional ERP business Following the transition from direct sales to indirect sales during FY14-15, Kingdee is expected to recover stable growth in its traditional ERP business, driven by an enhanced distribution network and further penetration of its ERP products among SMEs. Leading position in SaaS services Kingdee has shifted its business focus to SaaS services and become the leader in this area on the back of its strong R&D capabilities and industry know-how. Its key SaaS-based products, including its K/3 ERP cloud, cloud hubs and financial cloud YouShang, outperform those of peers in terms of both user base and revenue. Revenue from its cloud service segment is expected to post strong growth of around 1 this year. Partnership with internet giants Kingdee is cooperating with its 1 strategic shareholder JD in e-commerce management software solutions and the electronic invoice business. The company is set to see more profitable opportunities from its partnerships with JD and other leading internet companies such as Amazon, Tencent and Kingsoft Cloud. SOTP-based target price of HK$3.9 Under the SOTP model, we set a target price of HK$3.9 for the company, based on 2x FY16E P/E for its traditional ERP business and 6x FY16E P/S for its cloud business. P/E P/B ROE Net gearing 214 1,547 (3) , (46) (51) cash 216E 1, cash 217E 2, cash 218E 2, cash 5

6 Figure 14: Financial statements Year ended Dec E 217E 218E Year ended Dec E 217E 218E Software license ,1 Cash/ST Investments 1,528 2,174 1,981 2,259 2,227 Implementation Account receivables ,16 maintenance Inventory Cloud service Other Current Assets Others Total current assets 2,13 3,74 2,954 3,444 3,476 Turnover 1,547 1,586 1,775 2,6 2,394 (3) Property, plant & equipment Intangible assets Cost of sales (271) (294) (337) (42) (467) Land use rights Gross profit 1,276 1,292 1,438 1,658 1,927 Investment properties Selling&marketing exp. (784) (855) (95) (1,71) (1,245) Other LT Assets Admin exp. (22) (258) (213) (235) (266) Total non-current assents 2,29 2,41 2,527 2,627 2,715 R&D costs (223) (235) (266) (299) (335) Total Assets 4,393 5,484 5,481 6,71 6,191 Fair value on inv properties Other gains ST Debt Operating profit Trade payables Finance income Deferred revenue Finance costs (97) (94) (9) (85) (85) Other Current Liabilities Share in associates (1) (2) Total current liabilities 1, ,19 1,551 1,396 Pre-tax income LT Debt 1,291 1, Taxation (25) (57) (23) (3) (36) Other LT Liab MI 3 () Total non-current liabilities 1,366 1, Net profit (46) Minority Interests Recurring net profit Shareholders' Equity 1,989 3,217 3,4 3,63 3,95 39 (9) Total Equity & liabilities 4,393 5,484 5,481 6,71 6,191 Diluted EPS (Rmb cents) BPS (Rmb) (51) Diluted recurring EPS (Rmb cents) (19) Cash flow statement Financial ratios Year ended Dec E 217E 218E Year ended Dec E 217E 218E Margins Pretax profit Gross margin Tax Paid (5) (11) (23) (3) (36) EBITDA margin Depr/Amort Operating margin Change in working capital (34) 54 (259) 149 (22) Net margin Others Operational cash flow Returns and profitability ROE Capex (7) (44) (1) (1) (1) ROA Assoc, MI, Invsmt 12 (78) Investment cash flow (265) (554) (45) (468) (486) Working capital Receivables (days) Net Change in Debt (783) (447) Inventory (days) New Capital 33 1, Payable (days) Dividend (3) - (2) (41) (48) Others 1, Financial health Financing cash flow (2) (41) (48) Current ratio (x) Net gearing 15.5 cash cash cash cash FX and others Chg in Cash (193) 279 (33) Others Beginning cash 999 1,528 2,174 1,981 2,259 Dividend payout ratio Ending cash 1,528 2,174 1,981 2,259 2,227 Effective tax ratio Income statement Balance sheet 6

7 Kingsoft (3888 HK) Buy (maintained) Target price: HK$19.5 Strong growth momentum in cloud services and mobile games Figure 15: Stock performance Figure 16: Key data Jul 15 close (HK$) Shares in issue (m) 1,33 Major shareholder Lei Jun 27.12% Market cap (HK$ bn) M avg. vol. (m) W high/low (HK$) 22.95/12.82 Sources: Bloomberg Figure 17: Stock valuation Turnover Net profit * Adj. net profit * Adj. diluted EPS (Rmb) P/E P/B ROE Dividend yield Net gearing 214 3, cash 215 5, (37).43 (38) cash 216E 7, cash 217E 9, , cash 218E 12, ,18 1, cash Successful penetration into cloud services market The domestic cloud services market is going through a phase of rapid growth. Relying on its abundant experience in the internet industry and strong R&D capabilities, Kingsoft has successfully expanded into the IaaS services market and established presence in the fields of online games and video verticals. Revenue from Kingsoft Cloud is expected to grow by more than 2 in FY16. Mobile games to make substantial earnings contribution The JX mobile game, which is the company s first mobile game transformed from its core installed PC game JX Online, has remained one of the top three games by gross billing from the ios platform in the China market during the first month of its launch on Tencent s platform in early Jun, according to App Annie. We estimate that the gross billing from the JX mobile game might have exceeded Rmb4m in Jun. In addition, a second mobile game based on the JX IP will be released towards end-fy16 with a third to come out in FY17. Monetization of mobile WPS traffic has started In 2Q16, the company started to monetize its substantial mobile WPS user traffic (8m MAU during 1Q16). Solid sales growth should be seen in its WPS business segment over the next two years driven by the strong momentum in the advertising business for both the PC and mobile personal versions of WPS. Maintain Buy We expect revenue and adjusted net profit to grow by around 29% and 3 in FY16. We maintain our Buy rating on the company and set a target price of HK$19.5 based on the SOTP valuation model. 7

8 Figure 18: Financial statements Income statement Balance sheet Year ended Dec E 217E 218E Year ended Dec E 217E 218E Online games 1,253 1,369 1,67 1,837 2,21 Cash and ST deposit 6,984 8,66 9,27 1,385 12,346 Cheetah Mobile 1,674 3,562 4,233 5,855 7,563 Other cash equivalent Office software Account receivables 89 1,83 1,563 2,892 2,84 Kingsoft cloud and others ,35 2,25 Inventory Turnover 3,35 5,676 7,315 9,681 12,376 Other Current Assets Total current assets 8,72 1,642 11,72 13,517 15,397 Property, plant & equipment Cost of sales (59) (1,319) (1,913) (2,727) (3,537) Intangible assets Gross profit 2,76 4,357 5,42 6,954 8,839 Prepaid land lease payments Other income and gains Goodwill Selling & marketing exp. (797) (1,756) (2,127) (2,579) (3,7) Financial assets 577 2,252 2,252 2,252 2,252 Admin exp. (297) (443) (595) (746) (927) Other LT Assets R&D costs (956) (1,348) (1,744) (2,82) (2,446) Total non-current assents 2,39 4,843 4,884 4,869 4,814 Other expenses (226) (416) (453) (547) (615) Total Assets 1,382 15,485 15,956 18,386 2,211 Operating profit ,117 1,992 Finance income ST Debt Finance costs (76) (78) (78) (78) (78) Trade payables 1,12 1,994 1,88 3,247 3,37 Others 285 (116) (97) (97) (97) Deferred revenue Pre-tax income ,136 2,11 Other Current Liabilities Taxation (95) (21) (88) (18) (332) Total current liabilities 1,395 2,75 2,713 4,258 4,52 MI (98) 27 (58) (23) (572) Long term debt 2,792 2,711 2,711 2,711 2,711 Net profit ,18 Deferred tax liabilities (52) Other non-current liabilities Adj. net profit ,31 1,449 Total non-current liabilities 2,87 2,869 2,886 2,886 2, (37) Total liabilities 4,265 5,574 5,599 7,144 7,47 Diluted EPS (Rmb) Minority Interests 1,555 2,41 2,99 2,329 2,91 15 (54) Shareholders' Equity 4,561 7,871 8,258 8,912 9,93 Adj. diluted EPS (Rmb) Total Equity & liabilities 1,382 15,485 15,956 18,386 2, (38) BPS (Rmb) Cash flow statement Financial ratios Year ended Dec E 217E 218E E 217E 218E Margins Pretax profit ,136 2,11 Gross margin Tax Paid (95) (1) (88) (18) (332) EBITDA margin Depr/Amort Operating margin Change in working capital Net margin Others (183) Adj. operating margin Operational cash flow 952 1,41 1,12 1,458 2,349 Adj. net margin Capex (27) (64) (27) (27) (27) Returns and profitability Assoc, MI, Invsmt (1,13) (1,12) 17 ROE Investment cash flow (1,4) (1,652) (289) (272) (272) ROA Net Change in Debt 1,677 5 Working capital New Capital 1,379 2,5 Receivables (days) Dividend (111) (122) (59) (71) (116) Inventory (days) Others 6 (194) Payable (days) Financing cash flow 2,95 2,234 (59) (71) (116) Financial health FX and others Current ratio (x) Chg in Cash 2,53 1, ,115 1,961 Net gearing cash cash cash cash cash Beginning cash 4,481 6,984 8,66 9,27 1,385 Ending cash 6,984 8,66 9,27 1,385 12,346 Others Dividend payout ratio Effective tax ratio

9 2-Jul-15 2-Aug-15 2-Sep-15 2-Oct-15 2-Nov-15 2-Dec-15 2-Jan-16 2-Feb-16 2-Mar-16 2-Apr-16 2-May-16 2-Jun-16 2H16 Sector Outlook Chinasoft Intl (354 HK) Buy (maintained) Target price: HK$4.9 High growth visibility on strengthened partnership with top clients Figure 19: Stock performance Figure 2: Key data Jul 15 close (HK$) 3.2 Shares in issue (m) 2,159 Major shareholder Chen Yuhong 11.87% Market cap (HK$ bn) M avg. vol. (m) W high/low (HK$) 3.96/2.33 Chinasoft Intl HSI Sources: Bloomberg Figure 21: Stock valuation Turnover Net profit Core net profit Diluted EPS (Rmb cents) Diluted core EPS (Rmb cents) P/E P/B ROE ROA Net gearing FY14 4, FY15 5, FY16E 6, cash FY17E 7, cash FY18E 9, cash Leading software service provider in China Chinasoft is one of the largest software service companies in China, in term of both staff number and revenue. It has seen continued expansion with CAGRs of ~2 in both its revenue (over past ten years) and net profit (over past four years). High growth visibility on strengthened partnership with top clients Chinasoft has established strong partnerships with top outsourcing clients including Huawei, HSBC, Tencent, BOC and China Mobile. These top clients business expansion will bring 15-2 sales growth for Chinasoft this year. Potential re-rating on transformation into online service platform via JointForce The development of Chinasoft s online software service crowdsourcing platform JointForce is on track. The company targets to increase the online GMV from JointForce to Rmb3m in FY16, from Rmb3m in FY15. It is accelerating the monetization of this platform and we see re-rating potential over the next 1-2 years. Valuation undemanding The company is trading at around 17x 216E P/E, lower than average of 19x for HK-listed software peers. It offers a high margin of safety given its strong growth visibility. We see further commercialization of the JointForce platform as a potential re-rating catalyst over the next two years. Our target price of HK$4.9 is based on 23x FY16E P/E. 9

10 Figure 22: Financial statements Year-end Dec E 217E 218E Year-end Dec E 217E 218E Technical and professional service 3,238 3,781 4,64 5,463 6,556 Cash/ST Investments 811 1,266 1,372 1,49 1,783 Internet ITS service 1,191 1,348 1,618 2,14 2,735 Account receivables 1,316 1,429 1,863 2,117 2,719 Turnover 4,429 5,129 6,258 7,567 9,29 Inventory Amounts due from customers 1,41 1,517 1,988 2,249 2,582 Other Current Assets Cost of sales (3,8) (3,66) (4,425) (5,365) (6,596) Total current assets 3,594 4,346 5,372 5,927 7,254 Gross profit 1,349 1,523 1,834 2,22 2,694 Property, plant & equipment Other gains Intangible assets Selling & marketing exp. (22) (179) (194) (227) (269) Goodwill Admin exp. (665) (745) (889) (1,59) (1,282) Other LT Assets R&D costs (64) (78) (1) (121) (149) Total non-current assents 1,751 2,2 1,967 1,977 1,952 other expense (18) (154) (161) (185) (216) Total Assets 5,344 6,348 7,339 7,94 9,26 Operating profit Finance costs (84) (93) (113) (121) (149) Amounts due to customers Gain on disposal of subsidiaries and available-for-sale investments ST Debt 1,24 1,387 1,5 1,5 1,5 Share in associates Trade payables ,289 1,46 1,93 Others (27) Other Current Liabilities Pre-tax income Total current liabilities 2,329 2,539 2,728 2,78 3,49 Taxation (42) (87) (79) (11) (13) Other LT Liab MI Total non-current liabilities Net profit Minority Interests Core net profit Shareholders' Equity 2,497 3,247 3,59 4,29 4, Total Equity & liabilities 5,344 6,348 7,339 7,94 9,26 Diluted EPS (Rmb cents) BPS (Rmb) Diluted core EPS (Rmb cents) Cash Flow Statement Financial Ratios Year-end Dec E 217E 218E Year-end Dec E 217E 218E Margins Pretax profit Gross margin Tax Paid (26) (87) (79) (11) (13) EBITDA margin Depr/Amort Operating margin Change in working capital (434) (174) (35) (465) (243) Net margin Others 13 (177) Core net margin Operational cash flow Returns and profitability Capex (346) (345) (27) (27) (27) ROE Assoc, MI, Invsmt (92) (12) ROA Investment cash flow (438) 146 (28) (27) (27) Sales/assets (x) Net Change in Debt Working capital New Capital 1 (1) Receivables (days) Dividend Inventory (days) Others (4) (1) Payable (days) Financing cash flow (8) (71) (149) Financial health FX and others - (14) Current ratio (x) Chg in Cash (128) Net gearing cash cash cash Beginning cash ,266 1,372 1,49 Ending cash 811 1,266 1,372 1,49 1,783 Others Effective tax ratio Income Statement Balance Sheet 1

11 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 1 Neutral Expected sector relative performance ranges between -1 and 1 Cautious Sector expected to underperform benchmark by more than 1 Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. Disclosure of Interests (1) The proprietary trading division of GF Securities (Hong Kong) Brokerage Limited ( GF Securities (Hong Kong) ) and/or its affiliated or associated companies do not hold any shares of the securities mentioned in this research report. (2) GF Securities (Hong Kong) and/or its affiliated or associated companies do not have any investment banking relationship with the companies mentioned in this research report in the past 12 months. (3) Neither the analyst(s) preparing this report nor his/her associate(s) serves as an officer of the company mentioned in this report and has any financial interests or hold any shares of the securities mentioned in this report. Disclaimer This report is prepared by GF Securities (Hong Kong). It is published solely for information purpose and does not constitute an offer to buy or sell any securities or a solicitation of an offer to buy, or recommendation for investment in, any securities. The research report is intended solely for use of the clients of GF Securities (Hong Kong). The securities mentioned in the research report may not be allowed to be sold in certain jurisdictions. No action has been taken to permit the distribution of the research reports to any person in any jurisdiction that the circulation or distribution of such research report is unlawful. No representation or warranty, either express or implied, is made by GF Securities (Hong Kong) as to their accuracy and completeness of the information contained in the research report. GF Securities (Hong Kong) accepts no liability for all loss arising from the use of the materials presented in the research report, unless is excluded by applicable laws or regulations. Please be aware of the fact that investments involve risks and the price of securities may be fluctuated and therefore return may be varied, past results do not guarantee future performance. Any recommendation contained in the research report does not have regard to the specific investment objectives, financial situation and the particular needs of any individuals. The report is not to be taken in substitution for the exercise of judgment by respective recipients of the report, where necessary, recipients should obtain professional advice before making investment decisions. GF Securities (Hong Kong) may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in the research report. The points of view, opinions and analytical methods adopted in the research report are solely expressed by the analysts but not that of GF Securities (Hong Kong) or its affiliates. The information, opinions and forecasts presented in the research report are the current opinions of the analysts as of the date appearing on this material only which may subject to change at any time without notice. The salesperson, dealer or other professionals of GF Securities (Hong Kong) may deliver opposite points of view to their clients and the proprietary trading division with respect to market commentary or dealing strategy either in writing or verbally. The proprietary trading division of GF Securities (Hong Kong) may have different investment decision which may be contrary to the opinions expressed in the research report. GF Securities (Hong Kong) or its affiliates or respective directors, officers, analysts and employees may have rights and interests in securities mentioned in the research report. Recipients should be aware of relevant disclosure of interest (if any) when reading the report. Copyright GF Securities (Hong Kong) Brokerage Limited. Without the prior written consent obtained from GF Securities (Hong Kong) Brokerage Limited, any part of the materials contained herein should not (i) in any forms be copied or reproduced or (ii) be re-disseminated. GF Securities (Hong Kong) Brokerage Limited. All rights reserved. 29-3/F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong Tel: Fax: Website: 11