Revenue outlook remains challenging: reiterate Sell

Transcription

1 Deutsche Bank Markets Research Rating Sell Asia Hong Kong Banking / Finance Company Reuters Bloomberg Exchange Ticker 2888.HK 2888 HK HSI 2888 Revenue outlook remains challenging: reiterate Sell 2Q16 results miss forecasts on higher LLPs 2Q16 results were an 11% miss to us as at the management adjusted PBT level. Income was 2% better (though mix arguably weaker), costs 5% lower, driving a pre-provision beat, but loan and other impairment was higher than expected, with a loss from associates. Despite a better performance in 1H16, costs are expected to rise in 2H16, and we think the revenue outlook for SC remains challenging. The RoE target has been pushed out beyond 218, but to hit this still requires a material increase in revenues or significantly below-trend impairments. SC trades at.7x 216 TNAV, 11.4x 218 EPS for a RoTE of 5.7% in 218 with limited dividend support. We retain our Sell rating. Revenues remain the key to future ROE The decline in s revenues as it has de-risked and repositioned over the past 2-3 years has led to a period of painful negative operating leverage. Whilst good progress is being made on costs, and impairments will normalize over time, we remain of the opinion that restoring positive revenue momentum is key to the group making its cost of capital on a 3-5 year view. Here we think evidence in Q2 remains mixed, whilst revenues did at least increase QoQ some of the bigger swings vs Q1 were relatively low quality in nature (e.g. lower Principal Finance write-downs and Other ). Maintaining top-line momentum into what is normally a seasonally weaker H2 is also likely to be a challenge given the current interest rate & volume outlook in many of the group s bigger markets. Valuation & Risks, TP 49HKD, retain Sell. Overall adjusted earnings fall in 216 are unchanged in 217 and fall slightly in 218. Costs are lower, but revenues have been lowered in 217/18 (reflecting environment). BVPS is higher on lower share dilution than expected during 1H16. This leaves trading at.7x 216 TNAV for an RoE of 5% in 218 and limited near-term dividend support. We use a Dividend Discount Model incorporating a Gordon Growth model to value Standard Chartered. We forecast the bank to make a group RoTE of 6% in 218 and we assume a cost of equity of 1% and a growth rate of %. Our TP remains 49HKD. We reiterate our Sell rating. We think operating leverage for SC remains challenging and see pressures on revenues in the coming years. Upside risks: better capital formation, bid for SC, or significant improvement in EM growth & commodity price prospects leading to improved impairment & revenue outlook. Date 4 August 216 Results Price at 3 Aug 216 (HKD) 61.7 Price target - 12mth (HKD) week range (HKD) HANG SENG INDEX 22,129 Stephen Andrews, CFA Research Analyst (+852 ) stephen-a.andrews@db.com David Lock Research Analyst (+44) david.lock@db.com Key changes Provisioning (FYE) Net int margin (FYE) Net profit (FYE) Source: Deutsche Bank Price/price relative ,5.2 to 25.6% 2, to % to % 4 8/14 2/15 8/15 2/16 HANG SENG INDEX (Rebased) Performance (%) 1m 3m 12m Absolute HANG SENG INDEX Source: Deutsche Bank Forecasts And Ratios Year End Dec A 215A 216E 217E 218E Provisioning (USDm) 2,141 4,976 2,519 1,817 1,34 Pre-prov profit (USDm) 7,289 4,116 2,671 4,255 5,54 EPS (USD) PER (x) ROE (%) Distributed on: 8/3/216 2:22:2GMT Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 57/4/216.

2 Model updated:3 August 216 Running the numbers Asia Hong Kong Reuters: 2888.HK Sell Bloomberg: 2888 HK Price (3 Aug 16) HKD 61.7 Target Price HKD Week range HKD Market Cap (m) HKDm 24,699 Company Profile USDm 26,378 plc is an international banking group operating principally in Asia, Africa, Latin America and the Middle East. StanChart is organised into three customer groups (Corporate & Institutional, Commercial, Private Banking, Retail) and has strongest positions in Transaction Banking, Markets, and Retail in Hong Kong. Fiscal year end 31-Dec E 217E 218E Data Per Share EPS (stated)(usd) EPS (DB) (USD) Growth Rate - EPS (DB) (%) na 63.6 DPS (USD) BVPS (stated) (USD) na na na na Tang. NAV p. sh. (USD) Market Capitalisation 54,258 37,25 27,654 26,378 26,378 26,378 Shares in issue 2,447 2,598 2,568 3,3 3,343 3,393 Valuation Ratios & Profitability Measures P/E (stated) P/E (DB) P/B (stated) na na na na P/Tangible equity (DB) ROE(stated)(%) ROTE (tangible equity) (%) ROIC (invested capital) (%) Dividend yield(%) Dividend cover(x) Profit & Loss (USDm) Net interest revenue 11,156 11,3 9,47 8,458 8,824 8,87 Non interest income 7,621 7,331 5,882 5,187 5,211 6,27 Commissions 4,11 4,179 3,67 3,172 2,855 2,569 Trading Revenue 2,514 1, Other revenue 1,6 1,256 1,363 1,84 1,518 2,73 Total revenue 18,777 18,334 15,289 13,645 14,36 14,897 Total Operating Costs 11,322 12,26 12,28 11,353 9,98 1,44 Employee Costs 6,57 6,788 7,119 7,95 6,324 6,365 Other costs 4,752 5,418 4,99 4,258 3,657 3,679 Pre-Provision profit/(loss) 8,584 7,289 4,116 2,671 4,255 5,54 Bad debt expense 1,617 2,141 4,976 2,519 1,817 1,34 Operating Profit 5,838 3,987-1, ,239 3,549 Pre-tax associates Pre-tax profit 6,64 4,235-1, ,419 3,729 Tax 1,864 1, ,44 Other post tax items Stated net profit 3,989 2,512-2, ,429 2,373 Goodwill Extraordinary & Other items ,59 1,11 Bad Debt Provisioning Investment reval, cap gains / losses DB adj. core earnings 4,779 3, ,429 2,373 Key Balance Sheet Items (USDm) & Capital Ratios Risk-weighted assets 322, ,648 32, ,391 28, ,74 Interest-earning assets 296,15 288, , , , ,18 Customer Loans 296,15 288, , , , ,18 Total Deposits 39, , , , , ,841 Stated Shareholder Equity 44,752 44,938 44,71 44,25 45,619 47,749 Equals: Tangible Equity 38,682 39,748 4,68 39,456 4,825 42,955 Tier 1 capital 42,335 38,799 42,773 41,367 42,149 43,692 Tier 1 ratio (%) o/w core tier 1 capital ratio (%) Credit Quality Gross NPLs/Total Loans(%) Risk Provisions/NPLs(%) Bad debt / Avg loans (%) Bad debt/pre-provision Profit(%) Growth Rates & Key Ratios Growth in revenues (%) Growth in costs (%) Growth in bad debts (%) Growth in RWA (%) Net int. margin (%) Cap.-market rev. / Total revs (%) Total loans / Total deposits (%) ROTE Decomposition Revenue % ARWAs Net interest revenue % ARWA Non interest revenue % ARWA Costs/income ratio (%) Bad debts % ARWAs Tax rate (%) Adj. Attr. earnings % ARWA Capital leverage (ARWA/Equity) ROTE (Adj. earnings/ave. equity) Source: Company data, Deutsche Bank estimates Stephen Andrews, CFA stephen-a.andrews@db.com Page 2

3 Lending + Portf. Mgmt Trans. Banking Financial Mkts Corp Finance Wealth Mgmt Retail Products ALM Principal Finance Other 4 August 216 Key charts Figure 1: Operating income 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Figure 2: Operating expenses -5-1, -1,5-2, -2,5-3, -3,5 Figure 3: Pre-provision profit 2,5 2, 1,5 1, 5 Figure 4: Loan + other impairments , -1,2-1,4-1,6 Figure 5: Impairments as % of average loans Figure 6: Product income over time 2.% 1.8% 1.6% 1.4% 1.2% 1.%.8%.6%.4%.2%.% 1,4 1,2 1, Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Page 3

4 No change to view 2Q16 results a miss, driven by impairments reported 2Q16 results that were an 11% miss to us as at the management adjusted PBT level. Income was 2% better, costs 5% lower, driving a pre-provision beat, but loan and other impairment was higher than expected and SC reported a loss from associates / JVs. We discuss income in more detail below. The cost performance was better than expected, though the company highlighted that cost investments were expected to flow through in the second half of the year along with salary increases. The cost target of 218 below US$1bn remains. Restructuring charges were lower than expected, but US$3bn guidance remains, implying $1bn in 2H16. Elsewhere capital was in line with forecasts at 13.1%. Figure 7: 2Q16 performance vs. expectations 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16e 2Q16a Rel DB Operating income 4,471 4,449 4,572 4,72 4,514 4,448 4,421 4,74 3,682 3,262 3,345 3,411 3,465 2% Other operating expenses n/d n/d n/d n/d n/d n/d -2,28 n/d n/d -2,25-2,6-2,15-1,982-8% Regulatory costs n/d n/d n/d n/d n/d n/d -222 n/d n/d % UK Bank levy n/d n/d n/d n/d n/d n/d n/d n/d -44 Total operating expenses -2,424-2,735-2,451-2,632-2,523-3,139-2,52-2,575-2,5-2,961-2,249-2,41-2,285-5% Pre Provision Profit 2,47 1,714 2,121 2,7 1,991 1,39 1,919 1,499 1, ,96 1,1 1,18 18% Loan impairments ,176-1,23-1, % Other impairments % Profit from associates and JVs % Management adjusted PBT 1,83 1,4 1,97 1,366 1, , % Revenue momentum remains key to long term RoE goals The decline in s revenues as it has de-risked and repositioned over the past 2-3 years has led to a period of painful negative operating leverage. Whilst good progress is being made on costs, and impairments will normalize over time, we remain of the opinion that restoring positive revenue momentum is key to the group making its cost of capital on a 3-5 year view. Page 4

5 Figure 8: Product income over time & versus expectations 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16e 2Q16a rel db rel DB Lending and Portfolio Management % -4 Transaction Banking % -28 Trade % -11 Cash Management and Custody % -17 Financial Markets % -3 FX n/d n/d n/d n/d n/d n/d % -36 Rates n/d n/d n/d n/d n/d n/d % 4 Commodities (+ Equities pre 215) n/d n/d n/d n/d n/d n/d % -16 Credit & Capital markets n/d n/d n/d n/d n/d n/d % 5 Other Financial markets n/d n/d n/d n/d n/d n/d % 4 Corporate Finance % 24 Wealth Management % 2 Retail Products 1,25 1,28 1,195 1,24 1,211 1,194 1,81 1, % 2 Cards, Personal Loans and Unsecured Lending % -13 Deposits % 27 Mortgage and Auto % -12 Other Retail Products % Asset and Liability Management % 12 Principal Finance Other n/a n/a n/a n/a n/a n/a % 14 Total Operating Income (mgmt view) 4,471 4,449 4,572 4,697 4,514 4,392 4,421 4,74 3,682 3,262 3,345 3,411 3,465 2% 54 Here we think evidence in Q2 remains mixed, whilst revenues did at least increase QoQ some of the bigger swings vs Q1 were relatively low quality in nature (e.g. lower Principal Finance write-downs and Other ). Figure 9: Quarterly revenues momentum appears to have turned but is supported in Q2 by lower quality items Figure 1: A recovery in revenues from lower quality income streams drove the QoQ increase in group revenues 5, 4,5 4, Principal Finance, ALM & "Other" Core group 3,5 3, 2, Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Source: Deutsche Bank Source: Deutsche Bank Maintaining top-line momentum into what is normally a seasonally weaker H2 is also likely to be a challenge given the current interest rate & volume outlook in many of the group s bigger markets. Consensus revenue for FY 217 heading into the interim results we believe sat around US$14.3bn, this implies Page 5

6 a c5% pick-up year on year vs the current H1 revenue run-rate. This will not be easy to achieve if H2 revenues show their usual seasonality and are somewhat weaker relative to H1. We note on the call that management said that financial markets income had benefited from volatility during 1Q16 and 2Q16 (RMB and Brexit). We note that the group s rolling 12 month revenues are still down over 2% year on year. At most what we appear to be seeing is a stabilization of revenues at a much lower level. Whilst this is encouraging, to generate more than a mid-single digit RoE at a group level what we need to see is a clear restoration of at least mid-single digit growth in revenues if not higher. We note with interest that HSBC has decided to return capital via a buyback as it currently cannot find sufficient opportunities to additional capital in Asia and generate above a cost of capital return. This we view as somewhat negative for the revenue and return outlook on incremental capital deployed for the sector as a whole including. Our forecasts for revenues are shown below. Overall we have revenues around US$1m weaker in 2H16 vs 1H16, with 216e representing the trough year. Thereafter we have revenues building to US$14.9bn by FY18 (itself not an easy task given environment and cost control). Figure 11: Quarterly revenue forecast Figure 12: Annual revenue forecast 5, 2, 18,693 18,671 18,236 4,5 18, 4, 15,439 16, 14,897 3,5 13,52 14,36 14, 3, 12, 2,5 2, 1, 1,5 8, 1, 6, 5 4, 2, FY12 FY13 FY14 FY15 FY16e FY17e FY18e Figure 13: Management view P&L forecasts Management view P&L (212-) FY13 FY14 FY15 FY16e FY17e FY18e Operating income 18,671 18,236 15,439 13,52 14,36 14,897 Other operating expenses -9,662-9,32-8,238-8,32-8,44 Regulatory costs ,6-1,146-1,1-1,1 UK Bank levy Total operating expenses -1,193-1,745-1,478-9,764-9,78-9,844 Pre Provision Profit 8,478 7,491 4,961 3,756 4,255 5,54 Loan impairments -1,617-2,141-4,8-2,19-1,817-1,34 Other impairments Profit from associates and JVs Management adjusted PBT 6,958 5, ,491 2,419 3,729 Page 6

7 Credit costs (218e) Credit costs (218e) 4 August 216 What if we are too pessimistic on income? Again, we update our matrix tables for combinations of income and impairments. With the shares trading at.7x TNAV, to get to a 7% RoE would require materially higher revenues and / or lower impairments than 218 forecast. Figure 14: RoE combination from revenues and impairments Revenues (218e) 5.8% 13, 13,5 14, 14,5 14,897 15,5 16, 16,5 17, 17,5 18,.% 4.2% 4.9% 5.7% 6.4% 7.% 7.9% 8.6% 9.4% 1.1% 1.8% 11.5%.1% 3.8% 4.6% 5.3% 6.1% 6.6% 7.5% 8.3% 9.% 9.7% 1.4% 11.1%.2% 3.4% 4.2% 4.9% 5.7% 6.3% 7.1% 7.9% 8.6% 9.3% 1.% 1.8%.3% 3.% 3.8% 4.5% 5.3% 5.9% 6.8% 7.5% 8.2% 9.% 9.7% 1.4%.4% 2.6% 3.4% 4.1% 4.9% 5.5% 6.4% 7.1% 7.8% 8.6% 9.3% 1.%.5% 2.2% 3.% 3.7% 4.5% 5.1% 6.% 6.7% 7.5% 8.2% 8.9% 9.6%.6% 1.8% 2.6% 3.3% 4.1% 4.7% 5.6% 6.3% 7.1% 7.8% 8.5% 9.3%.7% 1.4% 2.2% 2.9% 3.7% 4.3% 5.2% 6.% 6.7% 7.4% 8.2% 8.9%.8% 1.% 1.8% 2.5% 3.3% 3.9% 4.8% 5.6% 6.3% 7.% 7.8% 8.5%.9%.6% 1.3% 2.1% 2.9% 3.5% 4.4% 5.2% 5.9% 6.7% 7.4% 8.1% 1.%.1%.9% 1.7% 2.5% 3.1% 4.% 4.8% 5.5% 6.3% 7.% 7.8% 1.1% -.3%.5% 1.3% 2.1% 2.7% 3.6% 4.4% 5.1% 5.9% 6.6% 7.4% 1.2% -.7%.1%.9% 1.7% 2.3% 3.2% 4.% 4.7% 5.5% 6.2% 7.% 1.3% -1.1% -.3%.5% 1.3% 1.9% 2.8% 3.6% 4.4% 5.1% 5.9% 6.6% Figure 15 shows the combinations for target price combination from credit costs and revenues. Figure 15: Target price combination from credit costs and revenues Revenues (218e) 49 13, 13,5 14, 14,5 14,897 15,5 16, 16,5 17, 17,5 18,.% % % % % % % % % % % % % % Source Deutsche Bank estimates, company data Page 7

8 Forecast changes Our forecast changes are shown below. Overall adjusted earnings fall in 216 are unchanged in 217 and fall slightly in 218. Costs are lower, but revenues a touch weaker in 217/18 (reflecting environment). Book value is higher on lower share issuance than expected during 1H16. Figure 16: Forecast changes OLD FORECASTS NEW FORECASTS CHANGES ( m) CHANGES (%) 215e 216e 217e 218e e 217e 218e 215e 216e 217e 218e 215e 216e 217e 218e NII 9,47 8,723 8,66 8,647 9,47 8,458 8,824 8, % -3% 3% 3% OOI 5,882 4,62 5,552 6,377 5,882 5,187 5,211 6, % 13% -6% -5% Total income 15,289 13,325 14,158 15,24 15,289 13,645 14,36 14, % 2% -1% -1% Opex -11,173-11,769-9,956-9,936-11,173-1,974-9,78-9, % -7% -2% -1% PPP 4,116 1,556 4,22 5,88 4,116 2,671 4,255 5,54 1, % 72% 1% -1% LLPs -4,976-2,5-1,772-1,272-4,976-2,519-1,817-1, % 26% 3% 3% Other impairment % 26% % % Associates % -35% % % Stated PBT -1, ,41 3,796-1, ,419 3, % -81% % -2% Tax / Minorities / AT , , % 239% % -1% Earnings -2, ,423 2,421-2, ,429 2, % -28% % -2% Adjusted earnings ,423 2, ,429 2, % -7% % -2% EPS stated (US$c) % -27% 2% % EPS adjusted (US$c) % -7% 2% % DPS (US$c) % % % % BVPS (US$c) 1,364 1,31 1,331 1,374 1,364 1,334 1,355 1, % 2% 2% 2% TBVPS (US$c) 1,222 1,173 1,195 1,241 1,222 1,189 1,212 1, % 1% 1% 1% This leaves trading at.7x 216 TNAV for an RoE of 5% in 218 and limited near-term dividend support. Page 8

9 Figure 17: Valuation metrics e 217e 218e Shares (m's, Fully diluted) 2,421 2,447 2,598 2,568 3,3 3,343 3,393 P/E (Group Adj.) P/PPP P/BVPS P/TBVPS Dividend yield (%) 1.6% 1.8% 1.8% 1.8%.6% 2.5% 2.5% % Scrip 25% % 31% 48% 3% 3% 3% Cash Dividend yield (%) 8.% 1.8% 7.5%.9%.4% 1.8% 1.8% Payout ratio (stated, %) 42% 52% 84% -16% -33% 47% 29% RoTE (adjusted) 14.4% 12.5% 8.3% -.8% 1.6% 3.6% 5.7% CRDIV CET1 11.% 1.7% 12.6% 13.2% 13.7% 14.2% T1 leverage 4.5% 5.5% 5.2% 5.3% 5.5% PPP ($'m) 8,61 8,584 7,289 4,116 2,671 4,255 5,54 EPS (stated) EPS (adjusted) DPS BVPS TBVPS Market cap ( 'm) 1,585 2,36 2,62 2,93 Market cap ($'m) 2,419 26,239 26,578 26,975 Valuation & risks We use a Dividend Discount Model incorporating a Gordon Growth model to value. We forecast the bank to make a group RoTE of 6% in 218 and we assume a cost of equity of 1% and a growth rate of %. We include the present value of cash dividends over the next 3 years to derive our target price. Our TP remains 49HKD. We reiterate our Sell rating. Despite limited European / UK exposure, we think operating leverage for remains challenging and see pressures on revenues in the coming years. Upside risks: better capital formation, bid for SC, or significant improvement in EM growth & commodity price prospects leading to improved impairment & revenue outlook, fall in sterling should benefit the London-listed share price given US$ earnings base. Page 9

10 Appendix 1 Important Disclosures Additional information available upon request Disclosure checklist Company Ticker Recent price* Disclosure 2888.HK (HKD) 3 Aug 16 1,6,7,9,14,17 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. Important Disclosures Required by Non-U.S. Regulators Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by India law. 17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds, Convertible Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following issuer(s), or issuer(s) group, is more than 25m Euros. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Stephen Andrews Page 1

11 Security Price 4 August 216 Historical recommendations and target price: (2888.HK) (as of 8/3/216) Previous Recommendations Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating 1. Current Recommendations Aug 14 Nov 14 Feb 15 May 15 Aug 15 Date Nov 15 Feb 16 May 16 Buy Hold Sell Not Rated Suspended Rating *New Recommendation Structure as of September 9,22 **Analyst is no longer at Deutsche Bank 1. 7/8/214: Hold, Target Price Change HKD155. Tracy Yu** 7. 7/1/216: Hold, Target Price Change HKD57. David Lock 2. 3/1/214: Hold, Target Price Change HKD135. Jason Napier, CFA** 3. 9/2/215: Downgrade to Sell, Target Price Change HKD12. Jason Napier, CFA** 4. 5/3/215: Sell, Target Price Change HKD11. Jason Napier, CFA** 8. 18/2/216: Hold, Target Price Change HKD5. David Lock 9. 24/2/216: Hold, Target Price Change HKD /4/216: Hold, Target Price Change HKD /7/215: Sell, Target Price Change HKD14. David Lock /4/216: Downgrade to Sell, Target Price Change HKD /8/215: Upgrade to Hold, Target Price Change HKD117. David Lock /7/216: Sell, Target Price Change HKD49. Equity rating key Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ), we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Newly issued research recommendations and target prices supersede previously published research. Equity rating dispersion and banking relationships % 36 % 11 % 15 % 15 % 19 % Buy Hold Sell Companies Covered Cos. w/ Banking Relationship Asia-Pacific Universe Page 11

12 Regulatory Disclosures 1.Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. 2.Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at Page 12

13 Additional Information The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness. If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this report, or is included or discussed in another communication (oral or written) from a Deutsche Bank analyst, Deutsche Bank may act as principal for its own account or as agent for another person. Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own account or with customers, in a manner inconsistent with the views taken in this research report. Others within Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis, equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies or otherwise. Deutsche Bank and/or its affiliates may also be holding debt or equity securities of the issuers it writes on. Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment banking revenues. Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank research analysts sometimes have shorter-term trade ideas that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas for equities can be found at the SOLAR link at A SOLAR idea represents a high conviction belief by an analyst that a stock will outperform or underperform the market and/or sector delineated over a time frame of no less than two weeks. In addition to SOLAR ideas, the analysts named in this report may have from time to time discussed with our clients, including Deutsche Bank salespersons and traders, or may discuss in this report or elsewhere, trading strategies or ideas that reference catalysts or events that may have a nearterm or medium-term impact on the market price of the securities discussed in this report, which impact may be directionally counter to the analysts' current 12-month view of total return as described herein. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof if any opinion, forecast or estimate contained herein changes or subsequently becomes inaccurate. Coverage and the frequency of changes in market conditions and in both general and company specific economic prospects makes it difficult to update research at defined intervals. Updates are at the sole discretion of the coverage analyst concerned or of the Research Department Management and as such the majority of reports are published at irregular intervals. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst s judgment. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Prices and availability of financial instruments are subject to change without notice and investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties. The Deutsche Bank Research Department is independent of other business areas divisions of the Bank. Details regarding our organizational arrangements and information barriers we have to prevent and avoid conflicts of interest with respect to our research is available on our website under Disclaimer found on the Legal tab. Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a Page 13

14 loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets holding limits for different types of investors), changes in tax policies, currency convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates these are common in emerging markets. It is important to note that the index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is also important to acknowledge that funding in a currency that differs from the currency in which coupons are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to the risks related to rates movements. Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk. The appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax position, their regulatory environment and the nature of their other assets and liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options, at If you are unable to access the website please contact your Deutsche Bank representative for a copy of this important document. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are affected by the currency of an underlying security, effectively assume currency risk. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and SIPC. Analysts employed by non-us affiliates may not be associated persons of Deutsche Bank Securities Incorporated and therefore not subject to FINRA regulations concerning communications with subject companies, public appearances and securities held by analysts. Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under German Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany s Federal Financial Supervisory Authority. United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial Conduct Authority. Details about the extent of our authorisation and regulation are available on request. Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch. India: Prepared by Deutsche Equities India Pvt Ltd, which is registered by the Securities and Exchange Board of India (SEBI) as a stock broker. Research Analyst SEBI Registration Number is INH1741. DEIPL may have received Page 14

15 administrative warnings from the SEBI for breaches of Indian regulations. Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No Member of associations: JSDA, Type II Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories of investment advice, products and services. Recommended investment strategies, products and services carry the risk of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Korea: Distributed by Deutsche Securities Korea Co. South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/3298/1). Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles Quay #18- South Tower Singapore 48583, ), which may be contacted in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), they accept legal responsibility to such person for its contents. Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers should independently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank research may not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without written consent. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited, Taipei Branch may not execute transactions for clients in these securities/instruments. Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 32) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation. Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no ) is regulated by the Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya District, P.O. Box 3189, Faisaliah Tower - 17th Floor, Riyadh, Saudi Arabia. United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 45) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 5492, Dubai, U.A.E. This information has been Page 15

16 distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority. Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please refer to Australian specific research disclosures and related information at Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively. Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent. Copyright 216 Deutsche Bank AG Page 16

17 David Folkerts-Landau Group Chief Economist and Global Head of Research Raj Hindocha Global Chief Operating Officer Research Michael Spencer Head of APAC Research Global Head of Economics Steve Pollard Head of Americas Research Global Head of Equity Research Anthony Klarman Global Head of Debt Research Paul Reynolds Head of EMEA Equity Research Dave Clark Head of APAC Equity Research Pam Finelli Global Head of Equity Derivatives Research Andreas Neubauer Head of Research - Germany Stuart Kirk Head of Thematic Research International locations Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2 Australia Tel: (61) Deutsche Bank AG Große Gallusstraße Frankfurt am Main Germany Tel: (49) Deutsche Bank AG Filiale Hongkong International Commerce Centre, 1 Austin Road West,Kowloon, Hong Kong Tel: (852) Deutsche Securities Inc Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo Japan Tel: (81) Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kingdom Tel: (44) Deutsche Bank Securities Inc. 6 Wall Street New York, NY 15 United States of America Tel: (1)