Sector Automobile Page 2 Lower target prices on slower industry growth.

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1 PLEASE CLICK ON THE PAGE NUMBER TO MOVE TO THE RELEVANT PAGE. CHINA Sector Automobile Page 2 Lower target prices on slower industry growth. Update Brilliance Auto (1114 HK/BUY/HK$11.52/Target: HK$15.00) Page 4 Cut target price from HK$21.00 to HK$15.00 on slower luxury car market; maintain BUY on long-term BMW story. Geely Auto (175 HK/BUY/HK$19.26/Target: HK$30.00) Page 7 Sales momentum fuelled by blockbusters. New Oriental Education & Technology Group Page 10 (EDU US/BUY/US$97.09/Target: US$115.00) Upgrade to BUY in anticipation of margin improvement driven by higher utilisation. INDONESIA Results Bank Mandiri (BMRI IJ/BUY/Rp6,375/Target: Rp7,600) Page 13 2Q18: Slow and steady growth in most operations. MALAYSIA Strategy How Would The US-China Trade Row Affect Us? Page 16 Potential beneficiaries of the new tariff threats are Malaysia s furniture, wood-based panel and glove makers. We see good value in Globetronics, Inari and VS Industry. Results British American Tobacco (ROTH MK/HOLD/RM33.68/Target: RM30.00) Page 19 2Q18: Results in-line. Sales rose 6.5% qoq with core EBIT up 17.7% qoq on a 10% decline in opex. Illicit cigarette market share at all-time high of 63%. SINGAPORE Results CapitaLand Commercial Trust (CCT SP/BUY/S$1.75/Target: S$1.99) Page 22 2Q18: DPU in line; firm outlook for Singapore office properties. Keppel Corporation Page 25 (KEP SP/BUY (UNDER REVIEW)/S$6.96/Target: S$9.00) 2Q18: Core earnings below expectations; makes up with special dividend. SATS (SATS SP/BUY/S$5.10/Target: S$6.10) Page 28 1QFY19: Strong operating leverage; cruise business and China food solutions will be growth levers. THAILAND Sector Food Page 31 Expect mixed earnings in 2Q18; BUY stocks that have strong earnings. Results Bank of Ayudhya (BAY TB/HOLD/Bt39.25/Target: Bt43.00) Page 33 2Q18: Net profit up 7% yoy on strong revenue growth. KEY INDICES Prev Close 1D % 1W % 1M % YTD % DJIA (0.5) S&P (0.4) FTSE (0.0) AS CSI (0.1) (1.5) (5.7) (14.9) FSSTI (1.2) (3.7) HSCEI (0.5) (2.1) (8.5) (10.1) HSI (0.4) (1.7) (5.7) (6.4) JCI (0.3) (0.6) (0.2) (7.6) KLCI (2.1) KOSPI (0.3) (0.1) (3.5) (7.5) Nikkei (0.1) (0.0) SET (1.0) (6.1) TWSE (0.1) 0.9 (0.8) 1.8 BDI 1688 (1.9) CPO (RM/mt) (0.5) (4.9) (8.2) Brent Crude 73 (0.4) (2.5) (3.3) 8.5 (US$/bbl) Source: Bloomberg TOP PICKS Ticker CP (lcy) TP (lcy) Pot. +/- (%) BUY Baoshan Iron & Steel CH Gudang Garam GGRM IJ 69, , PP Persero PTPP IJ 2, , Bumi Armada BAB MK OCBC OCBC SP SingTel ST SP Siam Cement SCC TB SELL Hartalega HART MK (34.1) KEY ASSUMPTIONS GDP (% yoy) F 2019F US Euro Zone Japan Singapore Malaysia Thailand Indonesia Hong Kong China CPO (RM/mt) 2,783 2,400 2,500 Brent (Average) (US$/bbl) Source: Bloomberg, UOB ETR, UOB Kay Hian CORPORATE EVENTS Venue Begin Close Analyst Presentation on 2H18 Singapore 19 Jul 20 Jul Malaysia Strategy and Outlook Roadshow with Kuala Lumpur 25 Jul 25 Jul OM Holdings Limited (OMH AU) Industry 4.0 Conference Kuala Lumpur 26 Jul 26 Jul Group luncheon with Singapore 30 Jul 30 Jul Singapore Airlines (SIA SP) Group Luncheon with Hong Kong 2 Aug 2 Aug Plover Bay (1523 HK) 1

2 SECTOR UPDATE Automobile Hong Kong Lower Target Prices On Slower Industry Growth We cut target prices of auto stocks based on lower target 2018F PE multiples, given weakened market sentiment towards the sector and lower F EPS, on the back of a sales slowdown and increased competition. The announcement of tariff cut at end-may shifted demand from June to July, but auto sales remain dragged down by destocking and a weakened economy. Maintain MARKET WEIGHT as the weaker earnings growth has been priced in by cheap valuations. Top pick: Geely. WHAT S NEW Sales slowed down and inventory piled up in June. Passenger vehicle (PV) retail sales growth in China plunged to -3.8% yoy in Jun 18 from +4.3% yoy in 5M18. Inventory-to-sales rose from 1.6 months at end-may to 1.9 months at end-june (vs a healthy level of 1.5 months), while retail prices fell 2-3% mom in June. All these were due to: a) weakened demand against the backdrop of an economic slowdown; and b) delayed consumption right before the tariff cut. Demand reined in by economic slowdown. We believe June auto sales in China should have been dragged down by the economic slowdown as a result of tightened liquidity and A- share market decline. China s auto sales have high correlation with total social financing (TSF) growth and hence asset markets A-shares and properties, given wealth effect and >40% penetration of auto financing. Due to the PBoC s crackdown on shadow banking, growth in new TSF has dropped to negative territory since end-17, dampening A-shares, property markets and auto sales. Additionally, the Sino-US trade war beat the Shanghai Composite Index down by >10% in 2Q18, hitting consumer sentiment. Delayed consumption right before tariff cut in July. On 22 May 18, the state announced cutting the import car tariff from 25% to 15% from 1 Jul 18. From then to end-jun 18, potential car buyers stopped buying as they await price cuts for both imported cars and domestically-made cars after the tariff cut on 1 Jul 18. An inventory shortage (vs excessive inventories for the overall market) has dampened sales of imported cars in June as from end-may to end-june, OEMs had ceased delivering inventories to dealers in China for inventory clear-up before the tariff cut. Retail sales recovery expected in July but wholesale shipment still capped by destocking. We expect auto retail sales yoy growth to recover to positive territory in July as car buyers have resumed buying after the tariff cut on 1 Jul 18. In fact, dealers have been seeing a recovery in sales and ASP since the beginning of July. Simply put, the tariff cut shifted demand from June to July. However, we expect yoy growth in PV wholesale shipment to turn negative in July due to destocking. To attain half-year sales targets, OEMs pushed inventories of locally-made cars to dealers in June. Thus, despite a 3.8% yoy drop in retail sales in June, wholesale shipment grew 2.5% yoy during the month, boosting inventory-to-sales to 1.9 months. In 3Q18, the destocking would drag down wholesale shipment. 2H18 sales growth still lower than 1H18 s. Retail sales and wholesale shipment of PVs grew 3% yoy and 4.7% yoy in 1H18 but we expect growth to slow to 2% and 1% yoy respectively in 2H18, given the high base in 2H17 and economic slowdown. For , we expect PV sales growth to grow at 2-3% per year. SUV segment saturated earlier than expected. SUV wholesale shipment in China grew only 10% yoy and retail sales grew only 5.9% yoy in 1H18, much slower than our estimate of 15% p.a. for The segment contributed most of the inventory pile-up in the auto industry last month. SUVs as a percentage of China s PV retail sales remained flat yoy at 42% in 1H18 vs sedans 49%. We now forecast SUV sales will only grow 5-6% p.a. in vs the industry s 2-3%. Also, SUV s share of total PV sales will rise to 45% by The gain in SUV market share in will come from MPVs. MARKET WEIGHT (Maintained) TOP PICKS Company Rec Stock --- Target price --- Price Old New (HK$) (HK$) (HK$) Geely (175 HK) BUY BAIC (1958 HK) BUY Brilliance (1114 HK) BUY GAC (2238 HK) BUY GWM (2333 HK) SELL BYD (1211 HK) SELL Zhengtong (1728 HK) BUY Yongda (3669 HK) BUY Meidong (1268 HK) BUY Source: UOB Kay Hian ANALYST(S) Ken Lee ken.lee@uobkayhian.com.hk Johnny Yum johnny.yum@uobkayhian.com.hk PEER COMPARISON Company Ticker Rec Target Upside/ Market PE P/B ROE Net 19 Jul 18 Price (Downside) to TP Cap 2018F 2019F 2018F 2019F Gearing (HK$) (HK$) (%) (US$m) (x) (x) (x) (x) (%) (%) BAIC MOTOR-H 1958 HK Equity BUY , (69.0) BRILLIANCE CHINA 1114 HK Equity BUY , BYD CO LTD-H 1211 HK Equity SELL (31.1) 5, GEELY AUTOMOBILE 175 HK Equity BUY , (35.2) GREAT WALL MOT-H 2333 HK Equity SELL (11.8) 2, GUANGZHOU AUTO-H 2238 HK Equity BUY , (66.6) CHINA MEIDONG AU 1268 HK Equity BUY CHINA YONGDA AUT 3669 HK Equity BUY , CHINA ZHENGTONG 1728 HK Equity BUY , ZHONGSHENG GROUP 881 HK Equity HOLD (2.4) 5, Source: Bloomberg, UOB Kay Hian 2

3 The luxury segment will keep double-digit growth albeit slowing down. Luxury-car sales in China grew 14% yoy in 1H18. The premium segment saw sales growth plunged from >20% in 1Q18 to 8% in 2Q18. Segment-wise, domestically-made models and imported models respectively saw sales growth tumble from 28% and 4% in 1Q18 to 13% and -7% respectively in 2Q18. Compared to the mass market segment, premium-car sales in China were impacted more by the distortion from the tariff cut. As such, we expect luxury-car sales to recover more significantly than the overall industry in Jul 18. But in 2H18, luxury-car sales growth will remain dragged by the economic slowdown. We still expect luxury-car sales in China to grow at >10% p.a. in , given the mere 10% penetration of luxury cars and consumption upgrade. Import tariff cut has modest impact on locally-made cars. Not all imported cars saw retail price drop although OEMs already announced 6-7% cuts in MSRPs for imported cars in May. Retail prices are determined more by demand-supply dynamics of individual products than by MSRPs, and thus cars can be sold at discount or premium to the MSRPs. For popular models in tight supply, eg the new Porsche Cayenne, Lexus NX, actual retail prices remain steady even after MSRP cuts. For models in abundant supply, eg the BMW 7-series, Mercedes-Benz S-class and Lexus ES, actual retail prices have fallen 6-7%, in tandem with MSRP cuts over the past two months. But the cut in imported car prices would not directly pressure prices of locally-made cars as they are not directly competing with one another, given that for the same brands, the imported models are not made locally and vice versa, and that the price gap between them remains big even after the tariff cut, eg 50% price gap between the 7-series and the 5-series. But after the tariff cut, locally-made cars will see increased competition from the imported models of other brands, eg Lexus. In general, high-end locally-made cars with price range of Rmb300, ,000, eg BMW Brilliance and Beijing Benz, would be impacted more by the tariff cut than mass-market brands, eg Geely. Hike in import tariff for US-made cars has small impact on dealers but may benefit BMW Brilliance and Beijing Benz. Since 6 Jul 18, China raised the import tariff on US-made cars, including BMW X5 and Mercedes-Benz GLE, from 25% to 40%. But BMW and Daimler have not raised the MSRPs for X5 and GLE yet, and the retail prices even dropped 3-5% over the last couple of months as dealers took in more inventories before the tariff hike. Anyway, we do not think the policy will impact Hong Kong-listed dealer groups much as they generally derive merely 2-3% of sales volumes from the models imported from the US. Also, the lost sales for those models from price hikes can be easily offset by additional sales from the competing models, eg Porsche Cayenne. On the other hand, BMW Brilliance and Beijing Benz may benefit from the policy as their locally-made X3 and GLC SUVs will probably gain market share from the imported X5 and GLE. Furthermore, it cannot be ruled out that BMW and Daimler will let their Chinese JVs produce the two models for bypassing the tariff. ACTION Geely (175 HK) remains our top pick among Chinese carmakers. We expect Geely to continue to gain market share in China and penetrate overseas markets given the full support from the state and technology from Volvo. We maintain our target price of HK$30.00, based on 15x 2018F PE, 1SD above mean, given its above-average earnings growth. Cut target prices for BAIC (1958 HK), Brilliance (1114 HK) and GAC (2238 HK) to HK$8.00, HK$15.00 and HK$10.00 from HK$13.00, HK$21.00 and HK$18.40 respectively, based on lower target 2018F PE of 7x, 9x and 9x respectively (1SD below mean) and lower 2018F EPS. We cut EPS estimates for BAIC, Brilliance and GAC by 7-22%, 11-13% and 15-22% respectively on slower sales volume growth. Maintain BUY on the three stocks based on cheap valuations at 5-7x 2018F PE vs their historical mean of 10-12x. Cut target price for GWM (2333 HK) to HK$4.80 from HK$6.50, based on an unchanged 2018 PE of 7x but a lower 2018F EPS. We cut EPS estimates by 22-41% based on slower sales volume and lower margins given the slowdown in China s SUV market. Maintain SELL given its grim earnings outlook amid losing market share. Trim target prices for Zhengtong, Yongda and Meidong to HK$6.50, HK$10.50 and HK$4.10 from HK$11.50, HK$17.00 and HK$4.30, based on a lower 2018F PE of 8x (1SD below mean), 9x (1SD below mean) and 10x (on a par with mean), vs 13x previously, and lower 2018F EPS. We cut their EPS by 24-36%, 10-12% and 2-7% respectively on slower growth in luxury-car sales and auto financing. Maintain BUY on appealing valuations of 6-10x vs historical mean of 12-13x. ASSUMPTION CHANGES We cut assumptions on sales growth of PVs, SUVs and luxury cars from 3%, 15% and 15% p.a. to 2.5%, 5.5% and 10% p.a. respectively. RISKS Macro risks. US-China trade war intensifies as well as a hard-landing and severe credit tightening would hurt China automobile sales across the board. CHANGE IN EPS ESTIMATES Company EPS Est. EPS % chg F 19F 20F 18F 19F 20F (Rmb) (Rmb) (Rmb) (Rmb) (%) (%) (%) Geely BAIC (13) (11) (13) Brilliance (7) (15) (22) GAC (15) (17) (22) GWM (24) (29) (31) Zhengtong (24) (33) (36) Yongda (10) (12) (12) Meidong (2) (5) (7) Source: UOB Kay Hian 1H18 CORE NET PROFIT FORECASTS yoy yoy yoy UOBKH chg Consensus chg UOBKH chg (Rmbm) 1H18F (%) 1H18F (%) 2018F (%) Geely 6, , , BAIC 3, n.a. n.a. 7, Brilliance 3, n.a. n.a. 6, GAC 6,600 (9) n.a. n.a. 11,889 (1) GWM* 2, n.a. n.a. 5, BYD 300 (73) 496 (55) 3, Zhengtong n.a. n.a. 1, Yongda n.a. n.a. 1, Meidong n.a. n.a Note*: The expected earnings growth of GWM in 2018 is due to the change in accounting for R&D cost since 2018, which we expect to reduce R&D expenses by Rmb1.8b-2b p.a. in Based on the same accounting method, we expect GWM s core net profit to drop 19% yoy to Rmb3.47b in Source: UOB Kay Hian 3

4 COMPANY UPDATE Brilliance Auto (1114 HK) Down But Not Out We cut EPS forecasts for Brilliance by 7%, 15% and 22% to Rmb1.37, Rmb1.66 and Rmb1.82 respectively on lower sales of BBA given slower growth in China s luxury car market and competition from Mercedes-Benz. Our new profit forecasts imply yoy core earnings growth of 34%, 15% and 12%, based on ramp-up of X3 sales and margin improvement. In the longer term, BBA s earnings will be driven by new-model launches, eg ix3 by Maintain BUY but cut target price to HK$ WHAT S NEW New 5-series sales lower than expected. Sales of the new 5-series reached nearly 70,000 units in 1H18, 18% higher than the old 5-series sales in 1H17 as May-Jun 17 was a low base given the generation transition of the 5-series. But monthly sales of the new 5-series dropped from 14,000 units in Jan 18 to 11,700 units in May-Jun 18 due to competition from Mercedes-Benz E-class. We believe the series sales will meet our estimate of 140,000 units in 2018, but we trim sales assumptions for the 5- series to 140,000 units each from 150,000 units and 160,000 units respectively. X3 sales ramping up. BMW Brilliance (BBA) formally launched X3 at end-may and registered >1,500 units of sales in June. According to dealers, orders for the new X3 remain strong since its debut, and BBA is ramping up production for the model to meet demand. The OEM targets to sell 40,000 units of X3 in 2H18. It will likely see 42,000 units of X3 sales in 2018, lower than our estimate of 60,000 units. We cut X3 sales assumption to 40,000 units, 80,000 units from 60,000 units, 120,000 units and 160,000 units respectively, given fiercer competition from the newly launched Mercedes-Benz GLC LWB. But the MSRPs of X3 turned out 10% higher than our expectation at Rmb399, ,800. As such, we raise our ASP assumptions for X3 from Rmb360,000 to Rmb400,000. The old 3-series at last stage of lifespan. Dealers have been offering 18% discount on the 3-series since mid-17 as the model is at the last stage of its life cycle before the debut of the new 3-series in Sales of the 3-series grew 5.5% yoy to 66,500 units in 1H18, compared to our 2018 estimate of 110,000 units. We raise our 2018 sales forecast for the 3-series from 110,000 units to 126,000 units, given higher-thanexpected 1H18 sales, but cut sales assumptions from 150,000 units and 170,000 units to 120,000 units and 136,000 units respectively, given the model s transition. Growth beyond 2020 underpinned by capacity expansion and new-model launches. On 9 Jul 18, Brilliance and BMW signed a long-term investment framework agreement. Pursuant to the agreement, BBA s annual capacity will expand from 400,000 units currently to 520,000 units in It will also start producing the pure battery electric vehicle (BEV) model ix3 for global sales. KEY FINANCIALS Year to 31 Dec (Rmbm) F 2019F 2020F Net turnover 5,125 5,305 5,978 6,456 6,973 EBITDA (472) (1,190) (374) (228) (83) Operating profit (741) (1,468) (654) (508) (363) Net profit (rep./act.) 3,682 4,376 6,870 8,317 9,169 Net profit (adj.) 3,682 5,076 6,870 8,317 9,169 EPS (fen) PE (x) P/B (x) EV/EBITDA (x) n.a. n.a. n.a. n.a. n.a. Dividend yield (%) Net margin (%) n.a. n.a. n.a. n.a. n.a. Net debt/(cash) to equity (%) (1.7) (2.1) (2.0) Interest cover (x) (9.3) (17.8) (2.8) (1.8) (1.2) ROE (%) Consensus net profit - - 6,809 8,667 9,858 UOBKH/Consensus (x) Source: Brilliance, Bloomberg, UOB Kay Hian BUY (Maintained) Share Price HK$11.52 Target Price HK$15.00 Upside +30.2% (Previous HK$21.00) COMPANY DESCRIPTION Brilliance Auto, through 50%-owned JV BMW Brilliance, produces and sells BMW cars, including the 5-series, 3-series and X1, in China. It also produces and sells mini-buses and MPVs under its proprietary brand Jinbei. STOCK DATA GICS sector Automobile Bloomberg ticker: 1114 HK Shares issued (m): 5,045 Market cap (HK$m): 58,122 Market cap (US$m): 7,500 3-mth avg daily t'over (US$m): 52 Price Performance (%) 52-week high/low HK$23.74/HK$ mth 3mth 6mth 1yr YTD (19.1) (17.9) (40.6) (31.8) (44.9) Major Shareholders % Huachen FY18 NAV/Share (HK$) 7.59 FY18 Net Cash/Share (HK$) 0.13 PRICE CHART (lcy) Volume (m) BRILLIANCE CHINA AUTOMOTIVE BRILLIANCE CHINA AUTOMOTIVE/HSI INDEX (%) Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Source: Bloomberg ANALYST(S) Ken Lee ken.lee@uobkayhian.com.hk Johnny Yum johnny.yum@uobkayhian.com.hk 4

5 STOCK IMPACT We cut sales volume assumptions by 9%, 18% and 23% to 443,000 units (+14% yoy), 497,000 units (+12% yoy) and 543,000 units (+9% yoy) respectively, based on slower growth in China s luxury car market and competition from Mercedes-Benz. We raise ASP assumption by 2%, 4% and 4% to Rmb314,000, Rmb319,000 and Rmb318,000 respectively, based on higher ASP of X3. We maintain net margin assumptions at 10.5%, 11% and 11% respectively, given optimisation of product mix and economies of scale at the new engine plant. EARNINGS REVISION/RISKS We cut net profit forecasts by 7%, 15% and 22% to Rmb6.87b, Rmb8.32b and Rmb9.17b respectively. Our core profit forecasts imply yoy growth of 35%, 20% and 10% respectively, in line with consensus estimates. We expect 1H18 core net profit to grow 13% yoy to Rmb3b, driven by sales growth and margin improvement at the 5-series. Risks. It is recently rumoured that BMW is looking to increase its stake in BBA from 50% to 75%. In this case, Brilliance s stake in BBA would decrease from 50% to 25%. Given that all of Brilliance s earnings are from BBA, the company s earnings would drop by half. Both Brilliance and BMW have denied the rumour. Even if BMW intends to increase its stake in BBA to 75%, it would need to inject assets into the JV in exchange for the additional stake. For example, BMW might introduce X5 to BBA for local production. Hence, Brilliance s shared profit of BBA may not be less than that before the change in the JV share structure. VALUATION/RECOMMENDATION We lower our target price to HK$15.00 (from HK$21.00), based on a lower 2018F PE of 9x and a lower 2018F EPS. We cut our 2018F PE from 12x (on a par with historical mean one-year forward PE) to 9x (1SD below historical mean one-year forward PE), due to weaker sentiment on the China auto sector. Maintain BUY on prospective 16% net profit CAGR in and current appealing valuation at 7x 2018F PE. KEY ASSUMPTIONS PE BAND CHART (x) STD STD Mean -1 STD STD Source: Brilliance, Bloomberg, UOB Kay Hian F F F Year to 31 Dec (Rmbm) Old New Old New Old New Sales volume (units) 5 series 120, , , , , , ,000 3 series 123, , , , , , ,000 2-series 15,800 20,000 11,000 20,000 11,000 20,000 11,000 1-series 33,813 45,000 38,000 45,000 40,000 45,000 50,000 X1 94, ,000 86, ,000 86, ,000 86,000 X3-60,000 42, , , , ,000 Total 388, , , , , , ,000 yoy chg 25% 25% 14% 25% 12% 17% 9% ASP (Rmb 000/unit) yoy chg -7% 7% 9% 0% 1% 0% 0% Net margin BBA (%) 9.4% 10.5% 10.5% 11.0% 11.0% 11.0% 11.0% Net profit per unit BBA (Rmb) 26,976 32,301 32,980 33,716 35,042 33,839 34,974 Shared profit of BBA 5,238 7,833 7,305 10,199 8,708 11,928 9,495 Others (862) (435) (435) (357) (391) (129) (327) Net profit Brilliance 4,376 7,398 6,870 9,842 8,317 11,799 9,169 Source: Brilliance, UOB Kay Hian 5

6 PROFIT & LOSS Year to 31 Dec (Rmbm) F 2019F 2020F Net turnover 5,305 5,978 6,456 6,973 EBITDA (1,190) (374) (228) (83) Depreciation & amortization EBIT (1,468) (654) (508) (363) Total other non-operating income Associate contributions 5,450 7,571 8,974 9,761 Net interest income/(expense) (82) (237) (282) (308) Pre-tax profit 3,900 6,681 8,183 9,091 Tax (34) (34) (34) (34) Minorities Net profit 4,376 6,870 8,317 9,169 Net profit (recurrent) 5,076 6,870 8,317 9,169 BALANCE SHEET Year to 31 Dec (Rmbm) F 2019F 2020F Fixed assets 2,567 2,887 3,207 3,527 Other LT assets 26,257 32,367 39,600 47,462 Cash/ST investment 1, Other current assets 7,300 7,249 7,434 7,634 Total assets 37,856 43,243 51,190 59,459 ST debt 2,810 3,000 3,500 3,500 Other current liabilities 8,155 7,599 7,977 8,381 LT debt Other LT liabilities Shareholders' equity 26,523 32,500 39,735 47,712 Minority interest 177 (46) (213) (325) Total liabilities & equity 37,856 43,243 51,190 59,459 CASH FLOW Year to 31 Dec (Rmbm) F 2019F 2020F Operating (2,848) (957) (69) 88 Pre-tax profit 3,900 6,681 8,183 9,091 Tax (14) (34) (34) (34) Depreciation/amortization Associates (5,450) (7,571) (8,974) (9,761) Working capital changes (2,186) (549) Non-cash items Other operating cashflows Investing 1, ,200 1,359 Capex (growth) (624) (600) (600) (600) Investments 2,203 1,573 1,800 1,959 Proceeds from sale of assets Others Financing 2,064 (1,008) (922) (1,559) Dividend payments (277) (893) (1,081) (1,192) Issue of shares Proceeds from borrowings Loan repayment 1, Others/interest paid 776 (305) (341) (368) Net cash inflow (outflow) 795 (992) 209 (113) Beginning cash & cash equivalent 937 1, Ending cash & cash equivalent 1, KEY METRICS Year to 31 Dec (%) F 2019F 2020F Profitability EBITDA margin (22.4) (6.3) (3.5) (1.2) Pre-tax margin n.a. n.a. n.a. n.a. Net margin n.a. n.a. n.a. n.a. ROA ROE Growth Turnover EBITDA (68.6) (39.0) (63.7) Pre-tax profit Net profit Net profit (adj.) EPS Leverage Debt to total capital Debt to equity Net debt/(cash) to equity 2.6 (1.7) (2.1) (2.0) Interest cover (x) (17.8) (2.8) (1.8) (1.2) 6

7 COMPANY UPDATE Geely Auto (175 HK) Sales Momentum Propelled By Blockbusters Geely s performance remains intact ytd with sales volume up 44% yoy and net profit to soar by more than 50% yoy in 1H18. Looking ahead, its earnings growth will continue to be driven by ramp-up of new models launched from end-17 to 1H18 and debuts of more new models, eg Lynk & Co 03. Geely just announced to acquire three new plants from its parent company, expanding capacity by >40% to 2.4m units per year, enough for sales growth in the next two years. Maintain BUY. Target price: $ WHAT S NEW 1H18 sales surged 44% yoy to 766,630 units in 1H18, far outpacing the industry s 4.7% growth. The strong sales growth was driven by the facelifts of Boyue, Vision SUV, Emgrand GS/GL launched in 1H18. The combined sales of the four models grew 24% yoy to more than 360,000 units in 1H18, representing 47% of total sales volume. In addition, the small and mini-sized SUV models launched in 2H17 - Vision X3 and S1 - jointly contributed 108,000 units, or 14% of total sales volume in 1H18. The Lynk & Co 01 launched in Dec 17 saw monthly sales ramped up from 6,000 units in the first month of debut to more than 9,000 units in May-Jun 18. Profit to rise by at least 50% yoy in 1H18. Geely posted a positive profit alert, stating that its 1H18 net profit would grow by at least 50% yoy to Rmb6.5b vs our and consensus estimates of Rmb14b for The upbeat 1H18 net profit guidance implies yoy margin expansion on economies of scale, optimisation of product mix and steady product prices sales growth to be fuelled by strong product pipelines. Looking ahead, Geely s sales growth will continue to be driven by ramp-up of models launched from end-17 to 1H18 and further new-model launches. Geely will have 14 new models in 2018 (vs only six in 2017), of which there were six in 1H18 (facelifts of Boyue, Vision SUV, Emgrand GS/GL, Borui GE PHEV and Lynk & Co 02), and the remaining eight in 2H18 (Lynk & Co 03 and a new MPV model in 3Q18, Lynk & Co 02/03 PHEV, a pure electric vehicle model Emgrand GLE, Boyue Coupe, Xinyu SUV and Binrui sedan in 4Q18). KEY FINANCIALS Year to 31 Dec (Rmbm) F 2019F 2020F Net turnover 53,722 92, , , ,380 EBITDA 7,278 14,017 20,086 27,315 31,064 Operating profit 5,624 12,079 17,140 23,449 26,580 Net profit (rep./act.) 5,112 10,634 14,290 20,233 22,980 Net profit (adj.) 4,494 9,945 14,290 20,233 22,980 EPS (fen) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) (60.9) (35.2) (15.3) (32.9) (38.8) Interest cover (x) n.a. n.a. n.a. n.a. n.a. ROE (%) Consensus net profit ,103 17,875 22,017 UOBKH/Consensus (x) Source: Geely, Bloomberg, UOB Kay Hian BUY (Maintained) Share Price HK$19.26 Target Price HK$30.00 Upside +55.8% COMPANY DESCRIPTION Geely manufactures and sells automobiles under its proprietary brands GEELY and Lynk & Co in China and overseas. STOCK DATA GICS sector Automobile Bloomberg ticker: 175 HK Shares issued (m): 8,801 Market cap (HK$m): 169,515 Market cap (US$m): 21, mth avg daily t'over (US$m): Price Performance (%) 52-week high/low HK$29.80/HK$ mth 3mth 6mth 1yr YTD (12.5) (12.3) (23.0) 4.0 (28.9) Major Shareholders % Li Shu Fu FY17 NAV/Share (HK$) 4.53 FY17 Net Cash/Share (HK$) 0.97 PRICE CHART (lcy) Volume (m) GEELY AUTOMOBILE HOLDINGS LT GEELY AUTOMOBILE HOLDINGS LT/HSI INDEX (%) 0 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Source: Bloomberg ANALYST(S) Ken Lee ken.lee@uobkayhian.com.hk Johnny Yum johnny.yum@uobkayhian.com.hk

8 Expanding capacity by 40% via acquiring three new plants from parent company. On 18 Jul 18, Geely announced to acquire three new plants from its parent company Zhejiang Geely at Rmb3.17b. In addition, Geely would also need to repay the Rmb7.58b debt owed by the three plants to the parent company within three months after the completion of the acquisitions. Taking the debt repayment into account, the total acquisition cost would be Rmb10.75b. The three plants have a combined annual capacity of 690,000 units, representing 41% of Geely s existing capacity of 1.7m units. We think the acquisitions are necessary for Geely to sustain its sales growth as its plants are running at full capacity. After the acquisition, Geely s capacity will expand by 41% from 1.7m units to about 2.4m units, enough to sustain sales growth in the next two years. The acquisition price is higher than that of previous deals, eg the Rmb1.14b acquisition for the 100,000-unit Chunxiao plant in 2015, due to the more advanced settings of the three new plants. We believe Geely should have enough cash to pay for the acquisition without issuing new shares. At end-17, Geely had Rmb13.4b cash and Rmb1.3b short-term debt, implying net cash of Rmb12b. STOCK IMPACT We maintain sales assumptions at 1.58m units, 1.72m units and 1.88m units respectively, given the strong product pipeline. We maintain profit per vehicle assumptions for at Rmb83,900 (+13% yoy), Rmb88,700 (+6% yoy) and Rmb91,200 (+3% yoy), and assumptions on net profit per vehicle at Rmb9,000 (+13% yoy), Rmb11,800 (+30% yoy) and Rmb12,200 (+4% yoy) respectively, given rising ASP. EARNINGS REVISION/RISK We maintain our net profit forecasts at Rmb14.3b, Rmb20.2b and Rmb23b respectively, implying yoy core net profit growth of 44%, 42% and 14%. Our 2019 net profit forecast is 13% above consensus, given our higher margin assumption. VALUATION/RECOMMENDATION Maintain BUY as we believe Geely is on a secular growth trend driven by an upgrading of brand positioning with the launch of Lynk & Co. Given the prospective higher-thanhistorical average earnings growth in , we believe Geely deserves a higherthan-historical average PE multiple. Our target price is kept at HK$30.00, based on 15x 2018F PE, or 1SD above its historical mean. We believe Geely deserves a valuation premium vs its historical mean and peers, given its above-average earnings growth. PRODUCTION CAPACITY Capacity F 2019F 2020F Plant Produc (unit) (unit) (unit) (unit) (unit) Ningbo & Cixi, Zhejiang New Emgrand / Emgrand 200, , , , ,000 New Linhai, Zhejiang Emgrand GS/GL 100, , , , ,000 Jinzhong, Shanxi Emgrand GS/GL 100, , , , ,000 Xiangtan, Hunan New Vision 100, , , , ,000 Chengdu, Sichuan Vision SUV 100, , , , ,000 Chunxiao Borui sedan / Boyue 160, , , , ,000 Baoji, Shaanxi SUV Boyue SUV 200, , , , ,000 Luqiao, Zhejiang King Kong / Vision X3 100, , , , ,000 Jinan, Shandong Panda 50,000 50,000 50,000 50,000 50,000 Zhangjiakou Lynk & Co 02/03 200, , ,000 Dajiangdong Plant Emgrand GLE / Xinyu , , ,000 Guiyang Plant SUV Two new MPV , , ,000 DMA Plant Binrui sedan / Boyue , , ,000 Total C 1,110,000 1,500,000 2,390,000 2,490,000 2,490,000 Source: Geely NEW-PRODUCT PIPELINE Brand Type F Geely SUV Boyue Vision X1 Boyue facelift Vision SUV Vision X3 Vision SUV facelift Emgrand GS Vision S1 Emgrand GS New cross-over Sedan Emgrand GL Borui GT New King New Emgrand MPV New MPV EV Emgrand HEV Emgrand EV350 Emgrand PHEV Emgrand EV450 Emgrand GSe GE11 New Emgrand PHEV Lynk & Co SUV Lynk & Co 01 Lynk & Co 02 Source: Geely Sedan Lynk & Co 03 KEY ASSUMPTIONS AND PROFIT FORECASTS Year to 31 Dec F 2019F 2020F New Emgrand Emgrand GL Emgrand GS Emgrand EV/HEV/PHEV New Vision Vision SUV A0-class SUV Borui (GC9) Boyue (NL-4) Lynk & Co Old models Sales volume (units) 1,247 1,580 1,900 2,140 yoy % chg 62.8% 26.7% 20.3% 12.6% ASP (Rmb/unit) 74,380 77,587 79,673 81,728 yoy % chg 6.0% 4.3% 2.7% 2.6% Core net profit (Rmbm) 9,945 14,290 20,233 22,980 yoy % chg 121.3% 43.7% 41.6% 13.6% Net margin 10.7% 12.9% 15.4% 15.3% Net profit per vehicle (Rmb 7,975 9,044 10,649 10,738 Source: Geely, UOB Kay Hian PE BAND CHART (x) STD 0 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Source: Geely, Bloomberg, UOB Kay Hian +2 STD +1 STD Mean -1 STD 8

9 PROFIT & LOSS Year to 31 Dec (Rmbm) F 2019F 2020F Net turnover 92, , , ,380 EBITDA 14,017 20,086 27,315 31,064 Depreciation & amortization 743 1,265 1,783 1,985 EBIT 12,079 17,140 23,449 26,580 Total other non-operating income 688 (0) (0) 0 Associate contributions Net interest income/(expense) (35) (68) (99) 26 Pre-tax profit 12,774 17,151 24,099 27,506 Tax (2,039) (2,746) (3,703) (4,340) Minorities (102) (115) (163) (185) Net profit 10,634 14,290 20,233 22,980 Net profit (recurrent) 9,945 14,290 20,233 22,980 BALANCE SHEET Year to 31 Dec (Rmbm) F 2019F 2020F Fixed assets 14,053 28,038 31,255 34,770 Other LT assets 17,920 20,818 24,484 28,384 Cash/ST investment 13,415 13,112 27,035 38,144 Other current assets 39,594 43,384 54,900 57,504 Total assets 84, , , ,803 ST debt 1,296 3,000 3,000 3,000 Other current liabilities 48,605 52,028 66,812 68,822 LT debt 0 3,000 3,000 3,000 Other LT liabilities Shareholders' equity 34,467 46,597 63,972 82,905 Minority interest Total liabilities & equity 84, , , ,803 CASH FLOW Year to 31 Dec (Rmbm) F 2019F 2020F Operating 11,994 16,971 26,880 26,130 Pre-tax profit 12,774 17,151 24,099 27,506 Tax (1,759) (2,746) (3,703) (4,340) Depreciation/amortization 743 1,265 1,783 1,985 Associates (42) (79) (750) (900) Working capital changes (510) (369) 3,268 (594) Non-cash items 788 1,749 2,183 2,474 KEY METRICS Year to 31 Dec (%) F 2019F 2020F Profitability EBITDA margin Pre-tax margin Net margin ROA ROE Other operating cashflows Investing (11,911) (19,617) (9,799) (10,674) Capex (growth) (3,452) (4,500) (5,000) (5,500) Investments (5,679) (15,250) (5,000) (5,500) Proceeds from sale of assets Others (2,781) Financing (1,685) 2,343 (3,158) (4,347) Dividend payments (960) (2,160) (2,858) (4,047) Issue of shares Proceeds from borrowings 1,122 4, Loan repayment Others/interest paid (2,160) (201) (300) (300) Net cash inflow (outflow) (1,602) (303) 13,923 11,109 Beginning cash & cash equivalent 15,045 13,415 13,112 27,035 Ending cash & cash equivalent 13,415 13,112 27,035 38,144 Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x) (35.2) (15.3) (32.9) (38.8) n.a. n.a. n.a. n.a. 9

10 COMPANY UPDATE New Oriental Education & Technology Group (EDU US) Upgrade To BUY In Anticipation Of Margin Improvement Driven By Higher Utilisation Rate New Oriental will announce 4QFY18 results on 24 July. We estimate 4QFY18 revenue at Rmb678m, up 39% yoy. We raise our EPS by 7-15% for FY19-20F. Management reiterated its 30% longer-term utilisation rate target and 17-18% non-gaap operating margin. We upgrade EDU to BUY as we see greater visibility of its margin improvement driven by a ramp-up utilisation on newly-added capacity and solid revenue growth driven by capacity expanstion. We raise target price to US$ from US$ WHAT S NEW Revenue growth rate will ramp up along with capacity expansion in the next 1-2 years. We estimate 4QFY18 revenue at Rmb678m, up 39% yoy, in the high end of its guidance range of US$661m-681m. For FY19, the company also guided that ASP of the K-12 segment will increase by 5-8% yoy, of which POP Kids should expand 7%-8% while U-Can should improve 5%- 6%. Overseas test prep prices will increase by 10% yoy, in renminbi terms. We forecast FY19 revenue growth of 35% yoy, driven by 4.4% blended ASP and 26% enrolment growth. We also believe that EDU should benefit from the latest industry consolidation brought about by tightening regulations implemented for AST investigation and rectification. Higher visibility of margin improvement driven by a ramp-up in utilisation. EDU is targeting a 20-25% capacity expansion in FY19 vs ~32% in FY18, which resulted a 3ppt drag on operating margin. For FY19, management has guided for top-line growth of around 30%. We expect non-gaap operating margin to improve to 14% from 13% and to expand to 17% in FY20, thanks to the ramp-up in newly-added capacity utilisation. Koolearn to be listed in Hong Kong, unlocking value. New Oriental s online segment Koolearn.com filed for an IPO on HK Stock Exchange on 17 July, seeking US$400m in fund raising. In 2017, Koolearn s revenue of about US$60m accounted for 3.3% of EDU s total revenue, with a 60% gross margin. In 3QFY18, Koolearn.com delivered a yoy revenue growth of 63%, with registered users and paid users up by 88% and 70% respectively, while K-12 after-school segment reported revenue growth of 176% yoy. Upgrade to BUY. EDU is trading at 39x 2018 PE and 29x 2019 PE, vs 3-year EPS CAGR of 36% over , implying 1.1x FY18F PEG. We have revised up our earnings estimates by 7% and 15% for FY19 and FY20 respectively to factor in improved utilisation and student retention rate. We upgrade EDU to BUY and raise target price to US$ based on SOTP valuation. KEY FINANCIALS Year to 31 May (US$m) F 2019F 2020F Net turnover 1,478 1,800 2,424 3,261 4,147 EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (US$ cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) (50.5) (38.1) (41.9) (46.5) (44.5) ROE (%) Consensus net profit UOBKH/Consensus (x) - Source: New Oriental Education & Technology Group, Bloomberg, UOB Kay Hian n.m. : not meaningful; negative P/E, EV/EBITDA reflected as "n.m." BUY (Upgraded) Share Price US$97.09 Target Price US$ Upside +18.4% (Previous TP US$103.00) COMPANY DESCRIPTION New Oriental Education & Technology Group offers educational services including foreign language training, test preparation courses, K12 after school tutoring services and online courses in China. STOCK DATA GICS sector Consumer Discretionary Bloomberg ticker: EDU US Shares issued (m): Market cap (US$m): 15,351.9 Market cap (US$m): 15, mth avg daily t'over (US$m): Price Performance (%) 52-week high/low US$106.27/US$ mth 3mth 6mth 1yr YTD (8.1) 6.0 (4.5) Major Shareholders % Yu Minhong 15.1 Management Team FY19 NAV/Share (US$) FY19 Net Cash/Share (US$) 7.68 PRICE CHART (lcy) Volume (m) NEW ORIENTAL EDUCATIO-SP ADR NEW ORIENTAL EDUCATIO-SP ADR/indu index (%) 0 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Source: Bloomberg ANALYST(S) Leow Huey Chuen hueychuen@uobkayhian.com Charles Wong Kok Min kokmin@uobkayhian.com

11 STOCK IMPACT After the expansion. Recall that EDU expanded a total of 145 centres in 9MFY18, and we saw non-gaap operating margin reduced by 2ppt to 13.8% in 9MFY18. EDU is targeting a 20-25% capacity expansion in FY19 vs ~32% in FY18, representing slower expansion and more focus on improving utilisation rate. EARNINGS REVISION/RISK We have raised our EPS by 7-15% for FY19 and FY20 to factor in improved utilisation and student retention rate. We adjust our revenue marginally higher and expect higher operating margin to boost non-gaap operating margin to 13%, 14% and 17% respectively for FY VALUATION/RECOMMENDATION Upgrade to BUY. We think that EDU is trading at relatively cheap valuation and its longterm growth remains intact. Since EDU is listing its online business and there will be better clarity of valuation, we have switched to SOTP valuation but maintain our valuation for K12 AST valuation at 1.2x PEG. We upgrade EDU to BUY and raise target price to US$ based on SOTP valuation. SHARE PRICE CATALYST Stronger enrolment growth. Tighter regulation may further accelerate market consolidation of EDU. STRONG REVENUE GROWTH (US$m) (%) 4, , , , , , , FY16 FY17 FY18F FY19F FY20F Revenue Yoy Chg (RHS) Source: EDU MARGIN RECOVERY AFTER THE DIP (%) FY16 FY17 FY18F FY19F FY20F Source: EDU PE BAND (x) std Mean=21.4x -1std Source: Bloomberg, UOB Kay Hian SOTP VALUATION FY19E % of FY19E FY19E Multiples Segment Net revenues revenues EBIT NOPAT PE Valuation # of shares Val/sh Val US$m US$m US$m US$m mil US$ split Core business K12 Offline 2,475 76% , % U-Can 1,822 56% Pop Kid % Oversea test prep and others % ,014 Total core 3,033 93% , % Online Koolearn 228 7% Total 3, % ,634 Net cash 1, % Total 19, % Holdco. discount 5% % NAV 18, % Source: UOB Kay Hian 11

12 PROFIT & LOSS Year to 31 May (US$m) F 2019F 2020F Net turnover 1,800 2,424 3,261 4,147 EBITDA Deprec. & amort EBIT Associate contributions (3) Net interest income/(expense) Pre-tax profit Tax (51) (56) (75) (115) Minorities (2) (2) 0 0 Net profit Net profit (adj.) BALANCE SHEET Year to 31 May (US$m) F 2019F 2020F Fixed assets Other LT assets ST debt n.a. n.a. n.a. n.a. LT debt n.a. n.a. n.a. n.a. Cash/ST investment ,218 1,486 Other current assets 1,685 1,984 2,495 3,439 Total assets 2,925 3,719 4,597 5,850 Other current liabilities 1,203 1,557 1,929 2,461 Other LT liabilities Shareholders' equity 1,681 2,112 2,617 3,338 Minority interest Total liabilities & equity 2,925 3,719 4,597 5,850 CASH FLOW Year to 31 May (US$m) F 2019F 2020F Operating ,229 Pre-tax profit Tax (51) (56) (75) (115) Deprec. & amort Working capital changes Non-cash items Other operating cashflows (33) Investing (157) (477) (545) (800) Capex (growth) (60) (143) (187) (243) Investments (45) (325) (333) (536) Others (52) (9) (25) (21) Financing (71) (73) 0 (159) Dividend payments (71) (73) 0 (159) Issue of shares Net cash inflow (outflow) Beginning cash & cash equivalent ,218 Changes due to forex impact (2) (2) (4) (3) Ending cash & cash equivalent ,218 1,485 KEY METRICS Year to 31 May (%) F 2019F 2020F Profitability EBITDA margin Pre-tax margin Net margin ROA ROE Growth Turnover EBITDA Pre-tax profit Net profit Net profit (adj.) EPS Leverage Debt to total capital Debt to equity Net debt/(cash) to equity (38.1) (41.9) (46.5) (44.5) 12

13 COMPANY RESULTS Bank Mandiri (BMRI IJ) 2Q18: In-line Results; Slow And Steady Growth In Most Operations BMRI reported moderate and in-line 1H18 net profit of Rp12.2t, up 29% yoy. Loan growth and non-interest income growth remained strong while PPOP grew 8% yoy. NPL ratio improved but asset quality and NIM pressures remained strong. Despite short-term pains, maintain BUY on continued revenue and asset quality recovery and earnings growth as well as valuation. We reduce our target price to Rp7,600 as we raise our risk- free rate assumption. 2Q18 RESULTS Profit & Loss (Rpt) 2Q18 2Q17 yoy % chg Comments Net Interest Income 14,175 13, Include net premium income (+23% yoy) Non-Interest Income 6,839 5, Also driven by one-off court settlement of Rp1.1t Gross Operating Income 21,014 19, Operating Expenses (8,938) (8,195) 9.1 G&A: +2%y oy, Staff cost: +15% yoy PPOP 12,076 10, Credit Costs (4,057) (3,929) 3.3 ytd write-offs of Rp8.2t vs Rp11t guidance for 2018 PBT 8,014 7, Net Profit 6,318 5, Financial Ratios (%) 2Q18 2Q17 yoy ppt chg Comments NIM Avg loan yield of 9.9% in 2Q18, down from 10.2% in 1Q18 Loan Growth, yoy Driven by corporate loans (+22% yoy) and micro Third-party Funds, yoy loans (+25% yoy) Demand deposits: +1% yoy, savings :+8% yoy, Time deposits: +5% yoy Loan/Deposit Ratio Cost-to-Income Ratio ROE NPL Ratio Rp4.1t downgraded to NPL Credit Costs (bp) Credit cost target of % for 2018 Loan Loss Coverage Lowest among SOE peers CAR Source: BMRI, UOB Kay Hian RESULTS 2Q18 net profit of Rp6.3t, up 17% yoy and 8% qoq. Bank Mandiri s (BMRI) net profit increased strongly in 2Q18, driven by strong non-interest revenue which rose 21% yoy. Slow and steady growth in most operations. Net interest income (NII) growth in 2Q18 picked up to 4% yoy as interest expense fell 7% yoy but interest income growth remained flat at 0%. Non-interest income continued to grow by a strong 21% yoy and 13% qoq, driven mostly by subsidiaries, cash recoveries and the treasury business. Opex grew moderately at 9% yoy. As a result, pre-provision operating profit growth increased 10% yoy from 0% in 1Q18. Loans rose, especially large corporate loans. Loan balance grew 12% yoy in 1H18, up Rp60t from 1Q18. Corporate, consumer and micro loans grew 22%, 14% and 25% yoy respectively. We continue to note the shift away from the riskier small and medium enterprises segments which loans fell 9% yoy each. KEY FINANCIALS Year to 31 Dec (Rpb) F 2019F 2020F Net interest income 51,825 52,327 56,873 63,566 69,097 Non-interest income 21,939 24,747 26,298 28,911 31,667 Net profit (rep./act.) 13,807 20,640 23,716 28,151 31,786 Net profit (adj.) 13,807 20,639 23,716 28,150 31,785 EPS (Rp) PE (x) P/B (x) Dividend yield (%) Net int margin (%) Cost/income (%) Loan loss cover (%) Consensus net profit ,553 28,850 33,192 UOBKH/Consensus (x) Source: BMRI, Bloomberg, UOB Kay Hian BUY (Maintained) Share Price Rp6,375 Target Price Rp7,600 Upside +19.2% (Previous TP Rp8,850) COMPANY DESCRIPTION State owned bank with largest market share corporate segment STOCK DATA GICS sector Financials Bloomberg ticker: BMRI IJ Shares issued (m): 46,666.7 Market cap (Rpb): 297,500.0 Market cap (US$m): 20, mth avg daily t'over (US$m): 22.7 Price Performance (%) 52-week high/low Rp9,050/Rp6,300 1mth 3mth 6mth 1yr YTD (8.3) (20.8) (21.1) (4.3) (20.3) Major Shareholders % Republic of Indonesia FY18 NAV/Share (Rp) 3,830 FY18 CAR Tier-1 (%) PRICE CHART (lcy) Volume (m) BANK MANDIRI PERSERO TBK PT BANK MANDIRI PERSERO TBK PT/JCI INDEX (%) Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Source: Bloomberg ANALYST(S) Alexander Margaronis alexandermargaronis@uobkayhian.com 13

14 NPL ratio improved further NPL ratio is showing a steady improvement as it is decreasing every quarter. NPL ratio fell another 20bp qoq to 3.1% in 2Q18 and we expect this trend to continue in the coming quarters. The overall improvement in NPL ratio was due to the stronger loan growth and Rp3t write-offs in 2Q18. But the overall progress is slow but management s effort is significant and probably underappreciated. but strong pressure on asset quality remained. The outstanding balance of total NPLs remained relatively flat at Rp21t. Nevertheless, the quarterly NPL downgrades were still large at Rp4t vs loan upgrades of Rp1t. Most of the downgrades are still coming from the small and medium enterprises in the business and retail trading sectors. Provisions remained high at Rp4t in 2Q18 (+3.3% yoy), given the pressure from continued moderate downgrades in most segments. It appears that the bank will book provisions of Rp14t-16t until the year-end as guided for 2018 and cost of credit at %. Coverage increased marginally to 136%. Pressure on asset yields has eased slightly, further minor NIM compression until year-end. NIM fell 14bp since 1Q18 to 5.7% in 1H18, mostly on lower average loan yield by 30bp but NIM withstood the pressure due to higher bond yields and stable cost of funds (lower time deposit rates and balances). In 2H18, we could see some increase in the cost of funds but we do not expect a significant NIM compression as BMRI could proceed with some loan rate re-pricing for some products in response to higher benchmark rates. Management has revised down its NIM target from % to % for STOCK IMPACT Positive sentiment on the stock on continuous earnings beat, and improvement in NPL should provide support and upside to the stock. NPL BY SEGMENT & NPL MOVEMENT (%) Bank only Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Corporate Commercial Small Micro Consumer Total NPL Special Mention loans Coverage Ratio Restructured loans in Rpt Source: BMRI, UOB Kay Hian MANAGEMENT GUIDANCE Guidance F Loan Growth 10% 11-13% NIM 5.87% % Gross NPL 3.46% % Credit costs 2.29% % Source: BMRI, UOB Kay Hian FORWARD P/B BAND RESTRUCTURED LOANS NPL (RPT) BANK ONLY Source: Bloomberg, UOB Kay Hian Source: BMRI, UOB Kay Hian EARNINGS REVISION/RISK Source: BMRI, UOB Kay Hiann None. 1H18 net profit accounted for 51% of our full-year estimate. SHARE PRICE CATALYST Significant improvement in asset quality and NPL below 3% could provide positive sentiment on the stock. VALUATION/RECOMMENDATION Why not a HOLD? Revenues are picking up slowly while interest expense appears to be under control. NIM compression is to be expected and is manageable. BMRI s NPL is improving but that does not seem it will not get any messier than it was a year ago. Operational performance across the board is improving markedly and this has not been reflected in stock price of late. We note that the bank is now more responsible for its growth than during the management transition period in Maintain BUY with a slightly lower target price of Rp7,600 (from Rp8,800). The Gordon Growth model is sensitive to risk-free rate assumption. We have changed our risk-free rate assumption from 6.75% to 7.5% to reflect the latest benchmark rates. The stock is trading at F P/B, or -1SD of its historical P/B band). Our target price implies 1.8x 2019F P/B, which is still below its historical mean of 2x P/B. 14

15 PROFIT & LOSS BALANCE SHEET Year to 31 Dec (Rpb) F 2019F 2020F Year to 31 Dec (Rpb) F 2019F 2020F Interest income 79,502 85,701 94, ,395 Cash with central bank 133, , , ,135 Interest expense (27,174) (28,828) (30,531) (33,298) Govt treasury bills & securities 103, , , ,150 Net interest income 52,327 56,873 63,566 69,097 Interbank loans 27,704 28,721 29,731 30,777 Fees & commissions 14,948 16,609 18,398 20,314 Customer loans 693, , , ,153 Other income 9,799 9,689 10,513 11,352 Investment securities 56,630 62,293 68,522 75,374 Non-interest income 24,747 26,298 28,911 31,667 Derivative receivables Total income 77,074 83,171 92, ,763 Fixed assets (incl. prop.) 46,991 47,542 48,093 48,644 Staff costs (14,859) (16,196) (17,654) (19,242) Other assets 62,760 62,940 68,802 72,621 Other operating expense (19,094) (21,061) (23,228) (25,614) Total assets 1,124,701 1,221,884 1,372,573 1,538,372 Pre-provision profit 43,122 45,914 51,596 55,907 Interbank deposits 8,350 8,844 8,597 8,721 Loan loss provision (15,646) (14,922) (14,988) (14,688) Customer deposits 816, ,732 1,051,321 1,194,963 Other provisions (305) Derivative payables Other non-operating income (13) (26) (20) (23) Debt equivalents 52,547 56,118 60,045 64,365 Pre-tax profit 27,157 30,966 36,588 41,196 Other liabilities 77,270 51,069 52,542 51,806 Tax (5,714) (6,540) (7,728) (8,701) Total liabilities 954,695 1,039,152 1,172,838 1,320,216 Minorities (803) (710) (710) (710) Shareholders' funds 166, , , ,740 Net profit 20,640 23,716 28,151 31,786 Minority interest - 3,287 3,997 4,706 5,416 accumulated Net profit (adj.) 20,639 23,716 28,150 31,785 Total equity & liabilities 1,124,701 1,221,884 1,372,573 1,538,372 OPERATING RATIOS KEY METRICS Year to 31 Dec (%) F 2019F 2020F Year to 31 Dec (%) F 2019F 2020F Capital Adequacy Tier-1 CAR Net interest income, yoy chg Total CAR Fees & commissions, yoy chg Total assets/equity (x) Pre-provision profit, yoy chg (0.3) Tangible assets/tangible common equity (x) Growth Net profit, yoy chg Net profit (adj.), yoy chg Asset Quality Customer loans, yoy chg * NPL ratio Customer deposits, yoy chg Loan loss coverage Profitability Loan loss reserve/gross loans Net interest margin Increase in NPLs (4.6) Cost/income ratio Adjusted ROA Liquidity Reported ROE Loan/deposit ratio * Adjusted ROE Liquid assets/short-term liabilities Valuation Liquid assets/total assets P/BV (x) P/NTA (x) Adjusted P/E (x) Dividend Yield Payout ratio

16 STRATEGY MALAYSIA How Would The US-China Trade Row Affect Us? The fresh round of tariff threats led us to take a closer look at the US-China trade friction. We identified Malaysian s furniture, wood-based panel and glove makers as potential winners if the 10% import tariff is set in motion. That said, the spat is still ongoing and may just negatively affect the technology and EMS sectors (exporters). Nevertheless, Inari, VS Industry and Globetronics continue to provide compelling values despite the market perceiving them to be losers. WHAT S NEW Fresh round of tariff threats. Last week, the US Government upped the ante on the trade war dispute with China. In a fresh attempt, Trump s Administration is looking to impose a 10% tariff on more than 5,000 new Chinese imports worth US$200b. This threat followed after China fought fire with fire - the US slapped 25% tariff on US$34b of Chinese goods and Xi Jinping s Administration reacted tit-for-tat by matching tariffs on the same amount of American products. The chronological timeline of the trade war between US-China (so far) can be found in the next page of this report. Nonetheless, the conflict seems to have recently abated, seeing how ZTE s case was resolved. ACTION What to lookout for domestically? The US and China make up 24% of Malaysia s total export value. Based on ranking, China (13%) is Malaysia s second biggest export partner followed by America (9%). After vetting through the list of items that may be slapped by a 10% tariff, we identified sectors which could benefit from the recent US trade tantrum. For this round of confrontation (if it occurs), we see Malaysia s furniture, wood-based panel and glove manufacturers coming out as possible victors. We flag out some prospective winning stocks below while a more comprehensive screening result can be found at the later part of this write-up. a) Within the furniture space, Lii Hen Industries and Latitude Tree Holdings are two stocks which caught our attention considering 70-90% of their sales are directed to the US. Furthermore, both have solid balance sheets with a net cash position, making up 10-20% of their corresponding market capitalisation. Valuation wise, they are trading at <10x PE while offering commendable dividend yields of >3%. b) For wood-based panel makers, potential beneficiaries would be Mieco Chipboard, Evergreen Fibreboard, and HeveaBoard. That said, the US forms only <10% of their total sales. Among them, HeveaBoard has the sturdiest financial position with a net cash pile of RM23m (5% of its market cap) while Mieco and Evergreen have net gearings of 0.6x and 0.1x respectively. They trade at an average PE of 12x. c) In the rubber glove sector, possible winners (but receiving only minimal spillover benefits) are Top Glove, Hartalega, and Kossan. About 25-50% of their sales are fuelled by the North American region. However, consumers are mostly nitrile glove users (the trio produces this) while vinyl gloves were targeted for import tariffs instead. On a larger scale, the risk-reward profiles for these stocks are unfavourable as valuations are stretched at +2SD above their five-year mean PE. CURRENT FBMKLCI: 1,759 TARGET END-18 FBMKLCI: 1,750 FBMKLCI AND PE (Index ) (x ) 1,900 FBMKLCI (LHS) 22 1, ,500 1,300 2sd = 18.0x 1sd = 16.4x 1,100 mean = 14.9x 900-1sd = 13.4x y ear PE (RHS) -2sd = 11.9x Source: UOB Kay Hian MALAYSIA S TOP 5 EXPORTING COUNTRIES BY VALUE (2017) Countries RMm % of total Malaysian exports in 2017 Singapore 135, China 126, US 88, Japan 74, Thailand 50, Source: CEIC ANALYST(S) Chan Jit Hoong, CFA, CPA jithoong@uobkayhian.com Yeoh Bit Kun bitkun@uobkayhian.com Malaysia Research Team research@uobkayhian.com BUY CALLS IMPACTED BY OR BENEFICIARIES OF ONGOING US-CHINA TRADE WAR Company Ticker Rec Mkt Cap Price Target 19 Jul 18 Price PE (x) P/B (x) Div Yield (%) (US$m) (RM) (RM) 2018F 2019F 2018F 2019F 2018F Ann Joo Resources AJR MK BUY Globetronics GTB MK BUY Inari Amertron INRI MK BUY 1, VS Industry VSI MK BUY Latitude Tree* LATI MK NR n.a n.a n.a. n.a. Lii Hen Industries LHI MK NR n.a *FY reflects actual data Source: Bloomberg, UOB Kay Hian 16

17 Pocket of opportunities. We see opportunity to buy certain stocks amid fears relating to the ongoing trade tussle between the US and China (worries are perceived in nature, nothing has transpired): a) Globetronics - improving visibility for revenue growth, b) Inari - strong revenue prospects, high earnings quality, with potential upside from new contracts, and c) VS Industry - staging recovery in quarters ahead from the operational commencement of more assembly lines for key customers. HOW THE TARIFFS BATTLE ESCALATED THIS YEAR ESSENTIALS Why is Trump picking on China? President Trump is resorting to protectionism to Make America Great Again. We gathered that the percentage of tariffs vs total US imports is expected to rise to ~7%, a level not seen since This is no thanks to the slew of new tariffs being imposed across multiple countries. In order to effectively plug the trade deficit, the prime default target would be China as the country is the largest trade partner of the US. We note the trade imbalance between the US-China has been widening sharply since 2001 when China first joined the World Trade Organization (WTO). Currently, the gap stands at ~US$375b. How is China reacting thus far? China has reiterated it does not want a trade war with the US but is not afraid to fight if it is forced to do so. Besides, they have filed a complaint to the WTO over the Trump Administration s latest antics. If the dispute persists and WTO does not step in to intervene in a timely manner, we are concerned the rising tensions would escalate into a full-blown trade war situation. Things may turn uglier if President Trump decides to withdraw the US from WTO entirely - this move is undesirable as it will undermine the universally accepted trade rules set by the international community. Source: BBC THE RETURN OF PROTECTIONISM Can the relationship be mended? We believe the US-China relationship is not entirely broken and amicable solutions can be reached (provided there is a win-win for both parties). For example, the seven-year crippling ban which was supposed to prevent ZTE Corp (China s second-largest telecom equipment maker) from doing business with American suppliers was lifted recently. To recap, this was imposed in April to punish ZTE for violating US sanctions against exporting to Iran and South Korea. However, it was resolved after ZTE paid US$1.4b in fines to the US government and agreed to overhaul its leadership. From this, we deduce and expect both countries to avert a full scale trade war. IMPACT FROM THE US TARIFFS IMPOSED ON STEEL AND ALUMINIUM (23 MAR 18) Sectors Companies Remarks Basic Material - Aluminium (MARKETWEIGHT) Basic Material - Steel (MARKETWEIGHT) Source: UOB Kay Hian Press Metal Ann Joo Resources, Choo Bee Metal Industries There is no direct impact to Press Metal given that it does not export its primary product to the US directly and their sales of extruded aluminium products to the US account for <1% of group sales. The bulk of the US primary aluminium imports come from Canada, the Middle East and Russia. On the indirect impact, given that the US is not a major aluminium player and is at a deficit on aluminium, (consumption at 6m tonnes while domestic production at 1m tonnes with up to 1m tonnes of idle capacity to be restarted), the import tariff will have a minimal impact on global LME aluminium prices. We note that LME aluminium prices are still hovering at US$2,150/tonne following the announcement last week, and the prices will still be largely dictated by demand and supply dynamics, notably from China s supply-side reform policies. Malaysian steel players have a very minimal exposure to the US market. Apart from that, we think that total US steel import (about 8% of total steel imported globally in 2016) should be easily absorbed by firm steel demand and also supported by massive capacity cuts undertaken by China. We are of the view, excess steel supply from US imports (US imported 26.9m tonnes of steel in 2017 (Jan-Sep)) may not be fully diverted into Asia after taking into consideration the logistic costs for top US steel exporters such as Canada, Brazil, Mexico and Russia. In addition, China is also committed to cutting steel capacity by 30m tonnes in 2018, which should help to cushion the impact of excess steel supply. More interestingly, we do not discount possibility of even higher steel ASP across Asia given higher scrap metal price incurred by Turkey (as a major steel exporter in Asia and also major importer of scrap metal from US) when domestic steel production in the US increases. Source: BBC US TRADE OF GOODS WITH CHINA Source: BBC 17

18 IMPACT FROM CHINA TARIFF IMPOSED ON SOYBEANS (6 JUL 18) Sectors Companies Remarks Plantation Kim Loong, (MARKETWEIGHT) Sarawak Oil Palms Since China has imposed a 25% tariff on US soybean, there could be a tightness situation for soybean oil, considering it is a byproduct of the former after crushing to produce animal feed. Hence, we see palm oil potentially stepping in as a substitute. Accordingly, Malaysian oil palm players may stand to benefit in the process. There is a possibility CPO prices may strengthen on the back of additional demand from China. Source: UOB Kay Hian SECTORS WHICH MAY BE IMPACTED BY FRESH ROUND OF US TARIFF THREAT (10 JUL 18) Sectors Companies Remarks Manufacturing - Rubber Gloves (UNDERWEIGHT) Manufacturing - Furniture (NOT RATED) Manufacturing - Wood-based Panel (NOT RATED) Top Glove, Hartalega, Kossan Lii Hen, Latitude Tree, Homeritz, Jaycorp, Poh Huat, Sern Kou Mieco, Evergreen, HeveaBoard If the 10% import tariff on Chinese vinyl gloves comes to fruition, we only see minimal spillover benefits. Firstly, the US is a big consumer of nitrile gloves (makes up 80-90% of their export, remaining 20-10% are latex) not vinyl. Hence, this should not create a pent-up demand situation in Malaysia due to any potential switching effect from using vinyl gloves. Besides, the price competitiveness of vinyl gloves still exist, ~20% cheaper to nitrile even after factoring in the 10% tariff. Consequently, those cost sensitive users would still prefer to use vinyl gloves. If the furniture sector in China is slapped with a 10% import tariff, it is very likely their products will be less competitively priced. In turn, regional counterparts including those in Malaysia may benefit as most of the local companies highlighted in our report have a sizeable or at least some exposure/dealings with US-centric clients. Chinese particle boards and medium-density fiberboard are among the two items in the wood-based panel space being targeted to face the 10% import tariff. Although the US only accounts for <10% of their total sales, we see some potential spillover positive impact to bottom-line and it could be material given the benefit of the high operating leverage. Source: UOB Kay Hian SECTORS WHICH MAY BE IMPACTED BY THE ONGOING US-CHINA TRADE WAR Sectors Companies Remarks Manufacturing - EMS (MARKETWEIGHT) Technology - OSAT (OVERWEIGHT) Source: UOB Kay Hian VS Industry SKP Resources Inari, Globetronics The products manufactured by VSI are not under the proposed tariffs by China and US so far. However, we note that VSI is the sole supplier outside China to one of its key customers whose sales are mainly coming from the US. Hence, VSI may benefit from increasing orders in the case that the product is under the proposed tariffs by US and China. The products manufactured by SKP are not under the proposed tariffs by China and US so far. If the trade war tension between US and China exacerbates (for example, Chinese consumers boycotting US products), US companies with significant China exposure will be impacted. Within our coverage, both Inari and Globetronics will be indirectly impacted as the US sole smartphone company, which derived 20% of its total 2017 revenue from China, is their end-client. Assuming sales of Inari s radio frequency (RF) products and Globetronics sensor products to this US end-client drops by 10% in , their respective earnings would decline by 5-6% and 7-8% respectively. 18

19 COMPANY RESULTS British American Tobacco (ROTH MK) 2Q18: All Eyes On New Government s Anti-Corruption Measures BAT s 2Q18 results were within our expectations. 2Q18 sales rose 6.5% qoq with core EBIT higher qoq by 17.7% on a 10% decline in opex. Although we take note of the new government s emphasis on anti-corruption which will curb illicit cigarette trade, we opine that execution may take some time given the widespread nature of illicit trade. Maintain HOLD and target price of RM30.00, implying 18x 2019F PE, which is its 20-year mean PE. Entry price: RM Q18 Results Year to 2Q18 qoq yoy 2H18 yoy 31 Dec (RMm) % chg % chg % chg Revenue (9.2) 1,316.8 (12.0) Gross profit (19.1) (18.6) Core EBIT (24.8) (22.5) Net profit (25.2) (22.5) Core net profit (27.7) (24.7) Volume (bn sticks) Domestic & DF (5.8) 2.1 (6.7) Margins (%) (%) +/- ppt +/- ppt (%) +/- ppt Gross profit (3.6) 30.3 (2.5) Core EBIT (4.6) 21.3 (2.9) Core net profit (4.1) 15.5 (2.6) Source: BAT, UOB Kay Hian RESULTS 2Q18 results were within our expectations. Despite British American Tobacco s (BAT) 1H18 core net profit of RM204.8m representing only 46% of our 2018 forecast (42% of consensus 2018 forecasts), we deem the results in line as we expect a stronger 2H18 on the back of recovery in sales volume and improvement in margins from lower opex and a modest positive impact from unchanged ASP in the months of July and August. BAT s 1H18 results reflect a one-off RM1.6m gain on the disposal of an asset (1H17: RM5.8m restructuring costs). An interim DPS of 35 sen was declared (2Q17: 43 sen), bringing ytd DPS to 68 sen (1H17: 83 sen), representing a 94% payout of headline net profit. KEY FINANCIALS Year to 31 Dec (RMm) F 2019F 2020F Net turnover 3,756 3,002 2,808 2,875 2,946 EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (sen) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x) Source: British American Tobacco, Bloomberg, UOB Kay Hian n.m. : not meaningful; negative P/E, EV/EBITDA reflected as "n.m." HOLD (Maintained) Share Price RM33.68 Target Price RM30.00 Upside -10.9% COMPANY DESCRIPTION BAT manufactures cigarettes and markets its products under its key brands Dunhill, Pall Mall and Kent. STOCK DATA GICS sector Consumer Staples Bloomberg ticker: ROTH MK Shares issued (m): Market cap (RMm): 9,616.7 Market cap (US$m): 2, mth avg daily t'over (US$m): 4.0 Price Performance (%) 52-week high/low RM44.88/RM mth 3mth 6mth 1yr YTD (6.1) (22.8) (15.8) Major Shareholders % British American Tobacco PLC 50.0 FY18 NAV/Share (RM) 1.40 FY18 Net Debt/Share (RM) 0.97 PRICE CHART (lcy) Volume (m) BRITISH AMERICAN TOBACCO BHD BRITISH AMERICAN TOBACCO BHD/FBMKLCI INDEX (%) 0 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Source: Bloomberg ANALYST(S) Vincent Khoo, CFA vincentkhoo@uobkayhian.com Fong Kah Yan kahyan@uobkayhian.com

20 2Q18 sales rose 6.5% qoq, core EBIT grew by a higher quantum of 17.7% qoq. 2Q18 top-line growth was in tandem with the 7.5% qoq recovery in 2Q18 sales volume. Core EBIT grew at a higher quantum of 17.7% qoq due to a 10.4% decline in opex (excluding one-off items) to RM56.8m. This was achieved on the back of overhead savings, lower services recharge from related entities and timing of spending. Consequently, bottom line consequently rose by 15.2% qoq on a slightly higher effective tax rate of 26% (1Q18: 24%). BAT MARKET SHARE BAT s 2Q18 sales volume rose 7.5% qoq but was down 5.8% yoy with illicit cigarette market share still high at 63%. For 1H18, BAT s sales volume declined 6.7% yoy vs the legal tobacco industry s total industry volume (TIV) decline of 3.5%.BAT attributed its higherthan-industry decline to its premium portfolio and geographical coverage. Illicit cigarette market share remained unchanged in 2Q18 at 63% (see RHS chart). STOCK IMPACT BAT s 2Q18 market share declined 1.1ppt to 57.2% from 1Q18. Dunhill s qoq decline in market share in 2Q18 was offset by an uptick in market share of Rothmans and Peter Stuyvesant (see RHS chart). Dunhill, the leading brand in the premium market, charted a 1ppt contraction qoq in market share at 39.7% for 2Q18. Source: BAT, AC Nielsen ILLICIT CIGARETTE INCIDENCE TREND Modest positive impact for BAT on unchanged ASP of its products during the zerorated GST period. Despite the zero-rated GST from 1 Jun 18 until 31 Aug 18, the Health Ministry has decided to maintain cigarette prices as prohibitive prices are one of the ways to discourage smoking. Given that excise duty is not raised with regard to this, we estimate earnings accretion of RM10m per month for BAT. New government s pledge to weed out corruption will help curb illicit trade Pakatan Harapan s manifestos stated intensifying efforts by enforcement agencies to stop the smuggling of alcohol and cigarettes across the border, including tighter controls along the borders and heavier punishments for those convicted. but implementation may take time. The illicit market share is high, currently hovering at an all-time high of 63%, whereby 57% of them are smuggled. We note the huge price gap between the legal cigarette products (priced at between RM12/pack to RM17.00/pack) and illegal cigarette products (priced at an average of RM4.50/pack). Given the widespread nature (with >200 brands of illicit cigarette brands in Malaysia) and sophistication of the illicit cigarette trade (eg frequent relocation of distribution hubs and thousands of distribution points), enforcement agencies will need to make concerted efforts to significantly curb the illicit cigarette trade. Hence, implementation will take time. Either 5% or 10% SST to be re-introduced on 1 Sep 18. Under the GST regime, GST paid by consumers ranged between RM0.68 to RM0.99, which is based on the selling price to consumers. Based on the SST regime, the SST is imposed on the cost of goods + excise duty + import tax instead. Although no detailed information has been released yet on the quantum of the SST imposed on tobacco products, we note that in the case of a 5% SST imposed on cigarette prices and given that tobacco companies are not allowed to reduce selling prices, BAT should see margin improvement from it. EARNINGS REVISION/RISK No change to our earnings forecasts. Source: BAT, AC Nielsen KEY ASSUMPTIONS Year to 31 Dec 2018F 2019F 2020F Current Sales volume growth (%) (4.0) Excise duty per stick (RM) ASP premium (RM/pack) ASP non-premium (RM/pack) EBIT margin (%) Source: UOB Kay Hian Key risks to our earnings forecasts include: a) duty hike for , and b) a slow recovery in consumer sentiment. VALUATION/RECOMMENDATION Maintain HOLD and target price of RM Our target price implies a 18x 2019F PE, which is at mean of its 20-year 12-month forward PE. Our target price is based on a WACC of 7% and terminal growth of 0.5%. Its yields are at 4.4-5% (based on a 96% payout). Entry price: RM

21 PROFIT & LOSS Year to 31 Dec (RMm) F 2019F 2020F Net turnover 3,002 2,808 2,875 2,946 EBITDA Deprec. & amort EBIT Associate contributions Net interest income/(expense) (11) (10) (4) (4) Pre-tax profit Tax (147) (148) (159) (167) Minorities Net profit Net profit (adj.) BALANCE SHEET Year to 31 Dec (RMm) F 2019F 2020F Fixed assets Other LT assets Cash/ST investment Other current assets Total assets 1, ST debt Other current liabilities LT debt Other LT liabilities Shareholders' equity Minority interest Total liabilities & equity 1, CASH FLOW Year to 31 Dec (RMm) F 2019F 2020F Operating Pre-tax profit Tax (129) (148) (159) (167) Deprec. & amort Associates Working capital changes (111) 78 (22) (18) Other operating cashflows (33) Investing 81 (5) (5) (5) Capex (growth) (24) (5) (5) (5) Capex (maintenance) n.a. n.a. n.a. n.a. Investments Proceeds from sale of assets Others Financing (475) (464) (462) (485) Dividend payments (711) (427) (458) (481) Issue of shares Proceeds from borrowings Loan repayment 248 (28) 0 0 Others/interest paid (12) (10) (4) (4) Net cash inflow (outflow) (22) 63 (9) (4) Beginning cash & cash equivalent Ending cash & cash equivalent KEY METRICS Year to 31 Dec (%) F 2019F 2020F Profitability EBITDA margin Pre-tax margin Net margin ROA ROE Growth Turnover (20.1) (6.5) EBITDA (29.6) (7.8) Pre-tax profit (29.6) (7.1) Net profit (31.7) (9.5) Net profit (adj.) (22.6) (14.9) EPS (22.6) (14.9) Leverage Debt to total capital Debt to equity Net debt/(cash) to equity Interest cover (x)

22 COMPANY RESULTS CapitaLand Commercial Trust (CCT SP) 2Q18: DPU In Line; Firm Outlook For Singapore Office Properties CCT S 2Q18 adjusted DPU is in line, rising 10.9% yoy. Prospects for Singapore property appear promising on favourable demand-supply dynamics. Capital values for Singapore office property remained firm, with a slight 0.1ppt fall in cap rates in 1H18. CCT remains on the prowl for accretive acquisition opportunities in Singapore and overseas. Maintain BUY with a lower target price of S$1.99 as we raise our risk- free rate assumption by 0.25ppt to 2.75%. 2Q18 RESULTS Year to 31 Dec yoy (S$m) 2Q18 % chg Remarks Gross Revenue Mainly due to contribution from AST2, which offset the loss in contributions from the divestments of One George Street, Golden Shoe Car Park and Wilkie Edge Net Property Income Distributable Income Adj. DPU (cent) Source: CCT, UOB Kay Hian RESULTS No surprises in 2Q18. CapitaLand Commercial Trust s (CCT) 2Q18 adjusted DPU of rose 14.3% yoy to 2.16 cents. Gross revenue and net income grew 12% yoy and 12.5% yoy respectively on contribution from Asia Square Tower 2 (AST2), which offset the loss in contributions from the divestments of One George Street, Golden Shoe Car Park and Wilkie Edge in Other contributions included Gallileo (acquired on 18 Jun 18) as well as a stronger performance from CapitaGreen. The results were broadly in line with our expectations, with 1H18 DPU representing 48.1% of our full-year forecast. Slight uptick in portfolio occupancy, helped by Gallileo. The group s portfolio occupancy enjoyed an uptick to 97.8% in 2Q18 from 97.3% in 1Q18, helped by the acquisition of Gallileo (in Germany) which is fully occupied. The occupancy of its Singapore portfolio was 97.6%, which is above the market s CBD occupancy of 94.1%. Future growth from CapitaSpring. CCT has retained J.P. Morgan as a key tenant in its portfolio, extending its lease at Capital Tower and securing its relocation to CapitaSpring (committing close to 25% of NLA) after the development s completion, which is targeted in 1H21. KEY FINANCIALS Year to 31 Dec (S$m) F 2019F 2020F Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPU (S cent) DPU (S cent) PE (x) P/B (x) DPU Yld (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus DPU (S$ cent) n.a. n.a UOBKH/Consensus (x) Source: CCT, Bloomberg, UOB Kay Hian BUY (Maintained) Share Price S$1.75 Target Price S$1.99 Upside +13.7% (Previous TP S$2.11) COMPANY DESCRIPTION Singapore office REIT with a portfolio of prime and Grade-A properties including Capital Tower, Six Battery Road and One George Street. STOCK DATA GICS sector Real Estate Bloomberg ticker: CCT SP Shares issued (m): 3,742.7 Market cap (S$m): 6,549.7 Market cap (US$m): 4, mth avg daily t'over (US$m): 14.9 Price Performance (%) 52-week high/low S$2.03/S$1.62 1mth 3mth 6mth 1yr YTD 6.7 (5.9) (8.9) 4.5 (9.3) Major Shareholders % CapitaLand FY18 NAV/Share (S$) 1.89 FY18 Net Debt/Share (S$) 0.64 PRICE CHART (lcy) Volume (m) CAPITALAND COMMERCIAL TRUST CAPITALAND COMMERCIAL TRUST/FSSTI INDEX (%) 0 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Source: Bloomberg ANALYST(S) Andrew Chow, CFA andrewchow@uobkayhian.com Peihao Loke peihao@uobkayhian.com

23 STOCK IMPACT Closing the gap between 2018 expiring and market rents. While the average office rent of CCT s Singapore portfolio eased 0.5% qoq, the gap between 2018 expiring rent and market rents is closing (6% in 2Q18 vs 15% in 4Q17). Rental reversions were AST2 (-17% to -9.5%), CapitaGreen (-14.6% to 13.8%), Six Battery (-19.2% to 11.6%) and One George Street (-1.3% to 3.0%). The monthly rents committed ranged at AST2 (S$ psf pm), CapitaGreen (S$ psf pm), Six Battery Road (S$ psf pm) and One George Street (S$ psf pm). The group also has a well spread portfolio lease expiry profile, with a weighted average lease term to expiry of 6.0 years. Aggregate leverage stabilised at 37.9% in 2Q18 (flat qoq). Total gross debt increased 8.1% yoy to S$4,398.9m due to higher borrowings to fund acquisitions. Some 85% of borrowings remain at fixed-rate, minimising interest exposure risk. In terms of sensitivity to rising rates, a 0.5ppt rise in interest rates would raise CCT s interest expense by S$3.2m, or -1% impact on annualised 1H18 DPU. On our estimates, CCT s debt headroom for acqusition is S$1,482m. Appetite for more accretive acquisitions. In Singapore, CCT still has a call option to acquire the balance 55% interest in the commercial component of CapitaSpring, within five years from the building s construction (1H21). Management continues to be upbeat on selected overseas countries, particularly Germany where investment opportunities are ample. The target is for overseas assets to account for 10-20% of total deposited properties but no time frame has been provided for this. EARNINGS REVISION We trim our DPU forecasts by up to 3%, mainly factoring in the divestment of Twenty Anson (and use of S$512.5m net divestment proceeds to pare down debt). VALUATION/RECOMMENDATION BUY with a lower target price of S$1.99 (previously S$2.11). This is to reflect a 25bp rise in our risk-free rate assumption to 2.75%. Our valuation is based on DDM (required rate of return: 6.7%, terminal growth: 2.5%). SHARE PRICE CATALYST Higher-than-expected signing rentals and occupancies at CapitaSpring. More accretive acquisitions in Germany or Singapore. Higher office rentals, positive newsflow on leasing activity and employment economic growth. KEY OPERATING METRICS Q18 2Q18 yoy qoq DPU % 1.9% Occupancy 98.7% 96.8% 97.1% 97.1% 97.3% ppt 0.5ppt Gearing 29.3% 29.3% 29.5% 37.8% 37.3% ppt 0ppt Average Cost of Debt 2.60% 2.30% 2.50% 2.60% 2.60% 2.70% ppt 0.1ppt % borrowing in fixed rates 80.0% 83.0% 84.0% 80.0% 80.0% 90.0% 85.0% 0ppt -5ppt WALE by NLA (yrs) % 5.3% Weighted Debt Maturity % -7.7% CCT Portfolio Cap Rates (%) Capital Tower Six Battery Road One George Street HSBC Building Twenty Anson Wilkie Edge NA - CapitaGreen NA Raffles City SG - Office Retail Hotel Source: CCT, UOB Kay Hian DEBT REFINANCING SCHEDULE Source: CCT LEASE EXPIRY PROFILE Source: CCT EXPIRING AND MARKET RENTS CONTINUE TO NARROW Source: CCT TENANT MIX Source: CCT RENTS COMMITTED ABOVE MARKET S Source: CCT 23

24 PROFIT & LOSS BALANCE SHEET Year to 31 Dec (S$m) F 2019F 2020F Year to 31 Dec (S$m) F 2019F 2020F Net turnover Fixed assets 7, , , ,155.9 EBITDA Other LT assets 1, , , ,779.7 Deprec. & amort Cash/ST investment EBIT Other current assets Total other non-operating income Total assets 9, , , ,092.8 Associate contributions ST debt Net interest income/(expense) (66.0) (54.7) (65.2) (69.0) Other current liabilities Pre-tax profit LT debt 2, , , ,538.2 Tax (3.7) Other LT liabilities Net profit Shareholders' equity 6, , , ,309.4 Net profit (adj.) Total liabilities & equity 9, , , ,092.8 CASH FLOW KEY METRICS Year to 31 Dec (S$m) F 2019F 2020F Year to 31 Dec (%) F 2019F 2020F Operating Profitability Pre-tax profit EBITDA margin Tax (3.7) Pre-tax margin Associates (84.9) (115.9) (118.0) (120.1) Net margin Working capital changes ROA Non-cash items ROE Other operating cashflows Investing (902.0) Growth Capex (growth) (836.8) (35.8) Turnover Capex (maintenance) EBITDA Others (65.2) Pre-tax profit Financing (352.2) (407.7) (418.9) Net profit Distribution to unitholders (288.9) (327.4) (336.6) (344.0) Net profit (adj.) Issue of shares EPU (1.6) Proceeds from borrowings Loan repayment (1,111.2) (182.0) Leverage Others/interest paid 1,324.5 (60.6) (71.1) (74.9) Debt to total capital Net cash inflow (outflow) (37.4) Debt to equity Beginning cash & cash equivalent Net debt/(cash) to equity Ending cash & cash equivalent Interest cover (x)

25 COMPANY RESULTS Keppel Corporation (KEP SP) 2Q18: Core Earnings Below Expectations; Makes Up With Special Dividend 2Q18 core earnings was significantly below our expectations. O&M appears stabilised at the operating level, but remains a net loss. Property appears to be facing headwinds, with core earnings down qoq. New land plots will be tendered for TJEC in 2H18, but the transaction price is a key question. Earnings have been slashed by 13-33% for Our recommendation and target price are put Under Review, as we re-evaluate our Property RNAV given the weaker property outlook. 2Q18 RESULTS Year to 31 Dec (S$m) 2Q18 yoy % chg 1H18 yoy % chg 2Q18 Remarks Revenue 1,522.8 (2) 2, Operating Profit Pre-tax Profit Net Profit Net Profit (ex EI) (18) (28) Excludes S$110m in after tax gains from property divestments, and S$40m in revaluation gain for Nassim Woods, as well as S$48m forex loss. Op. Margin (%) ppt ppt Segment Net Profit O&M (17.0) n.m. (41.5) n.m. Lower work volumes, high interest expense. Property (39) Includes divestment gains and revaluation gain for Nassim Woods. Infrastructure Investments (2.0) n.m. (36.9) n.m. Absence of land sales at TJEC, mark to market losses Segment EBIT Margin (%) O&M 1.0 (6ppt) 1.5 (3ppt) Excluding Borr contributions, operating margin was stable at 2%. Property ppt ppt Core EBIT margin closer to 12%, down 7ppt. Infrastructure 5.5 1ppt 4.4 (1ppt) Stable. Investments ppt 0.9 (88ppt) Source: Keppel, UOB Kay Hian RESULTS 2Q18 core net profit of S$120m below expectations. Keppel Corporation (KEP) reported 2Q18 headline net profit of S$246.2m (+54% yoy). Earnings were once again helped by divestments of S$173.5m, partially offset by forex loss of S$48m. Stripping out the divestments gains and other one-offs, core net profit was ~S$120m (-18% yoy, +117% qoq). For 1H18, core net profit was S$176m, forming 22%/18% of UOBKH/consensus earnings, below expectations. The overall weakness was largely due to absence of land sales from Tianjin Eco City (TJEC), as well as lower core profitability from its property division. KEY FINANCIALS Year to 31 Dec (S$m) F 2019F 2020F Net turnover 6,767 5,964 5,601 6,747 6,950 EBITDA 1, ,651 1,561 1,658 Operating profit ,438 1,349 1,446 Net profit (rep./act.) , ,140 Net profit (adj.) ,140 EPS (S cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit - - 1,006 1,091 1,245 UOBKH/Consensus (x) Source: Keppel, Bloomberg, UOB Kay Hian BUY (Under Review) Share Price S$6.96 Target Price S$9.00 Upside COMPANY DESCRIPTION Keppel Corp is a conglomerate with three core businesses - offshore oil & gas heavy engineering, property and infrastructure. STOCK DATA GICS sector Industrials Bloomberg ticker: KEP SP Shares issued (m): 1,813.3 Market cap (S$m): 12,620.8 Market cap (US$m): 9, mth avg daily t'over (US$m): 23.4 Price Performance (%) 52-week high/low S$8.86/S$6.24 1mth 3mth 6mth 1yr YTD (1.3) (13.8) (15.6) 6.7 (5.3) Major Shareholders % Temasek Hldgs FY18 NAV/Share (S$) 6.63 FY18 Net Debt/Share (S$) 3.40 PRICE CHART (lcy) KEPPEL CORP LTD KEPPEL CORP LTD/FSSTI INDEX Volume (m) (%) 0 Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18 Jul 18 Source: Bloomberg ANALYST(S) Foo Zhi Wei zhiwei@uobkayhian.com Andrew Chow, CFA andrewchow@uobkayhian.com

26 O&M: Stabilised at the operating level, bottom-line remains a core loss. Revenue of S$607m was recognised 2Q18, which included ~S$310m in revenue from two spec build Borr Drilling rigs part of the US$745m transaction. We understand that the units broke even, so excluding its revenue contributions, Offshore & Marine (O&M) core operating margin was ~2%, comparable to 1Q18 s 2%. A gain on disposal of fixed asset (S$1.6m) was recorded for the quarter. The division reported a net loss owing to continued high net interest expense of ~S$20m. S$1.2b new orders secured as of end-jun 18. New orders clinched in 2Q18 was S$680m, comprising two new jack-ups for Borr Drilling, two dual-fuel dredgers for Van Oord, a dual-fuel bunker tanker and a LNG bunkering vessel. The FLNG Gandria order is now expected to receive notice of construction by year-end. We had flagged potential project risk for this stemming from Ophir s difficulty in securing financing. Property: Core earnings down qoq, revenue run-rate declining. Excluding the aftertax gain of S$110m from en-bloc sale of two residential developments in Shenyang and its stake in Quoc Loc Phat Joint Stock Company, as well as a S$48m revaluation gain (S$40m after tax) on Nassim Woods, core property earnings was ~S$41m (-61% yoy, - 47% qoq). Quarterly revenue was lower at S$244m (-55% yoy). Keppel expects to recognise profits from sale of 6,900 units of overseas home worth about S$2.4b over 3Q18 to Implied revenue is ~S$171m per quarter, lower than historical quarterly revenue run rate of S$400m-500m. Revenue recognition is lumpy, so we are careful about overly reading into this. Home sales hit 1,120 units in 2Q18. The figures represent a qoq improvement from 300 in 1Q18, but a 25% yoy decline. Sales were driven by China (610), Indonesia (150) and India (225). Sales in Singapore was flat, while Vietnam saw a qoq decline. Infrastructure earnings at S$40m, helped by contributions from Keppel Marina East Desalination Plant (KMEDP). The project contributed to the stable recurring income of the unit, and is 50% complete. Contributions from the Hong Kong Integrated Waste Management Facility are expected to kick in next year. Investments: No land sales from TJEC, as expected. The absence of land sales resulted in the loss for 2Q18. Management remains confident of closing sales in 2H18. Net profit from the core asset management business was stable. However, the Others (Investments) sub division was impacted by mark-to-market equity losses. Interim dividend of 15 S cents declared. This comprises 10 S cents interim dividend, with 5 S cents special dividend and was higher than expected. STOCK IMPACT Earnings for 2H18 could remain soft. While management appears more upbeat on orders for the O&M segment, it is unlikely to return to pre-2014 levels of profitability in the short-mid term. Earnings have been primarily driven by its property division, which is showing signs of slowing down. Divestments are unlikely to make up for the drop in earnings. TJEC land sales remains the crux of valuations, and a unsuccessful tender in 2H18 presents downside risks. As it stands, 2H18 could remain soft, raising the risk of consensus downgrading earnings estimates, which currently stands at S$1b. Property earnings at risk of downgrades on scale-back of launches. Launches in core cities were largely unchanged, though we note scale-backs in launches for the key Wuxi projects (9% of property estimates). West Vista at Puri and Stamford City saw significant launch deferrals on what appears to be weak sales. EARNINGS REVISION/RISK Cut earnings by 13-33%. We have reduced our forecasts on: a) O&M revised to a loss for 2018, b) lower property earnings, and c) lower ASP assumption of Rmb8,400 psm for TJEC land sales. Our revised core estimates for F are S$538m (-33%), S$882m (-13%), S$1,140m (-16%). Our FY19-20 earnings remain admittedly high, largely due to the underlying property earnings assumption, which will be reviewed. VALUATION/RECOMMENDATION Recommendation under review. Our recommendation and target price are under review. This stems from a need to re-evaluate the property RNAV given it comprises 60% of valuation and the weaker property outlook. O&M NET ORDERBOOK i: Excludes semis for Sete Brasil ii: Includes modifications, upgrading, fabrication and rig repairs. Source: Keppel PROPERTY HOME SALES Source: Keppel China Vietnam Singapore Others 26