Industry Chinese telecoms Dec review

Transcription

1 Deutsche Bank Markets Research Asia China Industry Chinese telecoms Dec review Date 25 January 216 Industry Update An awful month, but an awfully big step forward December revenue -1% - as data-rollover and Y/E marketing push hurts Key news this month was CT and CU co-operation, which we will discuss later, and contributed to our CM upgrade to Buy, but let's first look into a very weak month. December's 1% fall in industry revenue was apart from two VAT impacted months, the fifth worst contraction we can find in the last decade. This reflected data roll-over and year-end promotions. It has led us to cut our profit estimates for 215. The sales push led CM to add 25m G adds, the highest on record, whilst CT saw above peer subscriber growth (+6.6% in mobile, +5.7% in broadband), but we expect the trend to reverse in January. CU's sub loss eased to.3m, the best result for it all year. Reducing 215 forecasts on stronger-than-expected data roll-over impact We now forecast service revenue to decline ~2% in FY15, broadly in-line with MIIT s 2.5% total revenue decline. We estimate the total data carry-over impact in the December quarter to be ~RMB26bn or approximately 1 month of mobile data revenue. The reality may be slightly less, with year-end promotions taking the balance. We now forecast -1% NPAT growth in FY15,.6% in FY16 (-1% in FY15 and +% in FY16 excluding the impact of data carry over and TowerCo). Capex in FY15 was 13.7% higher than FY1 levels, similar to what the telecoms have guided to in their recent results. CT and CU get together CT and CU agreed to co-operate in handsets and network, while looking to codevelop content and find other ways to combine forces to provide the scale to compete with CM. We see this as a major change, not just in efficiency, but in reducing pricing pressure ahead. We expect the companies to progress towards a fuller merger over time. FY16 outlook a better year ahead We see a number of themes for 216: 1) Less competitive and regulatory pressure on pricing than FY15, allowing data monetization to result. That should drive ARPU improvement and solid profit growth, similar to the experience of their Asian peers post mass-market G take-up, 3) Continued investment in G as CT and CU continue to strive to catch up to CM in terms of network quality, keeping pressure on the expense lines of CT and CU, ) Marketing spend to be fairly flat, and ) some reprieve on VAT clawback (~1% of opex), providing room to invest in network upgrades and higher marketing spend. Valuation and Risks Our sector valuation is based on a DCF approach, which we apply due to the relatively predictable cash flow profiles of China s telcos. We utilize a 8.3% WACC for the Chinese telecoms and a % perpetual growth rate. CoD is.5%, Debt/Equity ratio is 1/9. Upside risk: cost out. Downside risk: lower arpu from competition. Peter Milliken, CFA Research Analyst (+852) peter.milliken@db.com James Wang Research Analyst (+852) james-z.wang@db.com Top picks China Telecom Corp (728.HK),HKD3.36 China Mobile (91.HK),HKD82.65 Source: Deutsche Bank Companies Featured Buy Buy China Mobile (91.HK),HKD82.65 Buy 21A 215E 216E P/E (x) EV/EBITDA (x) Price/book (x) China Unicom (762.HK),HKD8.15 Hold 21A 215E 216E P/E (x) EV/EBITDA (x) Price/book (x) China Telecom Corp (728.HK),HKD3.36 Buy 21A 215E 216E P/E (x) EV/EBITDA (x) Price/book (x) Source: Deutsche Bank Deutsche Bank AG/Hong Kong 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) 12//215.

2 25 January 216 Earnings changes We have adjusted our earnings to reflect the latest MIIT figures, year-end promotions, and the data roll-over impacts. We estimate the revenue drag from data roll-over to be ~RMB26bn in FY15 based on the assumption that a total of one month of data revenue is deferred. This is partially offset by the TowerCo gain on sale as shown below. These impacts are reversed in FY16 as the deferred revenue is recognized. We have assumed no impact from any behavior changes resulting from the data roll-over introduction (i.e., customers downgrading onto cheaper plans) given the average usage in China still trails most of the other countries such as US, Korea, Japan and Taiwan. Figure 1: Data roll-over impact vs TowerCo gain on sale RMBbn China Mobile China Telecom China Unicom Estimated data roll-over impact TowerCo gain on sale Figure 2: Earnings changes Revised NPAT forecasts NPAT changes FY15F FY16F FY17F FY15F FY16F FY17F China Mobile 11,91 115, ,682-1% -3% -% China Telecom 18,316 19,82 2,671-15% -% -8% China Unicom 9,529 8,789 9,962-39% -21% -27% We note the following in respect of forecast changes: As we have already put through the data carry over changes for China Mobile, we made minimal earnings changes. The FY16 and FY17 earnings reductions reflect the lower than expected subscriber numbers in FY15; The large reductions in FY15 earnings for CT and CU reflect the effect of putting through the data roll-over impacts; We have increased our capex forecasts (essentially removing the capex savings from TowerCo) with all 3 telcos appearing to remain committed to accelerate their G base station build-out. This may Page 2 Deutsche Bank AG/Hong Kong

3 25 January 216 prove to be conservative, particularly for CT and CU given the potential savings from their base station arrangement; For CU, the significant earnings reductions reflect the higher operational leverage and a slower than expected recovery in mobile subscriber growth. At an underlying level (i.e., adjusted for the data roll over impacts and TowerCo), we are now forecasting net profit growth of ~5% in FY16 as shown below. Figure 3: Net profit growth adjusted for gain on sale and roll-over impacts Growth RMBm FY1 FY15F FY16F FY15F FY16F China Mobile 19, ,15 11,9 1.7% 2.9% China Telecom 17,68 18,512 2,225.7% 9.3% China Unicom 12,55 8,26 8, %.3% Sector 139,1 138,92 13,23 -.7% 3.9% Forecasting flat sector NPAT growth in 215, % in 216 Figure : Q growth rates China Mobile China Telecom China Unicom Revenue growth -13% -7% -1% Opex growth -6% % 2% EBITDA growth -25% -16% -28% Net profit growth -1% 16% -1% Deutsche Bank AG/Hong Kong Page 3

4 25 January 216 Key sector forecasts Figure 5: Mobile service revenue growth FY15F FY16F FY17F CM -1.8% 11.% 6.1% CT 1.1% 1.% 9.% CU -11.2% 7.3% 7.7% Total -3.1% 1.9% 6.8% Figure 6: Service revenue growth FY15F FY16F FY17F CM -1.8% 11.% 6.1% CT 1.1% 6.7% 5.5% CU -5.3%.2%.9% Total -1.8% 8.5% 5.7% Figure 7: Opex growth FY15F FY16F FY17F CM 1.9% 1.9% 5.2% CT.2% 5.5%.8% CU -2.6% 3.% 5.% Total.% 7.7% 5.% Figure 8: EBITDA growth FY15F FY16F FY17F CM 1.1% 8.7% 7.7% CT -1.3% 6.5% 5.8% CU -3.9% 1.% 5.% Total -.6% 6.6% 6.8% Figure 9: Net profit growth forecasts FY15F FY16F FY17F CM.%.7% 7.% CT 3.6% 1.% 8.6% CU -21.% -7.8% 13.3% Total -1.%.6% 7.6% Source: Deutsche Bank Page Deutsche Bank AG/Hong Kong

5 25 January 216 Key Headlines CT and CU sign a strategic cooperation 电信联通抱团追移动 : 省数百亿资金共享营业厅 - 新浪科技 1 Jan China Telecom and China Unicom have signed a strategic cooperation agreement to share resources, improve efficiency and reduce operating costs. The cooperation involves the following aspects: Deepen cooperation in network co-build and co-share so as to enhance network coverage more rapidly and enhance network service quality; Jointly promote six-mode handsets. This particularly helps CT, which has been disadvantaged by CDMA s smaller scale globally. The government appears willing to push vendors to have all handsets operable on all networks which will be important in helping generate share gains, once number portability is introduced, Enhance network interconnection quality; To adopt a new mechanism to drive innovative business cooperation; and Jointly develop roaming. The initial win here should be negotiating roaming charges down, as now the international peers cannot play CT and CU off against each other, this will help the two hold onto margin vs. CM, with its greater bargaining power Sina reported that in some cases, even the retail outlet space was being shared between the two operators. While the pace of cooperation has picked up, a China Unicom department head commented that execution at a provincial and city area remains a challenge despite agreement at a top level. As a result, the two companies will look to aggregate the cooperation requirements at a central level and review on a monthly basis. As readers know, we have been promoting that we have considered a merger probably, since July 3s How and Why of SOE Reform report on the Chinese telcos. Much has happened in a short time since the CT and CU chairmen swapped seats in August. We expect more cooperation, and an eventual merger, to drive a value uplift of 5-6% in the medium term at the two. We expect the merger will mainly result in CT and CU becoming more competitive, rather than cutting costs significantly. We believe the 216 impact will be improving pricing power in the market for all operators, as consolidation tends to achieve. Resignation of China Telecom chairman 中國電信公告稱常小兵已辭去董事長等職務 新浪香港 3 Dec China Telecom has announced that its chairman Mr. Chang Xiaobing has resigned and that Mr Yang Jie, the CEO will take up the role as acting Chairman until a new appointment is made by the board. We believe Mr. Yang is a good choice. Deutsche Bank AG/Hong Kong Page 5

6 25 January 216 Sina reported that Mr Chang was under investigation relating to possible corruption charges while he was chairman of China Unicom. TowerCo has now built 18k towers, a further 11k to go 盘点中国铁塔 215 年 : 服务三大运营商俯首甘为孺子牛 C11.net = 13 Jan According to C11.net, by the end of Nov 15, TowerCo has built 18k towers from a total requirement of 532k towers. Furthermore, TowerCo has also built 3k indoor distribution units from a total requirement of 9.8k.In aggregate, the TowerCo estimates that it has saved the industry 2k base stations and RMB2bn in costs. Page 6 Deutsche Bank AG/Hong Kong

7 25 January 216 Key charts Telco industry revenue and capex trends Telco revenue growth (YTD yoy adjusted) 12M rolling telecom revenue 2% 18% 16% 1% 12% 1% 8% 6% % 2% % Feb- Feb-5 Feb-6 Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb-12 Feb-13 RMBbn % 15% 1% 5% % -5% -1% Feb- Feb-5 Feb-6 Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb-12 Feb-13 RMBbn Growth (restated YTD revenue, YoY) 12mth rolling service revenue (RHS) Growth (YTD revenue, YoY) 12mth rolling service revenue (RHS) Source: Deutsche Bank, MIIT, 215 growth rates restated as disclosed by MIIT Source: Deutsche Bank, MIIT Monthly telco revenue growth (yoy raw) Capex as % revenue (12mth moving avg) 5% 12 7% % 3% 2% 1 8 6% 5% 1% % -1% -2% 6 2 % 3% 2% -3% Feb- Feb-5 Feb-6 Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb-12 Feb-13 1% % Growth (mthly revenue, YoY) Telecom mthly revenue (RHS) Mar-3 Mar- Mar-5 Mar-6 Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-1 Mar-15 Source: Deutsche Bank, MIIT Source: Deutsche Bank, MIIT Deutsche Bank AG/Hong Kong Page 7

8 25 January 216 Mobile market trends Industry Mobile subscriber growth (yoy) Industry Mobile mthly net adds 12% 1% 8% 6% % 2% % Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 Dec-1 Nov-1 Oct-1 Sep-1 Aug-1 Jul-1 Jun-1 May-1 Apr-1 Mar-1 Jan-1 Dec-13 Wireless subs number (RHS) m Wireless subs grw (YoY) 1,32 1,3 1,28 1,26 1,2 1,22 1,2 1,18 16 m Jan/2 Jan/1 Jan/3 Jan/ Jan/5 Jan/6 Jan/7 Jan/8 Jan/9 Jan/1 Jan/11 Jan/12 Jan/13 Jan/1 Jan/15 Source: Deutsche Bank, MIIT Source: Deutsche Bank, MIIT Mobile data usage per user growth (yoy) 12% 1% 8% 6% % Mobile subscriber penetration rate 12% 1% 8% 6% 2% % Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 Dec-1 Nov-1 Oct-1 Sep-1 Aug-1 Jul-1 Jun-1 May-1 Apr-1 Mar-1 Jan-1 Dec-13 Mobile data per user (MB/mth, RHS) Mobile data per user growth (YoY) 1 - % 2% % Feb-1 Feb-2 Feb-3 Feb- Feb-5 Feb-6 Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb-12 Feb-13 Source: Deutsche Bank, MIIT Source: Deutsche Bank, MIIT 3G & G as % of total subs Industry monthly 3G/G net adds composition 1% 9% 8% 7% 6% 5% % 3% 2% 1% % 9% 11% 13% 1% 16% 17% 19% 21% 23% 25% 27% 3% 38% 38% 37% 36% 35% 35% 3% 3% 33% 32% 31% 31% 53% 52% 51% 5% 9% 8% 6% 5% % 3% 1% % Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 2G 3G G m m G subs G subs Other Source: Deutsche Bank, MIIT Source: Deutsche Bank, MIIT, G net adds N/A prior to Jan 15 Page 8 Deutsche Bank AG/Hong Kong

9 25 January 216 Mobile trends by provider China Mobile mthly net adds (3mth moving avg) m China Unicom mobile mthly net adds (3mth moving avg) m m Feb-1 Feb-2 Feb-3 Feb- Feb-5 Feb-6 Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb-12 Feb-13-3 Feb-1 Feb-2 Feb-3 Feb- Feb-5 Feb-6 Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb-12 Feb-13 China Telecom mobile mthly net adds (3mth moving avg) m Jul-15 Jan-15 Jul-1 Jan-1 Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-1 Jan-1 Jul-9 Jan-9 Mobile subscriber market share 8% 7% 6% 5% % 3% 2% 1% % Oct/8 Oct/9 Oct/1 Oct/11 Oct/12 Oct/13 Oct/1 Oct/15 China Mobile China Unicom China Telecom Mobile net adds (m) 3G and G customers as % of total customer base m 8% 7% 6% 5% % 3% 2% 1% % Dec-15 Jun-15 Dec-1 Jun-1 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-1 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 Dec-1 Nov-1 Oct-1 Sep-1 China Mobile China Telecom China Unicom China Unicom China Mobile China Telecom Deutsche Bank AG/Hong Kong Page 9

10 25 January 216 Fixed line voice market trends Industry fixed voice LIS growth (yoy) 3% 25% 2% 15% 1% 5% % -5% -1% -15% Dec-1 Dec-13 Dec-12 Dec-11 Dec-1 Dec-9 Dec-8 Dec-7 Dec-6 Dec-5 Dec- Dec-3 Dec-2 Dec-1 LIS growth (YoY) Fixed voice LIS (RHS) m Industry fixed voice LIS growth (mom annualised) m % 3% 35 2% 3 1% 25 2 % 15-1% 1-2% 5-3% - Jan-15 Jan-1 Jan-13 Jan-12 Jan-11 Jan-1 Jan-9 Jan-8 Jan-7 Jan-6 Jan-5 Jan- Jan-3 Jan-2 Jan-1 LIS growth (MoM) Fixed voice LIS (RHS) Source: Deutsche Bank, MIIT Source: Deutsche Bank, MIT China Unicom monthly fixed line voice net adds m Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 Dec-1 Nov-1 Oct-1 Sep-1 Aug-1 Jul-1 Jun-1 May-1 Apr-1 Mar-1 Jan-1 Dec-13 PSTN net adds 3M MA (LHS), 3mth moving avg shown YoY growth (RHS) % -1% -2% -3% -% -5% -6% -7% -8% -9% -1% China Telecom monthly fixed line voice net adds m Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 Dec-1 Nov-1 Oct-1 Sep-1 Aug-1 Jul-1 Jun-1 May-1 Apr-1 Mar-1 Jan-1 Dec-13 Nov-13 Fixed line net adds (3m mvg avg) Fixed voice LIS growth (YoY, RHS) Source: Deutsche Bank. Company Data, 3mth moving avg shown % -1% -2% -3% -% -5% -6% -7% -8% -9% Fixed voice subscriber market share by provider 7% 6% 5% % Fixed line voice subscriber penetration 3% 25% 2% 3% 2% 1% 15% 1% % 5% Dec-6 Dec-7 Dec-1 Dec-13 Dec-12 Dec-11 Dec-1 Dec-9 Dec-8 China Unicom China Telecom Others % Jan-1 Jan-2 Jan-3 Jan- Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-1 Jan-15, MIIT Source: Deutsche Bank, MIIT Page 1 Deutsche Bank AG/Hong Kong

11 25 January 216 Fixed line broadband market trends Industry fixed line broadband subscriber growth (yoy) Fixed line broadband subs market share by provider 16% 1% 12% 1% 8% 6% % 2% % -2% -% Feb- Feb-5 Feb-6 Feb-7 Feb-8 Feb-9 Fixed broadband sub growth (MoM) Feb-1 Feb-13 Feb-12 Feb-11 m Fixed broadband subs number (RHS) 6% 5% % 3% 2% 1% % Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-1 China Unicom China Telecom Others Source: Deutsche Bank, MIIT Source: Deutsche Bank, MIT, Company Data China Unicom monthly fixed line bb net adds China Telecom monthly fixed line bb net adds.7 m m Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 Dec-1 Nov-1 Oct-1 Sep-1 Aug-1 Jul-1 Jun-1 May-1 Apr-1 Mar-1 Jan-1 Dec-13 Broadband net adds (3mth moving avg) 1% 9% 8% 7% 6% 5% % 3% 2% 1% % Broadband sub growth (YoY, RHS) m Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Jan-15 Dec-1 Nov-1 Oct-1 Sep-1 Aug-1 Jul-1 Jun-1 May-1 Apr-1 Mar-1 Jan-1 Dec-13 Broadband net adds (3mth moving avg, LHS) 12% 1% 8% 6% % 2% % Growth (YoY, RHS), 3m moving avg shown Source: Deutsche Bank. Company Data, 3m moving avg shown Deutsche Bank AG/Hong Kong Page 11

12 25 January 216 Model updated:2 January 216 Running the numbers Asia China Wireless China Mobile Reuters: 91.HK Buy Bloomberg: 91 HK Price (22 Jan 16) HKD Target Price HKD Week range HKD Market Cap (m) HKDm 1,658,7 Company Profile USDm 212,832 China Mobile Limited provides a full range of mobile telecommunications services in all 31 provinces, autonomous regions and directly-administered municipalities in Mainland China as well as in Hong Kong via its wholly-owned China Mobile Peoples Telephone Co Ltd. Price Performance Jan 1Apr 1 Jul 1 Oct 1Jan 15Apr 15 Jul 15 Oct 15 Margin Trends China Mobile HANG SENG INDEX (Rebased) E 16E 17E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 16E 17E Sales growth (LHS) ROE (RHS) E 16E 17E Fiscal year end 31-Dec E 216E 217E Financial Summary DB EPS (CNY) Reported EPS (CNY) DPS (CNY) BVPS (CNY) Weighted average shares (m) 2,72 2,1 2,13 2,13 2,13 2,13 Average market cap (CNYm) 1,373,17 1,327,278 1,321,195 1,,359 1,,359 1,,359 Enterprise value (CNYm) 1,,78 91,31 99,392 1,56,179 1,18, ,578 Valuation Metrics P/E (DB) (x) P/E (Reported) (x) P/BV (x) FCF Yield (%) nm Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (CNYm) Sales revenue 581,835 63,177 61,8 651, , ,283 Gross profit 581,835 63,177 61,8 651, , ,283 EBITDA 275,68 2,26 233, , , ,6 Depreciation 1,88 1, , ,91 138,16 15,16 Amortisation EBIT 17, ,69 117,33 12, ,36 126,37 Net interest income(expense) 12,271 1,958 15,921 15,765 1,825 15,93 Associates/affiliates 5,68 7,62 8,28 8,296 13,957 15,573 Exceptionals/extraordinaries Other pre-tax income/(expense) ,89 15,67 2,399 2,58 Profit before tax 192, ,579 12,592 12,333 19, ,99 Income tax expense 1,919 36,776 33,187 32,786 3,8 37,268 Minorities Other post-tax income/(expense) Net profit 15, ,692 19,279 19,283 11,9 122,365 DB adjustments (including dilution) DB Net profit 15, ,692 19,279 19,283 11,9 122,365 Cash Flow (CNYm) Cash flow from operations 252,131 22, ,22 177,282 27, ,7 Net Capex -123, -139,38-17, ,58-177,96-18,317 Free cash flow 128,731 85,677,22-5,298 96, ,756 Equity raised/(bought back) ,215 Dividends paid -55,25-55,512-5,93-7,172-57,2-61,182 Net inc/(dec) in borrowings -23,633 88,78 Other investing/financing cash flows -76,9-31,152 26,918 12,686-1,351-2,59 Net cash flow -3,67-2,577 2,23 38,171 15,2 Change in working capital 13,77 19,2 5,37-36,92 36,32 19,616 Balance Sheet (CNYm) Cash and other liquid assets 2,93 19,98 18,862,28 78,55 583,79 Tangible fixed assets 86,16 56, , , ,997 77,222 Goodwill/intangible assets 37,818 37,957 36,66 36,66 36,66 36,66 Associates/investments 8,76 5,67 7,571 18, , ,91 Other assets 76,896 91,233 11,119 98,39 15,92 111,231 Total assets 1,52,19 1,167,392 1,293,75 1,,627 1,536,528 1,683,9 Interest bearing debt 28,619,989,992 93,773 93,773 93,773 Other liabilities 298, ,679 32,81 39,168 31,39 5,28 Total liabilities 326,8 376,668 37,86 83,91 525,168 58,53 Shareholders' equity 723,7 788, , ,9 1,11,5 1,13,86 Minorities 1,862 1,951 2,67 2,331 2,61 2,925 Total shareholders' equity 725,39 79,72 858,63 959,38 1,1,55 1,137,731 Net debt -37,28-1,919-13,87-36,511-38,682-89,76 Key Company Metrics Sales growth (%) DB EPS growth (%) EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) nm nm nm nm nm nm Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Peter Milliken, CFA peter.milliken@db.com Page 12 Deutsche Bank AG/Hong Kong

13 25 January 216 Model updated:2 January 216 Running the numbers Asia China Fixed Line China Telecom Corp Reuters: 728.HK Buy Bloomberg: 728 HK Price (22 Jan 16) HKD 3.36 Target Price HKD Week range HKD Market Cap (m) HKDm 271,933 Company Profile USDm 3,899 China Telecom Corporation Limited, through its subsidiaries, provides wireline telephone, data, and Internet, as well as leased line services in China. Price Performance Jan 1Apr 1 Jul 1 Oct 1Jan 15Apr 15 Jul 15 Oct 15 Margin Trends China Telecom Corp HANG SENG INDEX (Rebased) E 16E 17E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 16E 17E Sales growth (LHS) ROE (RHS) E 16E 17E Fiscal year end 31-Dec E 216E 217E Financial Summary DB EPS (CNY) Reported EPS (CNY) DPS (CNY) BVPS (CNY) Weighted average shares (m) 8,932 8,932 8,932 8,932 8,932 8,932 Average market cap (CNYm) 27,751 25,988 26, ,62 229,62 229,62 Enterprise value (CNYm) 35,21 35, , , , 387,58 Valuation Metrics P/E (DB) (x) P/E (Reported) (x) P/BV (x) FCF Yield (%) nm nm 6.5 Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (CNYm) Sales revenue 283,12 321,58 32,39 323,635 32,39 359,85 Gross profit 283,12 321,58 32,39 323,635 32,39 359,85 EBITDA 7,8 96,551 9,853 93,578 99,629 15,366 Depreciation 9,666 69,83 66,35 68,737 71,72 75,81 Amortisation EBIT 21,17 27,68 28,58 2,81 27,886 29,556 Net interest income(expense) -1,562-5,153-5,291 -,757-5,17-5,19 Associates/affiliates ,738,83 Exceptionals/extraordinaries 3,739 Other pre-tax income/(expense) Profit before tax 19,783 23,88 23,257 2,28 26,618 28,9 Income tax expense,753 5,22 5,98 5,836 6,51 7,65 Minorities Other post-tax income/(expense) Net profit 1,915 17,55 17,68 18,316 2,51 21,779 DB adjustments (including dilution) DB Net profit 1,915 17,55 17,68 18,316 2,51 21,779 Cash Flow (CNYm) Cash flow from operations 7,668 88,351 96,5 11,55 86,525 1,32 Net Capex -7,77-69,23-79,2-17,8-1, -85, Free cash flow 23,591 19,328 16,963-6,35-13,75 15,32 Equity raised/(bought back) Dividends paid -5,625-5,33-6,198-6,227-6,872-7,59 Net inc/(dec) in borrowings -1,31 1,928-3,798 12,572 2,37 1 Other investing/financing cash flows ,852 1,769-61,7 Net cash flow 2,727-1,29 8,736-5,127 Change in working capital -6,9-5 -8,796-17,798 1,77-6,71 Balance Sheet (CNYm) Cash and other liquid assets 3,99 16,7 2,36 2,811 2,811 2,811 Tangible fixed assets 6,281 18,98 26,57 38,16 68,525 79,77 Goodwill/intangible assets 39,132 37,962 38,91 38,91 38,91 38,91 Associates/investments,362,19 6,57 58,55 58,55 58,55 Other assets 65,17 66,29 69,23 69,99 71,111 73,135 Total assets 55,291 53, ,27 629,71 661,92 675,172 Interest bearing debt 99,88 11,377 16,976 17,28 127, ,682 Other liabilities 179,383 15,198 16,19 181,66 181,929 19,663 Total liabilities 279,191 26, , ,872 39,8 372,35 Shareholders' equity 265, ,71 289, , ,381 31,733 Minorities ,37 1,93 Total shareholders' equity 266,1 278,66 29,18 3, ,18 32,826 Net debt 69,79 9,37 86,5 82,397 12,73 156,871 Key Company Metrics Sales growth (%) DB EPS growth (%) EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Peter Milliken, CFA peter.milliken@db.com Deutsche Bank AG/Hong Kong Page 13

14 25 January 216 Model updated:2 January 216 Running the numbers Asia China Wireless China Unicom Reuters: 762.HK Hold Bloomberg: 762 HK Price (22 Jan 16) HKD 8.15 Target Price HKD Week range HKD Market Cap (m) HKDm 192,7 Company Profile USDm 2,66 China Unicom operates GSM and CDMA networks in 3 provinces, municipalities and autonomous regions in China, and also provides nationwide international and domestic long distance calls, data and Internet services, and other related telecommunication value-added businesses. The Company through its subsidiaries also operates telecommunications businesses in Hong Kong and USA as well as 3G mobile services in Macau. Price Performance Jan 1Apr 1 Jul 1 Oct 1Jan 15Apr 15 Jul 15 Oct 15 Margin Trends China Unicom HANG SENG INDEX (Rebased) E 16E 17E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 16E 17E Sales growth (LHS) ROE (RHS) E 16E 17E Fiscal year end 31-Dec E 216E 217E Financial Summary DB EPS (CNY) Reported EPS (CNY) DPS (CNY) BVPS (CNY) Weighted average shares (m) 23,565 23,658 23,852 23,852 23,852 23,852 Average market cap (CNYm) 21,2 216, , ,16 162,16 162,16 Enterprise value (CNYm) 36,95 337, , ,727 35,7 299,33 Valuation Metrics P/E (DB) (x) P/E (Reported) (x) P/BV (x) FCF Yield (%) nm nm nm 21.6 Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (CNYm) Sales revenue 28, ,38 28, ,12 283,1 297,96 Gross profit 28, ,38 28, ,12 283,1 297,96 EBITDA 72,659 83,963 92,771 89,11 9,17 9,9 Depreciation 61,57 68,196 73,868 77,178 78,399 82,152 Amortisation EBIT 11,62 15,767 18,93 11,936 11,618 12,78 Net interest income(expense) -3,2-2,9 -,33-6,562-5,39-6,25 Associates/affiliates Exceptionals/extraordinaries 6,971 Other pre-tax income/(expense) 1, , ,79 6,698 Profit before tax 9,521 13,71 15,931 12,217 11,73 13,21 Income tax expense 2,25 3,36 3,876 2,688 2,92 3,299 Minorities Other post-tax income/(expense) Net profit 7,96 1,8 12,55 9,529 8,779 9,92 DB adjustments (including dilution) DB Net profit 7,96 1,8 12,55 9,529 8,779 9,92 Cash Flow (CNYm) Cash flow from operations 7,62 78,82 88,9 66,67 9,88 97,335 Net Capex -85,697-71,21-68, ,26-17,151-61,891 Free cash flow -15,77 7,268 19,35-8,379-16,33 35, Equity raised/(bought back) 1 1, Dividends paid -2,283-2,686-3,677-3,31-3,28-3,679 Net inc/(dec) in borrowings 3,5 18,65-31,565 26,5 19,73 Other investing/financing cash flows -3,588-6,31-3, ,22 Net cash flow 13,58 18,298-18,682-25,85 3,7 Change in working capital 633-2,263-1,31-13,9 3,63 5,21 Balance Sheet (CNYm) Cash and other liquid assets 18,25 21,56 25, ,755 Tangible fixed assets 3,997 31,625 38,321 2,671 53,23 58,59 Goodwill/intangible assets 2,771 2,771 2,771 2,771 2,771 2,771 Associates/investments 5,599 6,551 8,995 61, 61, 61, Other assets 58,57 66,718 69,677 67,963 69,63 71,775 Total assets 516,12 529,171 55,72 556, ,79 625,251 Interest bearing debt 11,776 12, ,57 136,57 187, ,921 Other liabilities 16,83 167,319 18, , ,23 178,13 Total liabilities 36,619 31, ,531 33, ,12 36,55 Shareholders' equity 29,55 218, ,51 253, , ,195 Minorities Total shareholders' equity 29,55 218, ,51 253, , ,195 Net debt 123, ,7 111, , ,91 137,166 Key Company Metrics Sales growth (%) DB EPS growth (%) EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) Source: Company data, Deutsche Bank estimates Net debt/equity (LHS) Net interest cover (RHS) Peter Milliken, CFA peter.milliken@db.com Page 1 Deutsche Bank AG/Hong Kong

15 25 January 216 Appendix 1 Important Disclosures Additional information available upon request Disclosure checklist Company Ticker Recent price* Disclosure China Telecom Corp 728.HK 3.37 (HKD) 22 Jan 16 NA China Unicom 762.HK 8.16 (HKD) 22 Jan 16 NA China Mobile 91.HK (HKD) 22 Jan 16 1 *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. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. 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 about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Peter Milliken Deutsche Bank AG/Hong Kong Page 15

16 Security Price Security Price 25 January 216 Historical recommendations and target price: China Telecom Corp (728.HK) (as of 1/22/216) 7. Previous Recommendations Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating Current Recommendations Buy Hold Sell Not Rated Suspended Rating 1. *New Recommendation Structure as of September 9,22. Jan 1 Apr 1 Jul 1 Oct 1 Jan 15 Date Apr 15 Jul 15 Oct /1/21: Buy, Target Price Change HKD /8/21: Buy, Target Price Change HKD /3/21: Buy, Target Price Change HKD /9/21: Buy, Target Price Change HKD //21: Buy, Target Price Change HKD //215: Buy, Target Price Change HKD6.8. 5/5/21: Buy, Target Price Change HKD /8/215: Buy, Target Price Change HKD /7/21: Buy, Target Price Change HKD /1/215: Buy, Target Price Change HKD5.5 Historical recommendations and target price: China Unicom (762.HK) (as of 1/22/216) 18. Previous Recommendations Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating 1. Current Recommendations Buy Hold Sell Not Rated Suspended Rating *New Recommendation Structure as of September 9,22. Jan 1 Apr 1 Jul 1 Oct 1 Jan 15 Date Apr 15 Jul 15 Oct /2/21: Buy, Target Price Change HKD /9/21: Downgrade to Hold, Target Price Change HKD /2/21: Buy, Target Price Change HKD /3/215: Hold, Target Price Change HKD //21: Buy, Target Price Change HKD //215: Upgrade to Buy, Target Price Change HKD15.. 5/5/21: Buy, Target Price Change HKD /8/215: Buy, Target Price Change HKD /7/21: Buy, Target Price Change HKD /1/215: Downgrade to Hold, Target Price Change HKD /8/21: Buy, Target Price Change HKD13.5 Page 16 Deutsche Bank AG/Hong Kong

17 Security Price 25 January 216 Historical recommendations and target price: China Mobile (91.HK) (as of 1/22/216) 1. Previous Recommendations Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating Current Recommendations 6.. Buy Hold Sell Not Rated Suspended Rating 2. *New Recommendation Structure as of September 9,22. Jan 1 Apr 1 Jul 1 Oct 1 Jan 15 Date Apr 15 Jul 15 Oct /2/21: Hold, Target Price Change HKD /1/21: Hold, Target Price Change HKD /3/21: Hold, Target Price Change HKD /1/21: Hold, Target Price Change HKD /5/21: Hold, Target Price Change HKD /1/215: Hold, Target Price Change HKD /7/21: Hold, Target Price Change HKD //215: Hold, Target Price Change HKD /8/21: Hold, Target Price Change HKD /8/215: Hold, Target Price Change HKD /9/21: Hold, Target Price Change HKD /1/216: Upgrade to Buy, HKD15. 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. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 27 were: Buy: Expected total return (including dividends) of 1% or more over a 12-month period Hold: Expected total return (including dividends) between -1% and 1% over a 12- month period Sell: Expected total return (including dividends) of -1% or worse over a 12-month period Equity rating dispersion and banking relationships % 22 % 36 % 11 % 16 % 2 % Buy Hold Sell Companies Covered Cos. w/ Banking Relationship Asia-Pacific Universe Deutsche Bank AG/Hong Kong Page 17

18 25 January 216 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 18 Deutsche Bank AG/Hong Kong

19 25 January 216 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 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 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. 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. 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 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. Deutsche Bank AG/Hong Kong Page 19

20 25 January 216 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 (competent authority: European Central Bank) 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 Private Ltd, which is registered by the Securities and Exchange Board of India (SEBI) as a stock broker. Research Analyst SEBI Registration Number is INH171. DEIPL may have received 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 Page 2 Deutsche Bank AG/Hong Kong

21 25 January 216 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 8583, ), 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. 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 1928, 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. 5) 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 592, Dubai, U.A.E. This information has been 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 by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Copyright 216 Deutsche Bank AG Deutsche Bank AG/Hong Kong Page 21