Earnings recovery in 2H14 + attractive valuation; maintain Buy

Transcription

1 Deutsche Bank Markets Research Rating Buy Asia China Consumer Company Reuters Bloomberg Exchange Ticker 1025.HK 1025 HK HKG 1025 ADR Ticker WUMSY ISIN US Earnings recovery in 2H14 + attractive valuation; maintain Buy Buy on earnings recovery in 2H14 1H14 results were below expectation with earnings declining by 9.8% due to higher opex for new openings and investment in fresh food. In per sqm terms, new store leases were 10-15% higher this year. As it takes time for labor cost increases to be absorbed, fresh food session productivity improvements can take a while to become evident. Given a low comp and emerging benefits from years of investment, we expect earnings recovery from 2H14 with a mild sssg pickup. Wumart still maintains a strong net cash position of RMB2.1bn and has a good dividend yield (>3%). We believe the company's long-term growth outlook remains intact. We maintain Buy on the attractive valuation. Mild sssg improvement in 2H14 on easy comp SSSG in July was similar to that of 1H14. But mgmt noted that 1% sssg in Beijing is not bad given commercial challenges. Management expects a mild sssg improvement in 2H14 given a low base. Price promotion will continue in 2H with 70% of suppliers agreeing to share costs. It will renegotiate with the remaining 30% by year end and expects a stable GPM for full year. Supplier income is resuming a healthy trend as it almost completes its supplier reforms. Opex pressure remains high on new openings and investment in fresh food The new store secured this year achieved a 10-15% rental hike (per sqm basis) vs Wumart maintains its annual opening plan including 20 super stores and 40 mini marts. The labor cost increase for fresh food was higher than sales/gp growth in 1H14. However, fresh food is an important investment to drive traffic. Wumart intends to improve the productivity of the division. Lowering target price to HKD8.20 (from HKD8.8); risks We lower our TP to HKD8.2 as a result of: 1) % cut in FY14-16E EPS, mainly on higher opex forecast; and 2) better EBITM expectation beyond FY17 on Wumart s long-term competitiveness. We base our DCF value on 9.5% COE, a beta of 1 and a TGR of 2%. At our target price the stock would trade at 18.8x FY14E P/E and 16.1x FY15E P/E. Downside risks: cost and competition. Date 17 August 2014 Forecast Change Price at 15 Aug 2014 (HKD) 7.29 Price target - 12mth (HKD) week range (HKD) HANG SENG INDEX 24,955 Lydia Ling Research Analyst (+852) lydia.ling@db.com Key changes Anne Ling Research Analyst (+852) anne.ling@db.com Price target 8.80 to % Sales (FYE) 18,839 to 18, % Op prof margin (FYE) Net profit (FYE) Source: Deutsche Bank Price/price relative to % to % 4 8/12 2/13 8/13 2/14 HANG SENG INDEX (Rebased) Performance (%) 1m 3m 12m Absolute HANG SENG INDEX Source: Deutsche Bank Forecasts And Ratios Year End Dec A 2013A 2014E 2015E 2016E Sales (CNYm) 15, , , , ,422.4 Reported NPAT (CNYm) Reported EPS FD(CNY) DB EPS FD(CNY) OLD DB EPS FD(CNY) % Change 0.0% 0.0% -14.8% -13.4% -13.1% DB EPS growth (%) PER (x) DPS (net) (CNY) Yield (net) (%) Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close 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) 148/04/2014.

2 Model updated:16 August 2014 Running the numbers Asia China Reuters: 1025.HK Buy Bloomberg: 1025 HK Price (15 Aug 14) HKD 7.29 Target Price HKD Week range HKD Market Cap (m) HKDm 9,340 Company Profile USDm 1,205 is engaged in the operation of superstores and mini-marts, carrying out business in Beijing, Tianjin and Zhejiang. Price Performance Aug 12Nov 12Feb 13May 13Aug 13Nov 13Feb 14May 14 Margin Trends HANG SENG INDEX (Rebased) E 15E 16E EBITDA Margin Growth & Profitability Solvency EBIT Margin E 15E 16E Sales growth (LHS) ROE (RHS) E 15E 16E Fiscal year end 31-Dec E 2015E 2016E Financial Summary DB EPS (CNY) Reported EPS (CNY) DPS (CNY) BVPS (CNY) Weighted average shares (m) 1,281 1,285 1,281 1,281 1,281 1,281 Average market cap (CNYm) 18,336 16,282 14,464 7,411 7,411 7,411 Enterprise value (CNYm) 17,148 14,583 12,712 5,397 5,091 4,707 Valuation Metrics P/E (DB) (x) P/E (Reported) (x) P/BV (x) FCF Yield (%) Dividend Yield (%) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Income Statement (CNYm) Sales revenue 14,563 15,363 16,988 18,498 20,687 23,422 Gross profit 3,152 3,386 3,797 4,472 5,107 5,864 EBITDA 1,310 1,221 1,115 1,107 1,251 1,435 Depreciation Amortisation EBIT Net interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) Profit before tax Income tax expense Minorities Other post-tax income/(expense) Net profit DB adjustments (including dilution) DB Net profit Cash Flow (CNYm) Cash flow from operations 1,239 1,676 1,692 1,109 1,369 1,599 Net Capex Free cash flow , Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other investing/financing cash flows Net cash flow Change in working capital Balance Sheet (CNYm) Cash and other liquid assets 1,351 2,159 2,270 2,549 2,878 3,292 Tangible fixed assets 2,757 3,410 3,621 3,855 4,125 4,440 Goodwill/intangible assets Associates/investments Other assets 4,087 4,254 5,279 5,545 5,931 6,414 Total assets 8,439 10,067 11,420 12,213 13,213 14,437 Interest bearing debt Other liabilities 4,844 5,831 6,945 7,464 8,144 8,997 Total liabilities 5,094 6,355 7,527 8,046 8,726 9,579 Shareholders' equity 3,187 3,532 3,707 3,949 4,232 4,560 Minorities Total shareholders' equity 3,345 3,712 3,893 4,167 4,487 4,859 Net debt -1,101-1,634-1,688-1,968-2,297-2,711 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) Lydia Ling lydia.ling@db.com Page 2 Deutsche Bank AG/Hong Kong

3 Valuation Cutting target price to HKD8.20; maintaining Buy 1HFY14 results came out below our expectation on higher-than-expected opex related to new openings and fresh food segment expansion. We cut our FY14-16E EPS by % to factor in: 1) a lower reported GPM due to price promotion; 2) high staff/rental cost ratio, partly offset by 3) higher supplier income as this almost finishes the company s supplier reforms. We lower our target price by 6.8% to HKD8.10. The reduction in our target price is less than our EPS reductions due to our better expectation on EBITM beyond FY17 (from % to %) as we believe its current investment will be paid off with long-term competitiveness and market share gains. Given a low base and emerging benefits from years of investment, we expect earnings recovery from 2H14 with a slight sssg pickup. We believe the current share price (14x FY15E PE) offers an attractive entry point and we maintain our Buy recommendation. At our new target price of HKD8.2 the stock would trade at 18.8x FY14E P/E and 16.1x FY15E P/E. We use a WACC of 9.5% (a risk-free rate of 3.9%, an ERP of 5.6%, and a beta of 1.0). We use a terminal growth rate of 2%, in line with the 2-2.5% terminal growth range we use for Chinese consumer stocks. In order to be more conservative, we adjust net cash by deducting the net working capital. Downside risks include: 1) rising operating costs, 2) intensified competition from foreign players and online; 3) CPI weakness and 4) a slowdown in acquisitions. Figure 1: Changes in Deutsche Bank forecasts and vs. market consensus RMBm YE Dec New forecast Old forecast New vs. Old forecast Market consensus New vs. market forecast 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Revenue 18,498 20,687 23,422 18,839 21,277 24, % -2.8% -4.0% 20,052 22,188 24, % -6.8% -4.0% Reported gross profit 2,035 2,317 2,647 2,167 2,511 2, % -7.7% -9.6% GP margin 11.0% 11.2% 11.3% 11.5% 11.8% 12.0% EBIT % -15.8% -15.3% % -20.5% -10.4% EBIT margin 3.2% 3.4% 3.5% 3.8% 3.9% 3.9% 3.9% 3.9% 3.7% NPAT % -13.4% -13.1% % -10.6% -1.6% Net margin 2.4% 2.5% 2.6% 2.7% 2.8% 2.8% 2.5% 2.6% 2.5% Source: Deutsche Bank estimate, Bloomberg Finance LP Deutsche Bank AG/Hong Kong Page 3

4 Figure 2: One-year forward PE band Wumart - 1-year forward PER band chart HK$ sdv: 18x J-04 A-04 A-05 D-05 A-06 A-07 N-07 J-08 M-09 N-09 J-10 M-11 O-11 J-12 F-13 O-13 J-14 2 sdv: 34x 1sdv :28x Avg: 23x -2 sdv: 12x Figure 3: One-year forward PE vs. historical average Wumart - 1yr forward PE vs historical avg 1yr forward PE 1 Yr Avg 3Yr Avg 5Yr Avg Yr avg: 24.3x Yr avg: 22.5x 15 1 Yr avg: 17.9x Nov- May- Nov- May- Nov- May- Nov- May- Nov- May- Nov- May- Nov- May- Nov- May- Nov- May- Nov- May- Nov- May Source: Deutsche Bank, Datastream Source: Deutsche Bank, Datastream Page 4 Deutsche Bank AG/Hong Kong

5 Outlook and review 2HFY14 outlook 2H14 may see mild sssg improvement given low base; no sssg pick in July In July, SSSG was % in Beijing and 3-4% in Hangzhou. Overall sssg was similar to that of 1H14, but down from May when the promotion campaign had just started. Management thinks 1% is not bad in Beijing given ecommerce challenges. For 2H14, management sees light of a mild improvement compared to 1H14, given easy comp in 2H13. Keeping price promotion for rest of the year; guiding stable GPM for full year Wumart will keep its low price offer. In general, it offers more generous discounts on those products available nationwide. Despite the price cut, management expects to keep GPM unchanged for the full year. As the price cut started from May, it had no impact on GPM in 1H14. 70% of the company s suppliers have agreed to share the cost, with the remaining 30% still having a wait and see stance, but Wumart will renegotiate by the end of year with the remaining 30%. Supplier income % of sales in 2H14 will be at least in line with that of 1H14 The ratio fell in 2H13 to 5.8% mainly due to the termination of contracts with small suppliers, which paid higher fees. The number of suppliers declined to c.800 from c Management anticipates the supplier income amount could increase, as all fee items are now tied to sales performance, making it easier for suppliers to allocate their promotional expenses. For example, the bidding price for promotional displays for 4Q14 are much higher than at beginning of the year, as suppliers have more information on the potential sales revenue and are therefore more willing to pay for the displays. Potential margin improvement in Hangzhou; sees more opportunities in Hebei Beijing remains the most profitable region, while Hangzhou profitability is low due to new store losses. Old Hangzhou stores are now as profitable as those in Beijing, and management sees the potential for margin improvement in Hangzhou. It also sees more opportunities for expansion in Hebei over the next few years, with backbone support from Beijing. Thanks to management changes, Tianjin losses were reduced. Cooperation with Gome in consumer electronic segment Wumart charged Gome 5.5% sales on a consignment basis, and booked as sales. Its CE sales declined by 5-6% yoy in 1H14, as Gome does not have enough employees now. Through the cooperation, merchandise mix will improve to ramp up the operation. Wumart also outsourced bakery on a trial basis to Weiduomei, and, depending on the result, it will extend this to all of its Beijing stores. Prepaid card sales down 12% yoy; more to individual and non-soes customers Wumart has turned to individual and non-soes for prepaid card sales, and has made purchasing easier for individual consumers, e.g., ready-to-go cards are Deutsche Bank AG/Hong Kong Page 5

6 now available at the check-out counter instead of having to be purchased from the office. Realized sales from pre-paid cards were unchanged at 25%. Rental and staff cost pressure to continue in 2H14 New store lease comes higher this year (up 10-15%). Management expects rental costs to increase faster in 2H14 compared to 1H14. In general, the rental cost ratio should be 5-6%. Wumart signs 10/15-year contracts, with rental revisions of +3% every three years or +5% every five years. However, the new store secured this year incurred a 10-15% rental hike (per sqm basis) compared to the stores secured last year. In 1H14, the RMB104m increased rental expense included RMB83m from new stores with the remainder coming from the renewal of existing ones. It is taking time to digest the labor cost increase for fresh food. In 1H14, it had 4000 new employees at the new stores at an additional RMB91m labor cost, and a further 2000 new employees at the fresh food division at an additional RMB48m labor cost. It cut part-time staff (21% of total now, lower than last year) as it has improved shift arrangements. The fresh food labor cost increase was higher than sales/gp growth. However, as it drives traffic, it is an important investment. Wumart will seek to improve the productivity of the division. Store opening plan maintained 20 superstores and 40 mini marts As of 13 August 2014, it had secured 14 superstores and eight mini marts in Beijing and Hebei, six superstores in Tianjin, and 21 superstores and 12 mini marts in Zhejiang. It plans RMB m CAPEX for 2H14, for both store openings and back-end investment. Wumart has yet to find a profitable e-commerce model Management believes the key to on- or off- line is merchandising, and before management can figure out a right online model, the company has no plans to start e-commerce. 1HFY14 results review The results came out below expectation due to higher-than-anticipated staff costs and rental expenses. While sales grew by 8.5% to RMB9.2bn, net profit declined by 9.8% to RMB307m. No interim dividend was declared. Key highlights of the results SSSG was 0.9%. By region, Beijing was +1.5% and Zhejiang was -3% (but Hangzhou was +3%). Shaoxing and Huzhou declined significantly, due to poor pre-paid card sales and no/low new store openings over the past few years. Blended traffic declined 0.6% yoy in 1H14, and Beijing achieved slightly better than the blended average. Rental income grew by 30.8%, which is attributable to: 1) rate increase by 10% yoy; 2) increased area for lease; 3) reallocation of prime area for lease; 4) cooperation with chain stores (Wumart leased to small brands in the past, but they moved in and out, leaving space empty from time to time); 5) charged electricity/water after installation of separate meters. Page 6 Deutsche Bank AG/Hong Kong

7 Store openings. It has a total of 545 stores, vs. 547 as of end December For superstores, it added six directly operated stores and closed one in Tianjin. For mini-marts, it added seven directly owned stores and closed seven directly owned stores due to lease expiry or relocation. It also closed seven franchised mini marts. CGPM improved by 0.4ppt to 20.3%. Supplier income rose by 8.3%. Both sales and consolidated gross profit of fresh products achieved double-digit growth. Staff cost edged up by 38.2% and the ratio increased by 1.7ppt to 7.6% of sales. The increase is mainly due to the new store openings and the transformation of fresh food units. Rental cost rose by 24.7% and the ratio increased by 0.8ppt to 5.7%. The increase was due to the rising rental payout for the new stores opened in 2013 and 1H14. Its net cash is HKD2.1bn vs. HKD2.2bn as of end FY13. Deutsche Bank AG/Hong Kong Page 7

8 Figure 4: P&L assumption YE Dec RMBmn F 2015F 2016F Total 1H12 2H12 1H13 2H13 1H14 2H14E Sales of goods 10,511 12,572 14,563 15,363 16,988 18,498 20,687 23,422 7,625 7,738 8,486 8,502 9,212 9,286 % growth 20.0% 19.6% 15.8% 5.5% 10.6% 8.9% 11.8% 13.2% 6.6% 4.4% 11.3% 9.9% 8.5% 9.2% Contribution mix 49.6% 50.4% 50.0% 50.0% 49.8% 50.2% Cost of sales (9,581) (11,446) (13,244) (13,948) (15,089) (16,463) (18,370) (20,776) (6,875) (7,073) (7,654) (7,435) (8,311) (8,152) Gross profit 931 1,125 1,319 1,415 1,899 2,035 2,317 2, , ,134 Other revenues 1,271 1,675 1,833 1,971 1,898 2,437 2,790 3, ,028 1, ,221 1,216 Total Gross profit 2,201 2,801 3,152 3,386 3,797 4,472 5,107 5,864 1,694 1,692 1,902 1,895 2,122 2,350 % growth Cost of sales 19.9% 19.5% 15.7% 5.3% 8.2% 9.1% 11.6% 13.1% 6.6% 4.1% 11.3% 5.1% 8.6% 9.6% Gross profit 20.6% 20.9% 17.2% 7.3% 34.2% 7.2% 13.9% 14.2% 6.4% 8.3% 10.8% 60.6% 8.3% 6.3% Other revenues 28.3% 31.9% 9.4% 7.5% -3.7% 28.4% 14.5% 15.3% 12.8% 3.1% 13.5% -19.4% 14.1% 46.9% Total Gross profit 24.9% 27.2% 12.5% 7.4% 12.1% 17.8% 14.2% 14.8% 9.9% 5.1% 12.3% 12.0% 11.6% 24.0% Margin % Gross margin 8.9% 9.0% 9.1% 9.2% 11.2% 11.0% 11.2% 11.3% 9.8% 8.6% 9.8% 12.5% 9.8% 12.2% Total Gross margin 20.9% 22.3% 21.6% 22.0% 22.4% 24.2% 24.7% 25.0% 22.2% 21.9% 22.4% 22.3% 23.0% 25.3% Consolidated Gross margin in presentation 18.7% 19.7% 19.2% 19.5% 20.1% 21.4% 21.8% 22.0% 19.8% 19.3% 19.9% 20.3% 20.3% 22.4% Total OP cost (1,536) (2,023) (2,228) (2,551) (3,119) (3,871) (4,413) (5,051) (1,188) (1,363) (1,401) (1,718) (1,700) (2,171) Staff costs (506) (670) (738) (932) (1,167) (1,591) (1,831) (2,118) (430) (502) (504) (663) (696) (895) Rental expenses (408) (543) (666) (737) (927) (1,183) (1,373) (1,598) (348) (389) (418) (509) (522) (661) Depreciation and amortisation (226) (324) (386) (386) (436) (506) (557) (623) (165) (221) (167) (270) (193) (313) Other operating cost (391) (481) (433) (491) (583) (586) (646) (706) (245) (251) (312) (271) (289) (297) % growth 25.5% 31.7% 10.1% 14.5% 22.2% 24.1% 14.0% 14.5% 14.4% 14.6% 17.8% 26.1% 21.4% 26.4% Staff costs 35.6% 32.2% 10.3% 26.2% 25.2% 36.3% 15.1% 15.7% 23.1% 29.0% 17.2% 32.1% 38.2% 34.9% Rental expenses 38.0% 33.2% 22.5% 10.7% 25.8% 27.6% 16.1% 16.4% 24.6% 0.7% 20.1% 30.8% 24.7% 29.9% Total depreciation and amortisation 11.5% 43.5% 19.0% -0.1% 13.2% 15.9% 10.2% 11.7% 3.1% -2.3% 0.8% 22.4% 15.7% 16.1% Other operating cost 12.8% 23.0% -10.1% 13.5% 18.7% 0.5% 10.1% 9.3% -1.9% 33.9% 27.3% 8.0% -7.3% 9.5% As % of sales 14.6% 16.1% 15.3% 16.6% 18.4% 20.9% 21.3% 21.6% 15.6% 17.6% 16.5% 20.2% 18.5% 23.4% Staff costs 4.8% 5.3% 5.1% 6.1% 6.9% 8.6% 8.9% 9.0% 5.6% 6.5% 5.9% 7.8% 7.6% 9.6% rental expenses 3.9% 4.3% 4.6% 4.8% 5.5% 6.4% 6.6% 6.8% 4.6% 5.0% 4.9% 6.0% 5.7% 7.1% Depreciation and amortization 2.1% 2.6% 2.7% 2.5% 2.6% 2.7% 2.7% 2.7% 2.2% 2.9% 2.0% 3.2% 2.1% 3.4% Other operating cost 3.7% 3.8% 3.0% 3.2% 3.4% 3.2% 3.1% 3.0% 3.2% 3.2% 3.7% 3.2% 3.1% 3.2% Operating profit (EBIT) % growth 23.6% 16.9% 18.9% -9.6% -18.8% -11.5% 15.6% 17.1% 0.5% -21.8% -0.8% -46.4% -15.9% 1.0% Margin as a % of sales 6.3% 6.2% 6.3% 5.4% 4.0% 3.2% 3.4% 3.5% 6.6% 4.3% 5.9% 2.1% 4.6% 1.9% Contribution mix 60.5% 39.5% 73.9% 26.1% 70.2% 29.8% Net finace income (expense) (28) (3) (11) 27 (15) 49 (5) 50 Associate and JV Exceptional Item 4 (8) (82) 3 (9) (9) - Profit before taxation Taxation (156) (218) (245) (227) (222) (186) (209) (243) (137) (90) (131) (92) (101) (86) % Effective tax rate 24.3% 27.7% 25.9% 26.3% 30.6% 28.3% 27.5% 27.5% 27.4% 24.7% 26.6% 39.1% 23.9% 36.2% Profit for the year Minority interest (54) (30) (32) (37) (35) (32) (37) (43) (23) (14) (20) (15) (14) (18) Net Profit net profit growth -10.7% 21.0% 10.6% 2.7% -23.7% -4.1% 16.5% 16.6% 0.5% 5.6% 0.4% -54.8% -9.8% 12.3% net margin 4.2% 4.2% 4.0% 3.9% 2.7% 2.4% 2.5% 2.6% 4.4% 3.4% 4.0% 1.4% 3.3% 1.4% Contribution mix 56% 44% 74% 26% 70% 30% Source: Deutsche Bank estimate, company data Page 8 Deutsche Bank AG/Hong Kong

9 Security Price 17 August 2014 Appendix 1 Important Disclosures Additional information available upon request Disclosure checklist Company Ticker Recent price* Disclosure 1025.HK 7.29 (HKD) 15 Aug 14 NA *Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Lydia Ling Historical recommendations and target price: (1025.HK) (as of 8/15/2014) Previous Recommendations Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating Current Recommendations Buy Hold Sell Not Rated Suspended Rating *New Recommendation Structure as of September 9, Aug 12 Nov 12 Feb 13 May 13 Aug 13 Date Nov 13 Feb 14 May /08/2012: Buy, Target Price Change HKD /03/2014: Buy, Target Price Change HKD /03/2013: Buy, Target Price Change HKD /07/2014: Buy, Target Price Change HKD /07/2013: Buy, Target Price Change HKD16.50 Deutsche Bank AG/Hong Kong Page 9

10 Equity rating key Equity rating dispersion and banking relationships 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, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12- month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period % 39 % 23 % 24 % 6 % 6 % Buy Hold Sell Companies Covered Cos. w/ Banking Relationship Asia-Pacific Universe Page 10 Deutsche Bank AG/Hong Kong

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