Yum Cha 飲茶. April 18, 2013 TALKING POINTS CHART OF THE DAY URBANISATION INTACT; GROWTH IN CENTRAL AND WESTERN

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1 Yum Cha 飲茶 April 18, 2013 CHART OF THE DAY URBANISATION INTACT; GROWTH IN CENTRAL AND WESTERN INDICES Closing DoD% Hang Seng Index 21,569.7 (0.5) HSCEI Shanghai COMP Shenzhen COMP Gold BDIY Crude Oil, WTI(US$/BBL) Crude Oil, BRENT(US$/BBL) HIBOR, 3-M SHIBOR, 3-M RMB/USD DIARY NOTES FOR THIS WEEK Apr 15 Apr 15 Apr 15 Apr 15 Source: Bloomberg 10,300.9 (1.2) 2,193.8 (0.0) , (1.2) 99.2 (0.7) (0.2) China Real GDP Q1 Expectation 8.0%, Previous 7.8% China Retail Sales Mar China Fixed Asset Investment Mar China Industrial Production Mar Expectation 10.0%, Previous 9.9% The development of China s infrastructure had dominated economic output for much of the modern era, obviously supported by the period of massive industrialization to support global demand for manufactured products. As China s economic strategy has matured, the process of urbanization and the extension of industrialization to Central and Western provinces has become a core objective. The charts show how China has increased its imports (excluding goods for outward re-processing) relative to the rest of the industrialised world; how government expenditure has concentrated on the Central and Western regions to create the infrastructure necessary to support the shift in emphasis from the coastal areas; and how the growth in manufacturing in these regions has outpaced the Eastern region. All of this supports the conclusion that urbanization is (a) working, and (b) necessary, and also that domestic consumption is becoming an increasingly important component of China s economy. The current concern about the economic outlook has its roots in anxiety that in a weakening global economy domestic consumption will not automatically pick up the slack; that in the process of expanding the infrastructure in the Central and Western provinces credit growth has been excessive; and that too much capacity has been created in the process. It is reasonable to argue all of these points, as the evidence is in place, but the continued growth in the Central and Western regions should not be under-estimated, and this reinforces the urbanisation theme, with all the associated demand for housing, infrastructure, durable goods and discretionary spending. TALKING POINTS Analyst: John Mulcahy, Managing Director, Research JU TENG [3336.HK, HK$4.41] - Company Visit: Still 20% upside despite 3-fold increase in past year, as improving product mix toward metal casings and strong expected notebook demand in 2H likely to deliver another year of double-digit growth. FUTURE BRIGHT [703.HK, HK$2.12] - Attractive play on Macau gaming sector with 170% earnings growth last year. Restaurant expansion and catering potential leave the stock undervalued at a 7.0x 2014E PER next to peers and growth.

2 JU TENG INT L [3336.HK, HK$4.41]: COMPANY VISIT MIXED OUTLOOK IN 1H13, BUT STILL UNDERVALUED Analyst: Eric Tomter, CFA We met Ju Teng this week. The company is the largest manufacturer of notebook casings in the world with an estimated 30% market share. Ju Teng shipped 60m units in 2012 (67% utilization), with about 20% being smaller aluminum styles and the remainder plastic or hybrid casings. About 5m casings for tablets, TVs and cameras were also produced. Ju Teng has no plans to enter the handset market. Main competitors are Hon Hai and Huan Hsin with a combined 30% share. The four large computer assemblers are the major customers (Compal, Wistron, Pegatron and Quanta), making up 80% of revenue, with their top five end-brands comprising about 17%. JU TENG INT L [3336.HK] Change in product mix supporting margins so far. The company produced all plastic casings three years ago, but has raised margins with a 20% contribution from metal casings last year. Trends toward smaller, lighter, thinner notebooks and tablets are reducing plastic use, although about 30% of capacity will be configured for metal this year. Labour costs are 19% of revenue (up 17.8% last year) with a containment strategy of improving productivity from the 32,000 workforce. Automation is infeasible considering the 100 models and up to 300 components that require assembly. Notebook sales likely to revive in 2H. We estimate a 5% volume drop in 1H13 on slow global PC sales, but demand is expected to recover later this year on the back of Microsoft s termination of support for XP on April A change in software often coincides with a change in hardware and XP is still running on an estimated 400m computers. The 2H coincides with the strong season (nearly 60% of revenue) and combined with triple the tablet casing volume, we estimate a marginal total volume increase of 1.7% for the year to 61m. Free cash positive this year. The capex budget is in the HK$750m range this year slated for greater moulding, metal and hybrid capacity. We assume cash conversion will remain in the 100 day range this year, although the company expects a greater improvement. Market Cap: US$654m; Free Float: 69.0% HK$ (m) E 2014E Revenue Gross Profit GM (%) EBITDA Net Profit Profit margin (%) EPS (HK$) YoY (%) Capex Free Cash Flow Net Cash per share (HK$) Working Capital Bottom Line. Ju Teng has to manage a transition from plastic to metal case notebooks/tablets while coping with labour costs rising about 20% per year. But margins appear sustainable owing to low materials costs and rising price increases from shifts to smaller metal casings and low price sensitivity (case is about 5% of notebook cost). The stock still appears undervalued despite a 3-fold increase over the past year, next to growth and DCF. The company is committed to dividend payouts of 20-30% for an expected yield of 3.5%. % of revenue Equity ROE (%) Yield (%) PER (x) PBR (x) Source: CGIHK Research

3 JU TENG INT L [3336.HK, HK$4.41]: COMPANY VISIT MIXED OUTLOOK IN 1H13, BUT STILL UNDERVALUED Analyst: Eric Tomter, CFA Income Statement (HK$ m) E 2014E Total Revenue Gross profit Gross margin 10.5% 15.2% 15.2% 15.2% EBITDA EBITDA margin 9.3% 14.6% 14.5% 14.5% D & A EBIT EBIT margin 3.3% 8.2% 8.6% 8.9% Net interest Expense Interest Exp Cover (x) Non-operating income Non recurring (EOI) Profit before Tax Tax / Minority Interest Net Income (before EOI) Net margin 3.1% 6.5% 7.0% 7.2% Shares Outstanding (m) EPS (HK$) YoY -22.5% 130.7% 17.8% 13.5% Dividend Payout ratio 35.3% 23.0% 25.0% 25.0% DPS (HK$) NOPAT Balance Sheet (HK$ m) E 2014E Cash Accounts Receivable % of revenue 39.4% 45.2% 40.0% 37.0% Inventory % of revenue 10.0% 7.4% 7.5% 7.5% Other current Total Current Assets Total Assets Accounts Payable % of revenue 33.0% 25.8% 22.0% 20.0% Short term debt Other current liabilities Total Current Liabilities Long term debt Deferreds Total Liabilities Retained Earnings Net Equity Issue Other Total Equity Minority Interest Book Value/share (HK$) Net Cash Working Capital Enterprise Value (HK$) Cash Flow (HK$ m) E 2014E Net income D & A Change in working capital Cash from Operations Capital expenditure % of revenue 16.4% 10.3% 7.4% 5.4% Cash before Financing Free Operating Cash Flow Change in Cash Cash Flow Adequacy 77.7% 67.4% 66.9% 68.2% Valuation Metrics E 2014E Price / Sales Price / Earnings PER / Growth Dividend Yield 1.8% 2.7% 3.5% 4.0% Sustainable Growth 3.5% 8.6% 9.0% 9.2% EV / Free Cash Flow EV / Book Net Cash / share Source: CGIHK Research

4 Analyst: Angela Han Lee FUTURE BRIGHT [0703.HK, HK$2.12] ATTRACTIVE DERIVATIVE PLAY ON MACAU GAMING Largest restaurant chain operator in Macau. As a leading food and catering operator in Macau, it runs 38 stores (37 in Macau, 1 in Guangzhou), located in leading casinos which are prime tourist spots in Macau. Differently from its peers in other regions, the business model primarily focuses on non-repetitive demand from tourists (90% of income), who are 1) time conscious, 2) price insensitive, and 3) tempted by food varieties. To cater its target customers, Future Bright offers different cuisines (including Japanese, Chinese, Western) at different pricie levels (high-end restaurants, food courts and coffee shops, planning Macau-style Cha Chaan Teng this year), while first two characteristics enables Future Bright to maintain a stable margin. FUTURE BRIGHT [703.HK] FY2012 net profit up 170.4% to HK$242.3m. Turnover was up 18.2% year-on-year (YoY) to HK$646.1m, driven by F&B sales of HK$632.0m with 18.7% YoY growth. For continuing economies of scale, gross operating profit grew faster at 19.7% YoY to HK$237.1m. However, on a one-off fair value gain of HK$125.0m from investment properties, net profit had much stronger growth. After excluding the effect of fair value gain of investment property and gain from termination of lease agreement, net profit was still up by 23.6% YoY to HK$103.2m, with a 16.0% margin. Market Cap: US$172m; Free Float: 54.54% Restaurants: stable ramp-up followed by boom in After the opening of four restaurants in 2011 and 10 in 2012, Future Bright will open six more on the Hengqin campus of University of Macau and Macau International Airport. With no new casinos opening until mid-2015, we expect ramp-up of existing stores will be the main driver backed by 1) improving visitor arrivals after opening of a new railway operation last December and 2) recovery of VIP gaming segment (15% of turnover from catering VIP gamblers). After that, we expect an increase of c.13,000 hotel rooms in Cotai with new casinos will drive further visitor arrivals and demand for catering. Future Bright will be the major beneficiary as a derivative play on mass market gaming. Figure 1. FY2012 revenue breakdown Industrial catering: a low-competition market. We see it as still a green market, especially in offering meals for hotel and casino employees. Currently, casino resort operators are running employee catering business by themselves, but are willing to outsource to third parties such as Future Bright as long as they meet standards. As a leader with rich experience in the F&B business, we believe Future Bright will take a large market share. Assuming staff meals to a casino with 4,500 employees at 3*HK$30 per day, Future Bright would generate HK$147.8m turnover and HK$44.3m profit at a assumed margin of 30%. (staff meal cost was HK$329.6m for Sands China). Therefore, we see the segment having big upside for Future Bright.

5 FUTURE BRIGHT [0703.HK, HK$2.12] ATTRACTIVE DERIVATIVE PLAY ON MACAU GAMING (cont d) Food souvenirs: expected contribution from The company is already in the moon cake business, and trying to extend to other products such as almond cakes and egg rolls. A plant with capex of HK$12m-20m is planned, to begin contributing from early 2014, implying potential future upside. Property investment: prime location secures strong rental income growth. At a prime location by the side of the Ruins of St. Paul s, only generating HK$14.1m per year for 2,042sqm. The lease term will expire in 2013, and Future Bright may contract new tenants at higher rent, possibly to luxury retailers. For its strategic location as a tourist spot and with a strong property market in Macau, we expect the rental income to increase over 50%. Leading profitability compared with mainland peers. As in the operational matrix chart, Future Bright is delivering much better margins compared to its peers. After excluding one-off gains, core net margin is still at 16.0%, higher than Tsui Wah and Xiao Nan Guo. Despite its strong operation and upside in the Macau market, we believe its discounted valuation next to peers is due to 1) lack of confidence after the weak performance during , and 2) low liquidity. However, we believe restructuring by the current major shareholder was successful in delivering strong performance, and liquidity was enhanced recently with the addition of investors (placement in November 2012). The management claims no further need for share placements at the current gearing level, we see no significant downside from dilution in near future. Undervalued with big upside with gaming sector. Future Bright is currently trading at 8.8x and 7.0x PER for 2013 and 2014 forecast, much lower than the industry average of 24.0x and 19.9x. We believe the current industry-low valuation is not taking the following points into account: 1) market leader in Macau, 2) proven operating efficiency through economies of scale and 3) a good proxy for the booming mass market gaming in Macau. As a result, it is delivering one of the highest ROEs among its peers, with a short breakeven period of 6-7 months and full ramp-up period of 16 months. Therefore, we believe the current share price provides good upside for investors looking for non-gaming stocks running along with Macau gaming sector. Figure 2. Peer valuation

6 FUTURE BRIGHT [0703.HK, HK$2.12] ATTRACTIVE DERIVATIVE PLAY ON MACAU GAMING (cont d) Figure 3. Operating matrix

7 Figure 4. List of restaurants COMPANY / INDUSTRY NEWS FUTURE BRIGHT [0703.HK, HK$2.12] ATTRACTIVE DERIVATIVE PLAY ON MACAU GAMING (cont d)

8 DISCLAIMER For private perusal only. This report (including any information attached) is issued by China Galaxy International Securities (Hong Kong) Co., Limited, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to individual addressee whether they are professional, institutional client or otherwise, in good faith from sources believed to be reliable but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness. Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analysts who prepared this report, such views and opinions may not correspond to the published view of China Galaxy International Financial Holdings Limited and any of its subsidiaries. This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company or companies referred to herein. All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. Please take note that member companies of China Galaxy International Financial Holdings Limited (including but not limited to China Galaxy International Securities (Hong Kong) Co., Ltd) and/or their directors, officers, agents and employees ( the Relevant Parties ) may have an interest in securities of the company or companies referred to in this report. The Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer. COPYRIGHT RESERVED China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459, Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: CONTACT US John Mulcahy Wong Chi Man, CFA Eric Tomter, CFA Janus Chan, CFA Wayne Fung, CFA Angela Han Lee Vicky Lai Cecilia Chen johnmul@chinastock.com.hk cmwong@chinastock.com.hk erictomter@chinastock.com.hk januschan@chinastock.com.hk waynefung@chinastock.com.hk angelahanlee@chinastock.com.hk vickylai@chinastock.com.hk ceciliachen@chinastock.com.hk