Walsin Technology (2492 TT)

Transcription

1 May Close (NTD) M target price (NTD) M target price (NTD) Last report date, rating, previous close 04/30/2018 BUY /27/2017 TP HIT /06/2017 BUY Company information Paid-in capital (NTD mn) 4,858 Market cap (NTD bn) 127 BVPS (NTD) Foreign investors holding (%) Local fund holding (%) 6.90 Major shareholders (%) Margin buying ( 000 shrs) 8,856 Cash Div. Payout Ratio (%) Product mix Walsin Technology (2492 TT) BUY Clearly a seller s market Key takeaways: (1) Recommendation: We expect the shortage of passive components to persist into Furthermore, various niche applications may also catalyze the long-term demand for mid/high-end passive components in the future. Hence, Walsin Technology s earnings growth may remain robust during FY18~19. We also revised up FY18 EPS estimate from NTD14.64 to NTD18.76 based on the company s excellent 1Q18 financial results. As Walsin Technology s revenue/earnings outlooks top our expectation, we maintain BUY and revise up TP to NTD300 (16x FY18 PER). (2) MAR18 GM already soared to 40%: Walsin Technology posted 1Q18 revenue of NTD6.642bn (+42.86% YoY; % QoQ) with EPS of NTD2.70. Catalyzed by the market s persistently tight supply/demand conditions, 1Q18 revenue soared. According to senior executives, Walsin Technology did not notably expand its capacity in 1Q18 (in comparison with 4Q17). Therefore, the QoQ increase in 1Q18 revenue was mainly attributed to the price hikes of its products. Due to materialization of the price-hike effect, 1Q18 GM rose to 35.79% (4Q17 GM was merely 28.97%). In particular, MAR18 EPS was NTD1.39 with GM of 40%. Walsin Technology was more catalyzed by the price-hike effect than our previous expectation. (3) Catalyzed by capacity expansion and price-hike effect, 2Q18 earnings are expected to hit another new high: According to senior executives, as Walsin Technology s new equipment has gradually been installed starting from 2Q18, its new capacity is expected to gradually become operational. Walsin Technology may also continue raising product prices. The company s monthly revenues are forecasted to increase sequentially in 2Q18 on higher capacity and product prices. Additionally, 2Q18 GM is also forecasted to rise again. 2Q18 revenue is estimated at NTD8.387bn (+63.55% YoY; % QoQ) with EPS NTD Q18 earnings may hit another new high. Share performance relative to TAIEX (4) Shortage may persist into 2019; niche applications may serve as long-term drivers: Outside of Taiwan, major makers of MLCC and chip resistor have persistently reduced outputs or raised prices of products featuring certain specs since 2018, leading to increasingly tighter supply/demand conditions in the market at the moment. Therefore, we optimistically expect the shortages of MLCC and chip resistor to persist into Furthermore, the robust developments of ADAS, EV, 5G applications, industrial IoT, etc. may significantly boost the demand for mid/high-end passive components and serve as long-term drivers in the future following the shortage. Walsin Technology also continues to make deployments in these areas. Walsin Technology is expected to expand capacity by 15~20% in FY18. We forecast the company s new capacity to gradually become operational during FY18~19. Coupled with the price-hike effect, Walsin Technology s revenue/growth momentum may remain strong in the future. FY18 revenue is estimated to soar by 60.25% YoY to NTD34.686bn with EPS of NTD

2 (Unit: NTD mn) F 1Q17 2Q17 3Q17 4Q17 1Q18F 2Q18F 3Q18F 4Q18F 1Q19F Sales 18,491 21,645 34,686 4,650 5,128 5,911 5,957 6,642 8,387 9,818 9,839 8,783 Gross profit 4,369 5,622 14,762 1,059 1,252 1,585 1,726 2,377 3,588 4,389 4,409 3,854 Operating profit 2,299 3,293 11, ,097 1,745 2,883 3,613 3,627 3,090 Net profit 2,152 2,609 9, ,309 2,155 2,850 2,800 2,350 EPS (NTD) Gross margin (%) 23.63% 25.97% 42.56% 22.79% 24.42% 26.81% 28.97% 35.79% 42.78% 44.70% 44.81% 43.88% Operating margin (%) 12.43% 15.21% 34.22% 11.32% 13.53% 16.50% 18.42% 26.27% 34.38% 36.80% 36.86% 35.18% Net margin (%) 11.64% 12.05% 26.28% 8.55% 8.63% 14.61% 15.19% 19.71% 25.69% 29.03% 28.46% 26.75% Sales YoY/QoQ (%) 15.35% 17.06% 60.25% -0.94% 10.29% 15.28% 0.77% 11.51% 26.26% 17.07% 0.21% % Net profit YoY/QoQ (%) 78.51% 21.21% % % 11.39% 95.13% 4.72% 44.73% 64.59% 32.27% -1.75% % Source: CMoney; Capital Securities Note: EPS estimate is based on paid-in capital of NTD4.858bn Walsin Technology is a large maker of passive components in Taiwan; it offers a comprehensive portfolio of passive components As the second-largest maker of passive components in Taiwan, Walsin Technology is a subsidiary of Walsin Lihwa (1605 TT). Walsin Technology s global market shares of MLCC and chip resistor arrived at ~13.5% and ~18.5%, respectively, in FY16. Walsin Technology is also one of the world s important vendors of passive components. The company is capable of producing resistor, capacitor and inductor. It offers a comprehensive portfolio of passive components, meeting clients one-stop-shopping demand. Its major product lines include MLCC, chip resistors, RF components (antenna, saw filter and LTCC module) and other capacitors (thin-film capacitor and disc capacitor). 1Q18 revenue breakdown by product line was as follows: capacitance products (mainly MLCC) 65%; chip resistors 25%; others 10%. Networking and automotive/industrial applications as future development focuses Walsin Technology s FY17 revenue breakdown by product application was as follows: industrial 30.8%; networking 29.2%; PC&P 22.2%; consumer electronics 11.8%; automotive & special products 5.5%; others 0.4%. In particular, networking, industrial and automotive fields are Walsin Technology s major development focuses in the future. The company has already actively collaborated with IC design houses in design-in at the moment. For example, it has penetrated into MediaTek s (2454 TT) handset chips and generated revenue derived from Chinese handset brands. Currently, regarding industrial and automotive applications, Walsin Technology has actively developed highly reliable products with the following features: (a) high-temperature/pressure resistance; (b) high capacitance; (c) sulfur resistance. Additionally, the company continues to deliver shipments to related vendors. However, automotive certification requires a relatively longer time; therefore, Walsin Technology may not post notable growth in the short run. Nevertheless, we see growth momentum fueled by the automotive 2

3 application in the long run. Regarding consumer electronics, it has gradually penetrated into home appliance brands in China in the recent period. As the overall PC market appears weaker, the upside to the PC application may be weaker than other applications. However, some PC applications have been catalyzed by e-sports and cryptocurrency mining in recent years. Japanese vendors gradually exited general application MLCC market; therefore, Walsin Technology s revenue/earnings soared in FY17 Due to the following: (a) Japanese vendors have gradually exited the general-application MLCC market since mid-fy16; (b) Korean vendors have reduced shipments to control product quality, the MLCC shortage emerged in the market. The revenues of Taiwanese suppliers like Yageo (2327 TT) and Walsin Technology have mostly soared on the order-transfer effect in the market. Japanese vendors have primarily exited mid/high-capacitance (10nF~10uF) and mid/large-size (0402~1210) MLCC markets. Walsin Technology has been mainly catalyzed by transferred orders for mid/large-size mid/high-capacitance products. Walsin Technology s products feature specs that are in line with the unfulfilled demand in the market at the moment. Therefore, Walsin Technology has been catalyzed relatively as it becomes an alternative supplier. FY17 revenue reached NTD21.658bn (+17.13% YoY), mainly catalyzed by MLCC growth. Japanese vendors have gradually shifted their capacities to automotive products and small-size capacitors Japanese vendors have exited the general-application market mainly because they shifted the MLCC capacities to the following: (a) the automotive market; (b) small-size capacitors. The earnings derived from these two fields are higher than the earnings derived from the general-application market. Therefore, Japanese vendors have actively developed these two markets to avoid price competition at the moment. As the penetration rates of IoV and automotive electronics have risen persistently in the automotive market, the number of MLCC applied in one car is estimated to reach 5,000~10,000 units or more in the future and significantly higher than existing mainstream applications like handset (800~1,000 units) and PC (~1,000 units). Additionally, the automotive market s certification requires a longer time and more scrutiny; therefore, once vendors are certified, clients may not change suppliers easily, leading to better prices and profitability. Therefore, Japanese vendors have actively tapped into the automotive field with a ~90% share in the overall automotive market at the moment. European/US vendors mostly account for the remaining 10% market share. Due to the rapidly growing demand for automotive electronics, Japanese vendors have significantly shifted their general-application production lines to manufacture automotive-spec products that feature large size and high capacitance. The small-size capacitor is mainly applied 3

4 in the handset market. The MLCC for handset mainly featured the 0402 size in the past, but the MLCC size has gradually shrunk to 0201 and even (iphone) at the moment. Japanese vendors have actively developed small-size products in response to clients demand. Production of automotive MLCC may consume massive capacity, leading to the MLCC market s shortage (1) The number of MLCC applied in one traditional fuel-powered vehicle is ~1,000 units; the number of MLCC applied in one electronized vehicle is ~5,000 units; the number of MLCC applied in one electric vehicle (EV) is ~10,000 units. In the future, the number of passive components applied in an EV is forecasted at 10~15x that applied in a traditional fuel-powered vehicle. However, as the penetration rate of EV remains relatively low, the automotive passive component market s demand growth has mainly come from automotive electronics (ADAS) in recent years. Automotive MLCC mostly feature high capacitance. Increasing the layers of ceramic materials is typically the major way to increase MLCC capacitance. MLCC capacitance increases on the higher number of layers. To meet the automotive market s high-capacitance demand, an automotive MLCC requires ceramic materials featuring 400~500 layers (in comparison with 30~100 layers for most MLCC products). Furthermore, as certification and quality control of automotive products require more scrutiny, the production of automotive MLCC may consume massive capacity. (2) Due to larger scales of ADAS/EV markets, the demand for MLCC may soar. Therefore, MLCC is expected to take up more capacity. Japanese vendors have aggressively shifted capacities in recent years to meet enormous demand in the future, leading to severe MLCC shortage starting from In our opinion, as the automotive market may contribute significant profits to existing vendors, Japanese vendors are unlikely to shift capacities back to traditional consumer products in the future. In the short term, the MLCC market s shortage is unlikely to reverse or reach a supply/demand equilibrium. Walsin Technology announced to raise chip resistor prices by 10~15% in JAN18 (1) On 01/12/2018, Walsin Technology announced to raise its product prices for the first time in FY18 to reflect the persistent increases in raw material prices and labor costs. It raised the prices of 0402/0603/0805/1206-size chip resistors by 10~15%. The new prices became effective starting from 01/22/2018. Catalyzed by the price-hike effect, 1Q18 revenue was NTD6.642bn (+42.86% YoY, % QoQ), hitting another new high. 1Q18 EPS was NTD2.70. Unaudited MAR18 EPS reached NTD1.39. According to Walsin Technology, MAR18 GM already reached 40%, showing fairly considerable benefits derived from price hikes. 4

5 (2) The demand/supply imbalance of MLCC may deteriorate in 2018 as Japanese vendors Kyocera and Murata already cut their outputs of MLCC featuring certain specs in 1Q18. In overseas countries, large manufacturers like KOA, Rohm and Panasonic have gradually exited the consumer market. Coupled with a gradual increase in downstream demand, the demand/supply conditions of chip resistor may also start to tighten. Moreover, passive component peers already announced several rounds of price hikes in FY18. Therefore, Walsin Technology is expected to raise its prices of MLCC and chip resistor again in FY18, further catalyzing its GM and earnings. Shortage of passive components may persist into 2019, catalyzing significant growth in Walsin Technology s revenue/earnings (1) During 2018~2019, large MLCC vendors may still plan to expand their capacities; however, they are expected to focus on niche products for automotive/industrial/handset applications. Additionally, equipment vendors lead time has also been extended to 8~12 months at the moment. New capacity may be added more significantly 1H19. The market s overall MLCC supply volume is estimated to rise by 10~15% per year during 2018~2019. Taiwanese vendors have expanded chip resistor capacity in However, as the Chinese government s environmental reforms may persist, the resistor market s supply volume may be capped again. Resistors are manufactured via the electroplating process at the front end, and it generates a substantial volume of wastewater that China has prioritized in its environmental remediation. Hence, the chip resistor market s overall supply volume may still grow at a moderate pace. (2) The passive component market s demand growth may be mainly driven by applications related to automotive (+30% YoY growth in demand), industrial (+20~30% YoY growth in demand), handset (+20~30% YoY growth in smartphone-related demand) and 5G during 2018~2019. The trends of automotive electronics, electric vehicle, Industry 4.0 and persistent enhancement of handset specs are expected to boost the demand for passive components significantly. Moreover, the demand for micro MLCC may also be catalyzed significantly by the high-speed growth of IoT-related devices like sensor and wearable device in the future. With the official commercialization of 5G applications in 2019, micro base stations may be established in a large volume to transmit signal. The demand for niche passive components may be notably catalyzed. PC/NB sales have been sluggish in recent years. Nevertheless, the numbers of MLCC and chip resistor adopted in one PC have also been boosted by persistent launches of new processor architectures. Furthermore, as e-sports and cryptocurrency mining have remained robust, the demand for passive components has also been catalyzed significantly. The numbers of MLCC and chip resistor applied in one mining machine are 5

6 2K~3K units and 1K units, respectively. These figures are 3~4x the numbers of MLCC and chip resistor applied in typical consumer PC. (3) The volume of passive components applied in end-market products has risen significantly. While various vendors may add new capacity at a moderate pace, the passive component market s shortage may persist during 2018~2019. Thus, we expect the shortage of MLCC/Chip resistor to persist into 2019, benefiting related makers revenues/earnings. Due to the following: (a) Walsin Technology s new capacity may gradually become operational during FY18~19; (b) the benefits stemming from its price hike are expected to emerge, the company s revenue/earnings may surge. FY18 revenue is forecasted at NTD34.686bn (+60.25% YoY) with EPS of NTD As the benefits stemming from its price hike are expected to gradually emerge, we see further upside to Walsin Technology s future earnings. Exhibit 1: Various MLCC vendors capacity expansion plans during FY18~19 Vendors Murata (6981 JP) Taiyo Yuden (6976 JP) SEMCO Recent plans of MLCC capacity expansion Investing JPY50.0bn~100.0bn in the addition of production facilities in Japan and the Philippines before 2020; the capacity of EV-related MLCC is estimated to increase by 20% Investing in JPY10.0bn in the construction of new MLCC production facilities; the construction is expected to kick off in APR18 with completion in DEC18; mass production is expected in MAR19 Invested RMB850mn in the addition of industrial/automotive-related product lines at the Busan plant in 2H17; adding production lines of smartphone-related MLCC at the Philippines and Tianjin (China) plants; new capacity may become operational after 2H18 Yageo (2327 TT) Monthly capacity of MLCC is estimated to increase by ~25% to 50.0bn units in FY18 Walsin Technology (2492TT) MLCC capacity is estimated to increase by 15~20% in FY18 Holy Stone (3026 TT) MLCC capacity is estimated to increase by 20% in FY18 Guangdong Fenghua Advanced Technology ( CH) Investing RMB55.56mn to expand the monthly capacity of 0201 MLCC by 1.4bn units; the construction is expected to be completed in JUN18 Source: Various vendors; Capital Securities Recommendation We expect the shortage of passive components to persist into Furthermore, various niche applications may also catalyze the long-term demand for mid/high-end passive components in the future. Hence, Walsin Technology s earnings growth may remain robust during FY18~19. We also revised up FY18 EPS estimate from NTD14.64 to NTD18.76 based on the company s excellent 1Q18 financial results. As Walsin Technology s revenue/earnings outlooks top our expectation, we maintain BUY and revise up TP to NTD300 (16x FY18 PER). 6

7 Exhibit 2: Forward PE Band Source: CMoney; Capital Securities Exhibit 2: Forward PB Band Source: CMoney; Capital Securities 7

8 Balance sheet (NTD mn) F Assets 26,640 26,224 28,799 35,051 44,122 Current assets 14,516 14,916 16,385 18,947 26,394 Cash & cash equivalents 1,846 2,525 2,562 2,968 4,131 Accounts receivable 4,529 5,068 6,037 7,534 8,811 Inventories 3,392 3,136 3,413 3,787 3,855 Investments in equity method 3,676 3,854 3,927 4,872 5,543 Property, plant and equipment 5,952 5,551 5,817 7,942 8,442 Liabilities 10,487 10,760 12,573 15,975 17,381 Current liabilities 7,103 7,132 8,866 12,220 13,263 Accounts payable 1,712 1,790 2,337 2,812 3,192 Non-current liabilities 3,384 3,628 3,707 3,756 3,738 Shareholders' equity 16,153 15,464 16,226 19,075 26,741 Ordinary share capital 6,831 5,600 5,180 4,858 4,858 Retained earnings 1,622 2,579 4,265 6,213 13,879 Equity attributable to equity holders of the parent 14,433 13,758 14,406 17,054 24,225 Liabilities & shareholders' equity 26,640 26,224 28,799 35,051 44,122 Income statement (NTD mn) F Revenue 14,483 16,029 18,491 21,645 34,686 Cost of sales 12,320 13,134 14,121 16,023 19,924 Gross profit 2,164 2,895 4,369 5,622 14,762 Operating expenses 1,748 1,857 2,070 2,329 2,895 Operating profit 415 1,039 2,299 3,293 11,868 EBITDA 2,037 2,556 3,682 4,690 13,605 Non-operating items Pre-tax profit 700 1,467 2,640 3,583 12,043 Income taxes ,434 Net income 551 1,206 2,152 2,609 9,115 Basic EPS (NTD) Diluted EPS (NTD) Note: Basic EPS estimate is based on paid-in capital of NTD4.858bn Diluted EPS estimate is based on paid-in capital of NTD4.858bn Cash flow statement (NTD mn) F Operating cash flows 481 1,991 2,771 2,444 8,280 Net income 700 1,467 2,640 3,583 12,043 Depreciation & amortization 1,352 1, ,081 1,477 Increase in working capital , Other operating cash flows ,275 Investing cash flows -1, ,120-1,653-3,153 Capital expenditures ,366-2,059-2,500 Increase in long-term investments -1, Other investing cash flows Financing cash flows -50-1, ,964 Increase in long-term borrowings Cash proceeds from issuing shares Payment of cash dividends ,943 Other financing cash flows 634-1, ,003 Increase in cash & cash equivalents ,163 Cash & cash equivalents - year begin 2,584 1,846 2,525 2,562 2,968 Cash & cash equivalents - year end 1,846 2,525 2,562 2,968 4,131 Source: CMoney; Capital Securities Ratio analysis (NTD mn) F Growth analysis (%) Revenue 10.93% 10.67% 15.35% 17.06% 60.25% Gross profit 67.56% 33.82% 50.91% 28.67% % Operating profit N.A % % 43.22% % Net income N.A % 78.51% 21.21% % Profitability analysis (%) Gross margin 14.94% 18.06% 23.63% 25.97% 42.56% EBITDA margin 14.06% 15.95% 19.91% 21.67% 39.22% Operating margin 2.87% 6.48% 12.43% 15.21% 34.22% Net margin 3.80% 7.52% 11.64% 12.05% 26.28% Return on asset 2.07% 4.60% 7.47% 7.44% 20.66% Return on equity 3.41% 7.80% 13.26% 13.68% 34.09% Debt & liquidity analysis Debt ratio 39.36% 41.03% 43.66% 45.58% 39.39% Debt-to-equity ratio 64.92% 69.58% 77.49% 83.75% 65.00% Current ratio % % % % % Activity analysis Inventory days Accounts receivable days

9 Quarterly income statement (NTD mn) 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18F 2Q18F 3Q18F 4Q18F 1Q19F 2Q19F 3Q19F Sales 4,693 4,650 5,128 5,911 5,957 6,642 8,387 9,818 9,839 8,783 9,658 11,087 Cost of sales 3,580 3,590 3,876 4,327 4,231 4,265 4,799 5,429 5,430 4,929 5,352 6,083 Gross profit 1,114 1,059 1,252 1,585 1,726 2,377 3,588 4,389 4,409 3,854 4,306 5,004 Operating expenses Operating profit ,097 1,745 2,883 3,613 3,627 3,090 3,534 4,173 Non-operating items Pre-tax profit ,131 1,179 1,722 2,886 3,750 3,685 3,092 3,531 4,298 Income taxes Net profit ,309 2,155 2,850 2,800 2,350 2,550 3,266 Paid-in capital 4,858 4,858 4,858 4,858 4,858 4,858 4,858 4,858 4,858 4,858 4,858 4,858 EPS (NTD) Operating efficiency Gross margin (%) 23.73% 22.79% 24.42% 26.81% 28.97% 35.79% 42.78% 44.70% 44.81% 43.88% 44.59% 45.13% Operating margin (%) 12.15% 11.32% 13.53% 16.50% 18.42% 26.27% 34.38% 36.80% 36.86% 35.18% 36.59% 37.63% Net margin (%) 12.26% 8.55% 8.63% 14.61% 15.19% 19.71% 25.69% 29.03% 28.46% 26.75% 26.40% 29.46% QoQ (%) Sales -5.11% -0.94% 10.29% 15.28% 0.77% 11.51% 26.26% 17.07% 0.21% % 9.96% 14.80% Operating profit -9.80% -7.71% 31.77% 40.64% 12.48% 59.02% 65.23% 25.33% 0.36% % 14.35% 18.09% Pre-tax profit -9.23% % 47.56% 49.04% 4.27% 46.02% 67.63% 29.95% -1.75% % 14.18% 21.73% Net profit % % 11.39% 95.13% 4.72% 44.73% 64.59% 32.27% -1.75% % 8.52% 28.09% YoY (%) Sales 13.14% 10.01% 10.89% 19.51% 26.91% 42.86% 63.55% 66.09% 65.18% 32.23% 15.16% 12.93% Operating profit 80.07% 8.35% 13.61% 54.28% 92.38% % % % % 77.08% 22.56% 15.48% Pre-tax profit 83.57% 5.07% 12.78% 45.99% 67.71% % % % % 79.59% 22.33% 14.59% Net profit 72.17% 0.78% % 28.12% 57.27% % % % % 79.48% 18.33% 14.59% Source: CMoney; Capital Securities Note: EPS estimate is based on paid-in capital of NTD4.858bn 9

10 STOCK RATING STRONG BUY Based on the last closing price prior to our initial STRONG BUY recommendation, our 3-month target price implies upside exceeding or equal to 35%. BUY Based on the last closing price prior to our initial BUY recommendation, our 3-month target price implies upside between 15% and 35%. TRADING BUY Based on the last closing price prior to our initial TRADING BUY recommendation, our 3-month target price implies upside between 5% and 15%. NEUTRAL We are unable to issue investment recommendation based on the company s current fundamentals. We expect the share price to consolidate in the near term and recommend investors to look for a better entry point. Disclosure This report is for circulation to Capital Securities Corp. clients only. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Capital Securities Corp. Readers of this report must understand and accept that their actions at the time that they access this report fall under the jurisdiction of the ROC law, even if viewed from outside of Taiwan, Republic of China. This report is written for information purposes only. Capital Securities Corp. makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in this report change apart from when we intend to discontinue research coverage of a subject company. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives or persons who receive it and is provided with the understanding that Capital Securities Corp. is not acting in fiduciary capacities. The securities discussed in this report may not be suitable for all investors. Capital Securities Corp. recommends that investors independently evaluate particular investment or strategies. The appropriateness of a particular investment or strategy will depend on an investor s individual circumstances and objectives. This report is neither an offer, nor an invitation to buy or sell any security or to participate in any trading strategy. Compensation of research analysts is determined by equity research department and senior management of Capital Securities Corp. and is not linked to specific transactions or recommendations. The research analysts primarily responsible for the preparation and content of this report certify that all of the views expressed in this report accurately reflect their personal views about those issuers or securities. The research analysts also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Materials presented in this report are based on public information. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, other business units of Capital Securities Corp., including investment banking. We have established information barriers between research and certain business units, including investment banking. Investors should assume that Capital Securities Corp. may seek investment banking or other business opportunities with companies mentioned in this report. Equity research department of Capital Securities Corp. conducts periodic reviews of research reports to track quality, accuracy and changes in ratings and price targets. Investors should note that the value of and income from your investment may vary because of changes in interest rate or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors. Additionally, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk. Estimates of future performance are based on assumptions that may not be realized and should not be relied upon as such. Additional information on recommended securities is available upon request. 10