China: House price bubble to be curbed?

China: House price bubble to be curbed? The house price bubble is the most discussed topic in China these days, and a nationwide concern despite only being present in tier-one cities and some hot tier-two cities. We think the two main causes of the bubble are loose monetary conditions and shortage of supply. A lack of housing sent house prices spiralling, leading to more speculation, more demand and even low-income groups getting involved. Real and speculative pressures have been fed by a huge rise in mortgage loans, and the supply shortage has worsened. We believe the biggest surprise for the market is the lack of central government comment or policy guidelines, even though the CCPCC Politburo indicated its intention to control asset bubbles in its summer economic meeting statement. However, the central government faces a dilemma. On the one hand, reducing housing inventory is one of five critical policy measures in 216, and still a key challenge for some tier-two and most tier-three and -four cities. On the other hand, while the equity bubble burst last summer, some sectors need to absorb massive liquidity, with property being the biggest one. What s more, mortgage loans are a powerful source to fuel a property boom. Given banks are increasingly reluctant to lend to the real economy amid rising NPLs, commercial banks are keen to make mortgage loans as they are considered one of the best assets. While the property boom provided a boost to short-term economic growth and government revenue, it has serious consequences. Stretched affordability damages the hopes of young people, overdrafts future growth, and undermines competitiveness by pushing up economic costs. Banks also face higher credit risks if property prices drop. Since April, the central government has adopted its one city, one policy approach, with local governments asked to tailor property policies to suit local developments. Apparently, it has not worked well, clashing with local government interests and lack of policy capability. We sense the bubble has reached a tipping point, and expect cooling measures through central and local government efforts with announcements possibly around the 6 th plenum of the 18 th Party Congress on 24-27 October. We expect the aim to be curbing property price increases without bursting the bubble, with measures like home purchase restrictions, higher down-payment ratios and mortgage rates, transaction limitations and tax enforcement. If cooling measures are announced, we think housing transactions would slow, with house price inflation gradually cooling. We would expect the biggest impact in tier-one and hot tier-two cities, resulting in moderate corrections in house prices but not substantial declines. We think housing investment would continue to grow at current low rates, since property developers would be keen to deliver sales through the end of the year. Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 1 www.globalmarkets.bnpparibas.com

Housing market on fire, but with growing city divergence Following a moderate downturn in 213 and 214, the Chinese property market started to recover progressively from April 215. But the recovery has evolved since the beginning of the year into bubbles in top-tier cities and a handful of tier-two cities. Nationwide property sales hit a record high For the nation as a whole, residential property sales volume surged 25.6% y/y in the first eight months to a new record high of 774m sqm. Sales value climbed 4.1% y/y, meaning nationwide average sales prices rose 11.5% y/y, above the average 6.6% from 21 to 215 (Chart 1). In contrast to past property booms, property market performances have varied vastly among cities. As Chart 2 shows, property price inflation in tier-one cities has far outpaced that in tiertwo and -three cities, and the bifurcation has never been so pronounced. Substantial property prices increase in tier-one cities According to the 7-city survey by the National Statistics Bureau, property prices in secondary markets 1 in Shenzhen, Beijing and Shanghai have shot up by 69.8%, 54.2% and 44.1% respectively from the beginning of 215. Our observations on the ground show actual price inflation was probably even greater than the official data. Such a fast rise in property prices in tier-one cities intensified speculation and panic buying. Sustained and substantial property price increases in the past two decades strengthened the belief that prices would keep moving up. As such, wealthy people have explored every possibility to buy more housing as an investment. The middle classes have upgraded living conditions earlier than would otherwise be the case. Some even have bought homes for their young children as the marriage house when they grow up. Poor families have rushed to buy houses to increase their cramped living space. The property market is so crazy in tier-one cities that people have lined up to get divorces in Shanghai in order to get around home purchase restrictions. Many property projects sold out in just hours and each buyer only got half a minute to make decisions. Chart 1: Property boom (% YTD) (% YTD) 1 Property sales value ASP(RHS) Property sales volume 6 8 5 4 6 3 4 2 2 1-1 -2-2 -4-3 5 6 7 8 9 1 11 12 13 14 15 16 Source: NBS, BNP Paribas Chart 3: Tier1- cites among the top 1 most expensive Chart 2: Price divergence among cities (% y/y) Tier 1 cities Tier 2 cities Tier 3 cities 4 3 2 1-1 Jul-5 Jul-6 Jul-7 Jul-8 Jul-9 Jul-1 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Source: NBS, BNP Paribas Chart 4: Varying price performance in tier-2 cities Monaco Hong Kong London New York Sydney Geneva Singapore Shanghai Paris Los Angeles Beijing Rome Miami Tokyo Moscow The number of square meters USD 1mn will buy in... (prices as at Dec 215) 17 2 22 27 4 4 42 46 57 66 68 76 77 83 83 1 2 3 4 5 6 7 8 9 9 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Source: The Wealth Report 216, by Knight Frank and Douglas Elliman. Source: NBS, BNP Paribas Note: property in this case refers to high-end property 1 We think prices in the secondary market are more reflective as second-hand property transaction volume has outstripped primary market volume in top tier cities and the secondary market is much less distorted by social housing. 15 14 13 12 11 1 Shenyang Dalian Nanjing Hefei Chongqing Chengdu (Dec 13=1) Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 2 www.globalmarkets.bnpparibas.com

Tier-1 cities among the top-1 most expensive cities globally Divergence in tier-2 cities Divergence driven by both demand and supply With the substantial rise in the past year and a half, absolute prices in tier-1 cities are close to those in the world s top cities, despite income being much lower. Knight Frank, a global realestate consultant, calculated the number of square metres of high-end property that USD1m can purchase in the world s major cities in 215. Hong Kong ranked No 2, only after Monaco. Shanghai ranked No 8 and Beijing was No 1 (Chart 3). Including Shenzhen, China has four of the top 1 most expensive cities globally. Prices were at December 215, and have increased markedly year to date which would likely shift Chinese cities further up the list this year. However, average income in Chinese tier-1 cities is much lower than western peers. In 215, household disposable income per capita was in the range of USD8,-8,3 in Beijing, Shanghai and Shenzhen. In contrast, income per capita in New York was around USD55,. Tier-two cities have seen significant divergences. Some are overheated prices in Hefei, Xiamen and Nanjing are up 48.9%, 35.5% and 3.5% since the start of 215. Some are lukewarm prices in Chongqing and Chengdu are up 4.3% and 2.4% over the same period. Some are still in the doldrums prices in Shenyang and Dalian only rose 1.7% and.6% over that period, and in August were still below the peaks in 214 (Chart 4). What are the factors behind the divergence? Is it demand or supply? Demand certainly is a critical factor. Because of the new urbanization strategy, tier-one and -two cities have seen huge population influx in the past couple of years, boosting demand for property. On the contrary, populations in many tier-three and -four cities have been stagnant or declining. Supply is also a vital driver of the divergence. An outstanding example is Chongqing, which recorded an impressive 13.6% real GDP growth in 21-15, far outstripping national GDP growth of 8.3%. Its population increased by 1.3m in 21-15, making it the fourth largest population increase out of 288 prefecture-level cities. Because of robust fundamentals, demand for property was pretty strong. In 215, Chongqing sold 44.8m sqm of residential property, whereas sales volume in the primary market was just 7.5m sqm in Shenzhen, or less than 2% of that in Chongqing. However, property prices in Chongqing have gained only 2% annually from 21 to 215, even slower than Chongqing s average CPI inflation of 2.8% per year. (mn sqm) 8 7 6 5 4 3 2 1 Chart 5: Acute land supply shortage in Shenzhen Residential property sales Planned GFA of residential land supply Shenzhen 212 213 214 215 8M16 Source: Wind Financials; BNP Paribas Chart 7: Property sales sensitive to mortgage rate (% YTD) Property sales value (LHS) (%, pa) 1 Mortgage rate(with 4-month lead, RHS,inverted) correlation = -.41 4 8 5 6 (mn sqm) 9 8 7 6 5 4 3 2 1 Chart 6: Abundant land supply in Chongqing Residential property sales Planned GFA of residential land supply Chongqing 212 213 214 215 8M16 Source: Wind Financials; BNP Paribas Chart 8: Property sales sensitive to credit condition (% YTD) Property sales value (LHS) (% y/y) 1 Augmented credit growth (RHS) 4 correlation =.64 8 35 6 3 4 6 4 25 2 7 2 2 15-2 8-2 1 Feb-7 Apr-8 Jun-9 Aug-1 Oct-11 Dec-12 Feb-14 Apr-15 Jun-16 Feb-7 Apr-8 Jun-9 Aug-1 Oct-11 Dec-12 Feb-14 Apr-15 Jun-16 Source: NBS,PBOC; BNP Paribas Source: NBS,PBOC; BNP Paribas Note: Augmented credit denotes all domestic credit of depositoary institutions Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 3 www.globalmarkets.bnpparibas.com

In our view, the biggest difference among these cities is supply, especially land supply. Take Shenzhen for example: in the past five years, residential land supply has been significantly smaller than residential property sales (Chart 5). And supply shortage is increasingly acute in top-tier cities. In the first eight months of 216, Shenzhen only sold two residential land slots and Beijing only supplied seven pieces of residential land. In contrast, Chongqing s land supply kept outstripping property sales in the past couple of years (Chart 6). Thus sales volume in Chongqing is way greater than in top-tier cities, but price increases have been quite moderate. Mortgage loans the key driver of housing prices Experiences from home and abroad suggest the common drivers of property prices are: income, urbanization, demographics, credit condition, taxes and land supply. The former three are fundamental drivers, and increases in property prices driven by them are regarded as sustainable. Change in credit conditions, either down-payment rate, mortgage rate or the easiness to borrow money, usually is a vital driver of short-term property cycles. If not controlled properly, bubbles are easily inflated with disastrous consequences. The property bubbles of Japan in the 198s and of the US in the 2s all had close nexus to lax credit conditions. The property cycle is a credit cycle in China Mortgage loans exploded Loose funding conditions for developers The historical trajectory indicates Chinese property cycles are primarily determined by money and credit cycles. As Chart 7 and Chart 8 show, property sales are quite responsive to changes in mortgage rates and credit growth. This is natural. A property purchase is one of few largeticket assets that households can invest in with high and long-term leverage (usually 2-3% down-payment for as long as 2-3 years). That s why, to a great extent, property is not a consumer product, but a financial product. After serial cuts in interest rates and relaxation of down-payment requirements last year, demand for mortgages has picked up. In the meantime, commercial banks preference for mortgage loans as high quality assets has strengthened amid a bump in non-performing loans. This resulted in the mortgage loan balance soared 31% y/y in 1H16, far outstripping the 14.3% growth of total bank loans. Moreover, the share of new mortgage loans in total new loans jumped to 32.1% in 1H16, from an average 17.4% from 21 to 215 (Chart 9). For property developers, easier credit conditions and faster sales greatly reduced their funding shortage. In the first eight months, funding supply for property development increased 14.8% y/y, whilst property investment only grew 5.4% y/y, pointing to loose funding conditions of developers. In addition, funding costs have decreased markedly. On the one hand, bank borrowing rates declined after the interest rates cuts. On the other, allowing developers to issue bond domestically last year provided them with even cheaper funding. Top-tier developers, such as Vanke and COLI, Can issue bonds with yield around 3.5%. In the past, when funding was tight and costs high, developers usually implemented high turnover strategies, speeding up development and supply to accelerate cash cycles. But with much lower funding costs, developers have slowed supply, hoping to sell at higher prices. Therefore, easier credit conditions have helped to push up property prices through higher demand for property and a slower pace of property supply. Chart 9: Mortgage loans exploded Chart 1: Nationwide affordability is healthy (RMB bn) New mortgage loans (%) Total new loans 14, % of total new loans (RHS) 35 12, 3 (x) 12 11 11. 1.3 1.1 9.6 National Price-to-income ratio 1, 8, 25 2 1 9 9.1 8.7 9.4 9.6 9.1 9.1 9. 8.6 6, 4, 15 1 8 7 7.9 8.1 7.8 7.9 7.3 7.4 2, 5 6 26 27 28 29 21 211 212 213 214 215 1H16 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 Source: PBOC; BNP Paribas Source: NBS, BNP Paribas Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 4 www.globalmarkets.bnpparibas.com

Hot housing markets help We must admit, the property/housing boom is a big bright spot for the economy this year. Short-term economic benefit of property boom First, thanks to the strong recovery in sales, housing inventory has fallen substantially, and been a great policy achievement. Floor space available for sales, which as a narrow gauge of inventories, dropped.7% y/y in August this year. In contrast, it increased 15.7% y/y in August last year and grew 11.2% y/y for 215 as a whole. Second, property investment growth reversed, rebounded to 5.4% y/y in Jan-Aug from a paltry 1% in 215. The bounce in investment boosted demand for downstream and upstream products, such as steel and furniture, which together shored up economic growth. This is also a driver of improved industrial profit, which increased 11% in July, 19.5% in August and 8.4% in the first eight months. Third, house prices surging helped local governments to increase land leasing revenue, greatly alleviating local debt troubles. In the first eight months, fiscal revenue grew 6% y/y, while property-related tax revenue 2 increased by 8.2% y/y to nearly RMB1trn, accounting for 9% of total fiscal revenue. Land sales proceeds gained 14% y/y to RMB2trn, equivalent to a third of local government fiscal revenue. Fourth, growth of mortgage loans has strongly supported credit growth. While outstanding RMB loans rose 14.3% y/y in 1H16, mortgage loans surged 31% y/y. Incremental mortgage loans more than doubled to RMB2.4tr in the first six months, up 112% y-y. Finally, hot housing sales have attracted a large amount of liquidity so far this year, substantially reducing RMB depreciation pressure. has serious consequences But with serious consequences On the negative side, the fast rise in property prices has heightened concerns over a property bubble bubbles burst with contagious impacts on other parts of the economy. Define a bubble is difficult, but the most frequent indicators of affordability and valuation of property worldwide are price-to-income ratios, rental yields and mortgage-to-income ratios. Given median income and property price are unavailable, we use average data to calculate price-to-income ratios. By the end of 215, the nationwide price-to-income ratio stood at 7.4x, and has actually declined compared with the early 2s, because average income growth has outpaced property prices (Chart 1). Year to date, nationwide property prices (rising 11.5% y/y in 8M16) have risen faster than income growth at 8%, so the price-to-income ratio will likely increase a bit (to close to 8x) by the end of this year. Nevertheless, a 7-8x price-to-income ratio is quite healthy even compared to levels in western countries. Hence, nationwide, we don t think the property market has a bubble. Price-to-income ratio is lofty in tier-one cities Only in tier-one cities is affordability a prevailing concern. If we use the average sales prices in (x) 35 3 25 2 15 1 5 Chart 11: Price-to-income elevated in tier-1 cities 212 213 214 215 216E 28.3 24.4 Beijing Shanghai Shenzhen Source: NBS; Wind; China Real Estate Association; BNP Paribas Note: Assuming purchasing 9 sqm property. Prices as of August 216. 27.3 4 3 2 1 Chart 12: Leverage of home purchase spiked (RMB bn) Residential property sales (%) 8 New mortgage loans 6 New mortgage loans/sales (RHS) 7 5 6 4 5 28 29 21 211 212 213 214 215 1H16 Source: NBS; PBOC; BNP Paribas 3 2 1 2 Including deeds tax, urban land usage tax, land VAT, property tax and farmland occupation tax. Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 5 www.globalmarkets.bnpparibas.com

August to calculate and assume 8% income growth this year, then the price-to-income ratio is 28.3x in Beijing, 27.3x in Shenzhen and 24.4x in Shanghai. That means, a family earning average disposable income (RMB155k, or USD23k per year) in Beijing needs to save income for 28.3 years to buy a 9sqm flat, without spending a penny on anything else. Despite China s high household savings rate of nearly 4%, this paints a very poor picture (Chart 11). High property prices overdraft future growth Substantial increase in leverage of home purchase Secondly, with housing as the biggest household asset, medium- and low-end households may have to put most of their family wealth into their house. Thus, households with high debt become less able or unable to spend on other consumption goods and services. That delays consumption demand, and undermines long-term sustainable growth. Thirdly, house prices spiralling has substantially increased dependence on mortgage loans. In other words, the leverage of property purchases has increased. New mortgage loans relative to housing sales increased to 55% in 1H16, from 34.4% in 215, and an average of 24.8% from 21 to 215 (Chart 12). According to Shenzhen Branch of the PBOC, the average downpayment ratio of home purchases in Shenzhen in 215 was only 35%, and the other 65% was borrowed from banks. This was not far from the minimum down-payment requirement of 3% for first homes. Anecdotally, we hear that purchasers use other ways to increase leverage ratio, such as consumer credit through credit cards, P2Ps and even borrowing from loans sharks for speculation. Though this might just be a recent trend and there is no official statistics, it could lead to many subprime debtors. The burden of mortgage repayment is getting hefty. According to Lianjia, the largest realtor in Beijing, the average mortgage repayment for those born in the 198s was RMB18, per month in 1H16. This is really burdensome because the average salary is RMB7,-8, in Beijing. Such a heavy burden undoubtedly will further squeeze consumption. Rising credit risks for banks High property price wrecked the hopes of the young Commercial banks may face two new challenges. One, mortgage loans are made against inflated assets and the bubble might burst. Two, low-income borrowers could become subprime debtors and fail to honour debt. Lastly, but not least, we think high property prices and poor affordability have damaged the hopes of young people. High property prices also push up costs to the economy, and undermine competitiveness. Some manufacturing has started to move out of tier-1 cities to cities where land is cheaper. Even Huawei has been reallocating some of its capacity out from Shenzhen to Dongguang. Possible cooling measures All too frequently people living in a bubble don t realise it. Thus many are concerned that the bubble in Chinese housing will burst. Some argue this bubble is similar to Japan s in 1989, just on the eve of the big burst. We do not think China s property bubble will burst any time soon, as China is far less developed than Japan was then in terms of urbanization, industrial upgrading and regional disparity. But we do think there are bubbles that need dealing with in tier-one and some tier-two cities. Surprising reticence of central government Compared to housing bubbling cycles in the past, the market is surprised that there has not been any responsible central department and senior government officials making comments or policy guidelines in response to surging house prices so far this year. In our observation, this may be partly because of policy dilemma, and partly because policy options are limited. On the one hand, housing inventories remain high in most tier-two, -three and -four cities, while there are serious supply shortages in tier-one and some tier-two cities. It is difficult for the central government to take a one-size-fits-all, nationwide policy. Instead, the central government has asked local governments to tailor make property policies in accordance to local developments since March. But because tightening is not in the best interests of local governments, and local government might be incapable of introducing effective policy measures, house price bubbles have continued in tier-one and some tier-two cities and are spreading to lower-tier cities. Time for new property policies around the 6th plenum House price bubbles lead to society suffering from annoyance, dismay and frustration. We sense it is time for both local and central governments to work out some cooling measures. The Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 6 www.globalmarkets.bnpparibas.com

difficulty is finding measures that are effective in curbing prices without popping the bubbles. We expect announcements around the 6 th plenum of the 18 th Party Congress on 24-27 October. What measures could there be? The options at this stage we believe include: 1. Tightening home purchase restrictions (HPR) in tier-one cities and re-introducing HPR in tier-two cities where markets are overheated; 2. Increase down-payment ratios; 3. Hiking mortgage rates; 4. Enforcing housing transaction tax payment, capital gains tax, etc; and 5. Disclosing draft of laws on property tax and inheritance tax. In fact, some cities have started to take action. Effective from 26 September, Nanjing municipal government resumed housing purchase restrictions. Families with a Nanjing hukou (household registration) with two houses or more are banned from buy new houses in the primary market, but can still buy them from the secondary market; families without a Nanjing hukou are not allowed to buy second houses in the main city districts. Four investment implications Investment implications We still don't expect a nationally integrated policy package. Generally, we think key measures will still be adopted on an individual city basis. But the central government could adjust the policy measures regarding down-payment ratios, mortgage loan rates, taxes and other administrative measures. As such, we expect the following changes: 1. Housing transactions to cool, with moderate prices corrections to follow. This should mainly happen in tier-one and hot tier-two cities. We think housing transactions could decrease sequentially from November. House prices may correct but not dramatically we do not expect the bubble to burst at least in the near future. 2. Property investment is unlikely to be significantly affected in the short term, but acceleration in property investment is unlikely, either. Since most new housing that has been bought is still under construction, developers will have to keep building until delivery. Thus, property or housing investment could still grow around 5% through the year-end. 3. Mortgage loans and overall loan growth is likely to slow markedly. Growth of corporate demand deposits and M1 should trend downward. This does not mean liquidity will be tight in the financial market. Instead, incremental liquidity may flow out from the property market into the capital markets, the equity market in particular. 4. On the other hand, if housing transactions are restricted, some liquidity may head overseas, increasing pressure on capital outflow. Together with an expected US Fed rate hike in December, RMB depreciation speculation could be renewed by year-end. Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 7 www.globalmarkets.bnpparibas.com

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In relation to the distribution to such categories of investors, BNPPSSL and its representatives are exempted under Regulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, or certain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contact BNP Paribas Securities (Singapore) Ptd Ltd (company registration number: 19981966C; address: 1 Collyer Quay, 34/F Ocean Financial Centre, Singapore 49315; tel: (65) 621 1288; fax: (65) 621 198) for all matters and queries relating to this report. South Africa: In South Africa, BNP Paribas Securities South Africa (Pty) Ltd is a licensed member of the Johannesburg Stock Exchange and an authorised Financial Services Providers and subject to regulation by the Financial Services Board. BNP Paribas Securities South Africa (Pty) Ltd does not expressly or by implication represent, recommend or propose that the financial products referred to in this report are appropriate to the particular investment objectives, financial situation or particular needs of the recipient. This document does not constitute advice as contemplated in the Financial Advisory and Intermediary Services Act, 22. South Korea: BNP Paribas Securities Korea is registered as a Licensed Financial Investment Business Entity under the FINANCIAL INVESTMENT SERVICES AND CAPITAL MARKETS ACT and regulated by the Financial Supervisory Service and Financial Services Commission. This document does not constitute an offer to sell to or the solicitation of an offer to buy from any person any financial products where it is unlawful to make the offer or solicitation in South Korea. Switzerland: This report is intended solely for customers who are Qualified Investors as defined in article 1 paragraphs 3 and 4 of the Swiss Federal Act on Collective Investment Schemes of 23 June 26 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22 November 26 (CISO). Qualified Investors includes, among others, regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professional treasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to Qualified Investors. For specification purposes, a Swiss Corporate Customer is a Client which is a corporate entity, incorporated and existing under the laws of Switzerland and which qualifies as Qualified Investor as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the Swiss Federal Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Geneva commercial register under No. CH-27-3542-1. BNP Paribas (Suisse) SA is incorporated in Switzerland with limited liability. Registered Office: 2 place de Hollande, CH-124 Geneva. Taiwan: This report is being distributed to Taiwan based clients by BNP Paribas Securities (Taiwan) Co., Ltd or by a subsidiary or affiliate of BNP Paribas. Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas Securities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of BNP Paribas. Thailand: Reference relating to Thailand and Thailand based issuers are produced pursuant to an arrangement between BNP PARIBAS ( BNPP ) and Finansia Syrus Securities Public Company Limited ( FSS ). FSS International Investment Advisory Securities Co Ltd ( FSSIA ) prepares and distributes reports under the brand name BNP PARIBAS/FSS. BNPP is not an affiliate of FSSIA or FSS. This report is being distributed outside Thailand by members of BNP Paribas. Turkey: This report is being distributed in Turkey by TEB Investment (TEB YATIRIM MENKUL DEGERLER A.S., Teb Kampus D Blok Saray Mah. Kucuksu Cad. Sokullu Sok., No:7 34768 Umraniye, Istanbul, Turkey, Trade register number: 358354, www.tebyatirim.com.tr) and outside Turkey jointly by TEB Investment and BNP Paribas. Information, comments and suggestions on investment given in this material are not within the scope of investment consulting. The investment consulting services are rendered tailor made for individuals by competent authorities considering the individuals risk and return preferences. However the comments and recommendations herein are based on general principles. These opinions may not be consistent with your financial status as well as your risk and return preferences. Therefore, making an investment decision only based on the information provided herein may not bear consequences in parallel with your expectations. This material issued by TEB Yatırım Menkul Değerler A.Ş. for information purposes only and may be changed without any prior notification. All rights reserved. No part of this material may be copied or reproduced in any manner without the written consent of TEB Yatırım Menkul Değerler A.Ş. Although TEB Yatırım Menkul Değerler A.Ş. gathers the presented material that is current as possible, it does not undertake that all the information is accurate or complete, nor should it be relied upon as such. TEB Yatırım Menkul Değerler A.Ş. assumes no responsibility whatsoever in respect of or arising out or in connection with the content of this material to third parties. If any third party chooses to use the content of this material as reference, he/she accepts and approves to do so entirely at his/her own risk. United States: This report may be distributed in the United States only to U.S. Persons who are major U.S. institutional investors (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a major U.S. institutional investor. U.S persons who wish to effect transactions in securities discussed herein must do so through BNP Paribas Securities Corp., a US-registered broker dealer and member of FINRA, SIPC, NFA, NYSE and other principal exchanges. Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 9 www.globalmarkets.bnpparibas.com

Certain countries within the European Economic Area: This document may only be distributed in the United Kingdom to eligible counterparties and professional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial Instruments Directive 24/39/EC ( MiFID )). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas SA whose head office is in Paris, France. BNP Paribas SA is incorporated in France with limited liability with its registered office at 16 boulevard des Italiens, 759 Paris. BNP Paribas London Branch (registered office: 1 Harewood Avenue, London NW1 6AA; tel: [44 2] 7595 2; fax: [44 2] 7595 2555) is lead supervised by the European Central Bank (ECB) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR). BNP Paribas London Branch is authorised by the ACPR and the Prudential Regulation Authority (PRA) and subject to limited regulation by the Financial Conduct Authority and PRA. Details about the extent of our authorisation and regulation by the PRA, and regulation by the Financial Conduct Authority are available from us on request. This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by the ACPR whose head office is 16, Boulevard des Italiens 759 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch or by BNP Paribas Niederlassung Frankfurt am Main, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Other Jurisdictions: The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is disseminated and available to all clients simultaneously through our internal client websites. For all research available on a particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report. All share prices are as at market close on 27 September 216 unless otherwise stated. Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report. 216 BNP Paribas Group Xingdong (XD) Chen / Jacqueline Rong 28 September 216 Desknote Asia 1 www.globalmarkets.bnpparibas.com