China / Hong Kong Company Guide Version 6 Bloomberg: 000333 CH Equity Reuters: 000333.SZ Refer to important disclosures at the end of this report DBS Group Research. Equity 3 Apr 2017 BUY Last Traded Price ( 31 Mar 2017):RMB33.30 (CSI300 Index : 3,456) Price Target 12-mth: RMB36.41 (9% upside) (Prev RMB35.35) Potential Catalyst: Ramp-up of Toshiba and KUKA s growth in China Where we differ: Our FY17/18 earnings estimate is higher than consensus by 7%/1%. Analyst Eric YEE, CFA +86 21 6888 3360 eric_yee@dbs.com Mavis HUI +852 2863 8879 mavis_hui@dbs.com What s New Maintain BUY with TP fine-tuned to RMB 36.41 as we benchmark 12.7x rolling PE. Yield is 3.7%. FY17 outlook is decent, with double-digit sales growth and steady margins. Consolidation of Toshiba and KUKA also fuel longterm growth. Price Relative 34.2 29.2 24.2 19.2 14.2 RMB 9.2 Sep-13 Sep-14 Sep-15 Sep-16 (LHS) Relative CSI300 Index (RHS) Relative Index Forecasts and Valuation FY Dec (RMB m) 2015A 2016A 2017F 2018F Turnover 138,441 159,044 198,274 214,191 EBITDA 15,473 17,660 20,882 22,668 Pre-tax Profit 16,051 18,915 22,698 24,967 Net Profit 12,707 14,684 17,969 19,765 Net Profit Gth (Pre-ex) (%) 15.1 23.7 33.2 10.0 EPS (RMB) 2.00 2.29 2.80 3.08 EPS Gth (%) 22.1 14.5 22.4 10.0 Diluted EPS (RMB) 1.71 2.10 2.80 3.08 DPS (RMB) 1.20 1.00 1.23 1.35 BV Per Share (RMB) 7.73 9.52 5.83 2.26 PE (X) 16.7 14.6 11.9 10.8 P/Cash Flow (X) 7.9 8.2 8.8 7.1 P/Free CF (X) 8.8 8.8 10.3 8.1 EV/EBITDA (X) 11.1 9.1 8.9 9.1 Net Div Yield (%) 3.6 3.0 3.7 4.1 P/Book Value (X) 4.3 3.5 5.7 14.7 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 28.7 26.6 36.4 76.0 Earnings Rev (%): 1 Nil Consensus EPS (RMB) 2.66 3.00 Other Broker Recs: B: 19 S: 0 H: 1 Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX 229 209 189 169 149 129 109 89 Multiple growth drivers Reiterate BUY. We continue to like Midea for multiple reasons: 1) Double-digit growth in white goods sales are expected in FY17, with raw material cost pressures being mitigated by better product mix and operating efficiencies. 2) Export sales are expected to contribute more than 50% of group sales, and is poised for margin enhancement as well as translation gain if RMB weakens further. 3) Solid medium-term potentials brought upon by Toshiba and KUKA. 4) Motivated management on progressive share incentive plans. Maintain BUY with revised TP of RMB 36.41. Coupled with FY17 dividend yield of 3.7%, total upside is c.13%. Decent FY16 results. FY16 results were broadly in-line, with doubledigit growth in both top-line and bottom-line. Net profit increased by 16% y-o-y to RMB 14.7bn, driven by gross margin expansion, higher interest income and forex gain. Revenue recorded 15% growth on the back of Toshiba unit consolidation and sequential sales improvement in 2H16. On full year basis, sales growth for air conditioner, refrigerator, washing machine and small household appliances were 4%, 31%, 34% and 22% respectively. Gross margin inched up by 1.5ppt to 27.3%, while EBIT margin stayed flattish at c. 9.2% due to consolidation of Toshiba unit and higher expenses booked for share incentive plan in 4Q16. Consolidation of Toshiba and KUKA. Recall that the Toshiba and KUKA deals were completed in Jun 2016 and Jan 2017, respectively. Although immediate earnings accretion is expected to be insignificant, the introduction of Toshiba brand in China could enhance Midea group s product-mix and margins in medium-term. Growth visibility for KUKA is also clearer now revenue is targeted to grow from current level of c.eur3.2bn to EUR4-4.5bn by 2020, while net margin remains on track to see significant lift from c.4% to 7% during the period. Valuation: Our new TP of RMB 36.41 benchmarks 12-month rolling PE of 12.7x (previously based on 12.7x FY17 PE), equivalent to 2 standard deviation above average, to reflect Midea s long-term growth prospects. Key Risks to Our View: Slowdown in domestic home appliances demand & export sales; further spike in raw material prices, and unsuccessful M&A integration. At A Glance Issued Capital (m shrs) 6,425 Mkt. Cap (RMBm/US$m) 213,950 / 31,106 Major Shareholders Midea Holding (%) 34.9 Free Float (%) 65.1 3m Avg. Daily Val. (US$m) 150.8 ICB Industry : Consumer Goods / Household Goods sa- AH
Result summary & comments F Y Dec FY15 FY16 % y-o-y Segmentals (RMB m) Segmental sales : Air conditioner 64,492 66,781 3.5% Refrigerator 11,423 14,956 30.9% Washing machine 12,018 16,119 34.1% Small household appliances 35,446 43,283 22.1% Motor 3,534 4,128 16.8% Logistics 1,653 1,908 15.4% Non-core operations 9,877 11,870 20.2% Revenue 138,441 159,044 14.9% Segmental results: Air conditioner 18,221 20,409 12.0% Refrigerator 2,648 3,449 30.2% Washing machine 3,377 4,607 36.4% Small household appliances 8,871 12,851 44.9% Motor 567 703 24.0% Logistics 198 63-68.1% Non-core operations 1,896 1,346-29.0% Segmental profit 35,778 43,429 21.4% Segmental margins: ppt chg Air conditioner 28.3% 30.6% 2.3% Refrigerator 23.2% 23.1% -0.1% Washing machine 28.1% 28.6% 0.5% Small household appliances 25.0% 29.7% 4.7% Motor 16.0% 17.0% 1.0% Logistics 12.0% 3.3% -8.7% Non-core operations 19.2% 11.3% -7.9% Segmental margin 25.8% 27.3% 1.5% Page 2
Result summary & comments Profit & Loss (RMB m) FY15 FY16 % y-o-y Comment s Revenue 138,441 159,044 15% attributable to consolidation of Toshiba HA unit since 3Q16 - ex-toshiba - 1% growth Cost of sales (102,663) (115,615) 13% Gross profit 35,778 43,429 21% attributable to GP margin expansion Other net operating income 3 5 55% Selling & distribution expenses (14,800) (17,678) 19% Administrative expenses (7,442) (9,621) 29% Other operating expenses (916) (1,458) 59% Operating profit 12,624 14,677 16% Due to better operating efficiencies Net interest income 200 1,356 579% Non-operating items (incl. associate profit) 3,227 2,882-11% Profit before tax 16,051 18,915 18% Income tax (2,427) (3,053) 26% Minority interests (918) (1,178) 28% Net profit 12,707 14,684 16% Less: extraordinary gain/(loss) 1,795 1,191-34% Core net profit 10,911 13,493 24% Profitability (%): ppt chg Gross profit margin 25.8 27.3 1.5 GPM improvement across segments, mainly led by small household appliances segment EBIT margin 9.1 9.2 0.1 Net profit margin 9.2 9.2 0.1 Lower NP margin expansion vs. GPM expansion Core net profit margin 7.9 8.5 0.6 Page 3
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Domestic white goods sales. The PRC domestic home appliance industry had staged recovery since 2H16 following the subsiding of inventory issues. Sustained rebound trajectory was seen in 4Q16 - seeing sales of air conditioner, washing machine and refrigerator segments in 4Q16 rebounded by 28% y-o-y (30% in 3Q16), 7% (5% in 3Q16), and 7% (4% in 3Q16), respectively. In the longer term, we are hopeful that the smart home theme will be the next long term catalyst for consumption-upgrade demand. We are of the view that a demand boom can be sparked once a mature range of smart home appliances are well developed and could practically power up a smart home. Supportive margins. Aside from the general consumption upgrade angle, Midea's overseas business (which makes up c.44% of group revenue in 2016) is poised to contribute better margins and bottom-line growth. This is a result from the group's effort to slowly move from OEM & ODM (which accounts for 70% of overseas revenue) to OBM through the fortification of its brand image. Potential rebound in raw material prices (which are a significant gross margin determinant) could also be largely offset by product price hikes. Foreign operational & currency exposure. It is known that Midea s overseas businesses contributed sizeable revenue of >RMB60bn to the company (c.44%of group sales), with six foreign production bases in Vietnam, Belarus, Egypt, Brazil, Argentina and India, and a total of c. 3,800 new overseas branches. Following the acquisition of Toshiba home appliance unit and KUKA AG, overseas revenue contribution could swell to c.50% upon full year contribution in FY17. Aside from an estimated >30% of FY17 group revenue to be denominated in USD, 70% of Toshiba s sales (or c.6% of FY17 group revenue) are domestic-driven (generating Yen), while c.50% of KUKA AG s revenue (or >6% of FY17 group revenue) are derived from Europe (Euro denominated). Foreign exposure, especially in terms of USD, could be bliss amidst weakening RMB, although it is important to watch out for a turn, if any, given the significant proportion of such exposure. 216,333 185,428 154,523 123,619 92,714 61,809 30,905 0 28.1 22.5 16.9 11.2 5.6 0.0 11.5 9.2 6.9 4.6 2.3 0.0 24,340 18,255 12,170 6,085 0 Sales (RMBm) 214191 198274 159044 141668 138441 Gross Margin (%) 27.3 27.5 27.6 25.4 25.8 EBITDA margin (%) 11.2 11.2 11.1 10.5 10.6 Operating Cash Flows (RMBm) 30,124 26,764 26,106 24,789 24,414 Cash (RMBm) 80000 70000 60000 50000 40000 30000 20000 10000 0 71,112 71,588 50,959 52,279 32,334 Page 4
Balance Sheet: As at FY16, Midea s own funds (the net amount of monetary assets such as monetary funds, notes receivable and bank wealth management products after long-term and short-term borrowings, bonds payable and other interest-bearing monetary liabilities) stood at c.rmb 61bn. The group s own fund is still standing strong after taking out c. EUR 4bn/RMB 29.3 bn bridging loan for acquisition of KUKA AG. Share Price Drivers: Turnaround of Toshiba home appliance unit. Midea completed the takeover exercise of Toshiba s home appliance unit on 30 Jun 16, with a final price tag of JPY 51.4bn (approximately USD 512m / RMB 3.4bn). As mentioned in our earlier report on the deal, an immediate dent in earnings is expected upon consolidation, given the target s loss-making position. However, we believe that Midea would be able to integrate the target unit well and extract synergies, given their more-than-20 years of partnership, and eventually turn the target unit around, by leveraging on its core efficiency competence. More background details in our earlier report Midea +Toshiba - A pact to deepen strategic partnership dated 31st March 2016. Leverage & Asset Turnover (x) 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure RMBm 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 Capital Expenditure (-) 70.0% 60.0% 50.0% ROE 1.4 1.4 1.3 1.3 1.2 1.2 1.1 1.1 1.0 Key Risks: Slower-than-expected recovery in home appliance demand; fluctuation of raw material prices, and higher-than-expected risks in overseas market Depending on some external factors such as property sales and weather conditions, a recovery of home appliances demand especially the air-conditioner segment could be delayed. Fluctuations in raw material prices such as steel and plastics could reverse margin expansion. Poor integration post M&A could also weigh on the company's own efficiency. 40.0% 30.0% 20.0% 10.0% 0.0% (x) 15.9 13.9 11.9 Forward PE Band +2sd: 12.9x +1sd: 11.3x Company Background: Midea Group ( Midea ) is one of the largest global white goods manufacturers and suppliers based in China. It mainly engages in manufacturing and distributing air conditioners, refrigerators, washing machines and small household appliances (kitchen appliances, water heaters etc). Midea is the parent company of Shenzhen listed Little Swan (000418.CH) (a renowned washing machine manufacturer) with 53.0% stake, as well as Hong Kong listed Welling Holding (382.HK) (an upstream manufacturer that supplies compressors and electric motors to Midea), with 69% stake. 9.9 7.9 5.9 Sep-13 Sep-14 Sep-15 Sep-16 PB Band (x) 4.1 3.6 3.1 2.6 2.1 1.6 Sep-13 Sep-14 Sep-15 Sep-16 Avg: 9.7x -1sd: 8.1x -2sd: 6.6x +2sd: 3.7x +1sd: 3.23x Avg: 2.76x -1sd: 2.29x -2sd: 1.82x Page 5
Key Assumptions FY Dec Sales (RMBm) 141,668.2 138,441.2 159,044.0 198,274.3 214,190.7 Gross Margin (%) 25.4 25.8 27.3 27.5 27.6 EBITDA margin (%) 11.2 11.2 11.1 10.5 10.6 Operating Cash Flows (RMBm) 24,789.5 26,764.3 26,105.6 24,414.2 30,123.6 Cash (RMBm) 32,334.1 50,959.2 71,111.5 71,588.0 52,279.2 Segmental Breakdown (RMB m) FY Dec Revenues (RMB m) Air conditioner 72,705 64,492 66,781 73,459 79,336 Refrigerator 9,724 11,423 14,956 16,451 17,704 Washing Machines 9,974 12,018 16,119 17,973 19,596 Small household appliances 32,710 35,446 43,283 48,693 53,563 Motor,Logistics,Noncore 16,556 15,063 17,905 18,403 18,834 KUKA AG 0 0 0 23,295 25,158 Total 141,668 138,441 159,044 198,274 214,191 Gross profit (RMB m) Air conditioner 19,594 18,221 20,409 22,478 24,277 Refrigerator 2,342 2,648 3,449 3,800 4,090 Washing Machines 2,844 3,377 4,607 5,140 5,487 Small household appliances 8,091 8,871 12,851 14,851 16,604 Motor,Logistics,Noncore 3,127 2,661 2,113 2,221 2,291 KUKA AG N/A N/A N/A 6,103 6,290 Total 35,998 35,778 43,429 57,279 61,942 Gross profit Margins (%) Air conditioner 27.0 28.3 30.6 30.6 30.6 Refrigerator 24.1 23.2 23.1 23.1 23.1 Washing Machines 28.5 28.1 28.6 28.6 28.0 Small household appliances 24.7 25.0 29.7 30.5 31.0 Motor,Logistics,Noncore 18.9 17.7 11.8 12.1 12.2 KUKA AG N/A N/A N/A 26.2 25.0 Total 25.4 25.8 27.3 28.9 28.9 Page 6
Income Statement (RMB m) FY Dec Revenue 141,668 138,441 159,044 198,274 214,191 Cost of Goods Sold (105,670) (102,663) (115,615) (143,680) (155,153) Gross Profit 35,998 35,778 43,429 54,595 59,038 Other Opng (Exp)/Inc (23,392) (23,158) (28,757) (36,880) (39,621) Operating Profit 12,607 12,621 14,671 17,714 19,417 Other Non Opg (Exp)/Inc 1,312 2,810 2,404 2,563 2,761 Associates & JV Inc 95 421 484 581 697 Net Interest (Exp)/Inc (23) 200 1,356 1,841 2,092 Dividend Income 0 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 13,991 16,051 18,915 22,698 24,967 Tax (2,344) (2,427) (3,053) (3,432) (3,775) Minority Interest (1,144) (918) (1,178) (1,298) (1,428) Preference Dividend 0 0 0 0 0 Net Profit 10,502 12,707 14,684 17,969 19,765 Net Profit before Except. 9,477 10,911 13,493 17,969 19,765 EBITDA 15,927 15,473 17,660 20,882 22,668 Growth Revenue Gth (%) 17.1 (2.3) 14.9 24.7 8.0 EBITDA Gth (%) 40.9 (2.9) 14.1 18.2 8.6 Opg Profit Gth (%) 52.7 0.1 16.2 20.7 9.6 Net Profit Gth (%) 97.5 21.0 15.6 22.4 10.0 Margins & Ratio Gross Margins (%) 25.4 25.8 27.3 27.5 27.6 Opg Profit Margin (%) 8.9 9.1 9.2 8.9 9.1 Net Profit Margin (%) 7.4 9.2 9.2 9.1 9.2 ROAE (%) 29.0 28.7 26.6 36.4 76.0 ROA (%) 9.7 10.2 9.9 9.9 11.3 ROCE (%) 24.1 22.0 20.6 21.5 26.7 Div Payout Ratio (%) 40.1 60.1 43.7 44.0 44.0 Net Interest Cover (x) 542.5 NM NM NM NM Interim Income Statement (RMB m) FY Dec 2H2014 1H2015 2H2015 1H2016 2H2016 Revenue 64,337 82,509 55,932 77,522 81,522 Cost of Goods Sold (48,326) (59,879) (42,784) (54,866) (60,749) Gross Profit 16,011 22,630 13,148 22,656 20,772 Other Oper. (Exp)/Inc (11,611) (13,434) (9,720) (12,591) (16,167) Operating Profit 4,399 9,196 3,428 10,066 4,606 Other Non Opg (Exp)/Inc 1,270 1,470 1,337 788 1,616 Associates & JV Inc 60 43 378 201 283 Net Interest (Exp)/Inc (487) 48 151 1,124 232 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 5,242 10,757 5,294 12,178 6,737 Tax (813) (1,808) (619) (1,947) (1,106) Minority Interest (537) (624) (294) (734) (443) Net Profit 3,893 8,324 4,382 9,496 5,188 Net profit bef Except. 3,893 8,324 4,382 9,496 3,996 Growth Revenue Gth (%) N/A 6.7 (13.1) (6.0) 45.8 Opg Profit Gth (%) N/A 11.9 (22.1) 9.5 34.4 Net Profit Gth (%) N/A 25.9 12.6 14.1 18.4 Margins Gross Margins (%) 24.9 27.4 23.5 29.2 25.5 Opg Profit Margins (%) 6.8 11.1 6.1 13.0 5.6 Net Profit Margins (%) 6.1 10.1 7.8 12.3 6.4 Page 7
Balance Sheet (RMB m) FY Dec Net Fixed Assets 20,184 19,835 22,132 23,512 24,755 Invts in Associates & JVs 952 2,888 2,212 2,654 3,185 Other LT Assets 12,729 12,751 22,777 22,415 22,141 Cash & ST Invts 32,334 50,959 71,112 71,588 52,279 Inventory 15,020 10,449 15,627 15,771 18,141 Debtors 26,459 24,362 22,022 46,324 23,988 Other Current Assets 12,614 7,597 11,861 11,814 11,767 Total Assets 120,292 128,842 167,742 194,078 156,255 ST Debt 6,683 3,921 3,024 5,000 5,000 Creditors 50,207 35,676 45,435 76,595 60,280 Other Current Liab 16,253 32,407 40,725 34,076 34,078 LT Debt 19 90 7,073 29,280 29,280 Other LT Liabilities 1,399 716 2,508 2,508 2,508 Shareholder s Equity 39,470 49,202 61,127 37,472 14,533 Minority Interests 6,261 6,830 7,850 9,148 10,576 Total Cap. & Liab. 120,292 128,842 167,742 194,078 156,255 Non-Cash Wkg. Capital (12,367) (25,674) (36,650) (36,762) (40,463) Net Cash/(Debt) 25,632 46,948 61,014 37,308 17,999 Debtors Turn (avg days) 62.5 67.0 53.2 62.9 59.9 Creditors Turn (avg days) 154.0 157.0 131.4 158.5 164.4 Inventory Turn (avg days) 53.9 46.6 42.3 40.8 40.7 Asset Turnover (x) 1.3 1.1 1.1 1.1 1.2 Current Ratio (x) 1.2 1.3 1.4 1.3 1.1 Quick Ratio (x) 0.8 1.0 1.0 1.0 0.8 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) 21.0 64.4 18.4 10.5 10.5 Z-Score (X) NA NA NA NA NA Cash Flow Statement (RMB m) FY Dec Pre-Tax Profit 13,991 16,051 18,915 22,698 24,967 Dep. & Amort. 3,320 2,852 2,989 3,168 3,251 Tax Paid (2,344) (2,427) (3,053) (3,432) (3,775) Assoc. & JV Inc/(loss) (95) (421) (484) (581) (697) (Pft)/ Loss on disposal of FAs 7 0 0 0 0 Chg in Wkg.Cap. 12,458 10,578 10,773 11,071 8,510 Other Operating CF (2,547) 130 (3,034) (8,511) (2,133) Net Operating CF 24,789 26,764 26,106 24,414 30,124 Capital Exp.(net) (1,405) (2,583) (1,859) (3,600) (3,601) Other Invts.(net) (7,296) 26,313 47,725 17,459 27,935 Invts in Assoc. & JV (20,162) (41,720) (65,647) (53,683) (59,665) Div from Assoc & JV 0 0 0 0 0 Other Investing CF 0 0 0 0 0 Net Investing CF (28,862) (17,989) (19,781) (39,824) (35,330) Div Paid (4,053) (4,908) (6,046) (7,906) (8,696) Chg in Gross Debt (2,365) (4,837) 7,481 24,280 (5,000) Capital Issues 8 (1,000) 0 0 0 Other Financing CF (1,000) 1,868 (1,275) (498) (413) Net Financing CF (7,410) (8,877) 160 15,876 (14,109) Currency Adjustments (8) 17 5 11 8 Chg in Cash (11,491) (85) 6,489 476 (19,309) Opg CFPS (RMB) 1.92 2.54 2.39 2.08 3.36 Free CFPS (RMB) 3.64 3.80 3.77 3.24 4.13 Page 8
Target Price & Ratings History RMB 40.0 35.0 1 2 3 4 5 6 7 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Mar-16 Jun-16 Aug-16 Oct-16 Jan-17 Mar-17 S.No. Date Closing 12-mth Rating Price Target Price 1: 29-Mar-16 RMB29.99 RMB35.97 Buy 2: 31-Mar-16 RMB30.53 RMB35.97 Buy 3: 5-Sep-16 RMB27.12 RMB32.10 Buy 4: 1-Nov-16 RMB27.15 RMB33.03 Buy 5: 21-Nov-16 RMB27.13 RMB33.03 Buy 6: 23-J an-17 RMB29.22 RMB35.35 Buy 7: 21-Feb-17 HK$32.25 HK$35.35 Buy Source: DBS Vickers Analyst: Eric YEE, CFA Page 9
DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 3 Apr 2017 08:13:29 (HKT) Dissemination Date: 3 Apr 2017 10:15:27 (HKT) GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited ( DBSVHK ). This report is solely intended for the clients of DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd. ( DBSVS ) and DBSVHK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBSVS and DBSVHK, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the DBS Group )) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. 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Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in marketmaking. Page 10
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended/mentioned in this report as of 30 Mar 2017. 2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. 4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant. Page 11
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Distribution of this report is intended only for wholesale investors within the meaning of the CA. This report is being distributed in Hong Kong by DBSVHK which is licensed and regulated by the Hong Kong Securities and Futures Commission. This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Singapore Thailand United Kingdom Dubai United States Other jurisdictions Wong Ming Tek, Executive Director, ADBSR This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. 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Persons who do not have professional experience in matters relating to investments should not rely on this communication. This research report is being distributed in The Dubai International Financial Centre ( DIFC ) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3 rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it. This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers (Hong Kong) Limited 18 th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) 2820-4888, Fax: (852) 2868-1523 Company Regn. No. 31758 Page 12