Asia Date Asia Equities Daily Focus: Asian Editionpg.jrj.com.cn/acc/Res/CN_RES/INVEST/2014/2/13/7d3b1bfc-04e1-44… · Deutsche Bank Markets Research Asia Pan-Asia Strategy Periodical

Deutsche Bank Markets Research

Asia

Pan-Asia

Strategy

Periodical

Asia Equities Daily Focus: Asian Edition

Date

13 February 2014

Today's research headlines Asian Edition

________________________________________________________________________________________________________________

Deutsche Bank AG/Hong Kong

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013.

William Bratton

Research Analyst

(+852) 2203 6186

[email protected]

INDEX EQUITIES Close 1D Chg %Chg

SHSZ300 2291.25 5.68 0.25

HSCEI 9996.76 139.91 1.42

HSI 22285.79 322.81 1.47

TWSE 8510.87 80.31 0.95

KOSPI 1935.84 3.78 0.20

FSSTI 3035.45 6.35 0.21

KLCI 1825.64 1.47 0.08

SENSEX 20448.49 85.12 0.42

NIFTY 6084.00 21.30 0.35

SET 1314.06 17.81 1.37

JCI 4496.29 26.10 0.58

PCOMP 6112.31 6.28 0.10

ASX200 5310.05 55.56 1.06

FOREX (vs US$) Close 1D Chg YTD

Rmb 6.06 0.00 -0.14

HK$ 7.76 0.00 -0.03

NT$ 30.32 -0.05 -1.68

Won 1062.65 -8.24 -1.21

S$ 1.27 0.00 -0.24

M$ 3.32 -0.01 -1.41

Rupee 62.11 -0.11 -0.49

Baht 32.52 -0.22 0.57

Rupiah 12088.00 -60.00 0.69

Peso 44.83 -0.24 -0.97

A$ 0.90 0.00 1.28

LATEST COMMODITY PRICES Commodities Close 1D Chg YTD

West Texas 100.30 0.36 1.91

Brent 108.29 -0.25 -2.28

CRB 291.74 1.54 4.13

Copper 325.60 4.10 -4.14

Gold (Spot) 1291.68 0.22 7.14

Alum. (LME) 1707.00 6.00 -5.18

Baltic Dry 1091.00 -5.00 -52.09

Source: Bloomberg Finance LP

TOP STORIES Travellers (RWM.PS), PHP9.80, Hold, Price Target PHP10.70

Growth from RWM's new phases priced-in; initiating with Hold

Michael Bengson

Page 6

Genting Hong Kong (GENH.SI), USD0.41, Buy, Price Target USD0.53

A deep value play; lowering RWM forecast

Aun-Ling Chia Page 7

LG H&H (051900.KS), KRW460000.00, Buy, Price Target KRW590000.00

Near-term concerns seem over-priced; maintaining Buy

Jihyun Song Page 8

Central Pattana (CPN.BK), THB39.25, Buy, Price Target THB47.00

Largely shielded from current turmoil; maintain Buy

Sopicha Wattanasansanee

Page 9

ESTIMATES AND TARGET PRICE CHANGES

AutoNavi (AMAP.OQ), USD20.50, Hold, Price Target USD21.00

Alibaba privatization proposal and implications

Vivian Hao Page 10

China Mobile (0941.HK), HKD73.95, Hold, Price Target HKD75.75

2013 preview Alan Hellawell Page 11

China Unicom (0762.HK), HKD10.54, Buy, Price Target HKD15.10

2013 results preview Alan Hellawell Page 12

Chailease Holding (5871.TW), TWD74.00, Hold, Price Target TWD73.50

Concerns remain; positive catalysts still hard to find

Pandora Lee Page 13

Petronas Chemicals Group (PCGB.KL), MYR6.70, Hold, Price Target MYR6.90

Soft full year 2013 - Lowering 2014 estimates

David Hurd Page 14

Bank Mandiri (BMRI.JK), IDR8975.00, Buy, Price Target IDR11000.00

Quality and pricing over volume Raymond Kosasih

Page 15

Sino-Thai Engineering (STEC.BK), THB14.60, Buy, Price Target THB23.00

Oversold - healthy backlog and potential new projects

Sansanee Srijamjuree

Page 16

Coal India Limited (COAL.BO), INR269.90, Buy, Price Target INR295.00

Poor demand or another quarter of grade slippage?

Manish Saxena Page 17

SMC (6273.T), JPY25220.00, Buy, Price Target JPY30700.00

3Q results confirm strong progress toward targets

Takeshi Kitaura Page 18

STRATEGY/ECONOMICS Data Flash China: exports surge; underlying growth

may have reached 20% Jun Ma Page 19

Data Flash Malaysia: GDP growth and current account sustain recovery in 4Q

Diana Del-Rosario

Page 20

Data Flash India: CPI trend mixed; IP growth remains weak

Taimur Baig Page 21

https://ger.db.com/csa/pubdoc/e1gf20jnfa8o73i



https://ger.db.com/csa/pubdoc/5b1gstrz1l0zrw5



https://ger.db.com/csa/pubdoc/hsfiom5vhsd5ex5



https://ger.db.com/csa/pubdoc/efgrez3yu3bw3zp



https://ger.db.com/csa/pubdoc/c3vl2xp939lyfst



https://ger.db.com/csa/pubdoc/8dhbnsjmsrug2l2



https://ger.db.com/csa/pubdoc/g6xrzvdcb9tapbl



https://ger.db.com/csa/pubdoc/f374s4znd73vhfo



https://ger.db.com/csa/pubdoc/a4xar1lzv1dqjhb



https://ger.db.com/csa/pubdoc/hsq4sjixkwai4ba



https://ger.db.com/csa/pubdoc/fq6jgikm635tqi7



https://ger.db.com/csa/pubdoc/8wuembf1ut8qd4c



https://ger.db.com/csa/pubdoc/4ndznena8t68930



https://ger.db.com/csa/pubdoc/5q4csz9o77q53l0

https://ger.db.com/csa/pubdoc/aozhduwqdgjf6po

https://ger.db.com/csa/pubdoc/n1sfa7rljppcgvo

13 February 2014


Page 2 Deutsche Bank AG/Hong Kong

STRATEGY/ECONOMICS Data Flash Japan: December machinery orders Kentaro

Koyama Page 22

Japan FI Morning Memo Ongoing fund surplus weighs on yields Makoto Yamashita

Page 23

US Daily Economic Notes Threshold check: Unemployment (almost), Inflation (not this year)

Joseph LaVorgna

Page 24

ADDITIONAL RESEARCH China TMT Daily Danone to increase stake in

Mengniu Allan Hellawell III Page 25

China Mengniu Dairy (2319.HK), HKD37.95, Hold, Price Target HKD30.00

Key takeaways from conference call Winnie Mak Page 26

China Mengniu Dairy (2319.HK), HKD37.95, Hold, Price Target HKD30.00

Still a fast-growth sector Winnie Mak Page 27

China Property App Annie 2013 Retrospective; also, 0700.HK, 0762.HK

Tony Tsang Page 28

Esprit Holdings Ltd (0330.HK), HKD14.46, Hold, Price Target HKD12.15

Transformation plan continues Anne Ling Page 29

MIE Holdings Corp (1555.HK), HKD1.46, Hold, Price Target HKD1.77

Kazakhstan - benign David Hurd Page 30

Pacific Basin Shipping Ltd (2343.HK), HKD5.17, Buy, Price Target HKD6.00

BDI seasonally recovers from Mar onwards; Buy

Joe Liew Page 31

SA SA International (0178.HK), HKD7.19, Hold, Price Target HKD8.50

2014 CNY retail sales performance; in line

Anne Ling Page 32

Sohu.com Inc (SOHU.OQ), USD68.61, Hold, Price Target USD78.00

Games facing tough rebuild; Sogou monetization looks imminent

Vivian Hao Page 33

Tencent (0700.HK), HKD538.00, Buy, Price Target HKD570.00

Wechat's increasing attractions to offline partners

Alan Hellawell Page 34

Novatek Microelectronics (3034.TW), TWD130.50, Hold, Price Target TWD132.00

Healthy outlook for 2014; maintaining Hold based on valuation

Jessica Chang Page 35

Hyundai Hysco (010520.KS), KRW47250.00, Buy, Price Target KRW57000.00

2013 review of new entity; solid earnings and margin

Chanwook Park Page 36

NCSOFT (036570.KS), KRW209000.00, Hold, Price Target KRW278000.00

First impression - in-line 4Q could suggest no upside to B&S China

Hanjoon Kim Page 37

Kalbe Farma (KLBF.JK), IDR1410.00, Buy, Price Target IDR1520.00

Unaudited FY13 results were in-line with DBe with net profit +11% yoy

Reggy Susanto Page 38

AIS (ADVA.BK), THB209.00, Buy, Price Target THB280.00

Gearing up for data growth Thapana Phanich Page 39

BIGC (BIGC.BK), THB187.00, Sell, Price Target THB153.00

4Q13 earnings beat expectation Chalinee Congmuang

Page 40

Siam City Cement (SCCC.BK), THB359.00, Hold, Price Target THB404.00

Lower gross margin and maintenance cost hurt 4Q13


Page 41

Thailand Strategy Malaise spreads to property Derek Bloomfield Page 42

Universal Robina Corp. (URC.PS), PHP122.80, Hold, Price Target PHP127.00

1QFY14 EBIT +42% YoY; ahead on strong domestic BCF

Carissa Mangubat Page 43

Ambuja Cements Ltd (ABUJ.BO), INR158.50, Hold, Price Target INR158.00

Mining kept in abeyance at Ambuja's Himachal units

Chockalingam Narayanan

Page 44

Apollo Tyres Ltd (APLO.BO), INR118.40, Buy, Price Target INR136.00

3QFY14: Strong performance continues; maintain Buy

Amyn Pirani Page 45

BPCL (BPCL.BO), INR364.80, Buy, Price Target INR425.00

Lower government contribution and refining margins drag down earnings

Harshad Katkar Page 46

DB EVENTS DB COMPANY ROADSHOWS Asia Plastic Recycling Holding Limited: Company Update - HK 2/17-18 & SG 2/19-20 PT AKR Corporindo Tbk: Company Update - KL 2/17, SG 2/18-19 & HK 2/20 CITIC Telecom International Holdings Ltd: Post Results Update - HK 2/19 Bank of East Asia: Post Results Update - HK 2/20 Namyong Terminal Public Company Limited:- Company Update - HK 2/20-21 Kaisa Group Holdings Ltd:- Company Update - SG 2/25 Solvay SA: Company Update - SG 3/3, HK 3/4, BEI 3/5 & SHA 3/6 Statoil: Company Update - BEI 3/4, HK 3/6 & SG 3/7 Halla Visteon Climate Control: Company Update - HK 3/18-19 & SG 3/20-21 CIMC Enric Holdings Ltd: Post Results Update - HK 3/24-25 Fufeng Group: Post Results Update - SG 3/24

INDUSTRY SPECIALIST ROADSHOWS N/A

DB SALES/ICG ROADSHOWS N/A

DB ANALYST ROADSHOWS Khoi Le Binh, Vincent Zoonekynd & Ada Lau: Asia Quant Strategy - HK 2/13 - 14 Klyne Resullar and Iza Fernandez: Power and Infra: Positioning for the Upcycle - HK 2/12-13 Gregory Lui & Chien-Fie Man: Singapore Property 2014 Outlook - HK 2/12-13 Bob Kommers: Banking & Finance Sector Update - SG 2/20-21 Sanjeev-R Rana: Korea Autos & Shipbuilding Sector Update - 4Q13 Results and 2014 Outlook - SG 2/24-25 & HK 2/26-27 Joe Liew: Regional Transport and Singapore Strategy - KUL 2/25

Source: Deutsche Bank, Bloomberg Finance LP, BSE

https://ger.db.com/csa/pubdoc/n79nsfct6eo8bj7

https://ger.db.com/csa/pubdoc/e7wsgq6jd1ofizj

https://ger.db.com/csa/pubdoc/7wdyxyss71p1sv5

https://ger.db.com/csa/pubdoc/i2uemxudfckeyow

https://ger.db.com/csa/pubdoc/3bkrqmyekwr96hx



https://ger.db.com/csa/pubdoc/djrunwrvbb0720r



https://ger.db.com/csa/pubdoc/bewl4pi9bza9tzm

https://ger.db.com/csa/pubdoc/kgu8s04p2ual72z



https://ger.db.com/csa/pubdoc/46kze9fkjih2tmb



https://ger.db.com/csa/pubdoc/126ajvsfj7wyngg



https://ger.db.com/csa/pubdoc/gzk9d9kgm4eg1y6



https://ger.db.com/csa/pubdoc/49a1mox20w3kkyq



https://ger.db.com/csa/pubdoc/bz1y7petgzvs4um

https://ger.db.com/csa/pubdoc/bz1y7petgzvs4um

https://ger.db.com/csa/pubdoc/eqfz9xyjgpqhhyf



https://ger.db.com/csa/pubdoc/iy8wjbg41n9jquz



https://ger.db.com/csa/pubdoc/65tvufl9r5bl7ke



https://ger.db.com/csa/pubdoc/8k6v2i440ybw4xc



https://ger.db.com/csa/pubdoc/obxnuf0azfaaqlq

https://ger.db.com/csa/pubdoc/obxnuf0azfaaqlq

https://ger.db.com/csa/pubdoc/5wlgtqfcshxzg4x

https://ger.db.com/csa/pubdoc/5wlgtqfcshxzg4x

https://ger.db.com/csa/pubdoc/1yuuv2lpbg31aet



https://ger.db.com/csa/pubdoc/6ltrsnx6ipu9rv0

https://ger.db.com/csa/pubdoc/9jy5ahthf9a11fk



https://ger.db.com/csa/pubdoc/ladzi6eyt3ajo6y



https://ger.db.com/csa/pubdoc/eso3c2u5pvan87y



https://ger.db.com/csa/pubdoc/um57gyuompd51n

https://ger.db.com/csa/pubdoc/um57gyuompd51n

13 February 2014


Deutsche Bank AG/Hong Kong Page 3

ADDITIONAL RESEARCH HPCL (HPCL.BO), INR245.45, Buy, Price Target INR275.00

Reduction in fuel subsidy to drive valuations

Harshad Katkar Page 47

Indian Telecom Sector Reducing target prices and reaffirming our muted outlook

Srinivas Rao Page 48

Bank sector SMEs' demand for funds recovering: a base for sustainable growth

Yoshinobu Yamada

Page 49

Bank sector Provisions to overpaid interests : impacts on FY3/14 NP

Yoshinobu Yamada

Page 50

Chiyoda (6366.T), JPY1501.00, Buy, Price Target JPY1838.00

Orders are matter of timing; keep on buying

Sanghi Han Page 51

Construction Sector 3Q results: we see optimal investment timing as after consumption tax hike

Yoji Otani Page 52

Dai-ichi Life Insurance (8750.T), JPY1533.00, Buy, Price Target JPY1940.00

New strategy to expand a new sales channel

Masao Muraki Page 53

JGC (1963.T), JPY3718.00, Buy, Price Target JPY4732.00

Recent drop is a buying opportunity Sanghi Han Page 54

Mitsui Fudosan (8801.T), JPY3295.00, Hold, Price Target JPY3900.00

3Q earnings: favorable results, but concerns creeping up

Yoji Otani Page 55

Pioneer (6773.T), JPY232.00, Hold, Price Target JPY215.00

3Q reasonable; focus on business portfolio review going into FY3/15

Yasuo Nakane Page 56

Press Kogyo (7246.T), JPY429.00, Hold, Price Target JPY500.00

3Q results: Domestic operations key to achieving guidance

Takeshi Kitaura Page 57

T&D Holdings (8795.T), JPY1252.00, Hold, Price Target JPY1450.00

1-3Q NP 93% of FY3/14 guidance; plans special provisions in 4Q

Masao Muraki Page 58

Tokyo Tatemono (8804.T), JPY948.00, Hold, Price Target JPY935.00

Otemachi Tower sale is negative Yoji Otani Page 59

Yamaha Motor (7272.T), JPY1409.00, Buy, Price Target JPY1800.00

Upgrading to BUY from HOLD Kurt Sanger Page 60

The notes and reports contained in this Daily are all excerpts of previously published documents. Please refer to the published notes on our web site for details on risks, valuations and earnings changes.

https://ger.db.com/csa/pubdoc/31qfox2gtzbk9k6

https://ger.db.com/csa/pubdoc/31qfox2gtzbk9k6

https://ger.db.com/csa/pubdoc/fb6bbxndg559vgb

https://ger.db.com/csa/pubdoc/ccdatxwmx6f03rs

https://ger.db.com/csa/pubdoc/2y3pm62ihitcm9z

https://ger.db.com/csa/pubdoc/9wyvbi8qqdmvmsp

https://ger.db.com/csa/pubdoc/9wyvbi8qqdmvmsp

https://ger.db.com/csa/pubdoc/4g9cf6auaxlwz6i

https://ger.db.com/csa/pubdoc/7e04xmc655g9gj7



https://ger.db.com/csa/pubdoc/gpidxk7k4tyf76m

https://ger.db.com/csa/pubdoc/gpidxk7k4tyf76m

https://ger.db.com/csa/pubdoc/5gtd1kaenti14tf



https://ger.db.com/csa/pubdoc/22e1e2099m7wzbe

https://ger.db.com/csa/pubdoc/22e1e2099m7wzbe

https://ger.db.com/csa/pubdoc/jk8zjiw9mte8nyk



https://ger.db.com/csa/pubdoc/cyr345d6xg3kmeo



https://ger.db.com/csa/pubdoc/o04792fl6mba0ot



https://ger.db.com/csa/pubdoc/iezi0ks8b8usc5e



13 February 2014



DAILY REVISIONS Rating Changes

Company Ticker Date New Previous

Maxis MXSC.KL 11-Feb ▼ Hold Buy

OCBC OCBC.SI 11-Feb ▲ Buy Hold

Travellers RWM.PS 12-Feb Hold NR

Target Price Changes

Company Ticker Date New Previous Chg (%)

AutoNavi [Hold] AMAP.OQ 11-Feb ▲ 21.00 11.90 76.5

Bank Mandiri [Buy] BMRI.JK 12-Feb ▲ 11,000.00 10,100.00 8.9

Bharti Airtel Limited [Hold] BRTI.BO 11-Feb ▼ 325.00 340.00 -4.4

Central Pattana [Buy] CPN.BK 12-Feb ▼ 47.00 58.00 -19.0

Chailease Holding [Hold] 5871.TW 12-Feb ▲ 73.50 72.00 2.1

China Mobile [Hold] 0941.HK 11-Feb ▼ 75.75 79.50 -4.7

China Unicom [Buy] 0762.HK 11-Feb ▼ 15.10 17.00 -11.2

Coal India Limited [Buy] COAL.BO 12-Feb ▼ 295.00 325.00 -9.2

Daelim Industrial [Sell] 000210.KS 11-Feb ▼ 70,100.00 80,100.00 -12.5

Daewoo E&C [Hold] 047040.KS 11-Feb ▼ 6,760.00 7,300.00 -7.4

DiGi.Com [Hold] DSOM.KL 11-Feb ▲ 4.70 4.35 8.0

GS E&C [Sell] 006360.KS 11-Feb ▼ 24,400.00 25,900.00 -5.8

Genting Hong Kong [Buy] GENH.SI 12-Feb ▼ 0.53 0.55 -2.8

Idea Cellular [Sell] IDEA.BO 11-Feb ▼ 110.00 135.00 -18.5

LG H&H [Buy] 051900.KS 12-Feb ▼ 590,000.00 650,000.00 -9.2

Maxis [Hold] MXSC.KL 11-Feb ▼ 7.08 7.63 -7.2

Novatek Microelectronics [Hold] 3034.TW 12-Feb ▲ 132.00 115.00 14.8

OCBC [Buy] OCBC.SI 11-Feb ▼ 11.00 11.50 -4.3

Petronas Chemicals Group [Hold] PCGB.KL 11-Feb ▼ 6.90 6.95 -0.7

SATS [Buy] SATS.SI 11-Feb ▼ 3.43 3.54 -3.1

Sino-Thai Engineering [Buy] STEC.BK 12-Feb ▼ 23.00 32.00 -28.1

Sohu.com Inc [Hold] SOHU.OQ 11-Feb ▲ 78.00 74.00 5.4

Travellers [Hold] RWM.PS 12-Feb 10.70

United Overseas Bank [Hold] UOBH.SI 11-Feb ▼ 22.00 23.00 -4.3

EPS Revisions

Company Ticker Date FY New Previous Chg (%)

AutoNavi [Hold] AMAP.OQ 11-Feb Dec 13 ▼ 0.14 0.57 -75.4

Dec 14 -0.25 0.52 nm

Dec 15 ▼ 0.34 0.68 -49.7

Bank Mandiri [Buy] BMRI.JK 12-Feb Dec 13 ▲ 841.11 779.91 7.8

Dec 14 ▲ 896.28 841.10 6.6

Dec 15 ▲ 967.63 928.09 4.3

Dec 16 1,070.75

Bharti Airtel Limited [Hold] BRTI.BO 11-Feb Mar 16 ▼ 17.38 17.67 -1.6

Central Pattana [Buy] CPN.BK 12-Feb Dec 13 ▼ 1.40 1.50 -6.7

Dec 14 ▼ 1.65 1.76 -6.3

Dec 15 ▼ 2.06 2.21 -6.5

Chailease Holding [Hold] 5871.TW 12-Feb Dec 13 ▲ 5.82 4.74 22.8

Dec 14 ▲ 6.29 5.54 13.5

Dec 15 ▲ 6.99 6.31 10.7

China Mobile [Hold] 0941.HK 11-Feb Dec 13 ▼ 6.41 6.97 -8.1

Dec 14 ▼ 5.84 5.87 -0.5

Dec 15 ▼ 5.80 6.30 -8.0

China Unicom [Buy] 0762.HK 11-Feb Dec 14 ▼ 0.71 0.81 -12.3

Dec 15 ▼ 0.80 1.10 -27.1

Coal India Limited [Buy] COAL.BO 12-Feb Mar 14 ▼ 25.05 25.99 -3.6

Mar 15 ▼ 25.45 28.22 -9.8

Mar 16 ▼ 28.81 32.82 -12.2

DBS Group Holdings Ltd [Buy] DBSM.SI 11-Feb Dec 13 ▲ 1.54 1.48 3.9

Dec 14 ▲ 1.64 1.60 2.1

Dec 15 ▼ 1.77 1.81 -2.2

Daelim Industrial [Sell] 000210.KS 11-Feb Dec 13 -712.84 9,523.37 nm

Dec 14 ▼ 8,352.25 9,750.05 -14.3

13 February 2014



DAILY REVISIONS EPS Revisions

Company Ticker Date FY New Previous Chg (%)

Daewoo E&C [Hold] 047040.KS 11-Feb Dec 13 -1,595.12 111.93 nm

Dec 14 ▼ 559.66 631.74 -11.4

Dec 15 ▼ 567.66 666.71 -14.9

Dec 16 632.39

DiGi.Com [Hold] DSOM.KL 11-Feb Dec 14 ▲ 0.23 0.22 4.5

Dec 15 ▲ 0.26 0.24 5.5

Dec 16 ▲ 0.27 0.26 6.6

GS E&C [Sell] 006360.KS 11-Feb Dec 13 ▼ -17,262.38 -14,200.38 -21.6

Dec 14 ▼ 1,731.85 2,011.01 -13.9

Dec 15 ▼ 2,676.48 2,829.20 -5.4

Dec 16 4,304.00

Genting Hong Kong [Buy] GENH.SI 12-Feb Dec 13 ▼ 0.01 0.01 -37.0

Dec 14 ▼ 0.03 0.03 -9.8

Dec 15 ▼ 0.04 0.04 -10.5

Hyundai E&C [Buy] 000720.KS 11-Feb Dec 13 ▼ 4,762.71 5,084.51 -6.3

Dec 14 ▼ 5,663.02 5,796.70 -2.3

Dec 15 ▲ 6,905.24 6,798.67 1.6

Dec 16 7,914.55

Idea Cellular [Sell] IDEA.BO 11-Feb Mar 14 ▼ 5.76 5.91 -2.6

Mar 15 ▼ 7.53 7.64 -1.4

Mar 16 ▼ 7.49 8.72 -14.2

LG H&H [Buy] 051900.KS 12-Feb Dec 13 ▲ 24,359.55 24,343.18 0.1

Dec 14 ▼ 26,432.12 27,196.35 -2.8

Dec 15 ▼ 31,278.80 31,963.95 -2.1

Maxis [Hold] MXSC.KL 11-Feb Dec 13 ▼ 0.28 0.29 -3.8

Dec 14 ▼ 0.27 0.29 -9.0

Dec 15 ▼ 0.31 0.34 -10.0

Dec 16 0.36

Novatek Microelectronics [Hold] 3034.TW 12-Feb Dec 13 ▲ 7.80 7.61 2.4

Dec 14 ▲ 9.12 8.22 10.9

Dec 15 ▲ 9.86 8.71 13.2

Petronas Chemicals Group [Hold] PCGB.KL 11-Feb Dec 13 ▼ 0.39 0.45 -12.6

Dec 14 ▼ 0.45 0.48 -7.8

Dec 15 ▲ 0.50 0.49 1.6

SATS [Buy] SATS.SI 11-Feb Mar 14 ▼ 0.18 0.19 -5.1

Mar 15 ▼ 0.20 0.21 -3.6

Mar 16 ▼ 0.22 0.23 -0.5

Samsung C&T [Buy] 000830.KS 11-Feb Dec 13 ▼ 1,601.87 2,450.90 -34.6

Dec 14 ▼ 3,055.97 3,096.03 -1.3

Dec 15 ▼ 3,364.78 3,572.63 -5.8

Dec 16 4,068.21

Samsung Eng. [Hold] 028050.KS 11-Feb Dec 13 ▲ -19,130.89 -20,442.47 6.4

Dec 14 ▼ 4,938.02 5,606.07 -11.9

Dec 15 ▼ 6,107.18 6,232.16 -2.0

Dec 16 7,583.40

Sino-Thai Engineering [Buy] STEC.BK 12-Feb Dec 12 ▼ 0.98 0.98 0.0

Dec 13 ▼ 0.97 0.97 -0.2

Dec 14 ▼ 1.05 1.13 -7.7

Dec 15 ▼ 1.15 1.27 -9.9

Sohu.com Inc [Hold] SOHU.OQ 11-Feb Dec 13 ▲ 1.84 1.45 26.5

Dec 14 -1.41 1.61 nm

Dec 15 -0.41 2.31 nm

Dec 16 0.78

Travellers [Hold] RWM.PS 12-Feb Dec 12 0.48

Dec 13 0.32

Dec 14 0.38

Dec 15 0.41

United Overseas Bank [Hold] UOBH.SI 11-Feb Dec 13 ▼ 1.76 1.80 -2.0

Dec 14 ▼ 1.97 2.00 -1.1

Dec 15 ▼ 2.27 2.35 -3.6 Source: Deutsche Bank

Rating

Hold Asia Philippines

Consumer Hotels / Leisure / Gaming

Company

Travellers

Date 13 February 2014

Initiation of Coverage

Growth from RWM's new phases priced-in; initiating with Hold

Reuters Bloomberg Exchange Ticker RWM.PS RWM PM PHS RWM

Forecasts And Ratios

Year End Dec 31 2011A 2012A 2013E 2014E 2015E

EBITDA (PHPm) 8,586.5 9,164.1 8,074.2 9,245.6 10,037.4

Reported NPAT (PHPm) 4,838.5 6,734.2 -550.7 6,028.7 6,468.1

Reported EPS FD(PHP) 0.34 0.48 -0.04 0.38 0.41

DB EPS FD(PHP) 0.34 0.48 0.32 0.38 0.41

DB EPS growth (%) 50.2 39.2 -32.4 19.0 7.3

PER (x) – – 30.5 25.6 23.9

EV/EBITDA (x) – – 18.4 16.1 14.5

Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close

Undertaking RWM's Phase 2 and 3 expansions; initiating coverage with Hold

________________________________________________________________________________________________________________


This research has been prepared in association with Deutsche Regis Partners, Inc. The opinions contained in this report are those of Deutsche Regis Partners, Inc.


Price at 11 Feb 2014 (PHP) 9.81

Price target - 12mth (PHP) 10.70

52-week range (PHP) 11.34 - 9.40

MANILA S.E.COMPOSITE 6,106

Michael Bengson

Deutsche Regis Partners, Inc. Research Analyst (+63) 2 894 6636 [email protected]

Karen Tang

Research Analyst (+852) 2203 6141 [email protected]

Price/price relative

9.2

9.6

10.0

10.4

10.8

11.2

11.6

11/13

Travellers

MANILA S.E.COMPOSITE (Rebased)

Performance (%) 1m 3m 12m

Absolute -3.9 -13.0 –

MANILA S.E.COMPOSITE

4.5 -3.4 -5.5

Source: Deutsche Bank

Travellers, one of four companies in the Philippines issued a license to develop and operate an integrated resort in the Entertainment City, was the first to open its casino, Resorts World Manila, in 2009. RWM's Phase 2 and 3 expansions will add significantly to gaming and non-gaming facilities. While we expect EBITDA to grow rapidly on completion of Phase 3 in 2Q17, we think valuations are rich, so we initiate with a Hold rating. In our view, Genting Hong Kong offers a cheaper way to get exposure to the same asset. We also like Belle Corp, the most attractively valued name in the Philippine gaming sector.

RWM’s Phase 3 expansion will near double tables and slots only in 2017 We forecast an industry revenue CAGR of 28% over 2013-15E, with much of this to be cornered by the new integrated resorts. We expect Travellers’ revenue and EBITDA to grow significantly in 2017-18 following completion of RWM’s Phase 3 expansion. Note our revenue, EBITDA and net income forecasts are significantly lower than consensus.

Option to acquire Resorts World Bayshore Travellers has the option to acquire the rights and obligations to the Resorts World Bayshore site in the Entertainment City. There is valuation risk in the event that Travellers exercises the option given this would be a significant related-party transaction.

Setting target price: P10.7/share Our DCF-based target price is P10.7/share, which takes into account the significant increase in EBITDA in 2017E-18E on completion of Phase 3. This represents 2015E EV/EBITDA of 16.1x, a 24% premium to Macau average of 13.0x. Upside/downside risks: Travellers may add more gaming units than forecast; the growth in industry gaming revenues may be higher or lower than forecast; competition may intensify.

13 February 2014 Asia Equities Daily Focus: Asian Edition


Rating

Buy Asia Hong Kong

Consumer Hotels / Leisure / Gaming

Company

Genting Hong Kong


Forecast Change

A deep value play; lowering RWM forecast

Reuters Bloomberg Exchange Ticker GENH.SI GENHK SP HSI GENH



Sales (USDm) 494.0 520.4 554.6 650.3 700.7

EBITDA (USDm) 119.7 120.2 56.4 116.3 144.7

Reported NPAT (USDm) 182.2 198.4 721.6 235.6 291.0

Reported EPS FD(USD) 0.02 0.02 0.09 0.03 0.04

DB EPS FD(USD) 0.02 0.02 0.01 0.03 0.04

% Change 0.0% 0.0% -37.0% -9.8% -10.5%

DB EPS growth (%) 113.9 6.3 -73.8 376.9 22.9

PER (x) 17.1 14.8 67.6 14.2 11.5

EV/EBITDA (x) 15.0 14.1 28.9 11.9 8.1


Cheaper way to get exposure to RWM

________________________________________________________________________________________________________________



Price at 12 Feb 2014 (USD) 0.40

Price target - 12mth (USD) 0.53

52-week range (USD) 0.52 - 0.38

HANG SENG INDEX 21,963

Aun-Ling Chia, CFA

Research Analyst (+60) 3 2053 6768 [email protected]

Key changes

Price target 0.54 to 0.53 ↓ -2.8%

Net profit (FYE)

751.4 to 721.6 ↓ -4.0%



0.280.320.360.4

0.440.480.520.56

2/12 8/12 2/13 8/13

Genting Hong Kong

HANG SENG INDEX (Rebased)


Absolute -6.9 -1.2 -5.8

HANG SENG INDEX -3.9 -4.1 -5.4


Genting Hong Kong (GENHK), via its 44% stake in Travellers, offers the cheapest indirect exposure to Philippines casino asset. We expect RWM to enjoy improved growth from 2017E when Phase 3 is completed. At a 38% discount to market SOTP, investors are only paying for its cruise assets while getting Philippines assets for free. DB forecasts a robust 54% two-year core NP CAGR on normalised Asia cruise earnings and robust growth at NCLH. We see dividends, M&A and construction start at RWBay as potential catalysts.

DB initiates coverage on Travellers (Hold); forecasts are 32-44% below street DB analyst Michael Bengson has forecast RWM’s NP at 32-44% below street for FY13-15E. He believes that street’s growth assumptions for RWM are too high given limited gaming capacity increase. RWM’s Phase 3 expansion that involves a near doubling of gaming tables will be completed in 2Q 2017. Reflecting that, we cut GENHK’s FY13-15E NP forecast by US$30m, US$26m and US$35m, respectively.

Current market price implies Philippines assets for free; second new build GENHK’s current net cash and cruise assets are already worth US$0.40/share, i.e. the current share price. This implies that the market is getting: 1) RWM asset for free; 2) a free option on RWBay; and 3) yet-to-receive US$62m (50% of P5.19bn) cash dividend as holder of Travellers’ Preferred B shares. Separately, GENHK announced its second shipbuilding contract for a new cruise ship to be delivered in October 2017 for EUR697.2m (US$948m). This is part of its fleet rejuvenation programme to better cater to Asean market.

Adjusting target price to US$0.53 per share; still significant upside We raise our SOTP valuation to US$0.66 from US$0.64 to incorporate a higher DCF value of US$1.81bn (from US$1.65bn) on its 44.3% stake in Travellers after incorporating Phase 2 and Phase 3 of RWM. Our US$0.53 target price is at a 20% holding company discount (vs. 15% previously). Risks: economic downturn in Asia/globally; and slower-than-projected Philippines gaming market growth.



Rating

Buy Asia South Korea

Consumer

Company

LG H&H


Forecast Change

Near-term concerns seem over-priced; maintaining Buy

Reuters Bloomberg Exchange Ticker 051900.KS 051900 KS KSC 051900



Sales (KRWbn) 3,456 3,896 4,326 4,719 5,129

EBITDA (KRWbn) 457 546 606 659 762

Reported NPAT (KRWbn) 264.7 303.9 357.4 387.5 458.5

DB EPS FD (KRW) 18,058 20,733 24,360 26,432 31,279

OLD DB EPS FD (KRW) 18,058 20,733 24,343 27,196 31,964

% Change 0.0% 0.0% 0.1% -2.8% -2.1%

DB EPS growth (%) – 14.8 17.5 8.5 18.3

PER (x) 25.1 28.2 18.9 17.4 14.7

EV/EBITDA (x) 15.6 16.9 12.7 11.7 9.9

Source: Deutsche Bank estimates, company data

Reiterating Buy

________________________________________________________________________________________________________________



Price at 12 Feb 2014 (KRW) 460,000

Price target - 12mth (KRW) 590,000

52-week range (KRW) 648,000 - 456,000

KOSPI 1,932.06

Jihyun Song


Jeremy Kim

Research Associate(+82) 2 316 8902 [email protected]

Key changes

Price target 650,000.00 to 590,000.00

↓ -9.2%

Sales (FYE) 4,277 to 4,326 ↑ 1.2%

Op prof margin (FYE)

11.7 to 11.5 ↓ -2.1%

Net profit (FYE)

357.2 to 357.4 ↑ 0.1%



400000

500000

600000

700000

2/12 8/12 2/13 8/13

LG H&H

KOSPI (Rebased)


Absolute -13.2 -10.2 -22.2

KOSPI -0.3 -3.2 -0.7


Disappointing 4Q13 results and extremely conservative 2014 guidance have made investors turn cautious on the company's long-term growth outlook and, as a result, the share price has dropped 18.3% since 23 January. We believe such a correction is overdone considering the company’s well-prepared growth drivers, which will likely allow it to continue to deliver solid earnings growth in the long term. Currently, the company is trading at 17.4x 12-month forward P/E, below the three-year historical low of 17.8x. We see material upside potential: Buy.

Company visit takeaways; concerns seem exaggerated We visited LG H&H last week and came away less concerned about a long-term earnings slowdown. In our view, LG H&H is well prepared to sustain solid top-line growth for the next few years by strengthening its distribution network for prestige cosmetics and extending its portfolio into new areas. In terms of earnings, we believe it will inevitably see a margin decline for the next couple of quarters due to investments in expansion and new products; however, we expect profitability to return to an improving trend from 2H14, thanks to the company’s efficiency-focused growth strategy.

Downward earnings revisions on investments for better long-term growth We are revising down our earnings forecasts by 8.4% for 2014 and 7.0% for 2015 in terms of operating profit, mainly due to an increase in our SG&A cost projections. We believe LG H&H will have to bear additional SG&A cost burdens to expand its distribution network and promote new products and brands. Nonetheless, we believe its guidance of only 4.8% YoY operating profit growth for 2014 seems excessively conservative.

Target price revised down to W590,000 from previous W650,000 We lower our DCF-based target price for LG H&H to W590,000 from the previous W650,000 following our downward earnings forecast revisions. Key downside risks: a) higher-than-expected marketing costs; and b) weaker-than-expected synergy generation with newly acquired subsidiaries. (See pages 8-9 for details.)



Rating

Buy Asia Thailand

Property Property

Company

Central Pattana


Forecast Change

Largely shielded from current turmoil; maintain Buy

Reuters Bloomberg Exchange Ticker CPN.BK CPN TB SET CPN



Sales (THBm) 11,950.7 16,761.8 19,778.3 22,250.8 26,154.7

EBITDA(THBm) 5,707.1 8,770.8 10,966.9 12,677.5 15,521.8

Reported NPAT(THBm) 2,058.1 6,188.7 6,079.8 7,178.6 8,991.2

DB EPS FD (THB) 0.47 1.01 1.40 1.65 2.06

OLD DB EPS FD (THB) 0.47 1.01 1.50 1.76 2.21

% Change 0.0% 0.0% -6.7% -6.3% -6.5%

DB EPS growth (%) – 114.4 37.8 18.1 25.3

PER (x) 33.1 26.0 27.8 23.5 18.8

Yield (net) (%) 2.4 3.6 2.4 2.8 3.6


Cutting TP and 2013-15F EPS forecasts; BUY intact

________________________________________________________________________________________________________________


This research has been prepared in association with Deutsche TISCO Investment Advisory Co. Ltd. The opinions contained in this report are those of Deutsche TISCO Investment Advisory Co. Ltd.


Price at 11 Feb 2014 (THB) 38.75

Price target - 12mth (THB) 47.00

52-week range (THB) 57.25 - 36.00

SET 1,296

Sopicha Wattanasansanee

Deutsche TISCO Investment Advisory Co. LtdResearch Analyst (+66) 2 633 6484 [email protected]

Key changes

Price target 58.00 to 47.00 ↓ -19.0%

Sales (FYE) 19,789 to 19,778 ↓ -0.1%

Op prof margin(FYE)

40.4 to 36.6 ↓ -9.3%

Net profit(FYE) 6,518.5 to 6,079.8

↓ -6.7%



10

20

30

40

50

60

2/12 8/12 2/13 8/13

Central Pattana

SET (Rebased)


Absolute 2.0 -15.3 -9.0

SET 3.2 -7.8 -13.0


We cut our TP for CPN to Bt47/share (-20% from previous TP) after trimming 2013-15F earnings by 4-5% p.a. and incorporating DB’s new Cost of Equity (Ke) assumptions (from 10.8% to 12.3%). However, we maintain a positive view of the company as 75% of its rental contracts are fixed-rate, underpinning revenue resiliency. We conservatively assume discounts for tenants at CentralWorld due to proximity to protests (every 10% discount at CentralWorld affects our 2014F EPS by 3%). Despite the current political uncertainty, CPN maintains its expansion plans/launch dates.

Resilient during political turmoil Two of CPN’s malls, CentralWorld and CentralPlaza Ladprao, accounting for nearly 30% of rental revenues, are located near protest locations. Thus for CentralWorld, the more severely impacted of the two, we conservatively assume a 10% one year discount for tenants. Regarding expansion, CPN’s plan to launch three malls in 2014 remains on track (lifting total portfolio to 36 malls). Although the sale of CentralPlaza Chiangmai to CPNRF has to yet to be completed, we expect the company’s B/S to remain strong. Expect strong 4Q13 earnings We expect 4Q13 net profit to rise 81% YoY and 16% QoQ to Bt1.7bn, and expect core revenue to climb 17% YoY and 8% QoQ to Bt5.2bn. Rental revenue should grow by 18% YoY and 7% QoQ to Bt4.8bn. Growth YoY should come primarily from the 5 new malls opened in 4Q12 and 2013. CPN reported a 4Q13 average rental rate of Bt1,509/sq.m., up 3% YoY on rental re-pricing. We expect an EBITDA margin of 51.8%, up from 41.4% in 4Q12, mainly due to more efficient cost management, particularly in marketing expenses. New target price is based on SOTP method; key risks Our new TP of Bt47 (vs. Bt58 previously) is based on the SOTP method. We value CPN’s core business using DCF (WACC of 10.1%, terminal growth rate of 2%) to reflect its stable operations and cash-generative business, and apply a market value approach for investments in CPNRF and CPNCG. Key risks; delays in opening new complexes and worse than expected downturn in consumer spending.



Rating

Hold Asia China

Technology Software & Services

Company

AutoNavi Alert


Forecast Change

Alibaba privatization proposal and implications

Reuters Bloomberg Exchange Ticker AMAP.OQ AMAP US NMS AMAP

________________________________________________________________________________________________________________


The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMPORTANT

MICA(P) 054/04/2013.



52-week range (USD) 20.57 - 10.06


Vivian Hao


Alan Hellawell III


Key changes

Price target 11.90 to 21.00 ↑ 76.5%

Sales (FYE) 157 to 141 ↓ -10.2%


4.1 to -13.2 ↓ -421.6%

Net profit (FYE)

19.8 to -2.2 ↓ -110.9%


Stock data

Market cap (USDm) 983


Shares outstanding (m) 51.2

Major shareholders Chairman (19.5%)

Free float (%) 19

Avg daily value traded (USDm)

9.4


Key data

FYE 12/31 2012A 2013E 2014E

Sales (USDm) 160 141 116

Net Profit (USDm)

36.5 -2.2 -24.4

DB EPS (USD) 0.98 0.14 -0.25

PER (x) 12.1 146.7 –

Yield (net) (%) 0.0 0.0 0.0


Non-binding privatization offer from Alibaba; counter offer possible On Feb 10, AutoNavi received Alibaba’s preliminary non-binding privatization proposal to acquire the remaining 72% of outstanding AutoNavi shares for US$21 per ADS/US$1.1b ($1.5bn implied) consideration in cash (40% premium over Ali’s first strategic investment offer at US$15). Alibaba previously purchased 28% of AutoNavi’s shares at US$294m in May 2013. We note some uncertainty associated with 1) pending approval from majority (2/3) shareholders (to a lesser extent) and 2) final settlement price and potentially more attractive tenders from others with plans to deploy an integral map service/LBS function as basic service. The share is currently trading at the offer price (which represents a significant premium to our valuation based on AMAP’s fundamentals and Ali’s prior offering), and we move our target price accordingly.

Shareholding structure likely to facilitate privatization We believe AMAP’s current shareholding structure would support Alibaba’s buy-out. Looking at AMAP’s 20-F, we do not observe dual-class structure, where super voting rights apply with AMAP. Founders hold ~28% of the total shares (17% preferred and 10% ordinary, with equal voting rights) while other senior executives and employees hold 7%~8%. The residual (ex-Alibaba) 37% is scattered within institutional investors, with larger shareholders including Capital Group (3.8%), Keywise and Invesco.

Timely capital injection key for LBS market share gain The first capital injection in May 2013 enabled AutoNavi to replenish its cash position and accelerate its transition from a traditional mapping solution provider to a more internet/mobile oriented value proposition. The company has been optimizing its product’s user experience to cater for the rapidly emerging online/mobile LBS market, especially for e-commerce/O2O under the big data background. Although the company has a leading 31% market share (followed by Baidu Map’s 27%), we expect intensifying competition to push the company for more aggressive investment, which could hardly be fulfilled by AMAP’s own operating cashflow.

We expect the process to be swift, assuming the proposal became definitive Given Alibaba’s prior investment in AutoNavi, we would expect any due diligence process to be swift and efficient. With regard to the mapping license in PRC (only applicable for onshore domestic companies), we expect minor risk in ownership transfer. As the share is currently trading at the offer price, we move our target price accordingly. We leave our model unchanged, and maintain our HOLD rating. Key risks: the deal does not proceed, timely closure of privatization deal and deteriorating operating cash flow.



Rating

Hold Asia China

Telecommunications Wireless

Company

China Mobile Alert


Company Update

2013 preview

Reuters Bloomberg Exchange Ticker 0941.HK 941 HK HKG 0941

ADR Ticker ISIN CHL US16941M1099

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 11 Feb 2014 (HKD) 74.70

Price target - 12mth (HKD) 75.75

52-week range (HKD) 88.30 - 72.00


Alan Hellawell III


Key changes

Price target 79.50 to 75.75 ↓ -4.7%

Sales (FYE) 630,412 to 629,859

↓ -0.1%


25.8 to 23.5 ↓ -9.1%

Net profit (FYE)

140,095.4 to 128,707.9

↓ -8.1%


Stock data

Market cap (HKDm) 1,498,887

Market cap (USDm) 193,229

Shares outstanding (m) 20,072.1

Major shareholders Government (75.7%)

Free float (%) 26


183.1


Key data

FYE 12/31 2012A 2013E 2014E

Sales (CNYm) 560,413 629,859 672,466

Net Profit (CNYm)

129,274.0 128,707.9 117,364.8

DB EPS (CNY) 6.43 6.41 5.84

PER (x) 10.6 9.1 10.0

Yield (net) (%) 4.1 4.7 4.3


D232013 results preview: solid top line and flat NP expected China Mobile will announce 2013 annual results in mid-Mar 2014. We expect full year op rev to total RMB630b, and net profit to total RMB129b, implying 12% and 0% YoY growth, respectively. We expect 4Q13 op rev and net profit of RMB167b and RMB36b, respectively. We expect substantial growth in 3G users and data usage improvement to drive top-line; heavy marketing spend and capex will likely result in flat net profit YoY.

Base station delays; TD-LTE deployment likely to accelerate in 2H14 We note that part of CM’s targeted 200k base stations in 2013 is still under construction. The co attributes the delay to the more laborious procurement process, but feels confident that it can bring its 500k construction schedule forward to 2014 year end. We therefore expect base station spending to jump sharply in 2H14.

Seeking to constrain capex but pressure mounts; VAT impact likely negative We expect 2014 capex on 4G will be a mix of 3G base station upgrades and new construction. We believe the co seeks not to deviate much from last year’s RMB190b. DBe remains at RMB188b. A possible telco VAT reform in early April will likely adversely affect the co and its peers. We expect a potential gradual phase-in of the new tax scheme, with exemptions fading out with time.

More pressure likely coming; yet all-out price war unlikely With CT and others pushing for FDD licensing, we expect CM’s TD-LTE to face intensified competition. We however do not expect CM to execute irrational price cuts. The co instead has responded by announcing plans to launch more RMB1,000-2,000 low-end 4G smart phones in 2H14 to “fulfill market demand.” Another challenge remains the OTT’s threat on CM’s voice and SMS. We expect CM to remain less active than its peers in seeking OTT cooperation.

Tweaking down TP to HK$75.75; Maintain Hold We reduce net profit for FY 13E/14E/15E by 8%, 1% and 1% respectively to reflect the increasing marketing spend and pressure from peers. We derive our new TP based on a DCF analysis using a 9.2% WACC (using a new 9.9% cost of equity for the company with a beta of 1) and a 0% perpetual growth rate. We assign a 0% terminal growth rate because we expect negative free cash flow to the co in the outer years. Our cost of debt assumption and target Debt/Equity ratio are 4.5% and 10/90, respectively. Downside risks: less successful TD-LTE coverage, higher subsidy and marketing spending, irrational price competition, VAT eroding margin, higher capex expenditure, slower user growth.



Rating

Buy Asia China


Company

China Unicom Alert


Forecast Change

2013 results preview


ADR Ticker ISIN CHU US16945R1041

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.



52-week range (HKD) 13.26 - 9.51


Alan Hellawell III


Key changes

Price target 17.00 to 15.10 ↓ -11.2%


Stock data

Market cap (HKDm) 246,951



Major shareholders China Unicom BVI (71.35%)

Free float (%) 16


31.3


Key data

FYE 12/31 2012A 2013E 2014E

Sales (CNYm) 248,926 294,740 326,438

Net Profit (CNYm)

7,096.0 10,874.6 17,497.4

DB EPS (CNY) 0.29 0.44 0.71

PER (x) 35.6 18.6 11.5

Yield (net) (%) 1.2 1.5 1.5


Expecting robust rev, earnings growth for 4Q13 CU will announce 2013 full year results on 27 Feb 2014. We expect 2013 operating rev to grow 18.6% YoY to RMB295b, and net profit by 53% to RMB10.9b on the back of strong 3G user growth and reduced capex. We expect net profit margin to improve to 3.7%.

Heavy HSPA+ deployment, light on 4G. Counting on slow 4G uptake The co’s key strategy revolved HSPA+ short term. With the 3G 21Mbps network having achieved extensive coverage around China, we expect more upgrades to 42Mbps 3.5G in 2014. CU has very tentatively begun investing in 4G on TD-LTE while simultaneously trialing FDD-LTE. We expect CU to only make a token investment in TD-LTE; base stations may come out at ~10k in 2014. FDD is still subject to licensing. CU will eventually face pressure from CM’s maturing TD-LTE deployment and aggressive pricing.

Capex conservative – significant upward pressure; more OTT cooperation Compared with its peers, CU’s intends to be less aggressive with its capex in 2014. We maintain our capex forecast at RMB85b for 2014 to reflect the deployment of HSPA+ and TD-LTE, but acknowledge significant upward pressure. We expect the co to explore more and diversified partnerships with the OTT internet players, and remain the most active among its peers.

MVNO-related hiring hits; VAT reform may hurt With the 2nd round of MVNO (mobile virtual network operator) licensing having come out on 29 Jan, we see risk of aggressive hiring from these players. We believe the co may incur higher employee expenses. Precedent suggests that VAT may come out at as high as 11%, subject to which cost categories apply. We expect VAT reform to negatively affect net profit but have less impact on cash flows.

Tweaking down TP to HK$15.1; Maintain Buy We maintain our 2014E rev forecast and reduce 2014E net profit by 12% to factor in increasing peer pressure, and rising HR costs. We derive our new TP based on a DCF analysis using an increased WACC of 8.9% (using a 9.3% cost of equity for the company with a beta of 0.9) and a 0% perpetual growth rate. We assign a 0% terminal growth rate because we expect negative free cash flow to the company in outer years. Our cost of debt assumption and target Debt/Equity ratio are 4.5% and 10/90, respectively. Downside risks: less successful HSPA+, higher marketing spending, irrational price competition, VAT eroding margin, higher capex, slower mobile user growth.



Rating

Hold Asia Taiwan

Banking / Finance Other Financial Services

Company

Chailease Holding


Company Update

Concerns remain; positive catalysts still hard to find

Reuters Bloomberg Exchange Ticker 5871.TW 5871 TT TAI 5871



EPS (TWD) 3.12 4.57 5.91 6.25 6.92

PER (x) 23.9 16.3 12.6 11.9 10.8

Book Value Per Share 20.47 26.62 27.12 30.27 33.63

Price/book (x) 3.6 2.8 2.8 2.5 2.2

Dividend Per Share 2.30 2.00 2.96 3.13 3.46

Dividend Yield (%) 3.1 2.7 4.0 4.2 4.6

ROE (%) 17.4 20.6 23.0 21.8 21.6


Maintaining our cautious view on Chailease

________________________________________________________________________________________________________________



Price at 12 Feb 2014 (TWD) 74.00

Price target - 12mth (TWD) 73.50

52-week range (TWD) 96.50 - 60.20

TWSE 8,431

Pandora Lee


Key changes

Price target 72.00 to 73.50 ↑ 2.1%



30

45

60

75

90

105

2/12 8/12 2/13 8/13

Chailease Holding

TWSE (Rebased)


Absolute -2.5 3.4 -4.8

TWSE -1.2 2.9 6.6


We tweak our target price for Chailease from NT$72.0 to NT$73.5 (+2%) driven by earnings revision and rolling over valuation base to 2014. The stock is trading at 2.8x 2013E and 2.5x 2014E P/BV; we think it is stretched. We do not think it is sensible to value the stock on a P/E basis, which happens to be less demanding, as the provisioning level may swing the ‘Es’.

China’s shadow banking reform unlikely to benefit Chailease We believe the client base of a trust company is very different from that of a leasing company (our checks with management confirm our view); the former comprises mostly bank referrals (thus with average turnover much larger than normal SMEs) and often demanding bridge loans that, based on Circular No. 107, leasing companies are not allowed to offer.

Influx is still mounting; margins under pressure What has concerned us the most is not rising delinquency but worsening coverage. Our analysis suggests influx is still mounting and overall asset quality has not yet stabilized. Our analysis suggests net margins have been in decline for four sequential quarters and this is across the board for Taiwan, China and Thailand. We think the utilization of offshore lending may help lower funding costs in China but this would be easily offset by higher onshore funding cost and/or lower yield due to the change of revenue mix in China.

Why is it not a Sell? 1) We think Chailease is a China concept stock; it will likely continue to trade at a premium to peers. 2) We suspect retail investors and local funds focus more on earnings momentum than on earnings sustainability – the former would be achieved if the company chooses to delay setting aside provisions. 3) Some of the concerns are known risks; they are legitimate reasons to stay on the sidelines but probably not reason enough to depress the stock further.

Valuation and risks We have assumed L/T ROE of 18% and CoE of 11% to derive our fair P/BV multiple of 2.4x from a three-stage Gordon Growth Model. Key downside risks: placement, policy, credit and interest rate risks. Upside risk: better-than- expected economic growth in China.



Rating

Hold Asia Malaysia

Energy Chemicals

Company

Petronas Chemicals Group


Results

Soft full year 2013 - Lowering 2014 estimates

Reuters Bloomberg Exchange Ticker PCGB.KL PCHEM MK KLS PCGB



Sales (MYRm) 16,237.0 16,599.0 15,202.0 15,902.8 17,376.9

EBITDA (MYRm) 6,060.0 5,664.0 5,410.0 6,001.1 6,793.3

Reported NPAT (MYRm) 3,771.0 3,518.0 3,146.0 3,568.8 4,006.0

DB EPS FD(MYR) 0.47 0.44 0.39 0.45 0.50

OLD DB EPS FD(MYR) 0.47 0.44 0.45 0.48 0.49

DB EPS growth (%) 18.9 -6.7 -10.6 13.4 12.2

Price/Book (x) 2.7 2.5 2.5 2.2 1.9

PER (x) 13.8 14.8 17.2 15.1 13.5

EV/EBITDA (x) 7.6 7.7 8.2 7.1 5.5

DPS (net) (MYR) 0.22 0.22 0.20 0.22 0.25

Yield (net) (%) 3.4 3.4 2.9 3.3 3.7

Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples & yld calculations use avg historical prices for past years & spot prices for current & future years.

Execution issues continue

________________________________________________________________________________________________________________



Price at 11 Feb 2014 (MYR) 6.75

Price target - 12mth (MYR) 6.90

52-week range (MYR) 7.15 - 6.10

KLSE COMPOSITE 1,816

David Hurd, CFA


Key changes

Price target 6.95 to 6.90 ↓ -0.7%

Sales (FYE) 15,617 to 15,202 ↓ -2.7%


30.7 to 28.5 ↓ -7.1%

Net profit (FYE)

3,601.1 to 3,146.0

↓ -12.6%



5.0

6.0

7.0

8.0

9.0

2/12 8/12 2/13 8/13

Petronas Chemicals G

KLSE COMPOSITE (Rebased)


Absolute 0.0 -0.6 12.5

KLSE COMPOSITE -0.6 0.7 11.8


Petronas Chemicals (PCG) reported FY13 results of MYR 0.39 / shr vs. our 0.45e and 0.44/ shr FY12. Full year DPs was MYR 0.20/ shr or 50% payout. Eps fell short 4Q13 due to execution issues: delayed restart of the principal (600k tpa) ethane cracker and a disruption in utilities for December. Limitations in natural gas supplies to the mega-methanol plant (1.7 mln tpa) have run well into February with start-up anticipated in the coming week(s). We maintain our Hold rating on PCG on the back continued heavy maintenance 1H14e.

Looking into 2014 Resolution of gas supplies into the mega-methanol plant was expected YE13. The 2-month delay forced us to reduce utilization rates / Eps 2014e. We are aware 1H14 maintenance (30-50 days) on the smaller (666 mln tpa) methanol plant and (60 days) on the smaller (400 mln tpa) ethane cracker. Potential delays to the SAMUR project due to a fire on board an equipment vessel have yet to be qualified. 2014 looks like another year of heavy maintenance.

Investment thesis - unchanged We see a slightly better chemical market 2014/ 2013, but not necessarily in PCGs swath of product. Roughly 65-70% of PCG’s op income comes from Olefins & Derivatives with 30-35% coming from fertilizers and methanol. We are neutral polyethylene’s (2014/13) and believe urea remains oversupplied for a few years to come.

Valuation and risks: We set our PCHEM TP from DCF; we use PB-ROE as a ST valuation indicator. Our WACC is 9.4% (prev 8.8%) consisting of a CoE of 9.4%; PCHEM has no debt. We use a DB Rfr of 3.5% and ErP of 6.6%. We use a TG rate of 0.0% consistent with a commodity play. The principal risks to our valuation are: 1) higher / lower-than-anticipated oil prices; and 2) lack of visibility on future feedstock costs.



Rating

Buy Asia Indonesia

Banking / Finance

Company

Bank Mandiri Alert


Company Update

Quality and pricing over volume

Reuters Bloomberg Exchange Ticker BMRI.JK BMRI IJ JKT BMRI

ADR Ticker ISIN PPERY US69367U1051

________________________________________________________________________________________________________________


This research has been prepared in association with PT Deutsche Bank Verdhana Indonesia. The opinions contained in this report are those of PT Deutsche Bank Verdhana Indonesia.


MICA(P) 054/04/2013.

Price at 11 Feb 2014 (IDR) 8,950

Price target - 12mth (IDR) 11,000

52-week range (IDR) 10,750 - 6,650

Jakarta Comp. Index 4,470.19

Raymond Kosasih, CFA

PT Deutsche Bank Verdhana IndonesiaResearch Analyst (+62) 21 2964 4525 [email protected]

Arinta Harsono


Key changes

Price target 10,100.00 to 11,000.00

↑ 8.9%

Provisioning (FYE)

6,800.8 to 6,847.5

↑ 0.7%

Net int margin (FYE)

5.88 to 5.84 ↓ -0.8%

Net profit (FYE)

19,086.2 to 20,087.1

↑ 5.2%


Stock data

Market cap (IDRbn) 208,833



Major shareholders Government of Indonesia (60%)

Free float (%) 40


17.294


Key data

FYE 12/31 2013A 2014E 2015E

Provisioning (IDRbn)

4,856.3 6,847.5 7,966.2

Pre-prov profit (IDRbn)

29,138 32,989 36,189

EPS (IDR) 780.16 860.88 932.22

PER (x) 11.3 10.4 9.6

Post result upgrades We raise our earnings projections on Mandiri for 2014-15F by 3-5%. The implied B/S ROAE would be 20-21%. These upgrades reflect the bank’s better than expected FY13 numbers, which are driven by BMRI’s loan pricing powers coupled with the bank’s continued progress in building up its transactional franchise (leading to manageable COF increase). This has mitigated risks of higher funding costs. Indeed, we believe that major banks (such as BMRI) with pricing powers need not to have high loan growth rates to generate our projected earnings. These should reduce asset risks that may arise from taking larger loan books. Hence, such banks should have better earnings visibility. For these reasons, we continue to reiterate BMRI as one of our top picks in the Indonesian Banking Sector. Higher TP of Rp11,000 (up from Rp10,100) This would imply 2.5x 14F book (and 12.7x 14F earnings). We derive TP based on Dupont with WACC of 16%, ROAE 20%, growth of 13%. Risks are reduced pricing powers (leading to faster NIM compressions), higher NPL formations, and higher opex growth.

Figure 1: BMRI revised earnings details

Rpbn New New Old Chg % New Old Chg % New

NII 35,403 41,044 41,073 (0.1) 45,603 46,345 (1.6) 51,551

Total inc 50,128 57,391 56,124 2.3 63,708 62,848 1.4 71,821

Opex 21,720 24,902 24,000 3.8 28,019 26,711 4.9 28,019

PPOP 28,408 32,489 32,124 1.1 35,689 36,137 (1.2) 43,802

Prov 4,856 6,848 6,801 0.7 7,966 8,194 (2.8) 9,707

Op. inc 23,552 25,642 25,324 1.3 27,722 27,943 (0.8) 34,095

PBT 24,062 25,892 25,324 2.2 27,972 27,943 0.1 30,980

Net profit 18,204 20,087 19,086 5.2 21,752 21,116 3.0 24,158

ROAE % 22.5 21.2 20.3 19.8 19.3 19.1

CAR % 14.8 15.5 15.8 15.2 15.8 15.5

Rpbn New New Old Chg % New Old Chg % NewGross loans 471,835 542,611 519,666 4.4 637,568 610,608 4.4 749,142 Deposits 556,342 625,884 611,222 2.4 704,120 687,625 2.4 792,135

LDR % 84.8 86.7 85.0 90.5 88.8 94.6

2014F

2014F 2015F 2016F

2015F 2016F2013A

2013A

Source: Deutsche Bank and company data



Rating

Buy Asia Thailand

Transportation Infrastructure

Company

Sino-Thai Engineering


Forecast Change

Oversold - healthy backlog and potential new projects

Reuters Bloomberg Exchange Ticker STEC.BK STEC TB SET STEC



Sales (THBm) 14,853.6 19,871.6 22,341.7 24,451.5 27,179.4

EBITDA (THBm) 1,294.3 1,783.3 2,282.0 2,419.9 2,600.6

Reported NPAT (THBm) 903.5 1,165.3 1,476.9 1,594.4 1,749.2

Reported EPS FD(THB) 0.8 1.0 1.0 1.0 1.1

DB EPS FD(THB) 0.8 1.0 1.0 1.0 1.1

OLD DB EPS FD(THB) 0.8 1.0 1.0 1.1 1.3

% Change 0.0% -0.0% -0.2% -7.7% -9.9%

DB EPS growth (%) 103.6 29.0 -1.4 8.0 9.7

PER (x) 15.9 16.8 14.7 13.6 12.4

EV/EBITDA (x) 8.7 7.2 5.3 4.5 3.7

DPS (net) (THB) 0.55 0.49 0.48 0.52 0.57

Yield (net) (%) 4.5 3.0 3.4 3.7 4.0


Still a BUY despite delays in public investments

________________________________________________________________________________________________________________




Price at 11 Feb 2014 (THB) 14.20


52-week range (THB) 37.50 - 11.90

SET 1,296



Key changes

Price target 32.00 to 23.00 ↓ -28.1%

Sales (FYE) 23,476 to 22,342 ↓ -4.8%


7.8 to 8.5 ↑ 10.2%

Net profit (FYE)

1,480.0 to 1,476.9

↓ -0.2%



10

20

30

40

2/12 8/12 2/13 8/13

Sino-Thai Engineerin

SET (Rebased)


Absolute 7.6 -34.3 -52.7

SET 3.2 -7.8 -13.0


While the ongoing political impasse has resulted in delays in public investment, suggesting fewer projects for contractors this year, we believe the 45% fall in STEC’s share price over the last 4 months is overdone as contractors’ earnings this year are mostly secured by existing backlogs. Although we have cut our profit forecasts, we maintain our Buy rating mainly due to STEC’s cheap valuation.

Earnings this year are mostly secured by huge backlog on hand STEC’s current order backlog is Bt51bn. This year the company aims to win new projects worth Bt30bn. Potential projects include several SPP projects, export module projects in the private sector and some infrastructure projects that are still scheduled to open the bidding this year (in parallel with the election/ process to form a new government) including the Dark Green Line (Morchit-Kookot) on April 11 and Suvannabhumi Airport phase 2 in March.

Earnings should reach new record in 2014F although growth decelerates We trimmed our 2013-15F earnings by 0.2%, 7.7% and 9.9% after lowering assumptions for new contracts. For 4Q13, we expect STEC to post net profit of Bt410m, up 41% YoY and 6% QoQ. Although the outlook is less bright, we believe once political stability returns, public investment will see a recovery.

Target price lowered to Bt23; key risks We re-rated our TP from a 2013F PER of 33x (+1.5x stdev above its 5-year historical average) to a 22x 2014F PER (its 5-year historical average) to reflect its less promising prospects. Hence, our TP is cut from Bt32 to Bt23. Key risks include cost overruns, fewer-than-expected new projects, construction delays and an escalation in political unrest, which could delay public investments.



Rating

Buy Asia India

Resources Metals & Mining

Company

Coal India Limited Alert


Results

Poor demand or another quarter of grade slippage?

Reuters Bloomberg Exchange Ticker COAL.BO COAL IN BSE COAL

________________________________________________________________________________________________________________


The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=COAL.BO MICA(P) 054/04/2013.

Price at 12 Feb 2014 (INR) 269.90

Price target - 12mth (INR) 295.00

52-week range (INR) 351.00 - 245.90

BSE 30 20,363

Manish Saxena




Key changes

Price target 325.00 to 295.00 ↓ -9.2%

Sales (FYE) 704,687 to 694,989

↓ -1.4%


- ↓ -0.1%

Net profit (FYE)

164,146.4 to 158,252.4

↓ -3.6%


Stock data

Market cap (INRm) 1,704,787



Major shareholders President of India (90%)


18.1

Free float(%) 10


Key data

FYE 3/31 2013A 2014E 2015E

Sales (INRm) 683,027 694,989 720,973

Net Profit (INRm)

173,563.7 158,252.4 160,729.7

DB EPS (INR) 27.47 25.05 25.45

PER (x) 12.6 10.8 10.6

Yield (net) (%) 4.1 10.9 6.7


At first sight Coal India results with a PAT of INR 38.94 bn (down 11% YoY) came well ahead of our and Bloomberg consensus expectations. But a closer look at the numbers suggest that the earnings beat is driven by reversal of past provisions. If we assume a normal level of provisions (cINR 4 bn), the earnings would have missed our and street expectations by 5-10%. The good thing in the results is that volume sales of highest margin segment i.e E-auction was up 45% YoY at 15.1 mnt and probably cushioned loss of sales from FSA contracts. What we still do not have an answer for is whether that FSA volume miss is due to customers not picking up coal or evacuation challenges at Coal India mines. A bigger follow-on question is whether there is one more quarter of grade slippage.

At our end, we cut FY15E EPS by 10%; but view the stock as a value pick With volume growth behind target and lower cash balance (on account of interim dividend paid), we cut FY14E/FY15E EPS by 4%/10% respectively. Consequently we revise our 12M target of INR 295/sh (down 9%). We maintain our Buy rating due to the dividend yield (7%) and FCF yield (11%).

Other key highlights from the results ** While production grew 1% YoY to 118.7 mnt, offtake fell 3% YoY to 117.2 mnt (FSA down 7.5% at 97.6 mnt, E-auction up 45% YoY at 15.1 mnt). ** On the pricing front, average realizations went up only 0.5% YoY as E-auction realizations at INR 2232/t were down sharply by 24% (in line with global seaborne thermal coal price trends). FSA realizations were up only 3.4% at INR 1275/t – implying either grade slippages or lower offtake of high grade FSA coal. To recap, Coal India had taken a c6% price hike in late May 2013. ** EBITDA/t rose by 4% YoY to INR 350. This was partly driven by the reversal of provisions which led to the total costs falling by 0.5% YoY. ** PAT fell by 11% YoY to INR 38.94 as other income too was lower by 7.5% YoY at INR 21.8 bn – also indicating that receivables recovery is still slow.

Figure 1: 3QFY14 results – a brief snapshot

INR mn 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 YoY (%) DBe Var%

Net Sales 173,250 199,046 164,724 154,115 169,281 -2.3 167,731 0.9

EBITDA 40,383 61,191 39,580 27,940 41,036 1.6 36,692 11.8

PAT 43,951 54,139 37,310 30,524 38,941 -11.4 36,074 7.9

Production (mnt) 117.4 143.3 102.9 97.6 118.7 1.1 118.7 0.0

Offtake (mnt) 120.5 129.6 115.4 109.1 117.2 -2.7 117.2 0.0

Av Realisation (INR/t) 1,438 1,436 1,428 1,412 1,445 0.5 1,431 0.9

E-auction volumes 8.7% 11.5% 11.5% 11.8% 12.9% 4.2 10.5% 2.4Source: Company data, Deutsche Bank



Rating

Buy Japan

Machinery

Company

SMC Alert


Results

3Q results confirm strong progress toward targets

Reuters Bloomberg Exchange Ticker 6273.T 6273 JP TYO 6273

________________________________________________________________________________________________________________

Deutsche Securities Inc.


MICA(P) 054/04/2013.

Price at 12 Feb 2014 (¥) 25,220

Price target - 12mth (¥) 30,700

52-week range (¥) 28,000 - 15,470

Takeshi Kitaura

Research Analyst (+81) 3 5156-6738 [email protected]

Stock data

Market cap (¥bn) 1,713

Shares outstanding (m) 68

Foreign shareholding ratio (%) 51.6

TOPIX 1,204

Source: Deutsche Securities Inc.

Key data

FYE 3/31 2013A 2014E 2015E

Sales (¥bn) 323.1 388.3 411.3

OP (¥bn) 78.0 102.9 115.2

RP (¥bn) 93.7 114.3 122.1

NP (¥bn) 64.3 78.2 84.1

EPS (¥) 938 1,151 1,239

P/E (x) 14.8 21.9 20.4


Strong progress, mainly on recovery in semiconductor-related SMC's 3Q results remained favorable. Guidance was unchanged but progress toward our forecast was steady. Earnings continue to recover, centered on products for the semiconductor market; overall profits were high. 3Q results were in line with expectations and contain little near-term surprise, but should reassure investors given the current weak business environment. Our rating is Buy.

Record high profit for 3Q 3Q sales were ¥98.8bn, OP was ¥26.7bn (OP margin 27%), and EPS ¥361, bringing profit to an all-time high for 3Q. Forex gains of ¥7.2bn further boosted RP and NP. By domestic business segment, sales to the semiconductor market were notably strong, up 44% YoY and up 19% QoQ. Sales to all businesses were up YoY, including automotive (+5%), electrical machinery (+8%), and machine tools (+16%). Management indicated that similar trends were seen at overseas businesses. In the domestic business, 3Q OP was up 47% YoY on strong sales (+13% YoY), making the greatest contribution to consolidated earnings.

Guidance unchanged but steady progress toward our forecasts OP guidance was unchanged at ¥97bn and EPS at ¥1,081, but progress toward our forecasts (OP ¥102.9bn, EPS ¥1,151) seems steady (1-3Q OP 76% of our forecast, EPS 86%). Management said performance in January was strong in the US, flat in Asia, and weak YoY in Europe due to seasonal factors. However, it indicated that the overall order environment is improving. Going into FY3/14-end we look for augmented shareholder returns as a result of full-year outperformance.



Asia China

Data Flash

Economics


China: exports surge; underlying growth may have reached 20%

________________________________________________________________________________________________________________


The views expressed above accurately reflect the personal views of the authors. The authors have not and will not receive any compensation for providing a specific recommendation or view. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT HTTP://GM.DB.COM MICA(P) 054/04/2013.

Jun Ma, Ph.D

Chief Economist (+852) 2203 8308 [email protected]

Lin Li, Ph.D

Strategist (+852) 2203 [email protected]

Merchandise exports rose 10.6%yoy in January, up from 4.3% in December, and much higher than the consensus forecast of 0.1%. More importantly, the underlying export growth in January -- after adjusting for the data distortion in the same period of last year -- should be much better than what the strong headline figure suggests. We believe that the "true" export growth probably has reached 20% yoy already. China's trade statistics (especially export growth rates) from December 2012 to April 2013 were seriously exaggerated by speculative capital inflows in the form of disguised trade flow. We estimate that, the average export growth during the period was overstated by about 10ppts. After adjusting for this distortion, the underlying export growth in January this year should be around 20%yoy. In addition, the Chinese New Year is at the end of January this year while it was in February last year. This factor provides a further support for a stronger underlying yoy export growth rate in January this year. Export growth acceleration was seen in exports to all major markets such as the US (up 10.7% in January vs. 3% in December), to EU (up 18.8% vs. 3.9%), and to Japan (16.1% vs. 5.5%), while exports to Hong Kong fell 18.3% in January (vs. 2.3% growth in December) reflecting the impact of decline in fake exports (which peaked in early 2013) after SAFE tightened regulations in May 2013. By product, high export growth was seen in steel (+37.6%yoy), fertilizer (69.7%), color TV (73.5%), and plastic (13.4%). January imports rose 10%yoy, up from 8.3%yoy in January. By product, high growth rates in January were seen in liquified petroleum gas (+85.8%yoy), copper (53.2%), airplane (64%), crude oil (11%). We believe that the import figures generally confirm that domestic demand is on the track of a recovery. We expect the positive trend of export recovery to continue, and export growth should likely rise to 14% for the year as a whole, up from 8% in 2013. We expect export growth to be around 10% in the first 4-5 months of the year, and rising towards 20% in the remainder of this year after the negative base effect (due to fake trade in Jan-Apr of 2013) diminishes. The acceleration in export growth will be driven by improving external demand, especially in the US and Euro area, as well as the deceleration of RMB appreciation in REER terms.



Asia Malaysia

Data Flash

Economics


Malaysia: GDP growth and current account sustain recovery in 4Q

________________________________________________________________________________________________________________



Diana Del-Rosario

Economist (+65) 6423 5261 [email protected]

Growth recovery was sustained in the second half of 2013 as GDP grew 5.1%yoy in the fourth quarter, in line with our estimate but higher than market expectations (Bloomberg median estimate: 4.8%). For the whole year, GDP expanded by 4.7% as growth was pulled down by the contraction in exports during the first half of 2013. Last quarter’s growth was driven by final consumption and investments. Private consumption, despite decelerating from 8.1%yoy in the previous quarter, grew 7.3%. Government consumption also held up as it rose 5.1% (vs. 7.8% in 3Q) during the quarter. Gross capital formation climbed 7.1% after contracting in 3Q, supported by the winding down of inventories and robust growth in fixed investments. Private sector investments increased by 16.5% whereas public investments fell by 2.7%. Exports and imports accelerated during the quarter but the resulting trade balance was lower than what was recorded a year ago. Thus, it contributed negatively to overall growth. On the supply side, strong expansion of the services (6.4%yoy), construction (9.7%), and manufacturing (5.1%) sectors supported overall GDP growth. Agriculture, forestry & fishing rose by a modest 0.2% while mining & quarrying output fell by 1.5%. Moving forward, we expect a sustained modest improvement in GDP growth, supported by a stronger pick-up in exports and strong investments amid some easing in private consumption. Meanwhile, Malaysia’s current account balance continued to improve in the fourth quarter to 6.1% of GDP after falling to its record low of 1.1% in the second quarter. The latest print came as a result of a higher surplus in the goods account and lower deficit in the services account. The financial account recorded a lower net outflow of MYR9.7bn in the fourth quarter from the preceding period. This reduction in outflows resulted from greater inflow of direct investments (supported by more foreign direct investments against lower overseas investments by Malaysians) and lower portfolio investment outflows. However, other investments saw a substantial increase in net outflows of MYR13.6bn from MYR4.4bn in the third quarter. Overall, the balance of payments recorded a deficit of MYR2.8bn in the fourth quarter although it registered a MYR14.5bn surplus for the whole year of 2013. This year, a higher current account surplus and FDI due to an upbeat external environment may just be countered by aggressive resident investments overseas, resulting in a minimal BOP surplus.



Asia India

Data Flash

Economics


India: CPI trend mixed; IP growth remains weak

________________________________________________________________________________________________________________



Taimur Baig, Ph.D

Chief Economist (+65) 64238681 [email protected]

Kaushik Das

Economist (+91) 22 7158 4909 [email protected]

The continued disinflation in food prices helped India's January CPI to moderate to 8.8%yoy (from 9.9%yoy in December), in line with our expectation. Food prices fell 1.4%mom (9.9%yoy in Jan vs. 12.0%yoy in Dec), led mainly by softer vegetable prices (-13.3%mom). Other food items such as oils/fats (-0.7%mom) and sugar (-1.3%mom) also contributed to the favorable outturn. Prices of some food items such as egg/fish/meat (1.4%mom) and fruits (1.5%mom) however firmed in January.

Other key categories – fuel (0.4%mom vs. 0.3%mom), bedding/footwear (0.7%mom vs. 0.8%mom), housing (0.5%mom vs. 1.1%mom) and services (0.5%mom vs. 0.4%mom) – rose in January, with core CPI inflation remaining unchanged at 8.1%yoy (+0.6%mom).

Since the key driver of inflation is food, the ongoing sharp disinflation would come as a relief to the RBI. Our forecasts show headline CPI inflation moderating further to 8% in the coming months, although core inflation will likely remain sticky around 8%. We maintain the view that the Reserve Bank of India will remain on the sidelines for the rest of 1H14 under this scenario.

December's industrial production data was also released today, which showed IP declining by 0.6%yoy, broadly in line with our expectations. This constituted a 0.4%mom decline on a seasonally adjusted basis. The November number was revised up to -1.3%yoy from -2.1%yoy reported earlier. IP momentum (measured as the 3m/3m seasonally adjusted annualized rate) deteriorated to -5.2% in December, from 0% in November.

Among broad categories, electricity production remained robust (7.5%yoy in December vs. 6.3%yoy in November), while manufacturing (-1.6%yoy vs. -2.7%yoy) and mining (0.4%yoy vs. 1.7%yoy) sector growth remained weak. Within use based classification, consumer durables (-16.2%yoy vs. -21.5%yoy) and capital goods (-3.0%yoy vs. -0.1%yoy) fared the worst, while intermediate (4.5%yoy vs. 3.4%yoy) and basic goods (2.4%yoy vs. 2.7%yoy) reported decent growth numbers relative to their past trend.

With the December outturn, the quarterly average of IP in Oct-Dec works out to -1.2%, lower than the +1.9% average growth recorded in the July-Sep quarter. This will lead to a decline in industrial sector GDP of about 1% in Oct-Dec (data to be released end of this month), thereby likely resulting in yet one more quarter of sub-5% real GDP growth.



Japan

Data Flash

Economics


Japan: December machinery orders

________________________________________________________________________________________________________________


DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013.

Kentaro Koyama

Economist (+81) 3 5156-6683 [email protected]

December core private orders slump unexpectedly steep 15.7% MoM Core private machinery orders (private-sector orders excluding ships and electric power company orders) slumped 15.7% MoM in December 2013. Total orders were down 3.1%, while external orders grew 8.6%. Core private orders were significantly below consensus expectations, posting the steepest MoM drop since comparable figures were available in April 2005. We had anticipated a negative payback in the pulp, paper and paper products and petroleum and coal products after their exceptionally strong growth in November, but there were also large drops in electrical machinery (-31.6%), ship building (-30.6%) and chemical products (-26.1%). We need to recall the high volatility in the machinery order data in considering a single month's results, but we note that the three-month moving average was also down MoM for the first time in half a year. In addition, the forecast for 1Q (Jan-Mar) 2014 calls for a decline of 2.9% QoQ in core private orders. This is not necessarily a conservative projection. The 97.6% achievement rate used for the forecast is the same as the actual rate in 4Q (Oct-Dec) 2013, and the survey was conducted in late December before the fears over EM economies emerged. We forecast that core orders remain on a gradual uptrend, but the momentum of the rise could slow. Demand trends are uncertain ahead of the looming consumption tax hike in April, and a turnaround to a genuine recovery does not look likely until 2H 2014.

Figure 1: Machinery orders and industrial machine tool orders

2013 2013Q2 Q3 Q4 Sep Oct Nov Dec

QoQ% 6.8 4.3 1.5 -2.1 0.6 9.3 -15.7

YoY% 6.4 9.6 13.3 11.4 17.8 16.6 6.7

Total orders QoQ% 3.3 4.9 -0.2 13.2 -4.6 -5.8 -3.1

External QoQ% 4.9 10.9 -9.3 12.1 -16.0 -12.2 8.6

Public QoQ% 24.7 8.6 -15.5 42.9 -26.2 -11.9 6.5

Agencies QoQ% -11.9 7.9 7.9 -4.2 13.2 -5.5 3.0

Mfg. QoQ% 5.6 9.8 0.6 4.1 -0.2 6.0 17.3

Non-mfg. QoQ% 12.5 -4.1 7.5 -7.0 11.5 8.1 -17.2Industrial machine tool orders

Total orders QoQ% 6.9 4.8 11.1 1.3 7.8 -2.0 4.6Domestic orders QoQ% 1.6 21.2 9.9 14.1 -0.3 -0.1 -4.3External orders QoQ% 9.7 -3.3 11.9 -6.1 13.5 -3.2 10.4

Private machinery orders(excl. volatile orders)

Note: Non-manufacturing excludes volatile orders. Industrial machine tool orders – seasonal adjustment by Deutsche Securities. Sources: Cabinet Office, JMTBA, DB Global Markets Research



Japan

Rates Gov. Bonds & Swaps


Japan FI Morning MemoOngoing fund surplus weighs on yields

________________________________________________________________________________________________________________



Makoto Yamashita, CMA

Strategist (+81) 3 5156-6622 [email protected]

Surplus funds weigh on yields from supply/demand side The Principal Figures of Financial Institutions for January confirm a continued high level of surplus deposits. Lending rose 2.3% YoY, with growth of around 2% continuing since November 2013. However, real deposits and CDs rose +4.1% YoY, reaccelerating from a +3.8% rise in December. The difference between lending and deposits shows excess deposits at JPY186trn. The banks will have to fill this gap mainly with yen assets such as JGBs and BoJ current account deposits. Excess deposits stood at JPY176trn before BoJ Governor Haruhiko Kuroda's "new dimension" of monetary easing. This suggests the banks have not made much progress in shifting portfolios to overseas assets, and that the banking sector will be in a tough situation from a ROA perspective.

The banks appear to be formulating FY14 profit targets and related marketable securities investment plans. The banks will likely be reluctant to build JGB holdings with the 10y yield at 0.6% considering the external environment, with the BoJ targeting inflation of 2% and the Abe government's commitment to overcoming deflation. We also see a limit to taking forex and stock market risk positions assuming a scenario for a rise in yields. The only option remaining is buying overseas bonds with foreign currency. However, International Transactions in Securities data for January shows the banks sold a net JPY2.6trn long-term foreign bonds. The banks were net sellers in Apr-Jun, net buyers in Jul-Nov, and net sellers in Dec-Jan, overall selling a net JPY4.1trn so far in FY13. The banks have been reluctant to build new positions at current yield levels because UST yields are expected to rise with the QE3 taper. Many investors appear to be considering European bonds, expecting monetary easing in the eurozone, but have been unwilling to buy with the 10y Bund yield at close to 1.7%. European and UST yields are highly correlated assuming an optimistic outlook for the global economy. History has shown that views on the ECB change dramatically if the inflation rate starts to rise. We see considerable room for investors to move to buy bonds when yields start to rise.

Today's schedule

Time Economic indicator/event Market forecast

Previous result

8:50 Machinery orders for December

12：35 Liquidity supply auction

10y UST auction Source: Deutsche Securities

Da ta c los e change

JGB Future TSE 144.85 ( +0.15 )

JGB Future LIFFE 144.77 ( -0.08 )

JGB2Y 0.070% ( -0.005% )

JGB5Y 0.190% ( -0.005% )

JGB10Y 0.600% ( -0.015% )

JGB20Y 1.460% ( +0.005% )

JGB30Y 1.635% ( +0.015% )

UST2Y 0.335% ( +0.028% )

UST5Y 1.534% ( +0.063% )

UST10Y 2.727% ( +0.042% )

UST30Y 3.689% ( +0.015% )

BKO2Y 0.107% ( +0.014% )

OBL5Y 0.682% ( +0.020% )

OBR10Y 1.686% ( +0.025% )

OBR30Y 2.533% ( +0.032% )

Nikkei225 14,718.34 ( +255.93 )

TOPIX 1,204.28 ( +15.14 )

CME Nikkei225 14,880 ( +150.00 )

NY Dow 15,994.77 ( +200.69 )

NASDAQ 4,191.05 ( +65.18 )

DAX 9,478.77 ( +176.85 )

Yen/Dollar 102.63 ( +0.33 )

Dollar/Euro 1.3638 ( +0.00 )

WTI 100.40 ( +0.52 )

NY GOLD 1291.70 ( +28.40 )

News from the close on prior working day February 11 *House Speaker John Boehner (Republican Party): announces House vote on 12th to unconditionally raise the debt limit *Fed Chair Janet Yellen: "If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings" "(regarding employment data) It is important for us to take our time to assess the importance of this" "(revision of QE3 taper) I think what would cause the committee to consider a pause is a notable change in the outlook" "(turmoil in some financial markets) Our sense is that at this stage these developments do not pose a substantial risk to the US economic outlook"

Source: Bloomberg Finance LP, Deutsche Securities Comparison with previous trading day in Japan.



United States

Economics


US Daily Economic NotesThreshold check: Unemployment (almost), Inflation (not this year)

________________________________________________________________________________________________________________

Deutsche Bank Securities Inc.


Joseph LaVorgna

Chief US Economist (+1) 212 250-7329 [email protected]

Carl Riccadonna

Senior US economist (+1) 212 250-0186 [email protected]

Brett Ryan

Economist (+1) 212 250-6294 [email protected]

Thursday Release Forecast Previous Consensus

8:30 am Initial jobless claims (02/08): 330k 331k 330k 8:30 am Retail sales (Jan): +0.2% +0.2% Unch. Ex autos: +0.2% +0.7% +0.1% Ex auto ex gas: +0.2% +0.6% +0.1% 10:00 am Business inventories (Dec): +0.5% +0.4% +0.4% Source: Deutsche Bank, Bloomberg Finance LP

Commentary for Thursday: The second day of Fed Chair Yellen’s first semi-annual testimony resumes today. Following her careful, measured remarks on Tuesday throughout a lengthy question and answer session before the House Financial Services Committee, today’s testimony before the Senate Banking Committee is likely to break little new ground. Her prepared remarks should be identical to that from earlier in the week, so the main opportunity for new information will come during the Q & A period. While Yellen did not signal any significant deviation from her predecessor’s policy stance, she did potentially resolve some of the clumsiness around the FOMC rate hike thresholds by emphasizing that both benchmarks had to be met, not just one or the other. Given that the unemployment rate threshold of 6.5% is likely to be reached in the next couple of employment reports—and potentially by her first FOMC meeting on March 18-19—the focus now shifts toward the inflation threshold of effectively 2.5% (“[I]nflation is projected to be no more than a half percentage point above our 2% longer-run goal”). This latter threshold is likely to prove elusive in 2014.

The Fed favors the PCE deflator when evaluating inflation conditions. As last published (in December), their projection of the central tendency on headline inflation is 1.4-1.6% in 2014, 1.5-2.0% in 2015 and 1.7-2.0% in 2016. The core inflation forecast is similar: 1.4-1.6% (2014), 1.6-2.0% (2015) and 1.8-2.0% (2016). While at first glance it appears that inflation is not poised to reach the Fed’s threshold at any point in the next three years, one must remember that these forecasts assume an appropriate path of monetary policy—which in this case assumes that rate increases commence in 2015. Recently, we analyzed the underlying factors driving our core inflation forecast over the coming year. Our conclusion was that the same trends were driving both the core CPI and the core PCE deflator, although the slightly different composition between the two metrics would yield slightly different outcomes. For example, shelter costs account for a larger share of the core CPI, while healthcare is more heavily weighted in the core PCE deflator. (For a more detailed discussion of these differences and our respective forecasts, please see the US Economics Weekly from January 31, 2014.) We expect the core CPI to accelerate by 50 bps from 1.7% to 2.2% this year—due predominantly to firmer rents and non-shelter service costs. If we re-weight our underlying forecasts according to the core PCE deflator, it results in a lesser 40 bps acceleration from 1.1% to 1.5%. So by leaning toward the core PCE deflator, policymakers are effectively choosing a “cooler” inflation metric, which has frequently run below its CPI counterpart. Over the past year, this gap has averaged 53 bps, which is roughly consistent with its longer-term (25 year) average of 51 bps. Regardless of the core inflation metric, the important fact is that inflation pressures will build in 2014, but remain below the Fed’s thresholds—however, these boundaries will be tested in 2015. –Riccadonna

Policy Speeches 10:30 am: Fed Chairman Yellen testifies before the Senate Banking Committee on US economic outlook and monetary policy in Washington, DC

2014 Yearend Targets Real GDP growth: +3.4% Q4/Q4 Core CPI: +2.2% Q4/Q4 Unemployment rate: 6.1% Fed Funds: 0.15% 10 Yr Treasury:* 4.00% *Compiled by the DB US Economics team: may differ from official 10Yr yield forecast from DB Fixed Income Strategy team.

Treasury Schedule Size Prev 11:00am 30Y TIPS (ann) $9B $7B 1:00pm 30Y Bond (auc.) $16B $13B



Asia China Technology

Periodical

China TMT Daily


App Annie 2013 Retrospective; also, 0700.HK, 0762.HK

________________________________________________________________________________________________________________



Alan Hellawell III


Vivian Hao


TOP CHINA TMT PICKS Company Rating Target Price China Telecom Buy HKD 5.65 SouFun Buy USD 105.00 Sina Buy USD 99.00

CHINA TMT STOCKS

Company Rating Close 1D% 3M% as of 11/02 TELCOS China Comm Service Buy 0.00 3.0 4.1 China Mobile Hold 0.0 3.0 74.7 China Telecom Buy 0.0 3.0 3.6 China Unicom Buy 0.0 3.0 10.5 INTERNET/ONLINE GAMING Baidu Hold 0.0 3.0 166.3 Ctrip.com Int'l Buy 0.0 3.0 41.6 Netease.com Hold 0.0 3.0 71.7 Phoenix New Media Buy 0.0 3.0 10.2 RenRen Sell 0.0 3.0 3.4 Sina Corp Buy 0.0 3.0 68.0 Sohu.com Hold 0.0 3.0 68.6 SouFun Buy 0.0 3.0 78.0 Tencent Buy 0.0 3.0 530.0 TECHNOLOGY AsiaInfo-Linkage NR 0.0 3.0 12.0 AutoNavi Hold 0.0 3.0 20.5 Foxconn Int'l Hldgs NR 0.0 3.0 3.8 Lenovo Group NR 0.0 3.0 8.6 Synnex Technology NR 0.0 3.0 51.0 ZTE Hold 0.0 3.0 15.8 Indices Close 1D% 3M%

as of 11/02 HSI Index 21963.0 1.8 -4.1 HSCEI 9856.9 2.5 -6.7 Nasdaq 4191.0 1.0 6.9

(Please click through to the .pdf version of this document for a full overview of today's news and views.)

FEATURE:

Top countries for iOS app store App Annie, a leading mobile app analytics firm, recently published its report, "App Annie Index: a 2013 Retrospective." According to the report, China maintained its second position behind the US in terms of downloads in 2013 on the iOS platform. With regard to revenue ranking, China jumped to 4th position, while the top 3 countries (US, Japan and UK) remain unchanged.

Key trends in 2013 Freemium proves its worth

According to App Annie, freemium as a business model continued to be very successful for a range of app categories in 2013, with games seeing the greatest monetization. Apps with freemium business models grew from 86% of game revenue in 2012 to 93% in 2013. For non-game apps, the percentage grew to 57% in 2013 from 46% in 2012.

Messaging apps evolving into media platforms

App Annie's report indicated that many major messaging apps continued their transition into social messaging platforms, diversifying not only their product offerings, but also their revenue streams worldwide. Apps such as Skype, WhatsApp, Line and KakaoTalk, etc added gaming to their platforms, using for instance freemium models and emoticons/stickers to incentivize in-app purchases. Chinese players also joined the trend. Besides the launch of games and e-commerce functionality, Wechat also offers an emoticon shop in which some 14 emoticon sticker packs are free, and 16 others are priced at RMB6.

Social-focused photo & video apps went viral

Several hot and video apps have themselves developed into popular social networks, going so far to compete with the traditional social networks. Vine and Snapchat were standouts in 2013 for using time-restricted media to foster user creativity, increase engagement, and encourage content sharing. Downloads of the top 10 photo & video apps grew 55% in 4Q13 from 4Q12. Similar products in China include Tencent's Weshow and Sina's Miaopai, etc.

Mobile banking, payment, and financial management apps on the rise

Finance applications saw a large increase in downloads from 2012 to 2013. Apps are being downloaded increasingly to access bank information, conduct mobile payments, and even exchange digital currencies such as

(Continue on next page.)



Rating

Asia China

Consumer Food & Beverage

Company

China Mengniu Dairy Alert


Company Update

Danone to increase stake in Mengniu


ADR Ticker ISIN CIADY US1694951088

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.


Price target - 12mth (HKD) –

52-week range (HKD) 37.80 - 21.00


Winnie Mak


Stock data




Major shareholders COFCO (27.83%)

Free float (%) 73


24.1


Key data

FYE 12/31 2012A 2013E 2014E

Sales (CNYm) 36,080 – –

Net Profit (CNYm)

1,257.1 – –

DB EPS (CNY) 0.71 – –

PER (x) 25.3 – –

Yield (net) (%) 0.9 – –


Danone to increase stake in Mengniu from 4% to 9.9% at HK$42.5/share Mengniu announced on 12 February that, the company agreed to issue 121m new shares (6.2% of enlarged share capital) at HKD42.5 (15.3% premium to Mengniu’s latest closing price) to COFCO Dairy Investments, a joint venture company owned as to 31.4% by Danone Asia, 51.7% by COFCO (HK) and 16.9% by Arla Foods. Given the private placement constitutes a connected transaction between Mengniu and Danone, the transaction requires independent shareholder approval scheduled in mid March. Upon completion, Danone Asia’s effective interest in the Company will increase to 9.9% from 4%. Mengniu will use the HK$5.1bn proceeds to repay bank borrowings. The company will host a conference call at 11:00am today, and we will follow up with takeaways from the call. Deutsche Bank AG and/or affiliate(s) is acting as the Financial Advisor to China Mengniu Dairy Company Limited ("Mengniu") on the issuance of Mengniu shares to Danone.



Rating

Asia China


Company

China Mengniu Dairy Alert


Company Update

Key takeaways from conference call


ADR Ticker ISIN CIADY US1694951088

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.


Price target - 12mth (HKD) –

52-week range (HKD) 37.80 - 21.00


Winnie Mak


Stock data




Major shareholders COFCO (27.83%)

Free float (%) 73


24.0


Key data

FYE 12/31 2012A 2013E 2014E

Sales (CNYm) 36,080 – –

Net Profit (CNYm)

1,257.1 – –

DB EPS (CNY) 0.71 – –

PER (x) 25.3 – –

Yield (net) (%) 0.9 – –


Conference call for Danone’s proposed stake increase Mengniu hosted a conference call on 12 February for Danone’s (BN FP, Hold) proposed stake increase in Mengniu from 4% to 9.9%. To recall, Mengniu announced that, the company agreed to issue 121m new shares (6.2% of enlarged share capital) at HKD42.5 (15.3% premium to latest closing price) to a JV between Danone Asia, COFCO (HK) and Arla Foods, with changes in the respective effective shareholding shown in the table below. Mengniu will use the HK$5.1bn proceeds to repay bank borrowings.

Figure 1: Effective stake in Mengniu Before After

COFCO (BVI), COFCO (HK) 17.4% 16.4%

Danone Asia 4.0% 9.9%

Arla Foods 5.7% 5.3%

Total 27.0% 31.6%Source: Company data

Key takeaways Mengniu doesn’t see any possibilities at the moment that Danone will

further increase stake in Mengniu. Despite the proposed stake increase, Danone will not be involved in Mengniu’s ex-chilled yogurt operation, according to the company.

Although it issues 6.2% additional shares to Danone to repay USD630m outstanding bridging loan, saving interest expense at 1.5% p.a., management doesn’t think the deal is EPS dilutive if comparing to its current borrowing cost of 3.5% p.a. Upon completion of the share issue, Mengniu will be in net cash position, according to management.

Regarding the establishment of Mengniu-Danone JV for chilled yogurt, the company expects completion in 2Q14 (back in May 2013, Mengniu expected first stage of completion in end 2013). Management doesn’t expect additional CAPEX for the JV given there is still idle capacity.

Management said expansion of upstream, chilled yogurt and infant formula is part of its five-year strategy, while the proposed JV with Whitewave (WWAV US, NR; announced in Jan 2014) is formed to enhance return on underutilized asset by leveraging on JV partner’s knowhow in plant-based

Deutsche Bank AG and/or affiliate(s) is acting as the Financial Advisor to China Mengniu Dairy Company Limited ("Mengniu") on the issuance of Mengniu shares to Danone



Asia China Property Property

Industry

China Property


Industry Update

Still a fast-growth sector

Current sector P/Es look low, given continued fast growth

________________________________________________________________________________________________________________



Tony Tsang


Jason Ching, CFA


Top picks

COLI (0688.HK),HKD22.30 Buy

China Resources Land (1109.HK),HKD19.16

Buy

Shimao Property (0813.HK),HKD18.22 Buy

China Vanke (000002.SZ),CNY7.52 Buy

Country Garden Holdings (2007.HK),HKD4.65

Buy


Companies Featured

COLI (0688.HK),HKD22.30 BuyChina Resources Land (1109.HK),HKD19.16

Buy

Shimao Property (0813.HK),HKD18.22 BuyCountry Garden Holdings (2007.HK),HKD4.65

Buy

China Ovs Grand Oceans (0081.HK),HKD6.76

Buy

Franshion (0817.HK),HKD2.53 BuyKaisa (1638.HK),HKD2.55 BuyCentral China Real Estate (0832.HK),HKD2.34

Buy

Agile Property (3383.HK),HKD7.33 HoldSunac (1918.HK),HKD4.93 SellYanlord Land (YNLG.SI),SGD1.12 SellSource: Deutsche Bank

Lately, some market participants have viewed China property as a slow-growth sector and argued that it should trade at lower valuation multiples (like PE). We argue that China property is still a fast-growth sector - on our analysis, the listed Chinese developers have been growing at a stable yet fast rate of 25-30% per year even after the GFC, and we expect similar growth going forward. The only difference is that in the past, a key growth driver was the growth in the overall size of the property market, whereas for the future, the key growth driver would be continued market share gains for the stronger listed developers, as overall property sales volume stays high for the next 15 years.

Listed developers have continued to achieve fast growth in sales and earnings On our analysis, even after the Global Financial Crisis (GFC), listed Chinese developers have still achieved average annual contracted sales growth of 23-47%, and average annual core net profit growth of 25-81%. For 2014, given strong growth in new starts in 2012-13, we forecast average contracted sales growth of another 25%. With this, and with strong growth in achieved sales in 2013, we expect continued strong average core net profit growth of about 30% p.a. in 2014-15. In our view, these past and forecast sales and core net profit growth of 25-30% per annum are fast-growth numbers, and suggest that the listed Chinese developers as a sector are still in a relatively fast-growth stage.

We expect annual residential sales volume to stay at 1.1-1.3bn sqm until 2030 In 2013, despite concerns on the economy, government tightening and liquidity, residential sales volume rose 18% YoY to 1.16bn sqm. For 2014, with rising supply, we expect sales volume to rise c.5-10% to 1.2-1.25bn sqm. For 2015 and after, while it is difficult to forecast the exact level of sales activity, we believe that overall sales volume in the commodity residential market could be maintained at about 1.1-1.3bn sqm from now till 2030. This high level of activity should allow for continued solid growth for the listed developers.

Market share gains present a key source of growth for the longer term Our market share analysis reveals that the leaders have been able to increase their market share in terms of sales, profitability and landbanking. We believe this industry consolidation trend will continue to strengthen. In 2013, the 28 key listed developers we monitor had an aggregate market share in terms of sales value of 18.5%, up from 17.9% in 2012, 16.2% in 2011, 15.6% in 2010 and 12.1% in 2009. More importantly, if we just look at the Top-20 listed developers, their market share went up at an even faster pace in 2013 – to 17.5% from 16% in 2012. This highlights that even among listed developers, the larger ones have been growing their market shares faster.

Inexpensive valuations + expected positive catalysts = buying opportunities Select developers (like R&F, KWG, CCRE) now offer attractive dividend yields even based on actual dividends in 2012, and this should provide downside support to share prices. As developers’ sales start to pick up after CNY, we see more positive catalysts ahead. Overall, we prefer COLI, CR Land, Shimao, Country Garden, China Vanke and COGO for their end-user focus. We also like Franshion, Kaisa and CCRE on continued restructuring and/or accelerating sales in 2014. We remain cautious on Sunac, Yanlord, and Agile on their high-end, large unit-size focus. Key risks: unexpected economic and policy changes.



Rating

Hold Asia Hong Kong

Consumer Retail / Wholesale Trade

Company

Esprit Holdings Ltd Alert


Company Update

Transformation plan continues


ADR Ticker ISIN ESPGY US29666V2043

________________________________________________________________________________________________________________


The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=0330.HK MICA(P) 054/04/2013.



52-week range (HKD) 17.00 - 9.10


Anne Ling


Stock data




Major shareholders Lone Pine Capital (10.88%)

Free float (%) 91


12.726


Key data

FYE 6/30 2013A 2014E 2015E

Sales (HKDm) 25,902 25,268 26,994

Net Profit (HKDm)

-4,388.0 247.9 873.9

DB EPS (HKD) -0.72 0.13 0.45

PER (x) – 108.3 32.4

Yield (net) (%) 0.0 0.5 1.9


Event According to Bloomberg, Esprit may close half its stores in France, cutting 222 jobs.

Deutsche Bank’s view We understand from the company’s previous analyst meetings that it is implementing a transformation plan. Some of the loss-making stores in France, among other European countries, are to be shut down as part of its aggressive cost-cutting measures, in tandem with the economic downturn.

France remains a key market, according to management and, as in other countries, it is undertaking a product upgrade and store adjustment program there, so as to enhance operations. We expect some employees to be affected by this during the next 1-1½ years, (including internal restructuring).

We believe this is a non-event, and we might hear similar news from time to time as the company implements the store restructuring plan, for which they have made provision against the P&L in the past couple of years.

The company will announce its 1HFY14 results on 21 Feb 2014. The key focus, in our view, is on its ability to contain the opex to sales ratio below 50% (DBe 48%) and restore profitability for FY14. It announced a positive profit alert on 23 Jan 14, expecting 1HFY14 to made a slight profit.

Figure 1: Management’s guidance for FY13/14 has been consistent

Source: Deutsche Bank, company data



Rating

Hold Asia Hong Kong

Energy Oil & Gas

Company

MIE Holdings Corp Alert


Company Update

Kazakhstan - benign

Reuters Bloomberg Exchange Ticker 1555.HK 1555 HK HSI 1555

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.



52-week range (HKD) 2.41 - 1.35


David Hurd, CFA


Stock data




Major shareholders –

Free float (%) 47


0.7


Key data

FYE 12/31 2012A 2013E 2014E

Sales (CNYm) 3,486 3,390 3,195

Net Profit (CNYm)

541.3 386.0 314.4

DB EPS (CNY) 0.21 0.15 0.12

PER (x) 8.9 7.6 9.5

Yield (net) (%) 1.7 2.1 1.7


EMIR Oil In September 2011, MIE Holdings paid US$ 160mln for 100% of Kazakhstan E&P company EMIR Oil. The seller of the asset was a company called BMB Munai, which was at the time listed on the American Stock Exchange. The appraised value of the company on the acquisition date was US$ 249mln. The transaction created a negative good will balance / gain of US$ 90 mln to MIE.

Functional currency and other issues The functional currency in terms of EMIR’s financial statements is the US Dollar. The recent devaluation (18.7%) of the local currency (Kazakhstan Tenge) should have no translation impact on EMIR’s and MIE’s balance sheet / equity position. The functional currency issue aside, all cash balances held by EMIR are in USD and held in a USD Citibank account. The overwhelming majority of EMIR receivables are in USD due from Titan Oil (see below). MIE Holding has an intercompany loan to EMIR for ~USD 140 mln. This is contractually a USD loan from MIE Holding to EMIR Oil. To date there are no additional restrictions that have been levied on foreign investors with respect to the free flow of funds in and out of Kazakhstan.

Revenues EMIR Oil sells its oil to both the export and domestic market. Export sales are contracted from EMIR in US Dollars by Swiss based purchaser / trader Titan Oil. Domestic sales are remunerated in local currency. The split between export and domestic sales is determined by the Kazak government on a monthly basis with domestic sales contractually not to exceed 30% of EMIR production. Over the past 2-years, the export-to-domestic split at EMIR has been +85% to exports / 15% or less domestic. The government’s allocation process seems straight forward: determine domestic demand and allocate evenly across all oil production companies. MIE management feels comfortable suggesting that domestic sales will most probably never exceed 15% of production. We suspect that an 18.7% devaluation in the local currency might even reduce domestic oil sales / demand over the coming months.

Operating expenses and a final comment: The vast majority of EMIR’s operating expenses are paid in local currency, including salaries, oil services rendered, administration fees and lots of taxes to government bodies. Operating expenses are paid from USD revenues. We suspect that the initial impact of the Kazakh devaluation on EMIR’s / MIE’s P&L will be slightly higher operating margins.



Rating

Buy Asia Hong Kong

Transportation Marine

Company

Pacific Basin Shipping Ltd Alert


Company Update

BDI seasonally recovers from Mar onwards; Buy


ADR Ticker ISIN PCFBY US69402P1030

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.



52-week range (HKD) 5.60 - 4.09


Joe Liew, CFA


Stock data




Major shareholders Aberdeen Asset Management

(14.96%)Free float (%) 81


4.9


Key data

FYE 12/31 2012A 2013E 2014E

Sales (USDm) 1,443 1,445 1,718

Net Profit (USDm)

-158.5 20.7 77.3

DB EPS (USD) 0.02 0.02 0.04

PER (x) 19.8 37.7 16.4

Yield (net) (%) 1.3 0.8 3.0


Pacific Basin will announce 2013 results on 27 Feb We have a 2013 net profit forecast of US$20.7m, but if we were to strip away the one-off items in 1H 2013, core net profit forecast is US$33.7m. With the rise in rates in 2H 2013, we expect 2H earnings performance of the company to be much better than the US$0.3m net profit it registered in 1H 2013. At the end of 2013, management were upbeat about the dry bulk shipping industry for 2014 and at least 1H 2015 because of supply growth dropping off. They continue to selectively buy vessels but do acknowledge that opportunities have become more scarce over recent months because asking prices have increased. On 24 Jan 2014, they are announced the acquisition of a 2006-built Handymax for US$22m.

BDI down 48% YTD Typically the BDI is weak at the start of the year because of Chinese New Year shutdowns in China and weather issues at iron ore exporting ports. See charts below for seasonal trends. Rates usually pick up from March onwards and 2Q average rates are typically higher than 1Q. We expect this year to be no different and would urge investors to look into the sector now because we expect lower supply growth this year to be positive for rates.

Decline in BDI partly to blame for lack of share price performance Even though Pacific Basin's operations are focused on the smaller vessels (Handysize and Handymax), movements of the BDI do affect investor sentiment towards the stock. The stock is down 5% YTD and now trades at 0.96x 2014E P/B. Our TP is based on 1.1x 2014E P/B as we expect a move up in rates to drive ROEs to above COE. We have forecast core earnings to more than double this year. Buy.

Figure 2: 20 yrs avg. quarterly BDI Figure 3: 15 yrs avg. monthly BDI

2150220022502300235024002450250025502600

1Q 2Q 3Q 4Q

20 yrs avg. quarterly BDI

2300240025002600270028002900300031003200

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep

Oct

Nov Dec

15 yrs avg. monthly BDI

Source: Deutsche Bank, Clarksons Services Source: Deutsche Bank, Clarksons Services

Figure 1: BHSI chart

0

500

1,000

Jan-1

2

Mar-

12

May-1

2

Jul-12

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-13

Sep-1

3

Nov-1

3

Jan-1

4

Baltic Handysize Index

Source: Deutsche Bank, Clarksons Services



Rating

Hold Asia Hong Kong


Company

SA SA International Alert


Company Update

2014 CNY retail sales performance; in line


ADR Ticker ISIN SAXJY US78513P1003

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.



52-week range (HKD) 9.27 - 6.97


Anne Ling


Stock data




Major shareholders Kwok Family (71%)

Free float (%) 29


6.182


Key data

FYE 3/31 2013A 2014E 2015E

Sales (HKDm) 7,670 8,887 10,345

Net Profit (HKDm)

825.6 1,012.8 1,213.1

DB EPS (HKD) 0.29 0.35 0.42

PER (x) 19.2 21.1 17.6

Yield (net) (%) 3.7 3.5 4.2


Sa Sa’s retail sales growth in HK/Macau for the first seven days of 2014 CNY was relatively low at 6% yoy with SSSG of 3% yoy mainly due to the high base of 2013 CNY. During this period, avg. sales/to Mainland Chinese customers increased by c.20% yoy due to increased traffic, while ticket size dropped by c.10% yoy implying weaker purchasing power. For the period covering the fourth to the tenth day of the CNY, retail sales were up 13% yoy with SSSG of 10%. The company’s Qtd (1 January–9 February 2014) retail sales grew by 19% yoy with SSSG of 14% yoy. Sa Sa remains cautiously optimistic about the HK/Macau retail market for the rest of 4QFY14.

Deutsche Bank view HK/China’s Ytd sales trend was in line with our estimate of 19% for FY14. We believe there is immaterial sales impact of the false claim in Next Media’s article (refer to our alert released on 28 January 2014).

Figure 1: Sales and SSSG performance

Q1 Q2 1H Q3 CNY(3 to 9

Feb) Q4tdHK&MacauYOY retail sales growth +28.1% +13.1% 19.9 16.90% na na naYOY retail sales growth (excl bonus points) na na na 17.40% 6% 13% 19%YOY same store growth +18.6% +8.7% +13.0% 15.20% na na naYOY same store growth (excl bonus points) +14.1% na na 15.80% 3% 10% 14%

380 366 373 430 na na na(+12.4%) (+2.9%) (+7.2%) (+3.1%) na na na

- PRC customers na (-1.1%) (+10.7%) (-1.5%) (-10%) na na - Local customers na na (+5.9%) na na na na

3.9 4.3 8.2 4.8 na na na(+14.0%) (+9.9%) (+11.8%) (+15.4%) na na na

- PRC customers na na na (>+20%) (+20%) na na

YE Mar 14

Total no. of transactions (M)

YE March

Av sales/ transaction (HK$)

Date yoy sales growth SSSG

2010 CNY (14-20 Feb2010) >15% na

2010 Labour Day (1-3 May 2010) >15% na

2010 National Day (1-7 Oct 2010) 13.1% na

2011 CNY (3-9 Feb 2011) 16% na

2011 Labour Day (30 April to 2 May, 2011) 28.0% na

2011 National Day (1-7 Oct 2011) 29.7% na

2012 CNY (23-29 Jan 2012) 17.0% 12%

2012 Labour Day (29Apr-1 May 2012) 15.0% na

2012 National Day (1-7 Oct 2012) 19.5% 12.4%

2013 CNY (10- 16 Feb 2013) c.30% c.20%

2013 Labour Day (29Apr-1 May 2013) 25.0% 17.0%

2013 National Day (1-7 Oct 2013) 11.0% 6.0%

2014 CNY (31 Jan-6 Feb 2014) 6.0% 3.0%

2014 Post CNY (3 Jan-9 Feb 2014) 13.0% 10.0%

Source: Deutsche Bank estimates, company data



Rating

Hold Asia China


Company

Sohu.com Inc


Results

Games facing tough rebuild; Sogou monetization looks imminent

Reuters Bloomberg Exchange Ticker SOHU.OQ SOHU US NSM SOHU



Sales (USDm) 1,067.2 1,400.3 1,744.6 2,285.7 2,943.9

DB EPS FD(USD) 2.53 1.84 -1.41 -0.41 0.78

% Change 0.0% 26.5% -187.3% -117.6% –

DB EPS growth (%) -48.9 -27.4 – 71.1 –

PER (x) 17.8 33.0 – – 92.1

Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items

In-line 4Q; mixed outlook

________________________________________________________________________________________________________________





52-week range (USD) 86.70 - 43.44


Vivian Hao


Alan Hellawell III


Key changes

Price target 74.00 to 78.00 ↑ 5.4%

Sales (FYE) 1,905 to 1,745 ↓ -8.4%


7.0 to -7.3 ↓ -204.0%

Net profit (FYE)

38.5 to -78.3 ↓ -303.1%



30

45

60

75

90

2/12 8/12 2/13 8/13

Sohu.com Inc

HANG SENG INDEX (Rebased)


Absolute -6.5 17.3 55.8

HANG SENG INDEX -5.5 -5.1 -7.0


Sohu delivered in-line 4Q13 top-line of US$385m (+29% YoY) and better-than-expected non-GAAP EPADS at US$0.12 (vs. DBe/cons: US$-0.27/-0.32) due to a one-off tax benefit. Yet the company guides disappointing 1Q14E revs with only ~15% YoY growth, 4~5% short of consensus/DBe and expects bottom-line to swing into red. The Street continues to expect profitability attributable to games segment restructuring and significantly elevated investment across all segments. Although we expect the efforts in reviving the gaming business to weigh on profitability in FY14E, we expect value from other emerging growth trajectories, such as video and Sogou to sustain. Maintaining Hold.

Sogou search + Pinyin a potential breakthrough product on mobile search Brand ad is guided to deliver a solid 40% YoY in 1Q14E, on: 1) improving penetration/CPM of Sohu Focus (RE portal) in lower-tier cities, and 2) ramp-up of monetization of Sohu video. Meanwhile, Sogou recorded US$70.3m 4Q13 rev (+ 71.5% YoY) and Sogou Mobile Pinyin achieved 180m MAU. We anticipate a potential breakthrough opportunity for Sogou monetization on mobile search through: 1) input text smart search, which is likely to be initiated on Sogou mobile Pinyin in late 2014 and 2) social search on more complex search objectives (e.g. social connections), leveraging Tencent’s popular mobile social apps. Yet, Sogou’s breakeven is only expected in 2H14.

Changyou in painful transition Legacy titles including TLBB and DDTank experienced a further decline in active users in 4Q13, even with new EPs. In order to diversify the game rev sources, the company is extensively expanding its PD and S&M team with aggressive offerings (new cash incentive plans).

Tweaking TP to US$78 on improving Sougou monetization visibility Based on a sluggish games outlook and an escalated investment plan, we reduce our FY14/15/16E rev forecast by -8%/-9%/-10% and expect near-term margin deterioration for SOHU due to loss from the games segment. We revise FY14/15/16E EPADS estimate to US$-1.4/-0.4/+0.8 from our prior US$+1.6/+2.3/+2.7. Our new target price of US$78 (+5%) is based on SoTP, with Sogou value (45% of total) raised to $35/shr from $32 and brand ads (10%), games valuation largely unchanged (~12%), based on normalized FY15 profit forecast and a potential privatization premium applied. Maintaining Hold. Key risks: performance of existing and new games, online ad market conditions.



Rating

Buy Asia China


Company

Tencent Alert


Breaking News

Wechat's increasing attractions to offline partners


ADR Ticker ISIN TCEHY US88032Q1094

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 11 Feb 2014 (HKD) 530.00


52-week range (HKD) 543.50 - 237.20


Alan Hellawell III


Vivian Hao


Stock data




Major shareholders Naspers Ltd. (35.45%)

Free float (%) 54


297.0


Key data

FYE 12/31 2012A 2013E 2014E

Sales (CNYm) 43,894 60,713 81,353

Net Profit (CNYm)

12,731.9 15,962.2 21,182.6

DB EPS (CNY) 7.64 9.31 12.36

PER (x) 24.4 44.5 33.5

Yield (net) (%) 0.4 0.2 0.3


Wechat O2O e-commerce with Wang Fu Jing Wang Fu Jing, a listed Beijing-based department chain store operator, yesterday announced it had struck a strategic partnership with Tencent on O2O e-commerce. The cooperation will focus on O2O deals in its department stores through Wechat public accounts, supported by Wechat Payment. Trial services will commence on 14 Feb in Wang Fu Jing’s flagship store in Beijing. We expect Tencent to help Wang Fu Jing build its Wechat store, while introducing some offline brands onto the platform. We also expect the offline stores to offer Wechat-only promotions and e-coupons through public accounts or in-store QR codes, etc. We view the partnership as another step by Tencent to build its Wechat O2O ecosystem, which should set a model for offline retailers to consider more e-commerce exposure through similar cooperation.

Wechat internet finance with SinoLink Securities SinoLink Securities, a domestically listed stock broker, has just announced more detail relating to its partnership with Tencent (signed in Nov 2013). The cooperation will cover: 1) promoting SinoLink’s online stock broking platform through Tencent’s portal and apps 2) jointly developing an internet finance platform, selling finance products with Tenpay’s clearance support and 3) organizing offline events. We are very interested in Tencent and SinoLink’s joint efforts in building SinoLink’s Wechat public account. We expect the newly designed public account to provide a wider range of personal financial services/products to Wechat users other than the existing fund products.

Wechat key to driving internet penetration With internet penetration accelerating thanks to the widely adoption of portable internet devices (smartphones, tablets, etc), we expect some verticals with larger offline exposure; such as finance, retail, education; to see exponential growth in the short to mid-term. We believe Tencent, leveraging Wechat’s large user base and user time spent, to be well positioned in the process. Tencent’s three recent online-offline partnerships (SinoLink Securities, China South City, Wang Fu Jing) all involve Wechat. With offline players increasingly aware, and desirous, of online exposure, we expect more cooperation to take place in the near future, and for Wechat to play a key role.

4Q13 preview; maintaining TP and Buy We expect 4Q13 top-line of Rmb17.2b vs. consensus of Rmb16.7b. Our Non-GAAP EPADS est. is HK$3.3 vs. consensus of HK$2.9. Key areas of focus: mobile game performance, e-commerce competition, WeChat monetization. Maintaining TP and Buy.



Rating

Hold Asia Taiwan

Technology Semiconductor & Equipment

Company

Novatek Microelectronics


Forecast Change

Healthy outlook for 2014; maintaining Hold based on valuation

Reuters Bloomberg Exchange Ticker 3034.TW 3034 TT TAI 3034



Sales (TWDm) 35,034 37,011 41,450 48,426 53,767

Net Income 3,695 4,437 4,745 5,549 5,998

DB EPS FD(TWD) 6.16 7.36 7.80 9.12 9.86

OLD DB EPS FD(TWD) 6.16 7.36 7.61 8.22 8.71

% Change 0.0% 0.0% 2.4% 10.9% 13.2%

DB EPS growth (%) -19.9 19.5 6.0 17.0 8.1

PER (x) 13.5 13.0 16.7 14.3 13.2

DPS (net) (TWD) 5.80 4.60 5.58 6.03 7.05

Yield (net) (%) 7.0 4.8 4.3 4.6 5.4

ROE (%) 16.7 19.2 19.5 21.8 22.0


SOC and rising panel resolution driving growth

________________________________________________________________________________________________________________



Price at 12 Feb 2014 (TWD) 130.50

Price target - 12mth (TWD) 132.00

52-week range (TWD) 156.50 - 107.00

TWSE 8,431

Jessica Chang


Key changes

Price target 115.00 to 132.00 ↑ 14.8%

Sales (FYE) 40,784 to 41,450 ↑ 1.6%


- ↑ 0.2%

Net profit (FYE)

4,632.5 to 4,745.0

↑ 2.4%



60

80

100

120

140

160

2/12 8/12 2/13 8/13

Novatek Microelectro

TWSE (Rebased)


Absolute 2.0 16.0 11.1

TWSE -1.2 2.9 6.6


Stock data

Market cap (TWDm) 79,411



Free float (%) 87


16.1


Key indicators (FY1)

ROE (%) 19.5

Net debt/equity (%) -48.7

Book value/share (TWD) 40.3

Operating profit margin (%) 13.1


We expect Novatek to benefit from continued rising resolutions for LCD panels as seen by TVs moving to 4Kx2K and smartphone to HD720 and full HD. Meanwhile, long-time efforts on the SOC line are starting to bear fruit with good progress on TV controller IC and FRC IC. Although competition remains intense, we think positive product mix changes help maintain stable GMs.

Sound 2013 results Novatek finished 2013 with growth of 12% and 7% in sales and earnings, which we see as fairly sound. 4Q13 sales totaled NT$10.6bn, up 0.3% QoQ and down 0.8% YoY, beating DBe and guidance (a QoQ decline of less than 10%), thanks to customer restocking of large-sized panel driver ICs before CNY for both the IT and TV segments. GMs slightly dipped to 27.4% from 28.0% in 3Q13 on product mix changes and price pressure. Net income for 4Q13 reached NT$1.19bn, 10% higher than DBe. We see the results as good.

1Q14 above seasonal Novatek guides 1Q14 sales of NT$10.3-10.7bn (down 2.9% to up 0.8% QoQ), stronger than seasonality while slightly below the market’s latest optimistic expectations of up 0-5% QoQ. Novatek guides GMs/operating margins of 27-28%/12-14%, in line with our expectations. It anticipates soft sales in the large-sized panel segment, while mobile (supported by moving to HD720 from WVGA) should be flat and SOC should enjoy sequential growth.

Maintaining Hold with target price raised to NT$132; risks We incorporate Novatek’s 4Q13 results and increase our FY14E EPS by 10.9%, mainly on a stronger sales outlook. We thus raise our target price from NT$115 to NT$132 based on 14.5x FY14E EPS. We slightly raise our FY14 PER multiple from 14x to 14.5x to reflect moderate earnings increases, which seems reasonable given Novatek’s trading range of 12-15x. We like Novatek’s healthy outlook but we rate it Hold on fair valuation. Risks: 1) fast/slow migration to HD720 (mobile phone) and UHD (TV); 2) easing/intensifying competition.



Rating

Buy Asia South Korea

Resources Metals & Mining

Company

Hyundai Hysco Alert


Results

2013 review of new entity; solid earnings and margin


________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (KRW) 47,250


52-week range (KRW) 48,200 - 25,650

KOSPI 1,932.06

Chanwook Park


Emily Yi


Stock data

Market cap (KRWbn) 1,078



Major shareholders Hyundai Motor (29.37%)


8.265

Free float(%) 36


Key data

FYE 12/31 2012A 2013E 2014E

Sales (KRWbn) 8,405 8,055 4,485

Net Profit (KRWbn)

260 384 123

DB EPS (KRW) 3,290 4,821 5,403

PER (x) 12.8 9.8 8.7

Yield (net) (%) 0.6 0.5 0.5


2013 review of new entity We believe that the 2013 financial data of Hysco’s new entity post split-off (67% of revenue from overseas processing subsidiaries/33% from pipe and others) shows solid earnings and margins. Despite a revenue decline of -4% YoY to W4.05tr on a fall in pipe price (overseas CRC processing revenue +12.3% YoY), OP grew 59% YoY to W161bn in 2013 (OPM improved to 4% from 2.4%). We estimate that overseas subsidiaries’ OPM reached ~6% (exc. internal transactions) vs. a loss in the pipe division.

2014 guidance seems conservative For 2014, Hysco provided revenue guidance of W4.1tr (+1.4% YoY) with overseas subsidiaries revenue growth at +1.3%. While the company attributes the weak guidance to a potential automotive CRC price decline and strong KRW against US$ (W1,050/US$ assumption), we believe the guidance is conservative and maintain our revenue/OP growth forecast of 11-12% considering ~10% sales volume growth for HMG in overseas markets. In addition, we believe a 4% OPM assumption is not aggressive given a potential turnaround of the pipe business.

Potential turnaround of pipe business During the earnings conference, management indicated that Hysco will strive to turn around the pipe business through the restructuring of HRC sourcing. Currently, Hysco purchases ~70% of HRC for pipe from Hyundai Steel with a higher price than imported HRC. We think the effort to lower input costs could trigger a possible turnaround of the pipe business in 2014.

Key summary of earnings conference Debt plan – Hysco aims to reduce its parent debt to equity ratio from 123% to 90% via the disposal of its Hyundai Steel stake. Resource business – Although it plans to spend W47bn capex on a previous resource project, Hysco does not intend to expand the business. Expansion of overseas subsidiaries – Hysco plans to scale up overseas subsidiaries upon a final decision on HMG overseas expansion. Currency – Most overseas subsidiaries revenue (~84%) is in US$.

Figure 1: 2013 review and 2014 guidance of new entity

(Wbn) 2012A 2013A YoY (%) 2014

GuidanceYoY (%) 2014E YoY (%)

Total revenue 4,215 4,046 -4% 4,104 1% 4,485 11%

Overseas 2,606 2,730 5% 2,765 1% 3,112 14%

Pipe and others 1,609 1,316 -18% 1,339 2% 1,373 4%

OP 101 161 59% n/a 181 12%

OP margin (%) 2% 4% n/a 4%Source: Deutsche Bank estimates, Company Data



Rating

Hold Asia South Korea


Company

NCSOFT Alert


Results

First impression - in-line 4Q could suggest no upside to B&S China


________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 11 Feb 2014 (KRW) 204,000


52-week range (KRW) 248,500 - 133,000

KOSPI 1,932.06

Hanjoon Kim


Dan Kong


Stock data

Market cap (KRWbn) 4,484



Major shareholders Nexon (14.7%)

Free float (%) 76


45.934


Key data

FYE 12/31 2012A 2013E 2014E

Sales (KRWbn) 754 753 1,081

Net Profit (KRWbn)

155.8 157.0 340.0

DB EPS (KRW) 7,088 7,141 15,467

PER (x) 34.8 28.6 13.2

Yield (net) (%) 0.2 0.3 0.6


4Q revenue and OP broadly in-line with DBe NCSOFT reported headline 4Q13 financials ahead of its scheduled earnings call on Thursday, Feb 13, 2014. Rev and OP of 210bn and 57bn are virtually in line with our estimate and slightly ahead of Street. Detailed breakdown of revenue is not yet available.

See no strong upside earnings revision momentum at initial glance For the first time, in 4Q13 financials the company reports royalty revenue from B&S China. Information from its more detailed earnings release will be the foundation for updating our 2014 outlook, but the broadly in-line consolidated revenue could suggest our model for B&S China may not need a lot of revision. Reiterate Hold.

Figure 1: 4Q13 earnings summary

NCSOFT (Wbn) 4Q13A 4Q13 DBe Dif f 4Q13 Cons. Dif f 3Q13 QoQ

Revenue 210 206 2% 195 8% 170 24%

EBIT 57 57 0% 52 10% 31 85%

NP 46 45 1% 48 -5% 25 80%

EBIT margin 27.0% 27.5% 26.5% 18.1%

NP margin 21.8% 22.0% 24.5% 15.0%

Source: Deutsche Bank, Bloomberg Finance LP *As of 12 Feb 2014



Rating

Buy Asia Indonesia

Health Care Pharmaceuticals / Biotechnology

Company

Kalbe Farma Alert


Results

Unaudited FY13 results were in-line with DBe with net profit +11% yoy

Reuters Bloomberg Exchange Ticker KLBF.JK KLBF IJ JKT KLBF

________________________________________________________________________________________________________________


This research has been prepared in association with PT Deutsche Bank Verdhana Indonesia. The opinions contained in this report are those of PT Deutsche Bank Verdhana Indonesia.


MICA(P) 054/04/2013.

Price at 12 Feb 2014 (IDR) 1,410

Price target - 12mth (IDR) 1,520

52-week range (IDR) 1,540 - 1,110

Jakarta Comp. Index 4,470.19

Reggy Susanto, CFA


I Ketut Adi Putra

PT Deutsche Bank Verdhana IndonesiaResearch Associate (+62) 21 2964 4543 [email protected]

Stock data

Market cap (IDRbn) 66,089



Major shareholders Gira Sole Prima (9.4%)

Free float (%) 46


6.225


Key data

FYE 12/31 2012A 2013E 2014E

Sales (IDRbn) 13,636 16,091 18,724

Net Profit (IDRbn)

1,733.9 1,931.8 2,265.5

DB EPS (IDR) 38 41 48

PER (x) 21.4 34.2 29.2

Yield (net) (%) 2.6 1.1 1.3


FY13 sales and net profit were up by +17% yoy and +11% yoy KLBF reported FY13 sales of Rp16tr (+17% yoy) and net profit of Rp1.92tr (+11% yoy), which were in-line with DBe – accounting for 99% of our forecasts and 97% of consensus. As of 4Q13, sales reached Rp4.6tr (+16% yoy, +14% qoq), with fastest growth in nutritionals (24% of sales) at 26% yoy. Net profit reached Rp556bn (+13% yoy, +25% qoq), gross margin was down by -260bps qoq due to weak IDR during the quarter, though offset by improvement in opex (down to 30% of sales from 33% of sales in 3Q13). We maintain Buy.

Guiding for 14-16% sales growth and 15%-17% net profit growth in 2014 KLBF is guiding for sales growth of 14%-16% this year (slower compared to 17% in 2013 due to slowdown in 3rd party distribution), operating margin of 16%-17% (slightly higher compared to 15.9% in 2013) and EPS growth of 15%-17%. Capex is projected to be at Rp1-1.2tr.

Lower dividend payout due to higher working capital needs Dividend payout is expected to be at 40% as management has taken a strategic view to have more inventory of raw material (esp. skim milk powder) to protect against rupiah and price volatility. Net operating cycle was up to 132 days in 2013 (vs. 114 days in previous year) driven by higher inventory days at 134 days (vs. 107 days in previous year).

Figure 1: KLBF quarterly results

in Rp bn 1Q13 2Q13 3Q13 4Q13 Unaudited

FY13 DB

FY13F % of DB Cons. % of cons.

Sales 3,490 3,931 4,019 4,568 16,008 16,091 99% 15,974 100%Gross profit 1,688 1,934 1,948 2,097 7,668 7,711 99% 7,722 99%EBIT 576 637 619 713 2,545 2,631 97% 2,581 99%Net profit 444 478 444 556 1,922 1,932 99% 1,977 97%

Sales YoY 16% 21% 16% 16% 17%GP YoY 15% 22% 17% 16% 17%EBIT YoY 12% 24% 15% 10% 15%Net profit YoY 10% 18% 2% 13% 11%

Sales QoQ -11% 13% 2% 14% GP QoQ -7% 15% 1% 8% EBIT QoQ -11% 11% -3% 15% Net profit QoQ -10% 8% -7% 25%

Gross margin 48.4% 49.2% 48.5% 45.9% 47.9% 47.9% 48.3%EBIT margin 16.5% 16.2% 15.4% 15.6% 15.9% 16.4% 16.2%Net margin 12.7% 12.2% 11.1% 12.2% 12.0% 12.0% 12.4%Source: Deutsche Bank



Rating

Buy Asia Thailand


Company

AIS


Results

Gearing up for data growth

Reuters Bloomberg Exchange Ticker ADVA.BK ADVANC TB SET ADVA

ADR Ticker ISIN AVIFY US00753G1031

________________________________________________________________________________________________________________




Price at 10 Feb 2014 (THB) 211.00


52-week range (THB) 310.00 - 187.00

SET 1,291

Joe Phanich



120

160

200

240

280

320

2/12 8/12 2/13 8/13

AIS SET (Rebased)


Absolute 5.8 -7.5 6.2

SET 2.8 -8.1 -13.8


AIS reported a 4Q13 NP of Bt 8.816bn, up 5.7% QoQ, and up 4.2%YoY. The result was in line with our estimate of Bt8.811 bn. The company's reported NP is Bt 36.274 bn for the full fiscal year. We have a Buy rating on this growth-story name, underpinned by the upside potential to our target price. Key points from the conference call are as follows:

AIS management outlined a Capex of Bt40bn in 2014, with the aim of achieving 95% population coverage with 20,000 BTS, small cells and optic fiber roll out.

The company also plans to achieve 75% migration by end of this year (vs 16.4m or 40% of total subscribers as of end 2013), with 50% using 3G handsets.

Despite the regulatory cost reduction from rapid 3G migration, AIS expects to maintain its EBITDA margin at 44%. The board has also approved a dividend payment of Bt5.75/share (ex dividend date on 28th March).

Our take:

Should AIS follow through with its new rollout budget, this will likely result in a much higher increase in D&A expenses than we have anticipated (the company indicated 18% increase in 2014). Nonetheless, it remains to be seen whether the company will spend the full Bt40bn amount. Note that AIS spent Bt28bn rolling out 13.2k base stations in 2013, and it plans to roll out 7,000 additional stations in 2014.

Rapid network rollout is critical for AIS as the company is planning to ramp up its data revenue this year. By our estimate, the company’s top line guidance of 6-8% growth indicates that it is planning to grow its data revenue by nearly 60% (compared with 20% growth in recent years).

In our view, the key challenge for the company is migrating the mid to low end subscribers without resorting to massive handset subsidies.

Our target price for AIS is based on a DCF; we assume a cost of equity of 12.1%, using a market risk-free rate of 3%, a risk premium of 9.7%, average cost of debt of 7.6%, average WACC of 8.3%, and a terminal growth rate of 0%, based on long-term growth of free cash flow. Risks include increased off-network calls, higher-than-expected marketing costs, higher-than-expected tower leasing terms, higher than-estimated upfront license fees, penalty fees for past concession amendments, and termination of existing concession.



Rating

Sell Asia Thailand


Company

BIGC Alert


Results

4Q13 earnings beat expectation

Reuters Bloomberg Exchange Ticker BIGC.BK BIGC TB SET BIGC

________________________________________________________________________________________________________________




MICA(P) 054/04/2013.

Price at 11 Feb 2014 (THB) 178.50


52-week range (THB) 247.00 - 171.00

SET 1,296

Chalinee Congmuang


Stock data

Market cap (THBm) 147,262



Major shareholders –

Free float (%) 37


1.287


Key data

FYE 12/31 2012A 2013E 2014E

Sales (THBm) 120,062 126,998 140,761

Net Profit (THBm)

6,073.8 6,047.7 7,033.2

DB EPS (THB) 7.36 7.63 8.53

PER (x) 24.5 23.4 20.9

Yield (net) (%) 1.2 1.2 1.4


BIGC announced 4Q13 net profit of Bt2,636m (+41% YoY and +92% QoQ). With 4Q13 SSSg of -4.7%, BIGC sales came in at Bt30,851m (+1.6% YoY and 6.7% QoQ). The announced 4Q13 net profit beat Bloomberg consensus and our estimates by 54%.

FY13 net profit came in at Bt6,976m, up by 15% YoY. With flat SSSg and new expansions, BIGC’s 2013 sales came in at Bt118,177m, up by 5.6%. BIGC’s FY13 earnings beat Bloomberg consensus and our estimates by 15%.

The margin increased significantly. Despite the weak top line and SSSg outlook, BIGC’s 4Q13 earnings beat our expectation as a result of significantly higher GPM. BIGC’s 4Q13 GPM came in at 18.3%, up from 13.2% in 3Q13 and 15.2% in 4Q12. A strong increase in GPM resulted in a solid EBIT margin of 10.4%, increasing from 6% in 3Q13 and 8.3% in 4Q12. The key reasons for the significant improvement in GPM are improvement in logistics cost optimization, productivity enhancement initiatives and continued negotiations with suppliers.

We maintain Sell at a target price of Bt153. While this earnings surprise could result in a positive share price reaction for the group, we still doubt BIGC’s ability to maintain this strong improvement in GPM. In addition, we continue to believe that with its inferior growth outlook due mainly to competition among hypermarkets, BIGC deserves to be trading at a lower P/E level than that at which it is trading currently.

BIGC also announced a dividend payment of Bt2.55/share, implying 1.4% yield or 30% payout. XD and payment date are April 17 and May 7 respectively.

Figure 1: BIGC’s consolidated earnings

B t , m 4 Q 12 3 Q 13 4 Q 13 % Q o Q % Y o Y 12 M 13 % Y o YS a le s R e v e n u e 3 0 ,3 5 2 2 8 ,9 0 5 3 0 ,8 5 1 6 .7 1.6 118 ,17 7 5 .6

S e rv ic e s R e v e n u e 2 ,0 6 2 2 ,19 4 2 ,2 3 7 2 .0 8 .5 8 ,7 4 5 10 .3

G ro s s P ro f it 7 ,7 0 9 7 ,0 8 5 9 ,16 1 2 9 .3 18 .8 3 0 ,7 2 9 10 .7

S & A E xp e n s e s 4 ,9 3 4 5 ,14 2 5 ,5 7 4 8 .4 13 .0 2 0 ,9 3 6 12 .4

In t e re s t E xp e n s e 3 0 9 2 4 7 2 8 0 13 .1 -9 .5 1,0 5 3 -18 .7

N e t P ro f it b e f o re E xt ra . It e m s 1,8 7 6 1,6 2 2 2 ,6 3 6 6 2 .5 4 0 .5 7 ,2 2 4 18 .9

N e t P r o f i t 1, 8 7 6 1, 3 7 4 2 , 6 3 6 9 1. 9 4 0 . 5 6 , 9 7 6 14 . 8E P S (B t ) 2 .3 2 .0 3 .2 6 2 .5 4 0 .5 8 .8 18 .9

E B IT D A 3 ,6 7 5 2 ,8 4 5 4 ,5 4 7 5 9 .8 2 3 .7 13 ,4 11 6 .9

E B IT 2 ,7 7 5 1,9 4 3 3 ,5 8 7 8 4 .6 2 9 .3 9 ,7 9 3 7 .2

S S S G (%) 12 .1 0 .0 -4 .7 0 .0

R e t a il s a le s g ro s s m a rg in (%) 15 .2 13 .2 18 .3 14 .1

E B IT m a rg in (%) 8 .3 6 .0 10 .4 6 .8

E B IT D A m a rg in (%) 11.0 8 .8 13 .2 9 .3

S & A E xp e n s e s (% o f T o t a l R e v .) 16 .3 17 .8 18 .1 15 .8

N e t P ro f it M a rg in (%) 4 .6 3 .5 6 .1 3 .7

Source: Company data



Rating

Hold Asia Thailand

Resources Construction Materials

Company

Siam City Cement Alert


Results

Lower gross margin and maintenance cost hurt 4Q13

Reuters Bloomberg Exchange Ticker SCCC.BK SCCC TB SET SCCC

________________________________________________________________________________________________________________




MICA(P) 054/04/2013.

Price at 11 Feb 2014 (THB) 354.00


52-week range (THB) 500.00 - 350.00

SET 1,291



Stock data

Market cap (THBm) 81,420



Major shareholders Sunrise Equity Co (32%)

Free float (%) 26


1.2


Key data

FYE 12/31 2012A 2013E 2014E

Sales (THBm) 26,427 30,166 33,506

Net Profit (THBm)

3,635.7 5,079.7 5,543.2

DB EPS (THB) 15.81 22.09 24.10

PER (x) 21.6 16.0 14.7

Yield (net) (%) 3.8 4.5 5.1


4Q13 profit fell short of our target due to lower-than-expected gross margin SCCC posted a weak 4Q13 net profit of only Bt752m, down 0.6% YoY and 38% QoQ. Excluding an FX loss of Bt121m, its normalized profit would have been Bt873m, up 14% YoY but down 28% QoQ. The earnings growth YoY is due mainly to: 1) 15.4% sales growth from continued solid domestic demand for cement (+8% YoY) and RMC (+36% YoY); and 2) improved gross margin from 41.2% in 4Q12 to 41.6%, mainly due to the higher cement price and lower coal cost that helped to offset rising electricity charges, maintenance costs and minimum wage. The QoQ drop is mainly due to: 1) a 4.2% drop in cement sales from seasonal factors; 2) a narrowed gross margin, from 45.6% in 3Q13 to 41.6%, as the fixed cost per unit rose from a lower utilization rate during a kiln shutdown for maintenance this quarter; and 3) a 6.7% rise in S&A expenses from maintenance costs incurred during a kiln shutdown. Maintaining forecasts and Hold rating with a target price of Bt404 The results are weaker than our estimates due mainly to the lower-than-expected gross margin, as we underestimated the impact from the kiln shutdown for maintenance. However, this is not recurring, so we maintain our forecasts for 2014-15 as well as our target price of Bt404 that is based on a 2014F PER of 16.8x (derived from its five-year historical average). We maintain our Hold rating. Upside risks are higher-than-expected demand and cement price hike. Downside: weakening demand, political instability, price war and higher coal prices.

Figure 1: Consolidated quarterly results (Bt, m)

4Q12 1Q13 2Q13 3Q13 4Q13 %YoY %QoQSales 6,398 7,579 7,484 7,502 7,384 15.4% -1.6% Cement & Clinker 5,110 6,184 5,861 5,778 5,537 8.4% -4.2% Ready-mixed Concrete 1,637 1,774 2,012 2,117 2,226 36.0% 5.1% Other Business 360 375 370 389 402 11.7% 3.3%Gross Profit 2,635 3,333 3,601 3,423 3,070 16.5% -10.3%S&A Expenses 1,703 1,840 1,748 1,859 1,984 16.5% 6.7%Interest Expense 66 69 73 84 79 20.1% -5.3%Equity Income 66 81 104 40 59 -10.9% 47.1%Norm profit 765 1,238 1,589 1,218 873 14.1% -28.3%Extra items -9 -20 26 -6 -121 0.0% 0.0%Net Profit 756 1,218 1,615 1,212 752 -0.6% -38.0%EPS (Bt) 3.29 5.30 7.02 5.27 3.27 -0.6% -38.0%EBITDA 1,255 1,810 2,191 1,883 1,374 9.4% -27.0%Gross Margin (%) 41.2 44.0 48.1 45.6 41.6 Cement & Clinker 40.5 43.0 48.4 45.4 41.3 Ready-mixed Concrete 25.2 28.8 30.2 29.6 27.3 Other Business 43.3 43.2 42.4 44.7 44.0Norm profit margin (%) 12.0 16.3 21.2 16.2 11.8Net Profit Margin (%) 11.8 16.1 21.6 16.2 10.2

Source: Company Data



Asia Thailand

Strategy

Thailand Strategy


Strategy Update

Malaise spreads to property

January monthly pre-sales half the past six months average

________________________________________________________________________________________________________________




Derek Bloomfield, CFA


Residential property presales for the seven companies under Nash Shivaruchiwong’s coverage totaled Bt6.5bn in Jan, up from Bt4.7bn in Dec but still down 60% from the Bt16bn FY2013 monthly average. Similar to other investment-category indicators such as PII (down 8% YoY for both Nov and Dec), the hit to confidence from political turmoil continues to affect big-ticket outlay demand decisions more so than smaller-ticket more resilient consumption demand (PCI was flat for Dec). Among the residential developers, Nash still prefers LH and QH whose low-rise heavy business carries a lesser degree of backlog cancellation risk vs. condominium specialists.

Results: BIGC above, ADVANCE and JAS in line, DTAC and SCCC below Among the first wave of non-financial sector companies to report 4Q13 earnings: BIGC beat expectations substantially on surprise expansion in gross margins. However SSSG remained negative and we lack confidence that the GM expansion is sustainable; maintain Sell. ADVANC earnings were in line with consensus and our forecasts whilst management outlined aggressive capex guidance for 2014 to expedite subscriber migration to 3G this year. We maintain a Buy rating mainly for earnings growth prospects in 2015/16, despite a cost-heavy earnings soft patch the next 2-3 quarters. JAS earnings for 4Q13 grew 60% YoY, in line with our forecasts but slightly below consensus; we rate the stock on Buy on resilience of demand for broadband in the upcountry market where JAS is monopoly provider. DTAC’s profits missed expectations on impairment charges for their concession 2G business, restricting dividend payout for the quarter; Hold. SCCC’s earnings missed expectations owing to worse than expected hit to margins from a kiln maintenance shutdown during 4Q13; maintain hold on concerns of decelerating rate of growth in cement demand.

Nothing new of great significance to report on politics Events on the political front in recent days have not been overly significant and generally support our stance that formation of a new government still looks months away and that confidence, particularly in the area of investment, will remain subdued as a consequence:

The caretaker government has rebuffed the EC’s call for a royal decree to set a date for voting in the 28 constituencies which fielded no candidate in the Feb 2 elections (thus precluding a quorum of 475/500). Pheu Thai’s reasoning is that this may be cited as grounds for the opposition to seek nullification of the elections since they would not have occurred the same day nationwide as required by statute.

The caretaker government however approved a draft royal decree to set the Senate election date for Mar 30. Recall that of 150 senators the 77 elected senators’ terms end Mar 1. We gather that a number of opposition politicians who boycotted the Feb 2 election will take this opportunity to vote and thus not be stripped of their right to stand for future office. Recall that by law this right is stripped from those who decline to vote in an election, but the right is restored if they vote in a subsequent election.

Sonthiyarn Chuenruethai-naitham, one of 19 PDRC leaders and owner of T-news agency, was arrested by police this week during lunchtime at a shopping mall.

Lastly, the commerce minister yesterday re-confirmed that the rice pledging scheme will end once-and-for-all this month at the close of the harvest season. The program since inception required annual renewal and could not have been renewed for next year’s harvest in any case, pending the delayed formation of a new government.



Rating

Hold Asia Philippines


Company

Universal Robina Corp. Alert


Results

1QFY14 EBIT +42% YoY; ahead on strong domestic BCF

Reuters Bloomberg Exchange Ticker URC.PS URC PM PHS URC

ADR Ticker ISIN UVRBY US9138032019

________________________________________________________________________________________________________________


This research has been prepared in association with Deutsche Regis Partners, Inc. The opinions contained in this report are those of Deutsche Regis Partners, Inc.


MICA(P) 054/04/2013.

Price at 12 Feb 2014 (PHP) 122.80

Price target - 12mth (PHP) 127.00

52-week range (PHP) 133.50 - 93.00

MANILA S.E.COMPOSITE 6,106

Carissa Mangubat

Deutsche Regis Partners, Inc. Research Analyst (+63) 2 894 6647 [email protected]

Stock data

Market cap (PHPm) 267,888



Major shareholders JG Summit Holdings (56%)

Free float (%) 36


6.5


Key data

FYE 9/30 2012A 2013E 2014E

Sales (PHPm) 71,202 82,354 93,768

Net Profit (PHPm)

7,735.7 9,191.7 10,478.7

DB EPS (PHP) 3.38 4.21 4.80

PER (x) 16.8 29.1 25.6

Yield (net) (%) 3.3 2.0 2.9


EBIT margin

1QFY13 4QFY13 1QFY14

Domestic BCF 11.4% 13.1% 15.1%

Int'l BCF 9.6% 8.8% 10.5%

CFG 32.7% 50.0% 45.3%

AIG 8.0% 3.3% 8.8%

URC 11.7% 12.6% 14.7%

Source: Company data

1QFY14 broadly in line, EBIT trending ahead URC reported 1QFY14 (Oct-Dec) net profit of P2.86bn (+26% YoY), in line with our FY14E mainly due to a higher effective tax rate. Core operations, however, are trending above our estimates largely due to margin expansion. EBIT jumped 42% YoY to P3.3bn (FY14E P11.4bn, ahead), with margin expanding 300bps YoY to 14.7%.

Strong performance from domestic branded consumer food (BCF) The outperformance was due to the strong growth of the domestic BCF. Net sales rose 26% YoY (+20% in FY13), partly from low base effects resulting from supply chain issues in 1QFY13. Major categories, however, posted strong growth – beverage sales surged +44% YoY, while snack foods accelerated during the quarter (+20% YoY vs +10% in FY13). A combination of operating leverage and lower input prices resulted in a 67% YoY jump in EBIT and margin expansion by 370bps to 15.1%.

International operations still challenged; weakness in Vietnam URC’s international BCF group continued to be challenged, with sales rising only 9% YoY (+3% in USD terms). While its Thailand business showed signs of recovery, Vietnam grew only 4% YoY (in USD terms) versus +15% in FY13. The softness was attributed to weather conditions, which affected beverage sales. There was also downward pressure on prices as the weak demand resulted in overstocking. A recovery, however, is expected during the summer months.

Possible margin pressure seen; JV with Calbee of Japan announced Management expects to maintain BCF margins at current levels for the next couple of quarters as prices of key inputs (sugar, cocoa powder) appear to be stable for now. While some inputs (dairy, palm oil) are seeing upward pressure, URC says it may raise prices to protect its margins. The company also announced that it has been in talks with Calbee of Japan (2229.T) for a JV in the Philippines. Details have not been disclosed, though both parties are aiming to come to a definitive agreement in 2QCY14.

Figure 1: Quarterly results summary (Pmn) 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 QoQ YoY

Revenue 20,084 20,233 19,775 20,913 22,705 9% 13%

EBIT 2,353 2,548 2,735 2,638 3,342 27% 42%

Net profit to common 2,278 3,129 3,034 1,571 2,860 82% 26%

EBIT margin 11.7% 12.6% 13.8% 12.6% 14.7% 2.1 3.0 Source: Deutsche Bank, company data (*Domestic and International)



Rating

Hold Asia India

Resources Construction Materials

Company

Ambuja Cements Ltd Alert


Company Update

Mining kept in abeyance at Ambuja's Himachal units

Reuters Bloomberg Exchange Ticker ABUJ.BO ACEM IN BSE ABUJ

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 11 Feb 2014 (INR) 160.90


52-week range (INR) 210.90 - 155.05

BSE 30 20,363



Manish Saxena


Stock data

Market cap (INRm) 218,643



Major shareholders Promoters (46.47%)

Free float (%) 49


3.9


Key data

FYE 12/31 2012A 2013E 2014E

Sales (INRm) 96,816 90,868 98,950

Net Profit (INRm)

12,970.6 9,568.5 10,740.7

DB EPS (INR) 10.27 6.21 6.95

PER (x) 17.3 25.9 23.1

Yield (net) (%) 2.0 2.2 2.0


Ambuja Cements, in an exchange filing indicated that limestone (key raw material for cement production) mining has been kept in abeyance at its Himachal Units. Three key takeaways ** Firstly, the Himachal units (30% of its clinker capacity) are far more profitable for Ambuja Cements given their lower lead distances to the large consumption centers of Punjab, Uttarakhand and NCR region. ** Secondly, this is the second instance of an ongoing operation in Himachal (apart from Jaypee group’s captive thermal power unit issue in Feb 2012) being asked to stop operations for environmental reasons. ** Lastly, if this issue persists for more than a week (as cement companies normally carry clinker inventory for a week), players such as ACC and Jaiprakash who have operations in that neighborhood or players with new capacity expansions like Shree and UltraTech stand to gain. In addition, such instances of supply shocks could also help improve the pricing in the region.

We maintain estimates and retain Hold; Prefer Shree, UltraTech in the sector At our end, we maintain our below consensus earnings (c20% below Bloomberg consensus) as of now for Ambuja and Maintain Hold on the stock given current valuations of EV/t of US$ 105/t. Shree and UltraTech remain our key sector picks.



Rating

Buy Asia India

Automobiles & Components

Company

Apollo Tyres Ltd Alert


Results

3QFY14: Strong performance continues; maintain Buy

Reuters Bloomberg Exchange Ticker APLO.BO APTY IB BSE APLO

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (INR) 118.40


52-week range (INR) 118.60 - 56.40

BSE 30 20,363

Amyn Pirani


Srinivas Rao, CFA


Stock data




Major shareholders Kanwar family (43%)

Free float (%) 57


0.0


Key data

FYE 3/31 2013A 2014E 2015E

Sales (INRm) 127,946 129,106 133,954

Net Profit (INRm)

6,126.0 6,767.6 7,738.2

DB EPS (INR) 12.15 13.43 15.35

PER (x) 7.1 8.8 7.7

Yield (net) (%) 0.6 0.8 1.0


Apollo’s 3QFY14 results were better than consensus forecasts even after adjusting for one-time gains. EBITDA margins in Europe (36% of EBITDA) were close to the peak of 22% in a seasonally strong quarter while margins in India (62% of EBITDA) remained robust at 12.4%. FCF generation remained strong resulting in net debt declining 50% QoQ to Rs 12.5bn (leverage of 0.3x). Our positive stance on Apollo is premised on the improving outlook for high performance tyres (HPT) in Europe and an expected demand recovery in India. Maintain Buy on the stock with a target price of Rs 136. Stock currently trades at 7.7x FY15E P/E – a 25% discount to global peers.

Results scorecard (adjusting for one-offs; see table below) Revenue – Rs 35bn (+8% YoY), EBITDA – Rs 4.8bn (+27% YoY), EBITDA margin – 13.9% (+160bps QoQ), PAT – Rs 2529mn (+40% YoY).

Management commentary and other highlights: ** Volume and pricing – strong volume growth of 4% YoY and 14% YoY in the India and Europe businesses respectively. Pricing competition continued in Europe (-5% YoY) while India saw a 1% increase. ** Outlook for India – replacement demand for both truck and car tyres is growing slightly (4-5%) while OEM demand remains weak. This trend is likely to continue. ** Outlook for Europe – the HPT segment is growing fast and Apollo is gaining share. However, the company may face capacity constraints in FY15. ** Capex – maintenance capex for the company is cRs 2bn. However, the company is evaluating two greenfield opportunities – Europe and Thailand – which would involve an outlay of $300-350mn each over a period of 4-5 years.

Figure 1: Apollo Tyres (consolidated) – quarterly trends Rs m 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Revenues 31,647 33,748 32,173 30,378 31,899 34,335 34,851

growth (% YoY) 12.1% 17.5% -0.3% -6.0% 0.8% 1.7% 8.3%

EBITDA 3,516 3,669 3,822 3,559 3,935 4,220 4,847

EBITDA margin (%) 11.1% 10.9% 11.9% 11.7% 12.3% 12.3% 13.9%

Recurring PAT 1,380 1,522 1,806 1,249 1,659 2,195 2,529

growth (% YoY) 78.9% 95.7% 41.7% -8.8% 20.2% 44.2% 40.0%

India EBITDA margin (%) 10.3% 9.9% 10.1% 12.1% 11.7% 12.7% 12.4%

Europe EBITDA margin (%) 18.3% 17.0% 20.2% 17.8% 16.2% 15.1% 21.5% Source: Company, Deutsche Bank



Rating

Buy Asia India

Energy Oil & Gas

Company

BPCL Alert


Results

Lower government contribution and refining margins drag down earnings

Reuters Bloomberg Exchange Ticker BPCL.BO BPCL IN BSE BPCL

________________________________________________________________________________________________________________


The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=BPCL.BO MICA(P) 054/04/2013.

Price at 12 Feb 2014 (INR) 364.80


52-week range (INR) 405.65 - 251.49

BSE 30 20,363

Harshad Katkar


Amit Murarka


Stock data




Major shareholders Govt of India (54.93%)

Free float (%) 45


7.0


Key data

FYE 3/31 2013A 2014E 2015E

Sales (INRm) 2,421,810 2,923,774 2,852,301

Net Profit (INRm)

18,808.3 15,067.2 18,219.4

DB EPS (INR) 26.01 20.84 25.20

PER (x) 13.3 17.5 14.5

Yield (net) (%) 3.2 3.0 3.0


3QFY14 results: Net loss of INR10.9bn, below our estimates BPCL reported a net loss of INR10.9bn in Q3FY14, below our estimates due to lower than expected government compensation for under recoveries and lower refining margins. Subsidy compensation by Government (INR25bn) and upstream companies (INR39.7bn) was INR34bn less than fuel subsidy losses for BPCL in the quarter. Gross refining margin (GRM) was lower than expected at USD1.76/bbl (-63% YoY, -62% QoQ). Refinery throughput decreased to 5.6MMT (-7% QoQ). Interest expense was lower at INR3bn (-47%YoY) as borrowings reduced sharply to INR167bn from INR 309bn in Dec’12.

Reiterate Buy with price target of INR425 The Government's move to deregulate bulk diesel sales and raise diesel prices should extinguish diesel losses over the next eighteen months We estimate BPCL's gross under-recovery to accordingly reduce from INR341bn in FY14 to INR170bn in FY16, leading to a reduction in its working capital and interest costs. Moreover, we expect exploration successes, reserve certification and final investment decision (FID) for Mozambique and Brazil over the next year to be key catalysts for the stock. BPCL is currently trading at FY14E P/BV of 1.5x. Reiterate Buy.

Figure 1: Quarterly results summary INRm 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 YoY (%) QoQ (%)

Net sales 623,687 663,107 587,364 617,845 647,676 3.8% 4.8%

EBITDA 22,873 65,814 9,366 17,077 (9,158) na na

Reported net profit/(loss) 16,476 47,973 1,503 9,311 (10,889) na na

Gross underrecoveries 93,726 89,650 61,279 88,034 98,733 5.3% 12.2%

Net under/(over) recoveries (2,165) (56,674) 5,450 2,154 34,026 na 1479.8%

Inventory gains/ (loss) 3,340 (3,300) 3,000 8,610 6,330 89.5% -26.5%

FX gains/ (loss) (3,970) 730 (9,445) (4,860) 3,000 na na

GRM (US$/bbl) 4.8 6.0 4.1 4.7 1.8 -63.2% -62.2%

Refinery throughput (MMT) 5.55 5.81 5.63 6.04 5.63 1.4% -6.8%Source: Company data



Rating

Buy Asia India

Energy Oil & Gas

Company

HPCL Alert


Results

Reduction in fuel subsidy to drive valuations

Reuters Bloomberg Exchange Ticker HPCL.BO HPCL IN BSE HPCL

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (INR) 245.45


52-week range (INR) 317.65 - 163.35

BSE 30 20,363

Harshad Katkar


Amit Murarka


Stock data




Major shareholders Govt of India (51.11%)

Free float (%) 49


3.9


Key data

FYE 3/31 2013A 2014E 2015E

Sales (INRm) 2,161,541 2,488,973 2,380,732

Net Profit (INRm)

5,013.0 6,358.4 9,181.3

DB EPS (INR) 3.77 18.78 27.11

PER (x) 82.0 13.1 9.1

Yield (net) (%) 2.7 3.7 4.1


3QFY14 results: Net loss of INR17.3bn, below estimates HPCL reported a net loss of INR17.3bn in 3QFY14, lower than our estimate due to lower than expected government compensation for the under recoveries. Gross refining margin rose 20% YoY to USD2.3/bbl (-23% below DBe). Oil subsidy compensation by Government (INR23.3bn) and upstream companies (INR37bn) was INR32bn less than fuel subsidy losses for HPCL in the quarter. Refinery throughput decreased to 3.8 MMT (-9% YoY, -1% QoQ). Other expenditure also decreased to INR16.7bn (-21% YoY, -38% QoQ).

Maintain Buy with price target of INR275 The Government of India's move to deregulate bulk diesel sales and allow oil marketing companies to raise diesel prices by up to INR0.5/lit per month will extinguish diesel losses over the next eighteen months. We estimate HPCL's gross under-recovery to accordingly reduce from INR328bn in FY14 to INR179bn in FY16 which will lead to a reduction in its working capital and interest costs. Moreover, at FY14 P/BV of 0.6x, HPCL is trading at lower end of its last five years trading range. Reiterate Buy.

Figure 1: Quarterly results summary INRm Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 YoY (%) QoQ (%)

Net sales 534,139 596,900 517,639 518,602 554,550 3.8% 6.9%

EBITDA 10,506 86,347 (6,879) 10,142 (9,307) na na

Net profit 1,471 76,793 (14,605) 3,189 (17,339) na na

Gross under-recoveries 86,870 85,400 58,260 82,340 92,240 6.2% 12.0%

Net under/(over) recoveries (1,880) (52,280) 5,180 1,980 31,914 na 1511.8%

GRM (US$/bbl) 1.9 3.7 2.6 3.9 2.3 20.2% -40.5%

Refinery throughput (MMT) 4.23 4.32 3.44 3.89 3.84 -9.2% -1.3%Source: Company data



Asia India Telecommunications

Industry

Indian Telecom Sector


Industry Update

Reducing target prices and reaffirming our muted outlook Stock outperformance unlikely in the medium term

________________________________________________________________________________________________________________



Srinivas Rao, CFA


Amyn Pirani


Key Changes

Company Target Price Rating

BRTI.BO 340.00 to 325.00(INR)

-

IDEA.BO 135.00 to 110.00(INR)

-


Top picks

Bharti Airtel Limited (BRTI.BO),INR305.35 Hold


Companies Featured

Bharti Airtel Limited (BRTI.BO),INR305.35 Hold 2013A 2014E 2015EP/E (x) 44.2 30.2 21.4EV/EBITDA (x) 7.8 6.4 5.5Price/book (x) 2.2 2.0 1.9

Idea Cellular Limited (IDEA.BO),INR129.85 Sell 2013A 2014E 2015EP/E (x) 29.3 22.6 17.2EV/EBITDA (x) 7.2 6.4 5.2Price/book (x) 2.6 2.7 2.3Source: Deutsche Bank

We are reducing our target price by 5% to Rs 325 for Bharti and by 19% to Rs 110 for Idea Cellular. We maintain our ratings on the stocks: Bharti (Hold), and Idea (Sell). The reduction primarily reflects the higher than forecast spectrum costs. In addition, the expected entry of Reliance Jio would catalyse capex spends and constrain margin increases for the incumbents. While valuations at around 5.5-6xFY15E EV/EBIDTA are in line with the Asian average, we see a lack of catalysts to drive stock performance.

Spectrum auction – bidding has been more aggressive than expected The current bids are 60-100% higher than reserve price for the Metros (Delhi, Mumbai, Kolkata) in the 900Mhz band and 10-60% higher for key markets in the 1800Mhz band. Vodafone (VOD.L, Buy, GBP 222) and Bharti are the key incumbents in the Metros holding spectrum in the 900Mhz band. It would lose access in November 2014 if it fails to win it back in the auction. While the auction of the 900Mhz spectrum in Idea’s key circles would happen later, the current trends in the Metros indicates an aggressive bidding scenario.

Bharti is in a more defendable position compared to Idea Bharti’s cashflows are significantly higher than Idea – a strategic advantage as the industry prepares for 20-year spectrum allocations. Bharti’s estimated cash outflow on account of licence renewal at Rs 182bn (vs. Rs 112bn earlier) is c.72% of its FCF over FY14-16E (Rs 252bn). Idea’s legacy markets account for 80% of revenues and 100% of profits. Idea’s estimated outgo for renewing its legacy licences is Rs 219bn (vs. Rs 125bn earlier). Its FY14-16E FCF of Rs 100bn will cover only 45% of the costs.

Indian telcos – growing profits, but lacking in cashflows Indian incumbents are reporting robust EBITDA and EPS growth as a result of normalisation of margins. However, free cashflow will likely be constrained in the medium term due to payments for spectrum. We also believe Bharti and Idea would need to ramp up their capex to maintain a competitive position in the data market.

Reliance Jio (RJio): likely to be aggressive on market entry We expect RJio to materially lower data tariffs to catalyse growth in usage. We believe it will target the data, voice and residential markets to leverage its cost-effective TD-LTE spectrum. In our recent report, Framing the business case of Reliance Jio, dated 7 February 2013, we put out a forecast of EBITDA break-even for RJio by FY18E (the fourth year of operation). We forecast RJio’s revenue and EBITDA at Rs 405bn and Rs 131bn in FY19E. This will be achieved through a churn-based strategy, which would impact incumbents’ profitability.

Bharti and Idea are trading in line with the Asian average of 5.5-6x EV/EBITDA We value telecom companies using DCF. Key upside/downside risks include higher-/lower-than-forecast margins.



Japan Financials / Banks

Industry

Bank sector


Industry Update

SMEs' demand for funds recovering: a base for sustainable growth

________________________________________________________________________________________________________________



Yoshinobu Yamada


Lending by enterprise size: lending growth to SMEs recovers to 2% level after six and a half years According to the BoJ's loans by enterprise-size (domestic) data released on the 12th, lending to large enterprises slowed from +5.5% YoY in September to +4.0% in December. In contrast, lending to SMEs improved from +0.8% to +2.2% over the same period. Lending growth to SMEs has not reached the 2% level in the six and a half years since June 2007. Lending to individuals grew by 3.1% YoY, and to medium-size enterprises decreased by 0.7%; the same levels as in September. As announced on the 10th, total outstanding loans increased 2.8% to ¥435.9trn. The balance was ¥120.5trn (27.6% of the total) for large enterprises, ¥12.2trn (2.8%) for medium enterprises (2.8%), ¥179.3trn for SMEs (41.1%), and ¥123.9trn (28.4%) for individuals (mostly mortgages). Lending to SMEs includes ¥5.6trn in loans for overseas business that are booked at domestic bank branches. These are thought to be due to parent-subsidiary loans (domestic financing, but the borrowing firm uses the funds as paid-in capital or working capital for an overseas subsidiary) via regional banks that do not have offices overseas.

SMEs' demand for funds increasing: base of economic recovery is expanding The decrease in lending growth to large firms seems to be due to a slight slowdown in the bridge loans for M&A that had been driving growth. That said, growth will likely pick up pace again as there are major deals set for 4Q and afterwards. Also, although the December Tankan indicated lending to SMEs (largest share of domestic lending) would increase somewhat, but we did not expect to see it reach the 2% level in December. The impact of Abenomics has shown up in large firms, but we believe that the base of the economic recovery has now also expanded to SMEs. In 3Q, lending to SMEs in Kyushu and the Chugoku area showed strong growth that was ahead of the other regions, but this is expected to expand to other regions going forward, in our view.

Domestic loan-deposit spreads best at banks that mostly lend to large firms In 3Q, domestic loan-deposit spreads fell by an average of 10bps YoY at the major banks, and by 11bps at the regionals (average for five of the six banks we cover; excludes Suruga). However, the declines were not uniform, and there are differences for each bank. Notable among the majors is that spreads at Mizuho and SMTH fell by just 7bps and 8bps respectively. Conversely, Resona's spread declined by 11bps, and SMFG and MUFG by 12bps (Figure 2; MUFG would be 10bps if we exclude loans to the government). Mizuho and SMTH's commonality is that loans to large companies account for the largest percentage of their lending portfolios (Figure 3). The 3-month TIBOR, which acts as a benchmark for lending to large firms, has stopped falling, so we think that spreads have bottomed. Also, Mizuho appears to have seen an increase in bridge loans related to M&A, which can have wider spreads than normal. On the other hand, Resona lends more to individuals, and its spread is impacted by falling interest rates for new mortgages. SMFG is taking steps toward increasing its lending to SMEs, but spreads on loans to SMEs also appear to be falling as competition intensifies. Among the regional banks, Shizuoka's loan spread fell by more than the other banks at 14bps. Rather than due to lending to SMEs, this could be from an increasing percentage of loans to large companies that have low interest rates in absolute terms. Chiba is expanding lending in areas such as loans for apartment construction, and its loans spread only fell by 9bps. Suruga was the only Japanese bank to realize a wider spread (Figure 4).



Japan Financials / Banks

Industry

Bank sector


Industry Update

Provisions to overpaid interests : impacts on FY3/14 NP

________________________________________________________________________________________________________________



Yoshinobu Yamada


Companies Featured

MUFG (8306.T),¥611 BuySMFG (8316.T),¥4,787 BuyShinsei Bank (8303.T),¥210 HoldSource: Deutsche Securities Inc.

A case study: Shinsei Bank On 29 January, Shinsei Bank cut its FY3/14 consolidated NP guidance from ¥48bn to ¥37bn. The main reason for the downward revision was additional provisioning of ¥13.6bn (Shinki ¥12.8bn, Shinsei Financial ¥700m) for overpaid interests. As a result, for Shinki the reserve increased in 2Q from 1.1 years to 3.8 years relative to actual repayments in the past twelve months and for Shinsei Financial from 4.3 years to 4.4 years. For Aplus, another subsidiary, the reserve was 1.1 years. We could see additional provisioning in 4Q but this should be offset by the low level of credit costs compared to guidance and should not trigger further downward revision, in our view. Leaving aside Shinsei Financial, where the provisioning ratio has been high, the increase in reserves for Shinki shows that repayment claims are not declining relative to forecasts. Some might think similar provisioning could affect SMBC Consumer Finance, (wholly owned by SMFG, brand name Promise) and MUFG's subsidiary Acom (8572, MUFG's stake 40.2%) and that this could be a factor in consolidated NP underperformance for both companies. Overpaid reserves: why historical results serve as reference Accountants decide on overpaid reserves based on actual interest and principal repayments in the past and the future outlook. Past repayments are therefore the main benchmark as long as the outlook does not change dramatically. For example, for Promise the provisioning ratio to date has averaged 2.1 years in the past six years, and 1.8 years in the past three years. For Acom it has been 1.9 years in the past six years and 1.6 years in the past three years. Provisioning ratios have been lower in the past three years because the number of claims has declined. For FY3/14 we factor in provisions for overpaid interests at ¥50bn for Promise in our forecasts for SMFG's consolidated NP; this equates to 2.0 years of reserves, above the average for the past three years. If SMFG generates a similar amount of NP in the three months of 4Q as it did in the 3Q (some ¥200bn), FY3/14 NP would be ¥900bn. Promise has carried forward losses, so pretax and post-tax profit is almost identical; a simple calculation suggests that provisioning of ¥50bn would reduce NP to ¥850bn. Similarly with provisioning of ¥100bn (2.5 years) NP would decline to ¥800bn, and with ¥150bn (3.0 years) additional provisioning would drop to ¥750bn, in line with guidance. We forecast a ¥40bn overpaid provisions for Acom in FY3/14, which would take the provisioning ratio to 1.8 years, above the average for the past three years. Similarly for SMFG, if it generates ¥250bn consolidated NP in 4Q, as it did in the three months of 3Q, FY3/14 NP would be ¥1.05trn. MUFG has a 40.2% stake in Acom, which reduces the impact of provisioning on MUFG's consolidated results (see Figures 1 and 2). Conservative provisioning: why full-year targets are not revised even if 3Q progress rate is high MUFG reported cumulative 3Q consolidated NP of ¥785.4bn, achieving 86.3% of full-year guidance of ¥910bn. SMFG reported cumulative 3Q consolidated NP of ¥704.7bn, achieving 94.0% of full-year guidance of ¥750bn. Normally with similar progress rates a company would revise guidance upward but neither MUFG nor SMFG has done so. This is also the same for Mizuho and other major banks; we think they are factoring in possible changes in earnings from market operations and credit costs in 4Q. However, NP is likely to be sharply higher than forecast if there are no major changes in 4Q. (Continue to next page)

Valuation and risk Valuations for the major banks are based on a FY3/15E P/E of 13x. This represents a 20% discount, equivalent to the ten-year average, from the market average of 17x. Upside risks include expectations of a rise in short-term interest rates, an increase of over 3.5-4.0% in domestic lending, and a further drop in the yen. Downside risks include a stock market decline, stronger yen and large-scale corporate bankruptcies.



Rating

Buy Japan

Plant Engineering & Shipbuilding

Company

Chiyoda Alert


Results

Orders are matter of timing; keep on buying

Reuters Bloomberg Exchange Ticker 6366.T 6366 JT TYO 6366

ADR Ticker ISIN CHYCY US17025X1028

________________________________________________________________________________________________________________


The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=6366.T MICA(P) 054/04/2013.

Price at 12 Feb 2014 (JPY) 1,501

Price target - 12mth (JPY) 1,838

52-week range (JPY) 1,641 - 944

TOPIX 1,204

Sanghi Han, CFA


Dianna Kang

Research Associate (+82) 2 316 8901 [email protected]

Stock data

Market cap (JPYbn) 391



Major shareholders Mitsubishi Corporation

(33.39%)Free float (%) 64


34.5


Key data

FYE 3/31 2013A 2014E 2015E

Sales (JPYbn) 399 436 504

Net Profit (JPYbn)

16.1 19.0 23.3

DB EPS (JPY) 59.16 74.60 91.21

PER (x) 18.2 20.1 16.5

Yield (net) (%) 1.6 1.3 1.4


3QFY3/14 review: better margin, but weak orders Chiyoda 3Q results were mixed: better profitability at gross margin of 12.6%, while sluggish new orders as train #1,2 of Freeport LNG project has not been included in backlog. YTD new order of JPY137bn is only 23% of guidance. Sales came in at W108bn, 3% below DB forecast. Despite stronger-than-expected gross margin, operating profit was in line with our estimates due to higher SG&A ratio (5.3% in 3QFY3/14 vs. 3.6% in 3QFY3/13 vs. 4.1% in 2QFY3/14) from one-off cost from consolidation of overseas group companies. Net profit missed the expectation, which is attributable to F/X related losses of JPY2bn.

If missing order guidance, FY3/2015E orders could be revised up; Buy here Although the possibility of missing order guidance is rising, we believe any correction is a buying opportunity. Investment case of proven ability in growing LNG market is a long term story. Timing is important, but securing projects is more crucial. Chiyoda has been chosen as an EPC contractor of Freeport and the lowest bidder for FPU in Indonesia worth USD4.1bn in the form of a consortium with Saipem, Tripatra, Hyundai Heavy Industries. Prequalified projects include petrochemical project in Qatar worth USD3bn with four competitors and oil production facilities in Kuwait worth USD4.2bn with six competitors. We maintain our Buy rating on Chiyoda at price target of JPY1,838 yielding 22% upside potential at the current share price.

Figure 1: 3QFY3/2014P vs. DB estimates vs. consensus (JPY bn, %) FY3Q14P FY3Q13 yoy FY2Q14 qoq FY3Q14 DB Diff. DB FY2014 YTD %

Sales 108 110 -1.5 103 5.3 111 -2.7 436 308 70.6

Domestic 73 66 11.2 68 7.9

Overseas 35 44 -20.6 35 0.4

Gross profit 14 13 6.2 11 28.8 46 33 72.1

Operating profit 8 9 -10.4 6 25.0 8 3.2 28 19 68.0

Earnings before tax 7 11 -37.6 7 -5.4 9 -28.5 32 19 58.9

Net profit 4 6 -33.7 5 -17.8 5 -21.2 19 11 59.7

Gross margin 12.6 11.7 10.3 10.6

Operating margin 7.4 8.1 6.2 6.9 6.4

EBT margin 6.1 9.6 6.8 8.3 7.3

Net margin 3.6 5.4 4.7 4.5 4.4

New orders 41 39 5.9 31 33.0 625 137 22.0

Domestic 15 24 -39.8 20 -27.4 127 67 52.6

Overseas 26 14 82.7 11 146.4 498 71 14.2

Source: Source: Company data, Deutsche Bank estimates



Japan Construction

Industry

Construction Sector


Results

3Q results: we see optimal investment timing as after consumption tax hike Continued deterioration in project margins as expected

________________________________________________________________________________________________________________



Yoji Otani, CMA


Akiko Komine, CMA


Companies Featured

Taisei (1801.T),¥429 Sell 2013A 2014E 2015EEPS (¥) 18 16 15P/E (x) 13.0 26.9 29.1EV/EBITDA (x) 8.8 12.8 12.8

Obayashi (1802.T),¥563 Hold 2013A 2014E 2015EEPS (¥) 18 20 19P/E (x) 20.8 28.3 29.7EV/EBITDA (x) 12.2 19.4 18.4

Shimizu (1803.T),¥512 Sell 2013A 2014E 2015EEPS (¥) 8 9 9P/E (x) 36.8 56.6 57.0EV/EBITDA (x) 18.0 23.9 24.0

Kajima (1812.T),¥356 Sell 2013A 2014E 2015EEPS (¥) 23 17 12P/E (x) 10.5 21.6 29.6EV/EBITDA (x) 14.0 15.8 14.0Source: Deutsche Securities Inc.

The three major general construction contractors (Obayashi, Shimizu, and Kajima) have released 3Q results. Earnings progress is higher than in the past at all three, but we think progress is basically in line with plan as we still see a high possibility of margin deterioration in domestic building projects. For example, the gross margin on domestic building projects at Kajima is only 0.5%. Order value remains buoyant, but orders from the manufacturing sector have continued to fall YoY, while the nonmanufacturing sector has become the driver. As such, we do not see order quality as particularly strong.

Approximately $1.4bn lawsuit against Shimizu by Indonesian company No particular surprises emerged from 3Q results, but a disclosure by Shimizu was unexpected. The former Indonesian joint venture PT Dextam has initiated legal proceedings for total damage compensation of around US$1.4bn (roughly ¥140bn) at the Jakarta Central District Court in Indonesia. Even recently, the major general contractors have booked large-scale losses in Dubai and Algeria, and we see overseas business as a potential thorn in their side.

Lower project volume to curb labor cost growth Both we and the Research Institute of Construction and Economy forecast a decline in construction investment in FY14, due to slowing economic growth and reduction of public works budgets. Lower construction investment sounds like bad news, but we see the possibility of labor cost growth halting as tight labor market conditions ease. In other words, we expect FY13 margins on project orders accepted at raised prices to exceed expectations (Figure 5). However, we think the right time for investment is when a decline in order value is confirmed following the consumption tax hike. We reiterate our Hold rating on Obayashi, and our Sell rating on Shimizu and Kajima.

Construction sector valuation and risks We rate Taisei, Shimizu, and Kajima a Sell because they are overvalued relative to the market average and a sharp improvement in business sentiment appears unlikely, as 3Q results seem to confirm. Downside risks for the construction sector include 1) declining appetite for capital investment by corporations due to economic deterioration in Japan, 2) a drop in public works spending due to fiscal consolidation, and, 3) the onset of a war of attrition as low-priced tenders increase. Upside risks include 1) rising costs being covered by customers, 2) overseas business profitability improvement, and 3) improved disclosure.

Results data are shown from the following page.



Rating

Buy Japan

Financials / Life Insurance

Company

Dai-ichi Life Insurance Alert


Breaking News

New strategy to expand a new sales channel


________________________________________________________________________________________________________________


The views expressed above accurately reflect the personal views of the authors about the subject companies andits(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMPORTANT

MICA(P) 054/04/2013.

Price at 12 Feb 2014 (¥) 1,533


52-week range (¥) 1,782 - 1,105

Masao Muraki, CMA


Stock data




TOPIX 1,204


Key data

FYE 3/31 2013A 2014E 2015E

Ordinary Revenues (¥bn)

5,284.0 – –

RP (¥bn) 157.3 259.0 238.0

NP (¥bn) 32.4 63.0 77.0

EPS (¥) 33 64 78

P/E (x) 30.1 24.1 19.7


Today's Nikkei reported that Dai-ichi Life will pay about ¥5bn to make DIY Life (NKSJ holds 90% stake, Dai-ichi Life 10%) a consolidated subsidiary, and enter the low-cost life insurance market. The firm will reportedly introduce medical insurance that is 20-30% cheaper than current products in 2015. Dai-ichi Life responded with a release that stated "while the Company has been considering strategies, nothing has been decided with respect to this topic".

Impact on sales representatives, cannibalization DIY Life (¥5bn equity as of end-September) has been carrying out direct sales of products such as 1-year term insurance, but its in-force policies are not growing. If Dai-ichi Life purchases DIY Life, its aim would likely be a new vehicle for providing products to insurance shop agencies. We think that the benefits working with insurance shops would outweigh the risks. Incorporating new channels that do not disrupt the sales rep channel should be positive for enterprise value. Because Dai-ichi Life has a strong sales rep channel (in terms of sales or political power), working with insurance shops was not necessarily a priority issue. It is number two in the industry, with a high share of in-force policies for traditional life, and the firm has recognized the potential for cannibalization due to the new channel’s insurance policy reviews (for capturing existing policy holders). However, since the unpaid claims scandal, Dai-ichi Life has been rebuild its sales rep channel, resulting in significant decreases in the attrition rate for rep and the surrender rate for in-force policies. The stability of existing channels (ability to maintain policies versus new channels) has already increased enough. On the other hand, it can no longer ignore rising demand for insurance shops.

Prior example: Medicare Life Sumitomo Life is a frontrunner in terms of sales channel diversification. In 2009, Sumitomo Life Insurance and Mitsui Life Insurance established Medicare Life Insurance (Sumitomo life now owns 90.90%, Mitsui Life 9.09%). Medicare sells medical and cancer insurance with low premiums to insurance shops, online insurance sites, and financial institution agencies. As of end-September 2013, Medicare had 190,000 in-force policies, in-force AP (annualized premiums) was up 21% vs-end FY3/13 to ¥12.7bn (includes third-sector of 34% to ¥7.7bn), and EV was ¥79.4bn (NAV of ¥46.1bn, VIF of ¥33.2bn).

Efforts towards the insurance shop channel Via its wholly-owned subsidiary, Izumi Life Designers, Sumitomo Life is expanding its own insurance shops (66), and is pro-actively dealing in other insurers' products. In 2013, Sumitomo Life also invested ¥700m to take a more than 8% stake in Hoken No Madoguchi Group, largest insurance shop agency. Like Nippon Life and others, Dai-ichi Life has not directly pursued the development of comprehensive insurance shops that sell other insurers' products. With stricter regulation of insurance shops, it may consider acquiring or making investments in insurance agencies.

Regulations for insurance shops New policies at insurance shops are likely to decline in 2014 due to the rebuilding of solicitation systems, including revisions to outsourced (commission-type) canvassers and "fair and independent" sales methods of agent. However, we see a continued need to diversify pull-type sales channels such as through shops, direct marketing, and Internet. We expect new policies from shops to increase in 2015 after the consolidation (see our 21 January report).



Rating

Buy Japan

Plant Engineering & Shipbuilding

Company

JGC Alert


Results

Recent drop is a buying opportunity


ADR Ticker ISIN JGCCY US4661401004

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (JPY) 3,718

Price target - 12mth (JPY) 4,732

52-week range (JPY) 4,240 - 2,232

TOPIX 1,204

Sanghi Han, CFA


Dianna Kang

Research Associate (+82) 2 316 8901 [email protected]

Stock data

Market cap (JPYbn) 963



Major shareholders Master Trust Bank of Japan LT

(6.73%)Free float (%) 86


51.6


Key data

FYE 3/31 2013A 2014E 2015E

Sales (JPYbn) 625 640 715

Net Profit (JPYbn)

46.2 45.4 49.8

DB EPS (JPY) 212.84 183.27 205.90

PER (x) 11.5 20.3 18.1

Yield (net) (%) 1.9 1.3 1.3


Quarterly gross margin

10

12

14

16

1QFY3/2013

2QFY3/2013

3QFY3/2013

4QFY3/2013

1QFY3/2014

2QFY3/2014

3QFY3/2014

4QFY3/2014E

(% )

Source: Company data, Deutsche Bank estimates

No issue in 3QFY3/14 earnings JGC 3Q sales of JPY173bn exceeded our forecast by 15%, while profits were largely in line with estimates. Net profit was strong thanks to net non operating profit (e.g. foreign exchange gains of JPY 7bn and provisions for investment losses of JPY 5bn). Key highlights are: 1) order seems weak at achievement rate of 51% to guidance, 2) overseas LNG sales continued to grow faster than our expectation at 12% qoq or 94% yoy to JPY86bn, 3) overall operating margin keeps declining to 8.7% from 9.7% in 3QFY3/13 and 9.8% in 2QFY3/14 and 4) the company revised up earnings before tax guidance to JPY78bn from JPY74bn on the back of JPY/USD change.

Investment thesis unchanged: maintain Buy We recommend investors to use this correction as an entry point. JGC is a key player and has proved its ability in growing LNG business. TP of JPY4,732 implies 28% upside. Possible pushback from 3QFY3/14 earnings: downward margin trends and whether JGC can meet order guidance. Our response:1) 4QFY3/14 profitability should recover thanks to completion of high margin projects and 2) order guidance could be met thanks to an expected LOA of CFP project worth c.USD 1.7bn. Korean companies have announced LOA from clients. We believe the Kitimat LNG project has not been included in YTD new orders since the detailed scheme has not been decided yet. JGC is also the lowest bidder on a Middle Eastern refinery project, which may be retendered.

Figure 1: 3QFY3/2014P vs. DB estimates vs. consensus (JPY bn, %) FY3Q14P FY3Q13 yoy FY2Q14 qoq FY3Q14 DB Diff. DB FY2014 YTD %

Sales 173 154 11.9 160 7.9 151 14.5 640 487 76.1

Domestic 22 26 -14.4 18 25.6

Overseas 141 120 17.6 134 4.9

Gross profit 20 20 1.3 21 -1.8 87 61 70.4

Operating profit 15 15 0.2 16 -3.7 16 -7.6 66 46 69.7

Earnings before tax 20 18 10.8 16 22.6 16 22.8 73 58 79.3

Net profit 11 13 -14.3 11 4.9 9 21.8 45 36 80.6

Gross margin 11.8 13.0 12.9 13.6

Operating margin 8.7 9.7 9.8 10.8 10.3

EBT margin 11.4 11.5 10.0 10.6 11.4

Net margin 6.6 8.6 6.8 6.2 7.0

New orders 53 141 -62.2 204 -73.8 759.1 326.3 43.0

Domestic 25 24 2.6 29 -15.3 121.8 76.4 62.7

Overseas 29 117 -75.5 175 -83.6 637.3 249.8 39.2

Source: Source: Company data, Deutsche Bank estimates



Rating

Hold Japan

Real Estate

Company

Mitsui Fudosan Alert


Results

3Q earnings: favorable results, but concerns creeping up


ADR Ticker ISIN MTSFY US60683M1099

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (¥) 3,295


52-week range (¥) 3,785 - 2,042

Yoji Otani, CMA


Akiko Komine, CMA


Stock data




TOPIX 1,204


Key data

FYE 3/31 2013A 2014E 2015E

Sales (¥bn) 1,445.6 1,552.4 1,584.9

OP (¥bn) 148.2 164.5 170.7

RP (¥bn) 123.1 136.4 142.3

NP (¥bn) 59.5 66.5 69.8

EPS (¥) 68 76 79

P/E (x) 25.3 43.5 41.5


All segments faring well Mitsui Fudosan's 3Q results were favorable for all segments. We see a strong likelihood of OP achieving the firm's FY3/14 guidance of ¥160bn, and coming in at our forecast of around ¥164.5bn. The following three segments were particularly favorable. 1) The contract rate for the condo segment reached 97% of the planned number of units for FY3/14 (6,450), 2) 3Q OP for the management segment, principally brokerage, grew 26% YoY, and 3) the other business segment (mainly the hotel business) had already outstripped FY3/14 guidance as of the 3Q results announcement.

Vacancy rate improved 0.4ppt to 4.1% The parent-basis Tokyo Metropolitan area vacancy rate increased to 4.5% in 2Q, but improved to 4.1% in 3Q. We believe progress is on track to reach the firm's end-FY3/14 guidance of around 3%. Tenant acquisition for new buildings is also going well, and the leasing segment is progressing in line with initial guidance.

Business momentum for brokerage and condo sales set to wane The latest ESP Forecast Survey sees FY14 real GDP growth slowing greatly from 2.53% in FY13 to 0.84%. We are concerned that we will see a weakening of condo demand and decline in brokerage volume, not as a reaction after the consumption tax hike, but due to economic deterioration. Neither do we see amendments to the Worker Dispatch Act, or relaxation of regulation in such areas as National Strategic Special Economic Zones as acting positively for the domestic economy, and we believe the firm's business momentum will gradually wane. We reiterate our TP of ¥3,900 and Hold rating.



Rating

Hold Japan

Technology Electronics / Consumer

Company

Pioneer Alert


Results

3Q reasonable; focus on business portfolio review going into FY3/15


ADR Ticker ISIN PNCOY US7236462047

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (¥) 232

Price target - 12mth (¥) 215

52-week range (¥) 293 - 148

Yasuo Nakane, CMA


Stock data

Market cap (¥bn) 85



TOPIX 1,204


Key data

FYE 3/31 2013A 2014E 2015E

Sales (¥bn) 451.8 482.1 509.9

OP (¥bn) 6.0 6.5 14.5

RP (¥bn) 0.8 2.6 11.4

NP (¥bn) -19.6 -2.1 7.9

EPS (¥) -61 -6 22

P/E (x) – – 10.7


3Q sales were ¥126.3bn (+21% YoY), OP ¥2.8bn (turn to profit), and net losses ¥1.7bn (reduced loss). Home Electronics (HE) sales totaled ¥29.4bn (+18% YoY) and OP was ¥400m (turn to profit). Car Electronics (CE) sales totaled ¥86.2bn (+26%) and OP was ¥2.7bn (+3.5x). In others, sales were ¥10.7bn (-3%), and operating loss ¥400m (reduced loss). Overall OP outperformed, with CE OP some 30% ahead of guidance (driven by OEM) and HE underperforming (delayed cable TV shipments). Inventory was ¥84.7bn (60 days, +12% QoQ), some ¥9bn above guidance, including ¥5bn from forex effects, and ¥4bn mainly CE products for OEM attributed by management to accelerated shipments in 4Q. It targets end-March inventory of ¥70bn. Full-year guidance is unchanged, looking for sales of ¥505bn, OP of ¥10bn, and NP of ¥500m. The target for 4Q is sales of ¥142.4bn and OP of ¥6.7bn; we think this is achievable due to rush demand ahead of the consumption tax hike, and higher aftermarket audio equipment sales for CE and higher sales of DJ equipment in HE. The company revised downward R&D expense from ¥36.5bn to ¥30bn, and depreciation costs from ¥30bn to ¥27bn; management said only that the impact of lower R&D on guidance would be some ¥2bn. Our impression is neutral. The key questions are whether Pioneer can achieve FY3/14 guidance and the outlook for FY3/15. President Susumu Kotani said that costs should decline due to 2H impact from modularization of design in CE and portfolio changes in other businesses (he also suggested downsizing). He indicated that OEM should grow sharply in CE and joint business with NTT DoCoMo should start to contribute to profit. On a planned company visit on 13 February, in addition to information on current circumstances, we hope to learn about strategy and the business environment in FY3/15.



Rating

Hold Japan

Automobiles Autos

Company

Press Kogyo Alert


Results

3Q results: Domestic operations key to achieving guidance


________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (¥) 429


52-week range (¥) 595 - 386

Takeshi Kitaura


Kurt Sanger, CFA


Stock data




TOPIX 1,204


Key data

FYE 3/31 2013A 2014E 2015E

Sales (¥bn) 175.1 177.2 182.0

OP (¥bn) 8.9 9.7 11.0

RP (¥bn) 9.7 9.8 10.7

NP (¥bn) 5.6 5.6 6.0

EPS (¥) 51 52 56

P/E (x) 7.4 8.3 7.7


Steady progress confirmed Press Kogyo's 3Q results contained no major surprises and confirmed that EPS is outperforming relative to guidance. The shares remained stable after the results' announcement with no major change in trend. OP outperformance relative to guidance and our forecast depends on how firm domestic production is at FY-end, amid further lowering of production levels in Thailand; this should be closely watched. Our rating is Hold; announcement of a new medium-term plan with full-year results is likely to be the next major catalyst.

3Q earnings within expected range 3Q sales were ¥45.2bn, OP was ¥2.1bn (operating margin 4.7%), and EPS was ¥12. In the automotive business sales were up 7% YoY but profit was roughly flat at ¥2.8bn (operating margin 7.2%). Domestic operations remain strong, but in Thailand production cuts (down 20% QoQ in 3Q) mainly due to lower demand for pickup trucks are squeezing profit. In the construction machinery business, sales were up 13% YoY, and though margins are low at 2.5% it remains profitable. Sales of cabins for mining equipment continue to struggle but are strong in Japan due to rush demand ahead of emissions regulations and reconstruction demand.

Guidance unchanged, EPS running ahead of target Press Kogyo left full-year OP guidance of ¥9.4bn and EPS of ¥46 unchanged. 1-3Q EPS achieved 92% of guidance and 82% of our forecast and is outperforming. We think it is likely to reach the target mainly due to 1H outperformance (extraordinary gain of ¥400m booked in 1Q from liquidation of axle business in China). 1-3Q OP was equal to 72% of our forecast and seems strong at first glance. However, 4Q for overseas operations is October to December and we think there were further reductions in truck production in Thailand (Oct-Dec pickup truck production, excluding Toyota, down 14% QoQ). Production of construction machinery in China was also likely flat QoQ. Achieving OP guidance therefore hinges on the strength of domestic production.



Rating

Hold Japan

Financials / Life Insurance

Company

T&D Holdings Alert


Results

1-3Q NP 93% of FY3/14 guidance; plans special provisions in 4Q


ADR Ticker ISIN TDHOY US8721201007

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (¥) 1,252


52-week range (¥) 1,497 - 931

Masao Muraki, CMA


Stock data




TOPIX 1,204


Key data

FYE 3/31 2013A 2014E 2015E

Ordinary Revenues (¥bn)

2,419.0 – –

RP (¥bn) 151.7 184.0 191.0

NP (¥bn) 63.7 76.0 85.0

EPS (¥) 95 113 127

P/E (x) 9.6 11.1 9.9


Consolidated RP for 1-3Q rose 45% YoY to ¥141.1bn (86% of FY guidance) and NP increased 54% YoY to ¥61.1bn (93%). T&D is considering special provisioning for additional reserve for negative spread (legacy block) in 4Q at Daido Life and Taiyo Life and left its guidance unchanged. Market may see the plan as negative. We maintain our forecast of ¥76bn (company guidance of ¥66bn), as we estimate the size of the provision to be only around ¥10bn. However it likely considers changing the policy of other reserves to minimize impact on accounting profit, the provision for additional reserve will be made over several years and reduce adjusted profit which it uses to decide shareholders return. The weaker yen increased adjusted profit, and share buybacks in FY3/15 should be larger than in FY3/14. Daido recorded impairment losses on loan (¥2.5bn in 3Q) and real estate (¥2.7bn in 2Q). Daido's dividend from Private Equity was ¥25.5bn (¥15.6bn 1-3QFY3/13), and its net contribution (including impairment losses and fund costs) was ¥17.5bn (¥8.8bn). Hedge Funds revenues was ¥16.5bn (¥6.5bn), including ¥5.5bn (¥2.4bn) in investment income ex. currency factors.

EV guidance exceeded 3% vs DB estimate because of changing assumptions EV rose ¥137bn from end-Sep to ¥1.974trn. Daido's EV increased ¥100bn, reflecting higher share prices and interest rates and a change of mortality / surrender assumptions (¥30bn in 3Q). New business value was ¥72bn for 1-3Q. The increase from 1-2Q of ¥42bn was due to new policy and a change in assumptions. P/EV is 0.46 (0.39 at Dai-ichi Life, 0.56 at SFH) (Note1). Reflecting higher share prices and a review of the assumptions, the ESR rose from 167% at end-Sep to 191%. The appropriate ESR ceiling, which the company is considering, is likely to be over 200% (floor is 140%) (Note2). [Daido/Earnings] 1Q-3Q core profit was up ¥17.9bn YoY to ¥71.9bn. Investment spread improved by ¥17.5bn to ¥11.4bn. Underwriting profit rose ¥400m to ¥60.5bn, which represents 77% of FY guidance. Capital gains were ¥1.3bn (FY guidance is a loss of ¥7bn). RP was ¥69.8bn. [Daido/Policies] 3Q annualized premiums (AP) from new policies were up 9% YoY to ¥18.6bn (up 10% in 1st sector, 0% in 3rd). The decline in AP due to surrender, lapse, death was down 12% to ¥12.8bn. Net increase of in-force AP was ¥5.8bn (1st sector up ¥4.2bn, 3rd up ¥1.6bn). In-force AP grew 2.6% YoY. [Taiyo/Earnings] Core profit was up ¥11.9bn YoY to ¥55bn in 1Q-3Q. Investment spread rose ¥13.6bn to ¥9.3bn, and underwriting profit fell ¥1.7bn to ¥45.6bn (shrinking policies, 74% to FY). Losses on hedging of derivatives caused capital losses of ¥0.9bn (FY guidance is gain of ¥4bn). RP was ¥53.9bn. [Taiyo/Policies] 3Q new policy AP slid 14% YoY to ¥4.9bn (1st down 27%, 3rd up 12%). Installment-type new policies, which are more profitable, bottomed out, and new policies AP in the 3rd sector, where products were renewed in Nov, were also buoyant. As the maturity peaked, the decline in AP fell 26% to ¥8.5bn. Therefore net decrease of in-force AP was ¥3.6bn in 3Q. In-force AP declined 5.0% YoY.

(Note1) We focus on AP and accounting profit because EV is unreliable as quarterly flow information. However, we continue to see EV as an important stock indicator. (Note2) The increase of ESR in 3Q (Economic Solvency Ratio) reflects strong cyclicality. T&D' defined risk volume excludes net deferred tax liabilities. Therefore risk volume declines when the value of in-force business and unrealized gains on equities holdings rises.



Rating

Hold Japan

Real Estate

Company

Tokyo Tatemono Alert


Results

Otemachi Tower sale is negative


ADR Ticker ISIN TYTMY US88914Q1022

________________________________________________________________________________________________________________



MICA(P) 054/04/2013.

Price at 12 Feb 2014 (¥) 948


52-week range (¥) 1,168 - 402

Yoji Otani, CMA


Akiko Komine, CMA


Stock data




TOPIX 1,204


Key data

FYE 12/31 2012A 2013E 2014E

Sales (¥bn) 194.2 215.9 231.5

OP (¥bn) 30.9 22.0 32.5

RP (¥bn) 21.7 12.3 13.6

NP (¥bn) 10.2 8.1 7.8

EPS (¥) 24 19 18

P/E (x) 12.6 50.3 52.0


To sell 15% stake in Otemachi Tower to Mizuho Bank Tokyo Tatemono has announced FY12/13 results. A surprising revelation was that the firm is to sell a 15% stake in the Otemachi Tower – planned to be its flagship building – to Mizuho Bank. Sale of the building, planned to be a steady source of earnings for the firm, is to result in posting of an additional extraordinary gain of ¥120bn (note: ¥60bn for the firm), resulting in large corporate tax payments. We think the sale looks negative even from a cash flow perspective. The company plans to reduce corporate tax payments through restructuring of the holding SPC, but the scheme for this is currently unclear.

Unable to reject Mizuho Bank's request Mizuho Bank is also to acquire 15% of Otemachi Tower from Taisei (for a total stake of 30%). We view this as an advantageous investment for Mizuho Bank as it relieves the bank of the necessity of paying high rents (we estimate transaction CAP rate at 3.0%). We view this transaction as unfortunate, being the result of Tokyo Tatemono's inability to reject the request from Mizuho Bank – its main bank.

Reiterating Hold rating The firm's FY12/14 RP guidance is ¥8bn (down 63.6% YoY). The main divergence from our forecast of ¥13.6bn comes from lost leasing profits resulting from the Otemachi Tower sale (¥3bn), and reduced gross margin for the condo business. We reiterate our Hold rating, but plan to review our TP and earnings forecasts.



Rating

Buy Japan

Automobiles Autos

Company

Yamaha Motor


Recommendation Change

Upgrading to BUY from HOLD



Year End Dec 31 2012A 2013E 2013CoE 2014E

Sales (¥bn) 1,207.7 1,410.5 1,500.0 1,587.8

Operating profit (¥bn) 18.6 55.1 75.0 84.1

EPS (¥) 21 126 129 158

P/E (x) 40.6 11.3 11.0 9.0

Source: Deutsche Securities Inc. estimates, company data

EM concerns create opportunity for broader exposure

________________________________________________________________________________________________________________



Price at 12 Feb 2014 (¥) 1,421


52-week range (¥) 1,787 - 1,037

Kurt Sanger, CFA



400

800

1200

1600

2000

2/12 8/12 2/13 8/13

Yamaha Motor

TOPIX (Rebased)


Absolute -9.6 -5.8 15.5

TOPIX -7.3 -0.1 24.3


Stock data




TOPIX 1,204


Key indicators (FY1)

ROE (%) 12.7

BPS (¥) 1,100

P/B (x) 1.3

EPS growth (%) 488.1

Dividend yield (%) 1.8


We have argued in November that Yamaha Motor was in the process of reviving its developed market business and that this would be a big contributor to earnings growth through 2015. Over the last month, the shares have sold off sharply on concerns over its EM exposure in Indonesia. We believe this creates an an opportunity to buy into a broader story that includes factory realignment, increased platform sharing, a massive reductions of its supplier base, re-entry to profitable market segments and, well, cool new motorcycles. With 28% upside to our target price we are upgrading to BUY.

Developed market expectations are the key driver Yamaha’s marine business had a stellar year on the back of decent demand supplied from a rationalized cost base and helped by a normalized ¥/US$ rate. Besides that, however, DM remain a struggle with power products posting a small profit and motorbikes losing ¥22bn – the only Japanese major still in the red. Looking to 2014-15, it is these businesses where we see the most potential for growth. For motorbikes, the company is spending now to refresh its old product line-up. The new Bolt, MT-09 and MT-07 began the product revival including new engines that will accelerate into 2015. In power products, the key is side-by-side vehicles. Having been essentially forced out of this market over litigation struggles, Yamaha plans to reclaim a slice. The company does indeed have EM exposure. On our estimates, Indonesia motorbikes account for 20% of FY14 OP with total EM @ ¥37bn (4.4% OPM versus high of 9.2%). Of our ¥29bn projected OP growth, 76% comes from DM.

Midterm plan review – year two Yamaha is entering year two of its three year plan. Core components of this include a huge – and much needed – reinvestment in developed market bikes including a new engine series, 20% cost reduction from a new EM motorbike platform driven in part by more concentrated sourcing (suppliers cut from over 400 to around 200), a reduction of its Japan factory footprint by half, and expansion in profitable marine and power product sales efforts. With the ¥/US and ¥/€ giving them about ¥48bn upside to the original plans, they do not need to fire on all cylinders to effect meaningful change in results. We project a 6.4% OPM in FY15, still well below the FY06 7.8% peak.

Valuation/Risk – maintaining TP of ¥1,800 We maintain our target price at 9x PER FY12/15, with shares currently only 8.9x FY14 and 6.8x FY15. Downside includes weaker motorbikes sales in the US and Europe and price competition in Indonesia.



13 February 2014



Appendix 1

Important Disclosures Additional information available upon request

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification

This report covers more than one security and was contributed to by more than one analyst. The views expressed in this report accurately reflect the views of each contributor to this compendium report. In addition, each contributor has not and will not receive any compensation for providing a specific recommendation or view in this compendium report.

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes:

1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period

55 %

38 %

7 %26 %

22 %13 %

0

50

100

150

200

250

300

350

400

450

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship

http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

13 February 2014



Regulatory Disclosures

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Member of the Group Executive Committee

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Research

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FICC Research & Global Macro Economics

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Deutsche Bank Research, Germany

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