Asia Equities Daily Focus: Asian Editionpg.jrj.com.cn/acc/Res/CN_RES/INVEST/2014/10/29/d4f1ccf2...2014/10/29 · 29 October 2014 Asia Equities Daily Focus: Asian Edition Page 2 Deutsche

Deutsche Bank Markets Research

Asia

Pan-Asia

Strategy

Periodical

Asia Equities Daily Focus: Asian Edition

Date

29 October 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. MCI (P) 148/04/2014.

Mark Lawson, CFA

Research Analyst

(+852) 2203 5934

[email protected]

INDEX EQUITIES Close 1D Chg %Chg

SHSZ300 2416.65 47.82 2.02

HSCEI 10548.83 237.25 2.30

HSI 23520.36 377.13 1.63

TWSE 8773.55 145.77 1.69

KOSPI 1925.68 -6.29 -0.33

FSSTI 3211.65 -14.46 -0.45

KLCI 1825.68 2.53 0.14

SENSEX 26880.82 127.92 0.48

NIFTY 8027.60 35.90 0.45

SET 1556.53 8.64 0.56

JCI 5001.30 -22.99 -0.46

PCOMP 7066.74 -36.80 -0.52

ASX200 5452.60 -6.36 -0.12

FOREX (vs US$) Close 1D Chg YTD

Rmb 6.11 0.00 -0.98

HK$ 7.76 0.00 -0.04

NT$ 30.39 -0.01 -1.93

Won 1049.58 -2.67 0.02

S$ 1.27 0.00 -0.72

M$ 3.27 0.00 0.04

Rupee 61.33 0.03 0.76

Baht 32.44 0.00 0.82

Rupiah 12169.00 60.00 0.02

Peso 44.78 -0.02 -0.86

A$ 0.89 0.01 -0.65

LATEST COMMODITY PRICES Commodities Close 1D Chg YTD

West Texas 81.42 0.42 -17.27

Brent 84.96 0.36 -23.34

CRB 272.09 1.68 -2.89

Copper 308.90 2.50 -9.05

Gold (Spot) 1228.40 1.85 1.89

Alum. (LME) 1983.00 15.00 10.15

Baltic Dry 1285.00 93.00 -43.57

Source: Bloomberg Finance LP

TOP STORIES Thai Bank Sector Sluggish growth priced-in; more

attractive re-entry point Peach Patharavanakul

Page 6

China Heavy-Duty Truck Sector

Position now for 2015E demand pick-up; upgrading Weichai to Buy

Fei Sun Page 7

MediaTek (2454.TW), TWD425.00, Hold, Price Target TWD461.00

3Q14 preview – Sales starting to cool off, entering low season

Jessica Chang Page 8

RECOMMENDATION CHANGES Zijin Mining (2899.HK), HKD1.93, Hold, Price Target HKD2.10

Zijin Mining 3Q14 results prompt us to upgrade from Sell to Hold

James Kan Page 9

ABB Ltd India (ABB.BO), INR1146.00, Hold, Price Target INR1030.00

Turning around...but more slowly than expected; downgrading to Hold

Manish Saxena Page 10

ESTIMATES & TARGET PRICE CHANGES Shangri-La Asia (0069.HK), HKD11.08, Hold, Price Target HKD10.90

Rights issue to lower debt; RevPAR trends worsening still; cut TP

Karen Tang Page 11

Sinopharm Group (1099.HK), HKD30.05, Hold, Price Target HKD26.00

Growth on track Jack Hu Page 12

Kinsus (3189.TW), TWD113.00, Hold, Price Target TWD115.00

Market share loss ahead Michael Chou Page 13

First Philippine Hldgs (FPH.PS), PHP86.60, Buy, Price Target PHP100.00

Growth and Value; Buy Iza Fernandez Page 14

STRATEGY/ECONOMICS Quantfucius Market Tricks and Quant Treats Khoi Le Binh Page 15

Special Report China rates: the bull run is slowing Linan Liu Page 16

Special Report Sri Lanka announces a populist budget for 2015, but with a lower deficit target

Kaushik Das Page 17

Japan FI Morning Memo JGB supply/demand tight, but increased issuance unlikely

Makoto Yamashita

Page 18

US Daily Economic Notes FOMC to end QE but "considerable time" stays...For now

Joseph LaVorgna

Page 19

ADDITIONAL RESEARCH Air China (0753.HK), HKD4.76, Buy, Price Target HKD5.40

3Q14 results in-line; stabilizing yield and lower jet fuel cost helped

Vincent Ha Page 20

Bank of Nanjing (601009.SS), CNY9.14, Hold, Price Target CNY8.74

3Q14 Results: Beat, but three concerns remained

Hans Fan Page 21

BBMG (2009.HK), HKD5.18, Buy, Price Target HKD7.65

3Q14 misses but outlook still robust Johnson Wan Page 22

Belle International (1880.HK), HKD9.32, Buy, Price Target HKD12.40

Slower growth stage, but higher payout; maintaining Buy

Anne Ling Page 23

https://ger.db.com/csa/pubdoc/6dc57fwom9xygat

https://ger.db.com/csa/pubdoc/1bvg9krs0w7ydct

https://ger.db.com/csa/pubdoc/1bvg9krs0w7ydct

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https://ger.db.com/csa/pubdoc/3khd3mj4fwyg76p

https://ger.db.com/csa/pubdoc/cta799kdkfnupfr

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https://ger.db.com/csa/pubdoc/l6r9k16fh0i5cyi



https://ger.db.com/csa/pubdoc/lr27o9k1njieaib

https://ger.db.com/csa/pubdoc/lr27o9k1njieaib

https://ger.db.com/csa/pubdoc/bjwe89l6l5q2o0a



29 October 2014


Page 2 Deutsche Bank AG/Hong Kong

ADDITIONAL RESEARCH China Life (2628.HK), HKD22.35, Buy, Price Target HKD27.30

3Q14 - A decent quarter Esther Chwei Page 24

China Telecom Corp ltd (0728.HK), HKD4.91, Buy, Price Target HKD5.60

3Q14 beat on NP; tariff pressure remains Alan Hellawell Page 25

Cosco Pacific (1199.HK), HKD10.12, Buy, Price Target HKD13.00

3Q failed to surprise positively, but valuation does look cheap; Buy.

Sky Hong Page 26

ENN Energy (2688.HK), HKD54.30, Buy, Price Target HKD64.00

Injection of NA gas stations looks premature with -ve earnings impact

Michael Tong Page 27

Guangzhou Auto (2238.HK), HKD7.22, Hold, Price Target HKD7.40

3Q14 missed on weak Japanese brand sales and mix downshift

Vincent Ha Page 28

Haitong Securities (6837.HK), HKD12.48, Buy, Price Target HKD13.80

3Q14 results - beat on investment income

Pandora Lee Page 29

Huadian Power (1071.HK), HKD5.32, Buy, Price Target HKD6.70

3Q NP +28% yoy despite 3% output decline; Buy

Michael Tong Page 30

Industrial Bank (601166.SS), CNY10.15, Hold, Price Target CNY11.00

3Q14 Results: A miss on tighter interbank rules and asset quality risks

Hans Fan Page 31

Longyuan Power (0916.HK), HKD7.58, Buy, Price Target HKD10.40

3Q below estimate, but in the price Michael Tong Page 32

Maanshan-H (0323.HK), HKD1.68, Buy, Price Target HKD2.10

Maanshan 3Q14 Alert James Kan Page 33

Ping An (2318.HK), HKD60.95, Buy, Price Target HKD84.10

3Q14 - A strong quarter, P&C better-than-expected

Esther Chwei Page 34

Far EasTone Telecom (4904.TW), TWD62.70, Hold, Price Target TWD60.00

Positive tone despite subsidy-led weakness in 3Q

Peter Milliken Page 35

Powertech (6239.TW), TWD48.70, Sell, Price Target TWD42.00

Transition period; retaining Sell Michael Chou Page 36

GS E&C (006360.KS), KRW29400.00, Sell, Price Target KRW27900.00

Unexpected guidance cut; maintain Sell Sanghi Han Page 37

Shinhan FG (055550.KS), KRW47650.00, Hold, Price Target KRW46000.00

Consensus-beating earnings on investment gains

Jeehoon Park Page 38

SK Innovation (096770.KS), KRW83800.00, Buy, Price Target KRW100000.00

3Q14 results operating profit in-line with expectations

Shawn Park Page 39

Singapore Banks 3Q14 preview: slower growth; qualities intact

Franco Lam Page 40

Wing Tai Hldgs (WTHS.SI), SGD1.76, Buy, Price Target SGD2.15

1Q15 results boosted by divestment gains

Chien-Fie Man Page 41

AKR Corporindo (AKRA.JK), IDR4805.00, Buy, Price Target IDR5275.00

Weak volume offset by higher margin and lower interests

Nicholas Nugroho

Page 42

Bank Tabungan Negara (BBTN.JK), IDR1105.00, Buy, Price Target IDR1250.00

3Q14: improving operating on qoq; but likely miss FY14e

Raymond Kosasih

Page 43

BFI Finance (BFIN.JK), IDR2100.00, Buy, Price Target IDR3000.00

Strong 3Q14; net profit +10% yoy and +16% qoq

Nicholas Nugroho

Page 44

Indonesian Cement Sector Building the cities Rachman Koeswanto

Page 45

MPM (MPMX.JK), IDR1080.00, Buy, Price Target IDR1600.00

Weak 3Q due to margin pressure Nicholas Nugroho

Page 46

Nippon Indosari (ROTI.JK), IDR1195.00, Hold, Price Target IDR1450.00

Another strong profit growth in 3Q; recent price hike to boost margin

Adi Putra Page 47

Telkom (TLKM.JK), IDR2685.00, Buy, Price Target IDR3300.00

Tsel : Strong 3Q14 operational results Raymond Kosasih

Page 48

DB EVENTS DB COMPANY ROADSHOWS

Ascendas India Trust: Post Results Update - HK 10/30 China Shenhua Energy Co.: Company Update - SG 10/29 Shanghai Fosun Pharmaceutical Group Co Ltd - Post Results Update Group Conference Call - CC 10/29 Minor International Public Company Ltd - Company Update - SG 10/30 Mindray Medical: Post Results Update - HK 11/ 5-7 Voya Financial, Inc.: Company Update - HK 11/17 & SG 11/18 AMATA Corporation Public Company Limited: Company Update - SG 12/1-2 DB ANALYST ROADSHOWS Shawn Park: 2015 Asia Petrochemical & Korea Oil Refining Sector Outlook - HK 10/29-30 Yuliang Chang: 4Q14 China Equity Strategy - Reduce Beta to Weather through the Downdraft - SG 10/29-30 Kevin Chong: Singapore/Malaysia O&M and Chinese Shipbuilders, SHA 10/29 Pandora Lee: CN Brokers + TW Financial Update - HK 10/29, 11/4, KL 11/5 & SG 11/6-7 Alan Hellawell & Vivian Hao: China TMT Update - HK 10/29-31 Khoi LeBinh, Vincent Zoonekynd & Ada Lau: Asia Quant Strategy - HK 10/29-31 David Hurd & Shawn Park: Essentially Oil & Gas - HK 10/30 James Kan & Johnson Wan: Have We Bottomed Yet? - SEL 10/31/ KL 11/12/ SG 11/13-14/ HK 11/24-26 & BEI 12/17 Anne Ling & Winnie Mak: Essentially Consumer - HK 11/3 Alan Hellawell & Vivian Hao: Essentially Internet - HK 11/4 Anuj Singla: India Metal & Mining Sector Update - SG 11/4-5 & HK 11/6 Tony Tsang & Jason Ching: Golden 4Q14 taking shape - BEI 11/6 James Kan & Johnson Wan: Essentially Basic Materials - HK 11/10 Sanghi Han: Asia EPC and Korea Utilities Outlook - HK 11/10-11 & SG 11/12-13 Sanjeev Rana & Kevin Chong: Essentially Industrials (Shipbuilding) - SG 11/11 Sanjeev Rana: Korean Autos/Shipbuilding/Machinery Sector Update - SG 11/10-11 & HK 11/12-13 Manish Shukla: India Financials - SG 11/10-11 & HK 11/12-13 Zhiwei Zhang: China 2015 Macro Outlook: Slower Growth Leads to Interest Rate Cuts - SG 11/11-13 Johnson Wan & James Kam: Cement, Paper and Oilfield Services - HK 11/10-11, SHA 11/24-25, BEI 11/26, TPE 11/27-28, HK 12/8-9, SG 12/10-11 & SEL 12/15 Esther Chwei & Tracy Yu (SG only): Sector Update - SHA 11/11-12, BEI 11/14, KL 11/17, SG 11/18-19 & HK 11/25-26 Vincent Ha & Sanjeev Rana: Essentially Autos & Auto Parts - HK 11/12 Michael Tong: China Utility/Renewable/Environmental Sector 2015 Outlook - BJ 11/18-19 & SHA 11/20-21 Joe Liew, Aun-Ling Chia & Kevin Chong: Essentially Malaysia -SG 11/18 Yaron Kinar: American Life Insurance Industry Update - HK 11/19 Jessica Chang: Taiwan IC design, Distribution and Touch Panel - SHA 11/19, BEI 11/20, SG 1/6-7 Jan & HK 1/8-9 Joe Liew: Top Picks in Singapore / Malaysia, HK 11/19-20, KL 12/1 & SG 12/2 & 5 Tracy Yu, Yuliang Chang & team: Essentially China Macro & Financials - HK 11/ 21 Seunghoon Han & Hanjoon Kim: Korea Technology/Hardware/Internet Sector Update - HK 11/24-25 & SG 11/26-27 Nash Shivaruchiwong: Thai Property Sector Outlook - HK 11/24-25, KL 11/26 & SG 11/27-28 Michael Chou: Asian Tech Growth Outlook and Semi Updates - SG 11/24-25 & HK 11/26-27 Abhay Laijawala & Team: Essentially India - 11/25 Esther Chwei, Pandora Lee & Franco Lam: Essentially China Insurance & Brokers / Taiwan Financials / HK Banks - HK 11/25 Seung Hoon Han & Han Joon Kim: Essentially Korea Technology - HK 11/25 Abhay Laijawala & team: Essentially India - HK 11/ 26 Peter Milliken & team: Essentially Telecommunications -HK 11/ 27 Michael Tong: Essentially Power - HK 12/4 Khoi Le Binh: Essentially Quantitative Research - HK 12/5 Tony Tsang & Jason Ching: Essentially Property - HK 12/8 Karen Tang: Essentially Gaming & Lodging: - HK 12/10 Joe Liew, Joy Wang, Kevin Chong & Franco Lam: Essentially Singapore - SG 12/4 Javed Jussa & Khoi LeBinh: US & Asia Quantitative Strategy - SHA 12/4, HK 12/5 & SG 12/8 Tony Tsang, Jason Ching & Joy Wang: Essentially Property - SG 12/16 Peach Patharavanakul: Thai Bank-Econ Market, HK 12/1-2 & SG 12/3-4 Joe Phanich: Thailand Telecom Upcountry Mobile Data Usage + Energy sector update, KL 12/8, SG 12/9-10 & HK 12/11-12 Vincent Ha: China Auto/Auto Dealer Sector Update - SHA 12/9-10, BJ 12/11-12, HK 12/15-16, SEL 1/7, SG 1/19-20 Vincent Ha & Joe Liew: Essentially Auto & Industrials (Airlines) - SG 1/20

Source: Deutsche Bank

https://ger.db.com/csa/pubdoc/kgrjnxoi4djg448



https://ger.db.com/csa/pubdoc/jreg254d0b7yt5h



https://ger.db.com/csa/pubdoc/njw50ko9lpj2g3v



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https://ger.db.com/csa/pubdoc/gzxuw9l49awxt4c



https://ger.db.com/csa/pubdoc/2nnf9psnm9hj6co



https://ger.db.com/csa/pubdoc/8ppigu8ypnnr0w

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https://ger.db.com/csa/pubdoc/2xu3kq97q8g5cen



29 October 2014


Deutsche Bank AG/Hong Kong Page 3

ADDITIONAL RESEARCH Airports of Thailand (AOT.BK), THB242.00, Buy, Price Target THB250.00

Taking the middle path Aekapop Guruvanich

Page 49

HomePro (HMPRO.BK), THB9.10, Buy, Price Target THB11.00

3Q14 profit slightly below expectation on sales & interest exp.

Chalinee Congmuang

Page 50

Hindustan Unilever (HLL.BO), INR716.00, Hold, Price Target INR700.00

Keeps the date; street worries on excise duty hike unfounded

Manoj Menon Page 51

Indian Infrastructure One more of the arbitrage profits taken away by Government of India

Manish Saxena Page 52

Nestle India (NEST.BO), INR5965.00, Buy, Price Target INR6600.00

Turnaround on track; we stay positive Manoj Menon Page 53

Hino Motors (7205.T), JPY1476.00, Hold, Price Target JPY1550.00

Nikkei preview: forecasts in line with expectations, Indonesia remains key

Takeshi Kitaura Page 54

Hitachi Const Machinery (6305.T), JPY2072.00, Hold, Price Target JPY2250.00

Favorable 2Q results; mining equipment business requires caution

Takeshi Kitaura Page 55

Honda Motor (7267.T), JPY3306.00, Hold, Price Target JPY3850.00

2Q initial impression: Result disappoints; FY EPS cut by 6%

Kurt Sanger Page 56

Matsui Securities (8628.T), JPY925.00, Hold, Price Target JPY1040.00

2Q results: RP up 22% QoQ Hiroshi Torii Page 57

Real estate sector Members opposing consumption tax hike dropped from panel

Yoji Otani Page 58

Retail sector: Specialty/apparel

Komeri's 1H FY3/15 results: Implications for the sector

Takahiro Kazahaya

Page 59

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/bxi7eg3qj9wd7dt



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https://ger.db.com/csa/pubdoc/eo0y91sejk4buaw

https://ger.db.com/csa/pubdoc/eo0y91sejk4buaw

29 October 2014



DAILY REVISIONS

RATING CHANGES

Company Ticker Date New Previous

ABB Ltd India ABB.BO 28-Oct ▼ Hold Buy

Krung Thai Bank KTB.BK 28-Oct ▲ Buy Hold

Weichai Power 2338.HK 28-Oct ▲ Buy Hold

Zijin Mining 601899.SS 28-Oct ▲ Hold Sell

2899.HK 28-Oct ▲ Hold Sell

TARGET PRICE CHANGES

Company Ticker Date New Previous Chg (%)

ABB Ltd India [Hold] ABB.BO 28-Oct ▼ 1,030.00 1,105.00 -6.8

Bangkok Bank [Buy] BBL.BK 28-Oct ▼ 222.00 223.00 -0.4

Belle International [Buy] 1880.HK 28-Oct ▼ 12.00 12.40 -3.2

First Philippine Hldgs [Buy] FPH.PS 28-Oct ▲ 100.00 85.00 17.6

Kasikornbank [Buy] KBANK.BK 28-Oct ▲ 262.00 238.00 10.1

KBAN.BK 28-Oct ▲ 262.00 238.00 10.1

Kiatnakin Bank [Hold] KKP.BK 28-Oct ▲ 42.00 38.00 10.5

Kinsus [Hold] 3189.TW 28-Oct ▼ 115.00 118.00 -2.5

Krung Thai Bank [Buy] KTB.BK 28-Oct ▲ 25.00 21.00 19.0

MediaTek [Hold] 2454.TW 28-Oct ▼ 461.00 510.00 -9.6

Shangri-La Asia [Hold] 0069.HK 28-Oct ▼ 10.90 12.60 -13.5

Sinopharm Group [Hold] 1099.HK 28-Oct ▲ 26.00 23.50 10.6

Sinotruk (Hong Kong) [Buy] 3808.HK 28-Oct ▲ 5.00 4.70 6.4

TMB Bank [Buy] TMB.BK 28-Oct ▲ 3.60 3.50 2.9

Weichai Power [Buy] 2338.HK 28-Oct ▲ 33.00 28.50 15.8

Zijin Mining [Hold] 2899.HK 28-Oct ▲ 2.10 1.10 90.9

601899.SS 28-Oct ▲ 2.10 1.10 90.9

EPS REVISIONS

Company Ticker Date FY New Previous Chg (%)

ABB Ltd India [Hold] ABB.BO 28-Oct Dec 14 ▼ 10.19 12.56 -18.9

Dec 15 ▼ 20.73 25.46 -18.6

Dec 16 ▼ 27.59 33.38 -17.4

Bangkok Bank [Buy] BBL.BK 28-Oct Dec 14 ▼ 18.83 19.54 -3.6

Dec 15 ▼ 20.54 21.58 -4.8

Dec 16 ▼ 23.20 24.68 -6.0

Bank BJB [Buy] BJBR.JK 28-Oct Dec 14 ▼ 119.06 131.18 -9.2

Dec 15 ▼ 129.32 142.78 -9.4

Belle International [Buy] 1880.HK 28-Oct Feb 15 ▲ 0.55 0.55 0.6

Feb 16 ▼ 0.59 0.60 -1.5

Feb 17 ▼ 0.64 0.66 -3.4

China Telecom Corp ltd [Buy] 0728.HK 28-Oct Dec 14 ▼ 0.22 0.22 -0.1

Dec 15 ▲ 0.25 0.25 0.5

Dec 16 ▼ 0.30 0.30 -0.4

First Philippine Hldgs [Buy] FPH.PS 28-Oct Dec 14 ▼ 6.54 6.79 -3.6

Dec 15 ▼ 9.19 10.23 -10.1

Dec 16 13.20

Indofood [Buy] INDF.JK 28-Oct Dec 14 ▼ 423.71 424.59 -0.2

Dec 15 ▲ 550.77 547.68 0.6

Kasikornbank [Buy] KBANK.BK 28-Oct Dec 14 ▲ 19.57 19.38 1.0

Dec 15 ▲ 22.47 21.70 3.6

Dec 16 ▲ 25.80 24.84 3.8

Kiatnakin Bank [Hold] KKP.BK 28-Oct Dec 14 ▲ 3.36 3.27 2.5

Dec 15 ▲ 5.11 4.71 8.4

Dec 16 ▲ 5.86 5.31 10.3

Kinsus [Hold] 3189.TW 28-Oct Dec 14 ▼ 9.29 9.57 -2.9

Dec 15 ▼ 9.82 9.98 -1.6

Dec 16 ▼ 10.35 10.51 -1.5

Krung Thai Bank [Buy] KTB.BK 28-Oct Dec 14 ▼ 2.37 2.43 -2.7

Dec 15 ▼ 2.58 2.69 -3.8

Dec 16 ▼ 3.00 3.03 -1.1

MediaTek [Hold] 2454.TW 28-Oct Dec 14 ▼ 28.95 30.71 -5.7

Dec 15 ▼ 30.72 34.01 -9.7

Dec 16 ▼ 33.73 37.33 -9.6

29 October 2014



DAILY REVISIONS

EPS REVISIONS

Company Ticker Date FY New Previous Chg (%)

OCBC [Buy] OCBC.SI 28-Oct Dec 14 ▼ 0.94 0.98 -4.3

Dec 15 ▼ 0.97 1.01 -3.3

Dec 16 ▼ 1.05 1.08 -3.1

Powertech [Sell] 6239.TW 28-Oct Dec 14 ▲ 4.03 3.76 7.3

Dec 15 ▲ 3.33 3.33 0.2

Dec 16 ▲ 3.16 3.16 0.0

Shangri-La Asia [Hold] 0069.HK 28-Oct Dec 14 ▼ 0.04 0.05 -17.1

Dec 15 ▼ 0.05 0.06 -20.9

Dec 16 ▼ 0.06 0.08 -21.7

Siam Commercial Bank [Buy] SCB.BK 28-Oct Dec 14 ▼ 15.57 15.81 -1.5

Dec 15 ▼ 17.29 17.51 -1.3

Dec 16 ▼ 19.33 19.48 -0.8

Sinopharm Group [Hold] 1099.HK 28-Oct Dec 13 ▲ 0.89 0.88 1.8

Dec 14 ▲ 1.08 1.06 1.8

Dec 15 ▲ 1.25 1.21 3.4

Dec 16 ▲ 1.45 1.35 6.8

Sinotruk (Hong Kong) [Buy] 3808.HK 28-Oct Dec 15 ▲ 0.26 0.23 10.8

Dec 16 ▲ 0.30 0.28 5.8

TMB Bank [Buy] TMB.BK 28-Oct Dec 14 ▼ 0.21 0.21 -1.3

Dec 15 ▼ 0.25 0.25 -1.9

Dec 16 ▼ 0.30 0.30 -1.4

Thanachart Capital [Buy] TCAP.BK 28-Oct Dec 14 ▼ 4.08 4.27 -4.5

Dec 15 ▼ 4.45 4.77 -6.6

Dec 16 ▼ 4.93 5.08 -3.1

Weichai Power [Buy] 2338.HK 28-Oct Dec 14 ▼ 1.68 2.03 -17.0

Dec 15 ▲ 2.39 2.25 6.0

Dec 16 2.62

Zijin Mining [Hold] 2899.HK 28-Oct Dec 13 ▲ 0.10 0.10 0.0

Dec 14 ▲ 0.12 0.07 62.5

Dec 15 ▲ 0.11 0.05 123.5

Dec 16 ▲ 0.10 0.02 295.3 Source: Deutsche Bank

AsiaThailandBanking / Finance

Industry

Thai Bank SectorDate28 October 2014

Industry Update

Sluggish growth priced-in; more attractive re-entry pointShare price weakness is opportunity to Buy

________________________________________________________________________________________________________________

Peach Patharavanakul

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

Key Changes

Company Target Price Rating

BBL.BK 223.00 to 222.00(THB)

-

KBANK.BK 238.00 to 262.00(THB)

-

KKP.BK 38.00 to 42.00(THB)

-

KTB.BK 21.00 to 25.00(THB)

Hold to Buy

TMB.BK 3.50 to 3.60(THB) -


Top picks

TMB Bank (TMB.BK),THB3.06 Buy

Kasikornbank (KBANK.BK),THB238.00 Buy

Siam Commercial Bank (SCB.BK),THB174.50

Buy


Thai banks

T icker R ec TP ( B t ) C lose ( B t ) +/ - t o TP

BBL.BK Buy 222.0 196.0 13.3

KBANK.BK Buy 262.0 237.0 10.5

KKP.BK Hold 42.0 41.0 2.4

KTB.BK Buy 25.0 22.4 11.6

SCB.BK Buy 200.0 172.5 15.9

TCAP.BK Buy 38.0 34.0 11.8

TM B.BK Buy 3.6 3.1 17.6


We remain neutral in regards to Thai macro and trim sector profit growth to 3-12% for 2014-15F. Nonetheless, we have turned more positive on valuations, as they have reverted to historical means (10-20% total return to our rolled-forward 2015F TPs) and see domestic inflow into equity as a key tactical driver for SETBANK performance in 4Q14. While TMB/KBANK remain our 12-month fundamental top picks, we believe SCB, BBL, and KTB (upgrade to Buy) offer an attractive price-gap catch-up trade in the short term.

Earnings revised post 3Q14 results to account for slow pace of economic recoveryOur covered banks reported 3Q14 net profit that beat both our and Bloomberg consensus forecasts by 2-robust core income an -off gain. Following these results, we trim 2014-16F sector earnings by 1% on average; a 1-5% cut for most commercial banks (signs of slow loan/fee demand recovery and larger-than-expected NPL formation) but a 3-11% raise for KBANK (robust SME and fee-based business) and KKP (signs of asset quality stabilization and capital market business recovery). Although we

-base, we expect the multiplier effect on loan growth to be relatively minute given; 1) high household debt, 2) likelihood of a U or W-shaped domestic demand recovery, 3) prevailing export growth downside risk (DB recently cut China GDP).

Roll forward TPs to 2015F; upgrade KTB to Buy We roll forward our GGM-based target prices from 2014-15F average to 2015F. KBANK and TMB remain our 12-month fundamental top picks for superior 2015F earnings growth led by SME/fees. However, in the short term, SCB, BBL, and KTB should see a price gap catch-up given their attractive laggard valuations vs. KBANK/TMB. We upgrade KTB to Buy on more attractive upside to our TP (plus high dividend yield) after its recent share price weakness, and reduced concern on loan quality vs. LLR cushion.

Fundamentally neutral; tactically optimistic on domestic liquidityFundamentally, we do not expect a broad-based delivery of strong earnings growth in 2015F. Tactically, we expect the SET index (especially liquid sectors like banks) to find support or at least near-term downside cushion from: 1) the recent bond yield decline (as well as signs of a delay in a Thai policy rate hike), 2) local investors dominating the Thai equity market YTD, and 3) seasonal LTF/RMF inflow. Moreover, valuation-wise, we believe our Buy ratings are justified given that the

ection from the September peak to 1.5x PBV and 10x PER (historical mean) has resulted in absolute returns of 4-18% to our 2015F TPs (or 10-20% total return).

Valuation methodology and key risksWe base our target prices for Thai banks on the Gordon Growth Model, from which we derive P/B multiples, which we then apply to estimated book values to set our target prices. Key upside/downside risks are; (i) failure/success of economic stimulus/political reform measures by the government, (ii) global interest rate/inflation volatility, and (iii) tougher industry regulations.

29 October 2014 Asia Equities Daily Focus: Asian Edition


AsiaChina Automobiles & Components

Industry

China Heavy-Duty Truck Sector

Date28 October 2014

Recommendation Change

Position now for 2015E demand pick-up; upgrading Weichai to Buy Turning positive on HDT sector; Buy Sinotruk and Weichai

________________________________________________________________________________________________________________

Fei Sun, CFA

Research Associate (+852) 2203 6130 [email protected]

Vincent Ha, CFA

Research Analyst (+852) 2203 [email protected]

Key Changes

Company Target Price Rating

2338.HK 28.50 to 33.00(HKD)

Hold to Buy

3808.HK 4.70 to 5.00(HKD) -


Top picks

Sinotruk (Hong Kong) (3808.HK),HKD3.78 Buy


Companies Featured

Weichai Power (2338.HK),HKD28.50 Buy 2013A 2014E 2015EP/E (x) 13.1 13.3 9.4EV/EBITDA (x) 6.8 7.6 5.8Price/book (x) 1.8 1.4 1.2

Sinotruk (Hong Kong) (3808.HK),HKD3.78 Buy 2013A 2014E 2015EP/E (x) 35.7 16.4 11.5EV/EBITDA (x) 7.8 6.2 5.5Price/book (x) 0.5 0.4 0.4Source: Deutsche Bank

We are more upbeat on the China heavy-duty truck (HDT) sector as we foresee a demand rebound in 2015 on 1) infrastructure spending amid the central government’s mini-stimulus, and 2) rising logistics activities. Unlike the last two rounds of emission standard upgrades, we believe the launch of China-IV in Jan-15 will not distort demand growth given the dissipation of pre-buying in early 2014. We raise our FY15-16 earnings estimates for Weichai and Sinotruk and upgrade Weichai to Buy. Sinotruk remains our top pick on its attractive below-historical P/E valuation and positive operating leverage. This note marks the transfer of coverage of Weichai and Sinotruk from Vincent Ha to Fei Sun.

Demand distortion from China-IV upgrade to be rather limited With China’s HDT sales declining 7% in 3Q14, HDT-related stocks have underperformed HSCEI YTD on concerns that demand may further decline in 2015 after the implementation of the new China-IV emission standard in January next year. While the previous rounds of emission standard upgrades in 2004 and 2008 depressed demand growth in the subsequent 12 months (sales down 34% in 2005 and 29% in 2H08-1H09) due to the sudden disappearance of pre-buying, we argue that the transition to China-IV should be much smoother than in the past. We believe the distortion from the China-IV upgrade will be insignificant, considering an earlier-than-usual pre-buying start in mid-2013 (HDT sales up 40% in 2H13) and the subsequent demand drainage in 2014 (HDT sales up mildly by 7% in 1H14, with YoY decline of 7% in 3Q14).

Infrastructure-led HDT rebound in 2015E to support earnings growth We estimate HDT sales will grow 8.3% YoY in 2015 as normal HDT demand growth resumes, driven by infrastructure and logistics activities. Historically, newly started fixed asset investment (FAI) usually leads HDT sales by 3-6 months. With the recent pick-up in new FAI project starts (up 15.9% YoY in 3Q14), probably as a result of the government’s mini-stimulus, we are now more upbeat on China’s HDT demand in 2015. As property contributes only 10% of HDT demand and infrastructure 40%, downside risk to our HDT sales forecast (due to a further slowdown in property investment to 10% in 1H15, as expected by our China economist) is limited by a pickup in infrastructure FAI. In addition, China’s exports rebounded 13% YoY and 11% QoQ in 3Q14, with PMI new export orders at a 53-month high, which bodes well for our anticipation of demand support from rising logistics activities.

Raising earnings on improved sector outlook; upgrading Weichai to Buy; risks We raise our FY15-16E net profit estimates for Weichai and Sinotruk by 6.0-6.1% and 5.8-10.8%, respectively. Our FY15E net profit estimates are 6% above consensus for Sinotruk and 1% higher for Weichai. We upgrade Weichai from Hold to Buy with a TP of HKD33.0 (from HKD28.5) and maintain Buy for Sinotruk with a TP of HKD5.0 (from HKD4.7). We believe the two names s outperform on the back of our anticipated HDT sector up-cycle in 2015. Within the China HDT space, we prefer Sinotruk to Weichai given that the former is still trading well below its historical average P/E and P/BV, with positive operating leverage. We are also upbeat on Sinotruk’s ongoing product mix advancement with the MAN-technology-based Sitrak HDTs. Downside risks include weaker-than-expected demand growth due to China-IV implementation and an unexpected significant economic slowdown, which may depress sales.

This report changes ratings, target prices

and estimates for two companies under

coverage. For a detailed listing of these

changes, see Figure 19 on Page 13.



Rating

HoldAsiaTaiwan

TechnologySemiconductor & Equipment

Company

MediaTekDate28 October 2014

Forecast Change

3Q14 preview Sales starting to cool off, entering low season

Reuters Bloomberg Exchange Ticker2454.TW 2454 TT TAI 2454

Forecasts And Ratios

Year End Dec 31 2012A 2013A 2014E 2015E 2016E

Sales (TWDm) 99,263 136,056 211,271 244,733 276,647

Net Income 15,688 27,515 45,477 48,256 52,997

DB EPS FD(TWD) 12.79 20.51 28.95 30.72 33.73

% Change 0.0% 0.0% -5.7% -9.7% -9.6%

DB EPS growth (%) 3.7 60.3 41.1 6.1 9.8

PER (x) 23.0 17.8 14.7 13.8 12.6

Yield (net) (%) 2.9 2.5 3.5 5.1 5.7

ROE (%) 10.7 14.8 21.0 19.7 20.4

Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 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

Momentum softening in early LTE stage

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (TWD) 425.00

Price target - 12mth (TWD) 461.00

52-week range (TWD) 535.00 - 388.00

Taiwan Stock Exchange (TWSE)

8,628

Jessica Chang

Research Analyst(+886) 2 2192 [email protected]

Key changes

Price target 510.00 to 461.00 -9.6%

Sales (FYE) 217,566 to 211,271

-2.9%

Op prof margin (FYE)

23.2 to 22.3 -4.0%

Net profit (FYE)

48,239.6 to 45,477.0

-5.7%


Price/price relative

280320360400440480520560

10/12 4/13 10/13 4/14

MediaTek

Taiwan Stock Exchang (Rebased)

Performance (%) 1m 3m 12m

Absolute -6.6 -15.5 8.7


-4.0 -8.4 2.6


Stock data

Market cap (TWDm) 667,684

Market cap (USDm) 21,968

Shares outstanding (m) 1,571.0

Avg daily value traded (USDm)

110.0


Key indicators (FY1)

ROE (%) 21.0

Book value/share (TWD) 151.3

Operating profit margin (%) 22.3


We maintain our view that competition in the China baseband market is intensifying faster than we anticipated as seen by increasing aggressiveness from Qualcomm on 4G and Spreadtrum on 3G of late. We thus expect heating

near-term earnings momentum. Hold maintained.

3Q14 tracking to low end of sales guidanceMediaTek 3Q14 sales totaled NT$57.5bn, toward the low end of its guidance of NT$56.8-61.2bn (no positive surprise this time) due to weakness in September sales. It anticipates GMs to fall to 47.5-49.5% from 49.6% in 2Q14. We note that shipments of MediaTek s currently most lucrative 3G octa-core SOC product MT6592 seem to have peaked in 2Q14 with ASP erosions accelerating across key smartphone products. We forecast MediaTek s GMs to fall to 48.5% in 3Q14 with net income of NT$12.8bn, or EPS of NT$8.12.

4Q14 likely to be a seasonally weak quarterWe forecast MediaTek s sales to decline by 6.6% to NT$53.7bn in 4Q14 with GMs further dipping to 47.5%. We note Qualcomm receives a lot more design wins than MediaTek in LTE on its early-mover advantages, which could weaken MediaTek s shipment momentum and pricing power in the 4G market initially. Also, we expect MediaTek s 2-chip LTE solutions in mass production currently to lead to some GMs dilution for another one to two quarters due to less optimized cost structure vs. SOC. Also, competition from Spreadtrum on WCDMA could further impact GMs given its well-known low-price approach.

Maintaining Hold with target price at NT$461; risksWe lower FY15-16E EPS by 9.7%/9.6% with our target price cut to NT$461based on 15x FY15E EPS. We maintain our target PER of 15x (the low end ofits historical 15-25x PERs in the past three years) to reflect the slowing earnings growth into 2015E. MediaTek s share price has faced some correction recently, but we suggest staying on the sidelines before seeing new catalyststo offer potential earnings upside. Key risks: faster/slower margin improvement and stronger/weaker smartphone demand in China and emerging markets.



Rating

HoldAsiaChina

ResourcesMetals & Mining

Company

Zijin MiningDate29 October 2014

RecommendationChange

Zijin Mining 3Q14 results prompt us to upgrade from Sell to Hold

Reuters Bloomberg Exchange Ticker2899.HK 2899 HK HKG 2899



Sales (CNYm) 47,873.6 49,772.0 54,229.9 51,491.5 50,272.5

Reported NPAT (CNYm) 5,211.2 2,125.5 2,582.1 2,297.2 2,100.6

DB EPS growth (%) -8.8 -59.2 21.5 -11.0 -8.6

DB EPS FD(CNY) 0.24 0.10 0.12 0.11 0.10

OLD DB EPS FD(CNY) 0.24 0.10 0.07 0.05 0.02

% Change 0.0% 0.0% 62.5% 123.5% 295.3%

PER (x) 10.1 17.2 12.9 14.4 15.8

DPS (net) (CNY) 0.10 0.08 0.09 0.08 0.00

Yield (net) (%) 4.2 4.7 5.7 5.0 0.0


Zijin maintained good cost control; upgrading to Hold

________________________________________________________________________________________________________________



Price at 28 Oct 2014 (HKD) 1.93

Price target - 12mth (HKD) 2.10

52-week range (HKD) 2.15 - 1.57

HANG SENG INDEX 23,143

James Kan

Research Analyst(+852) 2203 [email protected]

Key changes

Rating Sell to Hold

Price target 1.10 to 2.10 90.9%

Sales (FYE) 45,765 to 54,230 18.5%


7.8 to 8.7 11.9%

Net profit (FYE)

1,588.9 to 2,582.1

62.5%



1.21.62.02.42.83.23.64.0

10/12 4/13 10/13 4/14

Zijin Mining

HANG SENG INDEX (Rebased)


Absolute 0.0 -2.5 7.2

HANG SENG INDEX -2.3 -5.3 1.5


Zijin announced its 3Q14 results after market close on Oct 24th. 3Q14 NPAT rose 24%/46% YoY/QoQ to RM860m, representing 54% of DB estimate and 40% Bloomberg consensus FY14E. The better-than-expected results prompt us to raise our forecasts. Zijin's low production costs are sustainable; however, the potential downward pressure from gold/copper might still drag Zijin's earnings. After a closer look at the results, we upgrade Zijin to Hold from Sell and raise our target price to HK$2.1.

Good 3Q14 results contributed by GP improvement and mark-to-market gain

Zijin remains on its cost-cutting track for mined gold. Unit costs for mined gold fell 1% QoQ to RMB144/g. Meanwhile, the contribution from mined zinc increased 56% QoQ, mainly due to the mined zinc ASP increasing by 14%

saw an improvement in GP, uprose 7%

QoQ and the sales volume for mined gold and mined copper fell 6% and 21%QoQ respectively, the company still delivered 3% QoQ growth in GP. Together with mark-to-market gain of

Mixed bag for the coming years price pressure though cost reduction

Several consecutive quarters of cost improvements lead us to cut our unit cost assumptions. We cut our unit cost assumption for mined gold/copper by15%/12%, respectively for 2015 and expect the company will be able to control cost inflation in 2016. The DB global commodity team forecasts a US$1163/oz gold price and a US$6,675/t copper price for 2015. Implying Zijin will still suffer from price pressure. Considering these ASP/cost factors, we raise our2014/2015 NPAT by 63%/123%.

Raising TP to HK$2.1 and upgrading Zijin from Sell to Hold. Risk: gold priceGiven our estimate increases, we also raise our life-of-mine-DCF-based target price for Zijin to HK$2.1 and we slightly change our WACC assumption to inline with DB guidance on the cost of equity. The new TP implies 9% share price upside. We upgrade Zijin from Sell to Hold. The major up/downside risk relates to the uncertainty of gold price.



Rating

HoldAsiaIndia

IndustrialsManufacturing

Company

ABB Ltd IndiaDate29 October 2014

Recommendation Change

Turning around...but more slowly than expected; downgrading to Hold

Reuters Bloomberg Exchange TickerABB.BO ABB IN BSE ABB



Sales (INRm) 74,703.1 76,316.2 77,041.9 90,297.1 104,397.2

EBITDA (INRm) 3,364.9 4,699.2 5,097.7 7,875.5 9,295.0

Reported NPAT (INRm) 1,374.1 1,768.9 2,158.9 4,392.1 5,845.5

DB EPS FD(INR) 6.48 8.35 10.19 20.73 27.59

OLD DB EPS FD(INR) 6.48 8.35 12.56 25.46 33.38

% Change 0.0% 0.0% -18.9% -18.6% -17.4%

DB EPS growth (%) -25.5 28.7 22.0 103.4 33.1

PER (x) 118.1 70.3 112.5 55.3 41.5


Good operating metrics but order pipeline is not as robust as expected in 1H

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (INR) 1,146.00

Price target - 12mth (INR) 1,030.00

52-week range (INR) 1,232.00 - 574.05

Bombay Stock Exchange (BSE 30)

26,753

Manish Saxena


Chockalingam Narayanan


Key changes

Rating Buy to Hold

Price target 1,105.00 to 1,030.00

-6.8%

Sales (FYE) 79,441 to 77,042 -3.0%


5.9 to 5.2 -11.9%

Net profit (FYE)

2,662.1 to 2,158.9

-18.9%



400

600

800

1000

1200

1400

10/12 4/13 10/13 4/14

ABB Ltd India

Bombay Stock Exchang (Rebased)


Absolute -1.2 9.7 88.8


0.5 2.9 30.1


the general election this year. Order inflow momentum, which had turned around in the previous four quarters, fell by 19% yoy thereby pushing back our growth expectations by 6-9 months. The bright spot of gross margin improvement continued (in a weak pricing environment), suggesting that management efforts to cut costs are paying off. While we await the decisive cyclical turnaround, we cut our estimates by 19% for CY14E/CY15E to factor in the demand pushback and accordingly lower our 12-month DCF-based target to INR 1030/sh. We downgrade the stock to Hold.

Order inflows disappoint but operating results are par for the courseAt first glance the 3Q results look like a miss, with order inflow of INR 14.2 bn (down 19% yoy), net revenue of INR 18.5 bn (up 3% yoy) and PAT of INR 450 mn (up 26% yoy). However, in the post-earnings call management allayed concerns by highlighting that some procedural hiccups led to a large INR 6 bn order not being booked while other expenses were higher due to the company expensing some investments (made in anticipation of a demand recovery). Importantly, gross margins (33%, up 250bps yoy) continued to improve.

Order prospects have moderated vs. 1HBesides the few one-offs in 3Q, management commentary on near-term order prospects moderated, suggesting a demand pushback. Given the morecautious order growth outlook and the pushback in order inflows, we lower our CY14E/CY15E EPS by 19%.

Valuations are rich after 59% 12M relative outperformance As a result of the earnings cuts, we lower our DCF-based 12-month targetprice to INR 1030/sh, derived using a CoE of 11.1% based on Deutsche Bank estimates of a 6.5% RFR, 7.6% ERP and beta of 0.70 (all unchanged). With the stock now offering 8% downside potential to our revised target price after a 59% 12-month outperformance, we downgrade it to Hold. Slower-/faster-than-expected order wins remain the key risk.



Rating

HoldAsiaHong Kong

ConsumerHotels / Leisure / Gaming

Company

Shangri-La AsiaDate28 October 2014

Forecast Change

Rights issue to lower debt; RevPAR trends worsening still; cut TP

Reuters Bloomberg Exchange Ticker0069.HK 69 HK HSI 0069

ADR Ticker ISINSHALY US81942Q1031



Sales (USDm) 2,057.2 2,081.1 2,165.7 2,352.8 2,597.3

EBITDA (USDm) 575.2 530.3 542.1 577.8 640.6

DB EPS FD(USD) 0.04 0.02 0.04 0.05 0.06

OLD DB EPS FD(USD) 0.04 0.02 0.05 0.06 0.08

% Change 0.0% 0.0% -17.1% -20.9% -21.7%

DB EPS growth (%) 25.6 -56.2 113.5 22.2 24.2

EV/EBITDA (x) 15.8 15.5 12.5 12.0 10.6

DPS (net) (USD) 0.03 0.02 0.01 0.02 0.03

Yield (net) (%) 1.3 0.8 1.0 1.4 1.8


No signs of recovery yet

________________________________________________________________________________________________________________



52-week range (HKD) 15.80 - 10.96


Karen Tang


Key changes

Price target 12.60 to 10.90 -13.5%

Sales (FYE) 2,270 to 2,166 -4.6%


11.1 to 10.5 -5.1%

Net profit (FYE)

156.5 to 156.6 0.0%



10

12

14

16

18

20

10/12 4/13 10/13 4/14

Shangri-La Asia



Absolute -5.5 -7.8 -22.0



Last week, Shangri-La announced its plans to raise c.US$640m by a 1-to-7rights issue at HK$11.1/shr. About 80% of the proceeds are for debt repayment. This should lower net debt to equity from 66% currently to 44%. Operationally, we still have not seen signs of recovery since Chinese govt's anti-lavish spending policies started in early 2013. In fact, for July-Aug, industry data suggest RevPAR trends further deteriorated in Beijing, Shanghai, HK and Spore. This leads us to cut our Group RevPAR gth from 0% to -1% for 2014, and from 1% to 0% for 2015. Factoring in the rights issue and weaker outlook, we cut 2014-15 EPS by 17-21%, and cut TP by 14% to HK$10.9.Rights issue should make Shangri-la less vulnerable to US interest rate upcycle

in RMB. The rights issue should make the company less vulnerable to a rising US interest rate cycle, which may begin in mid-average cost of borrowing is currently at 3.2%, we estimate that interest cost savings is around US$20m per year. This interest cost savings should slightly lessen the dilution impact from an increase in the share count on EPS.

Luxury RevPAR trends worsening stillLooking into 3Q, govt data suggest luxury RevPAR trends are deteriorating in key Asian markets. In Shanghai, luxury RevPAR growth slowed to 2% yoy in Jul-Aug from 8% in 2Q. In Beijing, luxury RevPAR declined 4% yoy in Jul-Aug, similar to 2Q trend (-4% yoy). In HK, luxury RevPAR growth slowed to 3% yoy in Jul-Aug from 5% yoy in 2Q. Similarly, in Singapore, it also slowed to 4% yoy in Jul-Aug from 5% yoy in 2Q.

Lower target price to HK$10.9; risksWe derive our TP using SOTP. While the stock now trades at an inexpensive valuation (0.7x PB), we maintain Hold given no signs of recovery yet.Downside risks include interest rate hikes in the US and slow recovery in luxury hotel demand in China. Upside risk is a change in government stance against lavish spending leading to a sharp rebound in RevPAR and F&B spend.



Rating

HoldAsiaChina

Health CareHealth Care

Company

Sinopharm GroupDate29 October 2014

Forecast Change

Growth on track


ADR Ticker ISINSHTDY US82937K1016



Sales (CNYm) 136,501.7 166,866.1 203,008.6 246,727.7 295,398.3

Reported NPAT (CNYm) 1,979.4 2,250.0 2,772.7 3,336.8 3,904.9

DB EPS FD(CNY) 0.82 0.89 1.08 1.25 1.45

DB EPS growth (%) 24.4 8.2 21.1 15.8 15.6

PER (x) 21.7 19.8 21.9 18.9 16.4


3Q14: Another solid quarter

________________________________________________________________________________________________________________



52-week range (HKD) 30.05 - 19.90


Jack Hu, Ph.D


Key changes

Price target 23.50 to 26.00 10.6%

Sales (FY15E) 239.9 to 246.7 2.8%

EPS (FY15E) 1.21 to 1.25 3.3%



16

20

24

28

32

10/12 4/13 10/13 4/14

Sinopharm Group



Absolute 4.3 28.4 40.4



Sinopharm reported RMB52bn and RMB0.26 for revenue and EPS for 3Q14, representing 22.4% and 19.2% YoY growth. Management kept full-year revenue guidance intact, with 3-5% above-industry growth. Additionally, management expects full-year GM to be maintained at 9M14 level while financing cost as a percentage of total revenue is likely to go down in 4Q14 and the foreseeable near term vs. 3Q14. We believe the current stock price has already reflected expectation for SOE reform and significant potential for further operating leverage. Hold.

We estimate 19% organic growth in 3Q14, vs. 17.5% in 1H14.Management indicated that industry growth is around 14-15%, while Sinopharm continues to outgrow industry-average growth due to market share gains. For 9M14, the acquisition contributed 1.78% of the growth, out of 19.8% YoY 9M14 growth. The company also indicated that the newly-acquired Sichuan subsidiary contributed c.RMB500m revenue in September.

Lower margin in 3Q14 due to seasonalityGM and OPM were 7.8% and 3.3% in 3Q14, vs. 8.2% and 4.1% in 1H14. The company attributed GM erosion to seasonality and consolidation of the Sichuan subsidiary. On cost savings at the operating level, management suggested that the room for further improvement is quite limited due to the significant operating leverage the company achieved in the past few years. However, on a full year basis, Sinopharm expects GM and OPM to maintain at the 9M14 level.

Increasing target price to HKD26; risksWe increase our target price to HKD26, based on 20x 2015E EPS of HKD1.60.We derive our multiple by applying the same PEG of 1.3 on 15-17E EPS CAGR of 15.4% as we increase estimates on following years. We believe a 20xmultiple is justified when compared with sector peers trading at 22x 2015EEPS with 24% EPS growth (vs. 15.4% we model) due to its liquidity and the status as a proxy for sector growth. Key upside risks include SOE reform, lower interest rates and better-than-expected cost management; key downside risks include further financing, limited room for acquisitions and sector growth deceleration. We remind investors that all numbers in the text of this note are based on CN accounting for an apples-to-apples comparison. .



Rating

HoldAsiaTaiwan


Company

KinsusDate28 October 2014

Forecast Change

Market share loss ahead




DB EPS FD(TWD) 6.27 7.23 9.29 9.82 10.35

DB EPS growth (%) -0.0 15.2 28.6 5.7 5.4

PER (x) 14.0 14.1 12.2 11.6 11.0

Price/BV (x) 1.8 1.8 1.8 1.7 1.6

DPS (net) (TWD) 3.00 3.50 4.50 4.70 5.00

Yield (net) (%) 3.4 3.4 4.0 4.1 4.4

ROE (%) 12.5 13.4 15.7 15.2 14.8


Cutting estimates

________________________________________________________________________________________________________________

Price at 27 Oct 2014 (TWD) 113.50


52-week range (TWD) 138.00 - 93.50


8,628

Michael Chou


Kevin Wang


Key changes

Price target 118.00 to 115.00 -2.5%


18.7 to 18.1 -3.1%

Net profit (FYE)

4,269.1 to 4,144.6

-2.9%



75

90

105

120

135

150

10/12 4/13 10/13 4/14

Kinsus



Absolute 0.9 -0.4 7.6


-4.0 -8.6 3.4


DB EPS estimates vs. consensus

Year 2014E 2015E

DB's estimates (NT$) 9.29 9.82

Consensus estimates (NT$)

9.41 10.53

DB over consensus (%)

-1% -7%

Source: Bloomberg Finance LP, Deutsche Bank estimates

Kinsus reported weaker-than-expected EPS in 3Q14 due to a margin contraction. Thus, we lower our EPS forecast by 3%/2%/2% for 2014/15/16 and revise down our target price to NT$115 from NT$118. We expect Kinsus to

potential migration to ABF substrates from BT substrates. We maintain our Hold rating due to the fair risk/reward.

3Q14 results below expectationsKinsus reported EPS of NT$2.23 (down 19% QoQ and up 17% YoY) in 3Q14, weaker than our forecast of NT$2.59 and consensus estimate of NT$2.76. Gross margin dropped by 3.1ppt QoQ to 28.9% in 3Q14, below our forecast of 30.8% and consensus estimate of 31.9%, due to an unfavorable product mix (lower sales portion of high-end FCCSP substrates owning to weak demand for non-Apple smartphone IC substrates). Operating margin decreased by 3.4ppt QoQ to 17.1% in 3Q14, lower than our estimate of 19.4% and consensus estimate of 20.5%.

Modest sales growth in 4Q14Management guided for 0 5% QoQ sales growth in 4Q14 vs. our previous forecast of a 3% decline and consensus estimate of a 2% drop. Baseband orders are strong in 4Q14 due to robust demand for iPhone 6 and iPhone 6 Plus. We now expect sales to increase 1% QoQ in 4Q14. Management guides its gross margin would improve to 30 31% in 4Q14 vs. our forecast of 30.5%.

Valuation and risksOur target price is based on 12x 2014-15E P/E, in line 2004 13 average multiple. Upside/downside risks relate to: 1) pace of shift by customers to embedded passive substrates (EPS) from core-less FCCSP substrates; 2) market share in Apple; 3) currency; and 4) demand. (See page 3).



Rating

BuyAsiaPhilippines

Conglomerates

Company

First Philippine Hldgs

Date28 October 2014

Forecast Change

Growth and Value; Buy

Reuters Bloomberg Exchange TickerFPH.PS FPH PM PHS FPH



DB EPS FD (PHP) 5.76 5.98 6.54 9.19 13.20

OLD DB EPS FD (PHP) 5.76 5.98 6.79 10.23

% Change 0.0% 0.0% -3.6% -10.1%

DB EPS growth (%) 24.4 3.8 9.5 40.5 43.5

PER (x) 12.7 14.5 13.2 9.4 6.6

EV/EBITDA (x) 5.4 6.6 6.7 5.8 5.1

Yield (net) (%) 2.7 3.5 2.3 2.3 2.3


FY15E and 16E P/E of 9.4x and 6.6x, on >40% EPS growth

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (PHP) 86.60

Price target - 12mth (PHP) 100.00

52-week range (PHP) 92.00 - 49.00

MANILA S.E.COMPOSITE 7,104

Iza Fernandez, CFA

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

Gio Dela-Rosa, CFA

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

Key changes

Price target 85.00 to 100.00 17.6%



45

60

75

90

105

120

10/12 4/13 10/13 4/14

First Philippine Hld

MANILA S.E.COMPOSITE (Rebased)


Absolute 0.6 19.4 23.4

MANILA S.E.COMPOSITE

-2.2 3.7 8.6


Related recent research Date

FGEN -- Expansion pipeline robust; but possible overhang from equity-raising

20 Oct 2014


We raise our valuation for First Philippine Hldgs (FPH) by 18% following a similar increase in our price target for First Gen (FGEN). FPH offers cheaper access to FGEN, in our view, with similar profit CAGR of 42% over FY14-16E,and lower valuations at 9.4x FY15E P/E, 6.6x FY16E P/E, and 37% discount to market-based NAV. Moreover, we note that FPH already has the cash to subscribe to any equity issuance from FGEN, hence we do not expect its share in FGEN to be diluted. Buy.

Discount to NAV of c.40%; FGEN stake alone = P103 per FPH shareFPH offers deep value, in our view, at 6.5x FY16E P/E, 5.0x EV/EBITDA, 0.6xP/B and c.40% discount to NAV. The market value of its stake in FGEN alone is already worth P103 per FPH share, vs. its current price of P87. Investors then get its other businesses (Meralco, Rockwell, industrial park) Note that over 90% of FPH's assets are listed, hence its value is fairly transparent.

Four more key projects, earnings to double by 2016E = positive catalystsFollowing the completion of several projects YTD mostly ahead of market expectations EDC and FGEN have more catalysts lined up for the next 18

in 1Q15, the commissioning of Burgos 1 and 2 (wind) by 4Q14-natgas plant in April 2015, and the San Gabriel natgas unit in March 2016. These plants are coming at a time when power supply is tight, and are likely to benefit from higher electricity prices over the next three years, at least.

NAV of P155/sh on conservative estimatesWe raise our NAV estimate to P155/sh (+19%) following an increase in our

our view, already assigning negative value to the unlisted operations, in aggregate. Our price target of P100, which offers 18% total return, incorporates a 35% discount to NAV. Risks include 1) dilutive investments and 2) execution, regulatory and balance sheet risks at EDC/FGEN and Meralco.



AsiaPan-Asia

Quantitative Strategy

QuantfuciusDate28 October 2014

Market Tricks and Quant Treats

Risk in rising and sentiment remains low

________________________________________________________________________________________________________________

Khoi Le Binh

[email protected]

Ada Lau

[email protected]

Hemant Sambatur

[email protected]

Vincent Zoonekynd

[email protected]

North America: +1 212 250 8983Europe: +44 20 754 71684Asia: +852 2203 6990

Our Global risk aversion indicator has surged in October and we are currently in a risk-off regime. The contributions of the Equity sector and Commodity sector to the composite indicator have increased significantly. The levels of our risk proxies for the Bond market and the Foreign exchange market have also risen. Sentiment stays low Investor Sentiment across Asian markets remains low, mainly driven by the drop in market indices, an increase in the proportion of oversold stocks and foreign investment outflows. Taiwan, where investor sentiment had been positive for most of the year, has moved into a bearish regime and the average value traded is low. Investor preferences in Asia tilt towards high momentum stocks The 12-month momentum factor performed well in Asia ex-Japan last month, together with analyst revision factors. Our truncated graphs show evidence that these factors coincide with the theme of investing in high quality stocks, e.g. stocks with high gross margin and EBITDA margin. In Japan, analyst revision factors dominate, for example, cash flow, ROE and dividend revision factors have performed well in the past 4 weeks. RecommendationsIn the current risk-off regime, our stock selection models (both composite and technical) for Asia ex-Japan have continued to demonstrate strong discriminatory power. Examples of stocks favored by our model include Power Assets Holdings (6 HK) and SK Telecom (017670 KS). In Japan, the model suggests to hold Mitsubishi Corp (8058 JT) and Mitsui & Co (8031 JT).

Source: gettyimages.com



AsiaChina

Special ReportCross-Discipline Date29 October 2014

China rates: the bull run is slowing

________________________________________________________________________________________________________________

Linan Liu

Strategist(+852) 2203 8709

[email protected]

Monetary policy has been progressively accommodativecentral bank has resisted universal easing through policy rate

cuts or system-wide RRR cuts so far, it seems that monetary policy has become progressively accommodative recently. We believe there are four key reasons: (a) the lack of FX purchases by commercial banks (low FX inflows) makes it necessary for the PBoC to inject liquidity in order to support base money growth; (b) to stimulate property demand to stabilize economic growth; (c) to guide credit growth to targeted sectors to support economic structural rebalancing; and (d) to lower corporate financing costs.

Has monetary transmission been effective?

most important channel is the credit transmission channel, and the other is the interest rate channel. We believe both transmission channels have begun to work, as evidenced in the loan and bond markets: (a) M2 growth YoY has stabilized around the 13% full year target; (b) there has been a 100-200bps drop in the 1M moving average of money market rates; (c) the average WMP yield is off by 50bps and internet deposit rates are off by 250bps YTD; (d) bank loan rates are at least 60bps lower and mortgage rates have been cut by as much as 200bps in some cases; (e) corporate bond financing costs have fallenby on average 120bps YTD; and (f) the credit spread has narrowed for high grade borrowers but has remained wide for weaker borrowers.

Policy and liquidity outlookIn the next few quarters, risks of sequential growth deceleration, risk of capital outflows and credit risk concerns are the key challenges to effective monetary transmission through the credit and interest rate channels. As such, we expect the PBOC to maintain its easing bias, and flush interbank liquidity to support stable credit growth. Specific policy steps include further cuts in the OMO repo rates, rolling over SLFs, upsizing the PSLs and FX market intervention (similar to in Q1-Q2 this year). Universal RRR cuts or policy rate cuts are possible in the event of surprisingly weak growth momentum but we think in that case, the PBoC is more likely to implement such policies with a simultaneous push on interest rate liberalization, such as establishing the Deposit Insurance Scheme or widening the ceiling on deposit rates from 1.1x currently to 1.2x the policy deposit rates.

Revising outlook on 10Y CGB yieldsAt the current level, we need fresh catalysts to keep the bull market in bondsrunning. And in that case, we think the 10Y CGB yield may drop to 3.5% from 3.7% currently and may overshoot to 3.4% over the next six months. We expect the 10Y CGB yield to rise as growth momentum picks up in H2 next year and move back towards 3.8%-4%. In the near term, we maintain our overweight on the CGB cash bonds and recommend keeping our duration in the 5Y-10Y part of the curve. We do not think the risk/reward on owning receiving positions is sufficiently attractive, especially considering the liquidity risks towards the year-end and ahead of the Chinese New Year. We will look to build receiving positions on the IRS/NDIRS curve on +15bps sell-offs.



AsiaSri Lanka

Special ReportEconomics Date28 October 2014

Sri Lanka announces a populist budget for 2015, but with a lower deficit target

________________________________________________________________________________________________________________

Kaushik Das

Economist(+91) 22 7180 4909

[email protected]

The 2015 Budget was presented last week by the Rajapaksa Government,which aims to reduce the fiscal deficit further to 4.6% of GDP, from an estimated 5.0% of GDP in 2014. Going forward, the government aims to reduce the fiscal deficit further to 3% of GDP by 2017, which has never been achieved in the last five decades.

The 2015 budget follows a pattern similar to that of the previous years, characterized by optimistic growth (real GDP and nominal GDP growth estimated at 8% and 14.2% respectively for 2015) and revenue targets (14.9% of GDP estimated in 2015 vs. 14.4% of GDP likely in 2014) along with ambitious capital expenditure outlay (6.1% of GDP vs. 5.4% of GDP). Looking at past trends and the present projections, it is easy to anticipate the government plan the authorities will likely resort to cutting capital expenditure once again, if the revenue targets are not met.

Indeed, we think the revenue targets are overly optimistic and will not be met, leading the government to adopt the previous ycapital expenditure. We also think the government will not be able to contain recurrent expenditure to 13.5% of GDP, as planned. Overall, we see about 1% of GDP worth of slippage from revenue and recurrent expenditure componentsthat will have to be bridged by savings from capital expenditure. Assuming the government will not want to cut capital expenditure below 5.5% of GDP (6.1% of GDP in the budget estimate), this would result in the fiscal deficit remaining unchanged at 5.0% of GDP in 2015.

Apart from the inconsistent budget arithmetic, we find a number of key announcements in the budget that can be considered populist. These populist programs bring into question the debate related to the quality of fiscal consolidation. While the Sri Lankan authorities can state that these measures in no way threaten the broader objective of fiscal consolidation, they dohowever raise questions regarding the deteriorating expenditure mix. Three components of recurrent expenditure salaries, interest payments and subsidies constitute nearly 65% of total expenditure and about 12-13% of GDP. On the other hand, capital expenditure, which is more productive, constitutes only 28% of total expenditure and is being compromised every year to meet the headline budget deficit target. We would like to see more effort from the government in addressing the quality of the expenditure mix, without which it seems clear that the fiscal consolidation agenda will remain incomplete.

There is no doubt that over the last few years the Sri Lankan authorities have shown tremendous resolve in continuing with the fiscal consolidation agenda, but there is no room for complacencystill weak when compared to the other Asian economies in the region. Despite

considerably higher than its regional peers -than-average revenue collection and higher-than-average expenditure. Additionally, the indirect tax burden remains exceptionally high, which we see as yet another distortion that the fiscal authorities need to tackle over the medium term.



Japan RatesGov. Bonds & Swaps

Date28 October 2014

Japan FI Morning MemoJGB supply/demand tight, but increased issuance unlikely

________________________________________________________________________________________________________________

Makoto Yamashita, CMA

Strategist(+81) 3 [email protected]

JGB supply/demand tight, but increased issuance unlikely TDB supply/demand is tight. The BoJ's TDB operation was undersubscribed and the yield at the average price was negative at last week's 3-month TDB auction. The BoJ increased the amount of its JGB purchase operation to a level within the bounds of its framework. What are the prospects for increased coupon-bearing JGB supply in FY15? First, new JGB issuance in FY15 is expected to be kept below FY14's JPY41.3trn. The MoF's estimates of revenue and expenditure projects taxrevenues of JPY50trn under its low growth scenario (+1.5%), assuming the consumption tax is hiked to 10% from 2H FY15. The FY15 estimate for tax revenue looks appropriate given tax revenue in FY14 is expected to be higher than the budgeted JPY43.1trn. Issuance of refinancing bonds is expected to be reduced, and while FILP bond issuance is uncertain, we doubt issuance will be increased sharply. The question then is how much of overall issuance will be allotted to JGB market issuance, but BoJ refinancing is likely to be flat. The adjustment between fiscal years was JPY8.4trn in FY14, but market issuance could be reduced given front-loaded issuance of JPY25trn ahead of FY15. The rest depends on the MoF. The MoF has already outlined its basic stance on JGB market issuance in its 15 October "Advisory Council on Government Debt Management". On the subject of lengthening the average residual maturity of JGBs, the discussion focused on increasing issuance in the superlong sector (30y and 40y JGBs). Of course this means a cut in intermediate and short-term JGBs. The MoF appears to have considered increasing 30y and 40y issuance as well as 10y inflation-indexed bonds at their natural pace of growth plus alpha, while reducing 1y TDBs and 2y JGBs. Allotments could be changed somewhat in upcoming PD meetings considering short and intermediate JGBs are in high demand, but it is natural for issuance authorities to lengthen maturity issuance under conditions of tight government bond supply/demand with yields low. We expect increased spending in the supplementary budget, but we doubt this will be of the scale necessary to boost JGB issuance. We expect supply/demand to remain tight.

Today's schedule

Time Economic indicator/event Market forecast

Previous result

12 45 2y JGB auction

US September core capital goods orders

US Consumer Confidence Index for October Source: Deutsche Securities

Data close change

JGB Future TSE 1146.47 ( -0.02 )

JGB2Y 00.020% ( +0.005% )

JGB5Y 00.110% ( 0.000% )

JGB10Y 00.465% ( 0.000% )

JGB20Y 11.305% ( 0.000% )

JGB30Y 11.615% ( +0.005% )

UST2Y 00.386% ( -0.004% )

UST5Y 11.489% ( -0.008% )

UST10Y 22.262% ( -0.008% )

UST30Y 33.038% ( -0.005% )

BKO2Y --0.045% ( -0.008% )

OBL5Y 00.157% ( -0.014% )

OBR10Y 00.868% ( -0.024% )

OBR30Y 11.779% ( -0.037% )

Nikkei225 115,388.72 ( +97.08 )

TOPIX 11,254.28 ( +11.96 )

CME Nikkei225 115,315 ( -85.00 )

NY Dow 116,817.94 ( +12.53 )

NASDAQ 44,485.93 ( +2.22 )

DAX 88,902.61 ( -85.19 )

Yen/Dollar 1107.82 ( -0.34 )

Dollar/Euro 11.2698 ( +0.0027 )

WTI 881.00 ( -0.01 )

NY GOLD 11229.10 ( -2.10 )

NNews from the close on prior working day

October 27 * Germany's IFO Business Climate Index in October 103.2 (vs. market consensus 104.5, and September figure 104.7) * BoJ could backtrack on assessment that prices will rise from 2H FY15; to maintain 2% inflation achievable in FY15 (Bloomberg)

OOctober 28 * BoJ to downgrade its FY14 growth forecast from 1.0% to about 0.6% (Nikkei)

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



United States Economics Date28 October 2014

US Daily Economic NotesFOMC to end QE but "considerable time" stays...For now

________________________________________________________________________________________________________________

Joseph LaVorgna

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

Brett Ryan

Economist(+1) 212 [email protected] Release Forecast Previous Consensus

There are no major economic data releases scheduled for Wednesday.Source: Deutsche Bank, Bloomberg Finance LP

Commentary for Wednesday: FOMC meeting statement should show few substantive changes toeconomic outlook. There will be no press conference or updated economic andfinancial forecasts provided following the 2:00 PM EDT release of the meeting statement. As indicated in September, the Fed will announce its asset purchase program is over and will continue to reinvest maturing securitiesindefinitely. Importantly, wwe expect the Fed to maintain its forward guidance on the funds rate post-meeting communiq . The majority of the economic data released since the September 16-Thus, wwe anticipate only cosmetic changes to their economic assessment that will likely reflect a modestly more positive tone on the labor market.

The description of labor market conditions may acknowledge the fact that the unemployment rate broke below 6% for the first time in over six years and the pace of nonfarm payroll gains continues to improve. That said, policymakers

remains significant underutilization of labor resources , even though we hold a different view of the labor market. With respect to inflation, tthe most recent CPI data do not warrant any meaningful changes to the current description in the meeting statement. BBoth headline and core CPI remain up 1.7% compared to a year ago, unchanged from the prior month. To be sure, market-based measures of inflation have declined significantly the 10-year forward breakeven inflation rate is currently around 1.9%, which is roughly where it was . However, much of the decline in breakeven inflation measures has been due to falling energy costs. Hence, wedbecause the drop in energy is occurring alongside a stronger backdrop to US growth. In fact, dovish Fed President Rosengren recently stated with respect to TIPS breakevens that, on short-term fluctuations in market prices.basis point decline in 10yr breakevens between March and June of last year, why do so now? IIn short, the characterizati

- -term inflation expectations have largely intact.

The forward guidance language will be a key topic meeting. However, it does not appear that the Committee has reached a consensus on how best to revamp the guidance language. In addition, the minutes from the September meetingwhen changes to the forward guidance become appropriate, they will likely

it is highly probable that any changes to the guidance language will be accompanied by a Yellen post-meeting press conference i.e. the December 16-17 meeting. Assuming no changes to the guidance, Plosser and Fisher will likely dissent once again. The November 19 release of the minutes should offer more insight into how the forward guidance language may evolve over time.

Policy SpeechesThe 2nd day of two day FOMC meeting begins Wednesday morning

2014 Yearend TargetsReal GDP growth: +2.6% Q4/Q4Core CPI: +2.1% Q4/Q4Unemployment rate: 5.8%Fed Funds: 0.15%

Treasury ScheduleSize Prev

1:00pm 2Y FRN (auc) $15B $13B1:00pm 5Y Note (auc) $35B $35B



Rating

BuyAsiaChina

TransportationAir

Company

Air China AlertDate28 October 2014

Results

3Q14 results in-line; stabilizing yield and lower jet fuel cost helped


ADR Ticker ISINAIRYY US00910M1009

________________________________________________________________________________________________________________



52-week range (HKD) 6.16 - 4.24


Vincent Ha, CFA


Joe Liew, CFA


Fei Sun

Research Associate(+852) 2203 [email protected]

Stock data

Market cap (HKDm) 62,283



Major shareholders CNACG (58.5%)

Free float (%) 30


5.0


Key data

FYE 12/31 2013A 2014E 2015E

Sales (CNYm) 98,181 106,567 115,094

Net Profit (CNYm)

3,263.6 2,636.1 4,279.7

DB EPS (CNY) 0.14 0.20 0.25

PER (x) 33.7 18.6 15.3

Yield (net) (%) 1.0 1.1 1.7


Air China - traffic and capacity growth

-20%

-10%

0%

10%

20%

30%

01/08 01/09 01/10 01/11 01/12 01/13 01/14

Passenger traffic (RPK YoY%)Passenger capacity (ASK YoY%)

Source: Company data

9% 3Q14 YoY net profit decline on surge in finance cost (probably due to FX)Air China just released its 3Q13 results under PRC GAAP. Gross revenue increased by 6.7% YoY to RMB29.8bn on the back of a 5.6% passenger traffic (RPK) YoY growth and stabilizing yield during peak travel season. With close to2 times YoY surge in finance cost (probably due to the lagging effects of 1H14 RMB depreciation, in our view) 3Q14 net profit dropped by 8.8%YoY to RMB2.7bn. Besides, associate income, partly from 30%-owned Cathay Pacific (0293.HK, Buy, HK$14.34), declined marginally by 1.7% YoY.

On a positive note, if stripping out the finance expense and investment income, Air China indeed reported 6.3% YoY growth in core operating profit to RMB4.1bn. Besides the growth in traffic and drop in fuel price, we think the airline should also be credited for good yield management and cost control.

Deutsche Bank view Buy on core earnings recovery and valuation4 net profit accounts for 120% of our FY14 earnings

estimates, we think the results are in-line with our expectation given 4Q is typically a slow season for Chinese airlines, with potential net losses. We think that the core earnings outlook for Air China remains favorable considering: 1) still resilient traffic growth, driven by increasing outbound tourism traffic, 2) stabilizing in passenger yield and 3) decline in jet fuel price. While RMB/USD exchange rate volatility is inevitable due to a wider trading band, we think that

re operation (excluding FX impact) will record positive profit growth in FY14E, not to mention the possible earnings upside due to lower fuel price environment.

Since is trading at just 0.8x FY15E P/BV with gradual core ROE recovery to about 8% in FY16E, we maintain our Buy recommendation.Key downside risks include RMB depreciation, slower-than-expected recovery pace of passenger yield and business travel demand.

Figure 1: Air China 3Q14 results summary (in PRC GAAP)(RMBm) 3Q14 3Q13 YoY Remarks

Gross revenue 29,794 27,929 6.7% 5.6% RPK YoY growth with stabilizing yield

Operating expense (25,663) (24,037) 6.8% SG&A expenses remained flattish YoY

Finance costs (825) (281) 194.2%

Investment income 406 413 -1.6%

Operating profit 3,716 4,021 -7.6% Excluding finance expense and investment income, operating profit grew 6.3% YoY

Net profit 2,683 2,942 -8.8% In 9M13, net profit declined by 22.3% YoY to RMB3.2bn

Source: Company data, Deutsche Bank



Rating

HoldAsiaChina

Banking / FinanceBanks

Company

Bank of Nanjing Alert

Date28 October 2014

Results

3Q14 Results: Beat, but three concerns remained

Reuters Bloomberg Exchange Ticker601009.SS 601009 CH SHH 601009

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (CNY) 9.14

Price target - 12mth (CNY) 8.74

52-week range (CNY) 9.20 - 7.40


Hans Fan, CFA


Tracy Yu


Michael Zhang, CFA


Stock data

Market cap (CNYm) 27,136




42.9


Key data

FYE 12/31 2013A 2014E 2015E

Provisioning (CNYm)

821.0 1,160.6 1,214.9

Pre-prov profit (CNYm)

6,383 7,647 8,107

EPS (CNY) 1.52 1.78 1.86

PER (x) 5.8 5.1 4.9

Yield (net) (%) 5.2 5.8 6.2


Robust NPAT growth, but concerns remained; HoldBank of Nanjing (BONJ) reported 3Q14 NPL up 27.4% yoy to Rmb1.29bn and 9M14 NPAT up 21.7% yoy to Rmb4.16bn, 7.5% and 2.2% ahead of our estimates respectively. Despite the robust NPAT growth, we see three majorconcerns: 1) continued asset quality deterioration with rising NPL formation rate; 2) still elevated non-standardized exposure points to potential regulatory and credit risks; 3) relatively weak capital base with tier-1 ratio of 8.62%. As such, we see limited upside for the bank and maintain Hold.

Concerns #1: Weakening asset quality We estimate BONJ wrote off or disposed NPL of Rmb292mn in 3Q14, leading to a higher NPL formation rate of 91bps (1H14: 78bps). While its NPL balance rose modestly by 5.5% qoq to make up 0.94% of total loans (2Q14: 0.93%), its special mentioned balance jumped by 25.8% qoq to account for 2.5% of total loan (2Q14: 2.1%), suggesting rising asset quality pressure.

Concerns #2: Still elevated exposure to non-standardized assetsReflecting the tighter rules from No. 127 Circular, the bank scaled back its reverse repo balance by 49% during 1Q14-3Q14. However, in the meanwhile, its non-standardized receivable investment, which primarily consists of investment in trust beneficiary right and asset management plans, grew strongly by 35% during the same period to account for 24.7% of total asset (1Q14: 19.9%), leading to still elevated exposure to riskier assets. This should expose the bank to higher regulatory and credit risks.

Concerns #3: Relatively weak capital base -1 ratio and total CAR decreased by 16bps and 17bps to 8.62% and

10.8% in 3Q14, respectively. Lacking a plan to replenish capital for now, we believe its weak capital base may constrain its business expansion in the nearfuture.

3Q14 results Running the numbersFor 3Q14, the bank grew PPOP strongly by 94.8% yoy, due mainly to a low base in 3Q13 and stronger cost control. Net interest income grew by 5.1% qoq and 48.7% yoy on the back of NIM expansion of 5bps qoq and strong AIEA growth of 26.5% yoy. Together with strong fee income growth of 150% yoy, it delivered revenue growth of 58% yoy. With an OpEx growth of 14.6% yoy, its CIR improved notably to 33.3% from 45.9% in 3Q13. In 3Q14, the bank reported stable loan growth of 3.7% qoq and 17.8% yoy, compared with deposit growth of 0.1% qoq and 31.9% yoy, with a low LDR of 48.8%.



Rating

BuyAsiaChina

ResourcesConstruction Materials

Company

BBMG AlertDate29 October 2014

Results

3Q14 misses but outlook still robust


ADR Ticker ISINBBMPY US05528L1052

________________________________________________________________________________________________________________



52-week range (HKD) 7.11 - 4.91


Johnson Wan


James Kan


Stock data




Major shareholders

Free float (%) 27


6.7


Key data

FYE 12/31 2013A 2014E 2015E

Sales (CNYm) 44,790 44,779 52,179

Net Profit (CNYm)

3,215.2 3,454.7 3,989.8

DB EPS (CNY) 0.75 0.74 0.83

PER (x) 6.3 5.5 4.9

Yield (net) (%) 1.6 1.9 2.1


9M14 NPAT flat yoy but EPS down 7% yoy to RMB0.38/shBBMG reported its 3Q14 results after the market close on October 28. 3Q14 NPAT came in at RMB360m or EPS of RMB0.08/sh, down 17% and 27% yoy respectively. 9M14 NPAT reached RMB1.74bn or EPS of RMB0.38, up 0.3% and down 7% YoY respectively. Stripping out fair value gains, 9M14 core net profit reached RMB1.5bn, up 4% YoY. These results imply that BBMG achieved

d by 4% yoy. However, gross profit grew by 11% yoy after a 3ppt improvement in GPM yoy. The improvement in GP is misaligned with the decline in EPS due to: 1) effective tax rate increased by 4ppt yoy to 27% in 9M14; 2) interest expense increased by 18% yoy; 3) issuance of new A-share in September 2013, leading to EPS dilution.

operating activities deteriorated to RMB-4.7bn in 9M14 from RMB-365mn in 9M13.

OutlookDespite the weak financials for 9M14, we believe BBMG will catch up in 4Q14 and still meet its targets laid out at the beginning of the year. The earnings outlook for BBMG remains robust over the next few years. There are still a few catalysts that have yet to play out including: 1) SOE reform, which BBMG will likely be selected for the mixed ownership pilot scheme for the Beijing SASAC SOE reform; 2) Beijing-Tianjin-Hebei integration; 3) obsolete capacity shut down in Hebei; 4) further industrial land bank conversion to develop high-margin self-occupied homes.

BBMG did not disclose operational figures in the results announcement. However the company will hold a conference call at 4:15pm on October 29. More details to follow after the call.



Rating

BuyAsiaChina

ConsumerRetail / Wholesale Trade

Company

Belle InternationalDate28 October 2014

Forecast Change

Slower growth stage, but higher payout; maintaining Buy


ADR Ticker ISINBELLY US0784541056


Year End Feb 28 2014A 2015E 2016E 2017E

Sales (CNYm) 36,794.1 40,210.9 43,488.9 46,764.5

EBITDA (CNYm) 6,764.7 7,226.1 7,805.0 8,381.0

Reported NPAT (CNYm) 4,401.8 4,625.3 4,977.9 5,358.0

Reported EPS FD(CNY) 0.52 0.55 0.59 0.64

DB EPS FD(CNY) 0.52 0.55 0.59 0.64

OLD DB EPS FD(CNY) 0.52 0.55 0.60 0.66

% Change 0.0% 0.6% -1.5% -3.4%

DB EPS growth (%) 5.1 7.6 7.6

PER (x) 16.6 13.4 12.4 11.6

EV/EBITDA (x) 9.6 7.4 6.7 6.1

DPS (net) (CNY) 0.20 0.58 0.35 0.38

Yield (net) (%) 2.3 7.9 4.8 5.2

Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which usesthe year end close

Improving shareholder value with higher payout given strong cashflow

________________________________________________________________________________________________________________



52-week range (HKD) 10.94 - 7.41


Anne Ling


Lydia Ling


Key changes

Price target 12.40 to 12.00 -3.2%

Sales (FYE) 38,865 to 40,211 3.5%


- -0.5%

Net profit (FYE)

4,597.2 to 4,625.3

0.6%



4

8

12

16

20

10/12 4/13 10/13 4/14

Belle International



Absolute 6.3 -1.2 -11.6



We fine-tune our NP forecasts for FY15/16/17 by 0.6%/-1.5%/-3.4%. SSSG in Sept/Oct was weaker than in 1HFY15. Structural issues on channel fragmentation are persisting, impacting footwear in particular. Belle believes it is now entering a slower growth stage. However, given strong cashflow, it is guiding it will increase its ordinary dividend payout ratio to 60%. We lower our target price to HK$12 from HK$12.4. Maintaining Buy.

SSSG in Sept/Oct was weaker than in 1HFY15Belle said that SSSG in Sept/Oct was weaker than in 1HFY15 (we believe this wa , while there has been no recovery in the macro environment. Regarding the industry trend, Belle noted structural change in the development of ecommerce and shopping malls had impacted the distribution network.

Footwear challenging; sportswear remaining strong; higher payoutAgainst the macro backdrop, Belle believes it is now entering a slower growth stage. thenear future but management is targeting a 10% segment margin for sportswear over time. Given the strong cashflow, management is also guidingto increase its ordinary dividend payout ratio to 60% (from 30% since listing).

Find-tuning with payout increasing as guided; lowering TP to HK$12.0; riskswe fine-tune our FY15/16/17 NP forecasts by

0.6%/-1.5%/-3.4%. We base our HK$12.0 target price (vs. HK$12.4) on DCF (China COE is 9.5%, TGR 2%); this equates to 17.1x/15.9x FY2015E/16E PE,which looks fair on a 12-month view. Downside risks: failure to launch new business initiatives for future growth, and the sportswear profit margin failing to return to previous levels.



Rating

BuyAsiaChina

Banking / FinanceLife Insurance

Company

China Life AlertDate28 October 2014

Results

3Q14 - A decent quarter


ADR Ticker ISINLFC US16939P1066

________________________________________________________________________________________________________________


Price target-12mth (HKD) 27.30

52-week range (HKD) 25.70 - 19.78


Esther Chwei


Lexie Zhou


Stock data

Market Cap (HKDm) 166,310

Market Cap (USDm) 21,440


Major Shareholders CLIC (68.37%)

Free float (%) 32


80.0


Key data

FYE 12/31 2013A 2014E 2015E

Group EV(CNYm)

342,224 409,120 463,592

VNB (CNYm) 21,301 23,145 26,193

Net Profit 24,765 31,833 35,524

P/EV (x) 1.4 1.2 1.1

Implied NB multiple (x)

7.4 3.8 1.3


Good 3Q14 earningsChina Life reported 3Q14 net profits of Rmb9,146mn (+22.1% yoy), mainly driven by investments. 9M14 earnings accounted for 85% of 2014E Bloombergconsensus. Book value grew 7.2% qoq to Rmb257,898mn while comprehensive earnings increased 218.6% yoy to Rmb17,312mn in 3Q14thanks to the unrealized AFS gains of Rmb10,691mn (vs. a loss of Rmb1,332mn in 3Q13) . Surrender, similar to other insurers, increased 50.1%yoy (vs. 72.8% in 1H14 and 59.2% in 2013).

Underwriting deteriorated driven by higher reserve chargeNet premiums earned was largely flat yoy at Rmb73,683mn (+0.7% yoy). Underwriting losses increased to Rmb9,324mn (+21.2% yoy) while underwriting margin deteriorated to -12.7% (vs. -10.5% in 3Q13). Total claims and reserves ratio was up 1.4ppt yoy, driven by the increase in reserve ratio of 26.9% (+3.9ppt yoy), which more than offset the improvements in claim ratio (-2.5ppt to 68.9%). The improvement was attributable to the decline in claim expanses (-30.6% yoy to Rmb23,782mn). Total expense ratio increased 0.7ppt yoy to 16.9%, with commission ratio at 8.8% (+0.5ppt) and operating expenses ratio at 8.1% (+0.3ppt).

Decent investment performanceTotal investment-related income increased 24.0% yoy to Rmb22,522mn thanks to the robust growth in net investment income (+26.2% yoy to Rmb28,986mn).9M14 annualized net investment yield was 4.83% (vs. 4.51% in 3Q13) and total investment yield was 5.10% (vs. 4.97%). Compared to net and total inv yield of 4.75% and 4.78% in 1H14, it indicated an improving 3Q14. Although its investment performance is not as strong as its peers (NCI +38.1% yoy and CPIC +53.2%), it is worth noting that China Life book a large unrealized AFS gains through comprehensive earnings, which were not reflected through P&L.

ValuationsChina Life is currently trading at 1.2x 2014E P/EV. We see it as a direct play on the life insurance recovery. We maintain our Buy rating with a target price of HK$27.3/share.



Rating

BuyAsiaChina

TelecommunicationsFixed Line

Company

China Telecom Corp ltd Alert

Date28 October 2014

Results

3Q14 beat on NP; tariff pressure remains


ADR Ticker ISINCHA US1694261033

________________________________________________________________________________________________________________



52-week range (HKD) 5.17 - 3.15


Alan Hellawell III


Peter Milliken


Key changes

Sales (FYE) 328,379 to 326,243

-0.7%


8.8 to 8.9 0.6%

Net profit (FYE)

17,671.9 to 17,646.7

-0.1%


Stock data




Major shareholders China Telecom Corp (72.87%)

Free float (%) 16


40.9


Key data

FYE 12/31 2013A 2014E 2015E

Sales (CNYm) 321,584 326,243 334,465

Net Profit (CNYm)

17,545.0 17,646.7 20,195.3

DB EPS (CNY) 0.22 0.22 0.25

PER (x) 14.5 16.8 14.7

Yield (net) (%) 2.4 2.1 2.1


3Q14 NP narrowly beat DBeChina Telecom delivered 3Q14 operating rev of RMB77.6b (-4% YoY/-6% QoQ), 1% lower than DBe. Net profit was RMB4.7b (+5% YoY/-20% QoQ), 2% ahead of DBe. We attribute the miss on rev to heavier than expected tariff cuts. The NP beat likely came from savings in handset subsidies and marketing expense. We expect industry pressure around VAT, over-the-top apps, and intensive

solid net adds and are confident in NP in 2015. Maintain TP of HK$5.6 and Buy.

4G users contribute; base station build on trackCT delivered total 1m net adds (-60% YoY/+94% MoM) in Sep, including 2m (-35% YoY/+12% MoM) 3G+4G net adds and a 1m net loss in 2G users. The co lost 1.3m 2G users in Aug. Total 4G users reached 2m by the end of Sep (in 40 cities) vs 600k at the end of August (16 cities). We est half of CT's 4G users are from the upgrade of existing 2G/3G users. The co maintains its target of 140k 4G base stations and 60k indoor distribution systems by 2014-end, which will likely cover 100 cities and 75-base station construction is well on track. We expect the co to deliver 280k 4G base stations by 2015-end, representing significantly wider coverage and deployment.

ARPU continues to trend down; handset models updateThe mobile blended ARPU slipped to RMB55.2 for 1Q-3Q14 vs RMB56.5 in

not significant given still-early deployment. We expect blended ARPU to continue to trend down in 4Q14 driven by the potentially more aggressive promotion of 4G services through tariff subsidies. The co currently has ~50 LTE handset models available in the market, with prices as low as RMB699. CT maintains a target of 100 models available by 2014-end.

Maintain TP of HK$5.6 and BuyWe reduce our operating rev forecasts for 2014/15/16E by 1%/2%/1% and maintain the NP est's for 2014/15/16E to reflect potentially heavier tariff subsidies and less spending in marketing and handset subsidies. We derive our TP based using DCF analysis which employs a 8.9% WACC (using a 9.3% cost of equity for the company with a beta of 0.973) and a 0% perpetual growth rate. Our cost of debt assumption and target Debt/Equity ratio are 4.5% and 10/90, respectively. Downside risks: higher spending in marketing and subsidies, heavier tariff competition, higher capex, slower mobile net adds.



Rating

BuyAsiaChina

Conglomerates

Company

Cosco Pacific AlertDate28 October 2014

Results

3Q failed to surprise positively, butvaluation does look cheap; Buy.


ADR Ticker ISINCSPKY US22112B1044

________________________________________________________________________________________________________________



52-week range (HKD) 11.88 - 9.48


Sky Hong, CFA


Joe Liew, CFA


Stock data



Shares outstanding (m) 2,712

Major shareholders COSCO Holdings (42.3%)

Free float (%)


6.6


Key data

FYE 12/31 2013A 2014E 2015E

Sales (USDm) 799 856 891

Net Profit (USDm)

702.7 299.2 339.6

DB EPS (USD) 0.25 0.11 0.12

PER (x) 5.8 12.1 10.7

Yield (net)(%) 6.9 3.3 3.7


3Q came in line with our expectations; leasing continued to weigh 3Q net profit rose 9% YoY to US$87m, which was entirely driven by its terminal segment. On the back of solid peak season, its throughput during 3Q was up 8.7% YoY (organic growth around 6% excluding ACT and Tai Cang terminals). Profit from box leasing segment dropped YoY in 3Q as both the leasing rates and second-hand box prices remained sluggish. On QoQ basis, 3Q net profit was 6% higher than 2Q. Looking into key P&L numbers, operating profit fell 5% YoY to US$66m as rise in operating cost (+12% YoY) outpaced revenue growth (+6% YoY) and other operating income dropped YoY. This margin squeeze in our view was largely attributable to its sluggish leasing business. Net finance cost sharply fell 43%YoY to US$12m as a result of CIMC disposal, which led to lower interest-bearing debt. Profit from JVs and associates were up 5% YoY, which, in our view, was largely on QQCT. Given the volume growth and tariff increase, profit growth from QQCT should be more than enough to offset profit decline from Yantain resulted from higher taxation.For 9M14, the reported net profit fell 64% YoY to US$234m, which was largely due to the disposal of CIMC. Excluding disposal gain of US$393m and share of profit of CIMC of US$23m, core net profit would still up 4% YoY. The total net profit in 9M14 accounted for 78% of our full year estimate. Considering that 4Q is the slow season, we think our full year forecast remains reasonable.

xports set to recover; Maintaining BuyBoth macro leading indicators and our checks with exporters in China suggest

ing segment may remain under pressure in the near-deteriorate further from here. With global trade improving and with continued deliveries of containerships, we expect leading demand to gradually pick up, which in turn should lift the leasing rates out of the bottom. The stock is currently trading at 12x forward P/E, below its historical mean of13x, which looks attractive. Plus, the disposal of CIMC also justifies a higher valuation for the company ahead. Our target price of HK$13 is based on a 35% discount to 2014E NAV, lower than the historical average of 25%. We think

forward as compared to the last decade. Maintaining Buy.



Rating

BuyAsiaChina

UtilitiesUtilities

Company

ENN Energy AlertDate28 October 2014

Breaking News

Injection of NA gas stations looks premature with -ve earnings impact


ADR Ticker ISINXNGSY US26876F1021

________________________________________________________________________________________________________________



52-week range (HKD) 60.10 - 42.70


Michael Tong, CFA


Stock data




Major shareholders ENN Group (31%)

Free float (%) 68.0


14.1


Key data

FYE 12/31 2013A 2014E 2015E

Sales (CNYm) 22,966 27,286 31,589

Net Profit (CNYm)

1,252.0 2,319.4 2,749.6

DB EPS (CNY) 1.788 2.043 2.364

PER (x) 19.0 20.9 18.1

Yield (net) (%) 1.1 1.0 1.3


The announced acquisition of gas refuelling stations in North America (NA) by ENN from its parentco looks a bit pre-mature given its current loss-making situation and lack of visibility for a near-term turnaround. Priced at 1.5x P/B, the assets to be acquibased on annualised 9MFY14 loss. Thus we do not expect positive market reaction to the announced deal.

Acquisition of US and CA gas stations from parentco at US$200mENN announced today that it will acquire ENN Canada and ENN US owned by parenco. for US$20m and US$180m respectively, whose principal business are operating gas refuelling stations. ENN Canada owns 4 gas refuelling stations in Canada, while ENN US owns 29 gas refuelling stations in Western US. Thecombined FY14 annualised loss amount to Rmb240m. The total acquisition cost of US$200m represents 1.5x P/B and the long-stop date is set at 31 Mar 2015.

Likely negative earnings impact and unattractive pricingIt appears to us that the timing of parenco asset injection looks a bit pre-mature as both assets are currently loss-making and are unlikely to turnaround in the short-term, especially for the US market. Assuming a similar FY15E loss

ragged down by 8.7% upon completion. Meanwhile, the pricing at 1.5x P/B appears less favorable to the listco, if compared to Clean Energy Fuel (CLNE US, non-rated), the largest operator of gas refueling stations in the US with c.500 stations, which is currently trading at 1.3x FY14E consensus P/B.

US vehicle gas market: development behind scheduleCompared to China, the US vehicle gas development is at slower pace despite its cheaper gas price, mainly due to less government push driven by the environmental concern as in China, and a much higher conversion cost (e.g. the cost of retrofitting LNG/CNG vehicles is Rmb200-300k in US vs. c.Rmb80k in China). Number of refueling LNG/CNG stations are also less at c.1,300 vs. c.5,600 in China as of end-2013, indicating the gap to reach a critical mass. All of these factors, plus lower oil price, could possibly explain the behind-schedule gas station addition of ENN US. As in early 2013, it planned to build 50 stations. However, per the disclosure in the announcement, the figure remains at 29 as of September 2014. Also, as a cross reference, Clean Energy Fuel is projected to remain loss-making through 2016E based on consensus forecasts. Hence, we think the visibility for a near-term turnaround from current loss is not that high even the North America market may present great potential in the longer term due to cheap gas price.



Rating

HoldAsiaChina

Automobiles & Components

Company

Guangzhou Auto Alert

Date28 October 2014

Results

3Q14 missed on weak Japanese brand sales and mix downshift


________________________________________________________________________________________________________________



52-week range (HKD) 10.62 - 6.91


Vincent Ha, CFA


Fei Sun


Stock data




Major shareholders GAIG (56%)

Free float (%) 39


7.6


Key data

FYE 12/31 2013A 2014E 2015E

Sales (CNYm) 18,824 20,407 23,065

Net Profit (CNYm)

2,652.8 3,442.8 4,442.1

DB EPS (CNY) 0.41 0.54 0.69

PER (x) 14.9 10.6 8.2

Yield (net) (%) 2.6 3.8 4.9


GAC- major JVs' PV sales trend

-100%

-50%

0%

50%

100%

150%

200%

0

20,000

40,000

60,000

80,000

100,000

120,000

01/07 07/08 01/10 07/11 01/13 07/14

(Units) (YoY%)

Including Guangqi Honda, GAC Toyota, GAC Fiat and GAC Mitsubishi

Source: Company data

Surge in costs offset strong Trumpchi sales; Impacts from Japanese JVs weak sales and product mix downshift worse-than-expectedGuangzhou Auto (GAC) just released its 3Q14 results under PRC GAAP. Gross revenue grew by 16.6% YoY to RMB4.9bn, reflecting the strong sales of ownbrand Trumpchi GS5 SUV and GA3 sedan. However, net profitplunged by 46.6% YoY to RMB547.1m despite a 5.8% YoY overall PV sales volume growth.

To elaborate, GAC experienced bigger loss in its consolidated business with 1.3 times YoY increase in operating loss to RMB393.1m, due to 80.3% and 1.5times YoY surge in selling expenses and finance cost, respectively. Moreover,

/associates recorded 30.6% YoY net profit contribution drop,reflecting worse-than-expected margin impact amid product mix downshiftand

Deutsche Bank view FY15E recovery well reflected in the premium valuation9M14 net profit only accounts for 66% of our FY14 forecast and that

implies downside risk to our full-year estimate. While vehicle sales may gain momentum again given the ramp-up of newly launched models such as Guangqi Honda Vezel compact SUV, we tend not to be overly upbeat since there is still risk of a higher cost base in 4Q14E given increased marketing activities to push new model sales during yearend peak season.

Considering a downshift in sales mix in FY14E, we believe that the extent of margin recovery amid improving operating efficiency will be hampered, untilthe new GAC Toyota Highlander SUV is launched in FY15E. We see limited share price upside since we think the possible FY15E earnings rebound is already in the price. Maintain Hold. The key upside risk is strong reception for new models; key downside risk is weaker-than-expected margin recovery.

Figure 1: GAC quarterly operational and financial trend (in PRC GAAP)

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14Passenger vehicle sales (units) 187,760 225,883 239,639 327,893 229,293 264,861 253,580 YoY% 16.3% 19.9% 40.2% 105.7% 22.1% 17.3% 5.8%Gross revenue (RMBm) 3,964 4,283 4,185 6,392 4,750 6,016 4,878 YoY% 63.3% 40.2% 32.1% 48.2% 19.8% 40.4% 16.6%Gross profit margin (%) 9.2% 13.9% 14.5% 17.9% 11.2% 14.6% 14.4%Associates' and JVs' earnings (RMBm) 988 855 1,173 1,002 1,137 992 814 YoY% -17.0% -10.5% 115.8% n.a. 15.1% 16.0% -30.6%Net profit (RMBm) 478 740 1,024 593 849 876 547 YoY% -47.0% 27.7% 187.0% n.a. 77.6% 18.4% -46.6%

Source: Company data, Deutsche Bank



Rating

BuyAsiaChina

Banking / FinanceBrokers

Company

Haitong SecuritiesDate29 October 2014

Results

3Q14 results - beat on investment income


ADR Ticker ISINHAITY US4053051037

3Q14 results beat; maintaining Buy on HTS-H

________________________________________________________________________________________________________________



52-week range (HKD) 14.18 - 9.59


Pandora Lee


Jacky Zuo



8

9

11

12

14

15

10/12 4/13 10/13 4/14

Haitong Securities



Absolute 0.5 -8.9 9.5



Comparatives

Haitong Securities (600837.SS),CNY9.96 Hold2013A 2014E 2015E

P/E (x) 26.1 17.9 16.6

Div yield (%) 1.1 1.4 1.8

Price/book (x) 1.7 1.4 1.3


HTS reported strong 3Q14 net earnings of Rmb2,072mn, up 24% QoQ (103% YoY). 9M14 net profits were Rmb4,949mn, up 34% YoY, achieving 93% of our full-year forecast/94% Bloomberg Finance LP consensus, mainly driven by stronger-than-expected investment income, and to a lesser extent, margin financing and IB business. With continued leveraging up (3Q14 core leverage: 2.7x vs. 3Q13: 1.6x), 9M14 annualized ROE improved by 2.1ppt YoY to 10.4%, despite the lower ROA of 3.5% (down 0.4ppt YoY). The stock is trading at 1.4x 2014E P/BV, with A-share trading at a (small) premium over H-share. We maintain Buy on HTS-H and maintain Hold on HTS-A.

Rising market conditions lifted all business lines; commission rate slidIn 3Q14, HTS recorded net brokerage income of Rmb1,148mn, up 33% QoQ (50% YoY), driven by higher A-share market turnover (3Q14: Rmb293bn vs. 2Q14: Rmb155bn) with stable market share, partially offset by commissionrate slippage (3Q14: 5.3bp vs. 2Q14: 7.6bp by our estimates). Investment banking fees grew 44% QoQ (137% YoY) on the resumption of IPO since June this year. With the robust growth in flow business and contribution from the leasing subsidiary, net interest income grew 39% QoQ (54% YoY). Investment income kept the strong momentum from 2Q14, up 2% QoQ despite the high base, which is primarily attributed to good market conditions (SHCOMP up 15% in 3Q and 10-yr treasury yield down 31bp in July-September). As a result, trading gains accounted for 35% of total revenue in 3Q14 (vs. 23% in 2013). As revenue outgrew expense, CIR lowered to 39% in 3Q vs. 43% in 2Q.

Strong growth in flow business further enhanced balance sheet leverageWith the successful issuance of Rmb11bn corporate bond in July andincreasing payables balance to brokerage clients (up 26% QoQ), balance sheet leverage (assets to equity) rose to 3.5x (vs. 2Q14: 3.2x), with core leverage (excl. payables to customers) of 2.7x (2Q14: 2.6x). Flow business grew strongly in 3Q14, with margin financing balance expanding by 36% QoQ to Rmb34.4bn and reverse repo balance (mainly stock repo) up by 54% QoQ to Rmb22.8bn.The investment portfolio reduced slightly by 6% QoQ to account for 24% of total assets (2Q14: 29%) as a result of high growth of other assets.

Valuation and risksWe use a three-stage Gordon Growth Model to value HTS, with a cost of equity of 11%, a terminal growth rate of 5% (both in line with other Chinese financial stocks under our coverage), and long-term ROE assumption of 15.5%. Key downside risks: further delay of SHSC to hurt sentiment, execution risk related to new leasing subsidiary, and M&A risk associated with overseas expansion. More positive than expected policy changes would provide upside risk.



Rating

BuyAsiaChina

UtilitiesUtilities

Company

Huadian Power Alert

Date28 October 2014

Results

3Q NP +28% yoy despite 3% output decline; Buy


ADR Ticker ISINHPIFY US4432971061

________________________________________________________________________________________________________________



52-week range (HKD) 5.86 - 3.01


Michael Tong, CFA


Yingying Dong


Stock data




Major shareholders Huadian Group (50.01%)

Free float (%) 36.1


10.9


Key data

FYE 12/31 2013A 2014E 2015E

Sales (CNYm) 66,049 67,845 74,647

Net Profit (CNYm)

4,096.9 5,400.0 5,559.8

DB EPS (CNY) 0.652 0.673 0.631

PER (x) 4.1 6.2 6.6

Yield (net) (%) 8.3 6.5 6.1


3Q14 in-line; resilient utilization, asset injection upside and cheapest valuation Huadian s 3Q14 net profit was up by 28% yoy to Rmb1.59bn, in line with our estimates. As its 9M earnings already accounts for 79% of DB/consensus FY14E forecasts, we believe the company is on track to deliver a 32% earnings growth in FY14E despite the impact from tariff cut and weak output year-to-date. Among the peers, Huadian is highly resilient in utilization outlook given its favorable exposure in Shandong province. Furthermore, with a 60ppt qoq improvement in net gearing, Huadian is well positioned for potential asset injections, which we believe is highly likely to be announced in the next six months. Huadian is now trading at 6.1x 14E P/E, the cheapest among IPPs; 3Q annualized ROE reached 21% vs. 1.0x 14E P/B. Buy as sector top pick.

3Q14 net profit +28% yoy; 32% FY14E earnings growth on trackHuadian released its unaudited 3Q14 results under PRC GAAP. Revenue slightly retreated by 4% yoy to Rmb16.9bn due to a 3% output decline and tariff cut. Nevertheless, this was fully offset by the sharper decline in operatingcosts (mainly fuel costs) and net profit was up by 28% yoy to Rmb1.59bn, in-line with our estimates of Rmb1.59bn. In 9M14, earnings add up to Rmb4.25bn, up by 45% yoy and accounted for 79%/79% of our/market FY14estimates. As such, we believe our 4Q14 earnings forecast of Rmb1.14bn or down Rmb434m qoq should leave enough buffers for the impact of tariff cut in September (c.Rmb100-200m assuming a similar output in 4Q as 3Q).

Resilient utilization outlook thanks to a favorably high exposure in ShandongWith regard to utilization, Huadian has an advantageous capacity location mix with 50% capacity in Shandong. Less affected by imported hydropower,Shandong achieved 3,796 utilization hrs in 9M14 (284 hrs above national average) and we expect its utilization will continue to outperform national average by 200-500hrs in 2014-16E, making Huadian highly defensive in utilization outlook amid the nationwide power demand growth slowdown.

Net gearing down 60ppt; well prepared for potential asset injectionsPost the A+H share placement in July, Huadian s net gearing ratio (net debt/equity) improved significantly to 261% in 3Q (down 60ppt vs end-June),making the company better positioned for potential asset injections. Following Huanen s asset injection announcement on 14 October, we believe Huadian stands a high chance as the next one to announce parentco asset injection in the following six months, which could be a key earnings driver in 2015-16. We have identified the potential eligible assets in our note Huadian Power - Best results among peers, raising earnings and TP, buy on 1 September.

We will host a post results conference call for Huadian at 9:30am, 29 October.



Rating

HoldAsiaChina


Company

Industrial Bank AlertDate28 October 2014

Results

3Q14 Results: A miss on tighter interbank rules and asset quality risks

Reuters Bloomberg Exchange Ticker601166.SS 601166 CH SHH 601166

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (CNY) 10.15

Price target - 12mth (CNY) 11.00

52-week range (CNY) 12.15 - 8.65


Hans Fan, CFA


Tracy Yu


Michael Zhang, CFA


Stock data

Market cap (CNYm) 193,374




176.2


Key data

FYE 12/31 2013A 2014E 2015E

Provisioning (CNYm)

18,188.0 12,301.3 13,711.6

Pre-prov profit(CNYm)

72,266 73,460 80,674

EPS (CNY) 2.60 2.44 2.67

PER (x) 5.5 4.2 3.8

Yield (net) (%) 3.2 4.8 5.3


Weakening underlying trends; Hold maintainedIndustrial Bank (INDB) reported 3Q14 NPAT of Rmb12.8bn (up 11.5% yoy) and 9M14 NPAT of Rmb38.3bn (up 15.7% yoy), 3% and 1% below our estimates respectively. The small miss was mainly due to higher than expected provisionof Rmb6.1bn in 3Q14 (3Q13: Rmb3.0bn). Overall, we see weakening underlying trends on the back of weaker asset quality and tighter interbank rules, as evidenced by rising NPL formation rate, stalled deposit growth andslowed fee income growth. Hold maintained.

Tighter interbank rules led to deleveraging of riskier assets and higher provisionWe believe the bank has started to de-lever its sector-high exposure to non-standardized assets when facing the tighter rules from No. 127 Circular, which made up 27.6% of total assets as of 1H14 on our estimates (sector: 5.6%). Specifically, it has reduced its reverse repo balance by 8.5% qoq, thus lowering both its interest income (down 1.2% qoq) and fee income from facilitating these transactions (net fee growth slowed to 11.2% yoy). In addition, the management confirmed that the bank had charged additional provisions on its non-standardized exposure without disclosing the exact amount, translating into a higher credit cost of 166bps. With reverse repo balance making up 23%of total assets, which was primarily backed by non-qualified collaterals (i.e. trust beneficiary rights), we expect the bank to further de-lever its non-standardized assets in coming quarters.

Rising asset quality concern with management guiding for persisting pressureBy assuming 50% of new total provisions charged in 3Q14 were on loans (the rest on non-standardized assets), we estimate that INDB had written-off or disposed NPLs of Rmb3.9bn in 3Q14, resulting in a rising gross NPL formationrate of 131bps for its business (1H14: 80bps). Its NPL balance amounted to Rmb14.8bn (up 6.5% qoq) as of 3Q14, or 0.99% of total loans (up 2bps qoq). Echoing rising special mentioned loan balance (up 50% qoq) to make up 1.67% of total loans, the management guided for persisting asset quality pressure in coming quarters during the result conference call. The weakening asset quality was mainly generated from personal loans, manufacturing and wholesale & retail trade sectors in coastal provinces, according to the management.

3Q14 Positives: NIM, capital, CIR; Negatives: fee, asset quality, depositThe bank reported a PPOP growth of 23.9% yoy in 3Q14 offset by a higher credit cost of 166bps (3Q13: 88bps). Net interest income grew by 19.5% yoy on the back of NIM expansion of 10bps qoq. Net fee income growth slowed to 11% yoy, leading to a weak non-interest income growth of 8.9% yoy. Operating expenses only increased by 3.4% yoy, translating into a 3.9% yoy drop in CIR to 29.1%. LDR rose by 4% qoq to 67.7% in 3Q14 as a result of adecline in deposit by 1.8% qoq against loan growth of 4.3% qoq. Its tier 1 ratiowas strengthened slightly by 5bps qoq to 9.40%, while CAR remained unchanged at 12.18% in 3Q14.



Rating

BuyAsiaChina

EnergyAlternative Energy

Company

Longyuan Power Alert

Date28 October 2014

Results

3Q below estimate, but in the price


ADR Ticker ISINCLPXY US16890R1095

________________________________________________________________________________________________________________



52-week range (HKD) 10.10 - 7.17


Michael Tong, CFA


Stock data




Major shareholders Guodian Group (63.68%)

Free float (%) 36


13.5


Key data

FYE 12/31 2013A 2014E 2015E

Sales (CNYm) 19,123 18,881 20,845

Net Profit (CNYm)

2,050.3 2,929.5 4,084.0

DB EPS (CNY) 0.31 0.36 0.51

PER (x) 20.3 16.4 11.8

Yield (net) (%) 0.8 1.5 2.6


Weak 3Q14 largely priced in; better prospect to expect Longyuan reported 9M14 results and had a conference call today. 3Q14 net profit is reported at Rmb159mn, down 67% yoy on weak wind and thermal output. Thus 9M14 NP decreased by 22% yoy and accounts for 52%/53% ofFY14E DBe/consensus, suggesting downside risk to our/consensus forecasts. However, we believe the lower-than-expected 3Q results on weak wind resources this year has been largely priced in with share price underperformed HSCEI by 16% over the past 6 months. Looking forward, we expect a better prospect on 1) better wind conditions entering into peak wind season, 2) profit contribution from new capacity commissioning in 4Q, 3) accelerated capacity schedule in 2015E providing earnings upside. Trading at 11.8x FY15E PE, it is an attractive entry point to buy Longyuan.

3Q below estimate; downside risks to 2014E forecast3Q14 net profit decreased by 67% yoy on 10.2% lower wind output (9M14 utilization: 1,393hrs, -10% yoy) and 21.8% lower thermal output (9M14 utilization: 3,812hrs, -15% yoy). Management cut FY14E wind utilization to 1,980hrs (2,100hrs previously) considering the weaker-than-expected wind conditions despite a continuous improved curtailment situation (curtailment rate: 9.79% in 9M14 vs. 11.27% in 1H14). With 9M14 utilization at 69% of FY14E DBe, we see downside risk to our full year estimate.

Upside on capacity growth in 2015E without sacrificing project qualityWhile Longyuan is on the track to achieve its target of 1.5-1.8GW new capacity addition in 2014, there is potential upside from capacity growth in 2015E on 1) capacity rush ahead of the tariff cut and 2) offshore wind investment. Longyuan is confident to grid-connect 2GW onshore wind capacity in less-curtailed areas by 30 Jun 2015 (when the proposed adjusted tariff will start to take effect) with the turbine procurement and construction work well in progress. Thus unlike previous years when new capacity normally commission by year end, the accelerated capacity schedule next year will make more earnings contribution. In addition to the 2GW onshore projects, Longyuan will add offshore projects in 2H15 and a total of 1GW offshore wind capacity addition target for next three years is unchanged. Despite the strong capacity growth, project quality is still Longyuan s focus with >15% IRR expected for its new projects, both onshore and offshore.

Thermal profitability enhanced; Nantong Tianshenggang continues to ramp up Despite 10.2% lower output in 3Q, thermal profitability actually improved, evidenced by higher minority interest which is largely attributable to thermalearnings. Moreover, the 2x1,000MW Nantong Tianshenggang thermal power plant phase I (c.16% stake, operational since Mar 14) continued to ramp up and make full contribution in 3Q (c.Rmb100mn vs. c.Rmb150mn in 1H), providing stable cash flow.



Rating

BuyAsiaChina

ResourcesMetals & Mining

Company

Maanshan Iron and Steel Alert

Date29 October 2014

Results

Maanshan 3Q14 Alert


________________________________________________________________________________________________________________



52-week range (HKD) 2.29 - 1.54


James Kan


Stock data




Major shareholders Magang Holding (62.5%)


2.9

Free float(%) 49


Key data

FYE 12/31 2013A 2014E 2015E

Sales (CNYm) 73,849 60,361 61,690

Net Profit (CNYm)

334.4 309.5 1,079.9

DB EPS (CNY) 0.04 0.04 0.14

PER (x) 37.8 32.9 9.4

Yield (net) (%) 0.0 0.0 0.0


Maanshan Iron & Steel announced its 3Q14 result on PRC GAAP basis after market close on Oct 28th. The company recorded an NPAT of RMB404mn in

With a positive outlook on steel industry turnaround and reflected by its significant improvement QoQ, we maintain Buy for Maanshan.

3Q14 crude steel production volume increased by 2.3% QoQ, bringing up its revenue by COGS decreased 3% QoQand 23% YoY, largely contributable to low raw material costs of iron ore and coal. As such, /operating profit had a sequential improvement of 164%/891%, and the magnitudes are much larger than steel spread increase of one-digit percentage, showing that the company has done effective ASP and cost control.

Looking for another profitable quarterIndustry wise, China steel industry has been through the trough, and we are looking for improvement in demand/supply balance and thus utilization rate and profitability. Iron ore price weakness also helps producers to increase their bottom line. More specifically, company wise, though still recording a loss of RMB326mn in the first 3 quarters, Maanshan guided that Q4 will probably be a profitable quarter, and FY14 could possibly be a profitable year. As such, we re-iterate our Buy for Maanshan.

Figure 1RMBm 3Q14 2Q14 QoQ 3Q13 YoY Dbe % of Dbe Cons % of

Cons

Revenue 15,569 15,221 2% 19,440 -20% 60,361 26% 63,856 24%

COGS (14,229) (14,714) -3% (18,510) -23% (56,365) 25% (60,670) 23%

GP 1,340 507 164% 930 44% 3,996 34% 3,186 42%

SG&A (479) (420) 14% (451) 6% (1,870) 26% (2,498) 19%

OP 861 87 891% 479 80% 2,126 40% 688 125%

NPAT 404 (284) na 3 11615% 310 130% (85) naSource: Deutsche Bank, company data



Rating

BuyAsiaChina

Banking / FinanceInsurance

Company

Ping An AlertDate28 October 2014

Results

3Q14 - A strong quarter, P&C better-than-expected


ADR Ticker ISINPNGAY US72341E3045

________________________________________________________________________________________________________________



52-week range (HKD) 76.00 - 56.20



Esther Chwei


Lexie Zhou


Stock data

Market Cap (HKDm) 482,489

Market Cap (USDm) 62,201


Major shareholders CP Group (12.36%)

Free Float (%) 25


101.5


Key data

FYE 12/31 2013A 2014E 2015E

Group EV (CNYm)

329,653 384,194 451,200

VNB(CNYm) 18,163 21,067 24,424

Net Profit 28,154 34,258 40,034

P/EV (CNY) 1.2 1.1 0.9

Implied NB multiple (x)

0.8 1.3 -1.2


Strong earnings; P&C combined ratio tracking better-than-expectedPing An reported 3Q14 net profits of Rmb10,325mn (+90.2% yoy on a relatively low base), driven by strong investment income and improving underwriting. Comprehensive earnings grew 66.8% yoy to Rmb12,810mn. 9M14 earnings accounted for 89% of 2014E Bloomberg consensus. Book value grew 5.9% qoq. Similar to NCI and CPIC, surrenders increased by at a decelerating rate of 32.9% yoy (vs. 36.1% in 1H14 and 41.8% in 2013). 9M14 P&C combined ratio is tracking better-than-expected at 94.9% (vs. our 2014E forecast of 97.0%). Trust assets grew marginally at 2.8% qoq (vs. 23.6% in 1Q14 and 2.2% in 2Q14).

Underwriting improved, agency FYP momentum picked up9M14 life written premium was up 15.4% yoy to Rmb191,724mn, driven by both agency (+14.3% yoy) and bancassurance (+35.8%). 9M14 agency FYP was up 19.9% yoy to Rmb42,325mn, indicating a 3Q14 growth of 23.1%, accelerating from 18.8% in 1H14. Ping An P&C 3Q14 premium rose 22.1% yoy (vs. +27.8% in 1H14) to Rmb36,398mn. On a consolidated basis, underwriting losses narrowed to Rmb12,467mn (-6.5% yoy) while underwriting margin improved to -19.8% (vs. -25.1% in 3Q13). Total claim and reserves ratio was down 9.1ppt to 67.9% with claims ratio at 38.7% (-2.7ppt yoy thanks to moderated growth in surrenders and claim expenses) and reserve ratio at 29.2% (-6.4ppt). Total expense ratio increased 3.8ppt to 51.9% with commission ratio at 11.0% (+2.4ppt) and operating expenses ratio at 40.9% (+1.4ppt). 9M14 P&C combined ratio was 94.9% (vs. 94.4% in 1H14 and 95.8% in 3Q13), largely stable and ahead of expectation.

Robust investmentsInvestment income increased 11.2% yoy to Rmb11,819mn, mainly driven by strong growth in net investment income of Rmb20,029mn (+40.8% yoy), which more than offset the increasing investment losses of Rmb5,471mn (vs. losses of Rmb2,039mn in 3Q13). 9M annualized net investment yield was 5.3%(vs. 5.0% in 1H14) and total investment yield was 4.6% (vs. 4.3%).

ValuationsWe maintain our Buy rating on Ping An with a target price of HK$84.1/share.

services, which we see as its competitive advantage in the long run. The stock is currently trading at 1.1x 2014E P/EV, which is inexpensive, in our view.



Rating

HoldAsiaTaiwan

TelecommunicationsWireless

Company

Far EasTone Telecom

Date28 October 2014

Results

Positive tone despite subsidy-ledweakness in 3Q




Sales (TWDm) 86,744.0 89,671.0 93,984.8 96,098.2 97,059.8

EBITDA (TWDm) 24,371.0 25,147.2 26,366.9 26,563.0 26,487.4

Reported NPAT (TWDm) 10,591.0 11,771.0 12,002.5 11,733.2 11,878.9

Reported EPS FD(TWD) 3.25 3.61 3.68 3.60 3.64

DB EPS FD(TWD) 3.25 3.61 3.68 3.60 3.64

DB EPS growth (%) 11.1 1.9 -2.3 1.2

PER (x) 20.5 19.7 17.0 17.4 17.2

EV/EBITDA (x) 8.4 10.0 8.5 8.4 8.4

DPS (net) (TWD) 3.50 3.75 3.75 3.60 3.64

Yield (net) (%) 5.3 5.3 6.0 5.7 5.8


Weak quarter, but potential emerging

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (TWD) 62.70


52-week range (TWD) 69.60 - 57.10


8,628

Peter Milliken



50

60

70

80

90

100

10/12 4/13 10/13 4/14

Far EasTone Telecom



Absolute 6.3 0.6 0.5


-4.0 -8.4 2.6


Far EasTone's 3Q net earnings were down 9% YoY, led by iPhone subsidies on 20,000 handsets impacting September's numbers. While further iPhone shipments will impact earnings through the coming months, ARPU is set to turn up as data plans kick in. FET reported 4G users spending 6-10% on migration from 3G. We suspect the 6% may reflect spending post the discounted plans, which is better than we expected. Additionally there appears potential for promotional plans to end in October, which would generate ARPU upside vs. our forecasts of 1% p.a. ARPU growth.

Newsflow turns up

NT$599 unlimited data plans, and the big three following with sharply lower price plans of their own. FET management mentioned that it would like to end the promotional 4G plans at the end of October, as planned, but that it will depend on the competitive situation. Taiwan Star then appears to have a chance to lift pricing and allow the industry to move to tiers. Taiwan Star is under stress due to consumers boycotting 52%-owner Ting Shin Intl. products due to the drain oil scandal, and general outrage at its business practices. In

of shareholders was possible. The Taiwan mobile market has featured considerable consolidation over the last dozen years. Given that TWM has recently aligned with Ambit, and TS shareholders appear potential sellers, it cannot be ruled out that FET might consider buying a stake should Tack Hsin sell down its holding. While MOU trends remain weak, FET points out postpaid MOU loss has dropped to 6.6% YoY, and data growth trends are positive.

Valuation and risksWe value FET based on DCF using 6.9% WACC, beta of 0.9x and 0% terminal growth. We find 6% dividend yieltelcos, and believe that some potential earnings upside exists should promotions end. Key upside risk is LTE lifting ARPU higher than our forecast while key downside risk stems from new licensees unsettling the market.



Rating

SellAsiaTaiwan


Company

PowertechDate28 October 2014

Results

Transition period; retaining Sell




DB EPS FD(TWD) 4.64 -5.22 4.03 3.33 3.16

DB EPS growth (%) -21.8 -17.3 -5.3

PER (x) 12.1 12.1 14.6 15.4

Yield (net) (%) 5.4 3.9 4.9 4.3 4.1

Price/BV (x) 1.0 1.2 1.2 1.2 1.2


________________________________________________________________________________________________________________

Price at 28 Oct 2014 (TWD) 48.70


52-week range (TWD) 57.90 - 41.20


8,628

Michael Chou


Kevin Wang



36

40

44

48

52

56

60

10/12 4/13 10/13 4/14

Powertech



Absolute -11.9 -9.6 -6.3


-4.0 -8.4 2.6


DB EPS estimates vs. consensus

Year 2014E 2015E

DB's estimates (NT$) 4.03 3.33

Consensus estimates (NT$)

4.13 4.40

DB over consensus (%)

-2% -24%

Source: Bloomberg Finance LP, Deutsche Bank estimates

Powertech reported lower-than-expected operating margin in 3Q14. The company plans to focus on the development of its logic IC packaging, including 12-inch wafer bumping, flip-chip, advanced packaging in 2015. However, we expect its gross margin in these logic IC packaging to be lower than corporate average in 2015 owing to its small scale and low yield rate. We

to ChipMOS in 2015. We maintain our Sell rating for Powertech on the unfavorable risk/reward.

3Q14 beat due to non-operating gains EPS came in at NT$1.25 in 3Q14 (up 7% QoQ), higher than our estimate of NT$1.03 and the consensus estimate of NT$1.17. The gross margin improved 0.1ppt to 18.0% in 3Q14, in line with our estimate of 18.1% but lower than the consensus estimate of 18.6%. The operating margin dropped by 0.7ppt to 11.5% in 3Q14, below our estimate of 12.5% and consensus estimate of 12.7%. This was attributable to higher R&D and promotion expenses, and consolidation of the operation of Nepesreported non-operating income of NT$179m, higher than our estimate of

of NT$90m. Thus, we revise up our 2014 EPS forecast by 7%.

Sales softness in 4Q14 Management guides sales to drop QoQ modestly in 4Q14, in line with our estimate of a 5% QoQ decrease and consensus estimate of a 2% QoQ decrease. Management expects soft demand for commodity DRAM and logic

adjustment. Management guides for a moderate decline in gross margin in 4Q14.

Valuation and risks We base our NT$42 target price on 1.0x 2014-15E average P/B, below the 2008-13 trough average of 1.2x. We use the Gordon Growth Model to generate our target multiple, assuming long-term ROE of 8%, cost of equity of 7.4% and a long-term industry growth rate of 2%. Upside risks: 1) stronger-than-expected demand for mobile DRAM and flash in smartphones/tablets; and 2) faster-than-expected market share gains in flip-chip packaging.



Rating

SellAsiaSouth Korea

TransportationInfrastructure

Company

GS E&C AlertDate28 October 2014

Results

Unexpected guidance cut; maintain Sell

Reuters Bloomberg Exchange Ticker006360.KS 006360 KS KSC 006360

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (KRW) 29,400

Price target - 12mth (KRW) 27,900

52-week range (KRW) 40,000 - 26,600

KOSPI 1,931.97

Sanghi Han, CFA


Dianna Kang

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

Stock data

Market cap (KRWbn) 1,499


Shares outstanding (m) 51.0

Major shareholders Chang-Soo Huh (12.5%)

Free float (%) 70


19.587


Key data

FYE 12/31 2013A 2014E 2015E

Sales (KRWbn) 9,566 9,783 9,955

Net Profit (KRWbn)

-828.2 88.7 148.1

DB EPS (KRW) -16,711 1,275 2,129

PER (x) 23.1 13.8

Yield (net) (%) 0.0 0.7 0.7


3Q14 review: quite lower than expectationOperating profit of W24bn significantly missed Bloomberg consensus and DB estimates by 60% and 74% respectively. Overseas gross margin dropped to 0.9% from 2.3% in 2Q14, as the company booked roughly 70bn upward cost adjustments for two projects in Indonesia and Saudi Arabia. Key non-operating items include W11bn net interest expense, W9bn net FX gains, W5bn netprovisions for housing, and W3bn fines for collusion YTD new orders reached W10.2tr (overseas W6.7tr), achieving 85% (overseas 95%) of guidance.

Key takeaway from earnings conference call 1) RReevviisseedd ddoowwnn aannnnuuaall gguuiiddaannccee for the year; new order has been adjusteddown to W12tr (overseas W7tr) from W14tr (overseas W10tr), sales and operating profit changed to W9.5tr (previously W10.6tr) and W50bn (previously W160bn) respectively. 2) PPFF llooaann gguuaarraanntteeee stands at W1.4tr (un-started W1.2tr); the company plans to launch 4 of the 9 un-started PF projects worth W650bn in 2015E. 3) YYTTDD pprree--ssaallee rraattiioo is resilient and the company expects further strength, leading to launching 13,000 units of apartments in 2014 and 2015. We will revisit our figures after seeing full audit report in Nov.

Figure 1: 3Q14P vs. DB estimates vs. consensus ((WWbbnn,, %%)) 33QQ1144PP 33QQ1133 yyooyy 22QQ1144 qqooqq 33QQ1144DDBB DDiiffff.. CCoonnss.. DDiiffff..

SSaalleess 22,,330055 22,,442299 -5.1 22,,336666 -2.6 22,,552211 -8.6 22,,558866 -10.9

Domestic 978 873 12.0 941 3.8

Overseas 1,327 1,556 -14.7 1,425 -6.9

GGrroossss pprrooffiitt 110099 33 3,992.8 110000 9.0

Domestic 98 34 191.0 68 44.7

Overseas 12 -31 TTB 33 -64.5

OOppeerraattiinngg pprrooffiitt 2244 --110033 TTB 1111 114.0 9933 -74.4 5599 -59.6

EEaarrnniinnggss bbeeffoorree ttaaxx 1122 --110066 TTB 1111 9.3 5577 -79.1 7788 -84.7

NNeett pprrooffiitt 11 --8844 TTB --99 TTB 4488 -97.9 4400 -97.4

Gross margin 4.7 0.1 4.2

Domestic 10.0 3.8 7.2

Overseas 0.9 -2.0 2.3

Operating margin 1.0 -4.3 0.5 3.7 2.3

EBT margin 0.5 -4.4 0.5 2.3 3.0

Net margin 0.0 -3.5 -0.4 1.9 1.5

NNeeww oorrddeerrss ((YYTTDD)) 1100,,116677 66,,449977 56.5 77,,884466 29.6

Domestic 3,505 2,044 71.4 2,082 68.4

Overseas 6,662 4,453 49.6 5,764 15.6Source: Company data, Bloomberg Finance LP, Deutsche Bank estimates



Rating

HoldAsiaSouth Korea


Company

Shinhan FGDate28 October 2014

Results

Consensus-beating earnings on investment gains


ADR Ticker ISINSHG US8245961003



Provisioning (KRWbn) 1,305 1,332 1,118 1,066 1,107

Pre-prov profit (KRWbn) 4,526 3,976 4,120 4,402 4,771

Net profit (KRWbn) 2,288 1,841 2,133 2,309 2,542

EPS (KRW) 4,825.45 3,882.26 4,498.63 4,868.77 5,359.61

EPS growth (%) -18.6 -19.5 15.9 8.2 10.1

PER (x) 8.1 10.7 10.6 9.8 8.9

Price/book (x) 0.7 0.9 0.8 0.8 0.7

DPS (net) (KRW) 700.00 650.00 700.00 800.00 800.00

Yield (net) (%) 1.8 1.6 1.5 1.7 1.7

ROE (%) 8.2 6.3 7.1 7.4 7.6

ROE Adj(%) 12.8 12.6


Recurring level earnings on the rise, but headwinds looming

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (KRW) 47,650


52-week range (KRW) 53,400 - 42,000

KOSPI 1,931.97

Jeehoon Park


Emily Yi

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


32000

36000

40000

44000

48000

52000

56000

10/12 4/13 10/13 4/14

Shinhan FG

KOSPI (Rebased)


Absolute -3.1 -2.6 1.6

KOSPI -4.9 -5.7 -5.7


Shinhan FG reported net profit of W632bn, up 9.4% QoQ and higher than Bloomberg consensus of W565bn. In our view, the main cause of the earnings beat was the investment-related gains worth about W120bn. However, Shinhan displayed better underlying credit cost control as well, and we believe underlying quarterly earnings at Shinhan have risen to the c.W530bn level from W500bn previously. We continue to like Shinhan's capacity to deliver more than investor expectations, but believe that the margin headwind will be difficult to overcome given the steep decline in market rates. Maintaining Hold.

Falling credit costs, but the key issue ahead is NIMytd credit cost up to 3Q14 was 46bp, 22bp lower than the five-year

average of 68bp. Management continues to see small amounts of write-backs and expects a similar level of credit cost for 2016, although we sensed some additional confidence. That said, while there was no guidance from management, we believe NIM headwinds will be difficult to overcome even for Shinhan. CD rates have fallen 51bps since the two rate cuts, and, given that CD rate-linked loans are still about 25% of total loans, we believe pressure on NIM ahead is inevitable. We expect some of this to be visible in 4Q14, but a clearer impact should be seen in the 1Q15 results and hence we believe there is scope for the 2015 consensus to be lowered.

Valuation and risksWe derive our target price using a Gordon Growth Model (p/B=ROE-g/COE-g),assuming 8.2% sustainable ROE, 9.4% COE and 2% growth. We also assume a7.9% discount on ROE based on our historical analysis of th andPBR. Downside risks include negative news for the credit card business, as the company has the largest credit card market share in the sector. The main upside risk is the opposite: easing regulations in the credit card business.



Rating

BuyAsiaSouth Korea

EnergyOil & Gas

Company

SK Innovation AlertDate28 October 2014

Results

3Q14 results operating profit in-linewith expectations


________________________________________________________________________________________________________________

Price at 27 Oct 2014 (KRW) 86,600


52-week range (KRW) 153,500 - 75,000

KOSPI 1,931.97

Shawn Park


Stock data

Market cap (KRWbn) 8,116



Major shareholders SK Holdings (33%)

Free float (%) 67


41.130


Key data

FYE 12/31 2013A 2014E 2015E

Sales (KRWbn) 66,670 66,892 69,222

Net Profit (KRWbn)

725.9 209.4 541.5

DB EPS (KRW) 7,859 2,267 5,863

PER (x) 19.2 38.2 14.8

Yield (net) (%) 2.1 3.7 3.7


SK Innovation reported 3Q14 results in which operating profit of Won49bn (TTB QoQ, -84.5% YoY) was in-line with our expectation of Won50bn, but above consensus Won20bn loss. Weak results from refining division (Won226bn loss) included inventory loss of Won190bn, while sound operating profit of Won145bn in petrochemical division thanks to PX spread recovery of

Innovation reported net loss of Won63bn (TTR YoY) vs our estimate of Won80 -related loss under non-operations was Won92bn, while the company recognized asset disposal loss of Won60bn.

Key takeaways from earningsThe management highlighted that the new projects - Incheon PX facility and Repsol JV lubricant plant - are currently running at near 100%, and expects volume growth from non-oil refining divisions to support profitability of the company going forward. The management also added that despite the harsh business environment, the year end DPS will try to be maintained at market's expectations. Of note, SK's dividend's policy is to maintain at least that of last year's DPS.

Maintain BuySK Innovation remains our relative preferred pick among Korea oil & gas. Although we are cautious on PX and oil refining margin outlook for 2015, we expect non-refining divisions' volume growth to partially offset the margin downside. With shares trading near all-time low FY15E P/BV of 0.46x, while the share price implies 3.8% dividend yield, we believe the current share price offers a good entry point.

Figure 1: SK Innovation 3Q14 preliminary results(Won bn) 3Q14 3Q14DBE Var. (%) 3Q13 2Q14 % YoY % QoQ Cons. Var. (%)

SSales 116,608 116,172 22.7 115,858 116,494 44.7 00.7 116,298 11.9

Gross profit NA 528 NA 765 393 NA NA

OOperating profit 449 550 --3.0 3316 --50 --84.5 TTTB --20 NNM

Refining -226 -164 NM -52 -215 NM NM

Petrochemical 145 101 44.1 217 51 -33.1 185.0

E&P 121 104 16.5 128 113 -5.2 7.7

Lubricants 73 88 -16.5 63 79 16.6 -7.2

Others -65 -78 NM -42 -78 NM NM

RRecurring profit --53 --105 NNM 4420 88 TTTR TTTR --22 NNM

NNet profit --63 --80 NNM 3302 --33 TTTR NNM --45 NNMSource: Deutsche Bank estimates, Bloomberg Finance LP



AsiaSingaporeBanking / FinanceBanks

Industry

Singapore BanksDate29 October 2014

Industry Update

3Q14 preview: slower growth; qualities intactAnother stable quarter ahead

________________________________________________________________________________________________________________



Franco Lam

Research Analyst

(+852) 2203 [email protected]

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DBS Group Holdings Ltd (DBSM.SI),SGD18.31

Buy

2013A 2014E 2015EP/E (x) 11.3 11.0 10.5Div yield (%) 3.6 3.1 3.2Price/book (x) 1.3 1.3 1.2Source: Deutsche Bank

Related recent research Date

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CIMB: Merger moving forwardFranco Lam

10 Oct 2014


The three SG banks are due to report their 3Q14 earnings, starting with UOB and OCBC (30 October), followed by DBS (31 October). We expect another steady set of results, as overall fundamentals remain sound. The key operating trends should be largely in line, with no significant variances expected. The SG

investors. DBS is still our top pick, followed by OCBC.

3Q14 trend: steady NIM, offset by weaker loan momentumWith more reassurance from additional transparency and disclosures from the

Greater China exposures in 2Q, we think the focus this quarter should return to margins, fee trends, loan growth momentum (e.g., LDR, tight funding) and asset quality conditions. For the 3Q14 results, we believe that (1) margins should remain relatively stable sequentially, ((2) there should be some recovery in non-interest income trends after the weak 2Q14 trading and client flows, ((3) loan momentum will weaken QoQ, as banks may try to protect margins over volume growth, and ((4) asset quality should remain largely benign, with only a few specific pockets of weakness (but we expect nothing systemic).

Bank specifics: key focuses for 3Q14 resultsWe expect trade finance lending book to slow sequentially, as the bank tries to protect its margins amid growing competition in the space. After weak trading income in 2Q14, we expect some recovery during the quarter. OOCBCshould start to report OCBC-WHB consolidated numbers, resulting in a boost to its balance sheet. We also expect to see an update on integration, and believe that any sign of a turnaround should be positive for the share price. ForUOB, we expect another stable set of earnings, with flat margins, better fees and no systemic asset quality deterioration. We expect the SGD LDR to trend below 100%.

DBS remains our top pick; recent performance reflects its strengthsOverall, we expect core earnings to be down 1% QoQ but up 14% YoY. share price performance has improved since the 2Q results in late July and it has outperformed the index by 5% (2% YTD), making it the best-performing bank. outperformance has started to reverse, as its current valuation has fully priced , and we see limited re- be sustained,as its fundamentals should remain solid, while its best-in-sector CASA and SGD deposit franchise should put the bank in a better position to benefit from a rate hike environment. We also like its relative valuation at 1.2x 2015E P/B,which looks undemanding vs. its peers. Despite its near-term overhang, we like OCBC on a longer-term basis, given the strong potential revenue synergies from the WHB purchase.

Valuation and risksWe value SG banks using a GGM valuation methodology. Key downside risksfor the banks are a severe property price decline and asset quality deterioration. Upside risks for UOB include better-than-expected performance in the ASEAN markets.



Rating

BuyAsiaSingapore

Property

Company

Wing Tai Hldgs Alert

Date28 October 2014

Company Update

1Q15 results boosted by divestmentgains

Reuters Bloomberg Exchange TickerWTHS.SI WINGT SP SES WTHS

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (SGD) 1.76

Price target - 12mth (SGD) 2.15

52-week range (SGD) 2.24 - 1.72

Straits Times Index 3,226

Chien-Fie Man


Joy Wang


Stock data

Market cap (SGDm) 1,393



Major shareholders Wing Tai (38%)

Free float (%) 40


1.4


Key data

FYE 6/30 2014A 2015E 2016E

Sales (SGDm) 803 766 872

Net Profit (SGDm)

254.4 109.0 109.1

DB EPS (SGD) 0.16 0.14 0.14

PER (x) 12.1 12.8 12.8

Yield (net) (%) 3.0 3.4 3.4


Wing Tai reported 1Q15 PATMI of S$24m (-1.4% YoY, -83.1% QoQ), representing 22% of our FY15 core PATMI forecast. 1Q15 PATMI includes a gain of S$21.2m from the sale of shares in a property subsidiary in Indonesia. Excluding this one-off gain the core PATMI would be S$3m. Over the quarter, the company recorded earnings from the progressive recognition of The Tembusu, Helios Residences, and the Lakeview in China. alance sheet remains strong with net gearing of 0.14x which should enable it to navigate the challenging operating conditions and restock land bank at potentially more attractive margins.Maintain Buy with TP of S$2.15We maintain our Buy recommendation for Wing Tai, with valuations attractiveat 0.46x P/B and 43% discount to our RNAV of S$3.07/sh. We believe that with price declines promoting negotiations, the establishment of a market clearing price and a rebound in volumes should benefit Wing Tai. While we believe that a relaxation of policy measures is not likely until late 2015, we expect the largest rebound should be in the luxury segment on any unwinding of government policies.

Figure 1: Wing Tai 1QFY15 earnings summary, QoQ and YoY growth

(S$m) 1Q15 1Q14 % YoY 4Q14 % QoQ

RRevenue 1160.1 2222.8 --28.2% 1179.8 --10.9%

Cost of sales -97.9 -130.5 -24.9% -99.1 -1.1%

GGross Profit 662.1 992.4 --32.7% 880.7 --23.0%

Other gains - net 23.0 3.6 543.6% 30.7 NM

Distribution Expenses -26.9 -25.9 3.6% -40.2 -33.2%

Admin & other Expenses -21.1 -26.8 -21.5% -21.5 -2.1%

OOperating profit 337.2 443.2 --13.8% 449.7 --25.0%

Finance costs -10.9 -10.3 5.8% -10.7 2.2%

Associates & JVs 13.4 7.9 69.2% 121.8 NM

PPre tax profit 339.7 440.8 --2.6% 1160.9 --75.3%

Income tax expense -9.6 -11.8 -18.9% -7.0 36.2%

NNet profit 330.1 229.0 44.0% 1153.8 --80.44%

Minority interests 6.0 4.5 33.6% 10.8 -44.4%

PPATMI 224.2 224.5 --1.4% 1143.1 --83.1%Source: Deutsche Bank, Company data



Rating

BuyAsiaIndonesia

TransportationLogistics

Company

AKR Corporindo Alert

Date28 October 2014

Results

Weak volume offset by higher margin and lower interests

Reuters Bloomberg Exchange TickerAKRA.JK AKRA IJ JKT AKRA

ADR Ticker ISINPKCPY US69369P1049

________________________________________________________________________________________________________________

Price at 27 Oct 2014 (IDR) 4,945

Price target - 12mth (IDR) 5,275

52-week range (IDR) 5,675 - 4,125

Jakarta Comp. Index 5,024.29

Nicholas Nugroho

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

Stock data

Market cap (IDRbn) 19,190



Major shareholders

Free float (%) 40


2.633


Key data

FYE 12/31 2013A 2014E 2015E

Sales (IDRbn) 22,338 25,520 34,029

Net Profit (IDRbn)

648.3 668.6 906.2

DB EPS (IDR) 167 172 234

PER (x) 28.0 28.7 21.2

Yield (net) (%) 2.5 0.7 0.9


* 9M14 net profit reached Rp579bn (+10% yoy), already representing 87% of DB FY14F. 3Q14 net profit was up 16% yoy and 4% qoq. See table below.* Volume surprised to the downside, and remains very weak. Petroleum volume in 3Q14 was down 8% yoy (+5% qoq), and surprisingly 3Q14 chemicals also saw volume decline by 12% yoy and 15% qoq. 9M14 petroleum and chemical volume represents 64% and 67% DB FY14F, respectively.* Soft volume was offset by strong margin; 3Q14 gross and op. margin of 7.5% and 4.9%, respectively substantially above previous year and our forecast. Much of the margin expansion was driven by strong ASP. 9M14 op. profit 78% FY14F. Below the op. line, lower interest expense boosts net profit. * Overall, we see around 5-10% earnings upside risk this year, which should

* The stock currently trades at 21x FY15 earnings (0.6x PEG), and we still seesome value from the stock (around 10-15% upside potential). Maintain Buy.

Figure 1: 9M14 results summary

(In Rp bn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 YoY % QoQ % 9M14 YoY % FY14F % FY14FRev enue 5,439 5,178 5,554 6,167 5,630 5,628 5,731 3% 2% 16,989 5% 25,520 67%Gross profit 313 326 329 400 370 431 430 31% 0% 1,231 27% 1,629 76%Gross margin 5.7% 6.3% 5.9% 6.5% 6.6% 7.7% 7.5% 7.2% 6.4%OPEX 127 134 124 145 147 173 149 469 646 72%% of sales 2.3% 2.6% 2.2% 2.4% 2.6% 3.1% 2.6% 2.8% 2.5%Operating profit 186 192 205 255 223 258 282 38% 9% 763 30% 983 78%Operating margin 3.4% 3.7% 3.7% 4.1% 4.0% 4.6% 4.9% 4.5% 3.9%Other inc/(exp) 3 24 (14) (117) 2 (19) (39) (56) (111) Pre-tax profit 188 217 191 137 225 239 243 27% 2% 707 19% 872 81%Net profit (before MI) 151 186 165 115 174 190 198 20% 4% 562 12% 696 81%Net margin 2.8% 3.6% 3.0% 1.9% 3.1% 3.4% 3.5% 3.3% 2.7%Net profit to AKRA 158 193 174 123 180 196 203 16% 4% 579 10% 669 87%

Revenue breakdown 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 YoY % QoQ % 9M14 YoY % FY14F % FY14FPetroleum (Rp bn) 4,225 4,093 4,458 4,896 4,460 4,434 4,649 4% 5% 13,543 6% 20,139 67%Basic chemicals (Rp bn) 773 746 737 828 788 807 729 -1% -10% 2,324 3% 3,356 69%Petroleum (k KL) 507 519 511 495 438 448 472 -8% 5% 1,358 -11% 2,131 64%Basic chemicals (k MT) 343 351 337 354 337 351 298 -12% -15% 986 -1% 1,479 67%Petroleum (Rp/ltr) 8,336 7,891 8,721 9,885 10,192 9,889 9,849 13% 0% 9,973 19% 9,451 106%Basic chemicals (Rp/kg) 2,252 2,123 2,185 2,340 2,336 2,300 2,447 12% 6% 2,357 4% 2,268 104%

Source: Deutsche Bank and Company data



Rating

BuyAsiaIndonesia


Company

Bank Tabungan Negara Alert

Date28 October 2014

Results

3Q14: improving operating on qoq; but likely miss FY14e

Reuters Bloomberg Exchange TickerBBTN.JK BBTN IJ JKT BBTN

ADR Ticker ISINPTBGY US69369Q1022

________________________________________________________________________________________________________________



52-week range (IDR) 1,405 - 840


Raymond Kosasih, CFA


Arinta Harsono


Stock data


Market cap (USDm) 993


Major shareholders Govt of Indonesia (60.1%)

Free float (%)


4.160


Key data

FYE 12/31 2013A 2014E 2015E

Provisioning (IDRbn)

430.3 600.9 577.7

Pre-prov profit (IDRbn)

2,566 2,663 2,857

EPS (IDR) 147.86 146.37 161.83

PER (x) 8.5 7.8 7.0

Yield (net) (%) 3.9 4.1 4.0


BTN reported a 3Q14 NP of Rp216bn (+9% qoq). This translate into a 9M14 NP of Rp755bn (-29% yoy), which only accounts for 49% of DB14E, mainly due to higher cost of funds and higher credit cost. This implies a B/S ROAE of 7.4% (+50bps qoq, -670bps yoy), 3Q14 PPOP of Rp482bn is +33% qoq, which results into 9M14 PPOP of Rp1.6tr (-11% yoy), accounting for 58% of DB14E. NIM of 4.4% is down 11bps qoq and 103bps yoy due to funding cost pressure.Credit cost rose to 64bps (+31bps qoq) as NPL risks persist.On B/S, BTN reported loan and deposit growth of 4% qoq (+14% yoy, +10%ytd) and flat qoq (+15% yoy, +6% ytd), implying LDR of 108.5% (up 337bps qoq and -50bps ypy). Housing still dominates loan growth (accounting for 78% of qoq growth). NPL of 4.9% is down 16bps qoq, with almost all segments experiencing a qoq decline in NPL (except commercial). Despite NPL decline, special mention loans are still high at 14.9% (+50bps qoq). The bank continues its endevour to improve collections and aims to have an NPL of below 4% by FY14. Asset recoveries YTD have amounted to Rp830bn (69% of the bank's FY target) and the bank expects to achieve Rp1.2tr by year end.Despite moderating risks of higher funding costs due to stabilising liquidity, we think there is still work to improve its asset quality. And planned SOE bank consolidation too could limit downside risks.

Figure 1: Summary of quarterly financials

R pbn 1Q13 2Q13 3Q13 1Q14 2Q14 3Q14 Qo Q % 9M 13 9M 14 Yo Y % vs D B 14E % D B 14E

N II 1,271 1,354 1,509 1,439 1,237 1,307 6 4,134 3 ,983 (4) 67 5,939Other inc 180 128 158 216 174 201 16 466 591 27 76 776T o tal inc 1,451 1,482 1,667 1,655 1,411 1,508 7 4,600 4,574 (1) 68 6,715Opex 924 941 984 945 1,049 1,026 (2) 2,849 3,020 6 75 4,053P P OP 527 541 683 710 362 482 33 1,751 1,554 (11) 58 2,663Provisions 72 79 174 244 86 175 103 325 505 55 84 601Operating profit 455 462 509 466 276 307 11 1,426 1,049 (26) 51 2,062P B T 455 461 520 458 283 308 9 1,436 1,049 (27) 51 2,062N P 334 339 384 341 198 216 9 1,057 755 (29) 49 1,546R atio s %Loan yoy 28.6 26.8 26.1 20.2 16.6 14.5Deposit yoy 34.6 24.2 27.7 17.4 22.6 15.0LDR 98.2 110.6 109.0 100.5 105.2 108.5NIM 5.4 5.4 5.5 5.0 4.5 4.4CASA 41.3 46.2 46.1 41.2 44.5 45.8B/S ROAE 12.9 12.8 14.1 11.9 6.9 7.4CAR 17.4 16.4 16.1 15.7 15.0 14.3NPL 4.8 4.6 4.9 4.7 5.0 4.9NPL cov 25.5 25.6 26.5 27.4 26.2 27.6Cost of credit (bps) 35 36 74 96 33 64 6.0

Source: Deutsche Bank and company



Rating

BuyAsiaIndonesia

Banking / FinanceOther Financial Services

Company

BFI Finance AlertDate28 October 2014

Results

Strong 3Q14; net profit +10% yoy and +16% qoq

Reuters Bloomberg Exchange TickerBFIN.JK BFIN IJ JKT BFIN

________________________________________________________________________________________________________________



52-week range (IDR) 2,600 - 2,000


Nicholas Nugroho




Stock data




Major shareholders Trinugraha Capital & Co

(44.95%)Free float (%) 40.2


0.024


Key data

FYE 12/31 2013A 2014E 2015E

Provisioning (IDRbn)

107.5 94.9 105.3

Pre-prov profit (IDRbn)

775 891 1,026

EPS (IDR) 333.17 393.62 458.43

PER (x) 6.9 5.1 4.4

Yield (net) (%) 0.0 0.0 0.0


* Solid 3Q14 net profit growth (+10% yoy; +16% qoq), driven by strong top-line (+17% yoy; +2% qoq) and good recovery in profit margin (3Q14 pre-tax margin 34% vs. 30% in 2Q14 and 34% in 3Q13). Much of the qoq margin expansion had been on the back of lower impairment provisions in 3Q14.* Notwithstanding strong 3Q14, achievement as of 9M14 still lags forecast (net profit at 68% of FY14F, albeit revenue is on-track at 74% FY14F). This is due to significantly higher impairment provisions than expected. Indeed, pre-provision pre-tax profit as of 9M14 is up 22% yoy, and would represent 77% of

Sumatera regions (regions often associated with commodities).* See table below for key ratios; yields, CoF and NIM remains stable in 3Q, whilst NPL inched up higher, albeit remains below 2%.* Overall we see around 5% downside earnings risk to our FY14 forecast. The stock currently trades at mere 4.6x and 0.7x FY15F P/E and P/B, respectively. Reiterate Buy.


(In Rp bn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 YoY % QoQ % 9M14 YoY % FY14F % FY14FRevenue 423 468 495 505 532 568 578 17% 2% 1,678 21% 2,261 74%- Consumer loan 249 268 299 319 341 347 336 12% -3% 1,024 27% 1,396 73%- Leasing 95 100 97 89 84 87 117 22% 35% 288 -1% 419 69%Expense 269 306 326 322 359 396 380 16% -4% 1,135 26% 1,465 77%- G&A 145 158 163 173 189 202 188 15% -7% 579 21% 785 74%- Financing 93 101 113 117 114 121 129 15% 7% 364 19% 528 69%- Marketing 8 7 3 4 4 3 4 11% 14% 11 -41% 26 40%- Prov ision for impairment losses 24 25 31 28 42 58 47 54% -18% 147 86% 95 155%Pre-tax profit 154 162 169 183 173 172 198 17% 15% 543 12% 796 68%Net profit 123 129 136 121 130 129 149 10% 16% 408 5% 601 68%Total Gross Loans (Rp bn) 7,784 8,573 8,701 9,086 9,436 9,812 10,006 15% 2% 10,929 92%Gross consumer finance receiv able 5,286 5,986 6,241 6,777 7,243 7,113 6,709 7% -6% 7,996 84%Gross finance lease receiv able 2,498 2,587 2,460 2,309 2,193 2,699 3,297 34% 22% 2,933 112%Yield on consumer finance 19.4% 19.0% 19.6% 19.6% 19.4% 19.4% 19.4% 18.9%Yield on finance lease 15.6% 15.8% 15.3% 15.0% 14.9% 14.2% 15.7% 16.0%Blended lending rate 18.2% 18.0% 18.3% 18.4% 18.3% 18.1% 18.3% 18.1%CoF 10.1% 10.0% 10.1% 10.1% 9.9% 10.1% 10.3% 10.5%NIM 13.4% 13.1% 13.2% 13.3% 13.5% 13.1% 13.2% 12.9%ROAE 16.8% 16.9% 16.9% 14.5% 15.0% 14.6% 16.6% 16.3%NPL 1.29% 1.22% 1.58% 1.47% 1.46% 1.61% 1.73% 2.13%




AsiaIndonesiaResourcesConstruction Materials

Industry

Indonesian Cement Sector

Date28 October 2014

Industry Update

Building the cities

________________________________________________________________________________________________________________

Rachman Koeswanto


Top picks

Semen Indonesia (SMGR.JK),IDR15,800.00

Buy


Companies Featured

Indocement (INTP.JK),IDR23,875.00 Buy2013A 2014E 2015E

P/E (x) 15.9 17.3 15.3EV/EBITDA (x) 9.9 10.9 9.1Price/book (x) 3.21 3.56 3.06

Holcim Indonesia (SMCB.JK),IDR2,480.00 Buy2013A 2014E 2015E

P/E (x) 23.3 14.3 11.4EV/EBITDA (x) 9.7 8.1 6.7Price/book (x) 1.99 2.01 1.82

Semen Indonesia (SMGR.JK),IDR15,800.00

Buy

2013A 2014E 2015EP/E (x) 17.3 15.0 13.2EV/EBITDA (x) 11.6 10.0 8.8Price/book (x) 4.02 3.79 3.23Source: Deutsche Bank

Since collapsing in 1998, following the Asian Financial Crisis, bulk cement grew at a 14% CAGR in 1999-2013 compared to bag cement sales at a 7% CAGR in the same period. Indeed, bulk cement reached its highest level for the past 15 years at 21% of total domestic cement sales. Overall, we expect the growing trend of bulk cement sales to continue, aided by greater multi-storey

infrastructure realization especially with a potential successful implementation of the new land law starting on 1 January 2015.

with RMC as the main driverThe majority of bulk cement demand is coming from ready mixed concrete (RMC), composing up to c.60% of total bulk cement sales, the remainder beingcontributed by fabricators (35%), and mortar and cement render (5%). Given land procurement issue for infrastructure projects, the non-infrastructure projects, e.g. office, apartment, mall, shop housing, etc., have been the main driver behind RMC demand. Indeed, this means the majority of RMC output is absorbed by big cities where Jakarta accounts for 70% of total RMC output.

Burgeoning number of high-rise buildings under constructionMulti-storey buildings are sprouting in big cities in Indonesia amid strong economic growth. We note that in Jakarta alone, there are some 215 office and apartment towers totaling around 8.3m sqm currently under construction.Furthermore, we expect further multi-storey building development in the event of infrastructure improvement, as seen in the Jakarta CBD area where we are seeing sharp increases subsequent to the MRT project, and where there are now 66 office and apartment towers totaling 3.4m sqm under construction.

Major infrastructure projects underwayInfrastructure realization can no longer be underestimated, particularly if land procurement issues can be addressed by the implementation of new land laws.

atotal investment of US$186bn will be delivered until 2025. The prioritized projects in this MP3EI include Trans Java (eight projects; 614km) and Sumatera (four projects; 315km) toll road networks.

Integrated RMC producers are key players in the marketThe RMC market is currently dominated by four players 1) Indocement: Pionir Beton; 2) Siam Cement: Jaya Mix; 3) Adhi Mix; and 4) Holcim Indonesia: Holcim Beton which together have a c.70% market share. The integrated RMC producers have been growing their market share significantly as cement companies 1) need to secure their bulk cement sales, and 2) have much stronger balance sheets and a better competitive edge, thanks to raw material supply, RMC quality and delivery times. We rate Pionir Beton, which is

the key beneficiary of growing RMC demand given its economies of scale, large aggregate reserves and close proximity to substantial construction projects.



Rating

BuyAsiaIndonesia

Automobiles & Components

Company

MPM AlertDate28 October 2014

Results

Weak 3Q due to margin pressure

Reuters Bloomberg Exchange TickerMPMX.JK MPMX IJ JKT MPMX

________________________________________________________________________________________________________________



52-week range (IDR) 1,335 - 985


Nicholas Nugroho


Rachman Koeswanto


Stock data




Major shareholders

Free float (%) 35


0.141


Key data

FYE 12/31 2013A 2014E 2015E

Sales (IDRbn) 13,879 16,199 19,636

Net Profit (IDRbn)

526.5 610.7 694.4

DB EPS (IDR) 117.97 136.84 155.59

PER (x) 10.5 8.1 7.1

Yield (net) (%) 0.0 0.0 0.0


* Weak 3Q14 results, with net profit for the quarter down 29% yoy (-13% qoq). As of 9M14, net profit accounts for mere 65% of FY14F. See table below.* Top-line is in-line (3Q14 +18% yoy; 9M14 +16% yoy and represents 74% of FY14F). All business units recorded revenue which are largely in-line with our forecast. Much of the disappointment was due to margin pressure; 9M14 operating margin of 6.0% (vs. FY14F 6.6%) which relates to the car rental and finco businesses. Distribution and lubricant margin is doing well.* Car-rental (auto services) business unit is facing intense competition which leads to lower gross margin than expected, and as lower resale value of second hand cars means less gain on its old fleet vehicle sales. Overall, the business recorded 9M14 gross margin of 29% (3Q14: 25%), less than DB FY14F of 34%. For the finco business, main pressure has been in opex, which we suspect may have been related to rising NPLs. 9M14 op.margin was 12.5% (vs. DB FY14F 17%).Op.margin on the distribution/lubricant business is ahead.* To date MPM has opened three Nissan dealers and recorded 982 unit sales largely in-line with expectation albeit still minor earnings contribution. * Overall we see c.15% downside to FY14F earnings. Assuming this, then the stock would trade at 9x and 8x FY14F-15F P/E, respectively. Maintain Buy.


1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 yoy % qoq % 9M14 yoy % % FY14FNet revenues 3,233 3,548 3,530 3,568 3,642 4,206 4,164 18% -1% 12,012 16% 74%

Distribution (two/four-wheelers) 2,433 2,656 2,741 2,684 2,676 3,229 3,171 16% -2% 9,076 16% 74%Consumer parts 382 373 359 311 411 397 391 9% -2% 1,198 8% 75%Auto services 188 274 186 277 267 290 304 63% 5% 861 33% 74%Financial services 231 244 243 296 288 290 298 23% 3% 876 22% 73%Gross profit 480 536 498 511 551 592 586 18% -1% 1,730 14% 73%

Gross margin 14.8% 15.1% 14.1% 14.3% 15.1% 14.1% 14.1% 14.4%

Opex (276) (297) (258) (341) (312) (362) (378) 46% 4% (1,051) 27% 77%Opex % of sales -8.5% -8.4% -7.3% -9.5% -8.6% -8.6% -9.1% -8.8%Other income/(expenses) - net 14 7 13 15 4 15 18 38 84%Operating profit 217 246 253 185 244 246 226 -11% -8% 716 0% 67%

Operating margin 6.7% 6.9% 7.2% 5.2% 6.7% 5.8% 5.4% 6.0%Finance income/(costs) - net (37) (37) (29) (37) (35) (41) (53) 84% 28% (129) 64%Pre-tax profit 182 209 224 151 212 204 175 -22% -14% 591 -4% 69%

Pre-tax margin 5.6% 5.9% 6.4% 4.2% 5.8% 4.9% 4.2% 4.9%Net profit to parent 115 133 162 116 152 132 115 -29% -13% 399 -3% 65%




Rating

HoldAsiaIndonesia

ConsumerFood & Beverage

Company

Nippon Indosari Alert

Date28 October 2014

Results

Another strong profit growth in 3Q; recent price hike to boost margin

Reuters Bloomberg Exchange TickerROTI.JK ROTI IJ JKT ROTI

________________________________________________________________________________________________________________



52-week range (IDR) 1,460 - 930


Adi Putra


Reggy Susanto, CFA


Stock data




Major shareholders Indoritel Makmur Internasional

(31.5%)Free float (%) 29.2


0.425


Key data

FYE 12/31 2013A 2014E 2015E

Sales (IDRbn) 1,506 1,901 2,292

Net Profit (IDRbn)

158.0 200.9 252.7

DB EPS (IDR) 31 40 50

PER (x) 43.6 30.2 24.0

Yield (net) (%) 0.5 0.7 0.8


Strong 3Q net profit growth +107% yoy; in-line with DBeROTI reported strong 3Q14 net profit growth as expected, at +107% yoy to Rp31bn, while sales reached Rp446bn (+27% yoy, -1% qoq). The strong net profit growth came from a very low base last year, when ROTI faced -38% yoy net profit growth in 3Q13. Overall, this brought 9M14 sales to Rp1.36tr (+29% yoy) and net profit of Rp132bn (+45% yoy) - largely in-line as it accounted for 62% of consensus and 66% of DB FY14F sales. (please refer to table below)

Recent price hike of 12.3% to boost margin in 4Q14ROTI raised its ASP by c. 12.3% in early October, despite wheat flour suppliers such as Bogasari cutting down ASP following the weak global wheat price. This should give boost to its 4Q14 margin. At the same time, Yamazaki Baking plans to launch its first product by the end of this year, partnering with Alfamart Group, hence providing competition risk.

Increasingly more dependent on Indomaret and Alfamarttotal sales, up from

just 56% a year ago, as both chains have been expanding aggressively. This is

previously aiming for 50:50 contributions of MT and GT by 2015. We continue to see ROTI as the prime beneficiary of minimarket growth in Indonesia.

Figure 1: ROTI quarterly results

in Rp bn 3Q13 4Q13 1Q14 2Q14 3Q14 9M14 Cons.% of cons.

DBe % of DBe

Sales 350 449 465 450 446 1,361 1,912 71% 1,901 72%Gross profit 158 214 220 203 209 632 898 70% 876 72%EBIT 22 84 75 44 54 173 302 57% 262 66%Net profit 15 67 61 39 31 132 212 62% 201 66%Sales YoY 23% 34% 30% 29% 27% 29% 27% 26%GP YoY 19% 34% 27% 32% 32% 30% 29% 25%EBIT YoY -27% 29% 1% 50% 150% 38% 44% 25%Net profit YoY -38% 28% 9% 98% 107% 45% 34% 27%Sales QoQ 0% 28% 4% -3% -1%GP QoQ 3% 35% 3% -8% 3%EBIT QoQ -27% 290% -11% -41% 22%Net profit QoQ -23% 344% -9% -36% -20%Gross margin 45.2% 47.6% 47.4% 45.1% 46.8% 46.4% 47.0% 46.1%EBIT margin 6.2% 18.8% 16.1% 9.9% 12.1% 12.7% 15.8% 13.8%Net margin 4.3% 15.0% 13.2% 8.7% 7.0% 9.7% 11.1% 10.6%

Source: Deutsche Bank, Bloomberg Finance LP



Rating

BuyAsiaIndonesia

Telecommunications

Company

Telkom AlertDate28 October 2014

Results

Tsel : Strong 3Q14 operational results

Reuters Bloomberg Exchange TickerTLKM.JK TLKM IJ JKT TLKM

ADR Ticker ISINTLK US7156841063

________________________________________________________________________________________________________________



52-week range (IDR) 2,945 - 2,000




Peter Milliken


Nicholas Nugroho


Stock data




Major shareholders Gov Indonesia (51.19%)

Free float (%) 49


20.779


Key data

FYE 12/31 2013A 2014E 2015E

Sales (IDRbn) 82,967 89,015 93,818

Net Profit (IDRbn)

14,205.0 15,048.6 15,887.7

DB EPS (IDR) 148 154 164

PER (x) 14.4 18.2 17.1

Yield (net) (%) 4.0 3.7 4.2


Strong qoq NP surge in 3Q14Telkomsel (Tsel) released its 3Q14 results, which broadly tracks our projections. 3Q14 NP of Rp5.0tr (+13% qoq), translates into 9M14 NP of Rp13.8tr (+5% yoy) implying 74% of DB FY14e. We attribute this strong NP trend to robust operational results. Indeed, 3Q14 revenue rose to Rp17.1tr (+6.4% qoq), resulting into 9M14 rev of Rp48.4tr (+10.0% yoy). 3Q14 EBITDA of Rp9.4tr (+5.5% qoq), results into 9M14 EBITDA of Rp26.8tr (+6.3% yoy). Margin is at 55.4% in 3Q14 (-20bps qoq), which translates into a 9M14 margin of 55.4% (-190bps yoy). This is expected given rising revenue contribution from data, which accounts for about 62% of the total revenue growth yoy. Tsel has managed its pricing well which is imperative to mitigate the shift in the usage from pay-per-use to data-package-use as users with data-enabled handsets rising to 36.4m users (+76% yoy; +13% qoq)Based on this result, we think Tsel may continue to extend its revenue market shares amongst major telcos. The company continued to benefit from strong pricing powers across its traditional services such as voice and SMS.Post results, Telkom remains our preferred telecom stock in Indonesia.

Figure 1: Tsel 3Q14 results summary

Tsel P&L (Rpbn) 3Q13 4Q13 1Q14 2Q14 3Q14 QoQ 9M13 YTD YoY FY14F vs Dbe

Total op income 14,734 15,196 14,480 15,249 16,357 7.3 41,622 46,086 10.7 61,914 74.4 Voice rev 7,584 7,774 7,710 8,024 8,460 5.4 22,493 24,194 7.6 32,160 75.2 SMS rev 3,136 3,127 3,070 3,125 3,449 10.4 9,309 9,644 3.6 13,125 73.5 Broadband (incl data/VAS) 3,100 3,255 3,365 3,682 4,071 10.6 8,400 11,118 32.4 14,000 79.4 Total Service revenue 13,820 14,155 14,145 14,831 15,980 7.7 40,202 44,956 11.8 59,285 75.8 Gross Rev 15,523 16,037 15,289 16,042 17,073 6.4 43,994 48,404 10.0 65,267 74.2

Op. profit 6,567 5,640 5,606 5,993 6,725 12.2 17,912 18,324 2.3 25,190 72.7 Margin 42.3% 35.2% 36.7% 37.4% 39.4% 5.4 40.7% 37.9% 38.6%EBITDA 9,141 8,657 8,465 8,927 9,416 5.5 25,213 26,808 6.3 36,462 73.5 Margin 58.9% 54.0% 55.4% 55.6% 55.2% 57.3% 55.4% 55.9% 99.1 PBT 6,051 5,635 5,795 5,886 6,633 12.7 17,457 18,314 4.9 24,963 73.4

NP 4,534 4,239 4,387 4,424 4,983 12.6 13,110 13,794 5.2 18,722 73.7

3Q13 4Q13 1Q14 2Q14 3Q14 QoQTotal subs ('m) 127.9 131.5 132.7 137.4 139.4 1.4Data users ('m) 55.3 63.0 63.0 63.3 63.5 0.4Data users with 3G devices ('m 20.0 23.7 28.2 31.2 35.4 13.3% of users with 3G devices 15.7 18.0 21.2 22.7 25.4 11.7ARPU RpK 39.0 37.0 37.0 37.0 39.0 5.4Total MOUs (bn) 48.0 48.1 46.7 49.3 49.5 0.4RPM (Rp) 158.0 176.2 165.1 162.8 170.9 5.0Total SMS (bn) 64.0 68.7 68.3 64.7 62.1 (4.0)RPS (Rp) 49.0 45.5 44.9 48.3 55.5 15.0Data traffic (PB) 25.5 33.3 42.7 50.9 62.3 22.5Data price (Rp/MB) 121.6 97.7 78.8 72.4 65.3 (9.7)

Source: Deutsche Bank and company data



Rating

BuyAsiaThailand

TransportationAir

Company

Airports of Thailand Alert

Date28 October 2014

Company Update

Taking the middle path

Reuters Bloomberg Exchange TickerAOT.BK AOT TB SET AOT

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (THB) 242.00

Price target - 12mth (THB) 250.00

52-week range (THB) 245.00 - 142.50

SET 1,548

Pope Guruvanich


Stock data

Market cap (THBm) 345,714



Major shareholders Ministry of Finance (70%)

Free float (%) 30


19.3


Key data

FYE 9/30 2013A 2014E 2015E

Sales (THBm) 36,810 36,879 42,805

Net Profit (THBm)

16,347.3 11,397.3 14,472.3

DB EPS (THB) 6.95 7.97 10.12

PER (x) 18.8 30.4 23.9

Yield (net) (%) 3.5 0.8 1.0


AOT board meeting resolved to finalize its airport investment plan to be submitted to the Ministry of Transportation for approval. KKey details:

Figure 1: AOT approved investment plan to be submitted for Cabinet approval

No. Project Value Note1 Multi-terminal (Terminal 2) 28,362 Domestic and International passengers2 3rd runway 18,299 2900m length, includes noise pollution compensation

3 BKK phase II 18,954 Excluding midfield satellite bldng, including 28 gates,

south extension tunnel, and related infrastructure

Total 65,615

Source: Deutsche Bank, Company data

Our takeThe missing midfield satellite building; The only difference between this

plan andwould cost Bt48bn to build. The midfield satellite building is being scrapped while the aircraft aprons, previously planned to be adjacent to the midfield satellite building, are to be replaced by 28 remote parking bays (i.e. passengers will have to take shuttle from the gate to board the aircraft).

A bigger passenger terminal capacity. The original plan included a 216,000 sqm midfield satellite building and a 14,580 sqm passenger terminal, which, combined, would hold 15 million passengers. This is being replaced by a 214,000 sqm multi-purpose terminal, designed to hold 20 million passengers.

Target price upside; Every Bt10bn Capex saved would result in Bt9/shr upside to our DCF-based target price, all else equal.

Figure 2: Comparing apples to apples the investment plan

Or igina l New proposa l Savings

Suva rnabhumi Phase I I

- Midfield satellite building 47,957 - 47,957

- Px terminal 8,717 28,362 19,645-

- Other infrastructure (i.e. public utilities) 3,170 18,954 15,784-

- Interest cost 1,761 1,761

- Project consultants fee 953 953

- 3rd runway - 18,299 18,299-

62,558 65,615 3,057-

New runway (not pa r t of BKK phase I I )

- The 3rd runway 16,789 - 16,789

Tota l (phase I I + new runway ) 79,347 65,615 13,732

Source: Deutsche Bank, Company data



Rating

BuyAsiaThailand

ConsumerRetail / Wholesale Trade

Company

HomePro AlertDate28 October 2014

Results

3Q14 profit slightly below expectation on sales & interest exp.

Reuters Bloomberg Exchange TickerHMPRO.BK HMPRO TB SET HMPRO

________________________________________________________________________________________________________________

Price at 27 Oct 2014 (THB) 9.15

Price target - 12mth (THB) 11.00

52-week range (THB) 10.20 - 6.40

SET 1,540

Chalinee Congmuang


Stock data

Market cap (THBm) 100,279



Major shareholders

Free float (%) 36


6.140


Key data

FYE 12/31 2013A 2014E 2015E

Sales (THBm) 42,830 52,304 65,719

Net Profit (THBm)

3,068.5 3,223.4 3,808.6

DB EPS (THB) 0.28 0.29 0.35

PER (x) 31.0 31.1 26.3

Yield (net) (%) 0.6 0.6 0.8


HMPRO announced 3Q14 net profit of Bt766m (-3% QoQ, +6% YoY). Profit before FX loss (from Malaysia operation) was 3% and 6% below Street and our expectations respectively. Lower-than-expected sales from Mega Home and higher-than-expected interest expense are the main reasons for results below our expectation and the QoQ earnings drop (even though 3Q would normally

were Bt11,898m (-1% QoQ, +20% YoY). *3Q14 SSS growth was 4-5%, a decline from 2Q14 of 6%. At the end of 3Q14, HMPRO operates a total of 67 Homepro (+1 store in 3Q14) and four Mega Home stores.*GPM declined YoY to 26.2% in 3Q14 from growing sales contribution of Mega Home; however, GPM decreased QoQ due to seasonality.

s contributionsales came at 22.5%, down from 22.8% in 3Q13 and 23% in 2Q14. *Expect solid improvement in profit from 2015 onward when Mega Home reaches*Maintain Buy at Bt11 target price. HMPRO's 9M14 net profit of Bt2,276m accounts for 71% of our FY14 net profit forecast of Bt3,223m (vs. 68-70%range contribution for 9M earnings). We maintain our forecast and recommendation.

Figure 1: Consolidated quarterly results

(Bt m) 3Q13 2Q14 3Q14 QoQ (%) YoY (%) 9M14 Chg. (%)Sales income 9,954 12,024 11,898 -1.0 19.5 35,000 20.2Rental and services income 220 271 257 -5.3 16.6 840 19.7Gross Profit 2,916 3,444 3,376 -2.0 15.8 10,019 17.9S&A Expenses 2,322 2,836 2,735 -3.6 17.8 8,192 21.5Interest Expense 75 106 128 20.5 69.7 335 88.6Net Profit before Extra. Items 720 793 766 -3.4 6.5 2,285 6.7Net Profit 720 793 758 -4.4 5.4 2,277 6.3EPS (Bt) 0.06 0.06 0.06 -3.4 6.5 0.17 6.3EBITDA 1,403 1,656 1,667 0.7 18.8 4,848 19.8EBIT 982 1,102 1,102 0.0 12.2 3,217 11.6# of stores (Home product & Mega) 58 70 71 71SSSG (%) 5.0 6.0 5.0 4.9Sales Gross Margin (%) 27.1 26.4 26.2 26.2EBIT Margin (%) 9.7 9.0 9.1 9.0EBITDA Margin (%) 13.8 13.5 13.7 13.5S&A Expenses to Sales (%) 22.8 23.1 22.5 22.9Net Profit Margin (%) 7.1 6.4 6.2 6.4

Source: Company Data, Deutsche Bank



Rating

HoldAsiaIndia

Consumer

Company

Hindustan UnileverDate28 October 2014

Results

Keeps the date; street worries on excise duty hike unfounded

Reuters Bloomberg Exchange TickerHLL.BO HUVR IN BSE HLL


Year End Mar 31 2013A 2014A 2015E 2016E 2017E

Sales (INRm) 258,102.1 280,191.3 317,326.7 363,898.7 414,337.4

EBITDA (INRm) 40,037.5 44,752.6 51,183.6 59,101.0 67,286.0


Reported EPS FD (INR) 17.56 17.88 18.58 20.85 23.74

DB EPS FD (INR) 15.33 16.44 18.58 20.85 23.74

DB EPS growth (%) 31.1 7.2 13.0 12.2 13.9

PER (x) 31.5 35.4 38.6 34.4 30.2

EV/EBITDA (x) 25.2 27.0 29.1 25.1 21.8

DPS (net) (INR) 21.53 15.13 14.86 16.68 18.99

Yield (net) (%) 4.5 2.6 2.1 2.3 2.6


Market share gains in >3/4 of the portfolio

________________________________________________________________________________________________________________

Price at 27 Oct 2014 (INR) 717.00

Price target - 12mth (INR) 700.00

52-week range (INR) 765.00 - 538.85


26,850

Manoj Menon


Gaurav Bhatia



400

500

600

700

800

900

10/12 4/13 10/13 4/14

Hindustan Unilever



Absolute -4.2 9.0 20.7


0.8 2.8 29.8


5% volume growth in 2Q was strong given 1) winter stocking in the base quarter and 2) a volume decline for the industry. The market seems concerned about the increase in excise duty due to the phasing out of the tax exemption; we believe the company would have planned in advance (similar to royalty hike). During 2Q, despite higher excise duty and royalty (80 bps impact), EBITDA margin expanded by 51 bps YoY. In CY15, steep input cost correction is a strong tailwind, while low market growth is a key headwind. Results were in line sales/EBITDA/PAT grew 11%/14%/8%. Our positive view is intact, but the stock trading 36% above LT mean P/E limits TSR potential; reiterating Hold.

2QFY15 highlights captured in category tableWe present a category table capturing the salient features of category /segment / brand performance (page 3). Highlights: (1) underlying volume growth of 5% (vs. a volume decline for the overall market); (2) steep correction in input cost will flow into 2H; (3) rationality in competition continues; (4) faster growth of low-unit-packs in premium categories, indicating consumer willingness to premiumise but inability to spend more; (5) strong performance in the skin care portfolio led by FAL, Ponds and Lakme; Vaseline sales were impacted by winter stocking in the base quarter; (6) oral care (esp. Pepsodent) performance continues to remain weak; (7) a new cluster Central India has been carved out for a better focus on the hinterland (population of 500mn, with low per capita and penetration rates); and (8) the rural growth rate for HUL is faster than the urban growth rate due to the flow-through of benefits of distribution expansion.

Retaining Hold; all well except valuationsWe retain our Hold rating with a target price of INR700 (valued at 33x FY2016e). Our longer-term positive view on HUL stock remains intact, but we find that current valuations of 35x one-year rolling forward P/E limit TSR potential. Upside risk: higher volumes. Downside risk: consumer downtrading. See page 13 for more details.



AsiaIndiaTransportationInfrastructure

Industry

Indian InfrastructureDate28 October 2014

Industry Update

One more of the arbitrage profits taken away by Government of India

________________________________________________________________________________________________________________

Manish Saxena


Harshad Katkar


Chockalingam Narayanan


Amit Murarka


Focus stocks

Larsen & Toubro Ltd (LART.BO),INR1,576.00 Hold Price Target INR1,350.00ONGC (ONGC.BO),INR392.75 Buy Price Target INR490.00BPCL (BPCL.BO),INR703.95 Buy Price Target INR860.00HPCL (HPCL.BO),INR519.90 Buy Price Target INR650.00IOC (IOC.BO),INR356.50 Buy Price Target INR455.00Source: Deutsche Bank

Event: Price-Preference for Domestic oil and gas orders have been removedAfter the decision to divert volumes of Coal India from e-auction in to regulated sales, press reports (The Economic Times dated 28th Nopreference for local companies in oil PSU contracts ) suggest that Government of India has removed arbitrage profits for domestic E&C companies as well as service providers. To recap, domestic bidders have been entitled to a price preference of up to 10% over the lowest acceptable (evaluated) foreign bid subject to value addition. The eligibility for domestic price preference has been based on the following criteria: (a) company being registered within India, (b) majority ownership by nationals of India and (c) must not subcontract more than 50% of the works measured in terms of value to foreign contractors.

Impact: Who Wins?Within the Oil and Gas space, PSU companies and within E&C/industrial names it would be MNC subsidiaries. In our FITT report (India 2020 Oil & Gasdated 29 Sep 2014), we estimated domestic Oil & Gas capex for ONGC at USD37.5bn or INR2.25trn. A 5% reduction in this capex implies saving of INR112bn which improves ONGC's FY20 RoE by 10 bps. Similarly for IOC, BPCL and HPCL, the earnings models suggest FY20 RoE improvement of 10 bps on their capex of USD 15 / 5 / 4 bn respectively.

Within E&C names, global MNC players based out of India had felt they were priced out because they did not meet criteria of majority ownership by nationals of India. However now they would have a level playing field at the time of bidding.

Who loses?Corporate feedback from domestic E&C companies as well as service providers was that they would not be materially impacted. At our end, we estimate that this notification, if true, can hurt the profitability/long term value of this segment for domestic players such as L&T etc. For the current year, the company had guided for a USD 3 bn of hydrocarbon order with sizeable part from domestic side. Assuming ceteris paribus, a 2% lower domestic hydrocarbon margins (15.7% of total E&C sales) could imply a much INR 3.2bn of losses for FY17e (as per our earnings model). The saving grace in this segment could be that regionally companies have started showing signs of margin uptick-question. For L&T, a lot would depend on the competitive intensity of the contract at the time of bid.



Rating

BuyAsiaIndia

ConsumerFood & Beverage

Company

Nestle IndiaDate28 October 2014

Results

Turnaround on track; we stay positive

Reuters Bloomberg Exchange TickerNEST.BO NEST IN BSE NEST



Sales (INRm) 83,022.6 90,619.0 102,472.8 119,848.6 139,055.8


DB EPS FD (INR) 110.76 115.87 131.77 160.10 189.29

DB EPS growth (%) 13.2 4.6 13.7 21.5 18.2

PER (x) 41.0 43.4 45.3 37.3 31.5


"Sales dynamics is better" in 3QCY14

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (INR) 5,965.00

Price target - 12mth (INR) 6,600.00

52-week range (INR) 6,530.00 - 4,566.00


26,753

Manoj Menon


Gaurav Bhatia



44004800520056006000640068007200

10/12 4/13 10/13 4/14

Nestle India



Absolute -3.2 15.4 7.5


0.5 2.9 30.1


Management says "innovations, value-up portfolio management and redirection of marketing investments are starting to build further momentum". Over 3/4 of Nestle's portfolio has started performing well (except "Munch" chocolate, "Masala Maggi" and liquid milk). Recent launch/relaunch of Maggi Oats, Kitkat, Nescafe augurs well. We expect relaunches in milk products in CY2015, Nestle is poised to deliver a volume-led growth in CY15. A sharp fall in skimmed milk product prices in Sept will likely ease gross margin pressure. Buy; the stock may remain stable near-term post 15% returns in past three months (Sensex up 3%).

Good sales growth; gross margin decline higher than expectedNestle reported 10% domestic sales growth (volume growth of 2%, in our view). Sales/EBITDA/PBT/PAT were +9%/8%/9%/6% largely in line. However, gross margins declined 114 bps to 53.9% on lag effects of higher consumption cost (high price of milk solids) not being fully neutralized by price hikes. EBITDA margin declined 30 bps despite a higher gross margin decline lowinflation in SG&A which constitutes a good performance, considering the like -television campaign on corporate branding.

Nestle is a non-consensus preferred pickWe recently upgraded Nestle to a non-consensus Buy (just 12% Buy ratings per Bloomberg) premised on a confluence of five factors: (1) it now plans to pursue a path of premiumising its portfolio, (2) we anticipate a spate of new launches on the back of recent launches in milk products, the relaunched

whitener with an emphasis on brand repositioning as a tea creamer (moving the brand up in the value-chain), (3) the distribution project to improve salesman productivity and merchandising at point-of-purchase; it had c.150 new feet-on-street added in CY13, for merchandising (our view), (4) likely urban consumption recovery in CY2015, and (5) Nestle stock has underperformed -4%, -2% and -38% over the last one, two and three years versus the India Consumer sector.

Reiterating anti-consensus Buy; target price of INR6,600 (see page 6)We continue to value Nestle at 38x FY16 P/E (three-year average one-year forward P/E). Weaker-than-expected revenue growth is the key risk.



Rating

HoldJapan

AutomobilesAutos

Company

Hino Motors AlertDate28 October 2014

Company Update

Nikkei preview: forecasts in line with expectations, Indonesia remains key

Reuters Bloomberg Exchange Ticker7205.T 7205 JT TYO 7205

ADR Ticker ISINHINOY US4334062043

________________________________________________________________________________________________________________

Price at 27 Oct 2014 (¥) 1,501

Price target - 12mth (¥) 1,550

52-week range (¥) 1,657 - 1,216

Takeshi Kitaura


Kurt Sanger, CFA


Stock data

Market cap (¥bn) 859

Shares outstanding (m) 573

Foreign shareholding ratio (%) 13.8

TOPIX 1,254

Source: Deutsche Securities Inc.

Key data

FYE 3/31 2014A 2015E 2016E

Sales (¥bn) 1,699.6 1,672.2 1,759.0

OP (¥bn) 112.2 110.8 122.7

RP (¥bn) 109.1 109.0 121.2

NP (¥bn) 89.1 68.5 76.8

EPS (¥) 155 120 134

P/E (x) 9.4 12.5 11.2


OP forecast in line with expectations; full-year upward guidance revision likely but still below consensusThe 28 October morning edition of the Nikkei carried a Hino Motors 1H results preview. The OP forecast was near the bottom end of our projected range, but did not surprise as it was in line with our expectations. We were also already aware that demand is strong domestically but weak in developing markets. We continue to monitor developments in Indonesia since the new president took office, and maintain our Hold rating. We have not confirmed the accuracy of the article with Hino Motors.

Nikkei's 2Q OP forecast of ¥25bn at the bottom end of our projected range The Nikkei article's 2Q OP forecast is at the bottom end of our projected range (¥25-29bn), but exceeds the ¥23bn booked in 1Q, and this indicates that the 1H result will not be significantly less than expected. We think that 2Q will depend on how much cost cuts can offset the decline in earnings due to fewer unit sales YoY, including at the Toyota business. The domestic market remains strong. Although the heavy-duty truck market in Thailand is down YoY, monthly figures are showing a gradual recovery, and the outlook is not so bad. With the new president just taking office in Indonesia, near-term investments has stalled during the change over, below company sales estimates. We believe that trends in this market from here could affect the firm's share price going forward, so developments here need to be monitored.

A sizeable full-year upward guidance revision would likely still be below our forecast The firm will likely raise guidance for FY3/15 OP from a conservative ¥90bn to around ¥100bn due to the earnings run rate, but an upward revision at 1H results to the same level as our forecast of ¥110.8bn seems unlikely.



Rating

HoldJapan

Machinery

Company

Hitachi Const Machinery Alert

Date28 October 2014

Results

Favorable 2Q results; mining equipment business requires caution

Reuters Bloomberg Exchange Ticker6305.T 6305 JP TYO 6305

ADR Ticker ISINHTCMY US43358L1017

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (¥) 2,072


52-week range (¥) 2,268 - 1,811

Takeshi Kitaura


Stock data




TOPIX 1,254


Key data

FYE 3/31 2014A 2015E 2016E

Sales (¥bn) 803.0 840.1 888.6

OP (¥bn) 69.2 79.8 91.1

RP (¥bn) 53.7 72.8 84.0

NP (¥bn) 28.9 38.8 46.1

EPS (¥) 136 183 218

P/E (x) 15.7 11.3 9.5


2Q results outperform, but mining equipment and Chinese construction machinery businesses still require caution Hitachi Construction Machinery's 2Q profit levels beat expectations. YoY sales growth and forex acted positively, but this was largely offset by the impact of indirect costs and differences in mix. The firm left full-year guidance intact, but we still see a risk of the mining equipment business undershooting. Our rating is Hold in light of adverse factors in the mining equipment business.

2Q OP above guidance 2Q sales came in at ¥201.4bn, OP at ¥13.8bn, and EPS at ¥26. 1H OP beat the firm's guidance (¥10.4bn), largely due to regions other than China, but remained negative YoY. 2Q profit was boosted YoY by sales growth (+¥3.3bn) and forex (OP impact +¥2.4bn), but this was roughly offset by differences in mix and other factors (-¥6.8bn). Differences in mix can be explained roughly half each by decreased Chinese sales weight, and domestic decline for medium-sized machinery. The 2Q effective tax rate (51%) had a major impact in reducing deferred tax assets, leaving EPS on a par with 1Q.

Full-year guidance intact: cautious on forex, mining equipment business remains a risk The firm maintained its full-year guidance. The company's 2H forex assumptions remain unchanged at ¥100/$ and ¥134/EUR, so rates continuing at current levels should act for outperformance. However, the mining equipment business appears to continue to pose a risk. Mining equipment business guidance also remains unchanged, but machinery order progress vs 2H guidance is a highly reliable indicator, and the figure is only around 60%. We thus plan to keep an eye on progress going forward. Moreover, consolidated mining equipment orders have continued at low levels, and mining equipment business recovery should take around one year. At the 2Q results, the firm further lowered its assumption for full-year global hydraulic excavator demand by 1,000 units from its 1Q assumed figure, with domestic outperformance largely offset by China. We view the key factor for 2H earnings to be how much the forex impact will be able to compensate for adverse factors in the business environment.



Rating

HoldJapan

AutomobilesAutos

Company

Honda Motor AlertDate28 October 2014

Results

2Q initial impression: Result disappoints; FY EPS cut by 6%


ADR Ticker ISINHMC US4381283088

________________________________________________________________________________________________________________

Price at 28 Oct 2014 (¥) 3,306


52-week range (¥) 4,365 - 3,255

Kurt Sanger, CFA


Stock data

Market cap (¥bn) 5,958

Shares outstanding (m) 1,802


TOPIX 1,254


Key data

FYE 3/31 2014A 2015E 2016E

Sales (¥bn) 11,842.5 12,665.9 13,432.2

OP (¥bn) 750.3 800.3 860.6

RP (¥bn) 728.9 786.1 861.5

NP (¥bn) 574.1 606.2 658.1

EPS (¥) 319 336 365

P/E (x) 12.1 9.8 9.1


Initial impression areas of struggle overshadow areas of successWhile we had low expectations, the result and revision were incrementally worse with a OP miss (-13% vs DBe). Leaving its FY OP outlook unchanged (¥770bn) is understandable with forex upside (+¥56bn swing @ 2H ¥105/US$) offsetting volume/mix reduction (-¥52bn). However, the 6% cut to EPS should remind investors Honda has meaningful exposure to China. The company rightly adjusted its volume assumption (-100k each in Japan and China). This lowers the earnings risk, but the results give not confidence that margins are set for a bounce over the next 12-mths. On simple valuation, IFIS consensus PER has fallen in-line with Toyota (8.3x vs 8.4x), but on DBe a gap still remains (9.1x vs 8x). We continue to wait on a relative entry level.

2Q results OP decline YoY a negative surprise (¥164bn, -4%)

However, without any meaningful one-off expenses, (airbag recall is already provisioned), a YoY decline in OP was surprising. Weak regional mix was partly to blame (-¥15bn). Units grew in Indonesia and India, but were down in Japan and the US. Including negative US incentives (-¥14bn), total volume/mix was down -¥29.6bn YoY. N.America remains at issue. A combination of lower units (-3%), weaker shipment mix (ex-Mexico/Fit production was -5.5%) and pricing weighted on margins. Even if we smooth out the seasonality (2Q OPM only 2.7%), 1H OPM of 3.7% implies an auto-only margin below 1%. A new Civic some time in 2HFY3/16 will not resolve this overnight. Motorbikes margins pulled back to 8.7% in 2Q. The company warned 1Q had overachieved so we saw the impact of a weaker Brazil in 2Q. The 1H 9.7% OPM is more indicative.Equity earnings were weak (¥22.7bn) but this was due to a write-down of some domestic holdings (-¥16bn). The impact from the China production correction comes in 3Q. 22Q P&L snapshot: Sales ¥3 tr(+4 % YoY), OP ¥164 (-4% YoY), OPM 5.5% (-40bps YoY) & EPS ¥79 (+18% YoY) versus DBe OP¥188bn/EPS ¥76 & Bloomberg con ¥185bn/¥81.5.

FY outlook Lower EPS on -¥20bn cut to core equity earnings outlookOur main question around FY was how much Honda would revise down its unit assumptions as Japan and China plans became unrealistic. The 210k unit cut (+6.9% from 11.7%YoY) is more in-line with us (DBe 6.6%). Combined with higher US incentives this explains the cut in FY OP variance contribution from volume/mix (¥126bn to ¥74bn; DBe ¥59bn).The 2H ¥105/US$ assumption versus spot offers some buffer (~¥ 15-20bn), but even incorporating that consensus EPS looks too aggressive. FFY Company outlook: Sales ¥12.75tr, OP¥770bn, & EPS ¥313 (-6% cut) versus DBe OP¥800/¥336 & BBC ¥825bn/¥356.



Rating

HoldJapan

Financials / Securities

Company

Matsui Securities Alert

Date28 October 2014

Results

2Q results: RP up 22% QoQ


ADR Ticker ISINMAUSY US5768752074

________________________________________________________________________________________________________________

Price at 27 Oct 2014 (¥) 934


52-week range (¥) 1,348 - 901

Hiroshi Torii, CMA


Masao Muraki, CMA


Stock data




TOPIX 1,254


Key data

FYE 3/31 2014A 2015E 2016E

Operating revenues (¥bn)

39.9 34.1 36.4

Recurring Profit(¥bn)

27.2 22.4 24.5

NP (¥bn) 16.3 13.9 15.2

EPS (¥) 63 54 59

P/E (x) 16.9 17.3 15.8


2Q RP of ¥5.7bn (our forecast ¥5.6bn) Matsui Securities announced 2Q (Jul-Sep) FY3/15 results at 08:20 JST on 28 October. Net operating revenue increased by 16% QoQ to ¥8.4bn, RP by 21% to ¥5.7bn, and NP by 21% to ¥3.5bn (our forecast was ¥3.5bn). The results did not surprise. The premium short-selling service's revenue (profit) increased from ¥230m in 1Q to ¥310m in 2Q, thus boosting profits by almost ¥100m.

Oct: Stocks somewhat slowJul-Sep stock trading value for retail investors (2 markets, daily average, double count combining buy/sell) rose 19% QoQ to ¥1.2trn. This breaks down as ¥1.2trn in July, ¥1.1trn in August, and ¥1.2trn in September. The aggregate for the first 3 weeks of Oct was ¥1.1trn, down 6% from 2Q, a slow start.Matsui Securities' daily average stock trading value (including MADTs) for 1-27 Oct is down 11% MoM (includes 11% fall for emerging markets).

ValuationsThe 1H FY3/15 payout ratio was 79% (1H DPS of ¥20). The payout ratio was 80% in FY3/13 and 79% in FY3/14 (82% in 1H). October got off to a slow start, but annual DPS would be around ¥45 (dividend yield 4.8%) if we assume 3Q annualized EPS and a payout ratio of 80%. The firm's dividend should continue to support the share price. On an annualized basis, Matsui Securities 2Q P/E (excluding extraordinary gains/losses) is 16x (EPS of ¥57).



Japan

Real Estate

Industry

Real estate sectorDate28 October 2014

Industry Update

Members opposing consumption taxhike dropped from panel

________________________________________________________________________________________________________________

Yoji Otani, CMA


Akiko Komine, CMA


All six members opposing consumption tax hike dropped from panelNikkei today reports that the government has disclosed a list of panel members who will participate in meetings that start in November on whether to raise the consumption tax. According to the article, six panel members who had expressed clear opposition to a consumption tax hike to 8% at the meetings held in August 2013 have been dropped from the new panel.

Government's resolve to raise the consumption tax We believe the government is determined to raise the consumption tax, given that it did not invite members of the previous panel who clearly highlighted therisks of raising the consumption tax. The previous panel members included Goushi Kataoka from Mitsubishi UFJ Research and Consulting, and Shuntaro Shishido, a professor emeritus at the University of Tsukuba.

The significance of 8 DecemberThe government reportedly may announce its decision to raise consumption tax to 10% during the release of the revised GDP figures for Jul-Sep on 8December. Should it decide to implement a hike, Japan's move toward deflation will likely accelerate, and 8 December will again be etched into history. Although the real estate sector has fallen considerably since the start of 2014, we recommend investors to wait and see as we believe the investment risk would remain high until the decision on the consumption tax hike has been made.



Japan

Retailing

Industry

Retail sector: Specialty/apparel

Date29 October 2014

Industry Update

Komeri's 1H FY3/15 results: Implications for the sector Komeri's 1H FY3/15 results:Implications for the sector

________________________________________________________________________________________________________________

Takahiro Kazahaya, CMA


Mariko Togashi


Yukiko Tanaka


We report on the results of Komeri (8218; ¥2,382, not rated), a major DIY retailer, to help investors gauge sector trends and consumer sentiment.

1H FY3/15: OP down 14% YoY to ¥10bn, short of ¥12.4bn guidance 1H FY3/15 operating revenues declined 1% YoY to ¥162.2bn, and OP fell 14% to ¥10bn. Operating revenues fell ¥7.8bn short of guidance, and gross profit ¥3bn short. OP undershot by ¥2.4bn despite the company reducing SG&A expenses by around ¥700m. Same-store sales declined 4.36% (customer traffic -3.85%, average sales per customer -0.53%). By store format, same-store sales fell 3.90% at Komeri Power (PW) and 3.50% at Komeri Hard & Green (H&G). The firm opened 8 new stores: two PW, one HC (Home Center), and five H&G stores. It closed one H&G store and converted one HC store to a PW store. The total number of stores at the end of 1H was 1,157: 31 PW, 145 HC, 966 H&G, and 15 Athena. (See page 2.)

FY3/15 outlook: Company lowers OP guidance from ¥20.3bn to ¥18.3bn Komeri lowered its FY3/15 guidance as follows: operating revenues from ¥340bn to ¥331bn (-1% YoY), and OP from ¥20.3bn to ¥18.3bn (-10%). It still plans to open 35 new stores (8 PW, 7 HC, and 20 H&G) and close three (1 HC and 2 H&G), and expects total sales floor space to increase 6.6% to 1,982,033m2. However, it lowered its new store sales forecast as it now expects opening delays due to extended negotiations. Komeri lowered its FY3/15 same-store sales growth forecast from -2.2% (2H: -4.4%) to -4.4% (2H: -4.4%) to factor in the 1H shortfall, but forecasts gross profit will improve 0.5ppt to 31.9% (2H: 1.0ppt improvement) reflecting the higher ratio of high-margin private brand sales and gross margin improvements since the deterioration in 4Q FY3/14. (See page 2.)

Sector implications Industry consolidation by the top companies is progressing in the DIY sector, especially for Komeri, Cainz, DCM HD, Shimachu, and Kohnan Shoji. However, in daily consumable goods (a core product category for home centers), competition for customers continues heating up across different business formats. This includes competition from drugstores, discount stores and supermarkets in retailing and from e-commerce businesses such as Amazon and Lohaco operated by Askul. Some stock market participants are focused on the impact of the consumption tax rate hike, but we believe individual company efforts to improve competitiveness are more important from an investment perspective. (See page 2.)

Valuation and risk Target prices for retailers we cover are based on the residual income model or sector-average P/E, with premiums or discounts applied as needed based on the individual company's growth stage, earnings risk, and acquisition value. Risks include changes in consumer sentiment and the employment/income environment, fluctuation in the growth rate of sales floor space due to changes in retailers' appetite to open new stores, manifestation of upside pressure on procurement costs, and deteriorating consumer spending due to the consumption tax hike.



29 October 2014



Appendix 1 Important Disclosures

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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 %

39 %

6 %22 % 22 %

10 %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

29 October 2014



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