ASIA PACIFIC EQUITY STRATEGY LONG TERM ASEAN LONG … · Titan Co Ltd TTAN IN India Add 342.2 370.0 4,986 37.1 10.19 6.5% 30.7% 28.7% 0.7% Maruti Suzuki MSIL IN India Add 2645.7 2919.0

August 11, 2014

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.

ASIA PACIFIC EQUITY STRATEGY LONG TERM ASEAN LONG TERM ASIA

Conviction| |

Navigating Asia – August 14: Running with a wounded bull We maintain a preference for the North Asian cyclical/value trade which we think has further to run. We are growing concerned that China might be closer to the end of its rally than the beginning and that additional stimulus will be needed to continue the uptrend. However, we are not prepared to fight policy makers, momentum and flows. It appears that North Asia has been a beneficiary of European concerns but an escalation in tensions will drive flows back to the US rather than towards Asia even if risks to Chinese growth have fallen. Across ASEAN, we are defensive, looking for both yield and quality. We prefer buying cheap in North Asia rather than relative cheap in SE Asia.

Figure 1: US growth will continue to support Asian equities

- 100

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0

50

100

30

40

50

60

70

92 95 98 01 04 07 10 13

MSCI Asia Pacific % yoy (RHS)

US Manufacturing PMI (LHS)

SOURCE: CIMB, MSCI, DATASTREAM

China saves the day China has multiple concerns but for now, they do not offset the attractions of targeted easing, a reversal of overly bearish growth expectations and positive portfolio flows. Just as the market always trades too far on the bearish side, we expect it will trade too far on the bullish side. It is not time to get off the wounded bull.

Value matters A benign external backdrop (rates and FX) has allowed country-specific factors to dominate in 1H (India, Indonesia, Philippines & Thailand). Stronger global growth and increasingly unattractive valuations will make this trade harder to play

through year-end. This drives a near-term preference for China and Korea over India (cut from overweight to neutral) and Taiwan.

Political risks rising ASEAN has run out of steam and it is hard to find value. Political risks are on the rise in the Philippines (cut from overweight to underweight), and are underpriced in Thailand. At best, these markets are dragged higher by a broad Asian rally, but more likely, they have absolute downside risk. Indonesia is in a consolidation phase (upgrade to overweight), with Malaysia likely to continue a steady grind higher.

CIMB Analyst(s)

—————————————————————————————————————————

Jason TODD, CFA T (852) 2532 1123 E [email protected]

Rohit SHARMA T (852) 25391313 E [email protected]

Arup RAHA T (65) 6210 8412 E [email protected]

Shane LEE (Australia) T (61) 2 9694 6054 E [email protected]

Bertram LAI (Hong Kong/China) T (852) 2532 1111 E [email protected]

Avadhoot SABNIS (India) T (91) 22 66025151 E [email protected]

Erwan TEGUH (Indonesia) T (62) 21 30061720 E [email protected]

Dohoon LEE (Korea) T (82) 2 6730 6121 E [email protected]

Terence WONG, CFA (Malaysia) T (60) 3 20849689 E [email protected]

Edser TRINIDAD (SB Equities Analyst) T (63) 2 836 3933

Kenneth NG, CFA (Singapore) T (65) 62108610

E [email protected]

Eric LIN (Taiwan) T (886) 2 8729 8380 E [email protected]

Kasem PRUNRATANAMALA, CFA (Thailand) T (66) 2 6579221 E [email protected]

Michael KOKALARI, CFA (Vietnam) T (84) 90 797 4408 E [email protected]

Sources: CIMB. COMPANY REPORTS

Asia Pacific│EQUITY STRATEGY

August 11, 2014

2

Table of Contents

Downgrade Philippines: Politics shows its ugly head… again! ...................................................... 6

Economics: Stabilising economy vs. downside risks .................................................................... 10

Country Outlook ........................................................................................................................ 16

Country outlook ............................................................................................................................. 17

Australia: lowering expectations ................................................................................................... 19

China/HK: Optimism (or less pessimism) meets earnings ............................................................ 20

India: taking a breather .................................................................................................................. 21

Indonesia: Jokowi is the man ......................................................................................................... 22

Korea: driven by expectations ....................................................................................................... 23

Malaysia: first rate hike in three years ........................................................................................... 24

Singapore: riding on China bulls ................................................................................................... 25

Taiwan: financial takes turn on Tech retreat .................................................................................. 26

Thailand: musical chairs to end soon ............................................................................................. 28

Vietnam: it’s 2013 all over again ................................................................................................... 29

Appendix ........................................................................................................................................ 30

Full list of contributors

Jason Todd, CFA Rohit SHARMA Arup RAHA Shane LEE T (852) 2532 1123 T (852) 2539 1313 T (65) 6210 8412 T (61) 2 9694 6054

E [email protected] E [email protected] E [email protected] E [email protected]

Dohoon LEE Avadhoot SABNIS Terence WONG, CFA Kenneth NG, CFA T (82) 2 6730 6121 T (91) 22 66025151 T (60) 3 20849689 T (65) 62108610


Kasem PRUNRATANAMALA, CFA Erwan TEGUH Eric LIN Bertram LAI T (66) 2 6579221 T (62) 21 30061720 T (886) 2 8729 8380 T (852) 2532 1111


Michael KOKALARI, CFA Andrew TANG Peter P. SUTEDJA, CFA Dipojjal SAHA T (84) 90 797 4408 T (61) 2 9694 6076 T (62) 21 30061726 T (91) 22 66025164


Nigel FOO Chek Keng TJ OK Julia GOH Janice TAI T (60) 3 20849293 T (82) 2 67306134 T (60) 3 20849698 T (852) 2532 1127


Fan ZHANG Edser TRINIDAD

T (86) 21 5047 1771 x110 SB Equities Analyst

E [email protected] T (63) 2 836 3933


August 11, 2014

3

Figure 2: Country index targets and allocations

COUNTRY 2014 INDEX TARGET STRATEGIC (12mth)

Australia

52w Low 52w High

5,542 5,600

5008 5644

Australia

China

52w Low 52w High

65.43 78.00

56 67

China

India

52w Low 52w High

7,603 8,150

5119 7841

India

Indonesia

52w Low 52w High

5,087 5,400

3838 5165

Indonesia

Korea

52w Low 52w High

2,070 2,100

1839 2093

Korea

Malaysia

52w Low 52w High

1,872 2,030

1660 1896

Malaysia

Philippines

52w Low 52w High

6,932 7,572

5562 7017

Philippines

Singapore

52w Low 52w High

3,325 3,474

2953 3388

Singapore

Taiwan

52w Low 52w High

9,297 9,500

7737 9593

Taiwan

Thailand

52w Low 52w High

1,500 1,390

1205 1548

Thailand

Vietnam

52w Low 52w High

595 630

462 610

Vietnam

5,3

19

5,6

00

5000

Australia

Last close Target Note: Market index data as of 1 August, 2014. SOURCE: CIMB RESEARCH, BLOOMBERG


August 11, 2014

4

Figure 3: Strategy top picks in each country

Company Ticker Country Recom. Price Target Price Mkt Cap P/E (x) P/BV (x) 3-year EPS Div Yield

(local curr) (local curr) (US$ m) CY2013 CY2014 CAGR (%) CY2014 CY2015 CY2014

Consumer Discretionary

Harvey Norman Holdings HVN AU Australia Add 3.1 3.6 3,080 15.5 1.32 15.4% 8.9% 9.4% 3.5%

JB Hi-Fi JBH AU Australia Add 19.8 22.9 1,822 14.7 6.49 13.8% 46.7% 40.8% 4.2%

Myer MYR AU Australia Add 2.3 2.4 1,272 12.5 1.57 -1.0% 12.3% 12.4% 7.0%

Techtronic Industries Co 669 HK Hong Kong Add 23.2 28.9 5,481 15.9 2.74 27.2% 18.5% 20.0% 1.4%

Titan Co Ltd TTAN IN India Add 342.2 370.0 4,986 37.1 10.19 6.5% 30.7% 28.7% 0.7%

Maruti Suzuki MSIL IN India Add 2645.7 2919.0 13,116 21.7 3.40 23.3% 16.8% 19.0% 0.5%

Hero Motocorp HMCL IN India Add 2600.9 2820.0 8,523 17.5 7.53 15.8% 47.6% 48.5% 2.3%

Surya Citra Media SCMA IJ Indonesia Add 3980.0 4200.0 4,948 32.8 16.10 15.3% 55.8% 56.6% 1.5%

Genting Malaysia GENM MK Malaysia Add 4.4 5.7 7,723 14.8 1.54 13.0% 10.7% 12.7% 2.2%

LG Electronics 066570 KS South Korea Add 76600 93000 12,129 13.0 1.01 166.3% 8.0% 11.0% 0.5%

Hyundai Mobis 012330 KS South Korea Add 302000 370000 28,444 8.9 1.24 7.9% 14.9% 14.3% 0.6%

Jollibee Foods Corp JFC PM Philippines Add 182.7 196.0 4,427 34.1 7.97 17.7% 24.3% 26.0% 1.9%

VGI Global Media PCL VGI TB Thailand Reduce 13.0 11.0 1,387 36.7 21.64 15.5% 60.9% 63.9% 2.5%

Poya Co Ltd 5904 TT Taiwan Add 172.5 230.0 539 23.1 7.12 24.0% 32.8% 35.8% 2.8%

Consumer Staples

China Mengniu Dairy 2319 HK China Add 38.0 42.4 9,602 28.1 3.47 23.8% 13.2% 14.8% 0.8%

Malindo Feedmill MAIN IJ Indonesia Add 3000.0 3300.0 457 17.2 3.54 8.4% 25.7% 30.4% 0.9%

Nippon Indosari Corpindo ROTI IJ Indonesia Add 1270.0 1600.0 547 31.2 6.58 12.7% 23.1% 24.9% 0.2%

Gudang Garam GGRM IJ Indonesia Add 54400 67000 8,900 19.5 3.22 5.0% 17.2% 17.4% 2.0%

Thai Beverage THBEV SP Singapore Add 0.6 0.7 12,492 17.9 3.89 73.6% 23.1% 22.1% 2.6%

Grape King Inc. 1707 TT Taiwan Add 143.0 175.0 621 19.3 5.42 21.8% 31.1% 29.2% 3.5%

Energy

Sinopec Corp 386 HK China Add 7.6 8.4 103,015 9.6 1.15 6.6% 12.6% 12.4% 4.2%

Petronet LNG PLNG IN India Add 180.2 200.0 2,218 18.1 2.54 -5.8% 15.0% 19.7% 1.6%

SapuraKencana Petroleum SAKP MK Malaysia Add 4.3 7.0 8,010 16.0 4.14 43.1% 19.2% 21.8% 0.6%

UMW Oil & Gas UMWOG MK Malaysia Add 4.0 5.2 2,721 27.2 7.32 66.2% 15.7% 40.1% 0.5%

Mermaid Maritime MMT SP Singapore Add 0.4 0.6 476 8.4 0.81 104.7% 9.9% 9.2% 0.0%

PetroVietnam Drilling PVD VN Vietnam Add 98000 101630 1,272 12.6 2.44 13.4% 20.4% 22.0% 4.0%

Financials

ICBC 1398 HK China Add 5.3 7.4 213,797 5.2 1.01 9.8% 21.2% 20.0% 6.8%

China Construction Bank 939 HK China Add 5.9 9.0 190,741 4.9 0.96 12.5% 21.3% 20.6% 7.1%

AIA Group 1299 HK Hong Kong Add 42.1 43.9 65,353 19.0 2.19 10.9% 12.6% 13.0% 1.1%

ICICI Bank ICICIBC IN India Add 1491.4 1793.0 28,303 16.0 2.17 10.4% 14.3% 14.5% 1.6%

Bank Mandiri BMRI IJ Indonesia Add 10275 11750 20,385 12.5 2.27 6.8% 19.8% 19.1% 1.5%

Bank Rakyat Indonesia BBRI IJ Indonesia Add 10975 12450 23,020 12.4 2.82 3.7% 25.0% 23.9% 2.4%

Metropolitan Land MTLA IJ Indonesia Add 403.0 550.0 260 12.3 1.58 7.9% 13.3% 15.2% 1.6%

Eco World Development Group Bhd ECW MK Malaysia Add 5.1 8.2 403 124.6 3.95 1.1% 3.2% 3.7% 0.2%

Mah Sing Group MSGB MK Malaysia Add 2.4 3.0 1,088 9.8 1.56 17.0% 16.7% 17.6% 3.8%

Malayan Banking Bhd MAY MK Malaysia Add 10.0 12.5 28,457 12.9 1.71 4.6% 13.8% 13.7% 5.4%

Shinhan Financial Group 055550 KS South Korea Add 50600 60000 23,216 11.1 0.85 6.6% 7.8% 8.3% 1.7%

KB Financial Group 105560 KS South Korea Add 40000 50000 14,952 9.4 0.57 6.5% 6.1% 6.8% 2.0%

Ayala Land Inc. ALI PM Philippines Add 32.0 39.2 10,366 29.2 4.18 21.1% 15.0% 15.6% 1.3%

8990 Holdings Inc. HOUSE PM Philippines Add 7.8 11.2 978 10.7 2.72 40.8% 32.7% 33.6% 0.0%

OCBC OCBC SP Singapore Add 9.9 11.0 27,632 10.3 1.26 6.5% 12.7% 12.4% 4.3%

Frasers Centrepoint Trust FCT SP Singapore Add 1.9 2.2 1,396 16.9 1.07 5.9% 6.3% 6.9% 5.8%

Global Logistic Properties GLP SP Singapore Add 2.8 3.3 10,868 34.1 1.19 3.2% 3.6% 3.7% 2.0%

UOL Group UOL SP Singapore Add 6.5 8.4 4,130 13.5 0.71 4.0% 5.3% 5.8% 2.2%

Tisco Financial Group TISCO TB Thailand Add 41.3 51.0 1,027 8.0 1.29 3.8% 17.0% 17.5% 4.8%

Krung Thai Bank KTB TB Thailand Add 22.3 28.0 9,691 9.1 1.38 11.4% 15.7% 16.7% 4.4%

Pruksa Real Estate PS TB Thailand Add 33.8 43.5 2,334 12.2 2.57 23.1% 22.4% 23.2% 2.3%

Supalai PCL SPALI TB Thailand Add 24.3 31.9 1,297 9.4 2.39 24.8% 26.8% 27.5% 4.3%

CTBC Financial 2891 TT Taiwan Add 20.9 25.5 10,222 7.5 1.32 13.9% 19.2% 15.6% 3.5%

Chailease Holding 5871 TT Taiwan Add 78.3 87.2 2,858 11.7 2.34 13.1% 21.6% 21.0% 3.1%

Fubon Financial 2881 TT Taiwan Add 46.4 52.0 15,823 11.6 1.37 10.9% 12.4% 12.3% 3.0%

Military Bank MBB VN Vietnam Add 13500.0 18200.0 716 7.2 0.93 2.0% 13.4% 15.7% 8.9%

Health Care

QT Vascular QTVC SP Singapore Add 0.5 0.7 279 na 16.92 na -583.2% 7.8% 0.0%

Mega Lifesciences PCL MEGA TB Thailand Add 20.7 25.0 557 25.7 4.25 16.4% 17.6% 20.1% 1.0%

Bangkok Dusit Med Service BGH TB Thailand Add 17.6 19.5 8,478 35.3 6.02 12.9% 18.0% 19.2% 1.1%

ROE (%)

SOURCES: CIMB, MSCI, DATASTREAM, BLOOMBERG


August 11, 2014

5

Strategy top picks in each country (cont’d)

Company Ticker Country Recom. Price Target Price Mkt Cap P/E (x) P/BV (x) 3-year EPS Div Yield

(local curr) (local curr) (US$ m) CY2013 CY2014 CAGR (%) CY2014 CY2015 CY2014

Industrials

Brambles BXB AU Australia Add 9.1 10.3 13,295 20.8 4.15 9.1% 20.9% 23.2% 3.4%

China Everbright 257 HK Hong Kong Add 10.7 12.4 6,179 26.5 3.25 19.1% 12.9% 14.4% 1.0%

China Railway Construction 1186 HK Hong Kong Add 7.7 9.3 10,636 6.7 0.83 14.6% 13.2% 13.1% 2.3%

Ashok Leyland AL IN India Add 35.1 43.1 1,639 164.2 2.54 26.2% 1.7% 13.7% 0.4%

Waskita Karya WSKT IJ Indonesia Add 800.0 1000.0 658 17.9 2.55 19.5% 15.8% 17.2% 1.4%

Pembangunan Perumahan PTPP IJ Indonesia Add 2285.0 2750.0 941 20.0 4.59 23.4% 24.5% 26.7% 1.2%

Gamuda GAM MK Malaysia Add 4.8 5.6 3,447 14.2 1.93 8.1% 13.6% 14.9% 2.4%

IJM Corp Bhd IJM MK Malaysia Add 6.7 8.0 3,047 15.8 1.44 12.5% 9.4% 10.8% 2.7%

Hyundai Mipo Dockyard 010620 KS South Korea Add 128500 193000 2,487 na 0.97 -16.5% -13.3% 1.9% 0.0%

Singapore Post Ltd SPOST SP Singapore Add 1.8 1.9 2,964 23.4 5.10 2.5% 22.2% 24.1% 3.6%

ST Engineering STE SP Singapore Add 3.8 4.4 9,485 18.6 5.10 4.9% 28.2% 28.2% 4.9%

Information Technology

Hancom 030520 KS South Korea Add 26100.0 32000.0 583 18.5 3.59 60.9% 20.9% 24.1% 1.1%

LG Innotek 011070 KS South Korea Add 132000.0 168000.0 3,023 18.5 1.65 na 10.7% 12.0% 0.0%

Novatek Microelectronics Corp 3034 TT Taiwan Add 154.0 168.0 3,123 14.7 3.49 16.5% 24.8% 25.7% 3.9%

Largan Precision 3008 TT Taiwan Add 2400.0 2860.0 10,728 18.2 7.27 56.3% 47.3% 41.5% 1.2%

Hon Hai Precision 2317 TT Taiwan Add 105.5 118.0 46,154 11.2 1.60 9.1% 15.4% 15.3% 1.7%

TSMC 2330 TT Taiwan Add 123.5 152.0 106,707 12.8 3.14 17.4% 26.8% 24.4% 2.4%

Compal Electronics 2324 TT Taiwan Add 29.4 34.0 4,325 21.0 1.34 23.8% 6.4% 12.4% 3.4%

FPT Corp FPT VN Vietnam Add 50000.0 85000.0 810 7.4 1.66 12.5% 24.1% 24.5% 4.0%

Materials

OZ Minerals OZL AU Australia Add 4.6 5.5 1,290 22.3 0.59 -19.1% 2.6% 3.3% 0.0%

Alumina AWC AU Australia Add 1.5 1.9 3,977 33.7 1.39 na 4.2% 6.6% 2.8%

Amcor AMC AU Australia Hold 10.3 10.4 11,532 15.9 6.35 13.3% 32.5% 39.7% 3.9%

CNBM 3323 HK Hong Kong Add 7.8 10.0 5,455 4.8 0.81 12.3% 18.1% 17.1% 3.1%

Hindalco Industries HNDL IN Indonesia Add 190.9 195.8 6,468 15.5 0.97 -0.4% 6.4% 8.4% 0.5%

Indocement INTP IJ Indonesia Add 24350 27500 7,622 17.0 3.60 0.8% 21.5% 23.0% 3.7%

OCI 010060 KS South Korea Add 165500 220000 3,819 84.8 1.37 na 1.6% 5.7% 0.3%

LG Chem 051910 KS South Korea Add 290500 360000 18,627 15.2 1.53 6.6% 10.4% 12.6% 1.4%

Siam Cement SCC TB Thailand Add 430.0 553.0 16,045 13.9 3.06 20.5% 22.3% 23.6% 2.8%

Hoa Phat Group HPG VN Vietnam Add 56000 63003 1,271 10.5 2.45 32.1% 25.1% 22.0% 3.1%

Telecommunication Services

China Unicom 762 HK Hong Kong Add 13.6 17.1 41,713 19.4 1.12 36.0% 6.0% 7.5% 1.9%

Tata Communications TCOM IN India Add 378.3 427.0 1,769 102.3 14.00 na 12.3% 29.9% 1.2%

Bharti Airtel BHARTI IN India Add 376.9 375.0 24,725 33.0 2.38 17.4% 7.6% 8.2% 0.3%

SK Telecom 017670 KS South Korea Add 263500 313000 20,586 10.3 1.46 30.0% 14.9% 15.3% 3.6%

Philippine Long Distance Tel TEL PM Philippines Add 3136.0 3420.0 15,497 16.6 4.50 1.5% 27.6% 27.9% 5.6%

SingTel ST SP Singapore Add 3.9 4.1 49,508 15.9 2.48 4.6% 15.1% 15.5% 4.7%

Thaicom THCOM TB Thailand Add 36.8 46.0 1,252 21.7 2.38 78.0% 11.3% 14.3% 2.3%

Utilities

Tata Power Company Ltd TPWR IN India Add 96.3 100.0 4,274 23.5 1.93 8.4% 8.5% 11.5% 1.8%

YTL Corporation YTL MK Malaysia Add 1.6 2.3 5,147 11.5 1.14 4.9% 10.2% 9.9% 2.2%

Energy Development Corp EDC PM Philippines Add 6.2 7.6 2,650 15.6 2.96 -0.8% 20.1% 26.4% 1.3%

First Gen Corp FGEN PM Philippines Add 22.9 26.1 1,758 14.7 1.12 -5.0% 7.8% 12.3% 2.2%

Ratchaburi Electricity RATCH TB Thailand Add 54.5 65.0 2,457 12.3 1.37 8.1% 11.4% 11.8% 4.2%

PetroVietnam Gas GAS VN Vietnam Add 112000 124753 9,997 17.2 6.01 18.1% 36.1% 42.4% 2.7%

ROE (%)

SOURCES: CIMB, MSCI, DATASTREAM, BLOOMBERG


August 11, 2014

6

Downgrade Philippines: Politics shows its ugly head… again! For a regional country allocation, we recommend the investors to downgrade the Philippines to Underweight from its current Overweight position. We believe that the market has more downside risk in the near term and is brewing for a correction following the increasing political concerns that may dampen investor confidence. In addition, GDP growth may continue to lag expectations due to continued weakness in public spending. Note that the Philippines is a high Beta market and as such, tends to not move in synch but either outperform or underperform the regional index.

Figure 4: Correlation between consumer confidence and presidential approval rating

Title:

Source:

Please fill in the values above to have them entered in your report

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40

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80

-20

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0

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May-

86

Oct-87

Sep-8

9

Jul-91

Apr-

92

Dec-

92

Sep-9

3

Aug-9

4

Mar-

95

Dec-

95

Sep-9

6

Jun-9

7

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8

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98

Sep-9

8

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9

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00

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Feb

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08

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10

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1

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12

Mar-

13

Dec-

13

C. Aquino F. Ramos J. Estrada G. Arroyo B. Aquino

Expected Change in Quality of Life: Next 12 Months (LH) Presidential Net Satisfaction Rating (RH)

SOURCES: SOCIAL WEATHER STATIONS

Admittedly, the Philippines has a lot of potential in the long term given its inherent strengths - a young population, abundance of natural resources and a strategic geographical location. We believe all the structural drivers are still in place but it is just the poor execution (overhanging macro and political concerns) that is leading us to downgrade the market. Our reasons of downgrading the Philippines market are:

Falling approval rating

The overall calm in the political front was broken by a string of issues that has been hounding the Aquino administration during the past couple of months - the unabated increase in the prices of food staples, the growing discord over the pork barrel scam and now, the latest and most damaging to his popularity is the controversial issue of the Disbursement Acceleration Program (DAP).

DAP was introduced by the Aquino administration as a stimulus package whereby it re-allocates funds, from savings and additional revenue sources, to projects requiring immediate funding. The Supreme Court ruled in a 13-0 decision, that the DAP is unconstitutional because it violates the provision in the constitution that says only Congress controls the power of the purse and that the administration cannot re-allocate funds at its own discretion.

Due to these issues, public satisfaction of the government has consistently been declining during the past two quarters. While Pres. Aquino’s net satisfaction rating remains high compared to his predecessors, the substantial drop that he has suffered during the 2Q14 survey has been a cause for concern.

Edser TRINIDAD, SB Equities T (63) 2 836 3933 E [email protected]

Performance USD (%) 1m 3m 12m

MSCI Philippines 0.7 5.2 4.3

MSCI Asia Pacif ic x Japan 3.2 7.4 15.8

PSEi ^ 0.3 2.3 3.4

PHP-USD (0.8) (2.3) 0.0

Sector performance, (%) 1m 3m 12m

Consumer discretionary 0.8 5.4 13.9

Consumer staples 5.7 14.1 30.6

Energy NA NA NA

Financials 0.1 3.4 1.1

Healthcare NA NA NA

Industrials (0.7) 4.0 3.7

IT NA NA NA

Materials NA NA NA

Telecoms 4.3 8.2 2.4

Utilities (0.7) 6.8 3.5

MSCI Philippines 0.7 5.2 4.3

Valuations FY12 FY13 FY14

Index level 6,865

Index Target 7,572

PE (x) 21.4 20.0 17.4

EPS grow th (%) 8.8 6.9 14.7

PBV (x) 2.82 2.80 2.53

Dividend yield (%) 2.00 2.07 2.22

^ Local index performance in local currency Sector Recommendations —————————————————————————————————————————

Consumer Staples

Conglomerates

Energy

Financials

Gaming

Mining

Property

Telecom

Utilities

—————————————————————————————————————————


August 11, 2014

7

Figure 5: Comparison of presidential net satisfaction ratings

Title:

Source:


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-20

0

20

40

60

80

May-

86

Oct-87

Sep-8

9

Jul-91

Apr-

92

Dec-

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Aug-9

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Mar-

95

Dec-

95

Sep-9

6

Jun-9

7

Jan-9

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98

Sep-9

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Jun-9

9

Mar-

00

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1

Jul-01

Mar-

02

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Feb

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10

Sep-1

1

May-

12

Mar-

13

Dec-

13

C. Aquino F. Ramos J. Estrada G. Arroyo B. Aquino

SOURCES: SOCIAL WEATHER STATIONS

As can be seen in Figure 1, there is a high correlation between consumer confidence and presidential net satisfaction rating. And with personal consumption accounting for 70% of GDP, any retreat in consumer confidence does not bode well for consumption.

While we believe that the rumours of some sector of the military plotting a coup d’état against the Aquino administration is just plainly far-fetched, any additional political noise bodes ill for consumer confidence.

Weak public spending to persist

Figure 6: Expenditure remains anemic

(P billions)

2014 2013 % chg

Revenues 933.7 839.5 11.2

Tax 824.4 746.3 10.5

BIR 643.2 593.7 8.3

BOC 173.4 145.1 19.5

Non-Tax 109.2 93.1 17.4

BTr 62.9 93.1 -32.4

Expenditure 987.7 890.8 10.9

Interest Expense 159.7 157.1 1.7

Fiscal Balance (54.0) (51.3) 5.2

Primary Balance 105.8 (383.5) -127.6

Fiscal Balance /GDP (%) (0.9) (0.9) SOURCES: SB EQUITIES, NATIONAL STATISTICS OFFICE

High market valuation is now hard to justify

Given the overhanging macro and political concerns, we believe that the market has more downside risk. Should government spending continue to lag and consumption spending declines amidst deteriorating consumer confidence, then corporate earnings estimates may have to be revised downwards not just for 2014 but also for 2015.

Thus, having a market valuation of 19.x FY14 earnings may be hard to justify given the uncertainties in the horizon.


August 11, 2014

8

Figure 7: Comparable market P/Es

Title:

Source:


- 5.00 10.00 15.00 20.00 25.00

SHCOMP

HIS

FSSTI

SET

JCI

FBMKLCI

NKY

PCOMP

SOURCES: CIMB, SB EQUITIES

Figure 8: Market P/E band

5

7

9

11

13

15

17

19

21

23

25

Apr-05 Feb-06 Dec-06 Oct-07 Aug-08 Jun-09 Apr-10 Feb-11 Dec-11 Oct-12 Aug-13 Jun-14

PSEI PE +1 std dev -1 std dev average +2 std dev -2 std dev

SOURCES: SB EQUITIES, BLOOMBERG

Another reason why we believe the market is ripe for a correction is that it still remains one of the best performing markets in the region. On a YTD basis, the country is the third best performer behind Indonesia’s 19.1% and Thailand’s 16.9%.

Figure 9: Comparative ytd performance

Title:

Source:


(10.0) (5.0) - 5.0 10.0 15.0 20.0 25.0

JCI

SET

PSEi

Nasdaq

Hang Seng

FSSTI

Shanghai

Dow

FBMKLCI

FTSE-100

Nikkei 225

SOURCES: BLOOMBERG


August 11, 2014

9

Figure 10: Foreign investors are still net buyers

Title:

Source:


-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

SOURCES: SB EQUITIES, PSE

Stocks recommendation With the easy money over, we believe that a sector recommendation strategy is no longer applicable in the short term. Stock picking is the more appropriate strategy to employ in current volatile market.

We recommend investors to take a defensive position and buy high dividend-paying companies with assured cashflows. Our top pick is PLDT (TEL PM).

For those who are looking longer term, we recommend the utilities sector, most notably power generation, especially FGEN, EDC and Aboitiz Power (Not rated). The sector is expected to benefit from the potential of a supply shortage next year. These companies are currently embarking on their own expansion projects that are perfectly timed to benefit from the supply shortage.

We also like URC (Not rated) and Jollibee. These companies are market leaders in their respective markets.

Within the property sector, we prefer Ayala Land and 8990 Holdings. With the property sector getting crowded, we believe property buyers would prefer to go to companies that have a good track record and strong brand equity, and Ayala Land fits the bill. While the mid- and high-end residential market is now experiencing excess supply, the mass market continues to remain underserved and 8990 Holdings is the best company for exposure to the mass market.


August 11, 2014

10

Economics: Stabilising economy vs. downside risks

China’s economic conditions were boosted by exogenous support in 2Q14

China’s 2Q14 GDP has surprised the market on the upside (though below our expectation), mainly due to exogenous support – a series of government’s fine-tuning measures since early 2Q14, improved external demand (especially from developed countries) and a low base of comparison.

We note that a series of mini-stimulus packages has been rolled out for such areas as fiscal, infrastructure, monetary, agriculture and external trade since early 2Q14, given the downside pressure arising from declining property investment, removal of excess capacity and the ongoing deleveraging process.

Meanwhile, rising demand from developed economies has also enabled China’s economy to bottom out in the quarter. In 2Q14, China’s exports to the EU and the US surged +13.7% yoy and +8.5% yoy, respectively (vs. +6.0% yoy and +1.3% yoy in 1Q14), due to improved economic conditions in those regions.

As a result, China’s GDP rose +2.0% qoq (+7.5% yoy) in 2Q14, compared with +1.5% qoq (+7.4% yoy) in 1Q14.

Figure 11: Stabilising production Figure 12: Better economic conditions in developed countries supported China's exports growth in 2Q14

Title:Source:


0

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25

Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14

GDP IP (3m average)

yoy%

Title:Source:


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-

20

40

60

80

Jan 10 Oct 10 Jul 11 Apr 12 Jan 13 Oct 13

G2 ASEAN BRICS

yoy%, 3mma

SOURCES: CIMB, CEIC SOURCES: CIMB, CEIC

A stabilising economy. Looking ahead, we still believe that moderating investment growth will be the main downside risk for China’s economic recovery, although we expect to see more relaxation of house purchase restrictions (HPR) in more cities in 2H14. We expect the government to continue to kick off more simulative measures, including infrastructure improvement (including railways, urban rail transit, urban underground pipelines, etc.), shanty-town renovation, environmental protection (including water treatment, new energy, new materials, etc.) and rural-related projects, to support the economy in 2H14.

In the meantime, improving the external demand from developed countries will remain a positive factor in supporting China’s economy. Domestically, we also expect retail sales growth to stabilise, given the improving economic conditions. We hold the view that China’s GDP growth will stabilise at +7.6% yoy in 2H14.

Arup RAHA T (65) 6210 8412 E [email protected]

Fan ZHANG T (86) 21 5047 1771 x110 E [email protected]


August 11, 2014

11

Looking ahead to 2015, we believe that the government will follow 2014’s strategy of balancing economic growth with the need for economic restructuring. It is likely that the policymakers will only set a range of growth targets for 2015 (likely 7-7.5%) to allow for more flexibility in implementing their reforms. We do not believe that there will be significant volatility in the economic growth rate as the top government officials apparently have plenty of tools at hand to ensure steady growth. We maintain our view that the economy will expand at a pace of +7.4% yoy in 2015 (vs. +7.6% yoy in 2014).

But we remain cautious of downside risks

Though the GDP growth beat market expectations, the recovery of endogenous growth remained sluggish, as shown by the weak commodity prices and sluggish growth for certain economic indicators.

The official manufacturing PMI recorded a 6-month high in Jun 14, but the increase in commodity prices (such as copper, steel and iron ores) is still weak, implying that the pace of demand recovery remained sluggish. PPI also has stayed in contraction territory for 28 consecutive months till Jun 14, showing that the overall demand in the industrial sector was weak and pressure from overcapacity still existed.

The two major components of the Keqiang Index, which is frequently used by policymakers to monitor the performance of the economy, railway freight growth and industrial electricity consumption growth also stayed low in Jun 14, This indicates that the recovery of endogenous growth was still at a slow pace.

Figure 13: Railway freight and industrial electricity consumption stayed low, reflecting muted growth

Figure 14: Weak commodity prices also indicate that demand recovery remained sluggish

Title:Source:


(10)

(5)

-

5

10

15

20

25

30

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Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

Railway: Freight Traffic Electricity Consumption: Industry

yoy%, 3mma

Title:Source:


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90

100

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120

130

140

Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14

Cooper Aluminum Steel

Jan 2010 = 100


Weak property market remains a key drag for the entire economy. Growth in 2Q14 was mainly driven by targeted monetary easing and rising investment in infrastructure, but property investment softened by 4.4% pts to +12.9% yoy in 1H14 from +17.3% yoy in 1Q14. Though the pace of decline in property sales slowed down in Jun 14, sales were still down 6.7% yoy in 1H14, vs. +26.3% yoy in 2013. New starts for residential property (floor space) further declined by 13.8% yoy in Jun 14 (-12.0% yoy in May 14) due to pressure from rising inventory and deteriorating financial conditions for developers. As property sales normally lead property investment by about 3-6 months, we remain cautious on the growth of property investment in the coming months.

Also, historically, the correction period for the property market is about one year, going by the experience in 2008 and 2011. Given that the correction started in 1Q14 this time, we only expect the property market to see a gradual improvement or stabilisation from 1H15 onwards.


August 11, 2014

12

Figure 15: Rising infrastructure investment, but investment in industrial and property sectors remains weak

Figure 16: Falling new starts dampen property investment

Title:Source:


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5

10

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25

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Jan 10 Jan 11 Jan 12 Jan 13 Jan 14

Infrastructure inv Industrial inv Real estate inv

yoy%, 3mma

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Property new starts Property investment (RHS)

yoy%, 3mma


In recent weeks, we saw some of the cities started loosening or removing home purchasing restrictions, given the pressure from a slowdown in land sales and moderating fiscal revenue, but we believe the overall impact will be mild, as 1) tier-1 cities are unlikely to follow suit, 2) rebound of property sales will be mild given the high inventory levels in those cities that made the announcement, and 3) developers in low tier cities are not among the beneficiaries of such HPR easing.

With respect to property investment, we believe that growth will reach a bottom in mid-3Q14 to 4Q14, at about +11-12% yoy. As a result, property investment growth is expected to hit +13% yoy in 2014 and stay at that level in 2015 due to a low base and supportive measures by the government such as the relaxation of HPR and an easing monetary environment for buyers.

Figure 17: Cooling property market Figure 18: Housing price is in the middle of a downtrend

Title:Source:


-40

-20

0

20

40

60

80

100

Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14

Property sales Floor Space Starts

yoy%, 3mma

Title:Source:


-4

-2

0

2

4

6

8

10

12

14

16

18

Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13

70-city average property price (new)

70-city average property price (second-hand)

yoy%

SOURCES: CIMB, CEIC SOURCES: CIMB, Wind

Another side effect of a weak property market is the impact on local governments’ revenue. Land sales will be hit continuously in light of the weak property sales, and tax revenue from property transactions will also be lower. Given the massive amount of maturing local government debt in 2014 (21.9% in total or Rmb2.4tr out of Rmb10.8tr), certain local governments, especially those in central and western China, will face financing difficulties given their moderating fiscal revenue.


August 11, 2014

13

Figure 19: Correction in property market has slowed down the growth of real estate deed tax

Figure 20: Land transfer income has also moderated

Title:Source:


-20

-10

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30

40

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60

0

50

100

150

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1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14

Real estate deed tax yoy% (RHS)

Rmb bn yoy%

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-40

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0

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2008 2009 2010 2011 2012 2013 1H14

Land transfer income (Rmb tn) yoy% (RHS)

Rmb tn yoy%

SOURCES: CIMB, Wind SOURCES: CIMB, CEIC

Financing channels remain limited and cost of financing is still high. Liquidity conditions have improved in 1H14, as shown by the falling interbank rates: average overnight and 7-day repo rates declined to 2.67% and 3.67%, respectively, in 1H14 from 3.51% and 4.38% in 2H13. However, we do not see the same trend for borrowing costs, which remained high. The 1-year Wenzhou private lending rate even climbed to 17.3% in Jul 14 from 15.9% in Dec 13. Banks’ cautious take on the economic outlook and high-cost deposits were the major reasons for this trend.

We also believe that the risks of a default and a crackdown on shadow banking may raise borrowing costs and make it harder for corporates to get financing in 2H14. Two domestic issued bonds just avoided default in end-Jul 14, but such a development still raised alarms that a default may actually take place. As we mentioned in our earlier note that the government is likely to take a selective default strategy by allowing smaller trusts/bonds to fail and only bailing out the large ones, we would not be surprised to see default of trusts/bonds taking place later in 2H14. Hence, the likely consequence is that borrowing costs will go up further if a default actually happens.

Figure 21: Better liquidity conditions, but borrowing costs stay relatively high

Figure 22: Total credit is still tight

Title:Source:


0

2

4

6

8

10

12

Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14

Over-night repo rate China government bond yield (10-year)

%

Title:Source:


15.0

15.5

16.0

16.5

17.0

17.5

Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14

Wenzhou Private Lending Composite Rate (1 Year )

%

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, CEIC


August 11, 2014

14

Proactive fiscal policy and targeted monetary easing will be major weapon to support the economy

Proactive fiscal policy will remain the key tool for the economy. The government has already sped up its fiscal expenditure since May/Jun 14 when fiscal spending growth reached ~25% yoy in the two months, compared with +12.6% yoy in 1Q14 (+11.2% yoy in 2013). It is likely for fiscal spending to stay at relatively elevated levels in 3Q14 given the newly-started mini-stimulus package since 2Q14, but expenditure will edge down to some extent in late 4Q14 as the government has already moved a certain amount of fiscal expenditure forward to 2Q14 from 2H14 to support economic growth. If we assume a fiscal deficit of Rmb1.35tr in 2014 and sustained fiscal revenue growth of 8-9% yoy in 2H14, there would be a fiscal expenditure of about Rmb8.5tr to be spent in 2H14 (+6% yoy in 2H14, vs. +15.8% yoy in 1H14). The slowdown will then cast a shadow over the pace of economic recovery in 4Q14.

Thus, the government needs to speed up the pace of reforms (fiscal reform, SOE reform, financial reform and changes in government’s function) in 2H14 to actually lower the burden on corporates. We also believe that there will be more support from policy banks in certain areas, such as shanty-town renovation, to ensure that economic growth meets its target.

Figure 23: Fiscal expenditure growth is likely to slow down in late 4Q14

Figure 24: But we expect more financial support from policy banks

Title:Source:


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Jan 10 Jan 11 Jan 12 Jan 13 Jan 14

Fiscal revenue Fiscal expenditure

yoy%, 3mma

Title:Source:


0

100

200

300

400

500

2008 2009 2010 2011 2012 2013 2014

Affordable Housing Loans by China Development Bank

Rmb bn

SOURCES: CIMB, CEIC SOURCES: CIMB, CHINA DEVELOPMENT BANK

Upside risk on inflation will compel PBOC to maintain its targeted easing stance. Inflationary pressure remained weak in 1H14, as headline CPI only hit +2.3% yoy. However, we believe the risk for CPI will be on the upside since late 2H14, given the potential for higher food prices. The number of breeding hogs shrank faster, by -8.3% yoy in Jun 14 vs. an average of -3.9% yoy in 1Q14, indicating risks to the supply of live hogs in the coming months. Past experience also suggests that the falling supply of breeding hogs will bring upside risk to pork prices and, in turn, push up CPI readings in the next 2-3 quarters. Another leading indicator for CPI, M1 growth, has already bottomed in Mar/Apr 14, signalling a potential rise in CPI in the coming months (possibly from 4Q14 onwards).

Rising inflationary pressure will thus compel the central bank to stay with targeted easing in the medium term. Meanwhile, the ongoing deleveraging process for financial institutions does not make it conducive for the monetary authority to aggressively loosen the monetary policy. Hence, the central bank is more likely to use the targeted easing of monetary policy to extend more credit to industries or areas supported by the government.


August 11, 2014

15

Figure 25: Falling supply of breeding hogs presents upside risk to CPI

Figure 26: New credit expanded at a fast pace in 2Q14. To carry on banks’ deleveraging process, PBOC is likely to stay with targeted easing

Title:Source:


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CPI (yoy%, LHS) Breeding hogs (6m adv, inverted)

yoy % yoy %

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New loans (Rmb bn) M2 (yoy%, RHS)

SOURCES: CIMB, Wind SOURCES: CIMB, CEIC

Meanwhile, we expect the crackdown on shadow banking to continue in the medium term, given the need to lower financial risk. Though shadow-banking loans picked up slightly in Jun 14 due to better liquidity conditions from consecutive liquidity injections through PBOC’s open market operations, we do not believe that the central bank will loosen control over informal lending. Also, to lower borrowing costs and ease financing difficulties, the proportion of direct financing is likely to increase given the ongoing development of the bond and equity markets.


August 11, 2014

16

Country Outlook


August 11, 2014

17

Country outlook

We are Underweight on Australia. Our strategists, Shane Lee and Andrew Tang, maintain a year-end target for the S&P ASX200 of 5,600. They think the economy needs consumer spending growth to provide a key offset to the downturn in mining investment, which is expected to be a drag on overall economic growth for the next 18 months. Resources, Retail and Insurance have all seen significant FY14 earnings downgrades in the past month. The high-yield defensive sectors are susceptible to an increase in global interest rates and they remain underweight Financials, Consumer Staples Utilities and Telcos. (see Page 19).

We are Overweight on China. Our strategist, Bertram Lai, maintains his MSCI China year-end target of 78, based on a 10.1x forward P/E. Pessimism on China’s growth outlook has lifted as he had hoped based on the overwhelming support from positive macro data, targeted stimulus measures and an exogenous pick-up in demand. He sees a lack of a major economic or earnings event to stimulate a rerating - rather the acceptance that growth has bottomed and that several sectors represent attractive value relative to increasingly visible earnings prospects. Bertram expect structural reform initiatives to accelerate in 2H14 which should lend further support to his thesis for falling risk premiums to lead to a re-rating for selected cyclicals and financials (see Page 20).

We are Overweight on India. Our strategists, Avadhoot Sabnis and Dipojjal Saha, maintains their year-end Nifty target of 8,150, based on 17.1x P/E. Incoming macro data (exports/IIP/core sector data) shows that the economy is bottoming out, but the big risk could be a shortfall in August monsoons. Though the market looks expensive on relative valuations (PB – ROE), there appears to be a steady flow as far as reforms are concerned. Recently, the cabinet approved proposals to amend three labour laws. They believe the reform process will continue to gain traction as the election mandate gives the government space to act on politically sensitive decisions and drive the market higher. (see Page 21).

We upgrade Indonesia to Overweight. Our strategists, Erwan Teguh and Peter Sutedja, have recently raised their year-end index target to 5,400,which is based on a COE of 14.5% and implies 2.8x P/BV and 14.7x 2015 P/E. Overall, sentiment has turned drastically following Jokowi’s presidential win, with the index gaining 4.3% in July on the back of foreign inflows. In their view, the market will continue to stage a sustainable rally, underpinned by three factors: 1) room for the currently below-mean valuations to re-rate, triggered by lower risk premiums, 2) inward fund flows from foreigners and locals alike, and 3) upward revisions in medium-term earnings growth estimates, firstly due to lower volatility in the rupiah and bond yields and later by investment-led growth under the new government. Buy infrastructure plays (i.e. construction and cement companies) as they are likely to benefit from more infra spending on the back of the phasing out of fuel subsidies. (see Page 22).

We are Overweight on Korea. Our strategists, Dohoon Lee and TJ OK, recently lowered their 2014 year-end KOSPI target from 2,250 to 2,100 on the back of falling EPS estimates although we continue to believe it will remain a value play across North Asia. They believe further upside for the KOSPI hinges upon a turnaround in earnings revisions on the back of a normalised appreciation of the Won and improvements in consumer sentiment, along with the more efficient use of corporates’ lazy balance sheet and meeting the heightened expectations of the market. There stock selection is geared towards companies with individual catalysts and is less of a sector-positioning perspective given that the index may face valuation pressure due to the ongoing consensus earnings downgrades (see Page 23).

Country Recommendations —————————————————————————————————————————

Australia

China/Hong Kong

India

Indonesia

Korea

Malaysia

Philippines

Singapore

Taiwan

Thailand

Vietnam

—————————————————————————————————————————

Sector Recommendations —————————————————————————————————————————


Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Technology

Telecom

Utilities

—————————————————————————————————————————


August 11, 2014

18

We are Neutral on Malaysia. Our strategist, Terence Wong, continues to see the Economic Transformation Programme (ETP) as the key catalyst for the market and retains his end-2014 KLCI target of 2,030, based on a bottom-up approach. The 2013 annual report for the ETP showed commendable results in terms of the implementation of ongoing projects although the announcement of new projects remains stuck in low gear compared to previous years. Accordingly, private investments sustained a robust momentum of 13.6% in 2013, with the services sector leading the pack. He is not surprised by the hike in overnight policy rate as he was expecting Malaysia to raise interest rates by 25bp in 2H14 and another 25bp in 2015. While interest-rate hikes are theoretically negative for equities, the hike has largely been factored into share prices. His sector top picks are oil & gas, construction and property. (see Page 24).

We have downgraded the Philippines to Underweight. SB Equities Analyst, Edser Trinidad, maintains a year-end index target of 7,572. He thinks the market is brewing for a correction following the increasing political concerns that may dampen investor confidence. In addition, GDP growth may continue to lag expectations due to continued weakness in public spending. Historically the Philippines has been a high beta market tending to either outperform or underperform the regional index. With the easy money gains over, he believes that a sector recommendation strategy is no longer applicable in the short term. Stock picking is the more appropriate strategy to employ in current volatile market. (see Page 6).

We are Neutral on Singapore. Our strategist, Kenneth Ng, maintains his end-CY14 FSSTI target at 3,474pts (13.8x CY15 P/E, -0.5 s.d. from FSSTI’s 10-year trading range). Physical property volume has picked up slightly due to price cuts and new project launches. He expect developer’s margins to be under pressure due to a combination of restrictive policies, lower demand, higher vacancies, and cuts in government land supply. Plantations had a brief respite due to falling CPO stocks but remain under pressure from higher US soybean and lower demand from Indonesia. He thinks the key to alpha for a Singapore portfolio, is to pick new names and structural growth stories outside of the big-cap sectors. (see Page 25).

We are Neutral on Taiwan. Our strategist, Eric Lin, revised the year-end TWSE Index target 9,500 (post dividends adjustment) and this translates into 2.0x market PB. We expect Q3 Tech earnings growth to be moderate as demand was pulled ahead and the base is higher. While the Apple supply chain and PC ODM will still benefit from new product launches and the PC replacement cycle in 2H, risks are on the downside from here. We expect Financial sector to outperform in Q3 as investors off-load tech and earnings continue to improve in 2H14. (see Page 26).

We are Underweight on Thailand. Our Thailand strategist, Kasem Prunratanamala, maintains his end-2014 target of 1,390, now based on 10.7x CY15 P/E (-0.5 s.d. from the average). He does not think there will be much foreign selling pressure as US investors are generally underweight on the market although the current valuation of 11.6x CY15 P/E is not particularly attractive at the moment. Kasem does not expect large inflow in the near term unless there is a sharp market correction. He thinks the energy, telecom and construction sectors have high policy risks, which do not bode well for sentiment and earnings (see Page 28).

We are Overweight on Vietnam. Our Vietnam strategist, Michael Kokalari, maintains his 630 year-end target. As China has now moved its controversial US$1bn oil rig out of the territorial waters claimed by Vietnam, the market’s focus is back on Vietnam’s progress in solving its NPL woes. It is beginning to look like the market will trade in a sideways range until later this year. That said, we do notice two important differences vs. the situation in 2013: 1) foreign buying of Vietnamese stocks has been much more aggressive this year, compared to 2013, and 2) the government has shown much clearer signs that it is aware that any delay in these key reforms will be problematic for the stock market (see Page 29).


August 11, 2014

19

Australia: lowering expectations Reporting season begins in earnest in a couple of weeks and in the lead-up analysts have been lowering earnings expectations aggressively. Resources, Retail and Insurance have all seen significant FY14 earnings downgrades in the past month. The only sector seeing FY14 upgrades is Pharmaceuticals. The downgrade cycle in Retail, Resources and Insurance has extended through to FY15. Furthermore, there have been significant downgrades in Capital Goods in FY15.

The domestic cyclical recovery now appears to be back on track after slowing following the budget. Consumer confidence has rebounded in the past six weeks and the discretionary retailers have all rallied. In our view, there is a risk the downgrades in Retail in FY15 have probably been cut too deep and will need to be reversed. We prefer the electrical retailers HVN and JBH, and MYR. The economy needs consumer spending growth to provide a key offset to the downturn in mining investment, which we expect to be a drag on overall economic growth for the next 18 months. Furthermore, the RBA will do its job to support this transition.

Market Outlook/Investment Strategy

The downgrades in Resources reflect the strength of the Australian dollar in recent months and the fall in bulk commodity prices during the first half of this year. The recent strengthening in Chinese economic data has helped stabilise the iron ore price around US$93/t, but we expect supply to expand by 8% over the next few years. We think this creates downside risk to the iron ore price and is compounded further by the Chinese Authority’s plan to lower the investment share of GDP. Nonetheless, there has already been a large fall in the iron ore price and this has removed some of the downside risk. We prefer to be exposed to resources through copper (OZL) and Alumina (AWC) and have a neutral position in the sector. We think it’s best to play the positive global growth outlook though stocks such as BXB and AMC and the Energy sector.

The high-yield defensive sectors are susceptible to an increase in global interest rates and we continue to remain underweight Financials, Consumer Staples Utilities and Telcos. Furthermore, this view underpins our year-end target for the S&PASX200 of 5,600.

Figure 27: S&P/ASX 200 earnings trajectory

2,000

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S&P/ASX 200 fwd PE (lhs) S&P/ASX 200 index (rhs)

Indexed to 2003x Indexed to 2003x

3%

5600

14.0x

SOURCES: CIMB, THOMSON REUTERS, I/B/E/S, BLOOMBERG

Shane LEE T (61) 2 9694 6054 E [email protected]

Andrew TANG T (61) 2 9694 6076 E [email protected]


MSCI Australia 2.9 2.8 15.6


S&P/ASX 200 ^ 4.4 2.6 11.5

AUD-USD 0.4 (1.0) (3.7)




Energy 0.8 3.3 15.0


Healthcare 1.4 1.6 12.6

Industrials 1.7 3.6 20.9

IT 3.8 6.8 39.3

Materials 6.1 3.2 17.1

Telecoms 3.5 4.8 13.2

Utilities (0.7) 0.6 14.9

MSCI Australia 2.9 2.8 15.6


Index level 5,633

Index Target 5,600

PE (x) 16.8 15.6 14.9

EPS grow th (%) (2.5) 7.7 5.1

PBV (x) 2.16 2.08 1.97

Dividend yield (%) 4.19 4.44 4.68



Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Technology

Telecom

Utilities

—————————————————————————————————————————


August 11, 2014

20

China/HK: Optimism (or less pessimism) meets earnings Pessimism on China’s growth outlook has lifted as we had hoped based on the overwhelming support from positive macro data, targeted stimulus measures and exogenous pick-up in demand. The MSCI China moved up sharply in the last two weeks of July extending the rally that began end-June with news of HPR (home purchase restrictions) cancellations in lower-tiered cities. Jul PMI data was above consensus again and reached a 27-month high reflecting targeted improvement in credit conditions and fiscal stimulus are having the intended effect of putting a floor under growth. Meanwhile we expect HPR easing to be rolled out to all non-Tier 1 cities in 2H which again should put a floor under property investment. We also confirmed credit conditions for mortgages have eased.

Surprisingly one of the sectors that has rebounded strongly has been the telecoms sector which has outperformed the MSCI China in Jun-Jul. This is symptomatic of not just laggard status and low valuations but also government lead reform in the sector to improve profitability: see the national tower company and rumours of SASAC pressure to lower handset subsidies. We expect this to be a continuing theme throughout 2H14 – with growth stabilising the government is likely to accelerate increasing structural reforms, particularly in the SOE segment. These reforms should become increasingly investable and should see the market continue to re-rate towards our target. Maintain our 78 MSCI China target for year end.


In August the market will be focussed on interim earnings, however not for what may be a potentially disappointing 1H14, but for guidance on possibilities of further easing measures or structural reforms to help drive growth or margins going forward in our view. We expect structural reform initiatives to accelerate in 2H14 which should lend further support to our thesis for falling risk premiums to lead to a re-rating for selected cyclicals and financials. We continue to see lack of major economic or earnings event to stimulate a rerating - rather the acceptance that growth has bottomed and that several sectors represent attractive value relative to increasingly visible earnings prospects.

We re-iterate our year-end target for the MSCI China of 78, equivalent to 10.1x forward earnings. Financials have rallied over the previous two months and are no longer cheap compared to a few months ago, however on a longer-term fundamental perspective as risks become more visible we expect the rally can continue. We continue to remain overweight financials with ICBC and CCB as our preferred exposure. Selected cyclicals such as those in the railway sector are benefitting from restructuring support and also trade at low valuations – CRCC is our preferred exposure here.

Figure 28: MSCI China: Cyclicals vs Defensive performance

98

100

102

104

106

108

110

112

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

(Index)

SOURCE: CIMB RESEARCH

Bertram LAI T (852) 2532 1111 E [email protected]


MSCI China 7.3 13.7 16.4


CSI 300 ^ 9.5 9.3 12.3

RMB-USD (0.5) (1.4) 0.7



Consumer staples 2.4 (2.9) (0.0)

Energy 3.1 10.8 10.1




IT 6.4 28.1 71.9

Materials 12.1 8.9 21.7

Telecoms 13.7 14.8 5.3

Utilities (1.5) 8.3 23.7

MSCI China 7.3 13.7 16.4


Index level 66.0

Index Target 78.0

PE (x) 10.3 9.6 8.7

EPS grow th (%) 10.9 7.8 10.4

PBV (x) 1.46 1.36 1.22

Dividend yield (%) 3.38 3.36 3.63

^ Local index performance in local currency



Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Technology

Telecom

Utilities

—————————————————————————————————————————


August 11, 2014

21

India: taking a breather Market Outlook/Investment Strategy

Markets took a breather in July, with the Nifty up by just 1.0% while the mid-cap index was down by 2.0%. Defensives were back in focus as pharma, FMCG and IT Services were the top performers while realty, infra and energy were among the worst performers. On a YTD basis, banks, metals and realty are still among the top performing sectors.

The big event of July was the budget announcement. In our view, the budget did a fairly good job of balancing expectations- while not straying too much from the path of fiscal prudence there was a strong intent on pet themes of FDI, affordable housing & infra. True the 4.1% fiscal deficit (to GDP) sounds like a stretch goal, but we believe that disinvestments could be a game-changer. The target for disinvestments is Rs 430bn from stake dilution (excluding stake sale in non-govt owned companies) and there is a possibility of upside surprise here, especially given the fact that implementation of at least a 25% public shareholding norm will itself fetch Rs 500bn at current market prices. The misses were mostly on tax announcements (or the lack of it) as there was no clear-cut roadmap laid out for GST and only a passing mention of DTC. Also, little has been offered in way of a sustainable roadmap to rationalise subsidies.

Encouragingly, the reforms process continues to gain traction. Recently, the previous week, the cabinet approved proposals to amend archaic labour laws. Along with the politically difficult step of increasing the railway freight rates and passenger fares earlier, we believe that the election mandate gives the government space to act on politically sensitive decisions.

Incoming macro data (exports/IIP/core sector data) as well as earnings data suggests that the economy is bottoming but there is no meaningful improvement as yet. The big risk here could be uncertainty in monsoons. After registering a sharp deficit in June, the monsoons have recovered in July and the deficiency so far is 19% of the LPA. The progress of rainfall in Aug holds the key as to how good or bad the current monsoon season will be.

Figure 29: Markets taking a breather in July

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Jan

Fe

b

Ma

r

Ap

r

Ma

y

Jun

e

July

YT

D

Nifty

,%, M

oM

SOURCES: CIMB, COMPANY REPORTS

Avadhoot SABNIS T (91) 22 6602 5151 E [email protected]

Dipojjal SAHA T (91) 22 6602 5164 E [email protected]


MSCI India 0.7 14.2 30.5


CNX NIFTY (50) ^ 1.4 15.3 34.5

INR-USD 0.6 0.3 (0.5)




Energy (3.9) 10.5 21.0

Financials (0.1) 18.0 38.1



IT 3.3 10.0 28.1

Materials (0.2) 27.7 69.0

Telecoms 7.7 12.4 1.3

Utilities (7.7) 23.4 29.3

MSCI India 0.7 14.2 30.5


Index level 7,721

Index Target 8,150

PE (x) 19.8 17.2 14.9

EPS grow th (%) 7.1 15.1 15.6

PBV (x) 2.95 2.64 2.35

Dividend yield (%) 1.38 1.58 1.71


*FY Mar 2014



Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Technology

Telecom

Utilities

—————————————————————————————————————————


August 11, 2014

22

Indonesia: Jokowi is the man JCI performance was lacklustre in Jun due to 1) unfavourable political sentiment, and 2) pressure on fundamentals as a spike in oil price driven by Iraq tensions stressed the government budget. Consequently, the rupiah came under even more pressure, depreciating by some 2% to US$ and underperforming the regional currencies. As a result, the index went flat mom in Jun.

However, sentiment has turned drastically following Jokowi’s presidential win, with the index gaining 4.3% in July on the back of foreign inflows. As of 25 Jul 2014, the market traded at 14.6x 12-month forward P/E, in line with the 3-year average, and 2.8x 12-month forward P/BV (0.4 s.d. below the 3-year average).


In our view, the market will stage a sustainable rally, underpinned by three factors: 1) room for the currently below-mean valuations to re-rate, triggered by lower risk premiums, 2) inward fund flows from foreigners and locals alike, and 3) upward revisions in medium-term earnings growth estimates, firstly due to lower volatility in the rupiah and bond yields and later by investment-led growth under the new government.

The political certainty was pretty much priced in in the recent market rally, in our view. There are some lingering concerns as to what Prabowo will do, but, in our view, the official presidential election result should ultimately prevail.

In the near term, infrastructure plays (i.e. construction and cement companies) should benefit from more infra spending on the back of the phasing out of fuel subsidies. Our top picks within these sectors are WSKT, PTPP and INTP. The improvement in gas and electricity investment terms should benefit gas utilities, i.e. PGAS, and coal companies with significant power plant investments, i.e. ADRO and PTBA. Over the longer term, the consumer names that will remain relevant are MAIN, RALS, ROTI, GGRM and SCMA.

Figure 30: Indonesia’s valuations now at 3-yr mean

Title:

Source:


10x

11.5x

13x

14.5x

16x

17.5x

JCI Rolling forward P/E

3yr MA


Erwan TEGUH T (62) 21 3006 1720 E [email protected]

Peter P. SUTEDJA, CFA T (62) 21 3006 1726 E [email protected]


MSCI Indonesia 8.1 6.8 0.1


JCI ^ 4.3 5.1 10.4

IDR-USD NA NA NA



Consumer staples 6.1 1.2 (6.7)

Energy 4.0 4.7 5.1




IT NA NA NA

Materials 12.9 12.3 0.6

Telecoms 9.5 16.4 (0.6)

Utilities 8.4 10.6 (11.2)

MSCI Indonesia 8.1 6.8 0.1


Index level 5,089

Index Target 5,400

PE (x) 17.4 15.8 14.0

EPS grow th (%) 3.7 10.3 12.8

PBV (x) 3.83 3.24 2.83

Dividend yield (%) 2.30 2.48 2.79




Consumer Staples

Financials

Industrials

Materials

Telecom

Utilities

—————————————————————————————————————————


August 11, 2014

23

Korea: driven by expectations The KOSPI reached 2,062 points on 29 Jul (up 3.7% mom), backed by the strong performance of the banking (+10.8% mom), steel (+9.2% mom) and construction (+9.0% mom) sectors. The sentiment was boosted by the government’s economic stimulus measures and expectations of higher dividend payout. Foreign investors bought US$2.9bn month-to-date of Korean equities on a net basis, the largest amount since Oct 2013. Shipbuilding and tech sectors have underperformed the most due to 2Q14 earnings disappointments.

The new Minister of Strategy and Finance has announced a stimulus package to prop up the growth of the local economy. The new policies include: 1) easing DTI and LTV regulatory limits from 50% to 70%/60% (starting 1 Aug); 2) imposing punitive taxes on excess retained earnings to spur better utilisation of Korea Inc’s profits; 3) additional funding support for SMEs; and 4) more fiscal spending plans. In addition, there are signs of BOK’s changed stance to lower the policy rate in order to align fiscal and monetary policies.

While the market has priced in positive developments on reform plans, we are concerned that consensus earnings downward revisions may continue – further driving up the market valuation level that is already above the long-term average. While we believe that a rally may unfold in the near term, we think that a sustainable re-rating of the KOSPI should require a turnaround in Korea’s earnings and improved capital management by the corporates.


We have lowered our 2014 year-end KOSPI target from 2,250 to 2,100, largely to price in the reduced EPS estimates. We have also lowered our KOSPI EPS estimates by 15% for CY14 and 9% for CY15. Note that consensus EPS has been reduced YTD by 18% for CY14 and 14% for CY15. We expect the downgrades to continue in the near term, as our KOSPI EPS estimates are 5-6% lower than the consensus numbers for CY14-15.

We believe that further upside for the KOSPI hinges upon a turnaround in earnings revisions on the back of a normalised appreciation of the Won and improvements in consumer sentiment, along with the more efficient use of corporates’ lazy balance sheet and meeting the heightened expectations of the market.

Our stock selection is geared towards companies with individual catalysts and is less of a sector-positioning perspective given that the index may face valuation pressure due to the ongoing consensus earnings downgrades. Our top picks are LG Electronics, LG Innotek, SK Telecom, OCI, LG Chem, Hyundai Mobis, Hyundai Mipo, Shinhan Financial, KB Financial and Hancom.

Figure 31: Market driven largely by expectations, rather than fundamentals

1,800

1,850

1,900

1,950

2,000

2,050

2,100

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14

12m forward EPS 3m-rolling change (LHS) KOSPI (RHS) SOURCE: CIMB, DATASTREAM, QUANTIWISE

Dohoon LEE T (82) 2 6730-6121 E [email protected]

TJ OK T (82) 2 6730 6134 E [email protected]


MSCI Korea 1.8 6.5 21.1


KOPSI ^ 3.7 5.8 8.5

KRW-USD 1.4 (0.6) (8.3)




Energy (6.1) (8.9) (20.9)


Healthcare (11.8) (12.0) (24.5)


IT (2.1) 2.9 27.2

Materials 3.0 10.3 15.1

Telecoms 6.5 6.6 (0.3)

Utilities 11.7 6.9 52.8

MSCI Korea 1.8 6.5 21.1


Index level 2,076

Index Target 2,100

PE (x) 12.2 10.6 9.3

EPS grow th (%) (5.9) 14.9 14.2

PBV (x) 1.07 1.09 0.99

Dividend yield (%) 1.05 1.24 1.38




Energy

Financials

Industrials

Materials

Technology

Telecom

—————————————————————————————————————————


August 11, 2014

24

Malaysia: first rate hike in three years On Jul 10, Bank Negara Malaysia (BNM) raised its overnight policy rate (OPR) by 25bp to 3.25%. This was its first rate hike since May 11. We are not surprised by the move as we have been expecting Malaysia to raise interest rates by 25bp in 2H14 and another 25bp in 2015. BNM's rate hike in Jul signalled that future policy moves will be data dependent as it will assess the balance of risks between domestic growth and inflation, as well as monitor for risks of destabilising financial imbalances. To safeguard the stability of household consumption growth, especially during a period of higher domestic cost factors and implementation of GST next year, we think BNM is unlikely to adopt an aggressive monetary policy tightening stance. In any case, we adjust our year-end estimate to 3.25-3.5% (vs. 3.25% previously) and maintain our forecast of 3.5% for 2015.

The KLCI and OPR appear to be negatively correlated: the KLCI rises when interest rates are cut and falls when interest rates are raised. But this is not always the case and when interest rates were raised in 2010 and 2011, the KLCI's long-term uptrend was intact. We believe that the market will be able to digest gradual OPR hikes without much difficulty. Rate hikes are generally negative for cyclical sectors such as property and auto but should also affect consumer stocks due to lower disposable income. Companies with high gearing should also book higher interest expense. But the overall impact should be muted as net gearing for corporate Malaysia is less than 10% while the positive impact on banks, which make up around a third of the KLCI, should offset the negative impact on the other sectors.


While interest-rate hikes are theoretically negative for equities, we believe that the hike has largely been factored into share prices. We maintain our end-2014 bottom-up KLCI target of 2,030 pts. Though higher interest rates are negative for the property sector, we continue to Overweight it on the back of its attractive valuations, anticipated pre-GST buying and the minimal 25bp increase in OPR. We expect the property market to absorb the impact well. Oil & gas and construction stocks should also be hit by higher interest expense but contract wins and large order books should cushion the pain. We remain positive on ETP winners as well as smaller cap stocks.

Figure 32: Interest rate hike impact

Sector Impact Comments

Automotive Negative Auto sales are sensitive to hire purchase rates

Aviation Neutral Marginally higher interest cost but offset by lower fuel cost if RM strengthens

Banking Positive Positive re-pricing gap between BLR and deposit rates

Construction Negative Higher interest cost

Consumer Negative Increase loan payment, impact consumer spending

Gaming Positive All gaming companies in net cash position

Oil & gas Negative Marginally higher borrowing cost

Media Neutral Astro and MCIL have net debt while others have net cash

Plantations Negative Marginally higher interest costs for planters

Property Negative Rising interest rates lower affordability

REITS Negative Narrower spread between REIT yields and risk free rate

Rubber gloves Negative Negative due to higher borrowing cost

Shipping Neutral Most loans are in US$. Revenue and cost are mostly in US$ as well

Tech Negative Marginally higher interest costs

Telcos Negative Marginally higher interest costs

Utilities Neutral Minimal gearing while TNB's debt is largely fixed rate sukuk SOURCES: CIMB, COMPANY REPORTS

Terence WONG, CFA T (60) 3 2084-9689 E [email protected]


MSCI Malaysia (0.1) 1.6 5.1


FBMKLCI ^ (0.6) (0.0) 5.6

MYR-USD (0.7) (2.4) (1.8)



Consumer staples (0.9) 1.4 11.3

Energy (6.2) (11.3) (2.7)

Financials 0.4 0.1 (2.7)



IT NA NA NA

Materials (1.3) 2.2 0.7


Utilities 0.1 4.0 24.0

MSCI Malaysia (0.1) 1.6 5.1


Index level 1,871

Index Target 2,030

PE (x) 17.0 16.5 15.0

EPS grow th (%) 0.3 3.1 9.7

PBV (x) 2.26 2.09 1.94

Dividend yield (%) 2.84 3.00 3.21



Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Technology

Telecom

Utilities

—————————————————————————————————————————


August 11, 2014

25

Singapore: riding on China bulls The FSSTI continues to set new highs, buoyed by loosening conditions in China, even if geopolitical tensions in Iraq and Ukraine persist. US payrolls and consumer sentiment continue to improve even as the Fed maintains its close to zero benchmark interest rate. Chinese GDP growth was in line with government expectations while the preliminary PMI figures were above expectations. July saw the FSSTI rise approximately 3%, led by Financials, REITs and Telcos, while Commodities and Capital Goods. underperformed. Market volume remains weak with turnover remaining below the S$1b level. We keep our end-CY14 FSSTI target at 3,474 pts (13.8x CY15 P/E, -0.5 s.d. of FSSTI 10-year trading range). Our top picks are OCBC, FCT, GLP, Mermaid Maritime, OSIM, QT Vascular, Singtel, SingPost, ST Engineering, Thai Beverage, UOL.


The big call in July was to downgrade the banks as they rallied in the face of China optimism. We believe that investors are underestimating the concerns with the banks’ trade finance earnings drivers in recent years. The escalating fraud case in Qingdao could at worst, cause credit costs to rise, and at best, lead to a decline in associated trade fees and treasury as commodity import volumes into China shrink, with offshore banks more watchful of exposure. The other sector that saw progressive downgrades were the REITs sector as individual REITs approached their target prices. Essentially, all our overweight sectors worked in the last two months and the question we are asking ourselves is whether the stretch-for-yield theme has been too stretched and is it time to switch to downtrodden sectors, as sentiment towards a China easing and recovery builds up.

In Singapore, physical property volume has picked up slightly due to price cuts and new project launches. We expect developer’s margins to be under pressure due to a combination of restrictive policies, lower demand, higher vacancies, and cuts in government land supply. Plantations had a brief respite due to falling CPO stocks but remain under pressure from higher US soybean and lower demand from Indonesia. We are not positive on commodities sector right now. We continue to believe that the key to alpha for a Singapore portfolio, is to pick new names and structural growth stories outside of the big-cap sectors. Strong performance from our non-index picks recently had been QT Vascular, SingPost, CWT and OSIM.

Figure 33: CIMB Singapore top sector picks and least preferred

Financials Neutral

Property Neutral

REITs Overweight

Telcos Overweight

Transport Underweight

Capital Goods Neutral

Commodities Underweight

Gaming Neutral

Comsumer Neutral

Others

SATS, SIAEC, Swiber

Wilmar, Indofood Agri, Noble

Singtel Starhub

SingPost

OCBC UOB

City Dev, Wing Tai, HK Land

TOP PICKS LEAST PREFERRED

CCT, PCRT, FEHT

GLP, FCL, UOL, HoBee

FCT, OUEHT

SIA, Tiger, NOL

Keppel, STE, Mermaid

Biosensors

CWT

Thai Bev, OSIM, QT Vascular

Genting Singapore

Straco, OEL, Guocoleisure SOURCE:CIMB RESEARCH

Kenneth NG, CFA T (65) 6210-8610 E [email protected]


MSCI Singapore 4.0 5.2 7.1


FSSTI ^ 3.6 3.4 4.7

SGD-USD 0.1 (0.6) (2.0)



Consumer staples (0.5) (3.5) 13.0

Energy NA NA NA


Healthcare NA NA NA


IT NA NA NA

Materials NA NA NA


Utilities NA NA NA

MSCI Singapore 4.0 5.2 7.1


Index level 3,374

Index Target 3,474

PE (x) 15.5 14.5 13.3

EPS grow th (%) (3.9) 6.7 9.1

PBV (x) 1.47 1.41 1.33

Dividend yield (%) 3.42 3.51 3.72



Capital Goods

Commodities

Consumer

Gaming

Financials

Property

REITs

Telecom

Transport

—————————————————————————————————————————


August 11, 2014

26

Taiwan: financial takes turn on Tech retreat Dragged by tech, TAIEX retreated 2.6% to 9,316 from recent peak of 9,565 in early July. YTD, TAIEX advanced 8.2% YTD mainly driven by Electronics and Semiconductor sectors which gained 17% and 18%, respectively. We believe TAIEX consolidate likely continue in the near term due to rich valuation and Tech good news are in the market. We expect sector rotation to favor Financial on solid industry fundamental. However, the rally in Financial sector will be unable to weather Tech sector’s weakness.

Q2 was a traditional slow season for Tech, this year was extraordinary with revenue grow 7% and 4% QoQ and YoY largely thanks to better TV demand from Worldcup, preparation for iPhone launch and inventory pre-build in non-Apple smartphone camp. We expect Q3 Tech earnings growth to be moderate as demand was pulled ahead and base is higher. While Apple supply chain and PC ODM will still benefit from new product launch and PC replacement cycle in 2H, we see risk of tech stocks on the downside. Component overbooking in non-Apple supply chain is a risk. Moreover, we think market will likely response to Q3 earnings figures more conservatively as the reporting timing of late October is close to peak of tech seasonality. We continue to expect Financial sector outperform in Q3 as investor off-load tech. We expect Taiwan financials’ earnings to continue to improve in 2H14. We see further share price upside for the sector given improved returns and fair valuation, in the domestic context. Year-end elections, deregulations and the cross-Strait theme should be potential catalysts.

TSMC, Novatek, Hon Hai, Largan, Fubon FHC and CTBC remain our top picks. We add Compal, Chailease, King Grape and Poya to our top-10 pick and remove E. Sun FHC, Asus, Marida and Wowprime.


We believe Taiex has passed the peak of the year. We realign yearend Index target from 8,400 to 9,500 (post dividends adjustment). Our new Index target translates into 2.0x market PB. Taiwan Market valuation has reached 1.9x BV on ROE of 11%, close to historical peaks of 2.0-2.3x when market ROE reached 13%-16%. We think TAIEX is unlikely to break the 2.0x BV ceiling marked in 2010. Compared to the 2.3x valuation peak in July 2007 when GDP growth reached 6.0% and market ROE reached 13.4%, we see low single digit GDP growth in 2014 and 2015 unlikely to support further valuation upside.

We think dramatic sell off in the near term is unlikely as economy expansion continue in 2H and Central Bank likely keeps rate low prior to year-end metropolitan. DGBAS (Directorate General of Budget, Accounting and Statistics) announced Q2 GDP rose 3.84% yoy, the highest growth since the 4Q12 and beat DGBAS’s previous estimate of 2.79% made in May. Net export and domestic consumption contributed 1.2ppt and 2.6ppt of Q2 GDP growth. Electronics and Machinery sectors are major source of the export growth, up 4.36% YoY. Visitors arrive in Taiwan soared 32% during April-May also fueled the buoyant net export growth. Capital Formation grew 6.9%. While semiconductor capex slowed down, airplane procurements boost capital formation growth. Several institutions have been revising up Taiwan 2014 GDP growth projection to 2.98%-3.23%, from 2.59%-3.11% since early Q1 as macro conditions are stably improving with unemployment rate fell to 16-month low of 3.9% in May-June and CPI is controlled at moderate level of 1.6% yoy.

Eric LIN T (886) 2 8729 8380 E [email protected]

James CHEN T (886) 2 28729 8382 E [email protected]


MSCI Taiw an (1.2) 7.4 16.4


TAIEX ^ (0.8) 6.0 14.9

NTD-USD 0.4 (0.7) 0.0




Energy (1.8) 1.8 (1.8)


Healthcare (2.6) (11.2) (11.8)


IT (3.8) 7.2 25.3

Materials (1.2) 1.8 4.0

Telecoms (4.6) (2.2) (9.9)

Utilities NA NA NA

MSCI Taiwan (1.2) 7.4 16.4


Index level 9,316

Index Target 9,500

PE (x) 17.8 14.9 13.7

EPS grow th (%) 36.9 18.0 9.5

PBV (x) 2.07 1.91 1.77

Dividend yield (%) 2.67 3.01 3.34



Consumer Staples

Financials

Technology

—————————————————————————————————————————


August 11, 2014

27

Figure 34: Taiwan Market P/BV vs. ROE

-

0.50

1.00

1.50

2.00

2.50

0

2

4

6

8

10

12

14

16

18

1/12/2002 5/15/2004 9/9/2006 1/10/2009 5/21/2011 9/21/2013

ROE (%, LHS) PB (X, RHS)

SOURCE: CIMB RESEARCH, COMPANY

Figure 35: TWSEBKI vs. Electronics Index Figure 36: TWSEBKI P/BV vs. ROE

70

80

90

100

110

900

950

1,000

1,050

1,100

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

(%)(Index)

TWSEBKI Rel to Electronics Index (RHS)

0.7

1.1

1.5

1.9

2.3

2.7

(15)

(10)

(5)

0

5

10

15

20

3Q

03

1Q

04

3Q

04

1Q

05

3Q

05

1Q

06

3Q

06

1Q

07

3Q

07

1Q

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3Q

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1Q

09

3Q

09

1Q

10

3Q

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1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

(x)(%)

TWSEBKI ROE TWSEBKI P/BV (RHS)

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY


August 11, 2014

28

Thailand: musical chairs to end soon After buying aggressively since Mar 14, local institutions have started to take some profits. Foreign investors are coming back into the market while retail investors continue to sell down their holdings. Overall market sentiment remained positive in July as investors sensed more political stability. The junta’s plan to approve THB3tr worth of infrastructure projects also created market excitement, especially for the construction sector. With a c.4% jump in the SET index month-to-date, the market is now trading at 12x CY15 P/E, slightly above its 5-year historical average, which we believe is not cheap given the policy uncertainties ahead. We believe that the market has already priced in the near-term positives and is poised for correction. Our top picks are KTB, PS, BGH, THCOM, SPALI, MEGA, VGI, TISCO, SCC and RATCH.


Following the honeymoon period, we believe that the market now wants to see execution of the policies announced by the junta. It could be disappointed. Under the original timeline, a 220-member National Legislative Assembly (NLA) will be formed in Jul 14. The National Council for Peace and Order (NCPO) will choose NLA members who will then nominate the new Prime Minister. The new PM who is likely to be the head of the junta, General Prayuth Chan-ocha will then pick another 34 cabinet members by Sep 14.

The 250-member Reform Council will be established in Oct 14. This council will nominate 20 members of the constitution drafting committee while the NCPO, interim cabinet and NLA will nominate five members each. The NCPO will appoint the council’s chairman. As the reform process will take about a year, the next general election is planned for Oct 15.

Given that the military has sent in senior personnel to sit on various state enterprises’ board of directors and given the slow progress of each political milestone, we doubt if Thailand will hold the next election in October next year. This is likely to disappoint the market as well.

Meanwhile, as the NCPO wants to get rid of corruption, especially in the public sector, it has formed a State Audit Commission to approve any government or state enterprise project worth more than THB100m. As infrastructure projects are typically much larger than THB100m, this means that all of them will have to be approved by this committee. We believe that this will slow down project implementation, which will disappoint the market.

Apart from the construction sector, we believe that telecom and energy face higher policy risks as it is not yet certain what the junta plans to do. This could create an overhang over the next few months. The upshot is, given the 18% jump in the SET to date, we would not want to chase the market at this level. We would wait for the SET to correct to well below the 1,500 level.

Figure 37: SET's P/E band

Title:

Source:


4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

12M Fwd Core P/E

+2SD : 16.3

+1SD : 14.0

-2SD : 7.1

-1SD : 9.4

Mean : 11.7



MSCI Thailand 1.7 5.0 (0.2)


SET ^ 1.1 6.2 5.6

THB-USD (1.4) (1.0) 2.1



Consumer staples (2.1) 7.8 11.5

Energy 0.3 1.9 (2.2)




IT NA NA NA

Materials (3.3) (0.9) (2.8)

Telecoms (1.0) (3.7) (20.8)

Utilities 3.2 10.2 21.0

MSCI Thailand 1.7 5.0 (0.2)


Index level 1,502

Index Target 1,390

PE (x) 15.1 13.8 12.2

EPS grow th (%) 7.4 10.1 12.4

PBV (x) 2.10 2.08 1.89

Dividend yield (%) 3.00 3.20 3.55




Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Technology

Telecom

Utilities

—————————————————————————————————————————

Kasem PRUNRATANAMALA, CFA T (66) 2 657-922 E [email protected]

Suwat SINSADOK CFA FRM ERP T (66) 2 657-9228 E [email protected]


August 11, 2014

29

Vietnam: it’s 2013 all over again Top five picks: FPT, Vietnam’s leading technology company, trading at 9x P/E; MBB, the largest private sector bank, at 1x P/BV; PVD, an offshore oil driller, at 11x P/E; HPG, the region’s most profitable steel maker, set to benefit from infrastructure development; and GAS, a pipeline operator with 40% ROE. Note: both HPG and PVD have pre-announced very strong 1H results.


The VN-Index rose 2% in Jul and is now trading above the level it was at before the onset of tensions with China in May. Also, as China has now moved its controversial US$1bn oil rig out of the territorial waters claimed by Vietnam, the market’s focus is back on Vietnam’s progress in solving its NPL woes.

To paraphrase the American baseball guru Yogi Berra, we feel that Vietnam’s stock market is experiencing a “déjà vu all over again” this year. In 2013, the market was highly encouraged by the prospects of a clean-up of the country's NPL problem and a subsidised loan programme for buyers of affordable housing as well as by the promise of incremental progress towards SOE reform. The benchmark VN-Index increased 30% from Nov 2012 to Apr 2013, but when progress on these three catalysts for the market was not forthcoming, the index traded in a wide sideways range for the rest of the year.

In 2014, the VNI rose 20% from Dec 2013 to March 2014, encouraged by the prospects of a clean-up in the banks (again) and by hopes that the foreign ownership limits (FOL) were about to be raised. Unfortunately, we are starting to see parallels of the situation in 2013: the increase in the FOL has been delayed and the progress in cleaning up the NPLs has been very slow (circa US$500m of bad debts have been purchased, vs. US$1.8bn at the end of 2013, and the US$7bn target by end-2014).

It is beginning to look like the market will trade in a sideways range until later this year. That said, we do notice two important differences vs. the situation in 2013: 1) foreign buying of Vietnamese stocks has been much more aggressive this year, compared to 2013, and 2) the government has shown much clearer signs that it is aware that any delay in these key reforms will be problematic for the stock market. The government appears to be considering the interests and concerns of foreign investors, in particular, much more seriously than it had in the past, and the delays in cleaning up the NPL problem have generated a chorus of criticism from local economists and politicians.

Finally, we note that foreign investors poured about US$300m into Vietnam’s stock market this year, compared to US$280m in all of last year, and they bought Vietnamese stocks aggressively at the height of tensions with China.

Figure 38: VN-Index price chart – back to pre-China tensions levels

Title:

Source:


450

470

490

510

530

550

570

590

610

630

SOURCES: Bloomberg

Michael KOKALARI, CFA T (84) 90 797 4408 E [email protected]


MSCI Vietnam 4.0 1.5 16.0


VN-Index 3.1 3.1 21.2

VND-USD 0.0 1.0 1.0


Index level 557

Index Target 630




Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Technology

Utilities

—————————————————————————————————————————

China tensions


August 11, 2014

30

Appendix REGIONAL VALUATION TABLES AND CHARTS

Figure 39: IBES consensus forecasts Figure 40: Historical valuations

2014E 2015E 2016E 2014E 2015E 2016E 2014 2015

Australia 15.58 14.88 13.87 7.67 5.06 7.33 0.02 -1.80

China 9.58 8.68 7.84 7.79 10.37 10.74 -0.70 -1.19

Hong Kong 15.79 14.47 13.07 7.31 9.15 10.67 -0.55 -0.92

India 17.17 14.85 12.64 15.10 15.59 17.44 -0.81 0.14

Indonesia 15.81 14.02 12.38 10.33 12.82 13.20 -0.46 -0.82

Korea 10.59 9.28 8.47 14.93 14.15 9.48 -9.03 -7.64

Malay sia 16.49 15.03 13.96 3.13 9.70 7.68 -1.48 -1.84

New Zealand 21.92 19.93 17.98 3.08 9.98 10.84 -11.78 -12.82

Philippines 19.98 17.42 16.05 6.85 14.69 10.65 0.20 -0.05

Singapore 14.52 13.30 12.14 6.67 9.13 9.58 0.26 -0.62

Taiwan 14.94 13.72 12.63 18.02 9.54 8.84 7.42 5.47

Thailand 13.76 12.24 11.04 10.12 12.42 10.87 -3.87 -3.04

Consumer Discretionary 12.12 10.73 9.65 7.87 12.94 11.26 -3.50 -3.14

Consumer Staples 21.25 18.91 17.09 10.37 12.39 10.62 -1.22 -0.91

Energy 11.57 10.54 9.83 8.28 9.78 7.20 -1.44 -0.10

Financials 11.21 10.38 9.52 10.06 8.05 9.01 1.52 0.39

Health Care 23.98 20.65 17.61 18.21 16.15 16.54 0.82 1.44

Industrials 17.74 14.37 12.43 27.76 23.46 15.78 -7.05 -4.47

Inf ormation Technology 13.16 11.95 10.98 9.91 10.05 8.83 -0.52 -0.69

Materials 14.14 13.09 11.77 17.76 8.06 11.30 -4.89 -5.87

Telecom serv ices 16.53 15.38 14.38 -3.48 7.48 6.91 -4.95 -3.20

Utilities 15.33 13.93 12.86 16.86 10.06 8.36 -1.59 -2.14

Asia ex Japan 12.49 11.22 10.15 11.01 11.44 10.51 -1.13 -1.20

Asia Pacif ic ex Japan 13.14 11.94 10.88 10.88 10.13 9.74 -1.06 -1.31

P/E (x) EPS growth (%) 3m changes

in EPS est

(%)

Curr 5 yr

avg

Curr 5 yr

avg

Curr 5 yr

avg

Curr 5 yr

avg

Curr 5 yr

avg

Australia 14.71 12.94 2.09 1.95 4.22 4.31 12.23 11.64 11.41 11.73

China 9.04 10.27 1.42 1.92 3.32 2.78 14.73 15.19 7.42 8.59

Hong Kong 15.01 15.02 1.34 1.43 2.74 2.80 8.56 8.63 12.42 13.25

India 16.28 14.60 3.02 2.94 1.42 1.25 16.30 16.43 12.92 12.39

Indonesia 14.71 13.51 3.50 3.86 2.27 2.30 21.30 23.21 12.40 11.57

Korea 9.78 9.14 1.08 1.31 1.06 1.15 10.23 10.91 5.50 6.95

Malay sia 15.50 14.64 2.19 2.19 2.99 3.09 12.80 12.76 11.60 11.44

New Zealand 19.67 14.72 2.16 1.70 3.67 5.37 10.24 9.94 11.03 7.61

Philippines 18.37 16.01 3.03 2.85 1.60 2.33 13.73 15.22 14.99 12.45

Singapore 13.82 13.63 1.42 1.61 3.19 3.21 10.33 11.58 11.08 10.74

Taiwan 14.24 13.97 1.92 1.88 2.74 3.32 10.70 9.32 9.27 9.20

Thailand 12.82 11.22 2.05 2.19 3.08 3.13 14.68 15.41 9.26 9.39

Consumer Discretionary 11.27 11.42 1.94 2.16 1.79 1.87 15.46 15.16 8.90 9.96

Consumer Staples 19.61 16.91 2.86 2.78 2.76 2.86 12.03 13.94 15.74 14.32

Energy 10.94 11.08 1.38 1.86 3.48 2.95 10.99 13.90 6.53 8.14

Financials 10.69 11.30 1.37 1.50 3.80 3.66 11.57 10.98 12.06 14.36

Health Care 21.45 18.87 4.70 4.16 1.48 1.86 16.90 17.95 22.05 18.86

Industrials 15.44 13.17 1.40 1.53 2.33 2.35 6.64 8.92 9.86 9.89

Inf ormation Technology 12.45 11.96 2.12 2.18 1.51 1.99 16.91 13.07 7.15 8.31

Materials 13.61 11.54 1.56 2.03 2.80 2.49 10.17 12.92 8.37 10.01

Telecommunication serv ices 15.86 12.77 2.17 2.18 4.07 4.45 14.02 15.86 6.57 6.20

Utilities 14.45 14.20 1.62 1.56 2.66 2.95 8.78 7.51 8.73 10.10

Asia ex Japan 11.75 11.67 1.52 1.76 2.45 2.42 11.84 12.09 8.25 9.13

Asia Pacif ic ex Japan 12.39 11.96 1.64 1.80 2.90 2.93 11.92 11.97 8.75 9.56

12m forward

PE (x)

Trailing PB

(x)

Dividend

Yield (%)

ROE

(%)

Price/Cash

Earnings

SOURCES: CIMB, IBES, DATASTREAM SOURCES: CIMB, IBES, DATASTREAM

Janice TAI T (852) 2532 1127 E [email protected]


August 11, 2014

31

Figure 41: Contribution to 2015F EPS growth, by country Figure 42: Contribution to 2015F EPS growth, by sector

0.0

0.5

1.0

1.5

2.0

2.5

AU CH HK IN ID KR MY NZ PH SG TW TH

(%)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

CD CS EN FN BN RE HC ID IT MA TS UT

(%)


Figure 43: Earnings momentum of Asia ex-Japan Figure 44: Trailing P/BV vs. ROE, by sector

-50

-40

-30

-20

-10

0

10

20

30

Jul-94 Jul-98 Jul-02 Jul-06 Jul-10 Jul-14

(%)

Earning Momentum 12 WMA

Earnings Momentum = ( # Up Revisions - # Down Revisions ) / Total # Estimates


Consumer Staples

EnergyFinancials

Health Care

Industrials

Information Technology

Materials

Telecom services

Utilities

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.0 7.0 9.0 11.0 13.0 15.0 17.0 19.0

P/B

ROE

Expensive

Cheap


Figure 45: Trailing P/BV vs. ROE, by market Figure 46: 2014F P/E vs. 2015 EPS growth

Australia

China

Hong Kong

India

Indonesia

Korea

MalaysiaNew Zealand

Philippines

Singapore

Taiwan Thailand

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

5.0 7.0 9.0 11.0 13.0 15.0 17.0 19.0 21.0 23.0

P/B

ROE

Expensive

Cheap

China

Hong KongIndia

Indonesia

Korea

Malaysia

New Zealand

Philippines

SingaporeTaiwan

Thailand

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 16.0

P/E

EPS growth

Expensive

Cheap



August 11, 2014

32

Figure 47: MSCI – YTD Price Return Analysis by Country and Sector (Local currency)

MSCI PerformanceConsumer

Discretionary

Consumer

Staples

Energy Financials Health Care Industrials Information

Technology

Materials Telecom

Services

Utilities Real Estate Market

ASIA PAC -1.8% 4.9% 2.8% 1.3% 4.7% 2.7% 8.3% 0.2% 0.3% 3.9% 2.9% 2.3%

ASIA PAC ex JAPAN 2.2% 3.8% 2.7% 6.7% 5.6% 3.3% 10.9% 1.0% 6.8% 9.2% 10.2% 5.8%

ASIA -1.9% 6.1% 2.5% 0.0% 6.0% 2.5% 8.3% 0.0% -0.1% 3.6% 0.9% 2.1%

ASIA ex JAPAN 2.1% 5.7% 2.3% 7.4% 12.4% 2.7% 11.0% 1.3% 7.0% 9.5% 9.3% 6.5%

AUSTRALIA 3.7% 0.9% 4.3% 5.8% -0.7% 6.6% 13.4% 0.8% 2.9% 7.3% 12.9% 4.0%

CHINA 0.1% -8.5% 4.6% -0.2% -3.9% -2.6% 25.3% 1.0% 6.1% 6.7% -0.8% 3.5%

HONG KONG -8.0% na na 12.2% na 6.7% 25.5% na 28.0% 7.8% 14.4% 7.6%

INDIA 18.3% 8.6% 14.4% 28.8% 19.9% 35.5% 4.3% 28.4% 5.5% 18.3% 20.4% 17.2%

INDONESIA 15.2% 15.0% 4.6% 30.9% 38.4% 24.1% na 20.3% 22.7% 31.8% 21.4% 23.1%

JAPAN -3.9% 6.6% 3.6% -11.4% 4.4% 2.4% 3.2% -1.2% -7.7% -5.7% -9.4% -2.4%

KOREA 6.3% 20.4% -24.0% 4.3% 0.8% -3.5% -0.5% -1.8% 3.4% 18.6% na 1.7%

MALAYSIA -1.7% 0.0% -20.7% -3.2% 21.5% 1.1% na -2.0% 3.6% 1.9% -19.0% -1.4%

PHILIPPINES 1.3% 43.2% na 20.3% na 14.2% na na 13.1% 11.4% 16.3% 17.4%

NEW ZEALAND na na na na 2.3% 0.3% na 4.7% 23.0% 7.2% na 5.4%

SINGAPORE 0.8% 6.6% na 5.1% na 2.5% na na 8.7% na 6.7% 4.7%

TAIWAN -2.4% 8.6% -6.2% 3.8% -17.8% 2.2% 18.7% -4.9% -1.8% na -4.7% 10.0%

THAILAND 20.5% 2.3% 2.7% 24.3% 49.9% 19.9% na -0.7% 11.0% 22.3% 13.4% 12.7%

MSCI PerformanceConsumer

Discretionary

Consumer

Staples

Energy Financials Health Care Industrials Information

Technology

Materials Telecom

Services

Utilities Real Estate Market

ASIA PAC 25.1% 12.6% -7.4% 8.1% 21.9% 10.5% 7.8% -1.2% 18.4% 8.8% 4.0% 9.9%

ASIA PAC ex JAPAN 4.2% 4.0% -9.3% 1.6% 15.3% -3.5% 3.8% -9.1% 1.3% 0.5% -5.8% 0.1%

ASIA 25.3% 12.8% -12.1% 5.1% 22.7% 10.4% 7.8% 2.9% 19.1% 9.4% 4.1% 9.9%

ASIA ex JAPAN 3.3% -0.9% -15.1% -6.1% 10.3% -6.4% 3.8% -11.5% 0.2% 0.0% -9.1% -3.4%

AUSTRALIA 19.7% 12.6% 13.2% 17.8% 19.8% 12.6% 7.3% -7.0% 12.1% 4.4% 3.5% 10.9%

CHINA -7.3% 2.6% -19.0% -10.3% 0.2% -7.7% 36.1% -22.9% -7.2% 11.9% -2.5% -7.6%

HONG KONG 16.6% na na -3.6% na 2.7% -18.8% na -1.3% -2.6% -9.8% -0.5%

INDIA -9.4% 10.6% -4.7% -24.1% 15.7% -37.1% 45.0% -24.0% 18.1% -22.1% -46.0% -4.9%

INDONESIA -18.9% 5.5% -30.5% -8.3% 27.4% -14.8% na -17.1% 11.4% 17.4% na -7.0%

JAPAN 39.6% 29.7% 9.1% 30.3% 25.3% 21.3% 16.4% 23.4% 60.4% 27.9% 31.8% 28.9%

KOREA 9.4% -17.5% -21.5% -0.5% -4.9% -8.6% -4.4% -11.2% 42.5% -4.1% na -3.8%

MALAYSIA 2.5% 0.7% 10.8% 3.8% 19.0% 4.6% na 2.6% -3.1% 8.6% 20.0% 3.6%

PHILIPPINES 57.8% 43.0% na 0.8% na -0.8% na na 20.1% -13.2% -0.9% 4.9%

NEW ZEALAND 2.9% na na na na 15.4% na 4.4% 0.0% 1.9% na 4.5%

SINGAPORE -10.9% -8.7% na -2.3% na -10.0% na na 6.7% na -12.4% -4.1%

TAIWAN 11.9% 16.6% -11.6% 13.2% 24.9% -1.5% -0.3% -1.1% 0.7% na 6.9% 2.6%

THAILAND -29.1% -22.9% -5.8% -15.6% 13.7% 68.1% na -11.6% 7.8% -19.0% -9.5% -10.8%

Colour Gradient Scale: Highest Value Mid-Point Lowest Value

Prices as at 01/08/2014

SOURCES: CIMB, DATASTREAM

Figure 48: Asia Pac ex Japan Weights

Asia Pac ex Japan

Weights

Consumer

Discretionary

Consumer

Staples

Energy Financials ex

Property

Health Care Industrials Information

Technology

Materials Telecom

Services

Utilities Real Estate Country

ASIA PAC ex JAPAN 8.0% 6.3% 5.7% 29.7% 2.3% 7.9% 15.9% 8.7% 5.3% 3.4% 6.8% 100.0%

AUSTRALIA 0.4% 2.3% 1.4% 11.0% 1.0% 1.4% 0.1% 4.5% 0.5% 0.4% 1.9% 25.0%

CHINA 1.0% 1.0% 2.6% 5.9% 0.3% 1.2% 2.5% 0.5% 2.0% 0.7% 1.0% 18.6%

HONG KONG 1.6% na na 2.8% na 0.9% 0.1% na 0.1% 1.1% 2.8% 9.4%

INDIA 0.4% 0.7% 0.8% 1.2% 0.5% 0.4% 1.3% 0.5% 0.2% 0.3% 0.0% 6.3%

INDONESIA 0.4% 0.3% 0.1% 0.8% 0.1% 0.1% na 0.2% 0.3% 0.1% 0.1% 2.5%

KOREA 2.8% 0.8% 0.3% 2.1% 0.1% 1.7% 5.4% 1.3% 0.2% 0.3% na 14.9%

MALAYSIA 0.3% 0.4% 0.2% 1.2% 0.1% 0.5% na 0.2% 0.4% 0.4% 0.1% 3.7%


NEW ZEALAND na na na na 0.1% 0.1% 0.0% 0.1% 0.1% 0.0% na 0.4%


TAIWAN 0.5% 0.3% 0.1% 2.0% 0.0% 0.3% 6.5% 1.2% 0.5% na 0.1% 11.4%

THAILAND 0.1% 0.2% 0.4% 0.7% 0.1% 0.1% na 0.2% 0.2% 0.0% 0.0% 2.1%

Asia Pac ex Japan

Weights

Consumer

Discretionary

Consumer

Staples

Energy Financials ex

Property

Health Care Industrials Information

Technology

Materials Telecom

Services

Utilities Real Estate Country

ASIA PAC ex JAPAN 7.8% 6.4% 6.3% 29.7% 2.1% 7.8% 14.5% 9.3% 5.6% 3.3% 7.3% 100.0%

AUSTRALIA 0.5% 2.4% 1.5% 11.1% 1.2% 1.3% 0.1% 4.7% 0.5% 0.4% 1.9% 25.6%

CHINA 1.0% 1.1% 2.8% 6.0% 0.2% 1.1% 1.6% 0.6% 2.2% 0.6% 1.2% 18.6%

HONG KONG 1.4% na na 2.7% na 1.0% 0.2% na 0.1% 1.2% 2.9% 9.6%

INDIA 0.3% 0.6% 0.7% 1.4% 0.4% 0.2% 1.2% 0.4% 0.1% 0.2% 0.0% 5.5%

INDONESIA 0.4% 0.3% 0.1% 0.7% 0.1% 0.1% na 0.2% 0.3% 0.1% 0.1% 2.4%

KOREA 2.8% 0.7% 0.4% 2.0% 0.1% 1.8% 5.5% 1.5% 0.1% 0.2% na 15.0%

MALAYSIA 0.4% 0.4% 0.2% 1.0% 0.1% 0.4% na 0.2% 0.5% 0.4% 0.0% 3.6%


NEW ZEALAND 0.0% na na na na 0.1% na 0.1% 0.1% 0.0% na 0.4%


TAIWAN 0.5% 0.4% 0.1% 1.9% 0.0% 0.4% 6.0% 1.4% 0.6% na 0.1% 11.2%

THAILAND 0.1% 0.2% 0.5% 0.8% 0.0% 0.1% na 0.3% 0.2% 0.0% 0.0% 2.3%

Colour Gradient Scale: Highest Value Mid-Point Lowest Value

Prices as at 01/08/2014

SOURCES: CIMB, DATASTREAM


August 11, 2014

33

Figure 49: MSCI Country Index performance Figure 50: MSCI Sector Index performance

Weight Local Currency Index (%) Common Currency Index (%)

(%) 1M 3M 12M 1M 3M 12M

World -0.8 3.0 15.9 -1.6 2.3 16.6

Asia Pac xJapan 4.2 8.3 16.9 3.6 8.8 19.5

Australia 25.0 4.4 3.5 16.9 2.9 3.8 21.1

China 18.6 8.2 17.0 20.4 8.2 17.0 20.5

Hong Kong 9.4 6.0 11.8 19.7 6.0 11.8 19.8

India 6.4 1.8 15.7 32.0 1.2 15.3 32.6

Indonesia 2.5 5.7 7.7 15.6 8.2 7.5 2.6

Korea 14.9 3.4 6.0 12.0 1.8 6.5 22.4

Malaysia 3.7 -0.4 0.2 6.8 0.1 2.4 8.4

New Zealand 0.4 1.4 -5.6 16.8 -1.7 -6.7 24.6

Philippines 0.9 0.4 3.1 6.9 0.8 5.7 6.8

Singapore 4.7 4.3 5.3 8.7 4.2 5.9 10.9

Taiwan 11.3 0.8 8.7 19.8 0.4 9.5 19.8

Thailand 2.1 0.6 4.3 5.8 1.7 5.1 3.2

Weight

(%) 1M 3M 12M

Asia Pac xJapan 3.6 8.8 19.5

Consumer Discretionary 8.0 4.1 7.2 20.7

Consumer Staples 6.2 3.6 4.4 12.4

Energy 5.7 0.8 7.6 13.1

Financials 36.6 5.9 11.0 18.6

Health Care 2.3 2.4 5.6 16.0

Industrials 7.9 0.8 6.8 19.0

Information Technology 15.9 -0.3 9.5 33.7

Materials 8.7 4.6 6.1 19.3

Telecommunication services 5.3 7.0 10.1 8.2

Utilities 3.4 0.7 7.7 16.7

Common Currency Index (%)

SOURCE: DATASTREAM SOURCE: DATASTREAM

Figure 51: Broader equity markets (by local index, in US$ terms) Figure 52: Broader equity markets by local index

9.0

8.0

7.5

6.8

3.7

2.9

2.1

2.0

1.5

1.1

0.4

-0.1

-0.4

-0.8

-0.8

-1.4

-1.4

-1.4

-1.5

-2.5

-6.1

-6.4

-8 -6 -4 -2 0 2 4 6 8 10

HSCEI

Shanghai SE A Share *

HSI

Jakarta Composite *

Straits Times Index

S&P/ASX200

Korea Composite *

SET

Nikkei 225 *

Sensex *

Philippines Composite

FTSE KL Composite

BSE 500 *

NASDAQ

Toronto Comp

S&P 500

FTSE 100

Dow Jones

Taiwan Wgtd Index *

NZSE All

CAC 40

Dax 30

Index Return (%)

Local Currency (%) USD (%)

1M 3M 12M 1M 3M 12M

Asia Pacific

Australia S&P/ASX200 4.4 3.5 16.5 2.9 3.6 20.6

China Shanghai SE A Share * 7.5 8.7 10.5 8.0 10.1 9.7

China HSI 7.5 14.8 17.9 7.5 14.9 18.0

Hong Kong HSCEI 9.0 18.3 20.3 9.0 18.3 20.4

India Sensex * 1.9 15.5 33.9 1.1 15.1 34.5

India BSE 500 * 0.4 17.9 40.7 -0.4 17.4 41.4

Indonesia Jakarta Composite * 4.3 5.1 10.4 6.8 5.0 -3.6

Japan Nikkei 225 * 3.0 9.2 14.3 1.5 8.6 8.5

Malaysia FTSE KL Composite -0.5 0.7 8.8 -0.1 2.7 10.5

New Zealand NZSE All 0.5 -1.5 13.3 -2.5 -2.8 20.7

Philippines Philippines Composite 0.3 1.7 5.6 0.4 3.9 5.2

Singapore Straits Times Index 3.8 4.0 8.1 3.7 4.5 10.0

South Korea Korea Composite * 3.7 5.8 8.5 2.1 6.4 17.7

Taiwan Taiwan Wgtd Index * -0.8 6.0 14.9 -1.5 6.3 14.6

Thailand SET 1.2 6.6 9.4 2.0 7.1 6.5

North America

USA S&P 500 -1.4 3.0 16.9

USA Dow Jones -1.4 0.5 9.4

USA NASDAQ -0.8 6.5 22.0

Canada Toronto Comp 1.4 5.4 26.5 -0.8 5.9 18.7

Europe

U.K. FTSE 100 -0.1 0.0 5.3 -1.4 0.1 16.9

Germany Dax 30 -4.3 -2.0 13.7 -6.4 -5.4 14.4

France CAC 40 -4.0 -3.4 9.9 -6.1 -6.7 10.6 All Indices are total return except those marked *

SOURCE: DATASTREAM SOURCE: DATASTREAM

Figure 53: Performance of major currencies against the US$ Figure 54: Commodity performance

Country Currency Last Performance (%)

1M 3M 12M

Australia AUD 0.930 -1.4 0.1 3.5

China CNY 6.174 0.5 1.4 -0.7

Hong Kong HKD 7.750 0.0 0.0 0.1

India INR 60.55 -0.8 -0.3 0.5

Indonesia IDR 11,578 2.3 -0.1 -12.6

Malaysia MYR 3.197 0.4 2.0 1.5

New Zealand NZD 0.850 -2.9 -1.3 6.5

Philippines PHP 43.61 0.0 2.1 -0.4

Singapore SGD 1.248 -0.1 0.5 1.8

South Korea KRW 1,028 -1.6 0.5 8.5

Taiwan TWD 30.06 -0.6 0.3 -0.2

Thailand THB 32.19 0.8 0.5 -2.7

U.K. GBP 1.689 -1.3 0.1 11.0

Europe EUR 1.339 -2.2 -3.5 0.7

Canada CAD 1.091 -2.2 0.5 -6.1

Japan JPY 102.80 -1.5 -0.5 -5.0

Last Price 1 Month 3 Month 6 Month 12 Month YTD

Base Metals

Copper USD/MT 7,136 1.3% 7.1% 0.6% 3.8% -3.3%

Lead USD/MT 2,219 3.5% 6.6% 5.9% 7.8% 1.3%

Zinc USD/MT 2,378 7.4% 16.5% 21.1% 31.8% 15.8%

Aluminium USD/MT 1,979 6.6% 12.7% 19.0% 12.6% 12.8%

Nickel USD/MT 18,436 -2.8% 0.8% 32.4% 33.6% 33.3%

Precious Metals

Gold USD/OZ 1,283 -3.4% -0.7% 3.1% -3.2% 6.4%

Silver USD/OZ 20.4 -3.0% 6.2% 6.4% 2.7% 4.8%

Platinum USD/OZ 1,461 -1.7% 2.5% 5.9% 1.5% 6.7%

Soft Commodities

Soy Index Level 295 0.0% -3.3% -1.7% -6.3% 18.0%

Corn Index Level 1100 739.7% 727.1% 714.8% 587.5% 746.2%

Bulk Commodities

Baltic Freight index Index Level 755 -11.2% -19.9% -32.0% -28.9% -66.8%

Steaming coal USD/MT 67.05 -4.7% -7.8% -16.1% -13.0% -20.7%

Energy

Oil USD/barrel 98.2 -6.8% -1.6% 0.7% -6.5% -0.3%

Natural Gas USD/MMBtu 3.84 -13.9% -20.2% -22.3% 11.5% -9.2% SOURCE: DATASTREAM SOURCE: BLOOMBERG


August 11, 2014

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RECENT PUBLICATIONS

Equity Strategy: Navigating Asia – July 14: Going for growth | 7 July 2014 | PDF

▌Asia is pro-cyclical and remains a value asset vis-à-vis world equities. Corporate leverage is not high and at 12x forward earnings, there is a reasonable cushion for bond yields to move higher. After a strong 1H, SE Asia is once again beginning to look stretched versus North Asia. We think relative performance will normalise but a period of severe rotation is unlikely, with positioning and valuations less extreme, on top of a broad improvement in external vulnerabilities (C/A deficits, FX & reserves) for the former. China’s growth has stabilised and should improve in 2H, pulling the equity market and regional returns higher. Use short-term weakness as a buying opportunity.

Economic Focus: China: Rebalancing intentions unchanged | 23 June 2014 | PDF

▌Even as policy is cushioning the downturn in fixed asset investment in the short term, the authorities’ longer-term policy commitment to rebalancing the economy away from investment and toward consumption is intact. This story will unfold over several years and carry profound implications for both China and the region.

Economic Focus: Thailand: Getting strategic with policy | 18 June 2014 | PDF ▌The NCPO or military government will not govern Thailand forever. It has indicated that it will be there for about 15 months or so, after which there will be another civilian government. What will this do for the economy during this time? We believe its policy strategy will be to create an economy that gives the opposition the best chance to win the next election. That means fiscal policy will need to boost incomes as quickly as possible but not appear overly populist or irresponsible. For the long term, productivity in agriculture needs to rise for that ultimately drives real incomes and the standard of living. If done properly, the economy may see better times than most forecasters currently believe. Policy rates should stay soft, as should longer-term yields. Paradoxically, the Thai baht may weaken even more as growth picks up

Equity Strategy: Navigating Asia - June-14: Taming temptation | 5 June 2014 | PDF

▌The tailwind from a benign global backdrop of low bond yields and market volatility, which has allowed endogenous factors to dominate country returns, cannot get much better. Volatility has been supressed but is not dead, and rates are likely to follow the uptrend in growth despite recently tamed market expectations. Interest rate-sensitive stocks have been given a reprieve but we are sellers into strength (particularly HK real estate). Our stock/country selection will be determined by politics and central bank action, underpinning the trade growth. We prefer cyclicals, value to growth stocks and politically leveraged (aspirational) sub-groups but hedge our bets with dividend growers.

https://brokingrfs.cimb.com/5EL9s9kIc-UZbuBLrQSPzBOJWfNlO7wpaK8i_VAfsrB1r4ev-eFny52JWhl1Pp1qGwhIJYDoim81.pdf

https://brokingrfs.cimb.com/lztg-yBJQ2hUPhmal9c2NrEbLVowmL3zEedzwcrXeAdQqkTa8gKSZmqLJdUi5v3t0yxNEPR1dZg1.pdf

https://brokingrfs.cimb.com/bpeNbZwi09-n7g872bl0UfF5-qXl0JVUD3smWRg6vdtF5PMgGLUdjuo2CDoM0uDX_erQniMuTXI1.pdf


August 11, 2014

35

Asia Pacific Economic Compass: Good Times, Again | 3 June 2014 | PDF

▌We believe that the pace of global economic activity will pick up this year. The US will lead but growth in Europe has also been gaining traction and, in Japan, we can cautiously say that stimulus is slowly leading to autonomous growth in domestic demand. Against this backdrop, we are looking for a strong cyclical upswing in Asian (including China) growth in 2H14. North Asia should do better than ASEAN and, within ASEAN, Malaysia and Singapore are expected to benefit the most from a global uptick. We project general US$ strength against both the euro and the yen and most Asian currencies. Interest rates across the region should follow the Fed, which effectively means that they will stay pat. However, there are likely to be some exceptions.

Equity Strategy: Blurred lines | 13 May 2014 | PDF

▌Asian earnings are now less than 1% off their previous all-time high set in Jun 2011. However, the composition of the earnings basket has changed dramatically. Industrials and Materials have seen their earnings decline a staggering 40% over this period. In contrast, Information Technology has seen its earnings rise by over 40%. Financials, which are flirting with record-low valuations, are set to post record high earnings and Consumer Staples – the stalwart of the structural consumption trade – have seen their earnings underperform Consumer Discretionary by a whopping 32% over the same period. On price alone, Financials are over earning (too cheap), staples are under earning (too expensive) and consumer discretionary deserves a “staples” like price premium. The market is not rewarding strong earnings momentum or penalising poor earnings momentum. This disconnect, driven by positioning, flows and risk cannot persist.

Equity Strategy: Stock, not style, rotation | 4 May 2014 | PDF

▌The past three months have seen a sizeable rotation into value stocks. We first highlighted the potential for this in our January “Tipping Point” report. Momentum (new economy) stocks, while down, are not broken. They have become too expensive and too well held. However, just like the consensus got too bearish on old economy stocks, it is now at risk of becoming too bearish on new economy stocks. Value will re-rate further, driven in large part by improving growth transparency, but momentum stocks are also much more attractive given the sharp de-rating and ongoing structural attraction. We are in the midst of a stock, not style-driven, rotation. Buy cheap - either value or momentum.

Economic Focus - China: Forget the landing, could the economy fly again? | 29 April 2014 | PDF

▌We think that instead of the landing that many are expecting, there are compelling reasons to believe that China’s economy is close to a cyclical bottom and its growth rates in the second half of the year are likely to be significantly higher.

https://brokingrfs.cimb.com/wUR_Eol6g78Bta4UTJ2Ci-BWV_-04lqZeIKwkxv1_0whTKRCzpR8SFSaCBtvwy-e_aLgOLGfGFo1.pdf

https://brokingrfs.cimb.com/XENorjC9sw-dDUaqNa1T1OtQ-UtMWiqSIi3UFhtD1bpzT-9y8J3e0ZVMBmwcURZW2BaBM0aUaNU1.pdf

https://brokingrfs.cimb.com/NHwe-fB6vrx62B5tjoIW9_xuN5H1lRgI41nMfBvXzY6upquzgiUEjbvNAHihDOJax1d56WkGf9A1.pdf

https://brokingrfs.cimb.com/DbBih68t_a2Z2cMUbjFQvurYDVXG0M87a9472R89qnhQ_65Kf7VB6l0KGLEfPz_8VaD1ExPAflI1.pdf


August 11, 2014

36

Economic Focus: Thai economy: The politics aside | 3 April 2014

| PDF

▌The consensus belief is that once the political situation is resolved, the Thai economy should rebound quickly. We are not so sure. We believe there are good reasons to be cautious about the current state of the economy and expect sub-trend growth for the next 12-18 months.

Strategy Flash Note: Upgrading Thailand | 20 February 2014 | PDF

▌We are upgrading Thailand from Neutral to Overweight. We do not expect a speedy resolution to the current political stalemate, but think that the worst of street politics is behind us. Growth estimates have not yet bottomed but the magnitude of estimate revisions is getting smaller. At 10x forward earnings, the market has sufficient cushion to absorb this revision path. With expectations low and the baht showing signs of stabilisation, the potential for positive surprises is rising – creating an asymmetric risk skew. We are buyers of selected financial, tourism and consumer discretionary stocks but still remain cautious on property & construction (see today’s strategy note from Kasem Prunratanamala, “Light at the end of the tunnel”). We think that the maximum point of uncertainty surrounding politics has passed. Economic and earnings growth estimates will fall further but provided that such dips are confined to 2014 and do not begin to impact 2015, then the market has sufficient cushion to absorb these downgrades.

Equity Strategy: Quacks like a duck... is it a duck? | 5 February

2014 | PDF ▌Significant differences exist across countries that fall under the “emerging” banner. In a crisis scenario, there will be no safe house – developed markets included. In a scenario where markets are reacting to tapering and other country-specific risks, the outlook for emerging Asia remains challenging, but not calamitous. Near-term risks are still on the downside, with vulnerability to shocks rising as policy makers counter currency weakness. We expect the recent loss leadership of North Asia (+ Singapore) to begin evening out as the concern for markets shift back to tightening from growth.

Equity Strategy: Tipping point | 26 January 2014 | PDF

▌The weight of consensus calls and a desire to stick with trades that are working has driven the valuation skew to a record level by creating the illusion of safety in certain areas (growth) and the illusion of vulnerability in others (value). Tactically there may be a final melt up that drives strong momentum stocks to expensive levels vis-a-via value where the latter lacks a broad re-rating catalyst. However, strategically we think the bet against value does not offer good risk-reward. The pain trade is not a rebound in value but weakness in strong momentum stocks where positioning is heavy but conviction levels waning. Stocks fitting our “value + improving fundamental” criteria are: CNBM, Bukit Asam, Golden Eagle, Indo Tambangraya and Wistron.

https://brokingrfs.cimb.com/BarE2yPKTSU0At46F3Alz5nerv1CBRuQwanbJJemphJEshW3-hF5SxvLexZNhBHWSxwt1keJXsk1.pdf

https://brokingrfs.cimb.com/ftRFwmJyWxjyXCRhNVHc9lkADjcuyTCeAlQlVB_q8sjttaBf2sIFYGDaQE-FXM4UR4NR7UZvVcI1.pdf

https://brokingrfs.cimb.com/AtGDjr4GcmAHZVZKLehHD2sdzJPRmuw6AxyMtqLWJpeqpxhEtRCw9AtyQRPKeBFjnErtcilXywI1.pdf

https://brokingrfs.cimb.com/DqDqgj0L2qgJ10eSbH_3IgpBkP8LB3KkF3UWU2zZrHwz34Cy7HYak0BL5U50bQ-Jtyg9Rdndvvk1.pdf


August 11, 2014

37

Equity Strategy: New melody, new dance | 12 January 2014 | PDF

▌Asia will find it harder to generate and support economic growth as the dual tailwinds of loose monetary and fiscal policies unwind. Collectively, Asian fundamentals are not bad and fears of a regional demise are overdone. The ASEAN structural story remains intact, a Chinese slowdown is now a consensus view and Japan is an underappreciated tailwind. Complacency has evaporated and bearishness is pervasive. In early 2013 no one wanted to sell ASEAN and now, we cannot find a buyer. The path to higher will not be straight but we expect Asian markets to surprise consensus expectations on the upside through year-end.

https://brokingrfs.cimb.com/KDtHfqqdciTgE2j1rR7V4HjmCgCb8Rlmdm752eVYHIHsjRMB2ky-dRTMwICfmZ3Fll1D2BBFUpg1.pdf


August 11, 2014

38

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August 11, 2014

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Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result

Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorised and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge,


August 11, 2014

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London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”); (c) are persons falling within Article 49 (2) (a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent "investment research" under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research.

United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (Australia) Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Rating Distribution (%) Investment Banking clients (%)

Outperform/Buy/Trading Buy/Add 58.9% 7.2%

Neutral/Hold 27.9% 3.9%

Underperform/Sell/Trading Sell/Reduce 13.2% 1.0%

Distribution of stock ratings and investment banking clients for quarter ended on 30 June 2014

1467 companies under coverage for quarter ended on 30 June 2014

CIMB Recommendation Framework

Stock Ratings Definition

ADD The stock’s total return is expected to exceed 10% over the next 12 months.

HOLD The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

REDUCE The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

*Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were based on a stock’s total return relative to the relevant benchmarks total return. Outperform: expected to exceed by 5% or more over the next 12 months. Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy: expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed on Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% or more over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative total returns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expected negative total returns of 10% or more over the next 3 months.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013. AAV – Good, ADVANC - Excellent, AMATA - Very Good, ANAN – Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH – Good, BCP - Excellent, BEC - Very Good, BGH - not available, BJC – Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET – Very Good, CENTEL – Very Good, CK - Excellent, CPALL - Very Good, CPF – Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EGCO – Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY – Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Excellent, ITD – Very Good, IVL - Excellent, JAS – Very Good, KAMART – not available, KBANK - Excellent, KKP – Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR – Very Good, MAKRO – Very Good, MCOT - Excellent, MEGA – not available, MINT - Excellent, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS – Excellent, SAMART – Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI – Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, TCAP - Excellent, THAI - Excellent, THCOM – Excellent, TICON – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW – Excellent, TUF - Very Good, VGI – Excellent, WORK – Good.

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