China Auto Dealer Trip

www.morganmarkets.com

Asia Pacific Equity Research17 September 2012

China Auto Dealer Trip Worst behind us; what opportunity and risks still lie ahead?

Auto & Auto Parts Retailing

Nick Lai AC

(886-2) 2725-9864

[email protected]

J.P. Morgan Securities (Asia Pacific) Limited

Jin Luo

J.P. Morgan Securities (Asia Pacific) Limited

See page 9 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Four positive takeaways from our China auto dealer trip: We visited all major listed dealers and selective showrooms in Shanghai and Beijing recently- including ZhengTong (1728 HK, OW), Baoxin (1293 HK, OW), ZhongSheng (881 HK, NC) and Yongda (3669 HK, NC). Dealers' share prices have corrected sharply since May as a result of fierce price competition and rising inventory pressure. These obviously are behind us. Collective and encouraging guidance from the management includes:1. Pricing has stabilized with narrowing discount: This is especially

obvious in luxury segment but less so in upper-mid end cars. Taking BMW’s 5-series sedan as an example, current discount is ~2-3% depending on models but would soon become zero next month as BWM introduces 2013E model. Volvo's best selling XC60 SUV is another example- where discount has narrowed to ~2% now vs. 4-6% in 2Q12. It is hence not a surprise that all companies believe margin in 2H12 shall improve from 1H12.

2. Inventory pressure also eases: One interesting finding is showroom footfall has conversely improved in 3Q12 despite a narrowing discount or higher selling price; this is because customers adopted wait-and–watch strategy in 2Q12 when price fell but are now coming back. Inventory days have dropped by 2-8 days in Jul/Aug vs. 2Q12 depending on companies.

3. Support from automakers helpful: This comes in various forms and not necessary just higher rebate, for instance, subsidizing dealer’s financing cost or sharing dealer's marketing expense.

4. Automakers more pragmatic about 2012 sales target: Based on our discussions with the management and industry checks, we believe Volvo has potentially trimmed its 2012 sales target in China byaround 20% while BMW and Audi by ~5-10%. Of note the BMW’s revision of sales target applies to imported models rather than domestic models-made by Brilliance China.

Opportunity and risk from here: M&A is the most efficient way to expand market share and geographic presence in China. Baoxin’s recent acquisition of NCGA is a good example. ZhengTong had similar M&A in 2011. Based on our discussion with all the four management, we believe ZhongSheng would be the only one with financial capacity to conduct a meaningful size of M&A should suitable opportunities arise in the next 12 months. Execution of M&A and turn the underlying target profitable is the main challenge though. This is likely to be the reason of Baoxin's share price lagging behind ZhengTong and ZhongSheng in the last 1-2 months in our view. In this report, we also perform a sensitivity analysis on potential profit contribution from Baoxin's recent acquisition.

Recommendation: We maintain OW on ZhengTong and Baoxin in our China auto dealer coverage.

Absolute share price performance of four main listed dealers in China

1M 3M YTDBaoxin(1293) 15% -15% -44%

ZhengTong(1728) 23% -7% -4%

ZhongSheng(881) 8% -5% -23%

Yongda (3669)* 1% NA NA

Source: Bloomberg. * Yongda listed in July 2012.

Relative share price performance of four main listed dealers in China

1M 3M YTDBaoxin (1293) 11% -20% -54%

ZhengTong (1728) 18% -11% -15%

ZhongSheng (881) 4% -10% -34%

Yongda (3669)* -2% NA NA

Source: Bloomberg. * Yongda listed in July 2012.

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Nick Lai(886-2) [email protected]

Positive takeaways from our China auto dealer trip

We visited all major listed auto dealers in China in the last few days, including ZhengTong (1728 HK, OW), Baoxin (1293 HK, OW), ZhongSheng (881 HK, NR) and Yongda (3669 HK, NR). Collectively these dealers carry mostly luxury (such sas BMW, Audi, Benz and Land Rover) as well as upper-mid end brands (such as Toyota and Nissan). With dealer's share price falling off the cliff since May, our findings are encouraging and suggest the worst in terms of margin or price competition is behind us and 2H12 should improve from 1H12.

Four important takeaways include:

1. Price discount narrowing

Most dealers have reported a declined margin in 2Q12 vs. 1Q12 due to price competition and rising inventory. This pressure has apparently eased into 3Q12. Pricing discount, measured by cash rebate dealers offering to customer, has narrowed in many cases based on our discussion with management or sales representatives at various showrooms. And this is especially true for luxury car but less so for upper mid end or lower end segment.

Based on our discussions with sales representatives at selective luxury dealers’ showrooms, examples of narrowing price discount include:

BMW 3-series sedan: currently no discount given this is a whole new model vs. >5% discount in 2Q12

BMW 5-series sedan: about 2-3% discount (depending on models) this month but likely no or lower discount next month as dealers will be selling 2013 model

Volvo XC60 SUV: this is Volvo‘s best selling model in China. Currently only 2% discount vs. 4-6% in 2Q12.

Figure 2: Price discount (the difference between wholesales and retail price) by segments in tier-one cities in China

Source: China Auto Market, J.P. Morgan analysis. Tier-1 cities include Beijing, Shanghai and

Gaungzhou.

Figure 3: Price discount by segments in tier two cities in China

Source: China Auto Market, J.P. Morgan analysis.Tier-2 cities in our analysis include

Hangzhou, Chengdu, Wuhan, Shenyang, Xian, Nanjin and Jinan.

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Figure 1: One of our showroom

visits- Beijing Yan Bao Auto (a

dealer acquired by Baoxin Auto in Aug 2012)

Source: Baoxin Auto.

Discount narrowing in luxury car segment

Discount also narrowing in tier-2 cities in luxury car segment but not the case in mid to lower end

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In above charts, we notice that pricing discount measured by the difference between wholesales and retail price, has generally been increasing in 2Q12 and this is seen in both tier-1 and tier-2 cities in our analysis. Into 3Q12, such discount has narrowed for premium or luxury passenger vehicle segment (including BMW, Benz and Audi) especially in August but not the case for mid (including Toyota, Honda, Nissan, VW, Hyundai and Mazda) and lower end category with pricing below Rmb100,000/unit(including models from Great Wall, Cherry, BYD, and Kia). Implications of this in our view are:

Pricing and inventory pressure among luxury cars have eased gradually in 3Q12. This echoes the guidance from management of all four listed dealers that we met in China in the last few days.

Conversely, competition and oversupply pressure remains intense in upper mid end and lower end segments. This echoes our non-consensus UW call on DongFeng Motor. Indeed, management of DongFeng Motor indicated during our recent visit that it’s best selling model- Nissan Teana sedan's gross margin has fallen to around 17-18% in 1H12 vs. 25% in 1H11 as Teana is close to the end of product cycle and also faces competition from Toyota's New Camry and entry-level luxury car.

In our monthly Auto Price Index analysis below, we further notice that:

In luxury segment, new model launch in particular Audi's whole new A6 sedan in April has helped to push up overall luxury car's price index but promotion of BMW's previous old 3-series sedan on the other hand resulted into weak price in May-June before whole new 3-series became available in the market. With automakers introducing 2013 models from October, we believe this price index will stabilize and potentially see a recovery into 4Q12.

In upper-mid to lower end, pricing trend echoes what we learn in price discount analysis above- generally, pricing remains on the downward trend due to oversupply, competition and continued inventory pressure.

Figure 4: China Monthly Auto Price Index by different price category

Source: China Auto Market, J.P.Morgan analysis.

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Pricing trend reaffirms our view on long luxury (e.g. Brilliance

China or ZhengTong) against

upper-mid end segment (e.g. DongFeng Motor) in China PV

market

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2. Automakers supportive

Management of dealers and showroom managers collectively indicated to us that the overall support from automakers especially in luxury segment has increased. Examples of such support come in various forms and not necessary limited to higher rebate:

Subsidizing dealers’ financing cost is a common practice. For instance, Volvo’s largest dealer in China (owned by ZhengTong and it accounted for ~5-6% of Volvo’s total sales volume in China) indicated that Volvo has helped subsidize its interest cost when it procures cars from Volvo. Specifically, for selective models, it now only needs to pay ~20% down payment while borrows the rest from banks but with interest expense subsidized by Volvo in the first two months. Previously, it needed to pay 100% down payment for most of the models and absorb the interest cost. Similar practice applies to other brands including BMW.

Providing rebate to dealers on a selective basis and depending on models.

Taking charge of marketing campaign and absorbing relevant marketing/ advertisement expense on a selective basis. In the past, such expense was mostly absorbed by dealers.

3. Automakers reviewing sales target

One main reason leading to rising inventory in 2Q12 is due to the fact that automakers were too aggressive regarding 2012 sales target and hence pushed the volume throughout the supply chain. This compounded by slowing Chinese economy resulted into high inventory and inevitable price competition in 2Q12. Sequentially, most dealers have suffered a declined margin by ~1% point in 2Q12 vs. 1Q12.

Such pressure has gradually eased, thanks to automakers being more pragmatic on full year sales target as it is now mid-3Q12 and based on current sales growth "run rate”, previous target might look aggressive. The risk of automakers sticking to an unrealistic sales target is either more price cut or inventory- either way it is not a good news for both dealers and automakers.

Based on our discussions with management and industry checks, we believe Volvo has potentially trimmed its 2012 sales target in China by around 20% while BMW and Audi by ~5-10% to ~300,000 and 400,000 units respectively from previous 330-340,000 and 440,000 units. Of note BMW's target revision mainly applies to imported models such as 7-series sedan and X5 SUV but has not much to do with domestic models by Brilliance China (including 3 and 5 series sedan and X1 SUV).

4. Inventory pressure easing

Our discussions with management of listed dealers and visits of several showrooms in Beijing and Shanghai suggest that inventory pressure collectively in the industry has apparently eased since ~July. Examples include:

Volvo’s largest dealer in China (based in Beijing and accounts for ~5-6% of Volvo's total sales volume p.a.) indicates that its current inventory in terms of

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turnover days is around 0.8 month vs. one month back in 2Q12. It also indicates that some of its peers had over 2 months of inventory last quarter.

Audi's inventory throughout the supply chain is around 1-2 months, slightly improved from 2Q12 too. Audi’s relatively higher inventory is also associated with its aggressive sales target of >30% growth in China this year.

Nissan's inventory is similar to that of Audi currently and this is driven by DongFeng Nissan's full year sales target of 18-20% in 2012.

Porsche is in a unique position in China and has essentially zero inventory. Waiting time of its best selling Caynne SUV for instance is 10 months in China now.

Baoxin’s overall inventory is 41 days as of 1H12 and the company indicates it has improved to ~39-40 days by end-Aug. By brands, Baoxin's overall BMWinventory is around 42 days by 1H12 while Land Rover is well below the average at about one month only. Into 3Q12, management indicates that a pick-up in wholesales level together with automakers reviewing sales target has helped a reduced inventory at dealer's level since July.

Yongda, another listed auto dealer based in Shanghai, during our visits of its several showrooms indicated that inventory days of its BMW is only around one month now with price discount, for instance, of 523-series sedan narrowing to ~3-5% vs. ~8% in 2Q12. Similarly, General Motor's Buick is ~0.8 month now vs. around one month in 2Q12. Management also indicates that the company’s overall inventory level is now less than 40 days vs. 48 as of 1H12. Additionally, Yongda believes an improved 2H12 momentum in auto market is driven by three factors:

o Inventory pressure easing

o Pricing environment improving

o Capacity or sales volume being revised (down in several cases)

Figure 5: Our visit of one of Land Rover's showrooms in China

Source: Yongday’ Shanghai showroom.

Figure 6: Our visit of one of BMW’s showrooms in China

Source: Yongday’ Shanghai showroom.

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Sensitivity analysis of Baoxin’s recent M&A

Among auto dealers, Baoxin’s share price performance lags behind and underperforms both ZhengTong and ZhongSheng by 22-23% since August. We believe this is potentially due to uncertainty and market concern about Baoxin’s recent acquisition of NCGA- a luxury car dealer focusing on northern part of China. Please refer to our first take on this here, published on Aug 30th 2012).

As part of our research due diligence, we had recently visited NCGA’s primary showroom in Beijing which sells BMW in northern provinces- “Yan Bao Auto”. Given NCGA is currently a loss-making company due to high management expense and interest cost, we believe it will unlike contribute any significant earnings to Baoxin if it is being consolidated to Baoxin’s P&L in 4Q12 or Nov-Dec 2012.

In our sensitivity and scenario analysis below, we arbitrarily assume the followings as there is very limited financial information on NCGA at the moment:

We assume NCGC's annual revenue (including new auto sales and aftermarket (AM) business) ranges from Rmb5bn to Rmb10bn. Under each condition, we examine how much will be potential earnings contribution to Baoxin in 2013E.

We further assume that 90% of NCGA’s revenue comes from new auto sales and the rest from AM business.

We simply assume gross margin of new auto sales is 5% and AM is 40%. Both are lower than what Baoxin and ZhengTong can deliver in order to be conservative.

Operating expense (including interest cost) is 10% of total revenue and 25% income tax.

Based on the above arbitrary assumptions, we estimate that NCGA could potentially contribute ~Rmb287mn to Rmb574mn profit in 2013E, or around 20-40% upside to our current forecast. Of course, a large part of this will depend on execution and how Baoxin turns around NCGA’s operation from current loss-making into a profitable one.

Table 1: Our sensitivity and scenario analysis on NCGA’s profit contribution to Baoxin in 2013E

Total revenue per annum RMBmn (A)

New car sales After-sale service Total Opex %

of revenue

Income tax rate

Total profit

contribution to

Baoxin

Revenue=(A)x90%

Gross margin (B)

Gross profit

(C=AxB)

Revenue(D)=Ax10

%

Gross margin

(E)

Gross profit(F=DxE)

gross profit

(G=C+F)

5,000 4,500 5% 225 500 40% 200 425 10% 25% 2876,000 5,400 5% 270 600 40% 240 510 10% 25% 3447,000 6,300 5% 315 700 40% 280 595 10% 25% 4028,000 7,200 5% 360 800 40% 320 680 10% 25% 4599,000 8,100 5% 405 900 40% 360 765 10% 25% 516

10,000 9,000 5% 450 1000 40% 400 850 10% 25% 574

Source: Company, J.P. Morgan estimates.

Figure 7: One of our showroom

visits- Beijing Yan Bao Auto (part of NCGA, which is acquired

by Baoxin in Aug 2012)

Source: Baoxin Auto.

https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-931721-0.pdf

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Recommendation and valuation summary

Table 2: Summary of PT and risk for China ZhengTong and Baoxin

Company Ticker RtgShare

price Sep17 (HK$)

PT (Jun-13) (HK$)

PT analysis Risks to PT and analysis

Baoxin Auto1293 HK

OW 4.24 6.0

Our June-2013 PT of HK$6.0/shr , based on 9x forward earnings. This is lower end of its trading range and also 10% discount to its closet peer, Zheng Tong Auto's price target, which we believe reasonable given Baoxin's relatively shorter listing history.

Key risks to our PT and analysis include: a) a price war in China’s passenger vehicle sector due to oversupply pressure; (b) failure in meeting Baoxin’s own store expansion plan; (c) worse-than expected competition in luxury car market

China ZhengTong

1728 HK

OW4.65 5.5

Our Jun-13 price target of HK$5.5 is based on a 10x 2013E PER and taking into account of earnings revision. This is low end of Zheng Tong's trading range and also ~25% discount to the company’s DCF value which we believe is reasonable given ZhengTong's short listing history.

Key risks to our PT include: a) a price war in China’s PV sector due to oversupply. This would put pressure on luxury segment too; (b) failure in meeting the company’s own expansion plan; (c) worse-than-expected competition from peers in luxury dealership business.

Source: J.P. Morgan.

Table 3: Valuation comparison table for China’s auto companies

Company Code Country Rec Sep-17Price(LC)

Mkt Cap (US$ Mn)

PE(x) PB(x) ROE Div. Yield

12E 13E 12E 13E 12E 13E 12EBrilliance 1114 HK China OW 8.10 5,357 15.1 12.9 3.6 2.8 27% 25% -ZhengTong Auto 1728 HK China OW 4.65 1,893 12.9 10.1 1.2 1.1 10% 11% -DongFeng Motor 0489 HK China UW 9.62 12,599 6.3 6.1 1.2 1.0 21% 18% 2.3%Great Wall Motor 2333 HK China OW 19.50 6,191 10.6 9.9 2.4 2.0 25% 22% 1.9%Geely Automobile 0175 HK China OW 2.68 2,876 8.8 7.1 1.4 1.2 18% 18% 1.0%GAC 2238 HK China N 5.46 8,102 12.8 7.9 0.9 0.9 8% 11% 4.5%Minth Group 0425 HK China N 9.00 1,156 9.7 9.0 1.3 1.2 13% 13% 3.7%Baoxin Auto 1293 HK China OW 4.24 1,236 8.7 6.5 2.1 1.4 28% 25% -

Weichai Power 2338 HK China UW 24.60 5,403 9.3 8.0 1.3 1.1 15% 15% 2.1%Sinotruk 3808 HK China UW 4.51 1,631 40.7 27.6 0.5 0.5 1% 2% 4.1%Average 13.5 10.5 1.6 1.3 17% 16% 2.8%

Source: Bloomberg, J.P. Morgan estimates.

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Figure 8: China ZhengTong forward P/E band

Source: Bloomberg and J.P. Morgan estimates.

Figure 9: China ZhengTong forward P/B band


Figure 10: Baoxin forward P/E band


Figure 11: Baoxin forward P/E band

Source: Source: Bloomberg and J.P. Morgan estimates

Figure 12: Zhongsheng forward P/E band


Figure 13: Zhongsheng forward P/B band


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Companies Recommended in This Report (all prices in this report as of market close on 17 September 2012)Baoxin Auto Group Limited (1293.HK/HK$4.24/Overweight), China ZhengTong Auto Service Holding Limited (1728.HK/HK$4.65/Overweight)

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Baoxin Auto Group Limited within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Baoxin Auto Group Limited, China ZhengTong Auto Service Holding Limited.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Baoxin Auto Group Limited, China ZhengTong Auto Service Holding Limited.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Baoxin Auto Group Limited, China ZhengTong Auto Service Holding Limited.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Baoxin Auto Group Limited, China ZhengTong Auto Service Holding Limited.

“J.P. Morgan Securities plc and/or its affiliates (J.P. Morgan) is acting as Sole Global Coordinator and Sole Bookrunner to China ZhengTong Auto Services Holdings Limited on US$300-350mm bond offering as announced on 26 April 2012. J.P. Morgan will be receiving fees for so acting. J.P. Morgan may perform, or may seek to perform, other financial or advisory services for China ZhengTong Auto Services Holdings Limited or its associates and may have other interests in or relationships with China ZhengTong Auto Services Holdings Limited or its affiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information herein is not intended to serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. This report is based solely on publicly available information. No representation is made that it is accurate or complete.”

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing [email protected] with your request.

Date Rating Share Price (HK$)

Price Target (HK$)

18-Jan-12 OW 7.25 11.80

14-Aug-12 OW 3.64 6.00

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Baoxin Auto Group Limited (1293.HK, 1293 HK) Price Chart

OW HK$11.8 OW HK$6

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage Jan 18, 2012.

mailto:[email protected]

https://mm.jpmorgan.com/disclosures/company

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Date Rating Share Price (HK$)

Price Target (HK$)

13-Jan-11 OW 7.02 8.80

30-Aug-11 OW 8.64 13.00

29-Feb-12 OW 9.54 10.80

14-Aug-12 OW 3.83 5.50

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.morganmarkets.com.

Coverage Universe: Lai, Nick YC: Anhui Conch Cement Company Limited - A (600585.SS), Anhui Conch Cement Company Limited -H (0914.HK), Asia Cement (1102.TW), BBMG Corp (2009.HK), Baoxin Auto Group Limited (1293.HK), Brilliance China Automotive (1114.HK), China Motor (2204.TW), China National Building Material (3323.HK), China National Materials (1893.HK), China Resources Cement (1313.HK), China ZhengTong Auto Service Holding Limited (1728.HK), DongFeng Motor Co., Ltd. (0489.HK), Geely Automobile Holdings Ltd. (0175.HK), Great Wall Motor Company Limited (2333.HK), Guangzhou Automobile Group Co. Ltd. (2238.HK), Hung Poo Real Estate (2536.TW), Minth Group (0425.HK), Sinotruk (3808.HK), Sinyi Realty (9940.TW), Taiwan Cement (1101.TW), Taiwan Fertilizer Co Ltd (1722.TW), Teco Electric & Machinery (1504.TW), Weichai Power (2338.HK), Yulon Motor Co.,Ltd. (2201.TW)

J.P. Morgan Equity Research Ratings Distribution, as of July 6, 2012

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 45% 43% 11%IB clients* 51% 47% 34%

JPMS Equity Research Coverage 44% 48% 8%IB clients* 70% 62% 51%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

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China ZhengTong Auto Service Holding Limited (1728.HK, 1728 HK) Price Chart

OW HK$8.8 OW HK$13 OW HK$10.8 OW HK$5.5

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage Jan 13, 2011.

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Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.morganmarkets.com , contact the primary analyst or your J.P. Morgan representative, or email [email protected].

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Other Disclosures

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Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf

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Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc. Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. JPMSAL does not issue or distribute this material to "retail clients". The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk.

http://www.optionsclearing.com/publications/risks/riskstoc.pdf

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Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules.

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

"Other Disclosures" last revised August 25, 2012.

Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P

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