1

Yum Cha 飲 茶 July 02, 2014

TALKING POINTS

CHART OF THE DAY— STIMULUS PAYS OFF AS CHINA TARGETS GROWTH

Analyst: John Mulcahy, Managing Director

since May. The biggest risk for the economy remains the property market, which has seen price

falls and volume declines for some months, but the flow-through benefits from an improving

manufacturing sector will also support the property market. As manufacturing picks up, so too will

wage demands, overtime, etc., and these dynamics will feed into affordability. As the measures

easing reserve requirement ratios (RRR) and loan deposit ratios on banks show, there is a

stimulatory bias in government policy.

Source: Bloomberg

INDICES Closing DoD%

Hang Seng Index 23,190.7 (0.1)

HSCEI 10,335.0 0.3

Shanghai COMP 2,050.4 0.1

Shenzhen COMP 1,101.7 0.5

Gold 1,325.6 (0.1)

BDIY 894.0 5.2

Crude Oil, WTI(US$/BBL) 105.3 (0.0)

Crude Oil, BRENT(US$/BBL) 112.3 (0.1)

HIBOR, 3-M 0.4 0.6

SHIBOR, 3-M 4.7 -

RMB/USD 6.2 (0.0)

DAILY NOTES FOR THIS WEEK

Jul 2 Non-manufacturing PMI

Jul 2 HSBC China Services PMI

Jul 2 HSBC China Composite PMI

BANKS—The China Banking Regulatory Commission (CBRC) has modified requirements for

loan-deposit ratios (LDRs), offering some relief to banks such as China Minsheng Bank

[1988.HK; BUY], Bank of China [3988.HK; BUY] and Bank of Communications [1328.HK; Not

rated]. But the new measures are designed to direct lending to the agricultural and SME

sectors, both of which are relatively high-risk, and also have conditions that will not simply allow

these banks to ignore the LDR cap. We expect the impact on Minsheng’s net interest income to

range from 0.5% to 2%, assuming a reduction in the cap of 1%-5%, with impact on net profit

about half of that level. For Bank of China for each 1% reduction in LDR the impact on net

interest income is 0.6%-2.4%, with impact on net profit 0.33% for each 1% move in LDR. The

signal is positive, in that it indicates a policy easing, but the immediate impact is limited.

SCUD GROUP [1399.HK, NOT-RATED] – SCUD Group is a producer of various rechargeable

lithium-ion batteries with three major business lines: (i) own-brand business (mainly mobile

phone battery and power bank); (ii) ODM business (supplying batteries to smartphone

manufacturers); and (iii) production of bare battery cells. As smartphones have become more

popular, the company recorded a net loss of RMB163m in 2012, mainly due to the need to clear

battery inventories for feature phones. The transformation was largely completed in 2013

through increasing exposure to ODM business, i.e. supplying high quality batteries to Chinese

smartphone brands (Huawei, ZTE, Xiaomi) for their mid to high-end models. Based on

consensus, the Street is projecting a strong recovery of >RMB100m net profit in 2014E, driven

by rapid growth of the ODM business, thanks to (i) increasing market penetration of Chinese

brands; (ii) securing new customers such as Lenovo and Meizu; and (iii) 4G network roll-out in

China.

Official Purchasing Managers’ Index

(PMI) data released yesterday—at 51

the highest this year—show that June

was the month when the various “mini-

stimulus” measures introduced since

April really began to kick in, apparently

benefiting medium and large enterpris-

es more than smaller businesses. Ex-

ports were a key driver of the improved

official PMI, and this was also evident

in the HSBC Flash PMI for June, pub-

lished a week or so ago. The sluggish

performance of small companies is

being addressed by reduced taxes and

(as discussed today) the relaxation of

loan deposit ratio (LDR) for banks lend-

ing to small and medium enterprises

(SMEs). The official PMI reinforces the

improved data seen

2

CBRC RELAXES LOAN-DEPOSIT RATIO CEILING—IMPACT

The A-share market shrugged off the relaxation of limits on loan-deposit ratios (LDR) for China’s commercial banks, which seems to suggest the ad-

justment will not be quite as far-reaching as it initially appeared. The measures announced by the China Banking Regulatory Commission are as fol-

lows:

When calculating loans to be included in the LDR these items can be excluded:

1. Refinancing of loans to agriculture-related areas and to small and medium enterprises (SMEs).

2. Agriculture-related loans backed by special-purpose (“Sannong”) bonds.

3. Loans to SMEs backed by special-purpose bonds.

4. Loans with maturity >1 year and backed by bonds which the banks are not obligated to repay before maturity.

5. Loans funded by lending from international financial organizations or foreign governments.

6. Lending from rural banks using funds from its primary (main sponsor) bank to farmers and SMEs.

Items which can be included when calculating deposits in LDR:

1. Corporate or personal negotiable certificates of deposit.

2. Deposits from a foreign parent bank for foreign banks in China.

We believe the three banks likely to benefit most are

Bank of China [3988.HK], China Minsheng Bank

[1988.HK] and Bank of Communications [3328.HK].

Of the major listed banks, these three have the high-

est LDRs, and thus the least capacity on balance

sheets to increase loans.

There will be some impact on the growth in lending

for these banks, and loan growth is likely to acceler-

ate in the coming months.

But the apparent intention in the policy shift is to

ease the balance sheet burden, and not to initiate a

new credit expansion, as each of the measures is

qualified, i.e. loans to SMEs can be excluded, BUT

only if they are backed by special-purpose bonds;

agricultural loans can be excluded if backed by

“sannong” bonds, etc.

The table shows the impact on LDR if all SME loans

are excluded, but this is for reference only, as the

individual banks have not disclosed the detail re-

quired to quantify the impact. However, for a full

year Minsheng would earn net interest of RMB418m

for every 1% reduction in LDR, equivalent to 0.5% of

net interest income. For Bank of China the impact on

net interest income is 0.6% for every 1% reduction in

LDR, and 0.33% at the net profit level.

The impact on profitability of those banks close to

the LDR ceiling will thus be positive, but SME and

agricultural loans also carry higher risk in the form of

non-performing loans (NPLs) than the average, and

banks also need to balance the relaxation of LDRs

with liquidity ratio obligations.

SHARE PRICE PERFORMANCE—MINSHENG, BANK OF CHINA AND BOCOM

3

COMPANY / INDUSTRY NEWS

Analyst: Wong Chi Man, CFA (Tel: (852) 3698 6317))

SCUD GROUP [1399.HK, HK$1.19] – TRANSFORMED TO A LEADING BATTERY SUPPLIER TO HIGH-END SMARTPHONES IN CHINA

Market Cap: US$158m; Free Float: 45.3%

SCUD GROUP (1399.HK, Not-rated) Company background. Established in 1997, SCUD Group is en-

gaged in R&D, design and production of various rechargeable lithi-

um-ion batteries. It has three major business lines: (i) own-brand

business (mainly mobile phone battery and power bank), 26% of

total revenue in 2013; (ii) ODM business (supplying batteries to

smartphone manufacturers), 66% of total revenue; and (iii) produc-

tion of bare battery cells, 7% of total revenue. Fang Jin, chairman,

owns a 48.86% stake in the company. It was listed on the main-

board in 2006.

What went wrong in 2012? The company’s business has struggled

in the past few years due to increasing penetration of smartphones.

As a result, the demand for replacement batteries for feature

phones dropped sharply and hurt the company’s own-brand busi-

ness. Distributors were unwilling to promote SCUD’s products due

to accumulation of inventories in the sales channel. Therefore it

launched a refund plan to acquire inventories from distributors to

revitalize the sales channel, which was the key reason for the net

loss of RMB163m in 2012.

Transformation close to completion in 2013. The company shift-

ed its focus to ODM business last year, i.e. supplying lithium-ion

batteries to China-based smartphone manufacturers, such as

Huawei, ZTE and Xiaomi. Revenue from this segment surged 92%

year-on-year (YoY) to RMB1.57bn. As the company cut the scale of

its own-brand battery business for feature phones and shifted the

resources to production of power banks, own-brand revenue fell

13% YoY to RMB630m. Overall, the company returned to the black

and recorded a net profit of RMB38m in 2013.

Competitive edge: focus on mid to high-end market. Thanks to

its long history in the battery business (established in 1997), the

company has built a solid business relationship with leading battery

cell suppliers such as Sanyo and Sony. The ability to secure stable

supply of high quality battery cells enables the company to provide

high-quality battery modules to Chinese smartphone brands’ mid- to

high-end models. According to management, Japanese and Korean

cell suppliers are very careful in selling cells to battery module pro-

ducers because any accidents related to batteries will hurt their

brand image. Therefore it’s difficult for new players with limited track

record to be trusted by these cell suppliers.

Sales volume to double in 2014. In 2013, Huawei, Xiaomi and

ZTE accounted for 29%, 22.8% and 15.8% of its ODM revenue.

Total volume of this segment was 61m units. The company sees

potential to nearly double this figure in 2014, driven by (i) increasing

market penetration of Chinese brands; (ii) new customers such as

Lenovo and Meizu; and (iii) 4G network roll-out in China.

Source: Bloomberg consensus

Gross margin may decline but net margin may improve.

Although the gross margin of ODM business is lower than

that of own-brand business (13.8% vs. 21.2%), the consen-

sus forecast is projecting an improvement in net margin

from 1.6% in 2013 to 3% in 2014E. We believe this is driven

by the much lower selling and distribution expenses for

ODM business (e.g. little need for advertising and promo-

tion). However, the company does not rule out the possibility

of incurring some non-cash expenses this year due to im-

pairment losses from some legacy business.

Reasonable valuation vs. Truly. SCUD is trading at 5.6x

2015E PER based on consensus, largely in line with Truly’s

[0732.HK; BUY] 5.8x. SCUD may deserve a higher valua-

tion due to faster growth but this factor is largely offset by its

much smaller market cap. Both companies should have

decent upside if the 4G network roll-out is on track.

July 2, 2014

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40

60

80

100

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Jul13 Sep13 Nov13 Jan14 Mar14 May14

(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

RMB 2012 2013 2014E 2015E

Revenue (m) 1,822 2,392 3,441 4,348

COGS (m) (1,527) (2,020) (2,949) (3,739)

Gross profit (m) 294 372 492 609

Gross margin (%) 16 16 14 14

EBIT (m) 21 74 135 232

Net profit (m) (163) 38 105 153

Net margin (%) (9) 2 3 4

EPS (0.16) 0.04 0.12 0.17

ROE (%) (13.94) 3.44 9.00 11.90

Dividend yield (%) 0.00 0.81 2.07 3.15

PER (x) -6.6 26.6 8.0 5.6

PBR (x) 1.0 0.9 0.7 0.6

4

COMPANY / INDUSTRY NEWS

Analyst: Wong Chi Man, CFA

SCUD GROUP [1399.HK, HK$1.19] – TRANSFORMED TO A LEADING BATTERY SUPPLIER TO HIGH-END SMARTPHONES IN CHINA

Revenue breakdown

Sources: Capita IQ, CGIHK Research

Income Statement

For the Fiscal Period Ending 12 months

Dec-31-2009

Reclassified

12 months

Dec-31-2010

12 months

Dec-31-2011

Reclassified

12 months

Dec-31-2012

12 months

Dec-31-2013

Currency RM B m RM B m RM B m RM B m RM B m

Revenue 1,264.9 1,527.4 1,653.0 1,821.6 2,392.5

Cost Of Goods Sold 1,035.8 1,266.6 1,362.4 1,527.2 2,020.4

Gross Profit 229.1 260.8 290.7 294.4 372.1

Selling General & Admin Exp. 161.0 181.9 201.3 279.7 304.4

Other Operating Expense/(Income) 0.3 (0.1) 1.2 151.4 7.2

Other Operating Exp., Total 161.3 181.9 202.4 431.1 311.6

Operating Income 67.8 78.9 88.2 (136.6) 60.5

Interest Expense (1.4) (2.1) (10.2) (13.7) (26.0)

Interest and Invest. Income 4.7 3.3 3.7 3.8 4.9

Net Interest Exp. 3.3 1.2 (6.5) (9.9) (21.1)

Income/(Loss) from Affiliates - - - - (0.3)

Currency Exchange Gains (Loss) 0.3 2.0 5.2 - 6.5

Other Non-Operating Inc. (Exp.) - - - (0.1) 0

EBT Excl. Unusual Items 71.5 82.1 86.9 (146.6) 45.7

Impairment of Goodw ill (6.2) 4.3 1.4 - -

Gain (Loss) On Sale Of Assets - - - - 14.0

Asset Writedow n (10.4) (18.2) (21.1) (68.4) (12.5)

Other Unusual Items - - - - -

EBT Incl. Unusual Items 54.9 68.2 67.2 (215.1) 47.1

Income Tax Expense 9.0 16.0 12.3 (22.5) 19.7

Earnings from Cont. Ops. 45.9 52.2 54.9 (192.6) 27.5

Minority Int. in Earnings 0.9 2.2 4.6 29.8 10.8

Net Income 46.8 54.4 59.5 (162.8) 38.3

Per Share Items

Diluted EPS 0.05 0.05 0.06 (0.16) 0.04

Diluted EPS Excl. Extra Items 0.05 0.05 0.06 (0.16) 0.04

Weighted Avg. Diluted Shares Out. 1,039.1 1,041.1 1,032.0 1,032.0 1,032.0

Income Statement

For the Fiscal Period Ending 12 months

Dec-31-2012

12 months

Dec-31-2013 YoY Change

Currency RM B' 000 RM B' 000

Revenues

Turnover 1,821,620 2,392,490 31.3%

Expenses

Cost of Sales (1,527,190) (2,020,361) 32.3%

Selling & Distribution Expenses (59,516) (57,497) -3.4%

Administrative Expenses (288,599) (259,420) -10.1%

Other Operating Expenses (7,142) (3,077) -56.9%

Other Revenues 11,317 17,990 59.0%

Loss on Refunds (151,743) (10,700) -92.9%

Share of Losses of an Associate - (289) n.a.

Finance Costs (13,803) (25,971) 88.2%

Gains on Disposal of Subsidiaries - 13,963 n.a.

Earnings before Taxes (215,056) 47,128 n.a.

Taxes and Other Expenses

Provision for Income Tax 22,450 (19,654) n.a.

Minority Interest (After Tax) 29,791 10,820 -63.7%

Net Income (Loss) (162,815) 38,294 n.a.

Ow n-brand mobile phone batteries (Vol.) 33,338,428 15,269,000 -54.2%

Revenue (RMB'000) 531,000 247,200 -53.4%

ASP (RMB) 15.93 16.19 1.6%

Ow n-brand pow er banks (Vol.) 1,381,093 5,128,000 271.3%

Revenue (RMB'000) 125,000 354,600 183.7%

ASP (RMB) 90.51 69.15 -23.6%

Original mobile phone batteries (Vol.) (ODM business) 25,800,000 61,000,000 136.4%

Revenue (RMB'000) 637,900 1,392,500 118.3%

ASP (RMB) 24.72 22.83 -7.7%

Bare battery cell (Vol.) 33,200,000 20,800,000 -37.3%

Revenue (RMB'000) 273,600 174,600 -36.2%

ASP (RMB) 8.24 8.39 1.9%

Profit (before unallocated expenses)

Ow n-brand business (217,624,000) (4,337,000) -98.0%

ODM 51,600,000 89,000,000 72.5%

Bare battery cell 7,986,000 (10,547,000) n.a.

Smartphone shipment and 2014 targets (m units)

Source: Press reports

2013 2014 target

Xiaomi 18.7 60

TCL 20 60

ZTE 40 60

Huawei 48.8 60

Lenovo 45.5 60

LG 47.7

Apple 153.4

Samsung 313.9

Meizu 2.2-2.4

5

COMPANY / INDUSTRY NEWS

Analyst: Wong Chi Man, CFA

SCUD GROUP [1399.HK, HK$1.19] – TRANSFORMED TO A LEADING BATTERY SUPPLIER TO HIGH-END SMARTPHONES IN CHINA

Source: Capita IQ

Balance Sheet

Balance Sheet as of: Restated

Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013

Currency RM B m RM B m RM B m RM B m RM B m

ASSETS

Cash And Equivalents 390.9 317.2 375.3 278.7 353.8

Total Cash & ST Investments 390.9 317.2 375.3 278.7 353.8

Accounts Receivable 262.1 331.0 490.2 539.6 531.9

Other Receivables 10.2 6.2 7.0 28.1 15.4

Notes Receivable 16.2 49.5 21.0 93.1 45.2

Total Receivables 288.4 386.7 518.2 660.8 592.5

Inventory 159.1 212.9 347.8 460.0 424.0

Prepaid Exp. 4.0 186.8 3.0 4.7 7.3

Other Current Assets 197.9 97.0 232.5 268.5 536.0

Total Current Assets 1,040.4 1,200.7 1,476.8 1,672.8 1,913.6

Gross Property, Plant & Equipment 445.2 621.0 609.3 599.7 617.1

Accumulated Depreciation (175.1) (250.0) (210.2) (241.8) (268.3)

Net Property, Plant & Equipment 270.1 370.9 399.0 357.9 348.8

Long-term Investments - - - - 1.4

Goodw ill 6.2 0 0 0 0

Other Intangibles 181.4 151.4 120.5 44.9 31.7

Deferred Tax Assets, LT 0.6 0.3 1.8 37.6 29.0

Other Long-Term Assets - 48.4 - - -

Total Assets 1,498.6 1,771.7 1,998.2 2,113.1 2,324.6

LIABILITIES

Accounts Payable 198.8 325.6 383.5 465.4 720.1

Accrued Exp. 21.3 21.4 30.1 26.4 31.5

Short-term Borrow ings - 4.1 0.0 - -

Curr. Port. of LT Debt 10.4 38.0 127.3 289.4 320.5

Curr. Income Taxes Payable 1.2 1.6 3.0 11.0 9.4

Other Current Liabilities 26.8 43.8 82.7 153.8 66.4

Total Current Liabilities 258.5 434.6 626.6 945.9 1,147.9

Long-Term Debt 0.1 48.5 20.5 0.4 0.3

Def. Tax Liability, Non-Curr. 1.9 2.2 3.3 3.3 5.4

Total Liabilities 260.5 485.2 650.5 949.7 1,153.5

Common Stock 103.0 103.0 103.0 103.0 103.0

Additional Paid In Capital 577.1 577.1 577.1 577.1 577.1

Retained Earnings 309.0 350.2 409.7 279.3 317.6

Comprehensive Inc. and Other 167.1 149.3 143.2 143.5 124.6

Total Common Equity 1,156.2 1,179.6 1,233.0 1,102.9 1,122.4

Minority Interest 81.9 106.9 114.6 60.5 48.7

Total Equity 1,238.1 1,286.5 1,347.7 1,163.4 1,171.1

Total Liabilities And Equity 1,498.6 1,771.7 1,998.2 2,113.1 2,324.6

Cash Flow

For the Fiscal Period Ending 12 months

Dec-31-2009

12 months

Dec-31-2010

12 months

Dec-31-2011

12 months

Dec-31-2012

12 months

Dec-31-2013

Currency RM B m RM B m RM B m RM B m RM B m

Net Income 46.8 54.4 59.5 (162.8) 38.3

Depreciation & Amort. 85.6 77.9 71.4 75.4 63.8

Amort. of Goodw ill and Intangibles 10.0 10.4 10.6 6.5 -

Depreciation & Amort., Total 95.6 88.3 82.0 81.9 63.8

Other Amortization 0.4 - - 1.3 1.4

(Gain) Loss From Sale Of Assets 1.8 0.9 1.1 5.8 (11.1)

Asset Writedow n & Restructuring Costs 16.6 13.9 19.7 68.4 12.5

(Income) Loss on Equity Invest. - - - - 0.3

Stock-Based Compensation 1.5 - - - -

Provision & Write-off of Bad debts (0.5) 0.6 3.3 27.9 25.4

Other Operating Activities (1.7) 2.1 (7.3) 109.6 32.8

Change in Acc. Receivable 40.6 (82.1) (89.3) (147.7) (108.8)

Change In Inventories 18.9 (0.5) (87.5) (186.2) 6.7

Change in Acc. Payable (58.9) 81.3 12.5 81.9 269.3

Change in Other Net Operating Assets (52.4) (125.0) 142.4 (57.2) (139.4)

Cash from Ops. 108.8 33.8 136.4 (177.2) 191.2

Capital Expenditure (69.2) (162.2) (90.6) (46.9) (66.2)

Sale of Property, Plant, and Equipment 0.0 1.6 0.2 6.9 3.1

Cash Acquisitions - 2.7 (18.1) - -

Divestitures - - - - 10.3

Sale (Purchase) of Intangible assets 0 (3.7) (0.8) (0.6) (0.8)

Other Investing Activities 19.8 (2.8) (23.0) (16.2) (91.9)

Cash from Investing (49.4) (164.4) (132.2) (56.8) (145.5)

Short Term Debt Issued - 4.1 - - -

Long-Term Debt Issued 37.0 117.4 143.8 344.1 605.4

Total Debt Issued 37.0 121.5 143.8 344.1 605.4

Short Term Debt Repaid (3.9) - (4.1) 0 -

Long-Term Debt Repaid (34.3) (47.9) (82.4) (202.1) (576.2)

Total Debt Repaid (38.2) (47.9) (86.6) (202.1) (576.2)

Common Dividends Paid (18.2) (18.0) - (16.8) -

Total Dividends Paid (18.2) (18.0) - (16.8) -

Other Financing Activities - 2.2 0.4 12.0 -

Cash from Financing (19.4) 57.7 57.7 137.1 29.2

Foreign Exchange Rate Adj. (0.3) (0.7) (3.8) 0.2 0.1

Net Change in Cash 39.7 (73.7) 58.1 (96.6) 75.1

Ratios

For the Fiscal Period Ending 12 months

Dec-31-2009

12 months

Dec-31-2010

12 months

Dec-31-2011

12 months

Dec-31-2012

12 months

Dec-31-2013

Profitability

Return on Assets % 2.8% 3.0% 2.9% (4.2%) 1.7%

Return on Capital % 3.4% 3.8% 3.8% (5.8%) 2.6%

Return on Equity % 3.7% 4.1% 4.2% (15.3%) 2.4%

Return on Common Equity % 4.1% 4.7% 4.9% (13.9%) 3.4%

Margin Analysis

Gross Margin % 18.1% 17.1% 17.6% 16.2% 15.6%

EBIT Margin % 5.4% 5.2% 5.3% (7.5%) 2.5%

Earnings from Cont. Ops Margin % 3.6% 3.4% 3.3% (10.6%) 1.1%

Net Income Margin % 3.7% 3.6% 3.6% (8.9%) 1.6%

Asset Turnover

Total Asset Turnover 0.8x 0.9x 0.9x 0.9x 1.1x

Fixed Asset Turnover 4.6x 4.8x 4.3x 4.8x 6.8x

Accounts Receivable Turnover 4.7x 5.2x 4.0x 3.5x 4.5x

Inventory Turnover 6.1x 6.8x 4.9x 3.8x 4.6x

Short Term Liquidity

Current Ratio 4.0x 2.8x 2.4x 1.8x 1.7x

Quick Ratio 2.6x 1.5x 1.4x 0.9x 0.8x

Avg. Days Sales Out. 78.5 70.9 90.7 103.5 81.7

Avg. Days Inventory Out. 59.4 53.6 75.1 96.8 79.9

Avg. Days Payable Out. 81.9 72.5 86.4 94.8 109.0

Avg. Cash Conversion Cycle 56.0 52.0 79.3 105.5 52.6

Long Term Solvency

Total Debt/Equity 0.8% 7.0% 11.0% 24.9% 27.4%

Total Debt/Capital 0.8% 6.6% 9.9% 19.9% 21.5%

LT Debt/Equity 0.0% 3.8% 1.5% 0.0% 0.0%

LT Debt/Capital 0.0% 3.5% 1.4% 0.0% 0.0%

Total Liabilities/Total Assets 17.4% 27.4% 32.6% 44.9% 49.6%

6

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One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) men-tioned in this report.

China Galaxy International and the Relevant Parties may, to the extent permitted by law, from time to time participate or invest in financing transac-tions with the securities of the company(ies) mentioned in this report, perform services for or solicit business from such company(ies), and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto.

China Galaxy International may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or invest-ment services in relation to the investment concerned or a related investment or investment banking services to the company(ies) mentioned in this report.

Furthermore, China Galaxy International may have received compensation for investment banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking investment banking mandate from the subject company(ies).

Analyst Certification

The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report.

Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong-listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies cov-ered in this report.

Explanation on Equity Ratings

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China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459

Room 3501-3507, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.

BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :