Asia Equities Daily Focus: Asian...

Deutsche Bank Markets Research

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Strategy

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Asia Equities Daily Focus: Asian Edition

Date

15 September 2014

Today's research headlines Asian Edition

________________________________________________________________________________________________________________

Deutsche Bank AG/Hong Kong

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.

David-J Clark

Research Analyst

(+852) 2203 6149

[email protected]

INDEX EQUITIES Close 1D Chg %Chg

SHSZ300 2438.36 14.90 0.62

HSCEI 11014.69 -18.22 -0.17

HSI 24595.32 -67.32 -0.27

TWSE 9223.18 -99.77 -1.07

KOSPI 2041.86 7.70 0.38

FSSTI 3345.55 -1.73 -0.05

KLCI 1855.64 -10.47 -0.56

SENSEX 27061.04 65.17 0.24

NIFTY 8105.50 19.80 0.25

SET 1581.36 0.49 0.03

JCI 5143.71 10.68 0.21

PCOMP 7201.88 -0.18 0.00

ASX200 5531.14 -14.98 -0.27

FOREX (vs US$) Close 1D Chg YTD

Rmb 6.14 0.00 -1.32

HK$ 7.75 0.00 0.04

NT$ 30.02 0.00 -0.70

Won 1035.35 -0.61 1.40

S$ 1.26 0.00 -0.02

M$ 3.20 0.00 2.46

Rupee 60.66 -0.27 1.88

Baht 32.15 -0.04 1.73

Rupiah 11822.00 -5.00 2.95

Peso 43.95 0.06 1.01

A$ 0.90 -0.01 1.05

LATEST COMMODITY PRICES Commodities Close 1D Chg YTD

West Texas 92.27 -0.56 -6.25

Brent 96.41 -1.08 -13.00

CRB 281.90 -0.87 0.62

Copper 310.20 1.50 -8.67

Gold (Spot) 1229.70 -11.23 2.00

Alum. (LME) 2029.00 -11.00 12.71

Baltic Dry 1181.00 -5.00 -48.13

Source: Bloomberg Finance LP

TOP STORIES Asia Economics Monthly Multi-speed Asia (Revised) Taimur Baig Page 4

China Merchants Property (000024.SZ), CNY12.15, Buy, Price Target CNY16.42

Strong fundamentals at attractive valuations; initiating with Buy

Tony Tsang Page 5

Chinese Brokers Assessing the impact of new account policy; downgrading CGS to Hold

Pandora Lee Page 6

China Everbright Int'l (0257.HK), HKD11.06, Hold, Price Target HKD10.60

Earnings visibility enhanced; upgrading to Hold

Michael Tong Page 7

RECOMMENDATION CHANGES Sinofert (0297.HK), HKD1.24, Hold, Price Target HKD1.27

Difficult markets David Hurd Page 8

ESTIMATES & TARGET PRICE CHANGES SHK Properties Ltd (0016.HK), HKD117.90, Buy, Price Target HKD127.40

Emerging as a key landlord in China as contribution continues to grow

Jason Ching Page 9

Olympus (7733.T), JPY3835.00, Buy, Price Target JPY4500.00

Top 10 questions asked during US NDR Jack Hu 0

STRATEGY/ECONOMICS Asia Local Markets Monthly Switching regimes Sameer Goel Page 11

Data Flash Asia Economic Diary: Sep 15- 19 Taimur Baig Page 12

DEutsche JApan View on FX The Japan-US QE gap Taisuke Tanaka Page 13

Japan Economics Weekly Revision in recovery momentum from post-tax negative payback

Mikihiro Matsuoka

Page 14

Japan FI Morning Memo US CPI a greater focus than the FOMC Makoto Yamashita

Page 15

Focus Europe Scotland on a knife edge Mark Wall Page 16

US Daily Economic Notes The September FOMC headlines a full data docket this week

Joseph LaVorgna

Page 17

US Economics Weekly Top five indicator update and FOMC preview

Joseph LaVorgna

Page 18

US Equity Insights S&P EPS growth after the super-cycle David Bianco Page 19

Commodities Weekly Michael Lewis Page 20

Global Economic Perspectives SOE Reform in China Peter Hooper Page 21

https://ger.db.com/csa/pubdoc/emzax1fr9exatdf

https://ger.db.com/csa/pubdoc/6vqtvuce65n38x8



https://ger.db.com/csa/pubdoc/2p1l7og0tu6tqms

https://ger.db.com/csa/pubdoc/bbcppt4lruaco3g



https://ger.db.com/csa/pubdoc/nblx2j3cbkv6esy

https://ger.db.com/csa/pubdoc/nblx2j3cbkv6esy

https://ger.db.com/csa/pubdoc/jm93dnylgdakqwn



https://ger.db.com/csa/pubdoc/c49e004hhbp23ip



https://ger.db.com/csa/pubdoc/fl3fe20ftxzfd5s

https://ger.db.com/csa/pubdoc/3oxua6qcmthjzv5

https://ger.db.com/csa/pubdoc/1mezrqeful812v8

https://ger.db.com/csa/pubdoc/42unfp7hqoe14ve

https://ger.db.com/csa/pubdoc/fgnaglvznzx783k

https://ger.db.com/csa/pubdoc/lo74z6c7kv7n81v

https://ger.db.com/csa/pubdoc/jrugelzqldc02sb

https://ger.db.com/csa/pubdoc/eaa67k6hgpmixem

https://ger.db.com/csa/pubdoc/33xxzhnon4reqsh

https://ger.db.com/csa/pubdoc/8x08wv06j82y3cm

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

15 September 2014



ADDITIONAL RESEARCH China TMT Daily Industry salaries Alan Hellawell

III Page 22

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

2QFY15 SSSg down 2.8% Anne Ling Page 23

China Property 8M14 commodity property sales value -8.9% YoY

Tony Tsang Page 24

Chinese Banks China Aug 2014 Banking Volume: Normalized trend after weak July

Tracy Yu Page 25

Asian Foundry Sector Update for competitive landscape Michael Chou Page 26

Taiwan Telcos Undermining ARPU Peter Milliken Page 27

Global Memory Apple uses NAND capacity to differentiate iPhone 6

Seung Hoon Han

Page 28

Singapore Telecom (STEL.SI), SGD3.90, Buy, Price Target SGD4.50

Management reshuffle sharpens focus Peter Milliken Page 29

Indo Belanja Aug. sales for MAPI & ACES; revision of local content reg.

Reggy Susanto Page 30

Indonesia Cement Sector Positive Progress on Toll Development Rachman Koeswanto

Page 31

Shriram Transport Finance (SRTR.BO), INR973.50, Buy, Price Target INR1080.00

CEO meeting takeaways: CV demand should revive gradually; outlook +ve

Manish Shukla Page 32

Bank sector Auction of Citibank Japan's retail business: Depends on conditions

Yoshinobu Yamada

Page 33

Construction Sector Will private sector capex really rise? Yoji Otani Page 34

Investment trust monthly Aug: Sales -8% on seasonal factors, NISA discernible from UK street?

Masao Muraki Page 35

JT (2914.T), JPY3675.50, Buy, Price Target JPY4100.00

Slower Aug '14, but in line with DBe Jihyun Song Page 36

Toyota Motor (7203.T), JPY6303.00, Buy, Price Target JPY7750.00

Reasons we like Toyota - #2 Kurt Sanger Page 37

Yamaha Motor (7272.T), JPY2087.00, Hold, Price Target JPY2100.00

Strategy session – product update; earnings unchanged

Kurt Sanger Page 38

The notes and reports contained in this Daily are all excerpts of previously published documents. Please refer to the published

notes on our web site for details on risks, valuations and earnings changes.

DB EVENTS DB COMPANY ROADSHOWS Nedbank Group Ltd: Company Update - HK 9/16-17 & SG 9/18 Nexen Tire Corporation: Company Update - SG 9/22-23 & HK 9/24-25 Berjaya Auto: Company Update - SG 9/23 China Resources Cement: Post Results Update - SG 9/24-25 PT Pembangunan Perumahan TbK: Company Update - SG 10/1-2 The United Laboratories Int'l Holdings Ltd: Company Update - SG 10/10 Ascendas India Trust: Post Results Update - SG 10/28 & HK 10/30 Minor International Public Company Ltd - Company Update - SG 10/30 Voya Financial, Inc.: Company Update - HK 11/17 & SG 11/18 INDUSTRY SPECIALIST ROADSHOWS N/A DB SALES/ICG ROADSHOWS N/A DB ANALYST ROADSHOWS Karen Tang: Macau Gaming Update - HK 9/6-12 & SG 9/24-26 Joshua Shanker: Insurance / Property & Casualty - SING 9/15 & HK 9/16 Heriyanto Irawan & Samuel Sentana: Indo Strategy- Welcoming a New Era - SG 9/15-16 & HK 9/18-19 William Stephens: "SH-HK Stock Connect - The $90bn Engine that Can... Stay Bullish HK/China" - SG 9/15-16 Tracy Yu & Sukrit Khatri: Updates on Chinese Banks & Exchange - SOE Reforms & New Initiatives? - SG 9/16 -17 Raymond Kosasih: Indonesia Banks & Telco Sector Update - SG 9/22-24 & HK 9/25-26 Michael Chou: What to Own Post iPhone 6 Introduction - BEI 9/23 & SHA 9/24 Tim Jones: European & Global Chemicals Updates - SG 9/23, KUL 9/24 & HK 9/25 Kevin Chong: Singapore/Malaysia O&M and Chinese Shipbuilders - HK 9/23-24 & SG 10/1-2 Khoi LeBinh: Asia Quantitative Strategy - SG 9/24-26 Johnson Wan: Cement & Paper Sector Update - SG 9/26 Eric Katzman: U.S. Food Industry Update - HK 10/13, KUL 10/14 & SG 10/15 Harshad Katkar: Indian Oil & Gas: Reforms Translating to Improvement in Balance Sheet, Earnings and RoEs - HK 10/13-14 & SG 10/15-16 Lucas Herrmann: European Oil & Gas Updates - SEL 10/13, TPE 10/14, HK 10/15, KUL 10/16 & SG 10/17

Source: Deutsche Bank

https://ger.db.com/csa/pubdoc/62xcr8ebt4q685i

https://ger.db.com/csa/pubdoc/hyhalnmeqk419xm



https://ger.db.com/csa/pubdoc/1mrwt5audxgwbya

https://ger.db.com/csa/pubdoc/959928pzqu0xs2e

https://ger.db.com/csa/pubdoc/nybsooq8coaix0q

https://ger.db.com/csa/pubdoc/7gs39e2sjxga659

https://ger.db.com/csa/pubdoc/9grghfiyvv08rkt

https://ger.db.com/csa/pubdoc/evomapycvz16hnc



https://ger.db.com/csa/pubdoc/gmrm183aheiunmo

https://ger.db.com/csa/pubdoc/aweszlb9smess1c

https://ger.db.com/csa/pubdoc/h9fnorx61gecm5u



https://ger.db.com/csa/pubdoc/35jlx8mob2215oq

https://ger.db.com/csa/pubdoc/9g85f9c0najjj73

https://ger.db.com/csa/pubdoc/h1orao6le4jg1tu

https://ger.db.com/csa/pubdoc/8g9vj41dwrzrkdr

https://ger.db.com/csa/pubdoc/8g9vj41dwrzrkdr

https://ger.db.com/csa/pubdoc/4i01der5rx4s4np



https://ger.db.com/csa/pubdoc/k67xeh8qstfkcxi



15 September 2014



DAILY REVISIONS

RATING CHANGES

Company Ticker Date New Previous

China Everbright Int'l 0257.HK 14-Sep ▲ Hold Sell

China Galaxy Securities 6881.HK 12-Sep ▼ Hold Buy

China Merchants Property 000024.SZ 12-Sep Buy NR

Sinofert 0297.HK 14-Sep ▼ Hold Buy

TARGET PRICE CHANGES

Company Ticker Date New Previous Chg (%)

CITIC Securities [Hold] 6030.HK 12-Sep ▲ 19.90 18.80 5.9

China Everbright Int'l [Hold] 0257.HK 14-Sep ▲ 10.60 7.50 41.3

China Galaxy Securities [Hold] 6881.HK 12-Sep ▼ 6.10 6.60 -7.6

China Merchants Property [Buy] 000024.SZ 12-Sep 16.42

Chunghwa Telecom [Hold] 2412.TW 12-Sep ▼ 87.50 95.00 -7.9

Far EasTone Telecom [Hold] 4904.TW 12-Sep ▼ 60.00 65.00 -7.7

Haitong Securities [Buy] 6837.HK 12-Sep ▲ 14.50 13.40 8.2

SHK Properties Ltd [Buy] 0016.HK 14-Sep ▲ 127.40 124.70 2.2

Sinofert [Hold] 0297.HK 14-Sep ▼ 1.27 1.30 -2.3

Taiwan Mobile [Hold] 3045.TW 12-Sep ▼ 90.00 95.00 -5.3

EPS REVISIONS

Company Ticker Date FY New Previous Chg (%)

China Everbright Int'l [Hold] 0257.HK 14-Sep Dec 14 ▲ 0.38 0.38 0.1

Dec 15 ▲ 0.53 0.46 13.6

Dec 16 ▲ 0.62 0.54 14.4

China Merchants Property [Buy] 000024.SZ 12-Sep Dec 13 1.63

Dec 14 2.04

Dec 15 2.30

Dec 16 2.78

Chunghwa Telecom [Hold] 2412.TW 12-Sep Dec 13 ▼ 5.14 5.19 -1.0

Dec 14 ▲ 4.78 4.76 0.5

Dec 15 ▼ 4.63 4.75 -2.5

Dec 16 ▼ 4.61 4.88 -5.6

Far EasTone Telecom [Hold] 4904.TW 12-Sep Dec 14 ▲ 3.68 3.65 0.8

Dec 15 ▼ 3.60 3.75 -4.0

Dec 16 ▼ 3.64 3.93 -7.3

SHK Properties Ltd [Buy] 0016.HK 14-Sep Jun 14 ▲ 7.48 7.29 2.6

Jun 15 ▲ 7.56 7.37 2.6

Jun 16 ▲ 8.13 7.48 8.7

Jun 17 8.29

Shriram Transport Finance [Buy] SRTR.BO 11-Sep Mar 15 ▲ 66.46 63.70 4.3

Mar 16 ▲ 77.62 75.14 3.3

Mar 17 ▲ 90.63 88.56 2.3

Sinofert [Hold] 0297.HK 14-Sep Dec 13 ▲ -0.07 -0.12 41.1

Dec 14 0.04 0.00 nm

Dec 15 ▲ 0.06 0.02 238.7

Dec 16 0.08 nm

Taiwan Mobile [Hold] 3045.TW 12-Sep Dec 14 ▲ 5.81 5.54 4.9

Dec 15 ▲ 5.63 5.49 2.4

Dec 16 ▼ 5.45 5.48 -0.6

Source:- Deutsche Bank

Asia Economics Date11 September 2014

Asia Economics MonthlyMulti-speed Asia

________________________________________________________________________________________________________________

Taimur Baig, Ph.D

Chief Economist(+65) 64238681

[email protected]

Kaushik Das

Economist

(+91) 22 7180 [email protected]

Diana Del-Rosario

Economist(+65) 6423 [email protected]

Juliana Lee

Senior Economist(+852) 2203 8312

[email protected]

Audrey Shi

Economist

(+852) 2203 [email protected]

Michael Spencer, Ph.D

Chief Economist(+852) 2203 [email protected]

Economic performance and policy divergence have become accentuated

Recent dataflow out of industrial economies underscore a multi-speed growth dynamic. The US has lately been reporting strong rise in manufacturing output and business confidence, while a contrasting picture is depicted by the developments out of Europe, where PMIs and confidence indicators have weakened considerably, reflecting not just adverse geopolitical developments around Ukraine and Russia, but continued structural headwinds to growth in parts of the continent. Elsewhere in the industrial world, Japan has reported weak growth figures lately, suggesting the adverse implication of recent tax measures.

The lack of a coherent cycle in the industrial economies is paralleled by the recent developments in Asia. Over the past months there have been indications of sustained growth momentum in Malaysia, the Philippines, and Taiwan, amarked rebound in India, and lingering weakness in China, South Korea, Singapore, and Thailand. While growth indicators have weakened modestly in Indonesia, sentiments have gotten a boost from yet another peaceful

The multispeed nature of intra-Asia growth dynamic is echoed in the contrasting trend in central bank policy-making in the region, with Malaysia and the Philippines on rates normalization mode while Korea is decidedly dovish. As we enter deeper in the second half of the year, economic performance and policy divergence may become further accentuated, allowing investors plenty of diversification opportunities.

In our first theme piece this month we try to get hang of the exports conundrum. There has been a striking breakdown in the relationship between

ports and demand indicators in the US/EU. Our previously successful export model is presently yielding the largest forecast error in its 15-yr history. Some of the forecast error could be due to the sharply lower than expected Q1 US GDP outturn, but we think three more crucial factors are play in the industrial economies: (i) unusual contrast between weak consumer demand and strong profits, (ii) a modest rise in import substitution, and (iii) rising trade restrictions. These headwinds will likely persist for a while, posing risks to our Asia forecasts.

In our second theme piece, we take a long view on India. The recent political transition to a new government has given rise to heightened investor expectation about an inflection point in the Indian economy. What would it take for India to grow by 7-7.5% by the end of this decade? We present an internally consistent framework of savings, investment, and productivity that would attain such a goal. Our medium term scenario is broadly constructive, but cognizant of the external and internal challenges.

Listless momentum

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

Jan-13 May-13 Sep-13 Jan-14 May-14

z score

Source: CEIC, Deutsche Bank. Regional z-score is GDP-weighted, derived as a composite of country-by-country-scores of monthly indicators of domestic demand (.e.g. retail sales, imports, credit growth, and industrial production. Data is from 1995 to present.

15 September 2014 Asia Equities Daily Focus: Asian Edition


Rating

BuyAsiaChina

PropertyProperty

Company

China Merchants Property

Date12 September 2014

Initiation of Coverage

Strong fundamentals at attractive valuations; initiating with Buy

Reuters Bloomberg Exchange Ticker 000024.SZ 000024 CH SHZ 000024

Forecasts And Ratios

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

Sales (CNYm) 25,296.8 32,567.8 41,520.6 47,238.3 57,522.0

Reported NPAT(CNYm) 3,283.3 4,202.2 5,248.0 5,932.0 7,164.8

DB EPS FD (CNY) 1.29 1.63 2.04 2.30 2.78

PER (x) 11.0 10.2 6.0 5.3 4.4

Yield (net) (%) 2.1 2.9 3.3 3.8 4.6

Source: Deutsche Bank estimates, company data

A new mid-cap Top Pick in China Property; TP RMB16.42, implied upside 35%

________________________________________________________________________________________________________________

Price at 12 Sep 2014 (CNY) 12.15

Price target - 12mth (CNY) 16.42

52-week range (CNY) 18.28 - 9.94

HANG SENG INDEX 24,663

Tony Tsang

Research Analyst (+852) 2203 6256 [email protected]

Jason Ching, CFA

Research Analyst (+852) 2203 6205 [email protected]

Our positive call on CMPD is based on solid core net profit growth of 13-25% p.a. in 2014-16E even when the industry is consolidating, above-industry-average margins, a high focus on end-users, strong state-owned background (well below-peer financing cost), strong balance sheet (net gearing of only 24%). CMPD now trades at 48% NAV discount, 6x/5.3x 2014E/15E PE, hence we see it as a lower-risk, faster-growth alternative to mid-cap developers like Shimao, Country Garden and Evergrande. CMPD's sizeable valuation gap vs. its H-share counterparts should also narrow with ongoing A-share market reform (plus indirect impact from upcoming Shanghai-HK Stock Connect).

Solid core net profit growth for 2014-16E with low financial risks We expect CMPD to deliver solid core net profit growth of 25%, 13%, and 21% for 2014, 2015 and 2016 respectively, even after we assume property price declines of 10-20% in 2014 (which result in an expected further decline in gross margin to 33% in 2014, 32% in 2015 and 32% in 2016). Despite the declines, we expect CMPD’s rising property sales revenue and rental income to more than offset declines in gross margin. At the same time, the continued fall in average borrowing costs for CMPD also enhances its net margin.

Strong balance sheet and low borrowing costs provide major competitive edge CMPD has consistently maintained a very healthy balance sheet, with net gearing of only 18-33% in 2008-2013, and a net cash position in 2009. At end-1H14, CMPD had net gearing of only 24% – one of the lowest in the sector. Also, CMPD’s average borrowing cost was only about 5% in 1H14, well below the average borrowing cost of 7.6% for the listed Chinese developers. These strong financing capacities mean lower financial risks for CMPD vs. other mid-cap developers and should allow CMPD to time the market for both land purchases and property sales, and to continue to enlarge its prime investment property portfolio at a faster pace and grow its recurrent rental income stream (we expect gross rental income (ex hotel) to surpass RMB1bn in 2015).

We base our target price on a 30% discount to our est. NAV of RMB23.46 Our target price implies a 2014/15E PER of 8.1x/7.1x. Our target discount is higher than that for other big state-owned developers like COLI, CR Land and Poly given their bigger operating scale, but at a premium to other privately-owned peers, which we believe is appropriate, given CMPD’s state-owned background and stronger financial position and financing capabilities. We adopt NAV as our primary valuation metric, in line with peers under coverage. Key risks: future margin pressure, unexpected policy/economic volatilities.



AsiaChinaBanking / FinanceBrokers

Industry

Chinese BrokersDate13 September 2014

Recommendation Change

Assessing the impact of new account policy; downgrading CGS to HoldGetting more cautious on CN brokers; prefer HTS (Buy) over CITICS (Hold)

________________________________________________________________________________________________________________

Pandora Lee

Research Analyst(+852) 2203 [email protected]

Jacky Zuo

Research Associate(+852) 2203 [email protected]

Key Changes

Company Target Price Rating

6881.HK 6.60 to 6.10(HKD) Buy to Hold

6030.HK 18.80 to 19.90(HKD)

-

6837.HK 13.40 to 14.50(HKD)

-


Top picks

CITIC Securities (6030.HK),HKD19.10 Hold

Haitong Securities (6837.HK),HKD12.78 Buy

China Galaxy Securities (6881.HK),HKD6.12

Hold


Companies Featured

CITIC Securities (6030.HK),HKD19.10 Hold2013A 2014E 2015E

P/E (x) 28.6 24.2 27.6Div yield (%) 0.9 1.0 0.9Price/book (x) 2.1 1.8 1.7

Haitong Securities (6837.HK),HKD12.78 Buy2013A 2014E 2015E

P/E (x) 22.0 17.9 16.8Div yield (%) 1.0 1.1 1.4Price/book (x) 1.6 1.5 1.4

China Galaxy Securities (6881.HK),HKD6.12

Hold

2013A 2014E 2015EP/E (x) 13.5 14.3 13.4Div yield (%) 1.1 2.2 0.0Price/book (x) 1.6 1.3 1.3Source: Deutsche Bank

The removal of the 'one-person, one-account' policy will be implemented from 1 Oct. 2014; we believe this is an inevitable step but will negatively affect brokerage commission as competition intensifies. Based on our corporate survey, we have conducted an in-depth clientele analysis followed by scenario analysis to quantify the potential earnings impact. Based on our analysis, CGS shows particular vulnerability due to its less favorable client structure with higher dependence on the retail business. We are downgrading CGS from Buyto Hold, with a new TP of HK$6.1. Given our upward earnings revision, we raise our TPs for CITICS and HTS and maintain our respective Hold/Buy ratings.

China a retail-driven market; institutional/VIP account key differentiating factorWe believe client structure is the key for brokers to alleviate the negative impact of the new account policy, as institutional/VIP clients demand value-added service vs. more price-sensitive retail investors. According to our checks with management, in terms of percentage, institutional and VIP clients account for 1.21%/0.80%/0.46% of active clients for CITICS/HTS/CGS, respectively. Based on our estimates, the split of brokerage revenue between retail and institutional/VIP clients is 60% and 40% for CITICS, while the retail contribution for HTS, 65%, is slightly higher than CITICS that for CGS is as high as 85%. If we calculate retail-driven brokerage revenue as a percentage of total operating revenue, the ratio is 40% for CGS versus 19% for HTS and a mere 11% for CITICS, indicating s relatively high dependence on the retail business.

Our scenario analysis suggests CGS is most vulnerable We conduct this sensitivity test under three scenarios: worst, moderate, and best, with retail commission rate down 20%/10%/5%, institutional/VIP commission rate down 5%/0%/0%, retail trading volume down 15%/15%/10%, and institutional/VIP trading volume changing -5%/0%/5%, respectively. We view the volume drop in retail clients as inevitable when those clients can switch to other brokers easily, while volume for high-end customers may increase in the best case, as their need for a full range of product/services could only be fulfilled by these large brokers. Our analysis suggests CGS is more vulnerable due to its large exposure to the brokerage business and unfavorable client structure with less contribution from high-end clients. Under our worst/moderate/best scenario, blended commission rate would drop by 13%/5%/2% for CITICS, 14%/5%/2% for HTS, and 17%/8%/3% for CGS, respectively. Together with lower trading volume, we estimate that 2015E earning impact would be -4%/-3%/-1% for CITICS, -6%/-4%/-2% for HTS, and -13%/-9%/-5% for CGS assuming worst/moderate/best case, respectively.

Earnings revision, valuation, and risk We raise our 2014-16 earnings forecast by 7-18% for CITICS and 12-18% for HTS, and we lower our 2014-16 earnings forecast by 1-8% for CGS. Given our upward earnings revision, we raise our TP for CITICS from HK$18.8 to HK$19.9 (6%) and our TP for HTS from HK$13.4 to HK$14.5 (8%). We use a three-stage GGM to value CN brokers assuming 11% CoE, 5% terminal growth rate, and L/T ROE of 18%/16%/13.5% for CITICS/HTS/CGS, respectively. Upside risk: potential relaxation of capital requirement. Downside risks: slower-than-expected China economy; further deregulation causing new competition from non-financial companies.



Rating

HoldAsiaChina

UtilitiesUtilities

Company

China Everbright Int'l



Earnings visibility enhanced; upgrading to Hold

Reuters Bloomberg Exchange Ticker0257.HK 257 HK HKG 0257



Sales (HKDm) 3,484 5,320 6,685 10,334 9,622

Reported NPAT (HKDm) 1,148 1,352 1,709 2,361 2,786

DB EPS FD (HKD) 0.240 0.332 0.382 0.528 0.623

OLD DB EPS FD (HKD) 0.240 0.332 0.382 0.465 0.545

% Change 0.0% 0.0% 0.1% 13.6% 14.4%

DB EPS growth (%) 8.7 38.7 14.9 38.2 18.0

PER (x) 15.4 19.4 28.9 20.9 17.8

Price/BV (x) 1.9 3.5 3.4 3.0 2.7

EV/EBITDA (x) 10.5 12.2 18.2 14.4 12.8

DPS (net) (HKD) 0.060 0.085 0.096 0.132 0.187

ROE (%) 15.8 12.4 12.2 15.2 15.9

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

Leading environmental player at fair valuation

________________________________________________________________________________________________________________

Price at 12 Sep 2014 (HKD) 11.06

Price target - 12mth (HKD) 10.60

52-week range (HKD) 11.96 - 6.65


Michael Tong, CFA


Yingying Dong


Key changes

Rating Sell to Hold

Price target 7.50 to 10.60 41.3%

Sales (FYE) 6,990 to 6,685 -4.4%

Op prof margin (FYE)

39.3 to 40.5 3.0%

Net profit (FYE)

1,707.0 to 1,708.7

0.1%


Price/price relative

2

4

6

8

10

12

14

9/12 3/13 9/13 3/14

China Everbright Int

HANG SENG INDEX (Rebased)

Performance (%) 1m 3m 12m

Absolute 2.2 4.1 62.4

HANG SENG INDEX -0.4 6.1 7.2


1H14 performance, we now upgrade the stock to Hold from Sell. Its year-to-date project wins have hit record high (2.4x full-our earlier expectation. Meanwhile, we are less concerned over the impact of lower waste processing fees on project returns given CEI's cost advantage. The operating environment for biomass projects is also improving. Factoring more new project wins and efficiency gains, we raise our 2015/16E earnings by 14%, with a new target price of HK$10.6. The stock is currently trading at its fair value with a 1.0x PEG.

Positive company and industry developmentYTD, CEI exhibits much better-than-expected project addition momentum by securing 17 new projects, which has enhanced its earnings growth visibility. Stricter gas emission standard (Euro2000) and public-friendly plant design and operation make its projects less likely to be resisted by local residents. Higher operational efficiency and construction cost savings should largely offset any impact from lower processing fees. Meanwhile, biomass project prospects arealso improving with a stricter ban on straw burning and additional subsidy.

Fairly valued; more milestones to cross for future upsideIn terms of potential positive catalysts, we need to see: 1) strong new project wins to extend into 2015; 2) construction of announced projects on track; 3) proven good returns of new business, in particular wind/solar/biomass; 4) new opportunities and synergies after Hankore acquisition on the wastewater front.

PEG-based target price of HK$10.6 (previous HK$7.5); key risksWe value CEI by 1.0x PEG given its strong growth outlook. After incorporating better-than-expected new project wins, our FY15/16E earnings are raised by c.14%, with a new target price at HK$10.6. Key risks include higher/lower-than-expected project wins and project delays (see details in page 3).



Rating

HoldAsiaChina

EnergyChemicals

Company

SinofertDate15 September 2014


Difficult markets

Reuters Bloomberg Exchange Ticker0297.HK 297 HK HSI 0297

ADR Ticker ISINSNFRY US82936D1081



Sales (CNYm) 41,190.1 34,721.8 32,380.3 33,810.2 35,519.3

EBITDA (CNYm) 1,392.0 123.9 665.0 951.9 1,099.3

Reported NPAT (CNYm) 878.4 -476.3 276.1 390.4 558.4

DB EPS FD(CNY) 0.13 -0.07 0.04 0.06 0.08

DB EPS growth (%) -19.4 41.4 43.0

Price/Book (x) 0.8 0.5 0.5 0.5 0.5

PER (x) 11.2 25.0 17.7 12.3

Yield (net) (%) 1.3 0.0 0.6 0.8 1.2


"Manufacturing" to remain a drag on operations

________________________________________________________________________________________________________________



52-week range (HKD) 1.46 - 0.92


David Hurd, CFA


Key changes

Rating Buy to Hold

Price target 1.30 to 1.27 -2.3%

Sales (FYE) 33,390 to 32,380 -3.0%


0.5 to 0.8 67.1%



0.8

1.2

1.6

2.0

2.4

9/12 3/13 9/13 3/14

Sinofert



Absolute 0.0 20.4 -10.8



Sinofert has two businesses: 1) a "Marketing" or distribution business, and 2) a "Production" or manufacturing business. The marketing of potash generates core profits - most of the time. The marketing of urea, phosphates and NPK makes profits. The manufacturing business is less efficient: 1H14 losses. Coal prices continue to slide; new coal-to-urea technology is lowering China / global marginal cost of urea. Sinofert's manufacturing business remains under pressure. We lower our rating to Hold on the back of difficult markets.

More on the fundamentalsDemand for fertilizers in China is weak: NBS reported Ytd July annualizeddemand -9.1%, lead by urea demand (-14.9%). This does not help Sinofert salready slim sales volumes led us to cut FY14-15e sales 4-5%. Potash prices have stabilized 2014 (Figure 1-2):2013 inventory losses are turningSinofert is not booking a vote of no-confidence.

Investment thesis - adjustedWe have adjusted our thoughts on Sinofert and lowered our rating to Hold from Buy. The potash (inventory) losses of 2013 are being turned around in 2014e and hence the brief (1Q14) rally in the share price. Yet urea and phosphate markets look non-supportive for the next few years and the newmanagement team has yet to inspire us best to wait.

Valuation and risks We value Sinofert from a DCF model. Our WACC is 8.2% which consists of a CoE of 10.9%, an after tax CoD of 3.8% and a 37.1% debt-to-capital ratio. We use a DB standard China Rfr of 3.9% and ErP of 5.6%. Our TG rate is 2%,

The principal risks to our target orice are: 1) continued declines in global fertilizer prices; 2) unanticipated corporate activity, M&A, divestitures and / or fair value asset adjusfertilizer industry.



Rating

BuyAsiaHong Kong

Property

Company

SHK Properties LtdDate14 September 2014

Results

Emerging as a key landlord in China as contribution continues to grow


ADR Ticker ISINSUHJY US86676H3021


Year End Jun 30 2013A 2014A 2015E 2016E 2017E

Sales (HKDm) 53,793.0 75,100.0 76,644.1 86,167.9 96,888.1

EBITDA (HKDm) 21,123.0 27,012.1 26,814.5 28,251.8 29,320.1

% Change 0.0% 2.6% 2.6% 8.7%

DB EPS growth (%) -6.6 1.2 7.5 1.9

PER (x) 13.7 13.4 15.6 14.5 14.2

EV/EBITDA (x) 13.5 10.3 11.5 10.6 9.9


Rental contribution from China to grow further on strong completion pipeline

________________________________________________________________________________________________________________

Price at 12 Sep 2014 (HKD) 117.90


52-week range (HKD) 119.20 - 90.90


Jason Ching, CFA


Tony Tsang


Key changes

Price target 124.70 to 127.40 2.2%

Sales (FYE) 74,146 to 76,644 3.4%


31.5 to 32.3 2.5%

Net profit (FYE)

21,082.3 to 21,635.6

2.6%



90

100

110

120

130

140

9/12 3/13 9/13 3/14

SHK Properties Ltd



Absolute 1.8 11.0 14.4



We believe solid FY14 results of SHKP demonstrate the benefits of having a balanced business portfolio. In particular, while gross margin from property sales contracted to a 10-year low at 29%, robust performance from its investment property portfolio (rental revenue surged to a new high at HK$15bn) acted as a buffer to the volatile development sales arm. Indeed, a key highlight in FY14 was the surge in rental contribution from China, which made up about 17.5% of total rental revenue (13.5% in FY13). We expect SHKP to emerge as a key landlord in China as rental contribution continues to grow further on a strong completion pipeline in China ahead. Reiterate Buy.

Core net profit +15% YoY to HK$21,415mn, beating our estimate by 3%SHKP reported FY14 revenue +40% YoY to HK$75,100mn, mainly due to stronger residential delivery (+105% YoY to HK$33,607mn) as well as robust growth in rental revenue (+17% YoY to HK$14,977mn). In particular, rental contribution from China surged by 51% YoY to HK$3,113mn (rental revenue in HK +10% YoY) on positive rental reversion and contribution from newly completed projects. Excluding fair value gains and other non-recurring items, underlying profit rose by 15% YoY to HK$21,415mn, beating our estimate by 3%. A final dividend of HK$2.4/share was declared (unchanged YoY).

Upcoming launches to be well-received by focusing on small/medium unitsWhile we believe the recent upswing in the primary market to be short-livedrather than a turning point of the cycle (i.e. driven mostly by the release of pent-up demand) -received by the market with a focus on small-to-medium sized units. Following the successful launch of The Wings IIIA in Tseung Kwan O recently, upcoming projects scheduled for launch in the next 9 months include The Wings IIIB, Tung Chung project Phase 1 and Deauville in Tsuen Wan West.

Target price based on 25% discount to our revised NAV of HK$169.8/shareOur HK$127.4 target price is based on a 25% discount to our revised NAV estimate of HK$169.8/share (HK$166.3/share). Our target discount is higher

which we believe is appropriate given the soft outlook in the Hong Kong residential market in light of the QE tapering and potential interest rate hike early next year. Key risks: external economic shocks, liquidity outflow, interest rate hike and government measures.



Rating

BuyJapan

Healthcare

Company

OlympusDate14 September 2014

Company Update

Top 10 questions asked during US NDR

Reuters Bloomberg Exchange Ticker7733.T 7733 JT TYO 7733

ADR Ticker ISINOCPNY US68163W1099


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

Sales (JPYbn) 713.3 758.0 801.1 837.3

Operating profit (JPYbn) 73.4 91.8 112.8 127.4

Net profit (JPYbn) 13.6 48.4 60.0 68.0

EPS(JPY) 127.23 143.90 175.35 198.35

EBITDA (JPYbn) 119.8 141.3 164.2 176.3

EV/EBITDA (x) 9.3 9.3 7.6 6.6

ROE (%) 5.7 14.1 15.7 15.6


Expecting a flattened but more sustained ramp-up curve

________________________________________________________________________________________________________________

Price at 12 Sep 2014 (JPY) 3,835

Price target - 12mth (JPY) 4,500

52-week range (JPY) 3,900 - 2,802

TOPIX 1,314

Jack Hu, Ph.D


Key changes

Price target 4,200.00 to 4,500.00

7.1%

EBITDA (FY3/16)

161bn to 164bn 2%



1000

2000

3000

4000

9/12 3/13 9/13 3/14

Olympus

TOPIX (Rebased)


Absolute 8.2 15.3 31.0

TOPIX 4.5 6.1 10.9


Stock data

Market cap (JPYbn) 1,312

Market cap (USDm) 12,215

Shares outstanding (m) 342.2

Major shareholders SUMITOMO MITSUI

FINANCIAL GROUP (6.01%)

Free float (%) 55

Avg daily value traded (USDm)

42.3


We hosted Olympus NDR in NYC on Friday. Key takeaways include: 1) a slightly flattened but more sustained ramp-up curve is expected for this round of replacement cycle for EXERA III, vs. sharp rise followed by growth deceleration from previous cycles; 2) investment in surgical is likely to continue but ROI in Thunderbeat is highly anticipated; 3) 3D/4K endoscopes are likely to become another strong growth driver in the mid-term. We reiterate Buy and raise our target price to JPY4,500.

FY3/15 forecast: conservative for medical and risks in imagingThe company expects that strong growth recovery in the US/EU, as well as growth acceleration in China are likely to drive double-digit organic growth for the endoscope business, in addition to favorable JPY. For imaging, management is expecting a back-loaded year as mirror-less is 10% behind schedule. We think there is a risk to the profit target of JPY3.5bn loss as Olympus has limited room to maneuver on expense lines as well. However, due to rapid USDJPY movement, we expect the company to increase guidance for both revenue and profit at the 2QFY3/15 call; however, the magnitude willlikely be less than the net from sensitivity analysis.

Invest for the future surgical as priority; expect dividend to resume in FY3/16Management articulated its strategic focus on the surgical business, as well as risk mitigation strategies. While Olympus has conviction on its technology leadership, including 3D endoscope and Thunderbeat, sales/marketing investment will continue. We expect Thunderbeat ramp-up to accelerate after securing more GPO contracts and modest price adjustment on consumables. Also, it is likely Olympus could resume dividend payout as early as FY3/16.

Increasing target price to JPY4,500 from JPY4,200; risksOur new target price of JPY4,500 is based on 9x FY3/16E EBITDA of JPY164bn. We increase the multiple to 9x from 8.5x to reflect our increased conviction on long-term growth prospects, as we raise FY3/16 and FY3/17 EBITDA estimates by 2% and 3%, respectively. We believe a 9x multiple is justified as we model 16% YoY EBITDA growth for FY3/16, vs. US/JP peers trading at 9.7/6.5x with 3.2%/5.8% growth. Key risks include JPY appreciation, a slowdown in EM growth and further deterioration of the camera business.



Asia EconomicsForeign ExchangeRates


Asia Local Markets MonthlySwitching regimes

________________________________________________________________________________________________________________

Sameer Goel

(+65 ) 64236973

Taimur Baig, Ph.D

(+65) 64238681

Kaushik Das

(+91) 22 7180 4909

Diana Del-Rosario

(+65) 6423 5261

Swapnil Kalbande

(+65) 6423 5925

Perry Kojodjojo

(+852) 2203 6153

Juliana Lee

(+852) 2203 8312

Linan Liu

(+852) 2203 8709

Mallika Sachdeva

(+65) 6423 8947

Kiyong Seong

(+852) 2203 5932

Audrey Shi

(+852) 2203 6139

Michael Spencer

(+852) 2203 8303

Table of ContentsSummary Market Views - Rates Page 02

Summary Market Views - FX Page 03

Trade Monitor Page 04

Country Sections Page 05

Policy Rate Forecasts Page 53

Economic Diary Page 57

Bond Supply Monitor Page 58

Monetary Policy Monitor Page 59

We are switching regimes again. After a long gap, we are again staring at the prospect of policy divergence in the developed world, with ECB set to

wider EM universe, this portends 1) increasing volatility in the pattern of capital flows; and 2) likely re-correlation of price trends with global factors, after having being driven for much of this year by idiosyncratic and localized issues.

It is unlikely to be a repeat of 2013, though. For one, unlike last year when the global factors came in serial order (yen weakness, taper tantrum), it promises to be a mix of divergence in balance sheet trends, a stronger dollar (including versus the low yielders), higher US rates, and weaker commodity prices. And equally, Asia is mostly in a better place now versus its own history in 2013, and likely versus other parts of EM, in its capacity to handle volatility. For starters, it has lesser geopolitical and governance concerns to immediatelycontend with. The two big elections in the region have delivered market friendly mandates of growth and reforms. More importantly, there has been significant progress, even though varying between economies, to correct fundamental imbalances. External deficits have been moderating, though arguably more by way of compression in imports. Export growth is still pending growth consolidation in the developed world, though we note increasing divergence in performance across the region. Earning revisions have been generally favorable. And policymakers seem to have their eyes on the ball. Malaysia and Philippines have started to hike rates, and will likely continue to. India and Indonesia have shown their commitment to keep policy tight till internal and external imbalances have eased. North Asia though is in a relatively more accommodative place on policy thinking. The longer it takes for the G3 policy mix to tighten, the more time it affords to economies in Asia to work through their adjustments, and to build their defenses.

Asian currencies might find it hard to fight off the broader USD strength, but should hold their ground well versus European FX (EUR, CHF) and JPY. We are keen on intra-Asia crosses to avoid dollars. Our rates views are mostly tactical, with a long directional bias only in China and India. Trades we like include,

Long CNH versus KRW, target 176 (spot)

Long INR versus SGD, target 46 (spot)

Long 6M USD/IDR, target 12300 (spot)

Long MYR and PHP versus EUR

Long USD/CNH put spreads and USD/SGD 1.2750 digital calls

Long 10Y IGBs, target 8.25%

Long 3Y/10Y KTB steepeners, target +80bp

Long the belly of 2Y/5Y/10Y fly in Malaysia, and 2Y3Y in Singapore vs. US

.



Asia Data FlashEconomics Date12 September 2014

Asia Economic Diary: Sep 15- 19

________________________________________________________________________________________________________________

Taimur Baig, Ph.D

Chief Economist(+65) [email protected]

Two central banks meet next week; we expect BNM to raise overnight policy rate by 25bps while expectations are firmly entrenched in favor of continued

s CPI inflation outturn is expected to remain unchanged at 3.2%.

Sri Lanka will release its Q2 GDP data and we expect GDP growth to improve slightly to 7.7% from 7.6% in Q1. Singapore will publish its exports and retail sales data next week. Positively, its exports will move to positive territory, rising by 0.5% in August (vs. -1.6% in July) as NODX (2.5% vs. -3.3%) rebounds. Meanwhile, its imports will continue to contract (-3.0% vs. -3.5%), printing a trade surplus of SGD5.3bn from SGD4.1bn in July. Retail sales will also fare better, rising by 1.0% in July from 0.4% in June.

ECONOMIC DIARY:

Source: Deutsche Bank, Country data



Japan Foreign ExchangeFX Spot


DEutsche JApan View on FXThe Japan-US QE gap

________________________________________________________________________________________________________________

Taisuke Tanaka

Strategist(+81) 3 [email protected]

USD/JPY upcycle on BoJ QE and the Fed's QE exit has yet to pass the halfway point

BoJ Governor Kuroda mentioned the possibility of additional QQE after meeting with Prime Minister Abe yesterday, and again during an appearance on a news program that night. This prompted the USD/JPY to rise over 107.Although his comments were predictable, the key point is that he will continue to support JPY-bears going forward.

Kuroda is implementing QQE to help Japan exit deflation and would not say anything that might dampen the market's expectations for inflation. He will likely continue to consistently stress that the BoJ is ready to implement additional QE if necessary, that it can do this in various ways, and that its policies are effective.

In contrast, the Fed looks set to exit QE in October. The FOMC should start discussing a detailed exit strategy at the meeting next week, and could start shifting to a more hawkish stance by the end of the year. Throughout 2015-16, as long as long as the US remains on a self-sustaining economic recovery with growth above 3%, we see the USD/JPY upcycle continuing as the market seesa rise in US interest rates.

While the USD/JPY was deadlocked for several months, Japanese institutional investors, individuals, and importers continued steadily buying the USD on dips. However, this does not mean that they have secured adequate long positions. The level for buying on dips has risen in following with the recent spike in the USD/JPY.

USD/JPY corrects after seeing the results of next week's FOMC meeting, this may offer Japanese investors a good opportunity to buy. Speculative USD/JPY-bulls overseas are being supported by Japanese buying on dips, and should be able to repeatedly implement long strategies that target that rate surpassing 110 before the year-end.

Figure 1: US-Japan monetary base ratio and USD/JPY

0.2

0.3

0.4

0.5

0.6

0.7

50

60

70

80

90

100

110

120

130

140

2008 2009 2010 2011 2012 2013 2014

Japan/US Monetary Base Ratio (rhs

USD/JPY (lhs)

Forecast

Source: Deutsche Securities, BoJ, FRB, Bloomberg Finance L.P.



Japan Economics Date12 September 2014

Japan Economics WeeklyRevision in recovery momentum from post-tax negative payback

________________________________________________________________________________________________________________

Mikihiro Matsuoka

Chief Economist(+81) 3 5156-6768

[email protected]

Kentaro Koyama

Economist


We maintain our view that the Japanese economy is rebounding from the negative payback following the consumption tax hike, but adjust our forecast regarding the recovery momentum. We have cut our real GDP growth forecast to +3.8% saar for 3Q (Jul-Sep) 2014 (previous: +4.3%) while raising it to +2.9% for 4Q (+2.6%). That said, since the economy should recover in 3Q and 4Qfrom the post-tax negative payback, we reiterate that growth will exceed our estimated underlying trend (real GDP growth of 1.5-2.0%) in 3Q and 4Q and return thereafter to the underlying growth path.

The Household Survey in July revealed that real household spending was a listless -0.2% MoM and real retail sales -0.6%. Spending may have been adversely impacted by the series of bad weather during the month, which could mean a slower turnaround in spending in 3Q than our expectation.However, given the steady income environment and consumer sentiment, we believe the consumers that held back due to one-time factors such as the weather will spend at least some of that portion once those factors fade away.In addition, real wages per person were down measured in YoY for 12 months to March 2015 in the face of higher prices caused by the consumption tax hike, and some market participants believe this hurt or will hurt spending. We believe this argument overlooks the following two important points: 1) the falloff in real wages occurred coincidently with the consumption tax hike and has not continued thereafter, and 2) we need to take into account the rise in number of workers to look at wages in the economy as a whole.

We believe inflation (excluding fresh food and the impact of the consumption tax hike) will continue to ease from its 1H 2014 peak, settling around 1% from 2015. Given the slow recovery in the output gap due to a series of consumption tax hikes going forward, stable 2% inflation would not occur until 2016 in our view. We believe the BoJ will announce an extension of its Quantitative and Qualitative Easing (QQE) through 2015, perhaps as early as the release of its semi-annual Outlook Report at end-October.

(The next Japan Economics Weekly will be scheduled on 26 September.)

GDP gap and inflation

-10

-8

-6

-4

-2

0

2

4

6

1985 1990 1995 2000 2005 2010 2015

GDP gap (% of potential GDP)

Core CPI (%YoY)

Domestic demand deflator (%YoY)

(%)Forecast

Notes: 1) GDP gap = (Actual GDP - Potential GDP) / Potential GDP(%). 2) Data for 3Q 2014 and later are forecast by Deutsche Bank. 3) Potential GDP is obtained by the Hodrick-Prescott filter. 4) Excluding effects from consumption tax. Sources: Cabinet Office, MIC, MHLW, DB Global Markets Research

Thematic reportsGlobal comparison of labor productivity and ICT investment by industry

5 Sep

DB leading indices: 6-month fall still does not signal genuine recession

3 Sep

Effects of manufacturing outward FDI on trade balance

29 Aug

Slight downward revision but recovery trend intact

22 Aug

Unbalanced inflation: Relative price dispersion and imputed rent problem

8 Aug

Japan: DB leading indices: Consumption recovery vs. stagnant production and exports

4 Aug

Three themes on falling population 1 Aug

Underestimation bias in potential GDP and its growth

25 Jul

Growth potential for inward direct investment into Japan

18 Jul

Regional Domestic Expenditure Index (RDEI) and current-quarter GDP forecast

11 Jul

Population aging and household saving rate 4 Jul

Japan: DB leading indices: Expect expansion despite four straight falls

2 Jul

Analysis of Volatility Decline 27 Jun

Small downward revision to 2014 economic forecast

13 Jun

Long-term trends in trade balance 6 Jun

Japan: DB leading indices: Negative payback is transitory

4 Jun

Growth strategy update 30 May

Upward revision in Japanese economic outlook

23 May

Post-QQE JGB yield outlook: Doubts over perpetual rise in yields

16 May

DB leading indices: New development in labor market

9 May

What does BoJ's Phillips curve tell us?25 Apr

Economic forecasts are included in12 Sep 2014

22 Aug 2014

13 Jun 2014

23 May 2014

14 Mar 2014

21 Feb 2014

Monetary Policy Watch15 Jul 2014

30 Apr 2014

16 Apr 2014

25 Feb 2014

18 Feb 2014

28 Jan 2014

4 Dec 2013



Japan RatesGov. Bonds & Swaps


Japan FI Morning MemoUS CPI a greater focus than the FOMC

________________________________________________________________________________________________________________

Makoto Yamashita, CMA


US CPI a greater focus than FOMC

The yen has weakened to beyond JPY107/USD. This is likely due to concerns of a change in views on US monetary policy at the FOMC meeting on the 17th. The rise in non-farm payrolls has slowed, but the quality of US employment is improving. JOLT data for July shows the total number of job openings (separations plus hires) at 9.43m, recovering to only 7% below the average for 2004-2006. In August employment-related data, the U6 unemployment rate fell 0.2%, while average hourly earnings rose 2.1% YoY, starting to remain stably above 2% growth.

However, the market is more focused on the core CPI for August than on the FOMC meeting (both scheduled for the 17th). The consensus is for growth of 1.9% YoY, the same level as July. The market is moving on the assumption that the inflation rate will not rise, but inflation is a lagging indicator. We see the risk of an overshoot since it is natural that inflation will rise following the economic recovery up till now. We expect housing and medical costs to boostthe CPI. The Fed expects the core PCE deflator to rise 1.5% YoY, which is close to 2%. The risk that a slight overshoot could sharply move the market does not appear to have been sufficiently priced in.

Today's schedule

Time Economic indicator/event Market forecast

Previous result

15 05 BoJ Governor Haruhiko Kuroda gives a speech

US retail sales for August 0.6 0.0

University of Michigan consumer sentiment index for September

83.3 82.5

Source: Deutsche Securities

Data close change

JGB Future TSE 1145.42 ( -0.23 )

JGB Future LIFFE 1145.54 ( +0.12 )

JGB2Y 00.075% ( +0.005% )

JGB5Y 00.170% ( +0.010% )

JGB10Y 00.565% ( +0.025% )

JGB20Y 11.380% ( +0.030% )

JGB30Y 11.700% ( +0.015% )

UST2Y 00.564% ( -0.008% )

UST5Y 11.790% ( 0.000% )

UST10Y 22.551% ( +0.008% )

UST30Y 33.278% ( +0.005% )

BKO2Y --0.075% ( -0.008% )

OBL5Y 00.212% ( -0.005% )

OBR10Y 11.041% ( -0.006% )

OBR30Y 11.962% ( -0.015% )

Nikkei225 115,909.20 ( +120.42 )

TOPIX 11,311.24 ( +4.45 )

CME Nikkei225 115,835 ( +15.00 )

NY Dow 117,049.00 ( -19.71 )

NASDAQ 44,591.81 ( +5.28 )

DAX 99,691.28 ( -8.89 )

Yen/Dollar 1107.11 ( +0.25 )

Dollar/Euro 11.2925 ( +0.0008 )

WTI 992.83 ( +1.16 )

NY GOLD 11237.90 ( -6.20 )

NNews from the close on prior working day

Sep. 11, 2014 * BoJ Governor Haruhiko Kuroda: "We will implement monetary policy as necessary depending on economic conditions" "We still have scope to ease further, various measures are possible" "Yen depreciation is not bad for the economy." * US initial jobless claims 315,000 (vs. market consensus: 300,000 and previous week 304,000)

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



Europe Economics Date12 September 2014

Focus EuropeScotland on a knife edge

________________________________________________________________________________________________________________

Mark Wall


[email protected]

On 18 September Scotland will decide its future as either an independent nation or a part of the UK. The latter can be expected to generate a relief rally in UK asset prices particularly sterling and the former a sizable sell-off thanks to a prolonged period of uncertainty. Whatever the result, Scotland can expect to have more policymaking powers post the referendum; the two routes by which it achieves this are just monumentally different.

The Scottish independence referendum re-focused attention on Catalonia. Although it appears highly likely that the Spanish Constitutional Court will reject Catalonia's request for a self-determination referendum, we see a non-negligible possibility that some sort of non-binding referendum will take place in November. In any case, a permanent solution does not look forthcoming. The Scottish result as well as the EU, business and market reactions could have relevant repercussions for Catalonia.

The Scotland question is one of two existential questions for the UK. The other is membership of the EU. We consider the issues in a Special Publication which we summarise here. Some of the British demands are legitimate calls for EU reform. Others that question basic principles will be more difficult to resolve. Either way, the UK and EU are economically intertwined.

We present a first-take on Jean- -up for the new European Commission. A few of the nominations will face questioning from the Parliament, but we nonetheless expect approval by 1 November.

German Finance Minister Schäuble announced a balanced budget for 2015 It is a clear he is not prepared to boost

German infrastructure investment as requested not only in Germany but also by some other EMU countries and most recently ECB President Draghi.

Euro IP rose 1% in July, helped by German one-offs. Even allowing for some payback, Q3 appears in line with our GDP projection. Underlying industrial momentum remains in stagnation and with disappointment, once again, in Italy we remain concerned about the fragility of the euro area recovery.

In the euro inflation outlook we look at commodity prices and state a possible upside revision risk to the final August HICP print.

Scottish independence referendum too close to call

0

10

20

30

40

50

60

2012 2013 2014

YesNoUndecided

Polls on Scottish Independence,%, 3 poll moving average

Source: Deutsche Bank, various UK polling organisations

Research Team

Euroland

Peter [email protected]

Marco [email protected]

Mark [email protected]

UK/Scandinavia

George [email protected]

Central Europe

Caroline [email protected]

Gautam [email protected]

Inflation Strategy/Economics

Markus [email protected]

Table of contents

Scotland on a knife edge Page 03

Catalonia = Scotland? Not that straightforward

Page 08

A future in the EU? Reconciling the "Brexit" debate with a more modern EU

Page 11

Commission Juncker: New team, new structure - new policies?

Page 13

Germany fiscal position too good to last

Euro July industrial production: a decent show

Page 19

Euroland Inflation Page 22

Euro Sovereign Events Page 24

Rate views Page 27


Page 16 Deutsche Bank AG/Hong Kong

United States Economics Date12 September 2014

US Daily Economic NotesThe September FOMC headlines a full data docket this week

________________________________________________________________________________________________________________

Joseph LaVorgna

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

Brett Ryan

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

8:30 am NY Fed Empire mfg survey (Sep): +15.0 +14.7 +15.09.15 am Industrial production (Aug) +0.4% +0.4% +0.3%

Capacity utilization 79.3% 79.2% 79.2%Source: Deutsche Bank, Bloomberg Finance LP

Commentary for Monday: The two-day FOMC meeting concluding on Wednesday will be the main event this week. In addition to the post-meeting statement, released at 2:00 pm, tthe Fed will provide updated economic and interest rate forecasts, which will include new inf2017 estimates. Additionally, there will be a post-meeting press conference with Chair Yellen at 2:30 pm. In the meeting statement, the Fed is expected to taper asset purchases by another $10 billion. MMore importantly, we expect the

language and replace this with a more data-dependent approach. Market participants will also likely focus on the 2017 forecasts, particularly with respect to the projected path of official interest rates For a more detailed discussion of the September FOMC, please see the latest US Economics Weekly.Prior to the conclusion of the Fed meeting, policymakers will receive the August data for industrial production (today), PPI (Tuesday) and CPI (Wednesday). IIndustrial production (+0.4% forecast vs. +0.4% previously) should benefit from a modest rise in manufacturing and mining hours in the month. We remain highly constructive on the near-term outlook for production given rising order backlogs and elevated readings on the various PMI surveys.

New York Fed EmpirePhiladelphia Fed survey (+25.0 vs. +28.0) should provide further evidence that the manufacturing sector is growing at a healthy pace.Regarding the inflation data, we expect the PPPI to rise a tenth on both the headline and core components. Market participants should ffocus on the data for , because this can give us an early read onthe core PCE deflator. The data from the former series is used to calculate PCE medical prices in the latter. As a reminder, healthcare services prices are the largest component of the core PCE at roughly 20%, hence the trend in PPI medical prices can provide clues as to the trajectory of the core PCE deflator.With respect to CPI report, gasoline prices should keep the headline flat (vs. +0.1% previously), while the core is expected to rise +0.2% (vs. +0.1% previously). We continue to expect core inflation to trend higher over next couple of quarters, driven by rising shelter costs, which comprise roughly 40% of the core CPI. IIn July, rents were up 2.9% compared to the same period a year ago the highest level since March 2008 (+3.0%).Following the CPI on Wednesday, the NAHB will release the September homebuilder sentiment survey (56 vs. 55). This survey has steadily improved after a mid-winter slump. This is one reason we remain positive on August housing starts (1.100M vs. 1.093M) and bbuilding permits (1.075M vs. 1.057M),which are released on Thursday. Another reason we remain constructive on

initial jobless claims data correspond to the survey period for September nonfarm payrolls. At their current level, claims are consistent with payroll gains well in excess of 200k per month.

Policy SpeechesThere are no monetary policy speeches scheduled for Monday

2014 Yearend TargetsReal GDP growth: +2.3% Q4/Q4Core CPI: +2.3% Q4/Q4Unemployment rate: 5.9%Fed Funds: 0.15%



Global Economics Date12 September 2014

US Economics WeeklyTop five indicator update and FOMC preview

________________________________________________________________________________________________________________

Joseph LaVorgna

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

Brett Ryan

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

Overview: Economic data are notoriously unreliable because the initially reported figures are prone to massive revision. Witness the unprecedented -2.1% annualized decline in Q1 real GDP, which compares to an initially reported +0.1% gain. The story is the same with other key data the financial markets pay close attention to such as nonfarm payrolls, retail sales and durable goods orders. Consequently, we highlighted five indicators this past spring that investors should be paying attention to because they either do not get revised (employee tax receipts, unit motor vehicle sales and the Fed’s Senior Loan Officer Survey) or if they do (initial jobless claims and the manufacturing ISM survey), the revisions tend to be small. Naturally, these five indicators are highly predictive of economic activity. In the analysis below, we review their recent performance and discuss what they are telling us about the economy.

The week ahead: A busy meeting for the FOMC The two-day FOMC meeting concluding on Wednesday will be the main event next week. In addition to the post-meeting statement, released at 2:00 pm, the Fed will provide updated economic and interest rate forecasts, which will include new information on the Committee’s 2017 estimates. Additionally, there will be a post-meeting press conference with Chair Yellen at 2:30 pm. In the meeting statement, the Fed is expected to taper asset purchases by another $10 billion. However, there could be some tweaks to the forward guidance language, specifically with respect to the time frame in which interest rates will remain at the zero bound following the end of asset purchases. Market participants will also likely focus on the 2017 forecasts, particularly with respect to the projected path of official interest rates—i.e. the “dot plot”.

As the minutes from the July meeting indicated, the FOMC’s outlook should remain largely unchanged

Source: FRB & DB Global Markets Research

Table of Contents

Overview ......................................................... Page 2

The week ahead .............................................. Page 4

Calendar .......................................................... Page 6

Forecasts

2014 2015Q1 Q2 Q3F Q4F Q1F Q2F

Real GDP (% q/q)-2.1 4.2 3.5 3.7 3.1 3.3

Core CPI (% y/y)1.6 1.9 2.0 2.3 2.4 2.5

Unemployment rate6.7 6.2 6.1 5.9 5.8 5.7

Fed funds0.09 0.09 0.13 0.13 0.13 0.50



North America United States

Periodical

US Equity InsightsDate12 September 2014

S&P EPS growth after the super-cycle

What's S&P EPS growth potential without a China or commodity super-cycle?

________________________________________________________________________________________________________________

David Bianco

Strategist (+1 ) 212 250-8169 [email protected]

Priya Hariani

Strategist (+1) 212 250-2766 [email protected]

Ju Wang

Strategist (+1) 212 250-7911 [email protected]

S&P 500 Key Forecasts

Price 1985.54

Next 5%+ move Uncertain

2014E 2015E 2016E

Year-end Target 2050 2150 2030

EPS $119 $126 $134

Target P/E 17.2x 17.1x 17.2x

Current P/E 16.7x 15.8x 14.8x

DPS $40 $45 $50

Related recent research Date

The Seven Signs: Interest Rates, Oil Prices and the Dollar

11 Sep 2014

Raise S&P targets: PE rollercoaster?

08 Sep 2014

Good reasons to return to the top 15 Aug 2014

Standing on the shoulders of bonds

30 May 2014

US Equity Strategy Baskets Bloomberg Ticker

Dividend Grower DBUSDVGR

Total Shareholder Return Stimulator

DBUSBBD2

Tech's Enduring Eight DBUSTECH

S&P's Big and Low (PE) Basket DBUSBGLW

Strong China growth and related strength in commodities, investment and exports drove double-digit EPS growth for S&P non-financials in the later years of the last economic cycle (2006-08). However, such drivers of growth are unlikely in this cycle’s later years. Thus, the burden to keep EPS growth healthy has returned to secular growth sectors of Tech and Health Care while China sensitive sectors of Energy, Industrials and Materials take a rest. Strong sales growth at Health Care and improving at Tech suggests an ability to carry the burden. While ~6% S&P EPS growth will be slower than last cycle it will probably last longer and raise the earnings share of higher PE sectors.

Back to School roll call: Treasury yields; USD and oil finally say “present” Finally some action across asset classes acknowledging improved US data, yet still sluggish global data, especially Europe. 10yr Treasury yields rise to 2.61% from 2.34% year low, Euro and oil prices fall to year lows at $1.29 and $92/bbl (Brent $97/bbl). This is the third 20bp climb in 10yr yields this year; previous climbs faltered with yields falling to new lows for the year. The slide in Euro and oil prices are the biggest shake-up in the “Seven Signs” (cross asset class signals, p12) we monitor to help guide our S&P EPS estimates and PE targets. So far, the signals validate our outlooks for S&P EPS and PE, but the risk is further sharp rise in yields (PE risk) and/or slide in Euro or oil prices (EPS risk).

Our 2015E S&P EPS of $126 assumes Euro avg. ~$1.30 and Brent oil $100/bbl A weaker Euro weighs on S&P EPS via FX translation and reduced US export competitiveness vs. European exports to Asia. The export consideration mostly affects Industrials, but material FX translation also exists at Tech and parts of Health Care, Cons. Staples and Discretionary. Furthermore, a stronger dollar pressures commodity prices. Lower oil prices hit Energy profits directly, but can also soften Energy related capex which hits Industrials. Without stronger global capital goods demand and construction activity, it will be difficult for Industrial sales growth to rise from its low single-digit pace. This could be a big disappointment to investors expecting strong sales growth at Machinery and other Capital Goods industries given the strong US Mfg. ISMs.

Our 2015 end S&P target of 2150 assumes 10yr yield stays <4% through 2016 We think it appropriate and likely that the Fed changes its “considerable time after the asset purchase program ends” language in next week’s FOMC statement. When and how fast the Fed hikes the overnight rate will impact 10yr yields. For our S&P targets of 2150 for 2015 end and 2300 for 2016 end we think it is important that the overnight rate plateau no higher than 3% so that the 10yr yield can stay under 4% for the rest of the cycle.

Oil prices beyond dollar & demand: US supply growth vs. Saudi pricing power? Brent fell below $100/bbl for the first time in over a year despite news of Saudi production cut, IEA trimmed demand growth forecast and strong US supply.

S&P avg. PE from 1985 is a ~1 point higher if adj. for today’s sector weights Recalculating the S&P PE from 1985 on today’s sector earnings weight raises the avg. PE by ~1 point from 17.6 to 18.4. This is because Tech and Health Care’s (higher PE sectors) combined share of S&P earnings more than doubled to ~33% now vs. ~15% in the late 1980s. Currently, Tech and Health Care PE is in-line with the S&P. Superior growth at these two sectors should raise their PEs and support an above average overall S&P PE.



Global Commodities Date12 September 2014

Commodities Weekly

________________________________________________________________________________________________________________

Michael Lewis


Michael Hsueh


Jayati Mukherjee


Commodities As An Asset Class: Commodities have maintained their status as

index returns during the current quarter and since the beginning of the year has been concentrated in the agriculture and energy sectors. Energy:: The appearance of contango in the Brent forward curve will be signaling to OPEC that physical fundamentals have deteriorated significantly over the past two months. Historically, sustained action by OPEC and SaudiArabia in particular has tended to be successful in stabilizing the crude oil price and restoring backwardation to the crude oil forward curve.Precious Metals: If sustained, the move higher in US long-term real interest rates introduces fresh headwinds for the gold price. In an environment where US economic activity continues to improve we expect downside risks to gold will persist. On a relative value basis, we still view PGMs as the most robust part of the sector given its low correlation to rates, equity and FX markets.Industrial Metals: We expect all commodity sectors will have to contend with a stronger US dollar heading into next year. However, of the group industrial metals have tended to be the most resilient to a stronger US dollar and insteadbeen more sensitive to the global growth cycle. Agriculture: Grain and soybean prices continue to fall to be now at their lowest levels since 2010. As record harvests in the US and globally are expected to outpace demand, benign weather in several regions is leading to further upward revision of harvest estimates. While the possibility of an El Niño event this year remains, it effects on the agricultural complex are likely to be weak.

Crude oil term structure & Saudi oil production

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

-20

-15

-10

-5

0

5

10

15

1995 2000 2005 2010

1M-12M Brent time spread (USD, lhs)

Saudi oil production (mmb/d, rhs)

Contango typicallytriggers Saudi production cuts

Sources: Deutsche Bank, Bloomberg Finance LP, IEA

Table of ContentsCommodity Performance...........................................Page 2

Global Trends.............................................................Page 3

Special Focus.............................................................Page 6

Asset Class Performance ........................................Page 11

Chartbook Overview................................................Page 12

Commodity Price Forecasts ....................................Page 15



Asia Economics Date12 September 2014

Global Economic PerspectivesSOE Reform in China

________________________________________________________________________________________________________________

Peter Hooper


[email protected]

Michael Spencer, Ph.D

Chief Economist


Torsten Slok

Chief Economist(+1) 212 [email protected]

Noteworthy announcements about SOE reform and deregulation have appeared about every two days since the Third Party Plenum in November 2013. These announcements reflect a desire by the state to divest itself of firms operating in competitive sectors to level the playing field for the private sector and to improve efficiency for those operating in naturally

company level can only be evaluated over time in their performance.

But at the same time, the government is pursuing a broader reform agenda that builds on its 2001 WTO accession: liberalization of international trade in goods and services, liberalization of domestic and international finance and deregulation to liberalize private investment. Especially where these affect services now 46% of GDP and still largely protected and SOE-dominated growth trajectory in the coming years.

SOEs versus private enterprises: returns, leverage and employment

15

20

25

30

35

40

45

0

20

40

60

80

100

120

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Liab/equity RoE Employment (rhs)% %

Sources: CEIC and Deutsche Bank Research. The figures show the ratio of returns on equity in SOEs to those of domestic private firms, the liabilities/equity ratio for SOEs relative to that of domestic private firms and the share of urban employment accounted for by SOEs.



AsiaChinaTechnology

Periodical

China TMT DailyDate12 September 2014

Industry salaries

________________________________________________________________________________________________________________

Alan Hellawell III


Vivian Hao


TOP CHINA TMT PICKSCompany RRating Target PriceBaidu Buy USD 245.00YY Buy USD 86.00China Unicom Buy HKD 14.20

CHINA TMT STOCKS

Company RRating Close 11D% 3M%aas of 11/09/14

TTELCOSChina Comm Service Buy 3.72 -0.8 2.2

China Mobile Hold 100.0 1.3 31.9

China Telecom Buy 5.0 1.0 29.9

China Unicom Buy 13.7 1.6 15.8

IINTERNET/ONLINE GAMING

Baidu Buy 220.0 -0.3 24.7

Ctrip.com Int'l Buy 65.1 -0.8 10.3

Netease.com Hold 88.6 0.8 22.2

Phoenix New Media Buy 10.0 4.3 -5.7

RenRen Sell 3.4 -0.6 2.7

Sina Corp Buy 48.0 4.4 3.6

Sohu.com Hold 56.0 2.6 -3.8

SouFun Hold 10.9 -3.0 2.3

Tencent Buy 122.2 0.2 5.7

TTECHNOLOGY

AutoNavi NA N.A. N.A. N.A.Foxconn Int'l Hldgs Buy 4.4 0.7 -2.7Lenovo Group Buy 11.9 -4.2 22.1Synnex Technology NA 44.9 -1.5 -8.7ZTE Hold 18.2 -0.7 18.3

Indices CClose 1D% 33M%

aas 11/09/14HSI Index 24662.6 -0.2 6.4HSCEI 11032.9 -0.8 5.8Nasdaq 4591.8 0.1 6.0

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

FEATURE:

China sees rising salary for internet industryHead-hunting company OfferCome recently shared some updates on the job market for China's internet companies, offering interesting perspectives of the industry. The company has seen continuously rising salaries, particularly for senior programmers who have at least 1 year working experience. Surging demand from not only big internet companies but also mushrooming start-ups

many start-ups that have closed rounds of financing this year seem to be willing and able to match the salary levels of large internet firms, and simultaneously offer generally very favorable option incentives on a scale never seen in the last few years.

The heavy weights in focus - giving and taking headcountThe company revealed that on the supply side, in addition to new university graduates, Baidu, Tencent and other mega-employers are now the main source of hirable employees. These two sources currently remain relatively stable. On the demand side, the company believes Tencent to have kept a consistent pace of recruitment. The company historically has seldom had abrupt increases or decreases in enrollment for any specific sector. Baidu also maintains a large engineer workforce. The firm describes Baidu's staff turnover ratio as remaining relatively stable. As for the hot areas of recruitment for big players such as Baidu and Tencent, the firm claims to have seen increasing demand in the search, browser and LBS (location-based service) areas. We believe these trends indicate that the large players are all investing increasing resources in competing for various mobile traffic on-ramps.



Rating

BuyAsiaChina

ConsumerRetail / Wholesale Trade

Company

Belle International Alert


Company Update

2QFY15 SSSg down 2.8%


ADR Ticker ISINBELLY US0784541056

________________________________________________________________________________________________________________



52-week range (HKD) 11.80 - 7.41


Anne Ling


Lydia Ling


Stock data

Market cap (HKDm) 81,543


Shares outstanding (m) 8,441.3

Major shareholders Sheng & Tangs (58.3%)

Free float (%) 27


20.771


Key data

FYE 2/28 2014A 2015E 2016E

Sales (CNYm) 36,794 38,865 42,864

Net Profit (CNYm)

4,401.8 4,597.2 5,051.6

DB EPS (CNY) 0.52 0.55 0.60

PER (x) 16.6 14.0 12.8

Yield (net) (%) 2.3 2.5 3.0


Belle International announced that SSSg in 2QFY15 was negative 2.8% for the footwear business and positive 14.4% for the sportswear business. During the period, it net closed 56 stores in mainland resulting in a total of 19546 stores as of end-August 2014 (including 13491 footwear stores and 6055 sportswear stores). It net closed 82 footwear stores and net added 26 sportswear stores in 2QFY15.

Deutsche Bank comment2QFY15 SSSg came in slightly below our expectation. We believe the footwear industry remained under pressure during the period, especially in face of the unfavorable weather. Its negative SSSg is mainly due to traffic decline while ASP remains on slightly positive trend, in our view. Given a low expectation on growth already, we think the company did not face much pressure on the inventory front, and therefore no big promotions happened during the period. The net store closure for footwear in 2QFY15 is a surprise, though we had expected a slowdown in store growth. We believe this is temporary given aseasonal adjustment in store network. The store growth will resume fromSeptember, which is generally a peak season for new openings. We believe the entire management team is still striving to achieve its guidance of flat SSSg on full-year basis. We maintain our Buy call; we believe most of the negatives are reflected in the share price. Though there was no SSSg improvement ytd, we do not expect further deterioration fundamentally going forward. Belle is a better managed company than the peers we cover; we believe its shares will recover when the macro environment picks up.

Figure 1: SSSg for footwear companies

Year Ticker 2011 2012 2013Month Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

4.0% 2.0%

0.6%2

Daphne 0210.HK HSD -10.4%C.Banner 1028.HK 6.3% -6.9%Saturday 002291.SZ -3.5% na

Stella 1836.HK 2.3% 0.0%S.Culture 1255.HK 1.8% 15.1%

Le Saunda1 0738.HK 6.1% 13.8%3

Annual

5.2% na na

2013

1.3%

2012

1.7% -9.6% -9.8% -6.9%na

-13.7% -18.1%

1.3%

3.6%

Belle1

2.8% 10.5% 2.8% 3.0%

1880.HK

na

22.0% 15.0% 0.1% 2.0% -2.5%

na na

4.5% 0.5%

16.7% 2.8% -8.2% -0.5%

9.8% 6.3% 2.7%na na na

8.9% -8.6%na na na na 7.2%

7.3% -5.8%na 23.0%

9.1% 8.2% 14.7% 17.7% 14.2% 10.1%

2014

-2.7%-5.4%

na

-1.8%-9.5%-8.6%

na

11.9%

-2.8%-2.4%-2.1%

na-8.8%

15.2%

15.4%

-8.5%

Source: Deutsche Bank1. Belle Y/E changed from 31 Dec to 28 Feb since 2014, Le Saunda Y/E is 28 Feb. For Le Saunda, the SSSg includes both HK and China2. SSSg for 14 months as of 28 Feb 20143. Le Saunda SSSg for 2013 means SSSg for 1 March 2013-28 Feb 2014



AsiaHong KongPropertyProperty

Industry

China PropertyDate14 September 2014

Industry Update

8M14 commodity property sales value -8.9% YoY

________________________________________________________________________________________________________________

Tony Tsang


Jason Ching, CFA


Focus stocks

COLI (0688.HK),HKD21.90 Buy Price Target HKD27.74China Resources Land (1109.HK),HKD17.98 Buy Price Target HKD22.82China Vanke (000002.SZ),CNY9.44 Buy Price Target CNY12.62Evergrande (3333.HK),HKD3.20 Sell Price Target HKD2.48Country Garden Holdings (2007.HK),HKD3.26 Sell Price Target HKD2.40Shimao Property (0813.HK),HKD17.48 Sell Price Target HKD13.37Guangzhou R&F (2777.HK),HKD9.19 Buy Price Target HKD13.50Sunac (1918.HK),HKD6.55 Hold Price Target HKD6.39Kaisa (1638.HK),HKD2.99 Buy Price Target HKD4.68


The NBS published 8M14 China property data: Sales value of commodity property -8.9% YoY to RMB4,166bn, among which residential -10.9% YoY, office -19.5% YoY, while retail +7.5% YoY.

GFA sold of commodity property -8.3% YoY to 649.9msqm, among which residential -10.0% YoY, while office -8.9% YoY and retail +6.4% YoY.

Commodity property ASP -0.7% YoY to RMB6,411psm, residential property ASP -1.1% YoY to RMB6,010psm, office property ASP -11.6% YoY to Rmb12,076psm, while retail property ASP +1.0% YoY to Rmb10,153psm.

FAI of commodity property +13.2% YoY to RMB5,897.5bn, of which residential +12.4% YoY to RMB4,015.9bn, office +18.7% YoY to RMB338.4bn, and retail +22.9% YoY to RMB881.3bn.

GFA under construction of commodity property +11.5% YoY to 6,530msqm, of which residential +8.3% YoY to 4,652msqm, office +23.2% YoY to 265msqm, and retail +20.5% YoY to 838msqm.

GFA starts of commodity property -10.5% YoY to 1,143.8msqm, of which residential -14.4% YoY to 801.7msqm, office +10.7% YoY to 45.4msqm, andretail -0.5 YoY to 158.1msqm.

GFA completed for commodity property +6.7% YoY to 497.6msqm, of which residential +4.8% YoY to 380.4msqm, office +13.8% YoY to 12.7msqm, and retail +10.0% YoY to 56.6msqm.

8M14 total land area acquired -3.2% YoY to 207.9msqm, and total land acquisition value +12.8% YoY to RMB569.4bn.

More relaxed policy environment also supports sales recoverySince July, about 37 out of 46 cities with home purchase restrictions (HPRs) have already had HPRs relaxed or removed, while more banks have started to loosen on mortgages (faster approval processes and/or lower mortgage interest rates for first-time homebuyers). Some market participants argue that such relaxations have not resulted in market recovery, but in our view, this has been more due to the fact that July to mid-Aug (together with Feb) are normal seasonally slow months for property sales (because of the aftermath of major sales rush in June, summer vacations, company reporting season, etc.); hence, the impact of such relaxations is not being reflected in sales numbers. With the upcoming new launches, especially with more flexible pricing strategies, sales in Sep and Oct should show much stronger momentum, in our view.



AsiaChinaBanking / FinanceBanks

Industry

Chinese BanksDate12 September 2014

Industry Update

China Aug 2014 Banking Volume: Normalized trend after weak July

________________________________________________________________________________________________________________

Tracy Yu


Hans Fan, CFA


Michael Zhang, CFA


Focus stocks

ICBC (1398.HK),HKD5.17 Buy Price Target HKD6.80China Construction Bank (0939.HK),HKD5.79 Buy Price Target HKD7.45Agri. Bank of China (1288.HK),HKD3.58 Buy Price Target HKD4.49Bank of China (3988.HK),HKD3.65 Buy Price Target HKD4.28Bank of Communications (3328.HK),HKD5.68 Buy Price Target HKD6.90China Merchants Bank (3968.HK),HKD14.56 Buy Price Target HKD18.97China CITIC Bank (0998.HK),HKD4.90 Hold Price Target HKD5.00China Minsheng Bank (1988.HK),HKD7.41 Hold Price Target HKD8.18Chongqing Rural Bank (3618.HK),HKD3.79 Buy Price Target HKD5.00Huishang Bank (3698.HK),HKD3.38 Sell Price Target HKD2.92Bank of Chongqing (1963.HK),HKD5.50 Hold Price Target HKD5.44Shanghai Pudong Bank (600000.SS),CNY9.60 Hold Price Target CNY10.31Industrial Bank (601166.SS),CNY10.36 Hold Price Target CNY11.00China Everbright Bank (601818.SS),CNY2.72 Buy Price Target CNY3.61Ping An Bank (000001.SZ),CNY10.37 Buy Price Target CNY13.09Bank of Beijing (601169.SS),CNY7.61 Buy Price Target CNY7.78Bank of Nanjing (601009.SS),CNY8.45 Hold Price Target CNY8.74Bank of Ningbo (002142.SZ),CNY9.86 Buy Price Target CNY11.32Source: Deutsche Bank

Loan & TSF growth normalized in August after a weak monthAs predicted, both new loans and TSF rebounded notably in August 2014 from the level recorded in July when monetary statistics were distorted by a high base and seasonal factors. Total RMB loans grew by Rmb702.5bn in August, up from Rmb385bn in July, which was in line with consensus estimates of Rmb700bn. Nonetheless, new total social financing (TSF) fell by 40% yoy to Rmb 957.4bn, which was 15.6% below consensus, as the 57% yoy increase in new corporate bond issuance could not offset the decline in newly issued entrusted loans (down 40% yoy), the contracting balance of trust loans and bank acceptance. We believe the implementation of circular 107 and 127 have started to take effect by changing the mix of TSF in favor of bank loans and the more regulated part of the non-bank financing.

Fund flow to stock market leading to slower deposit growthRMB deposits only rose by Rmb108bn in August, weaker than Rmb808bn in the same period of last year, partially due to capital flow from bank deposits to securities accounts on recent rally of A-share stock market. According to the data released by China Securities Investor Protection Funds (CSIPF), the net capital flow from deposit to securities accounts amounted to Rmb217.9bn in the last week of August, which was the highest since April 2012 when the statistics was first released by the CSIPF. For the entire four weeks of August 2014, the net capital out-flow from deposit to the securities account amount to Rmb 217.9bn, compared with net inflow to bank deposit of Rmb45.2bn during the same period last year.

Stable loan growth with short term loan growth slowing downTotal RMB loan balance rose by 13.3% (July: 13.4%), driven by retail loan growth of 17.8% yoy (July 2014: 18.5%) and corporate loan growth of 11.6% yoy (same as July). More specifically, while short-term retail loan growth slowed to 17% yoy (July: 18.3%), mid-long term retail loan growth remained largely stable at 18.2% yoy (July: 18.5%), with new mid-long term retail loan accounting for 27% of total new loan (Aug 2013: 26.9%), indicating strong growth in mortgage loans. In terms of corporate loan, mid-long term corporate loan rose by 11.4% yoy, same as July 2014, while short-term corporate loan growth slowed to 10.5% yoy (July: 11.6%). Discounted bill loan rose by 18.1% yoy and 10% mom.

Weaker deposit growth resulting in lower M2 growthNew RMB deposit was only Rmb 108bn (Aug 2013: Rmb 808bn), leading to deposit balance up by only 10.1% yoy (July: 10.9%) to Rmb111.7trn. More specifically, retail deposit decline by Rmb230.5bn (-0.5% mom), while corporate deposit rose by Rmb 34.1bn and fiscal deposit increased by 2.3% mom and 6.1% yoy to Rmb4.4trn as of Aug. 2014. M1 growth (5.7% yoy) and M2 growth (12.8% yoy) both came in weaker than the previous month (+6.7% and 13.5% yoy, respectively) and M1-M2 growth spread widened to -7.1%.



AsiaTaiwanTechnologySemiconductor & Equipment

Industry

Asian Foundry Sector


Industry Update

Update for competitive landscape

TSMC continues to raise the bar

________________________________________________________________________________________________________________

Michael Chou

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

Kevin Wang


Top picks

TSMC (2330.TW),TWD123.00 BuySource: Deutsche Bank

Companies Featured

TSMC (2330.TW),TWD123.00 Buy2013A 2014E 2015E

P/E (x) 14.3 12.5 11.5EV/EBITDA (x) 7.3 6.2 5.2Price/book (x) 3.2 3.1 2.6

United Microelectronics (2303.TW),TWD12.95

Hold

2013A 2014E 2015EP/E (x) 12.3 16.4 18.6EV/EBITDA (x) 3.6 3.5 3.4Price/book (x) 0.7 0.8 0.8Source: Deutsche Bank

Upside to our target price (inc. dividend)

Company Target price

Upsidepotential

TSMC TWD165 37%

UMC TWD14 11%

Source: Deutsche Bank estimates

Related recent research Date

Asian Foundry Sector - 16/14nm competitive landscape to be favorable for TSMCMichael Chou

02 Jul 2014

Asian Foundry Sector - Tier-twofoundries' challenges should intensifyMichael Chou

30 Jun 2014

Asian Foundry Sector - Tier-twofoundries will likely miss 20nm cycleMichael Chou

13 May 2014


TSMC announced that it has started mass production of 28nm HPC (high performance compact; low-cost version of HPM) high-k metal gate (HKMG) recently. We think this will enable TSMC to achieve higher 28nm market share in 2014-15 than 40nm for the corresponding period. We also provide updates for 20nm and 16/14nm competitive landscapes. We expect strong 20nm ramp-up in 2H14 and 2015 due to increasing foundry customer migration from 28nm to 20nm. For 16/14nm, we forecast tier-two foundries to encounter more challenges in the yield rate improvement than TSMC as a result of several technology difficulties. Our top pick is TSMC with a target price of NT$165.

Cost-competitive 28nm HPC for the mid/low-end IC marketTSMC indicated that there have been 10 customers for 28nm HPC HKMG products taped out. The company has begun volume production for several of these customers and there will be another 70 products taped out by end-4Q14.

of speed, or 20%+ speed improvement at the same power than 28nm poly-SiON (conventional silicon gate; not HKMG). 28nm HPC can be used by 64-bit CPU and LTE (long-term evolution) modem for the mid/low-end smartphone market. We project tier-two foundries will not deliver any 28nm HPC in 2015 due to high entry barriers in gate-last HKMG. We believe this will help TSMC increase its 28nm dominance and mitigate the negative impact of tier-two

-SiON for 2015. We expect 32/28nm sales market share to reach 78%/74% in 2014/15, higher

than 45/ 62%/55% for the corresponding period.

Robust 20nm demand in 2015We expect 20nm toWe forecast more foundry customers to shift from 28nm to 20nm especially for high-end mobile chips in 2015 thanks to improved price performance. In our view, tier-two foundries will not deliver any significant 20nm sales in 2015 in light of technology challenges in gate-last HKMG and double patterning (i.e., double patterning is initially adopted by 20nm).

Can tier-two foundries leap frog in 16/14nm?We expect a low 16/14nm FinFET yield rate for foundries in 2015 due to increasing production complexity. However, we project TSMC to improve 16nm FinFET yield rate at a faster pace than tier-two foundries in 2H15 and 2016. We attribute this to the third-generation of gate-last HKMG, the second-generation double patterning and the first-generation FinFET for TSMC in its 16nm. This will be better than the first-generation gate-last HKMG, double patterning and FinFET for tier-two foundries in their 14nm. We thus forecast TSMC to own 75% sales market share in 16/14nm for 2016 vs. 37% in 2015 (i.e., Samsung skips 20nm, focuses on 14nm, and plans to deliver 14nm in

share than Samsung in 2015). Our surveys also suggest that TSMC may try to deliver 16nm from 2Q15 vs. its 3Q15 guidance. If this happens, there could be 20-25% upside to2015.



AsiaHong KongTelecommunications

Industry

Taiwan TelcosDate13 September 2014

Running The Numbers

Undermining ARPU

ARPU growth scaled back

________________________________________________________________________________________________________________

Peter Milliken


Key Changes

Company Target Price Rating

4904.TW 65.00 to 60.00(TWD)

-

3045.TW 95.00 to 90.00(TWD)

-

2412.TW 95.00 to 87.50(TWD)

-


Top picks

Chunghwa Telecom (2412.TW),TWD92.10 Hold

Taiwan Mobile (3045.TW),TWD91.00 Hold

Far EasTone Telecom (4904.TW),TWD58.20

Hold


Companies Featured

Chunghwa Telecom (2412.TW),TWD92.10 Hold2013A 2014E 2015E


Taiwan Mobile (3045.TW),TWD91.00 Hold2013A 2014E 2015E


Far EasTone Telecom (4904.TW),TWD58.20

Hold

2013A 2014E 2015EP/E (x) 19.7 15.8 16.2EV/EBITDA (x) 10.0 8.0 7.9Price/book (x) 2.9 2.6 2.6Source: Deutsche Bank

Taiwan Star's LTE launch of unlimited data for NT$599 led to a reaction by operators that we see as limiting upside to ARPU ahead to around 1% p.a. vs. the 3-4% we previously estimated. It seems to us operators have passed on savings of 25%-32% from the new plans, which we believe will lead to some reduction of high end spending. LTE plans however will stimulate take up and the low-end, offsetting the contraction, but preventing ARPU from growing much. We have cut our price targets based on our lower ARPU assumption and also from lifting our estimate of non-big three share from 15.5% today to26.5% in 2023.

Not all bad newsWe believe the new price plans of the big three will have largely closed the door on new entrants looking to take share in the short term. By sending out a clear message that they will not stand for being undercut heavily, and by providing a price point that consumers should be attracted to, we believe the big three have solidified their position. However, the well funded new entrants are showing their aggression, so will likely continue to put a lid on ARPU and earnings growth in the sectointerest rate sensitivity, as per our Telco FITT report, Rate Risk. As such, we

reviewed our earnings forecasts for 2014 based on monthly results through August, and we believe consensus looks 1-3% too low.

Holds retainedDB recommendations are absolute based. We believe the mobile operators will find support at current dividend yields of approximately 6%. We also believe that the natiomobile content, under the new chairman and CFO.

Valuation and riskWe value the operators on DCF using a 6.3% WACC and terminal growth of -0.5% to +0.5%. Key upside risks: 1) New entrants fail to capture public trust or attention and ARPU and share of big three are higher than we estimate. 2) New services become key revenue and earnings drivers. Key downside risks: 1) Competition from new entrants becomes intense with Ambit launch. 2) US interest rates rise



AsiaSouth KoreaTechnologySemiconductor & Equipment

Industry

Global MemoryDate14 September 2014

Industry Update

Apple uses NAND capacity to differentiate iPhone 6

________________________________________________________________________________________________________________

Seung Hoon Han


Sidney Ho


Focus stocks

Toshiba (6502.T),¥488 Buy Price Target ¥610

SK Hynix (000660.KS),KRW44,500.00 Buy Price Target KRW59,400Micron Technology (MU.OQ),USD31.52 Buy Price Target USD40SanDisk (SNDK.OQ),USD98.97 Buy Price Target USD110Source: Deutsche Bank

Toshiba and Sandisk have the highest earnings exposure to iPhone NAND

storage capacity for the iPhone offering 16GB/64GB and 128GB models, which we believe is positive for NAND demand. Our analysis shows that Toshiba has the highest earnings exposure to the iPhone which accounts for 13% of operating profit while Sandisk has the highest exposure among pure play memory names with iPhone accounting for 9.3% of operating profit. However, DRAM content for the new iPhone remained at 1GB and should have limited near term impact for DRAM companies such as SK Hynix and Micron.

iPhone to account for 27% of smartphone NAND demand in 2015We estimate NAND bit demand from iPhone may grow 53% yoy in 2014 and 52% yoy in 2015, mainly driven by higher NAND density. This implies iPhone may account for 27% of global smartphone NAND demand in 2015, up from 22% in 2013. Our analysis shows Toshiba has the highest market share within iPhone at 50%, followed by Hynix at 30% and Sandisk at 20%. According to GSM Arena, 16GB NAND for the iPhone 6 will be supplied by Hynix/Toshiba, 64GB supplied by all three, and 128GB supplied by Toshiba.

DRAM content upgrade still a potential for next iPhone in 2015DRAM content for iPhone 6 remained unchanged at 1GB and near term impact from iPhone on the DRAM market may remain limited. However, we believe one potential upside catalyst for DRAM demand is the possibility of Apple increasing its DRAM content in iPhones to 2GB from current 1GB. We believe

early sign that Apple is preparing to increase its memory content in 2015.

Figure 1: Earnings exposure from iPhone by NAND maker (2014E)

Toshiba Sandisk HynixNAND bit shipment (GB) 9,413 10,694 6,408

Market share within iPhone (%) 50% 20% 30%% of NAND shipment to Apple 45% 16% 39%

iPhone revenue (US$ mn) 1,569 627 941 % of total revenue 2.5% 9.3% 6.1%

iPhone operating profit (US$ mn) 430 154 (24) % of total operating profit 13.0% 9.3% -0.5%

Source: Deutsche Bank, DRAM eXchange, IDC



Rating

BuyAsiaSingapore

TelecommunicationsFixed Line

Company

Singapore Telecom Alert


Breaking News

Management reshuffle sharpens focus

Reuters Bloomberg Exchange TickerSTEL.SI ST SP SES STEL

ADR Ticker ISINSGAPY US82929R3049

________________________________________________________________________________________________________________

Price at 11 Sep 2014 (SGD) 3.90

Price target - 12mth (SGD) 4.50

52-week range (SGD) 4.07 - 3.44

Straits Times Index 3,339

Peter Milliken


Stock data

Market cap (SGDm) 62,180



Major shareholders Temasek (54.3%)

Free float (%) 46


34.6


Key data

FYE 3/31 2014A 2015E 2016E

Sales (SGDm) 16,848 17,247 17,732

Net Profit (SGDm)

3,651.0 3,771.6 4,446.9

DB EPS (SGD) 0.23 0.24 0.28

PER (x) 16.2 16.5 14.0

Yield (net) (%) 4.6 4.5 5.4


Deja-vu all over againSingTel has announced the following management changes:

Group consumer

Digital Life CEO, Allen Lew, becomes CEO Consumer Australia & Optus

New add, ex-McKinsey Asia TMT head, Jonathon Auerbach becomes Digital Life CEO

Enterprise CEO, Bill Chang, adds the role of Singapore country chief

CFO, Jeann Low will also lead group strategy and general counsel

Our read This appears a return to the country model and away from the functional busenterprise buckets. We believe that the need to shuttle between two markets diluted management focus, and we expect the company to be better off reverting to the country model.

Digital Life impactDigital Life has morphed into an attempt to build market share in global advertising over mobile devices. We believe Mr. Lew had good instincts in investing relatively early in this area. With the business needing to build share, execution is probably best handled by someone with more of a media/tech, rather than telco, background.

Australia impactAllen Lew has a reputation for building share, and presided over mobile business in its highest growth phase under SingTel ownership. Wehave been arguing that Optus is entering another golden period. We believe management has set the ground for mobile share gain ahead through network upgrades, additional spectrum and superior pricing. We also see the NBN in Australia to offer Optus a chance to rebuild broadband, fixed telephony and media revenues, and think on-the-ground focus should help achieve bundle-ledgrowth. We also expect Mr. Lew to use his deep connections within SingTel to

terprise market, as is its stated goal. We hope he can also ready the next generation of managers within Optus, as we believe a company its size should be generating top talent for the SingTel group, rather than having management fed into it from HQ.

Satellite launch successIn other news, Optus 10 was successfully launched, providing redundancy for its satellite fleet.



AsiaIndonesiaConsumer

Industry

Indo BelanjaDate12 September 2014

Company Update

Aug. sales for MAPI & ACES; revision of local content reg.

________________________________________________________________________________________________________________

Reggy Susanto, CFA

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

Adi Putra


Focus stocks

Ace Hardware Indonesia (ACES.JK),IDR980.00 Buy Price Target IDR975.00Mitra Adiperkasa (MAPI.JK),IDR5,875.00 Buy Price Target IDR7,000.00Source: Deutsche Bank

MAPI Aug. sales: +8% YoY on SSSG of -1%August gross sales reached Rp1.2tr (+8% YoY,-19% MoM) on SSSG of

-1%, in-line after taking into account the seasonality due to the shift in the Muslim festive season. Adjusting for seasonality, sales in July-August was +24% on SSSG of 12%. This brought 8M14 sales to Rp9.3tr +22% on SSSG of 10%. In August, MAPI closed 17 stores (Burger King, Chatterbox, Coldstone, Payless Shoes, Next, Sportsstation, Planet Sports, GolfHouse, Diva, Spanx, Steve Madden) for a net loss of 2,093sqm or 0.3% of total space. Year to Date MAPI has added 22,180sqm in space (3%) boosting its total to 672,660sqm.ACES Aug. sales +11% YoY on SSSG of -2%ACES booked August sales of Rp386bn (+11% YoY, -9% MoM) on SSSG of -2%, in-line with estimates. Removing the seasonality impact, sales in July-August was +20% on SSSG of 7%. Sales in 8M14 reached Rp2.9tr (+20% YoY) on SSSG of 6%. No new stores were added in August and year to date it has opened 12 stores bringing its total to 107 outlets.

More details on the potential revision of the 80% domestic content requirementThe Ministry of Trade is potentially looking to standardize the exemptions to the 80% domestically produced requirement for retailers, while removing the requirement for shopping centers. Previously, the exemptions were made on a case-by-case basis with enforcement set for June 2016. Exemptions to the 80% domestic requirement will potentially be made for:

Standalone stores selling their own house/private brands

Stores that sell premium products consumed by expatriates that are not being produced in Indonesia

Stores that sell products that are part of a global supply chain, which includes Indonesia.

This potential revision should benefit ACES and MAPI which has c. 70-80% imported goods and enable them to continue their current business models.However, we note that this regulation could change again once the new Minister of Trade comes into office in October, as the Jokowi government seeks to prioritize domestic growth for the retail sector.



AsiaIndonesiaResourcesConstruction Materials

Industry

Indonesia Cement Sector


Industry Update

Positive Progress on Toll Development

________________________________________________________________________________________________________________

Rachman Koeswanto


Jovin Ng


Focus stocks

Indocement (INTP.JK),IDR23,075.00 Buy Price Target IDR25,100.00Holcim Indonesia (SMCB.JK),IDR2,735.00 Buy Price Target IDR3,250.00Semen Indonesia (SMGR.JK),IDR15,700.00 Buy Price Target IDR19,150.00Source: Deutsche Bank

Good progress on land procurementThe government reported major improvement in land acquisition process in Indonesia despite full implementation of the new Land Law to only start on 1 January 2015. The absorption of land acquisition allocation from the state budget totaling Rp1.1tr should reach 100% by the end of September 2014, while the land procurement for Trans Java network has reached 63% today.

One-year extension on grace period to use old land acquisition lawThe government has extended the grace period for mandatory implementation of the new Land Law by one year to 31 December 2015. This is only applicable for toll road projects that have secured >75% of their required land bank, and is intended to avoid delay in the project completion.

Positive for cement demand outlook in the medium-to-long termThis is attributed to the still low cement consumption per capita versus other countries in the region and the possible multiplier effect from more infrastructure realization. Nevertheless, we see the industry facing great challenges in the near term arising from weak demand, greater excess capacity from the expansion completion, and rising cost pressures e.g. a 65% electricity price hike in 2014. Maintain Buy rating on SMGR, INTP and SMCB with SMGR as our favorite in the sector.



Rating

BuyAsiaIndia

Banking / Finance

Company

Shriram Transport Finance


Company Update

CEO meeting takeaways: CV demand should revive gradually; outlook +ve

Reuters Bloomberg Exchange TickerSRTR.BO SHTF IN BSE SRTR


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

Provisioning (INRm) 8,485.6 11,994.5 12,625.4 13,565.9 14,153.3

Pre-prov profit (INRm) 30,112.5 31,699.4 34,482.1 39,095.1 43,962.2

Net profit (INRm) 14,634.6 13,579.7 15,081.2 17,615.2 20,568.1

EPS (INR) 64.59 59.85 66.46 77.62 90.63

EPS growth 11.6 -7.3 11.0 16.8 16.8

PER (x) 9.8 10.7 14.6 12.5 10.7

Price/book (x) 2.2 2.0 2.2 1.9 1.7

Yield (net) (%) 1.1 1.1 0.8 0.9 1.0

ROE (%) 21.9 17.1 16.5 16.6 16.8


CV demand uptick to be gradual, asset quality could improve in two quarters

________________________________________________________________________________________________________________

Price at 12 Sep 2014 (INR) 973.50

Price target - 12mth (INR) 1,080.00

52-week range (INR) 1,014.00 - 548.15

Bombay Stock Exchange (BSE 30)

27,061

Manish Shukla


Manish Karwa



450

600

750

900

1050

9/12 3/13 9/13 3/14

Shriram Transport Fi

Bombay Stock Exchang (Rebased)


Absolute 8.3 -2.5 76.1

Bombay Stock Exchange (BSE 30)

4.6 5.8 36.8


Key takeaways from the CEO meeting are: (1) CV demand could revive from Oct/Nov as the festive season starts and cash flows from the first agriculture crops start coming in; (2) AUM growth for the year could be 9-10% but will be back-ended; (3) liquidity conditions are benign, and this could lead to gradual NIM expansion as growth revives; (4) asset quality should remain stable for two quarters and then start improving. We maintain Buy, as we believe that SHTF will be among the key beneficiaries of recovery in the CV cycle.New CV demand should pick up as days of freight availability increaseThe number of days of freight availability determines CV operator profitability and this has been steadily trending up it is currently at ~22-23 days compared to 18 days last year and 21 days earlier this year. As demand rises to 25 days, operator profitability should improve and demand for new CVs will rise. The bulk of the new CV growth over the last 2-3 months is likely to havebeen driven by replacement demand. While freight rates have been moving up over the past year, this has largely offset the diesel price hikes operator profit margins have not yet expanded. If crude prices stabilize, then there may not be any further diesel price hikes and operator margins should then expand.NIM expansion to be gradual; asset quality could improve after two quartersLiquidity conditions are benign currently and will probably remain so till banking system credit growth revives. While wholesale rates are low at the moment, SHTF has not done much incremental borrowing as it is still deploying the excess liquidity that it carries on its balance sheet. NIM expansion for SHTF should be gradual and will have to be driven by lower funding costs as asset yields may not rise much. SHTF expects asset quality to remain stable for a couple of quarters and then start improving. Historical credit costs have ranged between 1.7% and 2.3%, they are currently at ~2.2%. Credit costs can come off in FY16 if the economy revives.Two-stage residual income valuation; inability to pass on funding costs is riskWe value STFC on a two-stage residual income model (page 6). Key risk: the inability to pass on funding costs may squeeze NIMs.



Japan

Financials / Banks

Industry

Bank sectorDate12 September 2014

Industry Update

Auction of Citibank Japan's retail business: Depends on conditions

________________________________________________________________________________________________________________

Yoshinobu Yamada


Six banks to bid in first auction The Nikkei reports today that six banks will participate in the first round of bidding for Citibank Japan's retail banking business. The six are BTMU, SMBC,Mizuho Bank, Resona Bank, SMTB and Shinsei Bank. They are attracted by Citibank's ¥1trn foreign-currency deposits and high-net-worth customer operations. However, it has not been decided whether customers will still have access to global banking services with Japan-issued cash cards, keeping the sales price in flux. Some market participants expect a sale price of ¥100bn, but the banks are thinking on the lines of ¥30-40bn. Detailed terms of the sale are undecided at this time, so banks are bidding in part just to keep in step with their rivals. Citibank is expected to narrow down candidates after the first auction and hold a second bid in hopes of determining a buyer within this year. However, the bank could choose to continue or stop its operations if it fails to find an appropriate buyer. We have not confirmed the accuracy of the report.

Overview of Citibank Japan As of end-June, Citibank Japan had ¥4.7trn in assets, ¥3.8trn in deposits, ¥450bn in loans, ¥760bn in securities holdings, ¥2.1trn in cash and deposits (eg, BoJ current account). Shareholders equity was ¥250bn, risk assets under Basel 3 (domestic-standard) ¥870bn, and the equity capital ratio 28.7%. Disclosure data in FY3/14 reveals that most of the securities holdings were JGBs. The yield on interest-earnings assets was 0.74% and on interest-bearing liabilities 0.08%, leaving a NIM of 0.66%. This is well below the 1.07% average for domestic banks. Gross operating profit was ¥60.6bn with expenditures of ¥58.6bn for a cost ratio of 96.7%. (The bank has 1,835 employees and 33 retail branches.) NP was only ¥1.3bn in FY3/14, and the bank posted a ¥900m loss in 1Q FY3/15. Citibank has both retail and corporate divisions, but does not disclose splits of balance sheets or profit/loss statements.

Interest in foreign currency deposits Assuming that half of the ¥250bn in shareholders equity reverts to the retail division, the price of the reported ¥100bn amounts to a P/B of 0.8x (compared to a 0.72x average for domestic banks). A purchase price of ¥30-40bn would bring the P/B down further, making the ¥1trn in foreign currency deposits attractive to prospective buyers. The procurement of foreign currency will be increasingly important for Japanese banks in expanding their overseas operations, and gaining such deposits would make a strong contribution. (Our view that Japanese banks would not acquire US bank RBS Citizens was because its surplus deposits to loans were only around ¥100bn.) Still, prospective buyers will need to evaluate in detail what percentage of Citibank's foreign currency deposits are stable core deposits. We should also keep an eye on negotiations as to whether global services for cash card holders will be maintained and present employees retained. We do not believe the increase in risk assets under Basel 3 will be significant. Regarding the continuance orcease of businesses discussed in the report, HSBC and Standard Chartered shut down their Japanese wealth management operations in November 2012 and May 2013 respectively.



Japan

Construction

Industry

Construction SectorDate12 September 2014

Industry Update

Will private sector capex really rise?

________________________________________________________________________________________________________________

Yoji Otani, CMA


Akiko Komine, CMA


Path from inventory increases to output reductions, followed by reducing capex plans The revised Apr-Jun GDP figures included a large downward revision for capex,and machinery orders continue to come in below the consensus forecast. Will capex really increase under these conditions? We believe that FY2014 capex plans will likely be lowered significantly because the Indices of Industrial Production indicate that inventory is piling up much like it did in 1997 when the consumption tax was increased from 3% to 5% in 1997 (Figure 1).

Reasons for not investing in Japan Although Japanese companies had at one time increased capex when the yen depreciated, they are showing no signs of building new plants even with a weaker yen. Conversely, they are actively making M&A and other investments overseas. Japanese companies have lost all appetite for investing in Japan.

Construction sector starting to undergo a correction We reiterate the views put forth in our 5 August report titled "Time to get ready for the end of the party". We expect both public and private sector order growth momentum to slowdown in 2H, and think that firms will face difficulty meeting market expectations for better margins as yen depreciation drives up costs. We believe that the construction sector is starting to undergo a correction.

Figure 1: Industrial production momentum (1997 consumption tax hike and

current)

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

1/95 1/12

4/95 4/12

7/95 7/12

10/95 10/12

1/96 1/13

4/96 4/13

7/96 7/13

10/96 10/13

1/97 1/14

4/97 4/14

7/97 7/14

10/97 1/98 4/98

(%)1995-1998 2012-2014

Note: Industrial production momentum refers to YoY production minus YoY Source: Ministry of Economy, Trade and Industry, Deutsche Securities



Japan

Financials / Securities

Industry

Investment trust monthly


Industry Update

Aug: Sales -8% on seasonal factors, NISA discernible from UK street?Sales down 8%, surrenders down 3%. Net inflow down slightly to ¥0.7trn

________________________________________________________________________________________________________________

Masao Muraki, CMA


The Investment Trusts Association released its August report on 11 September. Stock investment trust sales fell 8% MoM to ¥2.9trn in August, while surrenders and redemptions declined 3% to ¥2.2trn. This resulted in net inflow (net fund inflow) of ¥0.7trn (net inflows were ¥1.3trn in January, ¥0.8trn in February, ¥0.4trn in March, ¥0.8trn in April, ¥0.6trn in May, ¥0.2trn in June and ¥0.8trn in July). Net inflow totaled ¥5.7trn in Jan-Aug, or ¥8.5trn annualized. The balance in stock investment trusts rose 1% (¥0.09trn) MoM to ¥71.0trn, a historical high, due to rising market values.*Japanese stock investment trusts include a wide range of trusts whose provisions permit inclusion of stocks

UK NISA = New ISA In the UK, the ISA (Individual Savings Account) balance exceeds GBP400bn. During my stay in London, I have seen many ad banners like 'ISAs are now even NISA' on display at bank branches. NISA is an abbreviation of New ISA. On 19 March 2014, HM Treasury announced major expansion measures for its ISA system. The new system began functioning on 1 July.

Japan's NISA expansion = New NISA? This year, Japan inaugurated its own tax-free system for small investment based on the UK ISA model, under the name NISA (Nippon (Japanese) Individual Savings Account). As anticipated, balances got off to a slow start, but Mr. Taro Aso (Minister of Finance and State Minister of Financial Services) suggested at a press conference on 1 July that the authorities would consider raising the tax-free allowance from ¥1m annually to ¥2.4m (¥200,000 monthly). The Financial Services Agency's new tax-reform requests that were disclosed on 29 August included new tax-exemptions in the names of children and grandchildren of up to ¥800,000 annually and an increase in the current tax-free investment allowance from ¥1m to ¥1.2m annually.

Nomura Holdings' net inflow planNomura HD announced long-term performance targets through 2020 on 1 August. We assume that these targets assume annual net inflow for investment trusts and fund wraps of around ¥1.27trn (Figure 7). If the plan materializes it should generate stable revenue growth of ¥10bn/year even without an increase in market value. Through NISA without an expansion of current framework, Nomura aims to acquire some ¥8trn in funds (investment trusts ¥5trn) by 2020 (Figure 9).

Figure 1: Stock investment trusts: gross sales and net increase (monthly)

-5

-4

-3

-2

-1

0

1

2

3

4

5

'89/1 '90/1 '91/1 '92/1 '93/1 '94/1 '95/1 '96/1 '97/1 '98/1 '99/1 '00/1 '01/1 '02/1 '03/1 '04/1 '05/1 '06/1 '07/1 '08/1 '09/1 '10/1 '11/1 '12/1 '13/1 '14/1

Sales Repurchases / Redemptions Net increase

(Y trn)

Source: Deutsche Securities, based on Investment Trusts Association data http://www.toushin.or.jp/tws/toukei_dw/I0112B_pub_m.xls



Rating

BuyJapan

Food & Beverage

Company

JT AlertDate12 September 2014

Results

Slower Aug '14, but in line with DBe


________________________________________________________________________________________________________________

Price at 12 Sep 2014 (JPY) 3,676

Price target - 12mth (JPY) 4,100

52-week range (JPY) 3,792 - 3,003

TOPIX 1,311

Jihyun Song


Stock data

Market cap (JPYbn) 6,680



Major shareholders Minister of Finance (33.4%)

Free float (%) 57


86.7


Key data

FYE 12/31 2013A 2014E 2015E

Sales (JPYbn) 2,400 2,107 2,440

Net Profit (JPYbn)

428.0 353.1 467.3

DB EPS (JPY) 235.36 194.15 256.97

PER (x) 14.2 18.9 14.3

Yield (net)(%) 2.9 2.7 3.3


Aug domestic tobacco sales declined by 6.8% YoYIn Aug 2014, domestic tobacco market sales volume declined by 7.8% YoY to 15.7bn sticks, due in part to one fewer delivery day vs. last year and continued post-consumption tax hike effect. JT s sales volume contracted by 9.4% YoY to 9.4bn sticks, with market share of 59.8% (vs. 60.8% in Aug 13), affected by the competitor new product launches. JT s domestic sales decreased by 6.8% YoY to JPY53.1bn, at slightly milder pace than volume decline, thanks to net ASP improvement of 3.1% YoY.

Slower Aug 14 sales, but in line with our expectationJT s Aug sales volume and revenue for domestic cigarette were slow, but were still largely in line with our projections. We forecast W163.2bn domestic sales (flat YoY) on an assumption of 28.9bn sticks sales volume (-4.6% YoY) and net ASP of JPY 112.9 per pack for Jul-Sep 14 period. The run rate of Jul-Augdomestic sales results stands at 67.4%, which is largely on track.

Maintain BuyWe reiterate Buy rating on JT with a target price of JPY4,100. We believe JT will continue to deliver solid earnings growth in the longer term, on the back of ongoing market share gains in the domestic tobacco market, a net ASP increase at the international tobacco business and cost efficiencyimprovements with an aggressive restructuring program. JT s shareholder-friendly policy should also become a key attraction in the mid-to-long term.

Figure 1: JT s domestic cigarette sales and volume(bn sticks; JPY bn) Aug 13 Aug 14 % YoY Jul-Sep '14 DBe % YoY % run rate

Domestic market sales volume 17.1 15.7 -7.8% 48.5 -3.0% 66.6%

JT's domestic sales volume 10.4 9.4 -9.4% 28.9 -4.6% 67.1%

JT's domestic cigarette revenue 57.0 53.1 -6.8% 163.2 0.0% 67.4%

JT's market share (%) 60.8% 59.8% 59.6%

JT's domestic cigarette net ASP (JPY/pack)

109.6 113.0 3.1% 112.9

Source: Company data, Deutsche Bank estimates



Rating

BuyJapan

AutomobilesAutos

Company

Toyota MotorDate12 September 2014

Company Update

Reasons we like Toyota - #2


ADR Ticker ISINTM US8923313071

Product - Core EM launch, organic luxury growth, & lower cost Camry

________________________________________________________________________________________________________________

Price at 12 Sep 2014 (¥) 6,303

Price target - 12mth (¥) 7,750

52-week range (¥) 6,510 - 5,314

Kurt Sanger, CFA



2000

3000

4000

5000

6000

7000

9/12 3/13 9/13 3/14

Toyota Motor

TOPIX (Rebased)


Absolute 5.2 7.2 0.5

TOPIX 4.3 5.9 10.7

Source: Deutsche Securities Inc.

Stock data

Market cap (¥bn) 19,963

Shares outstanding (m) 3,167

Foreign shareholding ratio (%) 29.3

TOPIX 1,311


Key indicators (FY1)

ROE (%) 13.8

BPS (¥) 4,914

P/B (x) 1.3

EPS growth (%) 14.1

Dividend yield (%) 3.1


Pres. Akio Toyota called FY3/15 a year of deliberate pause. There is a lot going on. The company is in the process of replacing its engine family, engineering its global common platform (TNGA), developing its 4th-gen Prius, preparing its first overhaul of core emerging market products (IMV) that support such stellar margins in Asia, expanding its Lexus line-up, and fixing its critical Camry. This note will focus on those three meaningful product actions. Similar to our #1-Electrification note on 9 Sept. detailed tables and pictures are inside.

IMV The best kept secret about ToyotaThe Innovative-International Multipurpose Vehicle (IMV) project encompasses the Hilux pickup, Fortuner SUV, and Innova MPV. So what? In CY13 Toyota produced 1.1m accounting for 11% of global units, one-third of units in Asia & Other, and ¥2tr of revenue (DBe). Total units far exceed the Camry/Avalon.Indeed, the Hilux pickup over 3-yrs averaged the same units (665k) as Ford sold F-Series pickups in the US. Introduced in 2004, the project is expected to get its first full makeover in 1H 2015. IMV are produced in volume in four key locations Thailand, Indonesia, S. Africa, and Argentina with concentrated powertrain production in Thailand, Indonesia, Philippines, and India. Toyota is hush, but one message is not to fear margin decline around investment costs given a long depreciation cycle. This is a critical project not often talked about.

Lexus Targeting organic growth with two all new modelsThe best thing for growth is to introduce all-new products into all-new segments. Lexus is in the process of doing so. The NX is a compact crossover

think X1 (160k global sales CY13), X3 (157k), Q5 (230k) or Evoque (125k).They have 9k orders already in Japan (target 700/mth) and it is set for the US by year end before going fully global. The RC gets Toyota back into the sports coupe market, while the RC F will give them to a credible performance model.We can envision the models conservatively adding 65-70k total units to Lexus sales (530k in CY13). If we assume a contribution margin of $7k, we are looking at about ¥50bn in incremental profit contribution.

Camry A better car at a lower price? Sounds good to meThe market has been obsessed with levels. We found thisrather myopic considering it consistently spent less than peers as a percentage of price. Still, it is a legitimate weakness. Enter the mid-cycle revision. With approx. 2,000 new parts, our fear was of cost-creep that would rely on lower incentives to offset higher build-cost (ala Accord). Given that, we were surprised to hear from the company that the Camry build cost would be $400 lower. Assuming 410,000 units/yr in the US alone and a reasonable incentive decline of $1,000 per unit (from ~$3,000) implies a simple delta of ¥60bn.Toyota built 850k Camry s in 2013 with China the #2 market. Improved competitiveness is most certainly welcome.

Valuation/Risk TP based on 3.5x industrial EV/EBITDA & 11x PERWe use EV/EBITDA to account for finance company debt and financial assets. Risks include currency and the TNGA launch. DBe are based on ¥103/US$.



Rating

HoldJapan

AutomobilesAutos

Company

Yamaha Motor AlertDate12 September 2014

Company Update

Strategy session product update; earnings unchanged

Reuters Bloomberg Exchange Ticker7272.T 7272 JP TYO 7272

________________________________________________________________________________________________________________

Price at 12 Sep 2014 (¥) 2,087

Price target - 12mth (¥) 2,100

52-week range (¥) 2,087 - 1,280

Kurt Sanger, CFA


Stock data

Market cap (¥bn) 729

Shares outstanding (m) 349

Foreign shareholding ratio (%) 44.1

TOPIX 1,311


Key data

FYE 12/31 2013A 2014E 2015E

Sales (¥bn) 1,410.5 1,533.4 1,663.1

OP (¥bn) 55.1 84.7 108.2

RP (¥bn) 60.1 88.7 114.9

NP (¥bn) 44.1 54.4 70.4

EPS (¥) 126 156 202

P/E (x) 10.8 13.4 10.3


Lack of earnings update may disappoint, but otherwise little surpriseYamaha held an analyst event today to update the market on its strategy. Despite surpassing its FY15 target a year early, the company left FY17 targets unchanged. We expect the market to be somewhat disappointed by that. Overall, the event was about product and there we heard details about how Yamaha will improve its competitiveness in EM motorbikes, although its view on volume potential is more subdued. The company remains on track to improve earnings in the coming years off a rationalized production base, we believe, but as we expressed in our 27 August note we think that is more fairly reflected in the share price than it was back in early 2014. Our earnings outlook is based on ¥103/US$. We estimate +¥1.5bn OP per one-yen change.

2017 targets unchanged; lower cost reduction potential helped by forexWhile mainly focusing on product, management offered some useful commentary on earnings. Outside of India, management feels it necessary to remain cautious on EM motorbike growth. Given lower unit expectation (notspecified) it has lowered its cost reduction target from ¥70bn to the ¥40bn range with half of that set for FY15 (in-line with DBe). As a reminder, the original 3-yr plan in Dec 2012 was ¥90bn. While they did not detail it directly, currency serves as an offset so that they can continue to project OP ¥150bn by 2017. Toward that, on the back of new products it assumes as much revenue growth in 2016-2017 (¥400bn) as it achieved with the help of forex in 2012-2015. Achieving this level of growth will be a challenge hence we see the risk profile of the next phase of growth as higher than the current recovery phase.

Product and segment commentary new EM engine and US marine expansionYam -150cc class scooters that will be at the heart of its product revival in ASEAN and then roll out to India and China. Volume will help lower costs targeting 2.2m by 2016 and 5m by 2020. As a note, we project 5.7m units of EM motorbikes in FY14. With fuel economy now in-line with the industry leader and with key models ahead (new Mio in Indonesia) they hope to regain some edge. In the marine business, management commented that is sees the US boat/engine market as relatively mature. For continued growth it sees the trend of increasing size of motors as helping. The segment growth comment is something we observed in our recent note citing strong ASP and currency as larger factors for segment growth YTD than market growth (1H +3.4%). Beyond that, it looks to expand

~8% share), which on a value basis company figures imply a US market of around $7bn/yr market. It will need to either take share or grow new market segments to achieve this.



15 September 2014



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

Equity rating key Equity rating dispersion and banking relationships

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

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

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

55 %

39 %

6 %22 % 22 %

10 %0

50

100

150

200

250

300

350

400

450

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship

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

15 September 2014



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