Discoveryasiaresearch.daiwacm.com/eg/cgi-bin/files/Discovery_161111.pdf · 1970 HK 1,635.34 HKD Buy...

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Asia ex Japan Small Cap

What’s new: The 11th Daiwa Investment Conference in Hong Kong

concluded this week, with over 150 companies in attendance. A number of

our covered China textile companies attended, and it seemed to us that

overall industry sentiment remains positive from an order book perspective.

Many investors took the opportunity to ask what the impact of a Trump

administration may have on the textile companies, but in reality it is too early

for management to know, given that Trump has yet to take office. However,

we note that most Hong Kong-listed China textile companies should have at

least some production capacity outside of China by the end of 2017. We

make no changes to our top-5 small-cap picks this week.

Discovery idea: China Maple Leaf Education Group (1317 HK, not rated),

a leading international school operator in China, participated at the Daiwa

Investment Conference on 8-9 November. The company remains confident in

doubling its annual student enrolment base from around 20,000 currently to

40,000 by the 2019/2020 school year. We note that recent changes to

China’s education regulatory framework have been the main focus during

investor meetings. However, management currently sees limited financial

impact from the recent revisions to the education law in China.

Pick of the week: We initiated coverage on the China Paper and

Packaging sector with a positive rating. We have noticed that the demand-

supply dynamics of the industry appear to finally be improving, and have

allowed both Nine Dragons Paper (NDP; 2689 HK, HKD6.40, Buy [1]) and

Lee & Man Paper (L&M; 2314 HK, HKD5.77, Outperform [2]) to recently

post record net profits. We have a Buy (1) call on NDP and a 12-month TP of

HKD7.70. NDP is our top sector pick. We also initiated coverage on L&M with

an Outperform (2) rating and 12-month TP of HKD6.40.

Daiwa’s small-cap top picks

Company Stock code

Mkt cap LCY Rating

Stock Target % FY1E FY1E FY1E EV/ FY1E Div. Investment summary

(USDm) price price upside PER PBR EBITDA ROE yield

Best Pacific International

2111 HK 883.34 HKD Buy 6.7 8.4 25.4% 14.8 3.4 9.9 24.75 2.72 The company is transitioning into a major sportswear fabrics supplier and we expect accelerated sales and earnings growth in 2016-18E. The ramp up of its lace business should help sustain its gross margin.

CJ CGV 079160 KS 1,270.74 KRW Buy 69,100 100,500 45.4% 37.5 1.6 15.8 5.83 n.a. CJ CGV is successfully penetrating China’s movie market with its 4DX offering. Its recent acquisition of Mars (top movie chain in Turkey) should expand its earnings potential.

Hota Industrial Manufacturing

1536 TT 907.14 TWD Buy 122.00 161 32.0% 24.6 6.8 16.6 29.03 2.85 Expecting solid order growth from major clients such as Borg Warner, Tesla, and Punch, and a more favourable currency trend. Recent correction looks overdone.

IMAX China Holding

1970 HK 1,635.34 HKD Buy 36 44 23.2% 33.5 7.9 21.7 26.79 n.a. One of the best stocks to capture the upside in China's growing discretionary spending and box office boom. The earnings quality should improve in FY16-18E, with increasing recurring revenues.

Nien Made Enterprise

8464 TT 3,385.48 TWD Buy 365.00 425 16.4% 29.7 9.2 19.0 31.98 2.38 Ongoing market-share gains in both of ready-made and custom-made segments. Rising custom-made product revenue and highly vertical integration bode well for margin expansion and bottom-line growth.

Source: FactSet, Daiwa forecasts; prices as of 10 November 2016; Note: O/P = Outperform

11 November 2016

Discovery

Asia Small-cap Weekly

The 11th Daiwa Investment Conference in Hong Kong concluded this

week, with over 150 companies in attendance

Discovery idea: China Maple Leaf Education

Pick of the week: China Paper and Packaging Sector

Regional Small-cap Team

Recent company visits (31 Oct – 11 Nov)

Company Bloomberg code

Television Broadcasts (TVB) 511 HK

Techtronic Industries 669 HK

Nine Dragons Paper 2689 HK

Best Pacific International 2111 HK

Stella International 1836 HK

Bloomage Biotechnology 963 HK

China Maple Leaf Educational Systems 1317 HK

Goodbaby International 1086 HK

IMAX China 1970 HK

Texhong Textile 2678 HK

CITIC Telecom 1883 HK

VTech* 303 HK

Source: Daiwa *Note: results

Forthcoming company visits

Company Bloomberg code

Lee & Man Paper 2314 HK

Man Wah Holdings* 1999 HK

Pacific Textiles* 1382 HK

Texwinca 321 HK

Source: Daiwa *Note: results

John Choi(852) 2773 8730

[email protected]

Regional Small-cap Team

2

Discovery: 11 November 2016

Table of contents

Discovery idea: China Maple Leaf Education ........................................................ 6

Pick of the week: China Paper and Packaging Sector .......................................... 7

CJ CGV ...................................................................................................................... 8

Com2uS ..................................................................................................................... 9

CT Environmental Group ........................................................................................10

Eclat Textile ..............................................................................................................11

IMAX China Holding ................................................................................................12

Lee & Man Paper Manufacturing ............................................................................13

Nien Made Enterprise ..............................................................................................14

Nine Dragons Paper ................................................................................................15

St. Shine Optical ......................................................................................................16

VTech ........................................................................................................................17

Discovery features summaries of our recent small-cap research. Click below for the full reports: China Maple Leaf Education (1317 HK): Company sees limited impact from new education law China Paper and Packaging Sector: Initiation: in with the trash, out with the cash CJ CGV (079160 KS), TP KRW124,000 --> KRW100,500: Looking forward to next year Com2uS (078340 KS), TP KRW153,000 --> KRW146,000: Another phase of global expansion begins CT Environmental Group (1363 HK), TP HKD2.8 --> HKD2.7: More focus on organic growth Eclat Textile (1476 TT), TP TWD418 --> TWD400: 2017 should be better than 2016 IMAX China Holding (1970 HK), TP HKD46 --> HKD44: Look forward to 2017 Lee & Man Paper Manufacturing (2314 HK), TP HKD6.4: Initiation: entering a new stage of growth Nien Made Enterprise (8464 TT), TP TWD400 --> TWD425: Upgrading: window of opportunity Nine Dragons Paper (2689 HK), TP HKD7.7: Initiation: riding high on the dragon’s back St. Shine Optical (1565 TT), TP TWD804 --> TWD720: Earnings continue to improve but may decelerate VTech (303 HK), TP HKD90 --> HKD107: Leapfrogging expectations

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161111hk_China_Maple_Leaf_Educational_Systems.pdf

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161111hk_China_Maple_Leaf_Educational_Systems.pdf

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/China_Paper_and_Packaging_Sector_161104.pdf

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161108kr_CJ_CGV.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161108kr_Com2uS.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161110cn_CT_Environmental_Group.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161108tw_Eclat_Textile.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161110cn_IMAX_China_Holding.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/China_Paper_and_Packaging_Sector_161104.pdf#page=59

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161108tw_Nien_Made_Enterprise.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/China_Paper_and_Packaging_Sector_161104.pdf#page=37

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161107tw_St._Shine_Optical.pdf#page=1

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20161110hk_VTech.pdf#page=1

3


Daiwa small-cap coverage

10-Nov-16 Market cap

PER(x) PBR (x) EV/EBITDA (x) Div.

yield (%) ROE (%)

Company name BBG code Analyst (local curr.) (USDm) Rating FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY15E

Able C&C 078520 KS Iris Park 21,600.00 289 Sell (5) 15.7 15.8 1.5 1.3 10.0 7.5 0.5 9.7

Airtac International Group 1590 TT Steven Tseng 250.00 1,417 Buy (1) 32.7 21.7 4.4 4.3 18.7 15.1 1.9 13.6

Anta Sports Products 2020 HK Adrian Chan 22.95 7,385 Buy (1) 24.6 20.8 5.8 5.4 15.7 13.1 2.8 24.9

Ascott Residence Trust ART SP David Lum 1.15 1,347 Outperform (2) 21.8 17.5 0.8 0.9 n.a. n.a. 7.0 7.7

AviChina Industry & Technology 2357 HK Kelvin Lau 5.42 3,754 Buy (1) 32.1 25.8 2.2 2.2 11.0 8.7 0.4 7.1

Bank of India BOI IN Punit Srivastava 124.15 1,478 Hold (3) n.a. n.a. 0.3 0.3 n.a. n.a. 3.2 0.0

Best Pacific International 2111 HK John Choi 6.70 883 Buy (1) 20.2 14.8 3.9 3.4 12.8 9.9 2.0 20.4

BGF Retail 027410 KS Iris Park 184,000.00 3,961 Outperform (2) 29.7 24.6 5.9 6.5 14.4 11.6 0.7 22.9

BreakTalk Group BREAD SP Shane Goh 1.01 202 Outperform (2) 37.5 21.2 2.2 2.0 4.9 3.9 1.5 6.0

Cambridge Industrial Trust CREIT SP David Lum 0.55 505 Outperform (2) 12.7 13.5 0.8 0.8 n.a. n.a. 8.8 6.0

Canvest Environment Protection 1381 HK Dennis Ip 3.55 931 Buy (1) 26.1 17.2 3.0 2.5 16.1 12.6 0.0 11.7

CapitaRetail China Trust CRCT SP David Lum 1.43 880 Underperform (4) 17.3 17.5 0.8 0.9 n.a. n.a. 7.4 8.0

CAR Inc 699 HK John Choi 7.72 2,426 Underperform (4) 20.6 13.4 2.3 2.0 8.9 6.6 0.0 12.6

Casetek Holdings 5264 TT Steven Tseng 81.70 879 Hold (3) 4.9 10.2 0.9 0.9 1.4 2.0 8.8 19.0

CDL Hospitality Trusts CDREIT SP David Lum 1.34 942 Outperform (2) 14.8 15.8 0.8 0.9 n.a. n.a. 7.5 3.7

Chailease Holding 5871 TT Helen Chien 54.00 1,947 Hold (3) 9.0 8.9 1.6 1.5 17.7 19.5 5.7 19.0

Champion REIT 2778 HK Jonas Kan 4.51 3,372 Buy (1) 25.4 22.0 0.5 0.5 n.a. n.a. 4.4 2.2

China Aircraft Leasing Group 1848 HK Kelvin Lau 9.66 912 Buy (1) 17.0 11.3 2.7 2.4 18.5 12.4 2.3 19.2

China Huishan Dairy Holdings 6863 HK Anson Chan 2.89 5,020 Sell (5) 45.8 34.9 2.7 2.5 29.1 24.6 0.5 5.8

China Modern Dairy Holdings 1117 HK Anson Chan 1.73 1,182 Buy (1) 23.8 (21.4) 1.0 1.1 7.0 6.9 0.0 4.5

China Overseas Grand Oceans Group 81 HK Jonas Kan 2.97 874 Buy (1) 8.0 4.3 0.6 0.5 7.4 6.4 2.4 7.3

China Suntien Green Energy 956 HK Dennis Ip 1.08 517 Outperform (2) 9.9 7.8 0.5 0.5 10.4 9.3 1.6 4.8

Chlitina 4137 TT Helen Chien 137.00 345 Underperform (4) 14.4 16.7 3.3 3.2 8.3 9.0 4.9 24.2

CIMC Enric 3899 HK Dennis Ip 3.20 811 Hold (3) 10.6 12.5 0.9 0.8 4.3 4.2 3.6 8.4

CITIC Telecom International 1883 HK John Choi 2.77 1,198 Buy (1) 11.9 13.3 1.3 1.2 7.7 7.3 4.5 11.6

CJ CGV 079160 KS Kevin Jin 69,100.00 1,271 Buy (1) 28.2 37.5 3.5 1.6 13.0 15.8 0.0 12.9

Com2uS 078340 KS Thomas Y. Kwon 86,000.00 962 Buy (1) 7.8 7.4 2.1 1.7 3.9 3.4 0.0 35.0

ComfortDelGro CD SP Jame Osman 2.46 3,746 Buy (1) 17.6 16.4 2.3 2.2 6.8 6.7 3.7 13.3

Cosco Corp Singapore COS SP Royston Tan 0.27 429 Sell (5) 5.1 40.4 0.7 0.8 (10.4) 25.1 0.0 10.9

Cosmax 192820 KS Iris Park 128,000.00 1,001 Buy (1) 61.0 34.4 11.8 8.7 36.2 21.3 0.5 21.1

Coway 021240 KS Kevin Jin 93,500.00 6,206 Outperform (2) 21.0 27.7 5.8 5.8 8.8 10.0 3.0 30.2

Crompton Greaves CRG IN Saurabh Mehta 82.00 772 Hold (3) 46.3 13.9 1.3 1.3 16.5 7.6 1.7 2.9

CrucialTec 114120 KS Kevin Jin 8,290.00 204 Buy (1) 12.0 7.2 2.0 1.5 9.4 5.9 0.0 19.9

CT Environmental Group 1363 HK Dennis Ip 2.11 1,718 Buy (1) 22.9 17.5 4.0 3.4 18.5 12.8 1.1 22.6

Daelim Industrial 000210 KS Mike Oh 82,500.00 2,767 Hold (3) 15.4 11.0 0.7 0.8 8.2 6.9 0.4 4.8

Daewoo Engineering & Construction 047040 KS Mike Oh 6,590.00 2,380 Hold (3) 20.7 19.1 1.0 1.0 11.4 12.3 0.0 5.1

Daewoo Shipbuilding & Marine Engineering 042660 KS Sung Yop Chung 4,480.00 1,064 Sell (5) (0.3) n.a. 2.8 1.7 (3.3) 10.8 0.0 0.0

Doosan Corp 000150 KS Mike Oh 107,000.00 2,480 Outperform (2) (7.8) 6.9 0.7 0.6 20.1 11.7 4.3 0.0

Doosan Heavy Industries and Construction 034020 KS Mike Oh 26,550.00 2,754 Hold (3) (3.1) 25.0 0.8 0.8 24.5 13.6 3.2 0.0

Doosan Infracore 042670 KS Mike Oh 7,990.00 1,440 Hold (3) (2.0) 6.1 0.8 0.7 24.2 8.9 0.0 0.0

Dynagreen Environmental Protection Group 1330 HK Dennis Ip 3.58 482 Hold (3) 20.7 13.5 1.4 1.3 13.1 11.2 0.0 7.7

Ezion Holdings EZI SP Royston Tan 0.33 486 Underperform (4) 3.5 7.8 0.3 0.4 9.6 6.5 0.0 9.8

FIH Mobile 2038 HK Kylie Huang 2.50 2,496 Hold (3) 10.9 25.9 0.7 0.7 0.6 2.2 7.7 5.9

Fortune REIT 778 HK Jonas Kan 9.42 2,351 Outperform (2) 24.7 21.4 0.7 0.8 n.a. n.a. 5.0 3.1

Frasers Centrepoint Trust FCT SP David Lum 2.00 1,310 Outperform (2) 19.3 18.2 1.0 1.0 n.a. n.a. 5.9 7.0

Ginko International 8406 TT Helen Chien 295.00 866 Outperform (2) 17.8 16.2 2.7 2.5 11.7 10.7 2.4 16.3

Golden Eagle Retail Group 3308 HK Anson Chan 10.58 2,290 Sell (5) 15.6 20.4 3.0 2.8 12.9 11.0 1.8 19.4

Goodbaby International 1086 HK Carlton Lai 3.65 522 Outperform (2) 20.5 16.3 1.7 1.6 9.2 8.3 1.4 8.5

Grand Korea Leisure 114090 KS Thomas Y. Kwon 21,750.00 1,169 Outperform (2) 14.7 12.5 2.9 2.6 6.8 5.5 3.8 20.7

GS Engineering & Construction 006360 KS Mike Oh 26,900.00 1,660 Underperform (4) n.a. 22.9 0.6 0.6 29.9 23.0 0.0 0.0

GS Retail 007070 KS Iris Park 49,650.00 3,322 Buy (1) 34.4 22.7 2.3 2.1 13.1 13.7 1.2 6.8

Hiwin Technologies Corp 2049 TT Steven Tseng 131.50 1,143 Buy (1) 21.6 23.8 2.6 2.7 14.6 15.4 2.4 12.4

Hota Industrial Manufacturing 1536 TT Helen Chien 122.00 907 Buy (1) 26.4 24.6 7.5 6.8 19.8 16.6 2.6 30.8

Humedix 200670 KS Kevin Jin 37,650.00 286 Buy (1) 24.4 24.2 3.0 2.5 24.5 18.8 0.8 14.2

Hyundai Development 012630 KS Mike Oh 46,550.00 3,050 Buy (1) 16.2 11.1 1.5 1.3 10.6 8.2 1.1 9.6

IMAX China Holding 1970 HK John Choi 35.70 1,635 Buy (1) 32.9 33.5 10.4 7.9 25.0 21.7 0.0 44.5

Intime Retail Group 1833 HK Anson Chan 6.28 2,200 Buy (1) 18.5 15.6 1.1 1.1 10.1 12.6 4.7 7.4

Ju Teng International 3336 HK Steven Tseng 2.43 365 Hold (3) 3.2 5.6 0.4 0.4 3.4 3.6 6.2 13.4

KEPCO Engineering & Construction 052690 KS Mike Oh 24,250.00 805 Underperform (4) 27.2 16.3 2.2 2.0 18.7 11.5 1.4 8.3

KEPCO Plant Service & Engineering 051600 KS Mike Oh 56,200.00 2,198 Outperform (2) 14.9 18.8 3.2 3.0 11.0 12.7 3.0 22.9

Keppel REIT KREIT SP David Lum 1.08 2,513 Underperform (4) 28.7 21.9 0.7 0.8 n.a. n.a. 6.3 7.4

Kerry Logistics Network 636 HK Kelvin Lau 10.46 2,283 Outperform (2) 16.7 16.1 1.1 1.0 9.0 8.8 1.5 7.0

Average 19.1 17.3 2.3 2.0 12.6 11.0 2.6 12.0

Source: Bloomberg, Daiwa forecasts

4


Daiwa small-cap coverage (continued)



yield (%) ROE (%)


LandMark Optoelectronics 3081 TT Rick Hsu 212.50 615 Buy (1) 19.5 20.0 3.9 5.2 13.1 12.3 3.3 39.0

Lee & Man Paper 2314 HK Carlton Lai 5.77 3,390 Outperform (2) 11.5 9.6 1.5 1.4 10.0 8.9 2.8 13.4

Lifestyle 1212 HK Anson Chan 10.54 2,192 Underperform (4) 10.1 13.8 1.5 13.6 6.4 8.2 6.0 15.1

Li Ning 2331 HK Adrian Chan 5.63 1,341 Outperform (2) n.a. 28.0 2.9 2.5 22.7 9.9 0.0 0.6

L'Occitane International 973 HK Jamie Soo 15.70 3,022 Outperform (2) 22.3 30.6 3.8 3.6 12.7 13.9 1.6 17.8

Loen Entertainment 016170 KS Thomas Y. Kwon 72,500.00 1,594 Buy (1) 36.6 28.9 7.7 6.0 20.0 14.3 0.0 22.8

M1 M1 SP Ramakrishna Maruvada 2.08 1,383 Hold (3) 11.0 12.6 4.7 4.5 6.9 7.2 7.4 44.0

Makalot Industrial 1477 TT Helen Chien 111.50 727 Underperform (4) 10.5 14.6 2.4 2.7 6.8 8.0 8.5 25.0

Mando Corp 204320 KS Sung Yop Chung 239,500.00 1,955 Buy (1) 17.9 11.9 1.6 1.3 7.2 7.2 2.0 10.2

Man Wah Holdings 1999 HK Carlton Lai 5.00 2,484 Hold (3) 23.0 15.9 4.4 4.1 13.0 10.9 12.6 19.5

Mapletree Industrial Trust MINT SP David Lum 1.69 2,160 Hold (3) 11.0 15.0 1.2 1.2 n.a. n.a. 6.6 11.4

Mapletree Logistics Trust MLT SP David Lum 1.02 1,814 Hold (3) 16.4 16.8 1.0 1.0 n.a. n.a. 7.2 7.5

Midland 1200 HK Jonas Kan 2.35 219 Hold (3) (17.1) (14.3) 1.3 1.4 (10.8) (6.9) 0.0 0.0

Nexteer Automotive 1316 HK Brian Lam 9.66 3,114 Buy (1) 19.3 15.2 4.6 3.8 9.8 7.3 1.0 25.8

Nine Dragons Paper 2689 HK Carlton Lai 6.40 3,852 Buy (1) 15.2 19.4 1.1 1.0 15.0 15.5 1.4 7.3

Orion 001800 KS Iris Park 733,000.00 3,807 Buy (1) 22.9 21.3 3.2 25.7 15.7 11.8 0.8 14.6

OUE OUE SP David Lum 1.78 1,139 Buy (1) 11.3 9.4 0.4 0.4 66.0 21.5 2.8 3.7

Pacific Textiles Holdings 1382 HK John Choi 9.25 1,725 Outperform (2) 13.0 13.0 4.0 4.0 9.5 9.5 8.6 30.1

Paradise 034230 KS Thomas Y. Kwon 13,400.00 1,059 Outperform (2) 18.7 16.5 0.8 0.8 13.7 13.7 2.8 5.3

Pou Sheng International 3813 HK Adrian Chan 2.48 1,673 Buy (1) 28.6 14.5 2.0 1.7 14.0 8.2 0.0 7.3

Prosperity REIT 808 HK Jonas Kan 3.35 628 Outperform (2) 27.3 25.6 0.7 0.7 n.a. n.a. 5.3 2.5

Raffles Medical Group RFMD SP Jame Osman 1.49 1,819 Hold (3) 36.7 35.5 4.2 4.0 27.1 26.2 1.3 12.1

Realtek Semiconductor 2379 TT Rick Hsu 105.00 1,678 Underperform (4) 22.8 16.6 2.4 2.1 11.6 6.2 3.8 10.9

Regal REIT 1881 HK Jonas Kan 2.05 861 Buy (1) 12.5 12.0 0.5 0.5 n.a. n.a. 7.9 3.6

Reliance Communications RCOM IN Ramakrishna Maruvada 43.60 1,351 Sell (5) 10.4 8.2 0.3 0.3 5.5 4.9 1.1 2.5

S1 Corporation 012750 KS Thomas Y. Kwon 94,500.00 3,121 Hold (3) 23.0 22.8 3.6 3.2 10.8 9.4 1.3 16.6

Samsung Engineering 028050 KS Mike Oh 9,670.00 1,647 Underperform (4) 7.0 (0.3) 0.4 n.a. 12.4 (2.8) 0.0 5.9

Sansung Life & Science 016100 KQ Iris Park 22,300.00 348 Outperform (2) 11.2 9.4 3.9 2.6 7.1 5.4 0.0 43.8

Sheng Siong Group SSG SP Jame Osman 1.03 1,099 Hold (3) 27.3 23.9 6.3 6.0 17.8 16.3 3.4 23.6

Shenzhen International 152 HK Kelvin Lau 11.96 2,923 Outperform (2) 12.3 11.7 1.2 1.2 6.5 9.7 4.2 10.3

Shenzhou International Group 2313 HK John Choi 48.80 8,802 Buy (1) 26.4 20.7 4.6 4.0 18.1 13.0 2.1 19.5

Sinotrans 598 HK Kelvin Lau 3.65 2,168 Underperform (4) 12.3 11.9 1.0 0.9 5.6 6.4 3.1 8.4

SITC International 1308 HK Kelvin Lau 4.55 1,528 Buy (1) 12.5 10.9 1.8 1.7 8.9 8.3 5.7 14.9

SM Entertainment 041510 KS Kevin Jin 29,050.00 549 Buy (1) n.a. 27.9 2.5 2.1 12.5 10.0 0.0 2.5

St. Shine Optical 1565 TT Helen Chien 635.00 1,013 Outperform (2) 22.1 18.5 7.0 6.4 15.2 11.8 3.7 32.7

Starhill Global REIT SGREIT SP David Lum 0.78 1,200 Outperform (2) 19.7 14.8 0.8 0.8 n.a. n.a. 6.7 8.2

Stella International 1836 HK John Choi 13.54 1,384 Outperform (2) 11.4 15.4 1.4 1.4 7.3 8.4 6.3 12.5

Sunlight REIT 435 HK Jonas Kan 4.74 1,000 Outperform (2) 23.9 21.1 0.6 0.6 n.a. n.a. 5.1 2.4

Sunny Optical Technology 2382 HK Kylie Huang 39.45 5,478 Buy (1) 48.7 31.5 9.7 7.7 31.1 21.9 0.4 21.5

Super Group SUPER SP Jame Osman 1.27 1,001 Hold (3) 29.8 32.8 2.7 2.6 14.6 16.3 1.7 9.3

TCL Communication Technology 2618 HK Kylie Huang 7.47 1,221 Hold (3) 8.8 13.5 2.3 2.2 8.2 10.7 4.6 25.8

Techtronic Industries 669 HK John Choi 28.50 6,724 Buy (1) 19.1 17.1 3.1 2.8 12.3 10.5 1.4 17.2

Texhong Textile 2678 HK John Choi 12.28 1,401 Buy (1) 16.1 9.7 2.4 2.1 7.0 6.1 1.9 16.0

Texwinca 321 HK John Choi 5.43 967 Hold (3) 12.7 11.8 1.2 1.2 5.9 5.1 11.4 9.7

Tong Yang Industry 1319 TT Helen Chien 66.20 1,239 Buy (1) 23.1 15.7 2.2 2.0 10.1 7.7 2.1 9.7

Towngas China 1083 HK Marco Lai 4.12 1,415 Hold (3) 9.1 8.9 0.8 0.8 9.6 8.0 2.4 9.0

TPK 3673 TT Kylie Huang 50.80 557 Hold (3) (0.9) (19.7) 0.6 0.6 (4.9) 5.2 0.9 0.0

TravelSky Technology 696 HK Kelvin Lau 17.28 6,519 Buy (1) 28.3 23.4 3.7 3.2 18.1 15.3 1.1 14.1

TXC Corp 3042 TT Kylie Huang 41.70 409 Outperform (2) 13.8 12.7 1.2 1.2 6.2 5.1 6.0 9.6

Union Bank of India UNBK IN Punit Srivastava 142.95 1,476 Hold (3) 7.0 9.4 0.5 0.5 n.a. n.a. 1.4 7.0

Vard Holdings VARD SP Royston Tan 0.28 234 Sell (5) (3.3) (16.2) 0.5 0.5 (28.5) n.a. 0.0 0.0

Vinda International 3331 HK Anson Chan 15.54 2,386 Outperform (2) 49.4 28.1 3.1 2.2 17.2 14.4 0.6 6.3

Voltas Ltd VOLT IN Saurabh Mehta 350.10 1,740 Outperform (2) 34.3 33.6 5.5 4.8 26.8 25.2 0.6 17.2

Voltronic Power Technology 6409 TT Steven Tseng 437.00 1,089 Hold (3) 22.9 24.0 8.0 8.0 17.9 17.0 2.5 37.9

VTech 303 HK John Choi 96.40 3,121 Outperform (2) 17.2 21.3 5.9 5.3 12.0 12.8 3.4 34.0

Wasion Group 3393 HK Nicole Jiang 4.69 614 Outperform (2) 10.4 8.2 1.0 0.9 7.3 5.9 3.9 9.6

Win Semiconductors 3105 TT Rick Hsu 83.50 1,078 Outperform (2) 18.6 10.7 3.3 1.9 6.0 5.3 0.4 16.1

Wistron 3231 TT Steven Tseng 23.85 1,863 Hold (3) 19.9 11.0 0.9 0.9 6.6 5.0 4.9 4.4

Xinyi Solar Holdings 968 HK Dennis Ip 2.72 2,367 Outperform (2) 14.6 9.5 3.2 2.6 12.3 9.0 3.2 26.6

Xtep International 1368 HK Adrian Chan 3.48 988 Buy (1) 10.6 9.5 1.3 1.3 4.7 4.4 4.7 13.0

Yestar International 2393 HK Carlton Lai 3.95 1,108 Buy (1) 42.8 29.9 8.3 8.9 21.3 13.1 1.1 26.6

Average 17.2 16.0 2.7 3.1 11.9 10.2 3.3 14.5

Source: Bloomberg, Daiwa forecasts

5


Thanachart (Daiwa’s alliance partner) small-cap coverage



yield (%) ROE (%)


Asia Aviation Pcl AAV TB Saksid Phadthananarak 7.15 992.20 BUY 18.46 20.13 1.57 1.48 8.00 7.97 0.00 8.91 Amata Corporation Pcl AMATA TB Thanachart Research 11.80 360.25 BUY 13.57 10.89 1.13 1.06 15.12 13.21 2.58 8.33 AMATA VN Pcl AMATAV TB Thanachart Research 7.45 199.31 SELL 33.08 23.70 2.16 2.01 17.54 12.26 0.76 6.71 AP (Thailand) Pcl AP TB Phannarai Tiyapittayarut 7.05 634.58 BUY 8.33 6.71 1.14 1.02 9.68 9.29 4.32 14.38 Bangkok Chain Hospital Pcl BCH TB Siriporn Arunothai 13.60 970.39 HOLD 49.31 41.26 7.23 6.70 n.a. n.a. 1.22 15.20 The Bangchak Petroleum Pcl BCP TB Chak Reungsinpinya 32.50 1,280.40 SELL 11.89 11.82 1.20 1.13 5.96 6.33 2.77 10.35 Beauty Community Pcl BEAUTY TB Siriporn Arunothai 11.50 987.12 BUY 52.97 37.38 26.94 23.83 40.11 28.40 1.85 53.64 Carabao Group Pcl CBG TB Kalvalee Thongsomaung 70.25 2,010.01 SELL 48.01 42.10 9.50 8.25 38.19 33.26 0.62 21.32 Central Plaza Hotel Pcl CENTEL TB Kalvalee Thongsomaung 38.25 1,477.47 HOLD 29.96 27.71 5.01 4.51 13.34 12.64 1.34 17.63 Chularat Hospital Group CHG TB Siriporn Arunothai 2.82 887.55 BUY 52.53 42.66 9.66 8.60 33.44 28.13 0.95 19.13 CH. Karnchang Pcl CK TB Saksid Phadthananarak 31.00 1,502.46 BUY 30.05 33.39 2.49 2.39 30.48 27.63 1.33 8.41 COL Pcl COL TB Siriporn Arunothai 33.75 309.01 SELL 27.80 24.44 2.05 1.97 n.a. n.a. 1.80 7.52 CPN Retail Growth CPNRF TB Thanachart Research 20.40 1,361.45 BUY 16.57 16.01 1.53 1.39 17.57 17.21 5.43 9.51 Dynasty Ceramic Pcl DCC TB Saksid Phadthananarak 4.60 859.19 HOLD 21.67 20.88 10.29 9.42 15.03 14.39 4.62 46.26 Demco Pcl DEMCO TB Supanna Suwankird 8.25 172.40 HOLD 21.80 14.38 2.01 1.80 63.18 17.63 0.00 9.05 The Erawan Group Pcl ERW TB Kalvalee Thongsomaung 4.58 327.69 BUY 39.52 33.58 2.35 2.26 13.24 12.50 1.14 6.05 Esso (Thailand) Pcl ESSO TB Chak Reungsinpinya 13.60 1,346.71 BUY 10.00 11.39 2.37 2.03 8.09 8.74 0.00 27.98 GFPT Pcl GFPT TB Kalvalee Thongsomaung 14.80 530.95 SELL 16.65 17.44 1.83 1.71 10.79 10.45 1.80 11.46 Group Lease Pcl GL TB Sarachada Sornsong 44.75 1,953.10 BUY 58.53 34.33 7.59 7.01 0.95 13.09 Siam Global House Pcl GLOBAL TB Siriporn Arunothai 15.80 1,653.91 BUY 39.31 34.33 3.61 3.40 28.30 25.05 0.77 9.49 Global Power Synergy Pcl GPSC TB Supanna Suwankird 35.75 1,532.60 BUY 21.90 18.32 1.45 1.42 20.92 15.72 3.43 6.72 GMM Grammy Pcl GRAMMY TB Kalvalee Thongsomaung 7.90 185.33 SELL na na 5.01 6.29 n.a. n.a. 0.00 na Gunkul Engineering Pcl GUNKUL TB Supanna Suwankird 4.94 898.83 BUY 49.78 22.70 2.15 1.97 31.96 14.50 0.10 5.56 Hana Microelectronics Pcl HANA TB Chatchawin Lertapiruk 33.00 759.97 BUY 12.56 10.73 1.33 1.28 6.96 5.98 6.05 10.75 Ichitan Group Pcl ICHI TB Kalvalee Thongsomaung 10.20 379.40 SELL 15.45 17.36 2.12 2.07 9.58 10.31 4.85 13.98 Impact Growth REIT IMPACT TB Thanachart Research 15.80 670.20 SELL 20.04 20.06 1.45 1.45 20.13 20.35 4.84 7.28 Jasmine International Pcl JAS TB Siriporn Arunothai 9.25 1,570.39 SELL 20.87 17.04 5.30 4.24 n.a. n.a. 2.64 22.06 Jasmine Broadband Int. JASIF TB Siriporn Arunothai 12.10 1,904.15 HOLD 12.99 11.89 1.18 1.18 13.62 12.04 7.70 9.04 Khonburi Sugar Pcl KBS TB Kalvalee Thongsomaung 7.65 131.33 SELL 78.75 21.77 1.18 1.13 11.58 10.17 0.51 1.48 KCE Electronics Pcl KCE TB Chatchawin Lertapiruk 111.00 1,865.64 BUY 20.53 16.12 6.31 5.02 16.21 12.85 1.80 34.51 Kiatnakin Bank Pcl KKP TB Sarachada Sornsong 57.75 1,399.14 BUY 11.63 10.29 1.23 1.17 5.15 10.83 Khon Kaen Sugar Industry Pcl KSL TB Kalvalee Thongsomaung 3.92 494.65 BUY 22.86 17.15 1.61 1.53 16.43 14.28 1.84 5.75 Krungthai Card Pcl KTC TB Sarachada Sornsong 146.00 1,077.07 BUY 14.99 12.37 3.62 3.02 2.67 26.25 L.P.N. Development Pcl LPN TB Phannarai Tiyapittayarut 10.50 443.35 SELL 6.90 11.97 1.24 1.22 7.23 12.75 7.25 18.66 MK Restaurant Group Pcl M TB Kalvalee Thongsomaung 53.50 1,399.38 SELL 25.27 23.82 3.68 3.56 17.02 15.87 3.17 14.72 Major Cineplex Group Pcl MAJOR TB Kalvalee Thongsomaung 30.00 764.00 BUY 25.30 21.02 4.00 3.85 12.71 10.89 3.36 15.93 MC Group Pcl MC TB Siriporn Arunothai 15.00 343.35 BUY 15.25 13.50 2.91 2.76 11.35 9.93 5.24 19.46 MCOT Public Co Ltd MCOT TB Kalvalee Thongsomaung 12.40 243.78 SELL na na 1.19 1.18 16.83 12.52 0.00 na Muangthai Leasing Pcl MTLS TB Sarachada Sornsong 23.30 1,413.33 BUY 40.09 25.56 7.88 6.83 1.25 20.67 Nok Airlines Pcl NOK TB Saksid Phadthananarak 7.95 142.17 HOLD 6.74 6.11 1.09 1.02 2.47 1.97 8.90 19.42 Namyong Terminal Pcl NYT TB Siriporn Arunothai 14.00 248.35 BUY 19.21 17.87 2.29 2.25 9.37 9.48 4.74 11.97 Plan B Media Pcl PLANB TB Kalvalee Thongsomaung 5.05 506.74 BUY 48.33 31.69 5.73 5.25 20.11 14.44 1.24 12.11 Quality Houses Pcl QH TB Phannarai Tiyapittayarut 2.50 766.41 BUY 8.11 8.20 1.23 1.13 18.21 16.39 5.55 15.22 Rojana Industrial Park Pcl ROJNA TB Thanachart Research 4.82 279.16 BUY 8.06 7.59 0.77 0.73 9.57 9.21 6.21 9.88 RS Public Co Ltd RS TB Kalvalee Thongsomaung 8.05 232.61 HOLD na 36.19 4.91 4.50 11.95 8.44 0.00 na Samart Corporation Pcl SAMART TB Siriporn Arunothai 13.50 388.76 HOLD 42.83 25.63 2.27 2.16 11.18 9.00 1.28 5.29 SAPPE Pcl SAPPE TB Sarachada Sornsong 34.25 295.30 SELL 32.30 34.58 5.51 5.12 20.12 19.83 1.55 17.87 Srisawad Power 1979 Pcl SAWAD TB Sarachada Sornsong 43.50 1,301.26 BUY 23.22 16.65 7.46 5.71 1.26 35.20 Seafco Pcl SEAFCO TB Saksid Phadthananarak 11.20 97.95 BUY 20.20 12.30 3.23 2.73 n.a. n.a. 2.47 16.61 Samart i-mobile Pcl SIM TB Siriporn Arunothai 0.97 122.12 SELL na na 1.48 1.46 n.a. 28.57 0.00 na Sansiri Pcl SIRI TB Phannarai Tiyapittayarut 1.68 686.69 HOLD 8.54 8.87 0.85 0.81 13.71 14.25 5.86 10.14 Supalai Pcl SPALI TB Phannarai Tiyapittayarut 24.10 1,183.66 BUY 8.85 7.76 1.82 1.58 9.31 8.03 4.52 21.94 SPCG Pcl SPCG TB Supanna Suwankird 20.90 552.55 BUY 8.02 7.50 2.30 1.98 7.12 6.45 6.23 30.93 Sri Trang Agro-Industry Pcl STA TB Kalvalee Thongsomaung 15.60 571.33 SELL 13.82 12.10 0.90 0.87 12.43 11.96 3.26 6.67 Sino-Thai Engineering & Construction Pcl STEC TB Saksid Phadthananarak 27.25 1,189.12 BUY 44.31 32.70 4.27 3.91 24.93 19.65 0.90 9.86 SVI Public Co Ltd SVI TB Chatchawin Lertapiruk 4.66 302.10 BUY 18.95 13.02 1.46 1.35 n.a. n.a. 1.96 8.63 Symphony Communication Pcl SYMC TB Siriporn Arunothai 8.00 74.48 SELL 19.73 17.93 1.64 1.59 7.36 6.62 3.44 8.88 TICON Property Fund TFUND TB Thanachart Research 10.20 335.49 SELL 16.30 16.07 0.91 0.91 16.71 16.46 6.13 5.57 TICON Industrial Growth TGROWTH TB Thanachart Research 12.10 192.15 SELL 14.18 14.15 1.18 1.17 14.52 14.42 6.52 8.33 Thai Airways International Pcl THAI TB Saksid Phadthananarak 27.00 1,686.28 SELL 6.10 7.91 1.39 1.18 n.a. n.a. 0.00 25.63 Thaicom Pcl THCOM TB Chatchawin Lertapiruk 19.70 618.12 HOLD 10.68 14.80 1.14 1.09 3.53 5.49 3.28 11.03 Thaire Life Assurance Pcl THREL TB Chatchawin Lertapiruk 9.65 165.67 BUY 13.02 11.55 4.06 3.56 5.22 32.86 Ticon Industrial Connection Pcl TICON TB Thanachart Research 15.40 484.31 SELL 28.20 25.63 1.40 1.37 22.80 23.05 2.30 5.05 Tisco Financial Group Pcl TISCO TB Sarachada Sornsong 54.50 1,247.93 BUY 8.68 8.08 1.40 1.27 4.61 16.96 TPARK Logistics TLOGIS TB Thanachart Research 11.50 136.17 SELL 16.43 17.36 0.97 0.97 16.89 17.87 5.94 5.95 TICON Freehold TREIT TB Thanachart Research 9.95 161.36 HOLD 13.73 15.89 0.93 0.92 14.87 19.13 6.85 7.05 Toyo-thai Corporation Pcl TTCL TB Saksid Phadthananarak 21.80 349.31 BUY 10.75 9.97 1.99 1.74 13.31 10.93 2.79 19.99 Thai Tap Water Supply Pcl TTW TB Saksid Phadthananarak 10.60 1,210.13 HOLD 14.67 14.38 3.56 3.34 12.29 11.29 5.11 24.79 Thai Vegetable Oil Pcl TVO TB Siriporn Arunothai 38.00 879.18 SELL 20.46 19.47 4.02 3.89 14.91 14.16 4.15 19.79 Unique Eng. & Cons. Pcl UNIQ TB Saksid Phadthananarak 17.80 550.56 BUY 24.19 19.47 2.89 2.64 11.08 9.83 1.65 12.42 VGI Global Media Pcl VGI TB Saksid Phadthananarak 5.30 1,040.88 SELL 43.82 41.12 16.28 14.77 31.69 28.17 2.08 40.85 WHA Corporation Pcl WHA TB Thanachart Research 3.24 1,327.74 BUY 19.74 13.93 2.00 1.65 23.74 19.32 0.00 11.22 WHA Premium Factory WHAPF TB Thanachart Research 10.80 290.18 HOLD 14.04 13.75 1.03 1.02 13.47 13.09 6.41 7.44 WHA Premium Growth WHART TB Thanachart Research 10.20 282.65 HOLD 14.89 15.31 1.04 1.00 22.37 17.71 5.32 5.86 Workpoint Entertainment Pcl WORK TB Kalvalee Thongsomaung 38.50 459.62 BUY 57.36 35.69 5.78 5.50 22.03 17.31 1.48 10.02 Average 23.9 19.5 3.4 3.1 16.9 14.5 3.0 15.2

Source: Bloomberg, Thanachart forecasts

When a report covers six or more subject companies please access important disclosures for Daiwa Capital Markets Hong Kong Limited at http://www.daiwacm.com/hk/research_disclaimer.html or contact your investment representative or Daiwa Capital Markets Hong Kong Limited at Level 26, One Pacific Place, 88 Queensway, Hong Kong.

http://www.daiwacm.com/hk/research_disclaimer.html


Hong Kong Consumer Discretionary

Background: China Maple Leaf Education Group, a leading international

school operator in China, participated in the Daiwa Investment Conference

held in HK on 8-9 November. The company remains confident in doubling its

annual student enrolment base from around 20,000 currently to 40,000 by

2019/2020 school year. We noticed that the recent changes to China’s

education regulatory framework have been the main focus during investor

meetings. However, the management currently sees a limited financial impact

from the recent revisions to the education law in China.

Highlights: Management sees limited operational and financial impact

from the new education regulations in China. The China Government’s

recent revisions to the relevant laws governing the Chinese education sector

divide private schools into “for-profit schools” vs. “not-for-profit schools”. Going

forward, only not-for-profit schools would be allowed to provide compulsory

education (ie, primary and middle school, Grades 1-9) with favourable tax

treatment. For-profit schools could retain high flexibility on tuition fees and will

be subject to normal corporate tax rate. China Maple Leaf has elected all its

schools currently operating in China as schools that “do not require a

reasonable return” and are likely to be termed as “not-for-profit” schools under

the new regulatory framework. The management believes the new regulations

do not limit the profitability of the company’s existing schools, but may limit the

dividend payments to the school sponsors (a concept similar to equity holders).

For this reason, the company does not see material tax and profitability impact

rising from the new regulations.

A closer look at China Maple Leaf’s asset-light expansion model. In 2012,

the company adopted an “asset-light model” to develop new schools with local

governments. Under this, the local governments provide lands and construct

the school buildings, while China Maple Leaf operates the schools for 30-50

years. In exchange, the company pays the government either a rental fee (not

exceeding 8% of total school revenue) or a management fee (equivalent to

c.45-50% of accumulated school net income). The management believes that

such an expansion model will lower the company’s upfront capex requirement

for opening new schools. Over the next 2-3 years, it plans to open new schools

in various cities in China including Xi’an, Yancheng, Weifang, Chongqing and

Shijiazhuang, using this asset-light model.

The company plans to post its FY16 (August year-end) results by the end of

November and is targeting earnings growth of no less than 40% YoY.

Valuation: The stock is currently trading at FY16E PER of 20x and FY17E PER of 16x, based on the Bloomberg consensus forecasts.

11 November 2016

Company sees limited impact from new education law

Management does not expect material tax rate changes in the short term

School network expansion likely to be driven by asset-light model

China Maple Leaf is trading at a 20x FY16E PER (August year-end)

Source: FactSet, Daiwa forecasts

China Maple Leaf Educational Systems (1317 HK)

Target price: n.a.

Share price (11 Nov): HKD4.60 | Up/downside: -

Alex Liu(852) 2848 4976

[email protected]

John Choi(852) 2773 8730

[email protected]

50

116

183

249

315

2

4

6

7

9

Nov-15 Feb-16 May-16 Aug-16 Nov-16

Share price performance

China Mapl (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 2.66-8.57

Market cap (USDbn) 0.80

3m avg daily turnover (USDm) 9.12


China Materials

What's new: We note that the street’s conviction to invest in China’s paper and

packaging industry has been largely unchanged since 2010. The most

common argument has been, and still is, the “improving supply-demand

dynamics” of the industry, citing as proof the government’s involvement in

cutting obsolete industry capacity. But pulling the 5-year charts of the 2 largest

players, Nine Dragons Paper (NDP) and Lee & Man Paper (L&M), paints a

different story, as both stocks have been strictly range-bound throughout these

years.

So is this time different? From the data we have gathered, while plenty of

capacity was indeed shut down between 2010 and 2015, we believe 2 factors

cancelled out this effect: 1) pre-planned new capacity continued to come on-

stream and caused net supply to increase, and 2) demand growth during this

period slowed significantly compared with previous years. However, in 2015-

16, we see evidence that the improvement on the supply-side has become

much more apparent, and allowed both NDP and L&M to recently post record

net profits.

Despite the recent volatility in raw-material prices, we see a number of factors

that should help sustain the 2 largest players’ net profit: 1) an FCF

improvement on lower capex, allowing for greater financial deleveraging, 2)

VAT rebates from the government, and 3) greater scale effects and efficiencies.

We look for adjusted net profit per tonne of CNY203-267 and HKD512-618 for

NDP and L&M, respectively, throughout 2017-19E.

Catalysts: 1) A reversal of the recent upward trend in OCC and coal prices, 2)

macro numbers indicating better-than-expected retail numbers or consumption

in China, 3) an increase in dividend payouts or share buybacks on the back of

stronger balance sheets, and 4) announcements of more capacity cuts or

stricter restrictions to new capacity growth.

What we recommend: We initiate with a Positive sector rating, and a Buy (1)

call on Nine Dragons Paper (2689 HK, HKD6.39) and 12-month TP of

HKD7.70, based on a 10x PER on the average of our FY17-18E EPS. NDP is

our top sector pick, as we see plenty of room for its net profit to improve. And

we initiate on Lee & Man Paper (2314 HK, HKD5.68) with an Outperform (2)

rating and 12-month TP of HKD6.40 (based on a 9x PER on our 2017

forecast), as we think the company’s expansion into tissue paper will lead to

sustained double-digit net-profit growth over our forecast period.

How we differ: We believe the market has underestimated the ability of major

paper producers to maintain a high level of profitability, despite short-term

fluctuations in raw-material prices.

4 November 2016

China Paper and Packaging Sector

Initiation: in with the trash, out with the cash

After 5 years, the argument for “better industry supply and demand” is coming to fruition; major paper producers should benefit the most

Containerboard capacity growth frenzy appears to be over; cash flow improvements open up options to deleverage or increase dividends

Initiating with a Positive sector rating, and a Buy (1) on Nine Dragons Paper and an Outperform (2) on Lee & Man Paper

Key stock calls

Source: Daiwa forecasts

Carlton Lai, CFA(852) 2532 4349

[email protected]

John Choi(852) 2773 8730

[email protected]

New Prev.

Nine Dragons Paper (2689 HK)Rating Buy

Target 7.70

Upside p 20.5%

Lee & Man Paper Manufacturing (2314 HK)Rating Outperform

Target 6.40

Upside p 12.7%


Korea Consumer Discretionary

What's new: CJ CGV posted weak 3Q16 results amid weak box office

market revenue and various one-off costs. However, we believe the

company will see strong EPS growth (50% YoY) next year, driven by a low

base this year, a recovery of the box-office market in China, and

normalisation of operations in Turkey. We reaffirm Buy (1) rating but cut our

TP from KRW124,000 to KRW100,500 following downward EPS revisions

of 32% for 2016E and 28% for 2017E.

What's the impact: 3Q16 operating profit (KRW34.0bn) was 13% below the consensus estimate (KRW39.2bn), due mainly to weak box office revenue in China and KRW4.2bn of amortisation of intangible assets for the Turkey division. Net profit (KRW6.6bn) was well short of the consensus (KRW26.6bn) from one-off costs such as administration fees on acquisition of the Turkey division (KRW5.9bn), a Fair Trade Commission penalty (KRW7.2bn) for financially supporting the chairman of CJ group’s kinship affiliate, and a FX translation loss at the Turkey division (KRW7.4bn).

Market-wide box-office revenue growth in China (-18% YoY, CNY base)

was sluggish from a high base after aggressive movie-ticket promotions by

Internet platform companies in China last year. Although Korea market

revenue decreased by 3.3% YoY due to weak movie line-ups, CJ CGV’s

operating profit in Korea still grew 2.5% thanks to cost controls. However,

the Vietnam division saw an operating loss following rapid site expansion

(26 in 3Q5 vs. 36 in 3Q16). Consolidated from June 2016, the Turkey

division posted an operating loss of KRW1.7bn due to off-season effects

and a delay in operation normalisation following the acquisition.

However, we believe CJ CGV will see strong EPS growth (50% YoY) in

2017, not only due to the absence of this year’s one-off costs but: 1) a rise

in average ticket price and concession revenue in Korea, 2) low base effect

for market revenue in China, 3) profitability improvement from a slowdown

in site expansion in Vietnam, and 4) operation normalisation in Turkey.

What we recommend: We reiterate our Buy (1) rating but cut our SOTP-

based target price from KRW124,000 to KRW100,500 to reflect the weak

3Q16 earnings. Our target price is equivalent to a 2017E PER of 38.1x. We

believe the weak earnings are fully reflected in the share price and hence

recommend taking a long-term view on a stock currently trading at 25.9x

2017E EPS. The key risk: if profitability declines as a result of excessive

spending on theatre expansion.

How we differ: Our EPS forecasts are below consensus by 27.2% for

2016, 22.1% for 2017 and 22.4% for 2018, likely as weak earnings trends

are not yet fully reflected in consensus estimates.

8 November 2016

Looking forward to next year

3Q16 earnings fall short of the market’s expectations

We forecast 50% YoY 2017 EPS growth from business normalisation

Reaffirming Buy (1) rating but cutting TP to KRW100,500



CJ CGV (079160 KS)

Target price: KRW100,500 (from KRW124,000)

Share price (8 Nov): KRW71,500 | Up/downside: +40.5%

Kevin Jin(82) 2 787 9168

[email protected]

Forecast revisions (%)

Year to 31 Dec 16E 17E 18E

Revenue change (2.3) (0.4) 0.7

Net profit change (32.2) (28.0) (24.3)

Core EPS (FD) change (32.2) (28.0) (24.3)

60

81

103

124

145

60,000

80,000

100,000

120,000

140,000

Nov-15 Feb-16 May-16 Aug-16


CJ CGV (LHS) Relative to KOSPI (RHS)

(KRW) (%)

12-month range 65,400-138,500



Shares outstanding (m) 21

Major shareholder CJ (39.0%)

Financial summary (KRW)


Revenue (bn) 1,382 1,594 1,780

Operating profit (bn) 61 87 109

Net profit (bn) 39 58 79

Core EPS (fully-diluted) 1,842 2,758 3,744

EPS change (%) (24.9) 49.7 35.8

Daiwa vs Cons. EPS (%) (27.2) (22.1) (22.4)

PER (x) 38.8 25.9 19.1

Dividend yield (%) 0.0 0.0 0.0

DPS 0 0 0

PBR (x) 1.7 1.5 1.5

EV/EBITDA (x) 16.2 13.8 11.9

ROE (%) 5.8 6.2 7.9


Korea Information Technology

What's new: Com2uS reported its 3Q16 results, before the market opened

on 8 November, which came in below our estimates on soft in-game item

sales of Summoners War (SW) and higher marketing costs. But, we expect

Com2uS to register strong earnings growth in 4Q16 and 1Q17, on

accelerating monetisation of SW’s enhanced gamer base globally.

What's the impact: In 3Q16, revenue grew 2.9% YoY to KRW118bn and

operating profit edged down by 2.8% YoY to KRW41bn, representing

operating-profit margin of 35%. Management attributes weak operating-

profit growth to the combination of soft in-game item sales of SW and a

cost increase in marketing and game services globally. Marketing costs

surged 32% YoY and accounted for 20% of its total revenue in 3Q16.

Meanwhile, global gamers for SW increased by 17% to 70m as at end-

October from June 2016, thanks to tier-1 content update and promotions.

Management provided a positive business outlook for 4Q16 and 1Q17 on

increasing gamer traffic and ongoing addition of new content and in-game

items, while guiding for the total marketing cost to be around 18-20% of its

2016 revenue. We expect Com2uS to increase in-game items sales on

seasonal demand in 4Q, and more from 1Q17 on rolling out of the real-time

arena mode. New mobile games for 4Q16-2017 include role-playing games

(RPG, 5), strategy (1), sports (3), and others (3). Com2uS would consider

paying dividend from 2016 (our 2016 DPS forecast of KRW1,100) and seek

M&A opportunities, to reward investors with strong earnings growth.

We cut our 2016-18E EPS by 2.3-5.1% to reflect the weaker-than-expected

3Q16 results and management’s revised guidance for operating costs and

service schedule for new contents and new game titles. Meanwhile, we

believe its new mobile RPGs like Soulz and monetisation-oriented content

updates (real-time arena mode) will boost its revenue and earnings from

4Q16, especially in 1Q17, helped by effective control over labour costs.

What we recommend: We lower our 12-month TP to KRW146,000 (from

KRW153,000), based on an unchanged target PER of 11.3x (23% discount

to local peers’ 14.6x, on its heavy reliance on a single game), still applied to

our average 2016-17E EPS. We see the shares outperforming the market

in 4Q16-2017, once SW starts to increase earnings and investors

recognise its value as a game-as-a-platform. Key risks: a sharp fall in

revenue from SW, a rise in marketing costs, and delays in new-game

launches.

How we differ: Our 2017-18E EPS are 5.5-7.3% above consensus, which

we attribute to our view of the strong operating leverage of in-house RPGs.

8 November 2016

Another phase of global expansion begins

3Q16 results: below our estimates due to higher marketing costs

It will ramp up the monetisation of increased global gamers from 4Q16

Reaffirming Buy (1); cutting 12-month TP by 4.6% to KRW146,000



Com2uS (078340 KS)

Target price: KRW146,000 (from KRW153,000)

Share price (8 Nov): KRW95,500 | Up/downside: +52.8%

Thomas Y. Kwon(82) 2 787 9181

[email protected]



Revenue change (3.3) (3.3) (3.2)



70

86

103

119

135

90,000

105,000

120,000

135,000

150,000



Com2Us (LHS) Relative to KOSPI (RHS)

(KRW) (%)

12-month range 92,200-145,100




Major shareholder Gamevil (24.5%)

Financial summary (KRW)


Revenue (bn) 518 582 621

Operating profit (bn) 195 236 253

Net profit (bn) 150 182 199

Core EPS (fully-diluted) 11,678 14,179 15,501

EPS change (%) 6.5 21.4 9.3

Daiwa vs Cons. EPS (%) (3.5) 5.5 7.3

PER (x) 8.2 6.7 6.2


DPS 1,100 1,400 1,500

PBR (x) 1.9 1.5 1.2

EV/EBITDA (x) 4.1 2.9 2.0

ROE (%) 26.4 25.6 22.5


China Utilities

What's new: We recently hosted investor meetings for CTE at our Daiwa

Investment Conference in Hong Kong, and learned about the overall

progress of its greenfield projects – Longmen (industrial solid waste) and

Guangxi Yulin (industrial wastewater treatment [IWWT]). In the meantime,

management also reiterated its plan to expand its investment in Yulin city,

which should contribute to EPS growth post 2018.

What's the impact: 2017 growth: 2 new industrial-based projects. In

March 2017, CTE’s 2 new projects (Longmen and Guangxi) will start

operating, according to management. Yulin is a new industrial park that will

bring in nearby manufacturers for better environmental control, and thus

the utilisation rate for phase 1 of its IWWT and industrial water-supply

facilities should be 100% immediately. Longmen’s project is focused on

industrial solid waste, which includes WTE and sludge treatment.

Further investment in Yulin to pave way for long-term earnings growth.

After increasing its investment in the Guangxi Yulin IWWT project from

CNY500m to CNY3bn to include hazardous waste, solid waste, food waste

and river dredging, the company recently announced a non-legal binding MOU

for a PPP project with the Yulin Government involving a potential CNY10bn

investment, which includes: 1) the comprehensive treatment of industrial

pollution, 2) the comprehensive treatment of agricultural pollution, 3) the

comprehensive treatment of urban and rural waste, 4) ecological protection

and rehabilitation of the river course, and 5) the construction of an equipment

manufacturing base and operation of a monitoring system. According to

management, the MOU is the preliminary framework of the agreement and it

needs to negotiate project details and funding requirements. CTE will look at

the return profile of each project in the package, and then decide whether to

accept the terms. Such an MOU offers CTE exclusivity as well as flexibility in

terms of decision-making. If the return of potential projects cannot meet its

investment hurdle rate (even for PPP projects, it expects a higher-than-market-

average return of >8%), it will choose to abandon the deal. Therefore, the

additional CNY10bn investment is in the preliminary stage.

What we recommend: We reaffirm our Buy (1) rating and fine-tune our

DCF-based 12-month TP to HKD2.70 (from HKD2.80), equivalent to a

2017E PER of 19x. Although our TP implies a richer 0.8x PEG (on a 2015-

18E EPS CAGR vs. China peers’ 0.45-0.7x), most of CTE’s 2017E gross

profit comprises cash-based operating earnings from its build-operate-own

exposure. We trim our 2017-18E net profit by 2-3% on a more conservative

commercial commissioning time for some IWWT plants and Longmen’s

WTE facility. Main risk: greater-than-expected competition from SOEs.

How we differ: Our 2016-18E EPS are 5% below the consensus, as,

despite our positive call on the stock, we still factor in some project delays.

10 November 2016

More focus on organic growth

Longmen and Yulin industrial and hazardous waste projects on track

More focused on organic growth, with c.20% EPS growth for 2017-18E

Revising TP to HKD2.70, reiterating Buy (1) amid mild EPS growth



CT Environmental Group (1363 HK)

Target price: HKD2.70 (from HKD2.80)

Share price (10 Nov): HKD2.11 | Up/downside: +27.9%

Dennis Ip, CFA(852) 2848 4068

[email protected]

Nicole Jiang(852) 2848 4469

[email protected]



Revenue change - (2.9) (1.7)

Net profit change - (3.2) (1.8)

Core EPS (FD) change - (3.2) (1.8)

75

83

90

98

105

1.8

2.0

2.3

2.5

2.7



CT Env Grp (LHS) Relative to HSI (RHS)

(HKD) (%)




Shares outstanding (m) 6,317

Major shareholder Mr. Tsui Cham To (55.0%)

Financial summary (CNY)


Revenue (m) 2,215 2,413 2,881

Operating profit (m) 868 1,065 1,260

Net profit (m) 666 804 962

Core EPS (fully-diluted) 0.105 0.127 0.152

EPS change (%) 30.6 20.8 19.7

Daiwa vs Cons. EPS (%) (5.1) (5.0) (4.8)

PER (x) 17.5 14.5 12.1


DPS 0.027 0.035 0.038

PBR (x) 3.4 2.9 2.4

EV/EBITDA (x) 12.8 10.6 8.3

ROE (%) 21.1 21.5 21.7


Taiwan Consumer Discretionary

What's new: We attended Eclat’s analyst meeting on 8 November after the

market close. Recall that Eclat posted 3Q16 EPS of TWD3.15 on 4

November after the market close, missing our estimate by 25% and the

consensus estimate by 20% (see page 2, also see memo). During today’s

meeting, the company reaffirmed guidance on its new product catalogue

and new client pipeline, and said it plans to maintain its selective

order/client strategy in the coming years.

What's the impact: We expect a stronger order outlook in 2017. The

company’s orders have been affected by ongoing client inventory digestion

and a more conservative client order strategy in 2016. However, according

to the company and our market research, both of its new products (knitted

jacquard and body-mapping fabrics/garments) have received positive

feedback, with 3 new clients added to its jacquard order book and 2

(including Nike) to its body-mapping order book. The company targets c.5%

and 12-15% top-line contributions from these new products in 1H17 and

2H17. The company says it expects to add 3 new clients (US, Canada and

global based) in 2017, which it expects to contribute around 5-6% of

revenue in 2017 and 15-20% in 2018. Also, we expect stronger order

momentum from both of its retail and brand clients (ie, Nike and Under

Armour) in 2017. Finally, its new garment capacity in Vietnam is scheduled

to come online in 2Q17 and 3Q17.

We forecast an upward trajectory for both ASP and gross margin over

2017-18 as a result of new products, new clients and its continued selective

client and order strategy. We also expect stronger revenue growth and

earnings momentum in 2H17 compared with 1H17.

Earnings revisions. We cut 2016-18 revenue forecasts by 6-12% on

downward revisions to our shipment assumptions due to a lower order

forecast as well as Eclat’s strategy to focus on ASP instead of shipment

growth. Thus, we cut our 2016-18E EPS by 10-15%.

What we recommend: We reiterate our Buy (1) call but cut our 12-month

TP to TWD400 (from TWD418), now based our 2017E EPS (previously: the

average of our 2016-17E EPS) and with an unchanged target PER of 24x,

slightly lower than its average 1-year-forward PER over the past 3 years of

26x (from 14-37x). Key risks: disappointing gross margin expansion on

slower-than-expected product launches or weaker ASP.

How we differ: We are 7-11% below the Bloomberg consensus on our

revised 2016-18E EPS, likely due to our more conservative view on

revenue contribution from retail clients.

8 November 2016

2017 should be better than 2016

Ongoing client inventory digestion likely to end by 2H17

Company to focus on new products, new clients and selective orders

Reaffirming our Buy (1) rating but lowering TP to TWD400



Eclat Textile (1476 TT)

Target price: TWD400.00 (from TWD418.00)

Share price (8 Nov): TWD347.50 | Up/downside: +15.1%

Helen Chien(886) 2 8758 6254

[email protected]



Revenue change (5.5) (11.7) (12.0)



60

73

85

98

110

280

330

380

430

480



Eclat Text (LHS)Relative to TWSE Index (RHS)

(TWD) (%)

12-month range 281.50-477.00




Major shareholder Zhen-Hai Hong (Chairman) (3.3%)

Financial summary (TWD)


Revenue (m) 24,918 27,131 30,994

Operating profit (m) 4,759 5,345 6,230

Net profit (m) 3,640 4,380 5,102


EPS change (%) (12.8) 20.3 16.5

Daiwa vs Cons. EPS (%) (6.9) (8.1) (11.1)

PER (x) 25.7 21.3 18.3


DPS 9.5 11.4 13.3

PBR (x) 6.2 5.5 4.9

EV/EBITDA (x) 16.4 14.7 12.6

ROE (%) 27.2 27.5 28.5

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/MEMO_20161104_EclatTextile_3Q16.pdf#page=1


China Consumer Discretionary

What's new: IMAX China attended the Daiwa Investment Conference in

Hong Kong on 10 November. We highlight the key takeaways below.

What's the impact: The most popular question asked by investors was the

reason behind the weak box office numbers in 2016. Management

attributed this to the following four factors: 1) a stark contrast in the quality

of film slate versus 2015 (2015 was an exceptionally good year while 2016

appears to be a very poor year), 2) a significant drop in O2O subsidies

(although management said only 5-10% of the total box office had been

subsidised in 2015, and there were no subsidies for IMAX films), 3) lower

average ticket prices due to the weak film slate, and 4) the negative

translation effect from a depreciating CNY, relative to the USD. We note

that the October 2016 box office remained weak with a 19% YoY decline.

Investors were also concerned about the upcoming renewal of foreign film

import quotas, set to expire at the end of 2016. Management explained

that: 1) there are signs that the government is further loosening its grip on

quotas as 38 films have already been imported to China as of November

2016, more than the quota of 34 films, and 2) the company does not need

more than 34 films to import since IMAX China can only exhibit a maximum

of 35-40 films per year, 10 of which are allocated for China local films,

meaning only 25-30 films are imported in a year.

Management believes the 2017 film slate will be very strong. This is in line

with our view, but we expect the better comparison to only kick in starting

2Q17 (given the record box performance of The Mermaid in 1Q16). We

now look for IMAX China’s box office to be largely unchanged YoY in 2016,

but jump 20% in 2017 (previously 10% and 30%, respectively). As a result,

we cut our 2016-18E revenue by 3-8%, and our EPS by 4-9%.

What we recommend: We trim our 12-month target price to HKD44 (from

HKD46), based on a target PER of 30x (previously 34x), a 10% premium to

the average trading multiple of its global exhibitors and studio peers, on the

revised 2017E EPS (previously, average of 2016/17 EPS). We reiterate our

Buy (1) call. We believe the market has over-penalised the company’s

share price on what we view as temporarily weak box-office numbers in

China. We also believe IMAX China is one of the few companies that would

be immune to possible policy changes from a Trump administration in the

US. Key risk: lower revenue-sharing cut rates due to competition.

How we differ: Our 2016-17E EPS are 5-7% higher than the Bloomberg

consensus, which we attribute to our stronger net margin expansion

assumptions from improvements in the product mix.

10 November 2016

Look forward to 2017

We continue to expect a substantial rebound in the 2017 box office

IMAX China remains a good pick during rising macro uncertainty

Trimming TP to HKD44; reiterating our Buy (1) rating



IMAX China Holding (1970 HK)



John Choi(852) 2773 8730

[email protected]


[email protected]






60

76

93

109

125

30

38

45

53

60



IMAX (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 34.80-59.70




Major shareholder IMAX Corp (68.5%)

Financial summary (USD)


Revenue (m) 127 159 172

Operating profit (m) 57 75 83

Net profit (m) 49 67 77


EPS change (%) (1.9) 37.0 15.1

Daiwa vs Cons. EPS (%) 4.8 6.9 (3.0)

PER (x) 33.5 24.5 21.3


DPS 0.000 0.000 0.000

PBR (x) 7.9 6.0 4.7

EV/EBITDA (x) 21.7 16.1 14.0

ROE (%) 26.8 27.9 24.7


Hong Kong Materials

Investment case: Lee & Man Paper (L&M) is often viewed by investors as

a direct alternative to Nine Dragons Paper (NDP), but is perhaps seen as

more conservative in its approach to revenue growth, preferring to focus on

the bottom line. Indeed, even though both companies aggressively

expanded their capacity throughout 2004-14, L&M was consistently more

profitable than NDP on a per-tonne basis. We attribute this to its stronger

product mix (greater exposure to higher-margin linerboards), more strategic

production footprint (more than half of its capacity is in Guangdong, which

has among the best supply/demand industry dynamics), and lower

leverage used (on an absolute and net-gearing basis, and hence lower

finance costs).

Given continuously improving supply/demand industry dynamics in China,

we expect L&M to keep its adjusted net profit per tonne above HKD500

throughout 2016-18E. In fact, we forecast its net profit per tonne to reach a

new high of HKD618 by 2018, fuelled mainly by its new tissue paper

business, which has much higher margins than containerboard. L&M

recently unveiled aggressive plans to more than quadruple its tissue

capacity by end-2017E, which should help its top line grow at a CAGR of

8% for 2015-18, on our forecasts.

Catalysts: We see the following as potential share-price catalysts: 1) a

reversal or stabilisation of the recent increases in old corrugated container

pulp (OCC) and coal prices, 2) a continuation of containerboard price hikes,

3) news flow on improving retail consumption growth or additional industry

capacity cuts, and 4) the smooth ramp-up of new tissue paper capacity.

Valuation: We initiate coverage of L&M with a 12-month target price of

HKD6.40, based on a 9x PER applied to our 2017E forecast. Our 9x target

multiple is based on 0.5sd below the stock’s average 1-year-forward PER

since 2011, which we believe is conservative considering the industry’s

gradual upcycle from supply-side improvements, and the new revenue

growth catalyst that we see in its tissue paper business. At the same time,

the target multiple represents a steep discount to those of its global peers.

Given potential upside of 13% to our target price, we rate L&M as an

Outperform (2). While on a net basis we view the company’s expansion into

the tissue paper business as a positive development, we believe it does

reduce near-term earnings visibility.

Risks: The key risks to our call: 1) a sustained rise in OCC and coal prices,

2) execution risks from the ramp-up of its tissue paper capacity, 3) an

increase in effective interest rates, and 4) the cutting-back of the

government’s VAT refund programme.

4 November 2016

Initiation: entering a new stage of growth

Aggressive tissue paper expansion to spur revenue

Adjusted net profit per tonne could reach new high by 2018E

Initiating coverage with Outperform (2) and target price of HKD6.40


Lee & Man Paper Manufacturing (2314 HK)

Target price: HKD6.40



[email protected]

John Choi(852) 2773 8730

[email protected]

90

104

118

131

145

3.5

4.5

5.5

6.5

7.5



L&M Paper (LHS) Relative to HSI (RHS)

(HKD) (%)





Major shareholder Lee family (68.0%)

Financial summary (HKD)


Revenue (m) 17,900 19,981 22,167


Net profit (m) 2,783 3,282 3,766


EPS change (%) 20.0 17.9 14.7

Daiwa vs Cons. EPS (%) (4.2) 0.5 4.0

PER (x) 9.4 8.0 7.0


DPS 0.211 0.248 0.285

PBR (x) 1.4 1.2 1.1

EV/EBITDA (x) 8.9 7.5 6.3

ROE (%) 15.3 16.3 16.8


Taiwan Consumer Discretionary

What's new: Nien Made posted 3Q16 net profit (details on P.2) on 8

November after the market close, beating our estimate by 16% and the

Bloomberg consensus by 6%, thanks to favourable product mix as well as

improving production efficiencies at the new Cambodia plant. We upgrade

Nien Made to Buy (1) from Outperform (2) and reaffirm our investment

thesis that the company should continue to benefit from market-share gains

that underpin top-line growth. We also expect rising custom-made product

revenue to bode well for the bottom line in 2016-18.

What's the impact: 3Q16 EPS beat. Nien Made posted 3Q16 EPS of

TWD3.48 (up 38.5% YoY) on strong gross-margin expansion during the

quarter, thanks to market-share gains in its custom-made shades and

blinds segment (Daiwa forecast: ~3% of market share in North America vs.

~35% of market share in custom-made shutter segment). Thus, the gross

margin expanded to 49.8% in 3Q16 (Daiwa: 47.4%; consensus: 47.3%), up

from 48.1% in 2Q16 and 45.5% in 3Q15. The company incurred about

TWD16m of FX losses due to the stronger TWD vs. the USD.

Solid earnings growth prospects in 2016-18. Due to more favorable

product mix and improving operating efficiencies, on top of capacity

expansion and more comprehensive custom-made window covering

products to underpin top-line growth (Daiwa forecast: revenue CAGR of

15.9%), we forecast a 2016-18 net-profit CAGR of 22.7%.

Revisions to forecasts. After factoring in these developments and the

3Q16 results, we slightly adjust our 2016-18E net profit by -0.3% to 0.3%.

What we recommend: We upgrade Nien Made to Buy (1) from Outperform

(2) as we now see 20% share-price upside. Our new 12-month target price

of TWD425 (from TWD400), is now based on our 2017E EPS (from one-

year-forward EPS [4Q16-3Q17]) with an unchanged PER of 28x. The stock

has been rerated over the past year, but we believe this heightened

valuation will be sustainable due to the company’s improving profitability,

enhanced ROE, and a 22.7% EPS CAGR over 2016-18. Key risks to our

call: 1) weaker-than-expected global demand, 2) slower-than-expected

revenue contribution from custom-made products.

How we differ: Our 2016-18E EPS are 2-3% above the consensus due to

our more positive view on the company’s gross-margin expansion.

8 November 2016

Upgrading: window of opportunity

3Q16 results beat our estimate by 16% and consensus by 6%

Reaffirming our investment thesis of continued market-share gains

Upgrade to Buy (1) from Outperform (2) and raise TP to TWD425



Nien Made Enterprise (8464 TT)



Helen Chien(886) 2 8758 6254

[email protected]



Revenue change - - -

Net profit change 0.3 0.1 (0.3)

Core EPS (FD) change 0.3 0.1 (0.3)

100

129

158

186

215

150

215

280

345

410



Nien Made (LHS)Relative to TWSE Index (RHS)

(TWD) (%)

12-month range 178.50-410.00




Major shareholder Nien family (44.0%)



Revenue (m) 19,376 22,353 26,048


Net profit (m) 3,604 4,452 5,430


EPS change (%) 36.4 23.5 22.0

Daiwa vs Cons. EPS (%) 2.0 2.9 2.8

PER (x) 28.7 23.3 19.1


DPS 8.7 10.7 13.0

PBR (x) 8.9 7.6 6.5

EV/EBITDA (x) 18.4 15.0 12.2

ROE (%) 32.0 35.3 36.9


Hong Kong Materials

Investment case: From the mid-2000s to 2014, Nine Dragons Paper

(NDP) was among the world’s most aggressive paper companies in terms

of organic containerboard capacity growth. Over this period, NDP

increased its capacity by more than 13x and is now by far the largest

containerboard producer in China. As such, we believe NDP will continue to

be the biggest beneficiary of the gradually improving supply-demand

dynamics in the containerboard industry. While the cutting down of obsolete

supply has been an ongoing trend over the past several years, the positive

effects have only recently surfaced: NDP’s FY16 adjusted net profit per

tonne rose above CNY200 for the first time since FY11. In fact, on an

absolute basis, the adjusted net profit was its highest since its listing in

2006, thanks to stabilising ASPs, low raw-material prices, and contributions

from VAT rebates. Nonetheless, we believe there is still substantial upside

on a per-tonne basis, and forecast the net profit per tonne (excluding FX

losses) to rise from CNY222 in FY16 to CNY267 by FY19.

NDP’s net profit growth of 114% YoY in FY16 was among the strongest of

its peers, due to the company’s leading market share, national footprint,

efficiency improvements and deleveraging. With much reduced capex

plans compared to previous years, we expect the company to be able to

sustain at least CNY1bn in FCF per year, which should provide it with

options to further deleverage or increase its dividend payout. We would

expect such a scenario to lead to a gradual rerating of the stock.

Catalysts: 1) a reversal or stabilisation of recent price increases in raw

materials such as old corrugated containers (OCC) and coal, 2) a

continued rise in containerboard prices, 3) news flow on improving retail

consumption growth or additional industry capacity cuts, and 4) a greater-

than-expected reduction in total debt or higher dividend payout per the 1H

FY17 results.

Valuation: We initiate coverage of NDP with a 12-month TP of HKD7.70,

based on a 10x PER on the average of our FY17-18 EPS forecasts, and a

Buy (1) rating. Our 10x target multiple is 0.5SD below the stock’s average

1-year-forward PER since 2011, which we believe is conservative

considering the industry’s gradual upcycle from supply-side improvements.

The target multiple also represents a steep discount to global peers.

Hence, we view the recent pullback in the shares as a good entry point for

investors, particularly those with a longer horizon of over 1 year.

Risks: The key risks to our call: 1) a sustained rise in OCC and coal prices,

2) greater-than-expected net new containerboard capacity in 2016 and

2017, and 3) the cutting back of the government’s VAT refund programme.

4 November 2016

Initiation: riding high on the dragon’s back

A leveraged play on the industry’s improving supply-demand dynamics

Adjusted net profit per tonne to remain above CNY200 in FY17-19

Initiating with a Buy (1) and TP of HKD7.70; top pick in the sector


Nine Dragons Paper (2689 HK)

Target price: HKD7.70



[email protected]

John Choi(852) 2773 8730

[email protected]

80

95

110

125

140

3.5

4.5

5.5

6.5

7.5



Nine Drago (LHS) Relative to HSI (RHS)

(HKD) (%)





Major shareholder Cheung Yan (Chairlady) (66.7%)

Financial summary (CNY)

Year to 30 Jun 17E 18E 19E

Revenue (m) 33,425 34,941 36,091


Net profit (m) 2,714 3,430 3,801


EPS change (%) (6.2) 26.4 10.8

Daiwa vs Cons. EPS (%) (5.0) 7.3 8.0

PER (x) 9.6 7.6 6.8


DPS 0.145 0.220 0.326

PBR (x) 0.9 0.9 0.8

EV/EBITDA (x) 7.3 6.1 5.4

ROE (%) 10.0 11.7 12.0


Taiwan Health Care

What's new: St. Shine Optical posted monthly revenue of TWD507m in

October (-7.1% YoY and -12.1% MoM; 10M16: +10.8% YoY) and 3Q16

results (see page 2) after market close on 7 November. Its 3Q16 EPS of

TWD8.83 was below our forecast and the consensus estimate by 9% and

6%, respectively, mainly due to a TWD97m FX loss (stronger TWD vs.

USD, EUR and GBP). However, operating profit in 3Q16 beat our and the

Bloomberg consensus by 6% and 8%, respectively. We reaffirm our

positive view on its not-yet-over earnings-recovery story but expect slower

earnings YoY growth momentum in 2017-18 compared to 2016 (as stated

in our previous note, Earnings continue to improve, published on 9

August 2016).

What's the impact: 3Q16 gross-margin improvement slightly below

our forecast. St. Shine’s 3Q16 gross margin of 43.0% (down from 43.5%

in 2Q16 and 36.4% in 3Q15) was near our forecast of 43.5% and the

consensus figure of 43.2%, mainly on returns from some ASP discounts

given to Japan clients. As we have highlighted previously, we believe the

recent JPY/USD stability and rising utilisation rate should support the

company’s 2016 gross-margin outlook. St. Shine says it has no plans to

add new production lines for the rest of 2016. While the company has not

disclosed its production line plans for 2017, we expect the company to

expand its production capacity by 10% YoY in 2017.

Stronger-than-expected China revenue and solid Japan sales in 3Q16.

St. Shine’s Japan orders grew by over 20% YoY in 9M16, thanks to market

share gains by Japan clients through on-line channels. Its 9M16 China

revenue also increased to flat YoY (vs. a decline of 50% YoY in 1H16),

thanks to an end in inventory digestion on the client side. We expect order

momentum to resume during the rest of the year.

Revisions to forecasts. After factoring in these developments and the

3Q16 results, we cut our 2016-18E revenue by 0.2-1.2% and net earnings

by 0.9-5.0%.

What we recommend: We reaffirm our Outperform (2) rating on St. Shine

but cut our 12-month TP to TWD720 (from TWD804), now based on a

2017E EPS (from the average of our 2016-17E EPS) and a target PER of

18x (from 21x), due to its decelerating earnings growth in 2017-18, which is

lower than its past-3-year average of 21x. Key risk: less favourable

changes in the JPY vs. the USD and weaker-than-expected Japan sales.

How we differ: Our 2017-18E EPS are 2-6% above consensus, which we

attribute to our more upbeat view on St. Shine’s revenue growth.

7 November 2016

Earnings continue to improve but may decelerate

3Q16 results miss on FX loss, while core business beat estimates

Company has not yet confirmed production expansion plans for 2017

Reaffirming Outperform (2) rating but cutting 12-month TP to TWD720



St. Shine Optical (1565 TT)



Helen Chien(886) 2 8758 6254

[email protected]






95

108

120

133

145

500

588

675

763

850



St. Shine (LHS)Relative to TWSE Index (RHS)

(TWD) (%)

12-month range 545.00-822.00




Major shareholder Board (30.0%)



Revenue (m) 6,415 6,967 7,551


Net profit (m) 1,735 2,018 2,223


EPS change (%) 19.4 16.3 10.1

Daiwa vs Cons. EPS (%) (4.6) 1.8 5.9

PER (x) 18.5 15.9 14.4


DPS 25.8 30.0 33.1

PBR (x) 6.4 5.8 5.3

EV/EBITDA (x) 11.8 10.4 9.3

ROE (%) 36.1 38.2 38.3

http://asiaresearch.daiwacm.com/eg/cgi-bin/files/20160809tw_St._Shine_Optical.pdf#page=1


Hong Kong Information Technology

What's new: VTech posted 1H FY17 results that beat our estimates. Not

only is the restructuring of newly acquired LeapFrog ahead of our

estimated schedule, we believe the company is on track to resume its high

dividend payout in 2H FY17. Reiterate Outperform (2).

What's the impact: LeapFrog on track for profitability in FY18. On a

standalone basis, LeapFrog’s 1H FY17 revenue came in at USD65m and

the company generated a net loss of USD25m for the same period.

Management said that “most” of the net loss was a result of one-off

restructuring charges (mainly severance expenses and rental lease

termination fees) and that the bulk of the charges have already been

completed in 1H FY17. This implies that: 1) the restructuring charges

amounted to roughly USD20m, which is below our estimate of USD30m,

and 2) LeapFrog should already be, or is nearing, profitability in 2H FY17.

Considering that LeapFrog posted a net loss of USD219m in FY15 before it

was acquired, this should vindicate management’s decision to acquire the

company and alleviate any doubt in generating synergies with VTech.

Resumption of high dividend payout earlier than expected. VTech

declared a dividend of USD0.17 per share, which translates into roughly a

60% payout ratio, equivalent in absolute amount to its previous 2 interim

dividends. However, during the analyst briefing, management mentioned

that the company would consider resuming its “high dividend payout” in 2H

FY17 (likely to mean near 100%, as it did in FY11-FY15), since much of the

integration costs have already been incurred in 1H FY17. We now assume

a 70% payout for the whole year FY17 (or 80% payout for 2H FY17, which

is conservative). The 2018E yield of 6.8% remains attractive, in our view.

We cut our FY17-19 top-line estimates by 5% on lower LeapFrog sales and

a quicker decline in residential telephone sales, but raise our EPS by 1-7%

due to the stronger gross-margin expansion.

What we recommend: We raise our 12-month TP to HKD107 (from

HKD90), based on a 16x PER on our FY18E EPS (previously 14x, now

roughly in line with its past-3-year average trading multiple, and is the same

multiple we used prior to the announcement of the LeapFrog acquisition).

We continue to use a FY18E PER since we believe its FY17 earnings are

only temporarily depressed. We reiterate our Outperform (2) rating. Key

risk: failure to achieve a turnaround in LeapFrog’s profitability.

How we differ: Our FY17 EPS is largely in line with the Bloomberg

consensus but our FY18-19E EPS are 10-15% higher, as we believe the

LeapFrog acquisition will be earnings-accretive by FY18.

10 November 2016

Leapfrogging expectations

LeapFrog restructuring and integration ahead of our expectations

High dividend payout likely to resume earlier than originally anticipated

Raising TP to HKD107; reiterating Outperform (2)



VTech (303 HK)



John Choi(852) 2773 8730

[email protected]


[email protected]


Year to 31 Mar 17E 18E 19E


Net profit change 7.4 4.1 1.0

Core EPS (FD) change 7.4 4.1 1.0

85

94

103

111

120

75

81

88

94

100



Vtech Hdg (LHS) Relative to HSI (RHS)

(HKD) (%)

12-month range 75.15-96.95




Major shareholder WONG Chi Yun, Allan (34.9%)

Financial summary (USD)

Year to 31 Mar 17E 18E 19E

Revenue (m) 2,040 2,140 2,239

Operating profit (m) 188 244 280

Net profit (m) 146 216 245


EPS change (%) (19.4) 47.8 13.3

Daiwa vs Cons. EPS (%) 1.8 10.1 15.2

PER (x) 21.3 14.4 12.7


DPS 0.408 0.844 0.957

PBR (x) 5.3 5.0 4.9

EV/EBITDA (x) 12.8 10.1 8.9

ROE (%) 26.3 35.7 38.8

18


CJ CGV: share price and Daiwa recommendation trend

Source: Daiwa

Note: where appropriate, historical target prices have been adjusted to reflect the current share count

Com2uS: share price and Daiwa recommendation trend

Source: Daiwa

Note: where appropriate, historical target prices have been adjusted to reflect the current share count

Date Target price Rating Date Target price Rating Date Target price Rating

02/12/15 150,000 Buy 05/07/16 124,000 Buy 08/11/16 100,500 Buy

150,000

124,000

100,500

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Nov

-13

Dec

-13

Jan-

14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb

-16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-1

6

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Target price (KRW) Closing Price (KRW)

Date Target price Rating Date Target price Rating Date Target price Rating

22/07/16 150,000 Buy 04/10/16 153,000 Buy

07/09/16 157,000 Buy 08/11/16 146,000 Buy

150,000157,000153,000

146,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Nov

-13

Dec

-13

Jan-

14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb

-16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-1

6

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Target price (KRW) Closing Price (KRW)

19


Daiwa’s Asia Pacific Research Directory`

HONG KONG

Takashi FUJIKURA (852) 2848 4051 [email protected]

Regional Research Head

John HETHERINGTON (852) 2773 8787 [email protected]

Regional Deputy Head of Asia Pacific Research

Rohan DALZIELL (852) 2848 4938 [email protected]

Regional Head of Asia Pacific Product Management

Kevin LAI (852) 2848 4926 [email protected]

Chief Economist for Asia ex-Japan; Macro Economics (Regional)

Jonas KAN (852) 2848 4439 [email protected]

Head of Hong Kong and China Property

Cynthia CHAN (852) 2773 8243 [email protected]

Property (China)

Leon QI (852) 2532 4381 [email protected]

Banking (Hong Kong/China); Broker (China); Insurance (China)

Yan LI (852) 2773 8822 [email protected]

Banking (China)

Anson CHAN (852) 2532 4350 [email protected]

Consumer (Hong Kong/China)

Adrian CHAN (852) 2848 4427 [email protected]

Consumer (Hong Kong/China)

Jamie SOO (852) 2773 8529 [email protected]

Gaming and Leisure (Hong Kong/China)

Dennis IP (852) 2848 4068 [email protected]

Power; Utilities; Renewables and Environment (Hong Kong/China)

John CHOI (852) 2773 8730 [email protected]

Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap

Kelvin LAU (852) 2848 4467 [email protected]

Head of Automobiles; Transportation and Industrial (Hong Kong/China)

Brian LAM (852) 2532 4341 [email protected]

Transportation – Railway; Construction and Engineering (China)

Thomas HO (852) 2773 8716 [email protected]

Custom Products Group

PHILIPPINES

Patricia Tamase (63) 2 797 3024 [email protected]

Banking

SOUTH KOREA

Sung Yop CHUNG (82) 2 787 9157 [email protected]

Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel

Mike OH (82) 2 787 9179 [email protected]

Banking; Capital Goods (Construction and Machinery)

Iris PARK (82) 2 787 9165 [email protected]

Consumer/Retail

SK KIM (82) 2 787 9173 [email protected]

IT/Electronics – Semiconductor/Display and Tech Hardware

Thomas Y KWON (82) 2 787 9181 [email protected]

Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Game

Kevin JIN (82) 2 787 9168 [email protected]

Small/Mid Cap

TAIWAN

Rick HSU (886) 2 8758 6261 [email protected]

Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional)

Christie CHIEN (886) 2 8758 6257 [email protected]

Banking; Insurance (Taiwan); Macro Economics (Regional)

Steven TSENG (886) 2 8758 6252 [email protected]

IT/Technology Hardware (PC Hardware)

Kylie HUANG (886) 2 8758 6248 [email protected]

IT/Technology Hardware (Handsets and Components)

Helen CHIEN (886) 2 8758 6254 [email protected]

Small/Mid Cap

INDIA

Punit SRIVASTAVA (91) 22 6622 1013 [email protected]

Head of India Research; Strategy; Banking/Finance

Saurabh MEHTA (91) 22 6622 1009 [email protected]

Capital Goods; Utilities

SINGAPORE

Ramakrishna MARUVADA (65) 6499 6543 [email protected]

Head of Singapore Research; Telecommunications (China/ASEAN/India)

Royston TAN (65) 6321 3086 [email protected]

Oil and Gas; Capital Goods

David LUM (65) 6329 2102 [email protected]

Banking; Property and REITs

Shane GOH (65) 64996546 [email protected]

Small/Mid Cap (Singapore)

Jame OSMAN (65) 6321 3092 [email protected]

Telecommunications (ASEAN/India); Pharmaceuticals and Healthcare; Consumer (Singapore)

20


Daiwa’s Offices

Office / Branch / Affiliate Address Tel Fax

DAIWA SECURITIES GROUP INC

HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661

Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726

Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129

Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

Daiwa Capital Markets America Inc. New York Head Office Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100

Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935

Daiwa Capital Markets Europe Limited, London Head Office 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600

Daiwa Capital Markets Europe Limited, Frankfurt Branch Neue Mainzer Str. 1, 60311 Frankfurt/Main, Germany (49) 69 717 080 (49) 69 723 340

Daiwa Capital Markets Europe Limited, Paris Representative Office 17, rue de Surène 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808

Daiwa Capital Markets Europe Limited, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441

Daiwa Capital Markets Europe Limited, Moscow Representative Office

Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, Russian Federation

(7) 495 641 3416 (7) 495 775 6238

Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain

(973) 17 534 452 (973) 17 535 113

Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621

Daiwa Capital Markets Singapore Limited 6 Shenton Way #26-08, OUE Downtown 2, Singapore 068809, Republic of Singapore

(65) 6220 3666 (65) 6223 6198

Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia

(61) 3 9916 1300 (61) 3 9916 1330

DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines

(632) 813 7344 (632) 848 0105

Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638

Daiwa Securities Capital Markets Korea Co., Ltd. 20 Fl.& 21Fl. One IFC, 10 Gukjegeumyung-Ro, Yeongdeungpo-gu, Seoul, Korea

(82) 2 787 9100 (82) 2 787 9191

Daiwa Securities Co. Ltd., Beijing Representative Office Room 301/302，Kerry Center，1 Guanghua Road，Chaoyang District，

Beijing 100020, People’s Republic of China

(86) 10 6500 6688 (86) 10 6500 3594

Daiwa (Shanghai) Corporate Strategic Advisory Co. Ltd. 44/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road, Pudong, Shanghai China 200120 , People’s Republic of China

(86) 21 3858 2000 (86) 21 3858 2111

Daiwa Securities Co. Ltd., Bangkok Representative Office 18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road,

Lumpini, Pathumwan, Bangkok 10330, Thailand (66) 2 252 5650 (66) 2 252 5665

Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India

(91) 22 6622 1000 (91) 22 6622 1019

Daiwa Securities Co. Ltd., Hanoi Representative Office Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam

(84) 4 3946 0460 (84) 4 3946 0461

DAIWA INSTITUTE OF RESEARCH LTD

HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603

MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417

London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550

21


Important Disclosures and Disclaimer

This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Group Inc., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including market making activities, derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures.

Ownership of Securities

For “Ownership of Securities” information, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Investment Banking Relationship

For “Investment Banking Relationship”, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Japan

Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.

Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc.

Investment Banking Relationship

Within the preceding 12 months, the subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Neo Solar Power Corp (3576 TT).

*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司), Daiwa

Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd.

Disclosure of Interest of Thanachart Securities, Daiwa Securities Group Inc Investment Banking Relationship

Within the preceding 12 months, Thanachart Securities has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Bangkok Airways Co Ltd (BA TB), Star Petroleum Refining Pcl (SPRC TB), Rajthanee Hospital Pcl (RJH TB). This research may only be distributed in Japan to “qualified institutional investors”, as defined in the Financial Instruments and Exchange Act (Article 2 (3) (i)), as amended from time to time. Hong Kong

This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures

Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Relevant Relationship (DHK)

DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.

Korea

The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external party.

Name of Analyst : Kevin Jin, Thomas Y. Kwon

Disclosure of Analysts’ Interests

If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to:

1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations);

2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or

3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets.

Legal Entities subject to Research Report Coverage Restrictions

Daiwa Securities Korea hereby states and confirms that Daiwa Securities Korea has no conflicts of interests with the legal entity covered in this Research Report:

1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the acquisition of debts;

2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity;

3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea;

4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of the total asset size or the total number of equities issued and outstanding of the legal entity;

5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date;

6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or the legal entity is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or

7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity.

Disclosure of Prior Distribution to Third Party

This report has not been distributed to the third party in advance prior to public release.

The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report.

"1": the security could outperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated.

"2": the security is expected to outperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated.

"3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next 12 months, unless otherwise stated.

"4": the security is expected to underperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated.

"5": the security could underperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated.

https://daiwa3.bluematrix.com/sellside/Disclosures.action


22


“Positive” means that the analyst expects the sector to outperform the KOSPI over the next 12 months, unless otherwise stated.

“Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next 12 months, unless otherwise stated.

“Negative” means that the analyst expects the sector to underperform the KOSPI over the next 12 months, unless otherwise stated.

Additional information may be available upon request.

Singapore

This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.

Australia

This research is distributed in Australia by Daiwa Capital Markets Australia Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.

India

This research is distributed in India to Institutional Clients only by Daiwa Capital Markets India Private Limited (Daiwa India) which is an intermediary registered with Securities & Exchange Board of India as a Stock Broker, Merchant Bank and Research Analyst. Daiwa India, its Research Analyst and their family members and its associates do not have any financial interest save as disclosed or other undisclosed material conflict of interest in the securities or derivatives of any companies under coverage. Daiwa India and its associates, may have received compensation for any products other than Investment Banking (as disclosed)or brokerage services from the subject company in this report or from any third party during the past 12 months. Daiwa India and its associates may have debt holdings in the subject company. For information on ownership of equity, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. There is no material disciplinary action against Daiwa India by any regulatory authority impacting equity research analysis activities as of the date of this report.

Associates of Daiwa India, registered with Indian regulators, include Daiwa Capital Markets Singapore Limited and Daiwa Portfolio Advisory (India) Private Limited.

Taiwan

This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd. and it may only be distributed in Taiwan to specific customers who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd. and non-customers including (i) professional institutional investors, (ii) TWSE or TPEx listed companies, upstream and downstream vendors, and specialists that offer or seek advice, and (iii) potential customers with an actual need for business development in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Neither Daiwa-Cathay Capital Markets Co., Ltd. nor its personnel who writes or reviews the research report has any conflict of interest in this research. Since Daiwa-Cathay Capital Markets Co., Ltd. does not operate brokerage trading business in foreign markets, this research is “without recommendation” to any foreign securities and Daiwa-Cathay Capital Markets Co., Ltd. does not accept orders from customers to trade in such securities that are without recommendation. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd. in respect of any matter arising from or in connection with the research.

Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Phil ippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities.

For relevant securities and trading rules please visit SEC and PSE links at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively.

Thailand

This research is distributed to only institutional investors in Thailand primarily by Thanachart Securities Public Company Limited (“TNS”).

This report is prepared by analysts who are employed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees accept any liability whatsoever for any direct or consequential loss arising from any use of this research or its contents.

The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable. However, Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user.

Daiwa Securities Group Inc. and/or its non-U.S. affiliates perform and seek to perform business with companies covered in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates, their respective directors, officers, servants and employees may have positions and financial interest in securities mentioned in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this research. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this research.

United Kingdom This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory.

Germany

This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.

Bahrain

This research material is distributed in Bahrain by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113

United States

This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (Tel no. 212-612-7000).

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Investment Banking Relationships

For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.


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http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory



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DCMA Market Making

For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Research Analyst Conflicts

For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.

Research Analyst Certification

For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.

The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report.

"1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months. Disclosure of investment ratings

Rating Percentage of total

Buy* 65.8%

Hold** 21.8%

Sell*** 12.4%

Source: Daiwa

Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 June 2016. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings.

For stocks in Thailand covered by Thanachart Securities, the following rating system is in effect: Ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the rating is BUY. If the downside is 10% or more, the rating is SELL. For stocks where the upside or downside is less than 10%, the rating is HOLD. Unless otherwise specified, these ratings are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. For the sector, Thanachart looks at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word “Positive”, is used when Thanachart sees the industry trend improving. An arrow pointing down, or the word “Negative”, is used when Thanachart sees the industry trend deteriorating. A double-tipped horizontal arrow, or the word “Unchanged”, is used when the industry trend does not look as if it will alter. The industry trend view is Thanachart’s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers. An “Overweight” sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap. “Underweight” is used when Thanachart has SELLs on majority of the stocks it covers by market cap. “Neutral” is used when there are relatively equal weightings of BUYs and SELLs. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Relevant Relationships (Thanachart Securities) Thanachart Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Thanachart Securities market making Thanachart Securities may from time to time make a market in securities covered by this research.

Additional information may be available upon request.

Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law

(This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.

In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.

In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.

For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.

There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.

There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.

Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.

*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.

Corporate Name: Daiwa Securities Co. Ltd.

Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108

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